Critics Charge Pension Bill Favors Highly Paid Workers
The New York Times
April 10, 2002
RETIREMENT MONEY
By RICHARD A. OPPEL Jr.
EASHINGTON, April 9 - When
many employees lost their
retirement savings after Enron
) filed for bankruptcy
protection, lawmakers in Washington
promised legislation that would mend
the holes in the pension safety net
exposed by the company's collapse.
But some legal experts and pension
rights advocates say the first of the post-Enron pension measures to reach the
House floor actually opens up fresh loopholes. Some of the bill's provisions would
lead companies to seek to reduce the number of employees covered by pensions
and give proportionately larger pension benefits to the most highly paid executives,
they say.
The measure was passed by the Ways and Means Committee by a vote of 36 to 2
last month and is expected to be combined into another bill on the House floor on
Thursday. The legislation would be the first inspired by Enron's collapse to make it
to a full vote of either chamber of Congress. Critics acknowledge it would fix some
problems exposed by the Enron debacle, and proponents note that the criticized
provision passed the House last year with bipartisan support, only to be dropped
for procedural reasons in the Senate.
But the legislation's fine print highlights how Congressional efforts at "reform" -
as the battle over campaign finance also demonstrated - can sow new concerns.
Current rules, dating to a 1986 pension law, require that
to qualify for favorable tax status, pension plans must
meet very specific tests for the balance between benefits
for lower paid and higher paid workers.
But a provision tucked into the House bill during a Ways
and Means Committee hearing last month would scale
back those requirements, allowing companies to test their
plans against more subjective standards and giving the
Treasury Department authority to approve plans that do
not meet today's tests.
The provision, which some pension law experts said would
significantly weaken employee protections, was
championed by business interests and supported by
Representative Bill Thomas, the California Republican
who is chairman of the committee. The provision was also
supported by the bill's chief sponsors, Representative Rob
Portman, Republican of Ohio, and Representative
Benjamin L. Cardin, Democrat of Maryland. Mr. Portman
said the provision is expected to be inserted into the other
House bill on the floor Thursday.
"This provision is an outrage," said Daniel Halperin, a
pension law expert at Harvard Law School and a Treasury
official during the Carter administration. The language in
the bill, he said, is an attempt to "basically gut" current
rules intended to ensure that companies offer roughly
proportional retirement plans to highly paid and more
moderately compensated workers.
Another critic is J. Mark Iwry, who oversaw
employee-benefits policy and regulation at the Treasury
Department from 1995 to 2001.
"This controversial proposal would weaken existing legal
protections for workers in both the statute and
regulations," Mr. Iwry said. "It would allow corporations in
some cases to exclude more employees from pension
coverage and reduce the level of benefits for average- and
lower-paid workers who remain covered."
Mr. Portman said that such criticism "way overstates" the
effect that the provisions would have, and he predicted
that the language would actually encourage
small-business owners to offer retirement plans. The provisions, he added, "will be
used only in rare instances, but it's considered important by companies which
have a fair plan, but when you go through the very specific and very technical
mechanical tests, they still don't meet the so-called nondiscrimination rules," Mr.
Portman said.
"Frankly, it's not what the business community wanted," he added. "They wanted
much more substantial reforms."
Yet business groups say the provision would go a long way toward eliminating
inflexible tests for pension plans that make it difficult for some good plans to
qualify for tax-favored treatment. They also note that the bill gives discretion to the
Treasury Department to approve plans that otherwise do not pass muster.
"I'd certainly be surprised to see the Treasury Department start to bless plans that
anyone believes are unfair," said James Delaplane, vice president for retirement
policy at the American Benefits Council, which represents large employers. Many
retirement plans that clearly treat all employees fairly have faced regulatory
concerns over such matters as provisions governing early retirement, Mr. Delaplane
said.
Other provisions have also drawn the ire of some experts, who say they would
reduce scrutiny of some pension plans.
The legislation directs regulators to simplify reporting requirements for pension
plans with fewer than 25 participants. Backers of the measure say it will encourage
more small businesses to offer pension plans to their employees.
"Those are the ones most likely to not offer plans right now," said Jim Morrell, a
spokesman for Mr. Portman.
But critics fear that less disclosure will make it harder to detect problems in these
plans. "Small plans already have substantial relief when it comes to pension plan
reporting," Mr. Iwry said. "Relaxing the reporting requirements still further would
make it harder for regulators to monitor compliance with the rules."
Corporate lobbyists have sought changes in the 1986 pension rules for years. Their
differences with pension rights advocates reflect a continuing tension built into the
nation's private pension system.
On the one hand, because tax benefits are conferred on pension plans,
government rules seek to ensure that highly paid executives do not get an unfair
share of the benefits. On the other hand, lawmakers worry that excessively
stringent rules will reduce the number of employers offering retirement plans, or
prompt employers to curtail plan benefits.
The Portman-Cardin bill contains a number of provisions supported by pension
rights advocates. They favor the bill's requirement that companies warn employees
30 days before freezing trading in their 401(k) retirement plan accounts - a
proposal made in response to the inability of Enron workers to sell shares during
several weeks last fall when the company's stock was in free fall.
Pension rights groups also embrace the bill's proposal forcing companies that use
their own stock to match employees' 401(k) contributions to allow workers to sell
those shares after three years.
Republican lawmakers said tonight that the Portman-Cardin bill would be
combined with another bill, sponsored by Representative John A. Boehner,
Republican of Ohio, on the House floor on Thursday, with the Boehner bill serving
as the platform for the measure's final version. In the Senate, Democrats are
working on a separate bill substantially different from the House proposals.
One of the most significant differences, for example, would force companies that do
not offer a traditional pension plan to either use company stock as the matching
contribution in employee 401(k) plans or offer the stock as a 401(k) investment
option - but not both. The provision is an attempt to reduce the number of
employees whose retirement plans are too heavily concentrated in shares of their
own company.
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