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WASHINGTON: In a city where the interests of big business and politics have been cosily aligned in recent years, pension reform has put the Bush administration, Congress and the business community at odds.
With the debate -- centred on details of proposed legislation that is slowly on its way to becoming law -- in its final stages, the disagreements continue.
Driving them are wildly different views on the true health of the system and the consequences that tough legislation might have on the retirement security of millions of American workers.
The most contentious disagreements revolve around the federal agency that insures defined pension benefits, the Pension Benefit Guaranty Corporation (PBGC), which faces a deficit of nearly $23bn (euro 19.5bn, £13.4bn) following a slew of corporate bankruptcies in the steel and airline industries that, in effect, allowed companies to dump their unfunded pension liabilities on to the government.
The agency predicts that another round of corporate bankruptcies, most likely in the manufacturing industry, could overwhelm the entire system, creating a multibillion dollar deficit that would require a taxpayer bailout of a magnitude not seen since the savings and loan crisis.
Business groups acknowledge there is a legitimate need for reform. However, they say that efforts by the White House to strengthen corporate pension funding rules by forcing companies to put more capital into their pension plans will overburden companies that are not bound by labour agreements, and give them an incentive to move out of the defined pension benefits system altogether.
"The issue here is one of balance. If Congress and the White House tried to take a one-piece- of-legislation shot that tries to overcorrect, to simply shore up the PBGC, you will clearly cause a more rapid decline in defined pension benefits," says Bruce Josten, executive vice-president at the US Chamber of Commerce, a powerful business lobby group.
Bradley Belt, who heads the PBGC, says that argument is disingenuous, because the number of defined pension plans are already shrinking under the status quo.
Twenty years ago, the PBGC insured 112,000 pension schemes. Now it insures fewer than 30,000.
"It is certainly not the intention of the pension reform proposals to drive companies out of the system, nor do we think that would be the effect," Mr Belt says. "I understand companies' desire to maintain flexibility - to go years on end not putting cash into pensions, but it is that so-called flexibility that has gotten us to this point that we are at today."
The Senate this month approved pension legislation that aims to narrow the PBGC's deficit by forcing companies to fund fully their pension plans within seven years and increase premium payments, while also changing the way interest rates are calculated to reflect companies' future liabilities.
The Senate bill is less stringent than the Bush administration's pension proposal, which would force companies to put $91bn more into their pensions in the next 10 years, but has not received as much backing by the business community as a separate bill moving through the House.
The Bush administration has suggested it would veto the version of the bill agreed in the Senate because it does not go far enough to force companies to fill their widening pension funding gaps. The White House objects to a special provision in the Senate bill that would give the struggling airline industry 20 years to fund their pension obligations - a provision that is not included in the House bill.
That veto threat does not appear to have been taken seriously by the business community, which points to the fact that Mr Bush has never wielded his presidential veto power.
Business groups object to a provision in the Senate bill that requires companies with "junk" debt ratings to increase payments into their pension plans.
This provision, which is expected to be stripped out of the bill eventually, has been met with resistance from lobbyists for General Motors, which has a junk rating, and others who contend that companies that are already teetering on the verge of bankruptcy, the worst prospect for pension holders, should not be pushed into Chapter 11 by tougher funding rules.
Mr Josten at the Chamber, in the meantime, has a dire prediction for how business might respond to any law it perceives as being too stringent.
"If Brad Belt [of the PBGCJ gets his way, anyone who is not union will begin a migration out of the PBGC. The only people who will remain are the ones who cannot get the hell out," he says.
Under syndication arrangement
with FE
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