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Senate Passes Pension Relief Bill
Jan 28, 10:32 PM (ET)
By JIM ABRAMS
(AP) The Senate, acting with rare election-year concord, passed a bill Wednesday, Jan. 28, to reduce by...
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WASHINGTON (AP) - The Senate, acting with rare election-year concord, passed a bill Wednesday to reduce by $96 billion the payments companies will have to make into their pension plans this year and next.
Sponsors said the measure, passed 86-9, will help preserve pension benefits for millions of workers by discouraging financially strapped companies from terminating plans as no longer affordable.
"Our pension plans are being battered by a perfect storm of declining interest rates, stock market declines and a weak economy," said Sen. Edward Kennedy, D-Mass. The bill, he said, "will help the hard-earned pensions of millions of Americans to weather this storm."
The Senate must still work out differences with the House, which passed similar legislation late last year, and answer administration objections to a provision that would excuse airlines and steelmakers with chronic pension underfunding problems from $16 billion in catch-up payments.
For thousands of companies, speed is crucial. They face huge increases in payments to their pension funds if the measure doesn't become law by April.
"A lot of companies have suffered" already as a result of congressional delay, said Lynn Dudley, vice president of the American Benefits Council, a business group representing employers and retirement-plan providers.
She said her group's "members are withholding opening plants, not increasing new hires and avoiding improvements to their programs until they know what their liabilities are."
Unions have also lobbied for the legislation. Although the legislation will result in smaller payments to pension funds over the short run, it gives some financial breathing space to companies that might otherwise go bankrupt, lay off workers, freeze their pension plans or renege on the promised benefits.
Failed pension plans are turned over to the Pension Benefit Guaranty Corp., a government agency that insures pensions for some 44 million people in more than 30,000 defined-benefit pension plans.
The PBGC finances itself with premiums it assesses pension plan sponsors, in much the same way the Federal Deposit Insurance Corp. collects premiums from banks and thrift institutions to insure their depositors. Last year the PBGC took over 152 bankrupt single-employer pension plans covering 206,000 people, and saw its deficit rise to a record $11.2 billion.
Workers may lose a portion of their benefits when the PBGC becomes trustee of a plan. For example, the agency announced Wednesday it was taking over the plan of a bankrupt North Carolina construction company with 6,300 workers, pension plan assets of $95 million and benefit promises totaling $215 million. The PBGC estimated it will end up assuming $104 million of the $120 million shortfall, with the rest made up by lower retiree benefits.
Pension plans are in crisis partly because contributions have been tied to the interest rate on 30-year Treasury bonds. But the Treasury Department stopped issuing the bonds in 2001 and interest rates fell precipitously, producing smaller returns on pension plan investments. Underfunding of pension plans is now estimated to total $350 billion nationwide.
The Senate bill would establish a new formula that would make contributions dependent on the investment return from a blend of corporate bond index rates. The PBGC says that will save companies $80 billion over the next two years while Congress and the administration work on long-term overhaul of the pension system.
The measure is particularly important to mature industries such as automobiles, where retirees at some companies outnumber current employees. General Motors Corp. (GM), for example, has 25 retirees for every 10 active employees and will have to pay out $6 billion in pension benefits this year.
The bill also gives relief and requires greater transparency for unions and others involved in multi-employer pension plans.
Its most controversial provision singles out airlines and steelmakers, among others who have chronically underfunded plans, for special breaks.
Currently, such companies must make deficit reduction contributions, above their normal payments, to reduce their underfunded amounts. The bill would allow these employers to pay only 20 percent of their required catch-up pay in 2004, and 40 percent in 2005.
The three Cabinet secretaries who make up the board of the PBGC, Elaine Chao of Labor, John Snow of Treasury and Donald Evans of Commerce, said last week they would recommend a presidential veto if this provision remained in the bill. They said the measure could worsen the underfunding problem.
The bill is H.R. 3108.
On the Net:
Congress: http://thomas.loc.gov/
Pension Benefit Guaranty Corp.: http://www.pbgc.gov/
ERISA Industry Committee: http://www.eric.org
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Senate Pension Agreement Paves the Way for a Taxpayer Bailout
by David C. John
WebMemo #405
January 27, 2004
In a direct parallel to legislative mistakes that helped to create the savings and loan crisis of the 1980s, the recent Senate bipartisan agreement on H.R. 3108, the Pension Fund Equity Act, places corporate interests above those of the taxpayer. The agreement between Sens. Chuck Grassley (R-IA), Max Baucus (D-MT), Judd Gregg (R-NH), and Edward Kennedy (D-MA) would make it much more likely that billions of dollars of taxpayer money will end up bailing out underfunded corporate pension plans.
