- The Washington Times - Sunday, August 6, 2006


Defense contractors, airlines and a food company are among those singled out for different treatment under a massive pension overhaul bill that Congress could send to the White House as early as this week.

The legislation, passed by the House and the Senate, has the lofty goal of reinforcing the employer-based pension system that is the retirement lifeblood of about 44 million Americans.

But, as with any 900-page piece of legislation crafted over months of negotiations, there are provisions targeted to help specific companies or industries. Often the obtuse legislative language does not name the targeted benefactor, but to the writers the intent is clear.

Here are a few:

• Defense contractors that do the bulk of their business with the government and generate more than $5 billion a year in sales to the Pentagon are given a three-year grace period before new pension funding rules take effect.

During that period, the Cost Accounting Standards Board, an independent panel that determines accounting practices for government contracts, would set new rules for recovering pension costs from those contracts.

The rationale is that defense contractors have costs that are programmed in over a long period of time and don’t have the flexibility, like other industries, to cover a sudden spike in pension costs if their plans are underfunded. Among the companies likely to be affected are BAE Systems, General Dynamics Corp., Lockheed Martin, Northrop Grumman Corp. and Raytheon.

• Airlines in bankruptcy proceedings that have frozen their pension plans, meaning participants receive no new benefits, get an extra 10 years to meet their funding obligations, above the seven years given to other pension managers. That applies specifically to Northwest Airlines and Delta Air Lines, although other airlines could get the same break if they freeze their plans.

• The two airlines with active defined-benefit plans, American Airlines and Continental Airlines, are also eligible for a less generous break if they choose not to freeze their plans: They will get 10 years after the new funding rules go into effect in 2008 to meet their obligations.

• Gate Gourmet, a major airline caterer with a defined-benefit plan, is also eligible for the airline exemptions.

• Greyhound Lines Inc. froze its plan in 1983, and the vast majority of its remaining participants are former drivers who are now retired and elderly. Consequently, the bus line succeeded in getting language allowing it to use mortality tables that its actuaries deem more appropriate to determine pension obligations, at considerable savings to the company.

• Smithfield Foods, the Virginia pork processer and hog producer, won a reprieve in restoring fiscal integrity to the failing pension plans of recently acquired companies. The argument was that Smithfield, in opting not to dump those plans on the government, should not be penalized by having to immediately meet the bill’s requirements of increased contributions for underfunded plans.

• The bill contains several unrelated tax and tariff provisions, including a suspension of duties on liquid-crystal display (LCD) panel assemblies for televisions and for certain fabrics made from worsted wool. The Congressional Budget Office estimated that extending the authority of the Agriculture and Commerce departments to provide grants to wool producers would increase federal spending by $14 million.

• One proposal that didn’t make it into the final bill would have given companies emerging from bankruptcy, specifically auto parts giant Delphi Corp., seven years to make up funding deficiencies accumulated during bankruptcy. Current law requires the delinquent payments to be made up immediately.

Nineteen House members, mostly from Midwestern states where Delphi is located, warned bill negotiators that Delphi could default on its pension obligations.

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