Verbal Agreement Found in Pension Bill Negotiations
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Sen. Michael Enzi (R-Wyo.) said, “I think everything’s resolved, pending getting the exact wording.” Enzi is the chairman of the Health, Education, Labor and Pensions Committee. The Associated Press reported that the president would receive the bill before the August break.
Rep. Howard McKeon (R-Calif.) said, “We’re very, very close and we should be able to wrap this up this week.” McKeon is pressing for relief to defense contractors by delaying the effective date for companies that generate more than half of their business in defense contracts, according to Reuters.
General Dynamics, along with Lockheed Martin Corp. and Northrop Grumman have roughly doubled the value of their stock since March 2003 when the U.S. first invaded Iraq, according to Reuters. General Dynamics reported an 84 percent increase in combat and aerospace sales for their second quarter, with a quarterly profit of $636 million.
Stiffer penalties for companies falling behind in funding their pension plans may well be part of the final legislation, according to the Associated Press. At the same time, relief has been sought for single-employer pension plans without driving the companies to bankruptcy and their pension burdens being taken over by the Pension Benefit Guaranty Corp. (PBGC). Single-employer pension plans are estimated to be underfunded by some $450 billion. The PBGC is the federal corporation that insures corporate pension plans.
Airlines are seeking relief in this legislation. Their plans are underfunded by some $22.8 billion and on the edge of defaulting and unloading their plans onto the PBGC as well, according to the Associated Press. Additional time is sought in order that they can put their plans back in the green. Delta Air Lines Inc. and Northwest Airlines Corp. urged Congress last week to pass this legislation.
Douglas Steenland, president and CEO of Northwest Airlines, said, “A further delay is a functional equivalent of no.” The intricate nature of the issues has slowed negotiations between the Senate and the House to a crawl. The Associated Press reports that the negotiations have been stalled for four months.
Determining a methodology to indicate the point at which a plan is underfunded is another issue being considered in this legislation. The occurrence of such a determination would start a process where the company’s pension plan contributions would increase until the plan was fully funded, according to the Associated Press.
A permanent interest rate for plans would be established in the final bill. A company’s liabilities could be more accurately determined with this feature, according to the Associated Press. Those companies with at-risk pension plans would be restricted from making deferred compensation payouts to executives, as well. Use of credit balances accrued in past years, potentially fallen in value with stock market cycles, would also be restricted.
Temporary reinstatement of some tax breaks, such as corporate research and development credit and deduction for state and local taxes, are part of this legislation. The Associated Press reports that the president’s temporary tax incentives for retirement savings may well be part of the final bill.
Sen. Bill Frist (R-Tenn.) wants a reduction in the estate tax exempting the first $5 million for individuals and $10 for couples’ estates. Estates of $40 million would not be allowed to take this exemption, while estates of $25 million would start to drop the exemption, according to the Associated Press. Estates would be taxed at capital gains rates on the low side and 35 percent on the high side.