Mr. President, I take a view opposite what was just spoken by Senator Rockefeller on the amendment that is before the Senate, the Durbin amendment, No. 1, because of a very carefully crafted compromise that was worked out when the pension…
Mr. President, I take a view opposite what was just spoken by Senator Rockefeller on the amendment that is before the Senate, the Durbin amendment, No. 1, because of a very carefully crafted compromise that was worked out when the pension reform bill was passed, and No. 2, the purpose of that legislation was to protect the pensions of the workers of the corporations of America, including the workers who work for our airlines.
What we are trying to do is stay within the realm of that compromise and the protection of workers' pensions. This effort detracts from it. I am trying to make sure workers' pensions are protected.
I am going to ask my colleagues to be against the Durbin-Hutchison amendment. The amendment before us seeks to keep in place a policy that is wrong from a pension policy standpoint. The amendment also would preserve a process followed against two committees with jurisdiction over pension policy--the Finance Committee and the Health, Education, Labor, and Pensions Committee. These two committees worked arm in arm for all of 2006 to get a pension reform bill together that would protect workers' pensions.
If the proponents of this amendment succeed in their effort, it will taint the legislative process with respect to one of the most important policy challenges before Congress, and this is strengthening retirement security.
The provision the proponents seek to strike is not only justified from a policy perspective--but the way in which the original provision of the Pension Protection Act was modified should raise the eyebrows of some of my Senate colleagues.
I would first like to walk my Senate colleagues through the yearlong conference negotiations of the Pension Act which occurred less than 2 years ago. But let me first remind my colleagues that the underlying intent of the Pension Act is to require defined benefit plan sponsors to fully fund their pension plans; in other words, keep their promise to their employees.
In nontechnical terms, the Pension Act makes sure plan sponsors are not digging a deeper hole by requiring plans to pay off their unfunded liabilities.
The Pension Act requires defined benefit plan sponsors to make contributions, one, to cover benefits accrued in the current year and, two, to pay off any unfunded pension liabilities or past liabilities over a 7-year period of time. A lot of people think we were not doing justice to the workers of America by giving these companies 7 years to pay off these past liabilities, but at least we have a plan in place that two committees of this Senate worked on that was a compromise that would bring us to the point where even after 7 years, workers' pensions would be protected.
There is an interest rate issue with a lot of pensions--the interest rate used to determine these past liabilities based on the yield curve of high-quality corporate bond rates. Currently, the corporate bond yield curve rate is approximately 6 percent. The Pension Act provided two exceptions to this general rule. The exceptions were specifically provided for certain commercial airline carriers that may have had difficulty meeting the general requirements within the bill. In other words, we were taking into consideration 2 years ago the very critical and--how would I say it--very unpredictable future of airlines. That is something that was legitimate at the time.
There were exceptions for these commercial airline carriers. Under the first exception, carriers that froze their pension plans were permitted to pay off any past pension liabilities over 17 years--that is instead of 7 years--and use in the process an 8.85-percent interest rate to calculate past liabilities. And that would be instead of current law, which is a 6-percent rate. Under the second exception, carriers that did not freeze their pension plans were permitted to pay off liabilities over 10 years instead of 17 years, if they chose the other course, and use the current 6-percent rate instead of the 8.85- percent interest rate.
During the Pension Act negotiations, those airline carriers freezing their plans were permitted to take advantage of the first exception. We were aware at that time that these carriers pledged to make new 401(k) contributions on behalf of current and new employees in their union negotiations.
Those airline carriers that did not freeze their plans did not need to make the same pledge for a 401(k)-type retirement because these carriers continued their pension plans. The workers for these carriers continued to accrue benefits under the pension plan.
The opponents of section 808 do not understand or maybe they choose to ignore that this was a carefully crafted compromise which was intended to place workers of each of these carriers in a similar position from a retirement perspective. Workers of carriers that did not freeze their plans continued to accrue their usual pension benefits. Workers of carriers that froze their plans received retirement benefits under 401(k) plans. Under each approach, the carriers remain obligated to pay their retirement benefits that accrue in the current year.
This was a proworker, proparticipant approach that recognized the financial distress the airline industry was experiencing. It also recognized the differences in the financial health of the carriers that froze their pension plans and the financial health of carriers that did not freeze their retirement plans.
The amendment's proponents are now saying they want the same set of rules that were offered to carriers that froze their plans.
What is on the books that we in the Finance Committee are trying to correct in this legislation is that we gave maximum flexibility to airlines to choose one plan or another, the one that fit, whether they wanted to freeze their pension plans or not freeze their pension plans. And if they froze their pension plans, they chose a future 401(k) for their employees. It was maximum flexibility because these union agreements were much different among the airlines and the financial conditions of the airlines were very much different. We wanted to give choice for flexibility for the financial management of the corporations to keep their promise to their workers, and we wanted to keep our promise that Congress made under our laws that workers' retirement ought to be protected. So there was maximum flexibility.