Uncontroversial House language
As passed by the House last year, H.R. 3108 was limited to a minor, but important, change in the way that a pension plan's ability to pay future benefits are calculated. A provision that expired at the end of 2003 had required that the plans use up to 120 percent of the weighted average of the thirty-year treasury bond yield to determine if the plan was properly funded. However, the Treasury Department stopped issuing thirty-year bonds several years ago, and the House legislation replaced that index with another keyed to the yield on corporate bonds for a two-year period. During those two years, Congress is supposed to decide if the new measure should be made permanent or replaced by another.
The House language has been endorsed by the Administration as a first step towards their long term proposal of last year. This proposal is by far the most comprehensive approach to the problem of properly valuing defined benefit pension plans[1].
The Senate special interest agreement
The House provision is relatively uncontroversial, and the Senate should drop its agreement and just approve the House-passed language instead. Unfortunately, the Senate agreement adds special interest provisions that allow certain underfunded pension plans to avoid making additional payments in order to fully pay for their pension promises. Instead, they would only have to make 20 percent of the needed additional contribution in 2004, and 40 percent in 2005.
Airline and steel pension plans would automatically qualify for this relief, as would plans run by a railway workers union and some smaller businesses. Companies in other industries could apply to the Secretary of the Treasury for equal relief, and only the worst funded would fail to qualify. Finally, in a spectacular example of Congress picking winners and losers, the Senate agreement rewards Greyhound Lines, Inc., a bus company, for its lobbying skill by declaring that its pension plan is better funded than it actually is. If it is allowed to remain in the bill, this extremely dangerous exception to the rules is likely to be only the first example of Congress fiddling with pension accounting rules for political reasons.
Setting the stage for a taxpayer bailout of PBGC
The taxpayer is likely to pick up the cost for these special interest provisions. Already, the agency that insures this type of pension plan, the Pension Benefit Guarantee Corporation (PBGC), is seriously underfunded. According to numbers released earlier this month, the agency is running a record $11.2 billion deficit. That number could climb to $85.5 billion if all of the pension plans that could "reasonably" be expected to fail did so.
By allowing companies to avoid funding their pension plans' deficits, the Senate agreement makes it likely that taxpayers will have to pick up that liability. The sad fact is that many companies that qualify for the funding holiday will be in just as poor shape in 2006. The delay is likely to end with their plans running even higher funding deficits. And once they turn their even more underfunded plans over to PBGC, that agency will be further down the road to an inevitable taxpayer-funded multi-billion dollar bailout.
PBGC insures the pensions of about 44 million Americans. As its deficits mount, Congress will be faced with the choice to either allow retired workers to lose pensions they have earned or to pump billions of dollars of taxpayer money into PBGC to make up the difference. No one seriously believes that Congress will renege on PBGC's guarantees, and the Senate pension agreement will do nothing more than to increase the amount that taxpayers will have to provide.
To make matters worse, individual workers could also suffer from a PBGC bailout. Already, workers' pensions tend to be reduced when the plan is turned over to PBGC. As part of a congressional bailout, these benefits are likely to be reduced even further.
Repeating mistakes that caused the S&L bailout
Twenty years ago, Congress faced a funding crisis in the savings and loan industry by allowing S&Ls to declare that they had more assets than they actually did. Congress also passed provisions that gave even more undeserved benefits to specific companies that had the lobbying muscle to get that language hidden in bills. Those S&L bills used the same oblique ways of identifying the lucky recipient as the Senate pension agreement.
Even after receiving special treatment, the savings and loan industry began to run massive deficits that resulted in a bailout that cost ordinary taxpayers hundreds of billions of dollars. While a less "generous" Congress would have seen companies fail earlier, the cost to the taxpayer would have been much less.
As the American philosopher George Santayana noted, "Those who cannot remember the past are doomed to repeat it." The Senate pension agreement repeats the mistakes that caused the savings and loan bailout. If Congress approves the Senate pension agreement and President Bush signs it into law, the stage will be set for a massive taxpayer-funded bailout of PBGC that could have cost much less.
David C. John is Research Fellow in Social Security and Financial Institutions in the Thomas A. Roe Institute for Economic Policy Studies at The Heritage Foundation.


