The first step to reconciliation was admitting where the two sides differed. The main sticking point between the two versions of the legislation is the inclusion of a deficit reduction contribution (DRC) holiday – the Senate’s version has it, the House’s version does not, according to a Reuters report.
Under the DRC provisions of the Senate bill, roughly $16 billion in breaks are granted to companies via a reduction in DRC to those companies hit hardest by the recent pension underfunding storm. For those companies, the DRC holiday means they could waive 80% of their DRC payments the first year and 60% the second year (See Details Emerge on DRC Provision of Senate Bill ).
House members on the conference panel backed their simpler version, saying they could address underfunding and multi-employer issues later. “The extent of the additional provisions in the Senate proposal is cause for concern,” said Representative John Boehner, (R – Ohio) and chairman of the 14-member conference committee told Reuters. However, Senator Edward Kennedy (D – Massachusetts) said it was crucial extended benefits be included. Kennedy added that easing the “catch-up” requirements for underfunding would prevent companies in trouble from “digging themselves deeper into the hole .
>DRC holiday provisions of the bill do not sit well with either the US Pension Benefit Guaranty Corporation (PBGC) or the White House. The PBGC called the amendment to include DRC rules “irresponsible” since the provisions would “significantly further exacerbate systemic pension plan underfunding.” If the Senate does include DRC provisions, then the PBGC board said it would seek a Presidential veto of the legislation (See PBGC Calls Out DRC Modifications ). Even though the White House agrees with PBGC’s concerns, President Bush has refused to issue his own veto threat.
After the DRC debate, the House and Senate both agree on the core of the proposal: the implementation of a temporary replacement to the 30-year Treasury bond that expired last year. Once expiring, the defunct bond’s interest rate began dropping precipitously, which in turn, under an inverse relationship, causes required pension contributions to increase. To remedy the situation, both the House and Senate version include a temporary benchmark of blended corporate bond rates for pensions to use.
With passage of the bill, the nation’s private pension insurer, the PBGC estimates the legislation could save $80 billion over the next two years, according to a news release by the office of the bill’s sponsor Senator Judd Gregg (R – New Hampshire). “By resolving this key interest rate issue, Congress can help preserve employee pension plans in the short-term while we look at long-term solutions to reform and strengthen the defined benefit system on behalf of workers and employers. Reforming and strengthening the defined benefit system over the long-term will help avoid a taxpayer bailout of underfunded pension plans in the future,” Boehner said in a news release.