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Many Ties Link Pension Lobby To Regulators

By ELLEN E. SCHULTZ and THEO FRANCIS
Staff Reporters of THE WALL STREET JOURNAL

The retirements of millions of Americans could hang partly on the relationships between those who regulate pension plans -- and are drafting regulations -- and pension lobbyists and consultants hired by employers and financial firms.

The relationships are social as well as professional. Consider a recent party at the Washington home of William F. Sweetnam Jr., a lawyer at the Treasury Department who is playing an important role in drafting regulations for what are known as cash-balance pension plans. The party was thrown to welcome a new congressional staffer working on pension issues. It was co-hosted by Brian Graff, a lobbyist for the American Society of Pension Actuaries, a group representing those who make a living running employer-sponsored pension plans, which has lobbied in favor of cash-balance plans.

Not invited were any of the few lawmakers and congressional staffers who have staked out strong positions against cash-balance plans, which offer financial benefits to employers but can reduce payments to older workers.

Instead, among the invited guests -- aside from a smattering of congressional and Treasury staffers who work on pension issues -- was a long list of lobbyists representing employers on pension and retirement matters. They included individuals from the Erisa Industry Committee and the American Benefits Council, whose members include International Business Machines Corp., AT&T Corp. and hundreds of other large employers with a financial stake in the outcome of the pension regulations Mr. Sweetnam is drafting.Also invited were lobbyists from the American Council of Life Insurers; Wall Street's Securities Industry Association; Davis & Harman and Groom Law Group, law firms that lobby on behalf of employers and benefits consultants; and Cigna Corp., which is defending an age-discrimination suit involving its cash-balance plan.Mr. Sweetnam, the Treasury's benefits tax counsel, says the party to welcome Judy Miller, an actuary from Montana joining the Democratic staff of the Senate Finance Committee, was a social event, not work, and the staffers and lobbyists he invited were people with whom he works regularly and "who are also my friends."Says Mr. Graff, executive director of the ASPA, who has also worked on the staff of the Joint Tax Committee of the House and Senate, and for Groom Law Group: "The pension community is certainly a relatively close-knit group ... because there aren't that many people with a great deal of technical pension expertise."There is nothing new about lobbyists, congressional staffers and regulators socializing. But this is a crucial time for the pension business: The Treasury is expected any day to issue regulations on cash-balance plans, determining whether the plans violate age-discrimination laws, and it is developing proposed regulations to determine whether employers can pay departing workers smaller lump sums from cash-balance plans under certain circumstances. Employers have been increasingly eager for favorable regulations since IBM lost an age-discrimination suit in a federal district court in July, and Xerox Corp. in August lost its appeal in a cash-balance case involving the underpayment of lump sums.Cash-balance plans are controversial because when employers switch to them, older workers often lose the advantage of many years with their employer. The new-style plan changes the formula for figuring how large a pension an employee eventually would be owed. Unlike traditional pensions, which grow rapidly in later years, cash-balance plans base benefits on a percentage of pay each year, plus interest. Older workers can see their final pensions cut between 20% and 50% when their plans are converted.While the Treasury has been working on cash-balance regulations for more than 15 years, more than 300 employers converted their plans. The change typically reduces pension liabilities and, even in rare cases where benefits aren't cut, adopting a cash-balance plan brings an accounting windfall that indirectly boosts earnings.Many employers hope they can count on the Treasury to issue regulations favorable to them. Many officials developing the pension regulations previously represented employers on pension issues, either on Capitol Hill or by helping employers establish cash-balance plans, before being appointed to their government jobs.Treasury Secretary John Snow, who has final say on cash-balance regulations, once headed CSX Corp., which implemented a cash-balance plan for newly hired workers this year. Mr. Snow also was on the human-resources committee of Verizon Corp's board when it voted to adopt a plan for Verizon employees.Mr. Sweetnam joined Sun Co., now Sunoco Inc., in 1989, as it was implementing one of the first cash-balance plans. In 1995, he joined Towers Perrin, a benefits-consulting firm that has been a prominent promoter of cash-balance plans. He became majority tax counsel to the Senate Finance Committee in 1998, serving primarily as an adviser to the then-chairman, Sen. William Roth Jr., where Mr. Sweetnam supported cash-balance plans. Mr. Sweetnam says his positions on the finance committee reflected Sen. Roth's stances.At the Internal Revenue Service, which is also responsible for formulating cash-balance and other pension regulations, some of the top positions traditionally filled by career experts have gone to lawyers and consultants with backgrounds representing employers, under a measure adopted in the late 1990s to bring in private-sector experts to help reshape the tax agency. Paul T. Shultz III, who worked on cash-balance pension issues for many years at Towers Perrin, was chosen in March 2000 as director of employee plans rulings and agreements. In March 2001, the position of senior technical adviser went to Thomas Terry, who was with Groom Law Group, lobbying for employers.In statements sent through the IRS's media office, Mr. Shultz says his role with cash-balance plans is small. Mr. Terry says, "I have not been in a decision-making role at the IRS involving cash-balance plans."Some career IRS staffers say the influence of employer groups has grown in recent years.Until late last year, Mark A. Weinberger was assistant Treasury secretary for tax policy, overseeing the office that handled the cash-balance issue. Mr. Weinberger had been listed as a lobbyist for the Cash Balance Coalition, a group formed by a Washington lobbying firm called Washington Council Ernst & Young, a unit of accounting firm Ernst & Young LLP. Mr. Weinberger's successor, Pam Olson, was prior to her appointment in January the chairwoman of the American Bar Association's Section of Taxation, whose members include benefits-industry lawyers.Tara Bradshaw, a Treasury spokeswoman, says Ms. Olson "complied with all the ethics rules," and was unavailable to comment. Mr. Weinberger, now a top tax official at Ernst & Young, couldn't be reached for comment Tuesday.Ms. Miller, for her part, says that with few acquaintances in Washington outside her immediate co-workers, the party was a "a very gracious thing for them to do." Although she has been a member of ASPA, which she views as a professional society, Ms. Miller says she will probably let her membership lapse now that she is no longer practicing.Ms. Bradshaw, the Treasury spokeswoman, objected to questions about the party. The policy positions of those invited to the party "had no bearing on whether they were invited or not," Ms. Bradshaw said. "This was two buddies throwing a party for friends."

--John D. McKinnon contributed to this article.
(This story ran in the Wall Street Journal on 9/10/2003.)