[1] For further background on the Administration proposal, see David John, Treasury Department Proposal for Defined Benefits Includes Important Reforms, Heritage Foundation Backgrounder #1676, August 7, 2003, http://www.heritage.org/Research/Regulation/bg1676.cfm.

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Government Safety Requirements at Nuclear Weapons Facilities Targeted for Elimination
By Nancy Zuckerbrod
Associated Press Writer
WASHINGTON (AP) - The Bush administration is looking at waiving some current government safety requirements at federal nuclear facilities if contractors don't like them - after Congress directed it to start fining contractors for violations.
Critics contend that long-established government standards at more than two dozen Energy Department nuclear weapons plants and research labs could become unenforceable under the proposal. Energy Department officials say the intent is to give contractors more flexibility without compromising safety.
Sen. Jim Bunning, R-Ky., an author of the 2002 legislation ordering the fines, accused the administration this week of distorting Congress' intent with a plan that "will likely decrease worker protection."
John Conway, chairman of an advisory board overseeing safety at the Energy Department, said the proposal would weaken safety standards covering more than 100,000 workers at the facilities. "The way it's written, I don't like it at all," said Conway, head of the Defense Nuclear Facilities Safety Board.
Energy Department officials said they have not made a decision on the proposal and emphasized that the government would retain the authority to approve or reject safety plans written by contractors.
"The department believes the proposed rule seeks to fully protect our workers," Assistant Secretary Beverly Cook said.
The proposal was outlined in a draft regulation put out by the department last month. Cook described it as part of a continuing effort to get contractors to focus on hazards specific to their sites rather than on dangers that don't exist everywhere.
The Energy Department can now fine contractors who expose workers to hazardous levels of radiation, but it has no authority to levy fines for failing to protect workers from other industrial dangers, such as exposure to toxic chemicals.
The proposed rule would change that, allowing the department to assess fines against contractors who violate what would be contractor-written safety plans dealing with industrial hazards.
"The decision making will be largely in the hands of contractors to decide what protections are appropriate," said Rep. Ted Strickland, D-Ohio. "It's the fox guarding the hen house."
The government often gives contractors financial incentives to complete projects ahead of schedule, and tough safety standards could slow contractors down, said Leon Owens, a worker and past president of the local union at the government's uranium plant in Paducah, Ky.
"I don't feel that a contractor would be as inclined to develop rules that would go the extra length to provide adequate protection for workers," Owens said.
Some of the basic standards the Energy Department generally requires contractors to meet mirror Occupational Safety and Health Administration regulations at private industrial sites, including commercial nuclear power plants.
While some contractors say they like the new rules, at least one is on record as opposing them. UT-Battelle, which operates the government's Oak Ridge National Laboratory in Oak Ridge, Tenn., said it would prefer one set of rules, based on OSHA guidelines, for all contractors.
On the Net:
Energy Department: http://www.doe.gov/
Defense Nuclear Facilities Safety Board: http://www.dnfsb.gov/
AP-ES-01-28-04 2032EST
This story can be found at: http://ap.tbo.com/ap/breaking/MGAG40L50QD.html
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FBI Recalls Head of Detroit Field Office
By SARAH KARUSH
Associated Press Writer
DETROIT (AP) -- The FBI agent in charge of the Detroit field office has been temporarily recalled to headquarters amid an internal investigation into a terrorism-related case and the handling of a confidential informant, officials said Wednesday.
Willie Hulon was replaced for the time being by Michael Wolf, who has headed the FBI office in New Haven, Conn., said two federal law enforcement officials, speaking on condition of anonymity.
The FBI declined to comment on the investigation, but issued a statement Wednesday saying that "any time an allegation is received it is investigated by the FBI and/or the Department of Justice to determine if there is any basis to it."
The investigation centers on the Detroit office's handling of the Jan. 20 arrests of Ali Abdul-Karim Farhat and Hassan Farhat, brothers charged with drug trafficking and with giving financial support to the Hezbollah terrorist group, the law enforcement sources said.
In addition, the officials said the internal probe is concerned with a letter written by informant Marwan Farhat contending that an FBI agent told him to break the law by stealing mail from people the government identified as terror suspects. Marwan Farhat is not related to the two brothers.
One federal law enforcement official confirmed the contents of the letter, which was first reported this week by The Detroit News.
The investigation is being conducted by the FBI's Office of Professional Responsibility and the inspector general of the Justice Department.
