Measures Remain Far Apart
Even the Conference Panel That Will Reconcile House, Senate
Bills Is a Matter of Dispute
By Michael Schroeder
The Wall Street Journal
Tuesday, February 21, 2006
WASHINGTON -- After two years of debate, the House and
Senate recently passed bills to force companies to better
fund their pension plans and shore up the Pension Benefit
Guaranty Corp., the federal insurer of traditional
company-sponsored plans. Now comes the hard part:
reconciling the two measures before sending legislation to
Making the task more difficult is that the two Republicans
who pushed the legislation this far in their respective
chambers -- Ohio Rep. John Boehner, the newly elected
majority leader, and Iowa Sen. Charles Grassley, chairman of
the Finance Committee -- are far apart on a handful of
Mr. Boehner, as former chairman of the Committee on
Education and the Workforce, was instrumental in putting
together a bill geared toward helping the business community
and Wall Street. Mr. Grassley, who became interested in
pension legislation after the bust up of Enron Corp. wiped
out employee retirement savings, has helped craft a more
"There are enough controversial pieces to be worked out that
this could be a drawn-out process," says David Certner,
director of federal affairs at AARP, the retiree advocacy
group, which generally supports the Senate version.
Even naming the conference committee has been contentious.
The Senate is fighting internally over the size of its
contingent, with Democrats seeking an extra slot. Because
much of the final language will be decided by the committee
in closed-door meetings, Senate and House members are being
barraged by lobbyists pushing their positions. "It's a
veritable chorus line of interests lobbying prior to
conference," a Senate staff member said.
The process could get hung up on a handful of issues on
which Mr. Boehner and Mr. Grassley sit on opposite sides:
• Investment Advice: The House version of the bill would
allow investment firms to offer advice to participants in
401(k) plans even if the firms' mutual funds are among
employees' investment choices. Federal labor laws long have
banned this on the theory that the investment firms would
favor their own funds, even if a competitor offered a better
Wall Street wants to lift this restriction, especially since
it is likely that the pension legislation will give
companies the option to automatically enroll employees in
401(k) plans. That potentially would bolster the number of
employees in the plans, under which employees set aside
pretax dollars for retirement.
This is a lucrative business for financial-services firms
such as Goldman Sachs Group Inc., Fidelity Investments and
Mr. Boehner has been Wall Street's champion on the issue,
arguing for years that the law should be changed because
employees with 401(k) plans need professional advice to earn
better returns. The securities industry has been a leading
contributor to his political action committee -- $644,473
since 1989, according to the Center for Responsive Politics.
Mr. Grassley, meanwhile, has fought to keep the restrictions
and the Senate's measure would continue the ban on direct
advice from fund firms. It would encourage companies to
hire neutral third-party advisers to tell employees where
they should put their money.
"This is one issue on which [Mr. Boehner and I] haven't been
able to see eye-to-eye," says Mr. Grassley, who has received
$378,502 from Wall Street contributors since 1989. "After
the corporate and Wall Street scandals of recent years, this
is no time for a blind spot on conflicts of interest."
• Hedge-Fund Investments: Financial-services firms could
reap a windfall from a provision that would let many
hedge-fund managers skirt fiduciary duties. Under current
rules, if 25% or more of a hedge fund's assets come from
public or foreign pension plans, the entire investment pool
must be managed according to strict pension-law fiduciary
standards, such as considering pension clients' interests
first and investing prudently.
The Securities Industry Association got Mr. Boehner's House
bill to include a proposal revising the rule so legal
standards wouldn't apply unless pension assets reached 50%
of a hedge fund. The trade group argues that the current
threshold is too low and restrictive and that the cost for
relatively unregulated hedge funds to comply with
pension-law standards is burdensome and expensive.
Mr. Grassley hasn't supported the change because of his
perception that the securities industry pushed the language
into the House bill without exploring in hearings the
potential for abuses.
• Multiemployer Pension Plans: Another hot-button issue is
language in the House bill that would give employers,
through collective bargaining, broader discretion to cut
nonbasic retirement benefits, such as early-retirement
benefits and life insurance.
Multiemployer plans, which cover about 10 million employees,
were set up so that workers who move from employer to
employer within unionized industries could maintain
retirement-benefit plans negotiated under a common union
United Parcel Service Inc., which participates in 22
multiemployer plans, has been looking to lower its pension
costs. The delivery company -- one of Mr. Boehner's top
contributors -- pushed for the provision.
The Senate bill doesn't address the issue, which Mr.
Grassley expects conferees to battle over. Under current
law, a pension plan can't change the rules to eliminate
pension benefits already earned by workers. Modifying a
core protection in the law would establish a dangerous
precedent that could soon be extended to the majority of
pensions, so-called single-employer plans, says Karen
Friedman, policy director at the Pension Rights Center, a
• Company Credit Ratings: A big issue for auto companies
involves a provision -- only in the Senate bill -- that
would require employers with credit ratings that are below
investment grade to adopt certain actuarial assumptions that
would have the effect of making them kick in additional
Mr. Boehner said he believes "the actual financial status of
the pension plan, and not the company's credit rating, is
the most important factor in determining how to ensure the
plan gets back on track."
• Airlines: The Senate bill would give major commercial
airlines 20 years to fully fund their pension plans. The
House bill has no airline provision.
Mr. Boehner has said he opposed relief for any specific
industry but has told the airlines that he now is open to
Michael Schroeder at