Advertisement

Senate Passes Overhaul of Pension System

Share
Times Staff Writers

Senate Republicans hoping to start their summer recess with several legislative successes got one Thursday with the first substantial overhaul of the nation’s ailing pension system in decades.

But the majority party failed to pass a sweeping tax-cut and minimum-wage bill that Republican leaders had hoped they could showcase as they headed into closely contested congressional elections this fall.

Despite an intense effort, Senate Majority Leader Bill Frist (R-Tenn.) fell three votes short in his gambit to muster the 60 votes needed to bring that controversial measure to final consideration.

Advertisement

Instead, the Senate split largely on party lines, with 57 senators initially voting to end debate on the measure and 41 opposing the motion.

The long-sought pension overhaul garnered strong bipartisan support, though, as 40 Democrats and one independent joined the Republican majority as the Senate voted 93 to 5 to pass a bill that many say will help stabilize pensions for 44 million American workers.

The House overwhelmingly passed the measure last week. It now goes to President Bush, who is expected to sign it.

“Today, we secure the future for America’s workers and their families,” said Sen. Michael B. Enzi (R-Wyo.), who leads the Committee on Health, Education, Labor and Pensions and helped craft the measure.

“Promises made will be promises kept,” he said.

Passage of the pension overhaul bill marked the end of a laborious effort by leaders of both parties to rescue a system of private pension plans estimated to be underfunded by more than $450 billion.

That yawning shortfall raised the prospect that taxpayers could be saddled with a multibillion-dollar bailout. The federal Pension Benefit Guaranty Corp., which insures pension plans, currently faces a $22.8-billion deficit.

Advertisement

The bill requires most companies to fully fund their pension liabilities within seven years, in part by making an estimated 30,000 companies pay more into their plans.

The measure is also meant to encourage more workers to save for their retirement by making permanent an array of tax breaks and permitting companies to automatically enroll employees in a 401(k) plan.

The carefully crafted compromise rankled a few lawmakers -- among them House members from Texas who complained that by offering special assistance to struggling Northwest Airlines Corp. and Delta Air Lines Inc., the pension package unfairly penalized Texas-based American Airlines and Continental Airlines Inc., whose pension systems are on firmer ground.

In the end, however, no senators spoke out against the measure before it was approved, although Sen. Barbara Boxer (D-Calif.) was among the handful of senators who opposed it.

“The pension bill passed by the Senate tonight is a very positive step for Americans participating in defined contribution retirement plans,” said James A. Klein, president of the American Benefits Council. “However, as a result of the volatile pension funding rules enacted, I believe we will witness an unprecedented number of companies closing their well-funded defined benefit pension plans to new employees.”

The late-night votes Thursday came after a contentious week of negotiating and posturing by the two parties as they gear up for the November elections, which Democrats hope will return them to power on Capitol Hill

Advertisement

Democrats for weeks have been casting the Republican-controlled House and Senate as a “do-nothing Congress” that has failed to control federal spending, oversee the war and help the country’s neediest residents.

Republicans, meanwhile, are honing a pitch that highlights their efforts to boost domestic security, fight for what they term values issues -- such as abortion restrictions -- and tackle pocketbook issues.

But the GOP has had to contend with a string of setbacks on the economics front.

Republicans were stymied this year in their efforts to do away with the estate tax, a longtime cornerstone of the party’s tax-cutting agenda. A series of less-controversial tax breaks for students, businesses and others got ensnared in legislative negotiations.

And after a decade of refusing to raise the federal minimum wage, Republicans faced the prospect that Democrats would turn the issue, long popular with voters, into a potent election-year weapon.

With the electoral clouds darkening, House leaders, led by Ways and Means Committee Chairman Bill Thomas (R-Bakersfield), last week hastily crafted an unorthodox bill tying tax cuts to a minimum-wage increase, then forced a vote before the House adjourned for the summer.

The measure passed the House easily, with 34 Democrats crossing the aisle to vote with the majority.

Advertisement

But the going was far tougher in the more closely divided Senate.

Business groups lobbied hard for the bill, which included a popular tax break for research and development.

Republicans worked to sway a handful of Democrats with a series of carefully tailored “sweeteners,” including tax breaks for the coal and timber industries designed to woo senators from West Virginia and Washington.

And Frist and his allies tirelessly talked up the compromises in a bill they named the Family Prosperity Act. This week, six-term Sen. Pete V. Domenici (R-N.M.) called the measure “the best piece of legislation that has been provided to the Senate and House in the whole Congress.”

It was to no avail.

Democratic senators rallied around their leaders, who derided the bill as an election-year ploy. Sen. Edward M. Kennedy (D-Mass.) said it held low-wage workers hostage to a costly estate tax cut.

That cut, which would have largely benefited a few thousand wealthy families a year, would have cost the federal Treasury more than $250 billion over the next decade, according to an estimate from the Joint Committee on Taxation. Other estimates have put the long-term costs higher.

The minimum wage would have risen from $5.15 an hour to $7.25 over the next three years.

But helping to galvanize opposition was uncertainty about whether language in the bill might actually lower wages in seven states, including California, for minimum-wage workers who receive tips.

Advertisement

Even some advocates for the poor opposed the bill, saying it was unjust to tie a $2.10 minimum-wage increase to millions of dollars in tax cuts for some of the country’s wealthiest.

One such organization, Catholics in Alliance for the Common Good, had urged the Senate to “place the interests of all over the interests of the few.”

“The American people deserve more,” said Senate Minority Leader Harry Reid (D-Nev.), who sounded increasingly defiant as it became clear Thursday that members of his party had outmaneuvered their Republican foes.

California’s Boxer and Democratic Sen. Dianne Feinstein voted to defeat the measure.

Republican senators angrily shot back that Democrats were standing in the way of much-needed tax relief and the same minimum-wage hikes the minority party had been pushing for years.

“Their strategy is block and blame,” said Sen. Mitch McConnell of Kentucky, the chamber’s second-ranking Republican.

Frist said he was “deeply ashamed” that the Senate had failed to pass it. For procedural reasons that will enable him to revisit the bill, he switched his vote at the last minute from yes to no, making the final tally 56 to 42.

Advertisement

The minimum-wage hike and estate-tax cut were not the only casualties of partisan election-year bickering. Also lost in the legislative collapse were a series of extensions for broadly popular tax breaks.

These included a deduction for college students and a credit for businesses investing in low-income neighborhoods.

Advertisement