Plan Giving Firms Easier Access to Pension Funds Gains : Budget: GOP-led House committee backs lifting curbs, cutting taxes for withdrawals. But critics see proposal as a threat to retirement income.

WASHINGTON — In a move that has drawn heavy fire from the Clinton Administration and pension-rights advocates, House Republicans are pushing a proposal that would make it far easier for companies to pull excess assets from their employees’ pension funds.

The plan, which would lift current limits and sharply reduce the taxes now imposed on companies that withdraw money from pension funds, was approved Tuesday by the Republican-dominated House Ways and Means Committee. It provides a big boost to Republicans’ budget-balancing efforts because the provision would bring in an additional $9.5 billion in revenues over the next seven years.

Opponents say that the plan is a giveaway to big corporations that could threaten the stability of workers’ retirement income by depleting the funds that may be needed to pay their benefits in the future.

During debate in the Ways and Means Committee, Rep. Sam Gibbons (D-Fla.) warned that Republican sponsors of the measure threatened to plunge the pension system into a crisis akin to the 1980s savings and loan collapse.

“They have taken the cash wages of workers and converted it to corporate manipulators,” Gibbons said.

But proponents maintained that no retiree benefits would be affected by the change and that the relaxation of pension regulations would encourage more corporations to establish retirement plans in the first place.

“I don’t believe this permits a raid on pension funds,” said Ways and Means Committee Chairman Bill Archer (R-Tex.), principal author of the plan. “Every penny [of benefits] will be protected.”

“Critics of these provisions have demagogued the issue, when in fact pension-plan participants are not going to be threatened,” said James Klein, president of the Benefits Assn., a group representing pension plan sponsors formerly known as the Assn. of Private Pension and Welfare Plans. “And the proposal will only apply to substantially overfunded plans.”

The provision was sandwiched into a far-reaching tax bill approved on a 21-16 party-line vote by the committee. The most talked-about provisions of that bill would raise about $30 billion in taxes by eliminating more than two dozen corporate tax breaks and would raise another $20 billion by scaling back the earned-income tax credit, a tax subsidy designed to help pull working families out of poverty.

But the more-obscure pension provision is one of the biggest revenue-raisers in the tax bill, which is to be rolled into Republicans’ big deficit-reduction package later this fall. That package would include reductions in Medicare spending growth, cuts in farm subsidies, as well as the $245-billion tax cut that is a centerpiece of the GOP tax policy.

A Democratic proposal to strip out the pension provision was rejected by the committee Tuesday on a vote of 20 to 16, largely along party lines.

At issue is a proposal to change rules governing the withdrawal of excess assets from the kind of pension plans in which companies promise workers defined benefits upon retirement.

Now, companies can withdraw excess assets--defined by law as those exceeding 125% of the amount needed to meet projected pension obligations--without penalty only if they use the money for health benefits for retirees. Otherwise, companies that withdraw excess assets face crippling tax penalties of 25% to 50%, as well as income taxes. The punitive excise taxes were enacted by Congress in 1990 in response to a wave of companies tapping pension funds in the 1980s, when some $20 billion was pulled out of the private pension system, according to the Pension Benefit Guaranty Corp., the federal agency that insures private pensions.

Archer’s proposal would allow companies to withdraw pension funds for any purpose, subject to a 6.5% excise tax. Companies would not even have to pay the excise tax if they made the withdrawal before July 1, 1996, although they would still have to pay income tax on the amount withdrawn.

Even though the bill would lower the tax rate on such transfers, it would raise an estimated $9.5 billion in revenues over seven years because many more companies are expected to make such transfers. A committee aide estimated that about $30 billion in pension funds would be withdrawn as a result of this change.

Advocates of the change said that the legislation is needed because the booming stock market has left many companies with assets tied up in their pension funds that far exceed projected benefit needs. Archer said that lifting those restrictions would not hurt beneficiaries because companies still would be required to keep 125% of the money they need to meet their pension obligations. Archer said that the proposal in fact would help workers by encouraging more companies to set up defined-benefit retirement plans. Current rules are so burdensome, Archer said, that no new defined benefit plans have been set up in the last five years.

“We need to focus to make defined benefits plans more effective, to expand defined benefit plans,” Archer said. If companies abuse the provision to the detriment of retirees, he said, “there will be additional action by Congress.”

The provision is vigorously opposed by the Administration. In a recent letter to Archer, Alice Rivlin, director of the White House Office of Management and Budget, said that the proposal would “increase the risk of loss to the pension insurance system,” a warning that was repeated by the federal Pension Benefit Guaranty Corp.

“This raid threatens unprecedented damage to pensions,” said Martin Slate, executive director of the pension agency. “Companies will once more be able to take the money and run, leaving retirees and taxpayers holding the bag.”

Slate argued that the minimum funding standard would not be adequate protection against leaving pensions inadequately financed because projected pension costs and the value of assets could vary significantly with changes in the stock market, interest rates or the financial health of the company.

“Today’s overfunded plan can be tomorrow’s underfunded plan,” said Slate. He said that 20 of the pension plans identified by his agency as the most badly underfunded over the last five years previously had withdrawn assets that they thought at the time would not be needed for benefits.

The Ways and Means Committee, after rejecting the proposal to strip out the pension provision, also defeated an amendment to require companies to notify pension plan participants of impending withdrawals from pension funds.