Washington Outlook
Edited by Richard S. Dunham
Business' Big Worry: The GOP Will Cave on Pension Reform
It has been a long, hot summer for Washington's business lobbyists. They couldn't stop tough corporate fraud legislation from sweeping through Congress in July. Now they're bracing for a scorching battle in September over pension reform, a political powder keg because of an electorate angry about shrinking retirement-account balances.
Democrats plan to bring pension reform to the Senate floor soon after returning from summer recess on Sept. 4. Mirroring their strategy on the corporate crime bill, they are pushing legislation that will be tougher on business than the modest changes that passed the House in April.
For their part, GOP leaders are convinced that the pressure to enact post-Enron protections has eased. Stock prices have stabilized, and as of Aug. 23, average 401(k) retirement plan balances were down only 4.3% this year, according to estimates by the Profit Sharing/401(k) Council of America, a nonprofit that represents 1,200 companies that offer 401(k) plans. House Republicans think they can bottle up--or water down--any Senate plan.
Business, however, isn't so confident. The big fear: House Republicans will cave in on pension reform as they did on corporate crime. "No one's betting the ranch on the House holding the line" on pension reform, says Ed Ferrigno, a lobbyist with the Profit Sharing/401(k) Council, which opposes most reforms.
If the campaign trail is any indicator, Corporate America has reason to be wary. On Aug. 26, House Minority Leader Dick Gephardt (D-Mo.) kicked off a four-state swing to promote an Investors' Bill of Rights, which includes strong 401(k) protections. First stop was Merion, Pa., where the new 6th Congressional District includes an affluent swath of Philadelphia suburbs that normally leans Republican. But these are not normal times. "Across the district, I'm running into people who are hurting because their retirement savings have been lost," says Democrat Dan Wofford, who is opposing GOP State Senator James W. Gerlach. The issue could get even hotter when the Senate debate opens--and voters open their third-quarter 401(k) statements. "Pension reform could really surge in September," says GOP strategist Frank Luntz.
Concern about pensions has been high since the 401(k)s of Enron Corp. employees were decimated because they were stuffed with suddenly worthless company stock. The House's response: a minimalist bill that would permit workers to sell company shares in 401(k) plans after three years. It also allows plan managers to offer employees advice about 401(k)s--a move that could lead to conflicts of interest.
Senate Majority Leader Tom Daschle (D-S.D.) is combining rival bills sponsored by Senators Edward M. Kennedy (D-Mass.) and Max Baucus (D-Mont.) into a proposal that lets workers sell company stock after three years but encourages companies to offer independent investment advice only. Workers would also be able to sue company officers and directors for providing misleading information that harms 401(k)s. Other likely fixes that give business fits: requiring most employers to carry fiduciary liability insurance and higher taxes on bonuses over $1 million. "The 401(k) system is voluntary," says Dorothy Coleman, a vice-president at the National Association of Manufacturers. "If you layer too many responsibilities and costs onto it, employers won't be able to provide these benefits."
For now, GOP leaders think that passage of corporate-crime legislation gives them leeway to resist a tough re-write of pension rules. But with Republicans increasingly nervous about the midterm elections, that could change faster than you can say "Kenny Boy."
By Amy Borrus, with Lorraine Woellert
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Copyright 2002, by The McGraw-Hill Companies Inc. All rights reserved.
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