Marwan Farhat also figures in a Justice Department probe of Assistant U.S. Attorney Richard Convertino, the lead prosecutor in a major post-Sept. 11 case that ended in two terrorism convictions. A federal judge is deciding whether to grant a new trial in that case because Convertino and his co-counsel failed to turn over evidence that might have helped the defense.
After Marwan Farhat, a defendant in a drug case, became a confidential informant, Convertino recommended that he get a lesser prison sentence than federal guidelines recommend.
Associated Press Writer Curt Anderson in Washington contributed to this report.
Copyright 2004 Associated Press. All rights reserved.
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Mexican Man Says He Buried Bodies in Yard
By OLGA R. RODRIGUEZ
Associated Press Writer
CIUDAD JUAREZ, Mexico (AP) -- A Mexican man who lived in the house where 11 bodies were discovered told police he helped kill and bury victims in his backyard at the behest of drug smugglers - and he thinks there are still more dead to be found, a prosecutor said Wednesday.
Police were tearing up the backyard at the house rented by Alejandro Garcia, who was arrested Tuesday in the border city of Ciudad Juarez, Deputy Attorney General Jose Luis Santiago Vasconcelos said during a news conference. Garcia allegedly told police they would find more bodies if they keep looking.
Santiago Vasconcelos said officials also plan to search six more homes in Ciudad Juarez. He said three would be searched because people had come forward to say they believed their missing relatives were buried there. He refused to say why they were searching the other three homes.
Officials said Garcia was trying to flee to the United States along with his wife and son when he was caught Tuesday. Over the weekend, officials uncovered the remains of 11 men who had been buried in his backyard, several under a patio that was still being torn apart Wednesday.
Mexican investigators said the property apparently was also used by Humberto Santillan, who was arrested Jan. 15 across the border in El Paso, Texas. Mexican authorities identified Santillan as one of the chief lieutenants for the Vicente Carrillo drug gang.
Garcia, who said he had been working with the Carrillo cartel for a year, told police he killed under the orders of Santillan and a Mexican state police commander. Santiago Vasconcelos did not say what role Garcia played in cartel.
Santiago Vasconcelos said police were investigating how many state police had been helping the drug cartel, adding there was an "extreme breakdown" of the region's law enforcement.
"Instead of protecting and guaranteeing the safety of the population, they are openly working with organized crime," he said. "This is serious, and we're not going to tolerate it. We will fight it to its core."
He added that the recent killings were "a result of this organization trying to guarantee their supremacy and their survival" as federal officials crack down on narcotics organizations across Mexico.
Copyright 2004 Associated Press. All rights reserved.
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Syrian Prisoner's Family Awaits Return
By ALBERT AJI
DAMASCUS, Syria (AP) - Every morning for the past 18 years, Khayreya Fahd al-Muhammad has spoken to a framed photograph of her son Farouk hanging on her wall. The real Farouk has been in prison in Israel.
On Friday, she expects to again see Farouk, 40, after his release as part of a German-brokered exchange of prisoners between Israel and the Lebanese guerrilla group Hezbollah.
Farouk Nasser al-Ali is one of five Syrians in a group of 36 Arab ex-prisoners that a German military plane is expected to deliver to Beirut, the Lebanese capital, on Thursday afternoon. He will then go on to the family home in Dumar, five miles west of Damascus, the Syrian capital, for the reunion.
"It is incredible. My son is getting out," Khayreya said Wednesday.
Farouk was captured by Israeli forces on the Lebanese-Israeli border in 1986 while taking part in a military operation with the Palestinian guerrilla group, the Democratic Front for the Liberation of Palestine, or DFLP. His two comrades were killed in the operation.
For the next three years, Khayreya and her family thought Farouk had been killed.
"The DFLP told us 'your son is a martyr,' and they distributed his photo in the streets. But three years later I received a letter from Farouk through the Red Cross," Khayreya said.
"When I got the news that he was alive, I walked barefoot for eight kilometers (five miles) from home to the Red Cross offices in downtown Damascus."
Indicating the photograph on her wall, she said with watery eyes: "Every morning I stand before the photo and say: 'Good morning, Farouk, will you drink coffee with me?'"
Farouk's father, Nasser Ibn Ahmed al-Ali, 68, said he has been depressed for the 18 years of his son's imprisonment. "When I see him I will cry," he said.
Farouk's sister, Fayrouz, 39, said her brother wrote to her from prison last August to say he was in good health.
Farouk's younger brother Amjad, 23, and sister Majd, 18, do not remember their brother. They know him only from pictures.