Pension Dispute, Partisan Flares Slow Progress On FAA Bill

Thu. May 1, 2008


A dispute over whether to change airline pension payment formulas and a broader partisan problem over limiting other amendments has stalled Senate progress on a plan to modernize the nation's air traffic control system.

At issue all day Wednesday was an amendment to the FAA reauthorization bill from Senate Majority Whip Durbin and Commerce Aviation Subcommittee ranking member Kay Bailey Hutchison, R-Texas, to strip language backed by Finance Committee leaders prohibiting airlines from counting past contributions in properly funding defined-benefit pensions. Employers pay for these plans, which provide a fixed monthly payment to retirees based on their salary and years with the company.

Each side blamed the other for refusing to move on and debate other amendments before holding a vote on the pension issue but held out the possibility of trying again today.

The issue pits Finance and Commerce leaders against one another after the two sides were at odds for months before announcing an agreement Friday on how to finance FAA modernization -- which paved the way for this week's floor debate.

Since the issue puts the four principals of the bill -- Finance Chairman Max Baucus and ranking member Charles Grassley and Commerce Aviation Subcommittee Chairman John (Jay) Rockefeller, D-W.Va., and Hutchison -- on opposing sides, lawmakers and aides huddled in cloakrooms for much of the afternoon to try to overcome the impasse.

In the late afternoon, Majority Leader Reid offered to break the logjam by allowing a substitute bill to be offered that removes the Finance change.

Republicans objected because Reid insisted on reviewing all amendments before agreeing to let them be offered as a way to avoid potential debates over nonaviation issues.

Republicans balked at Reid's offer to "fill the amendment tree" while Reid insisted the amendment list could be negotiated with Minority Leader McConnell.

McConnell said Reid's decision makes it "impossible to get enough cooperation on the minority side to get cloture and finish the bill."

Baucus called Reid's offering to substitute the bill with one removing the pension change as "regrettable," noting he had talked to him about a potential compromise.

Hutchison said nonaviation parts of the Finance package -- including reimbursements to the highway trust fund -- are also killing the bill's chances and suggested that the Finance and Commerce sections be separated.

Hutchison and Durbin argued that the Finance provision would put five airlines -- Dallas-based American, Houston-based Continental, Hawaiian, Alaska and Arizona-based U.S. Airways -- at a competitive disadvantage because they have kept their defined-benefit pension plans intact.

They said those airlines are being treated worse than Delta and Northwest -- which froze their defined-benefit pension plans when they were going through bankruptcy reorganization.

Baucus and Grassley said the changes ensure that pension plans are fully funded and disputed claims that the five airlines affected would face such a drastic disadvantage. "That is a bogus argument," Baucus said. "We say keep the playing field level. ... Our committee bill will not affect the bottom line of these airlines."

Hutchison countered that airlines would be forced to raise fares because they would not be able to otherwise afford to put more in the pension plans as well as pay for high jet fuel prices.

"Of course it's going to have an effect on the bottom line," she said. "How are they going to offset these higher costs? There's only one way: higher ticket prices."

The dispute has a congressional history dating back to 2006 pension overhaul legislation.

Airlines that did not freeze their defined-benefit plans were permitted to pay off pension liabilities over 10 years while those that had frozen their plans were given 17 years.

Under the law enacted in 2006, Fort Worth, Texas-based American Airlines and Houston-based Continental were allowed 10 years in which to fully fund their plans, while Delta and Northwest, which both faced bankruptcy at the time, were given 17 years.

And while Delta and Northwest were allowed to use an interest rate of 8.85 percent to calculate the returns from their pension assets, American and Continental were limited to a 6.2 percent rate.

The higher the interest rate, the less up-front cash an airline has to contribute to cover projected pension costs. Airlines can stop or reduce contributions to pension plans but if the plans become underfunded or the airlines have no assets to back up their plans, the federal Pension Benefit Guaranty Corporation would be responsible for making pension payments.

Hutchison and others added language to the Iraqi supplemental bill last spring increasing the interest rate for airlines that did not freeze their plans from 6 percent to 8.25 percent.

Baucus and Grassley are looking to keep that 8.25 percent interest rate but require that those airlines make contributions that cover any pension benefits accrued during a current year.

Durbin and Hutchison say the five airlines are at a competitive disadvantage because they would have to fully fund their obligations every year even if -- like American Airlines -- they have overfunded their pension plans.

by Darren Goode

Thu. May 1, 2008

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