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Future Of Senate Pension Bill Is Hazy

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President Bush is threatening to veto a long, complicated pension reform bill approved by the Senate Wednesday because he believes it will give certain airlines too much time to make up pension plan shortfalls.

Lobbyists are not sure whether the current bill or a revised version has much chance of passing before the end of the year, but they have been studying the text of the Senate bill, S. 1783, closely.

The current version of S. 1783 would:

- Prohibit employers from using corporate-owned life insurance to benefit from the deaths of rank-and-file employees who have left long ago.

- Encourage employers to provide “the safest available annuity.”

- Encourage employers to enroll employees in
401(k)s automatically.

- Create the “DB(k),” a new pension arrangement combining features of traditional defined benefit plans and 401(k) defined contribution plans.

Insurance groups are supporting the S. 1783 COLI provision.

Employers buy COLI both to protect against the cost of losing key employees and to generate streams of death benefits that can be used to fund employee benefit plans.

The S. 1783 COLI provision would limit employers to insuring current employees and to insuring former employees who were directors or highly compensated employees or highly compensated individuals when the COLI policies were issued.

The S. 1783 COLI provision also would:

- Define “highly compensated employees” as employees who earn at least $90,000 per year.

- Define “highly compensated individuals” as individuals who rank among the top 35% of a company’s employees in terms of compensation.

- Require employers to obtain the informed consent of employees before enrolling employees in a COLI plan.

- Require employers to report information about their COLI plans to the Internal Revenue Service.

The House Ways and Means Committee approved a pension bill Nov. 9 that leaves out the COLI provision.

But Frank Keating, president of the American Council of Life Insurers, Washington, is predicting that House leaders probably will accept the Senate COLI provision if they win approval of their own pension bill, because 31 Ways and Means Committee already support the COLI provision.

The Association for Advanced Life Underwriting, Falls Church, Va., and the National Association of Insurance and Financial Advisors, Falls Church, Va., also put out statements welcoming passage of S. 1783.

Enactment of the S. 1783 COLI provision could help employers count on using a steady stream of COLI income to pay for employee benefits, NAIFA Chief Executive David Woods says.

Meanwhile, even though the White House says S. 1783 is too easy on some troubled pension plan sponsors, the American Benefits Council, Washington, an employer group, says the bill is too tough on employers.

The benefits council is complaining about a bill provision that would require employers to average the value of pension plan assets and liabilities over a 1-year period.

The valuation period provision and other provisions “introduce too much unpredictability and cost volatility into pension funding,” the benefits council says.

The 1-year period over which both assets and liabilities would be averaged “is completely inappropriate for a long-term obligation such as a pension plan,” the council says. “It will make it extremely difficult for companies to make business plans and force them to hold in reserve excess assets that may be needed to fund the plan.”

The benefits council is recommending that the Senate emulate the House and allow 3-year averaging

The benefits council also is emphasizing the importance of giving employers enough time to adjust to any new standards that Congress does adopt.


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