Senate Scrambles to Pass Pension DRC Act

November 25, 2003 ( - US Senators were scrambling on Tuesday in an effort to pass legislation providing a break for business from the deficit reduction contribution (DRC) requirements.

>Senators are attempting to pass the legislation to provide a two-year break on DRC – accelerated payments required of employers with substantially underfunded pension plans.   The proposal would also allow businesses over the next two years to use a rate based on investment-grade corporate bonds when making pension calculations, according to a Dow Jones report.

>If the Senate passed the bill on Tuesday, the US House of Representatives could approve it when it returns briefly to work in December. The House’s vote could then send the measure to the president for his possible signature.

>To many legislative observers, the measure may sound similar to one passed last week by the House that would give major US commercial airlines a two-year “pass” on much of their required pension contributions (See   House Approves Pension Relief Bill).   However, the Senate’s version contains DRC proposals that are stricter than the House’s language and would be available to all businesses, and not just airlines, as the House’s version proposed.  

>The Senate pension proposal would also give multi-employer pension plans a two-year break on catch-up payments. But it would also require those plans to provide plan participants with information about the pension plan’s solvency.

>Other differences can be found in the Senate’s proposal to reduce payments to the greater of 20% of the current DRC or the expected increase in the pension’s liability for the year. The proposal would prevent already underfunded pension plans from sinking further into financial ill health.   Under the House plan, in 2004 and 2005 DRC payments would be reduced to 20% of the amount otherwise required by law for airlines.

>However, if the measure does not get approved by the final bang of the gavel the door will be shut.   Senate party leaders have already said the Senate will close its doors for the year at the end of the day.  

White House Pressure

>The Bush Administration has adamantly opposed any DRC relief. The nation’s pension plans are already dangerously underfunded and a DRC holiday would only make the situation worse, the White House says (See  PBGC Board Cautions Senate on DRC Action ).

In a letter to Senate leaders last week, the Pension Benefit Guaranty Corporation (PBGC) board acknowledged the demands placed on plan sponsor revenues by pension funding requirements, particularly during periods of slow economic growth.  However, granting a “holiday” from the DRC requirements “would mean a significant further reduction in the resources available to meet the promises made to existing and future retirees,” according to the PBGC board, which includes Secretary of Labor Elaine Chao, Treasury Secretary John Snow, and Commerce Secretary Donald Evans.

Indeed, a three-year exemption from the DRC rules, a strengthened set of funding rules enacted in 1987 to better shield workers and the nation’s pension insurance program from suffering large losses when underfunded plans terminate, would allow companies sponsoring these plans to skip $30 billion in pension contributions from 2004 through 2006, according to PBGC estimates.

“Giving a special break to weak companies with the worst-funded plans is a dangerous gamble,” PBGC Executive Director Steven Kandarian said earlier this month. “The risk is that these plans will terminate down the road even more underfunded than they are today.”