Two Senate committees reconcile differences on defined benefit plan legislation
The leadership of two Senate committees last week reached an agreement that clears the path for passage of defined benefit pension legislation that also includes language on corporate-owned life insurance.
Sen. Charles Grassley, R-Iowa, and Sen. Max Baucus, D-Mont., chairman and ranking member, respectively, of the Senate Finance Committee, along with the chairman and ranking member of the Health, Education, Labor and Pensions Committee, Sen. Mike Enzi, R-Wyo., and Sen. Edward Kennedy, D-Mass., reached an agreement on the differences between their two bills, both of which were passed by their respective committees. The legislation, known as the Pension Security and Transparency Act, will now move to the full Senate, which is expected to vote on the measure in the next two weeks.
“Not long ago, workers used to be pretty sure of a good pension plan. That’s not the case anymore,” said Grassley. “There are a lot of reasons for that, some within Congress’s control and some not in our control. We need to fix the problems within our control.”
Kennedy noted that many workers are concerned that their pension benefits will not be there when they retire. “Now more than ever, workers deserve the support of Congress to preserve their hard-earned pensions,” he added. “This bipartisan legislation will do just that and I am proud that we have reached an agreement that is now ready for full Senate consideration.”
Under the Senate bill, companies with underfunded pension plans will have to bring their plans to full solvency in 7 years, except for airlines, which are allowed 14 years. The bill also changes how companies whose credit ratings have fallen below investment grade are to calculate their pension values, including lump sum payments or early retirement programs. The changes are designed to make shortfalls more apparent and companies operating under these “at risk” rules would still be required to bring their pension plans into solvency within 7 years.
The legislation also includes provisions offering guidance on the use of corporate-owned life insurance, known as COLI, that taxes the benefits of a COLI policy unless the covered employee is notified in writing prior to the contract being purchased and gives consent, or is a director or is among the highest paid employees in the company.
“We are pleased that a provision to codify the industry’s best practices relating to the use of corporate-owned life insurance is included within the pension bill agreement reached by the Senate Health, Education, Labor and Pensions Committee and the Senate Finance Committee, and that the ‘Pension Security and Transparency Act’ will be considered soon by the full Senate,” said David Stertzer, executive vice president of the Association for Advanced Life Underwriting. He added that the life insurance industry has worked in cooperation on the issue.
“Corporate-owned life insurance plays a vital role in protecting businesses and helping them provide employee benefits and this provision ensures that the product is used responsibly for the benefit of businesses, employees and families,” Stertzer said.
COLI had become a political target in recent years through media reports that referred to it as “janitor’s insurance” and offered stories of companies profiting on the death of employees and former employees. Life insurers and business groups have defended the product’s use, however, noting that it is typically used to help fund a company’s pension plan or other benefits.
Jack Dolan, a spokesman for the American Council of Life Insurers, said the language in the Senate bill will help to improve the product’s image.
“The COLI provisions in the Senate pension bill will reform the COLI market and ensure the product remains available to businesses for long-term planning purposes, such as paying employee benefits,” he said. “We are looking forward to the provisions becoming law.”
Tim VandenBerg, of the government research firm Washington Analysis, said the Senate agreement “sets the stage for Senate passage” as early as this week. With House Education and the Workforce Committee Chairman John Boehner, R-Ohio, seeking to pass pension reform legislation through the House in late October, VandenBerg said the “odds are over 50% that reform legislation is enacted late this year, or in the first quarter of 2006.”
“Now more than ever, workers deserve the support of Congress to preserve their hard-earned pensions,” said Sen. Edward Kennedy, D-Mass. “This bipartisan legislation will do just that and I am proud that we have reached an agreement that is now ready for full Senate consideration.”