Sunday, March 26, 2006

Pension Reform Politics

The New York Times
Pension Reform Politics

The pension reform bill now being worked on by a House-Senate conference is teetering on the verge of being worse than worthless. The nation cannot afford to miss this opportunity to protect workers who count on company retirement plans to see them through their old age. There is still time to rescue this critical legislation — if key lawmakers give up political horse-trading and put public good above corporate interests.

Let's start with Representative John Boehner, Republican of Ohio and the new House majority leader. The most important reform in the bill, as everyone agrees, is to ensure that companies contribute enough money to their pension plans to meet their obligations fully. It is also accepted that companies cannot step up their contributions overnight. But rather than support the sensible notion of a simple seven-year catch-up period, Mr. Boehner championed a super-slow phase-in that is now part of the House bill. The slower the phase-in, the weaker the reform. A seven-year transition, with the clock starting on Day 1, is reasonable and should become law.

On the Senate side, Senator Johnny Isakson, Republican of Georgia, has been a leader in the fight for special airline relief provisions, mainly for the bankrupt Northwest and Delta. But the largess in the Senate bill must be scaled way back. In general, Congress has skillfully devised new rules for computing pension obligations. But an exception to the rules would allow airlines to factor in highly optimistic assumptions that would, in effect, let them get away with putting much less in their pensions each year than would otherwise be the case. That is a horrible precedent, essentially endorsing the use of funny numbers for favored industries.

Legislators can legitimately give bankrupt companies leeway, for example, by granting more time to make required pension contributions. But allowing "flexibility" in the basic pension calculation would mock the whole notion of reform.

It should go without saying, but Congress should also reject provisions that would weaken current protections. Present law bans a mutual fund company from offering employees investment advice if the company's funds are among the employees' retirement investing options. Mr. Boehner, a darling of the securities industry, wants to remove the ban. That is a clear invitation to conflicts of interest. The House bill would also allow hedge funds to manage more pension money without having to meet established legal standards for doing so. That would encourage the misuse of pension assets.

This is not just a matter of better or worse ways to improve the shaky status quo. As Mary Williams Walsh recently reported in The Times, a study from the federal pension insurance agency shows that the current House and Senate bills would actually weaken the pension system by sharply reducing corporate pension contributions over the next few years. Corporations — and lawmakers in their thrall — routinely dismiss the agency's calculations as flawed. But an analysis of the bills released by Congress's own Joint Committee on Taxation also shows lower contributions through 2010.

No matter what Congress does, traditional pensions are disappearing. In the year that it has taken to get this far on reform, more pension plans have defaulted or have become in danger of default. Healthy companies are increasingly freezing pensions for current employees and closing them to new hires. The point of reform should be to avoid accelerating the decline by ensuring that companies with pension obligations keep their promises, in that way protecting employees and taxpayers.

Real pension reform would deliver 100 percent pension funding and the use of uniform market-sensitive calculations. Instead of focusing on those goals, the House and Senate have been stuffing the legislation with opportunistic attempts to please corporate campaign contributors. But in this case, less is definitely more.