AUSWR
The Association of U S West Retirees
 

 

 

Republicans Split On IRA Provision In Pension Bill
Boehner, Grassley Disagree Over How Much Leeway Wall Street Should Receive
By Davod Rogers and Deborah Solomon
The Wall Street Journal
Wednesday, July 26, 2006

WASHINGTON -- Pension-bill negotiations in Congress are coming down to a bruising fight among Republicans over how much latitude to give the financial-services industry to provide advice to individuals on their retirement accounts.

Senate Finance Committee Chairman Charles Grassley (R., Iowa) continues to resist pressure from House Majority Leader John Boehner (R., Ohio), who wants to make it easier for investment companies to both manage retirement accounts and advise clients on their portfolio.

As the dispute drags on, it has invited other skirmishes, threatening hopes of enactment this week of the underlying package to shore up the private pension system.

Major provisions promising airlines more time to bring their pension contributions up to date were being finalized last night, and Mr. Boehner is hopeful of agreement today on the package.  But a closed-door exchange yesterday between House Ways and Means Committee Chairman Bill Thomas (R., Calif.) and Sen. Edward Kennedy (D., Mass.) betrayed Republican concerns about labor's reaction to some of the agreements.  And members of the Senate Finance panel were in open revolt after Majority Leader Bill Frist's chief-of-staff Eric Ueland told reporters that popular tax provisions would be pulled out of the package.

"Am I dealing with Sen. Ueland or am I dealing with Sen. Frist," said Chairman Grassley.  "Sometimes plans change," said Speaker Dennis Hastert (R., Ill.) of the new leadership tax strategy, but Republican business allies began a countereffort to keep a corporate-research tax credit in the pension bill.

The fight over investment advice focuses on the increasing number of Individual Retirement Accounts, used by about 33 million families in the U.S., according to the Employee Benefit Research Institute.  With baby boomers poised to retire, and having the option of rolling over their 401(k) plans into IRAs, the industry sees potential, and Mr. Boehner has invested his prestige as a House leader and past chairman of the House Education and the Workforce Committee, which shares jurisdiction over pension legislation.

The Ohio Republican says more advice is needed if retirees are to achieve the returns they expect on accounts, which are in many cases underinvested and lack diversification, he says.  "The people who can give the best advice also happen to sell products," Mr. Boehner said.  "I believe there is a way that protects the interest of the recipients while at the same time allows advice to get into their hands."

Mr. Grassley counters that "the bottom line of it is you have conflicted interests when you are advising people," and some objective standard, such as a product-neutral computer model, is required.  In the case of 401(k) plans, a compromise has been reached requiring that such a model be used. In the case of IRAs, with many more diverse holdings, this type of modeling is more difficult.

Mr. Grassley has proposed a compromise under which investment companies would temporarily shift to paying their investment advisers flat fees instead of percentages from sales until a model is found.  "You need an incentive to get a computer model, and that's why we have a flat fee," he said.  "If you operate within a computer model, you're not just giving advice on something you sell."

Mr. Boehner rejects this and has sought to isolate Mr. Grassley by giving ground elsewhere to win support from other senators.  The House appears willing to drop a provision opposed by Sen. Kennedy that would allow health insurers to make sweeping first claims on insurance payments related to accidents.  Sen. Max Baucus (D., Mont.) is pursuing an unrelated $50 million highway provision important to his home state, and Sen. Michael Enzi (R., Wyo.), chairman of the Senate Health, Education, Labor and Pensions Committee, is waging a battle to get language related to Abandoned Mine Land fund financing.

The talks have been closely watched by the airline industry.  Under proposals now, Northwest Airlines and Delta Air Lines are expected to have 17 years to pay their pension debts, substantially less than the Senate first proposed.  AMR Corp.'s American Airlines and Continental Airlines could qualify for a less generous break and appeared last night to have beaten back efforts to impose an increased penalty if they default on their pension promises in the future.

Write to David Rogers at david.rogers@wsj.com and Deborah Solomon at deborah.solomon@wsj.com

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