Curtis and Buser on smoothing

From: Tom Curtis

To: Steve Buser

Sent: Monday, January 16, 2006

Subject: 011606 Curtis Resp To Buser Resp, Re Defined Benefits - Buckeye Boehner Full Of Beans?

Thank you Steve. You always provide a great response. Knowing that you did not agree with the use of the smoothing effect when creating budgets was what prompted me to send you the article. Your comments are very encouraging.

See you Thursday and Friday, Tom Curtis

From: Steve Buser

Sent: Monday, January 16, 2006

I am not familiar with the "credit balance issue" and thus should not comment on it. As for the smoothing issue, you are correct that I am not a fan. However, I am still relatively new to this business and thus might yet learn or some value from smoothing. As of now, it seems to me that smoothing only serves to confuse an already difficult issue of assessing the strength or weakness of pension funding at any given time. I cannot tell from the article but, I suspect that the Secretary of Labor is concerned that smoothing will be misused by companies that might be looking for ways to under fund their pension plans. If so, I would share her concerns.

The good news for us is that STRS seems more than willing to look at funding condition from a variety of perspectives in order to get the best overall read. I am not aware of anyone who has an incentive to deliberately misrepresent the financial condition of STRS.

Steve

At 10:39 AM 01/14/2006, you wrote:

Hello Steve,

What is your understanding of this article? I read it, but I do not understand if what Chao wants added is good for all. Since it deals with issues of using smoothing, I thought you might give me your take on this.

Thank you, Tom Curtis

From: John Curry

Sent: Wednesday, July 06, 2005

Subject: Defined Benefits - Buckeye Boehner full of beans?

From: The Hill

July 6, 2005 <http://www.thehill.com/thehill/export/TheHill/index.html

Chao writes Boehner for a better bill

By Elana Schor

"The legislation does not address fully the problems facing the defined-benefit pension system."

The Bush administration has escalated its criticism of the pension-funding bill just passed by the House Education and the Workforce Committee, casting doubt on committee Chairman Rep. John Boehner's
(R-Ohio) assertions of consensus support for his plan.

In a letter obtained by The Hill, Labor Secretary Elaine Chao wrote to Boehner, who plans to fold the pensions bill into a larger retirement package being drafted in the House Ways and Means Committee, and voiced strong concerns.

The letter said: "The bill should be improved to better protect the retirement security of American workers, retirees and their families. The legislation does not address fully the problems facing the defined-benefit pension system."

Chao's letter was circulated to several members of the House leadership and committee members from both parties in the midst of a contentious two-day markup of the pensions bill that led every Democratic committee member to vote "present" in protest. Because she is also the top director of the Pension Benefit Guaranty Corp. (PBGC), the government's private-pension insurance fund, now reeling from a $23 billion deficit, Chao has been the key promoter of the White House's pension agenda.

Two elements of the House pension bill directly stray from the administration's proposal and have been on Chao's radar since Boehner first introduced the bill. The first is credit balances, accrued when profits allow companies to make more than the minimum contribution to their pension plans. In leaner years, those businesses can cash in credit balances to avoid making their minimum payments.

The White House says credit balances lead to plan underfunding and pension defaults, but Boehner's bill only prohibits use of credit balances by companies whose pensions are funded at 80 percent or less. Chao called use of credit balances dangerous.

The other area that Chao singled out for criticism was so-called "smoothing," popular pension-funding methods that let businesses shift one year's pension bills into another year's liability estimates if profits make full annual funding impossible. The administration wanted Boehner to bar all smoothing, but the House bill only cuts the smoothing window by one to two years.

"Chairman Boehner's goal with this legislation is not just to improve the financial condition of the PBGC but also to improve the overall health of the worker pension system to ensure employers continue to offer these plans and workers can continue to count on their benefits," said Boehner spokesman Kevin Smith. Chao's letter is the first communication between the administration and the chairman on the pension controversy, though Labor staffers have been meeting for months with both the House and Senate.

Mark Ugoretz, chief lobbyist for the ERISA Industry Committee, which represents employer pension providers, said the letter signaled that the administration will lean even harder on the Senate to pass quickly a pension bill closer to the White House's original plan. Boehner "went as far as he thought he could. He tried to find a place between the White House and the plan-sponsor community, which goes beyond the business community," Ugoretz said.

Lobbyists privately agree that the White House proposal has little to no support from business and labor, which believe making such extreme changes to pension-funding rules will push companies out of defined-benefit plans and into defined-contribution plans such as 401(k)s or cash-balance plans that are a hybrid of the two. AARP, the nation's largest senior-citizens lobby group, is planning a major legislative push against cash-balance plans as the pensions bill continues to move through Congress.

Ugoretz said playing the mediator has been a difficult task for Boehner, whose consensus-building on the bill was undercut by the Democratic protest vote that the lawmaker called disappointing in his public statement. Future stakeholder battles on pensions will be negotiated by Rep. Bill Thomas (R-Calif.), chairman of the Ways and Means Committee.

Chao's continued pressure on Boehner means that Sen. Chuck Grassley
(R-Iowa), chairman of the Senate Finance Committee, could be the next beneficiary of White House lobbying on pensions. Grassley has compared the "mark to market" accounting of credit balances to the fraudulent balance sheets of Enron Corp., and he has echoed the pension priorities outlined in Chao's letter.