WASHINGTON (Dow Jones)--The U.S. House Thursday will likely consider legislation giving airlines a substantial break on pension funding requirements in the next two years.
The proposal was introduced Wednesday night by House Ways and Means Committee Chairman Bill Thomas, R-Calif. It has not been agreed to by the Senate, which is still wrangling over the issue. It may come to a vote in the House as early as Thursday, a Ways and Means Committee aide said.
The proposal would give those airlines with substantially underfunded pension plans a break on the accelerated pension fund contributions they would otherwise be required to make. Specifically, those accelerated payments - called deficit reduction contributions - would be reduced by 80%.
The airlines have been seeking a total holiday from DRC payments for three years. Many lawmakers say the proposal was excessive, but there is broad consensus that airlines should - or at least will - get at least some pension funding relief.
A complete DRC holiday would save four major air carriers $610 million in pension contributions in 2004, according to analysis published last week by Bear, Stearns & Co. Inc. Specifically, a DRC holiday would save AMR Corp.(NYSE:AMR) (AMR) an extra $240 million in pension fund contributions in 2004, Bear, Stearns said. The same analysis shows Delta Air Lines Inc.(NYSE
AL) (DAL) saving an extra $160 million, Northwest Airlines Corp.(NASDAQ-NMS:NWAC) (NWAC) saving an extra $209 million and Continental Airlines Inc.(NYSE:CAL) (CAL) saving an extra $8 million.
The break would come in addition to the pension funding relief provided all employers under the bill to be considered by the House.
That funding relief would come from replacing the 30-year Treasury bond with a corporate bond index in pension funding calculations. The rate on the 30-year Treasury bond has been declining since it was discontinued and a temporary fix is set to expire at year's end.
The bill would allow businesses to use an index of long-term corporate bond rates in pension funding calculations through 2005.
House Education and Workforce Committee Chairman John Boehner, R-Ohio, has concerns about the DRC holiday, but said he will back Thomas's plan because overall it will be good for the health of the nation's pension system. Boehner does not like the idea of singling out the airline industry for a break, but is glad the holiday is at least limited to two years, said spokesman Kevin Smith.
Thomas's decision to move the bill comes even as the White House stepped up its opposition to the DRC holiday.
In a letter to Thomas, and other key lawmakers, three cabinet-level secretaries warned that suspending the DRC rules would mean a significant further reduction in the ability of the effected pension plans to "meet the promises made to existing and future retirees." The letter was signed by Treasury Secretary John Snow, Labor Secretary Elaine Chao, and Commerce Secretary Donald Evans.
Pension Benefit Guarantee Corporation Executive Director Steven Kandarian has previously warned "giving a special break to weak companies with the worst- funded plans is a dangerous gamble."
But lawmakers wanting to give airlines relief have ignored those warnings and will likely ignore Snow's, Evans', and Chao's admonitions, too.
"It will not be determinative," House Ways and Means Committee member Jim McCrery, R-La., said of the secretaries' letter to Congress and its impact on the debate.
The partial DRC holiday and the 30-year Treasury bond are attached to a package of legislation extending for one year a number of expiring tax provisions.
Those provisions to be extended include:
-Tax breaks for business investing in downtown Manhattan around the former World Trade Center;
-Tax breaks for hiring certain people on welfare, felons, at-risk youth, and other hard to employ individuals;
-A deduction for teachers' classroom expenses;
-Enhanced deductions for the charitable contributions of computers;
-Extended ability to offset current losses against gains in previous years so as to gain a tax refund; and
-A zero percent capital gains tax rate for certain investments in the District of Columbia.
The Senate Finance Committee also announced Wednesday night its version of tax extender legislation. The bill does not include the pension provisions, and most of the tax provisions are extended for six months, instead of one year.
The proposal was introduced Wednesday night by House Ways and Means Committee Chairman Bill Thomas, R-Calif. It has not been agreed to by the Senate, which is still wrangling over the issue. It may come to a vote in the House as early as Thursday, a Ways and Means Committee aide said.
The proposal would give those airlines with substantially underfunded pension plans a break on the accelerated pension fund contributions they would otherwise be required to make. Specifically, those accelerated payments - called deficit reduction contributions - would be reduced by 80%.
The airlines have been seeking a total holiday from DRC payments for three years. Many lawmakers say the proposal was excessive, but there is broad consensus that airlines should - or at least will - get at least some pension funding relief.
A complete DRC holiday would save four major air carriers $610 million in pension contributions in 2004, according to analysis published last week by Bear, Stearns & Co. Inc. Specifically, a DRC holiday would save AMR Corp.(NYSE:AMR) (AMR) an extra $240 million in pension fund contributions in 2004, Bear, Stearns said. The same analysis shows Delta Air Lines Inc.(NYSE
AL) (DAL) saving an extra $160 million, Northwest Airlines Corp.(NASDAQ-NMS:NWAC) (NWAC) saving an extra $209 million and Continental Airlines Inc.(NYSE:CAL) (CAL) saving an extra $8 million.The break would come in addition to the pension funding relief provided all employers under the bill to be considered by the House.
That funding relief would come from replacing the 30-year Treasury bond with a corporate bond index in pension funding calculations. The rate on the 30-year Treasury bond has been declining since it was discontinued and a temporary fix is set to expire at year's end.
The bill would allow businesses to use an index of long-term corporate bond rates in pension funding calculations through 2005.
House Education and Workforce Committee Chairman John Boehner, R-Ohio, has concerns about the DRC holiday, but said he will back Thomas's plan because overall it will be good for the health of the nation's pension system. Boehner does not like the idea of singling out the airline industry for a break, but is glad the holiday is at least limited to two years, said spokesman Kevin Smith.
Thomas's decision to move the bill comes even as the White House stepped up its opposition to the DRC holiday.
In a letter to Thomas, and other key lawmakers, three cabinet-level secretaries warned that suspending the DRC rules would mean a significant further reduction in the ability of the effected pension plans to "meet the promises made to existing and future retirees." The letter was signed by Treasury Secretary John Snow, Labor Secretary Elaine Chao, and Commerce Secretary Donald Evans.
Pension Benefit Guarantee Corporation Executive Director Steven Kandarian has previously warned "giving a special break to weak companies with the worst- funded plans is a dangerous gamble."
But lawmakers wanting to give airlines relief have ignored those warnings and will likely ignore Snow's, Evans', and Chao's admonitions, too.
"It will not be determinative," House Ways and Means Committee member Jim McCrery, R-La., said of the secretaries' letter to Congress and its impact on the debate.
The partial DRC holiday and the 30-year Treasury bond are attached to a package of legislation extending for one year a number of expiring tax provisions.
Those provisions to be extended include:
-Tax breaks for business investing in downtown Manhattan around the former World Trade Center;
-Tax breaks for hiring certain people on welfare, felons, at-risk youth, and other hard to employ individuals;
-A deduction for teachers' classroom expenses;
-Enhanced deductions for the charitable contributions of computers;
-Extended ability to offset current losses against gains in previous years so as to gain a tax refund; and
-A zero percent capital gains tax rate for certain investments in the District of Columbia.
The Senate Finance Committee also announced Wednesday night its version of tax extender legislation. The bill does not include the pension provisions, and most of the tax provisions are extended for six months, instead of one year.
