The House’s version of the FAA reauthorization bill has been on the Senate floor for the past few weeks, but it’s currently stalled (although scheduled for a cloture vote today, May 6, which if passed would move it forward for consideration by the full Senate without more amendments or if lost would hold up the bill further). The major hangup in the legislation was an amendment offered by Senators Dick Durbin (D-Ill.) and Kay Bailey Hutchison (R-Tex.).
Here’s the procedural history: on April 29, Senator Jay Rockefeller (D-W.Va.) proposed a set of amendments to the House bill. Section 808, which affected required funding a new accruals under airline pension plans, was a sticking point. Current law calls for airlines to fund their defined-benefit pension plans under the assumption of 8.25 percent growth; the amendment adds to the 8.25 percent rate the requirement to fully fund their pension obligations each year.
On April 30, Durbin and Hutchison introduced an amendment to eliminate Section 808. They argued that it would have disadvantaged their home-state airlines American and Continental, which continue to offer defined-benefit plans as obligated by their contracts. (This is absolutely the right thing to do. A defined-benefit pension is nothing more than deferred compensation. To shred it in bankruptcy is like asking an employee to give back part of his paycheck.) (N.B.: All airlines offer a small defined benefit to pilots, the “b-fund,” because pilots have until now been forced to retire at sixty.) Durbin says that this new, stricter requirement in Section 808 disincentivizes airlines from offering pension benefits and that it especially rewards Delta and Northwest, who slipped out of their pension obligations in bankruptcy and handed off the liability to you and me. “It seems to me instead we encouraged companies to freeze their benefit plans,” said Durbin in remarks on the Senate floor.
Last year, Durbin said, Hutchison proposed to give “the airlines that have not frozen their pension plans — and let me be specific which airlines: American Airlines, Continental, Hawaiian, Alaskan, and US Airways — the opportunity to assume a better rate of return on their investments.” Delta and Northwest have been able to assume a growth rate of 8.85 percent in planning to fund their pensions, unlike everyone else’s 8.25 percent. Being able to assume a higher growth rate means that a company can get away with setting aside less money to meet its pension obligations.
Section 808, he said, would do the opposite and put bigger burdens on the airlines that did not shed their pension obligations: “This section would once again widen the disparity between the rules that apply to some airlines versus the rules that apply to others. That does not make any sense. This section would require only the five airlines that I mentioned to fully fund all new pension obligations this year and every year going forward, only those five airlines.” This would unfairly single out airlines that have avoided bankruptcy and done right (at least in terms of their pension promises) by their employees and U.S. taxpayers.
Durbin said this was an especially onerous requirement in light of the airlines’ precarious financial positions: “why in the world would we put a provision in this bill which would require our airlines, these five airlines, to put dramatically more cash into these pensions, beyond what is required of other airlines, beyond what is required for 100 percent funding, and jeopardize them and endanger them so that they face bankruptcy?”
Hutchison echoed Durbin’s remarks: “Let’s not change the rules. Let’s not give advantages to one over another. Let’s try to help all of the airlines make it, be profitable, be robust, provide competition, and, especially, give the very best benefits to their hard-working employees they can possibly do. And, please, let’s do not penalize those that are going the extra mile and giving their employees what is becoming more and more rare in this country today, and that is defined benefits for their pension plans.”
The source of Section 808 was the Senate Finance Committee, which has jurisdiction over pensions and is chaired by Max Baucus (D-Mont.) Baucus was next to speak. He defended the legislation to make employers fill their pension funds — the Pension Protection Act of 2006 — and he outlined the breaks that it gave to airlines. Those in bankruptcy — Delta, Northwest — got more time and a more favorable rate to fully fund their plans than those not in bankruptcy. Baucus said that the rest of the airlines with defined-benefit plans were already benefiting from favorable exemptions, just not as favorable as Delta and Northwest. “They said they were doing the right thing. So we said: OK–that is what this bill does–OK, we will give you virtually the same interest rate as the others.”
Baucus said that the issue is not the airlines but the retirees, and that retirees from American and Continental deserve the same guarantees of pension funding as those at non-aviation-related companies. “The effect of the committee bill is to level things off. It is not perfect, but it is almost perfect; where the effect of the Durbin amendment is to make it much less perfect and basically help a couple airlines that, as a consequence, will not have to contribute to their pension plans for past liabilities, and will not have to in the future either, because of the interest rate they provide for in their amendment.” He continued: “The right answer is to keep it fair for everybody, have the same law essentially apply for everybody. The committee bill does that.”
Durbin replied that he and Hutchison “wish to keep the status quo. The section 808 amendment we want to strike changes it.”
Later that day, Rockefeller withdrew his amendments, including Section 808. The next day, May 1, Senate Majority Leader Harry Reid (D-Nev.) reintroduced the amendments on the floor — absent Section 808. He used a procedural device that allows only amendments he approves, meaning that Republicans may block a cloture vote. The disagreement between Baucus and Durbin continues, but the bill is tied up in other knots too.
Photo of Senator Richard Durbin. Credit: flickr user MNicoleM. Creative Commons license.