OK, everybody agreed to this, and then later on, people wanted to change the rules in the middle of the game to benefit one airline over another airline. So the proponents of the present law, the present distraction from our compromise that was made less than 2 years ago, will tell you that just before passage of the Pension Act, an agreement was reached with Senate leadership that the Senate would take the first available opportunity in the next Congress to offer the same set of rules to carriers who do not freeze their pension plans. If that is true, then why did we worry and try to make this compromise over a period of 7 months during 2006? We wouldn't have had to spend the time to do that.
On January 4, 2007, Senator Hutchison and Senator Cornyn introduced a bill that loosened the rules for those carriers that did not freeze their plans. The bill increased the current interest rate of 6 percent to 8.25 percent, which, in their view, is closer to the 8.85-percent rate given to frozen plans.
The bill was referred to the Health, Education, Labor, and Pensions Committee. I don't recall Chairman Kennedy and Ranking Member Enzi considering the Hutchison-Cornyn bill in
the normal course of the committee process. I know for a fact that neither Chairman Baucus nor I considered the Hutchison-Cornyn bill in the Finance Committee.
Language that was identical to Hutchison-Cornyn was slipped into the war supplemental conference agreement. This action was taken without consideration by the two committees of jurisdiction over pensions, the very same two committees that worked for several months during 2006 to work out this carefully crafted compromise that took into consideration the financial conditions of the various airlines, the desire of some airlines to freeze their pensions and substitute 401(k)s and those airlines that wanted to keep their pension system going as was, without any consideration to the people who worked on this for so long.
It was slipped into the conference agreement of an appropriations bill. Isn't that the process we here in the Senate are trying to put an end to? No promises were broken. The promise to make the rules the same was taken up in this Congress. Specifically, the Senate Finance Committee included the provision we are debating today and the modification of the chairman's mark of the Federal Aviation Administration authorization bill. The mark was considered by the full Senate Finance Committee in September of last year. The full committee overwhelmingly supported that provision and favorably reported it out of committee. Proponents of this amendment cannot stand on the Senate floor and cannot in good conscience argue that promises made to them were not kept.
Let me remind my colleagues that we here in the Senate have a committee process which enables Members to debate and dispense with issues in an orderly process. Without this orderly process, the democratic process our Founding Fathers gave us breaks down. I didn't serve as chairman and now ranking member of the Finance Committee to let an orderly and democratic process break down, particularly considering the months of compromise the House and Senate took to work out what that pension bill was all about.
For my Senate colleagues to suggest that a provision that was not considered during the normal course of the committee process is making good on a promise that was made to them--I think that is not acceptable. For my Senate colleagues who, alternately, contend that the promises that were made to them were not kept, I ask them why they did not speak up during the full and open deliberation that occurred in the Finance Committee in September. Why are they now opposing a provision that was out there in the clear light of day for over 7 months and, if they had problems with the provisions, not speak to us about them? Or is it that the airline carriers that oppose this provision finally woke up? I don't know. Did they wake up to the fact that their blatant end run around the committee process would not go unnoticed and they wanted to find some way to undo the careful compromise of 2006? I am skeptical, of course. ``Skeptical'' is an understatement.
But let me turn to the policy in the Finance Committee bill. As we have established, opponents of that provision successfully increased the interest rate for nonfrozen plans to 8.25 percent. They say the 8.25-percent rate levels the playing field. I admit that and agree with them. But it only levels the playing field in the context of calculating past liabilities. So I agree it is equitable to allow all the carriers to use the more favorable interest rate to calculate past liabilities, but it is not equitable to allow carriers that did not freeze their plans to underfund benefits earned in the future and maybe get us back to the position we are still in somewhat, even regardless of the law that is now on the books. This is what is going to happen if we do not do something about it right now.
I would like to correct the manner in which my distinguished colleague from Illinois--and he is here on the floor--refers to the now infamous 8.25 percent, versus the 8.85 percent. These are not ``earnings rates.'' The rates are not used to determine the value of plan assets. Instead, the rates are discount rates that actuaries use to determine the present value of pension liabilities. Basically, the rates are used to determine how much a company has to contribute today to make good on the promised pension payments that would be due when an employee retires.
This is an important distinction because when a company uses a higher interest to project the present value, the company is able to understate--or I would use the word ``mask''--the promised pension payments. This understatement allows the company to contribute less money to the plan. Less money to the plan is an important distinction because we are talking about protecting workers and their pension rights.
Why would a worker support a policy that places the full value of their promised pension payments in jeopardy? My colleague from Illinois contends that the workers of the carriers in question support this practice and, of course, the Durbin-Hutchison amendment. Most workers I know ask for bigger payments or at least want to make sure they are secure in retirement. It is usually management that wants to short the worker. That is why we get into the trouble we are in and why the Pension Act of 2006 was necessary.
But let me get back to what the war supplemental actually accomplished. Carriers that are currently using the 8.25-percent interest rate are now permitted, No. 1, to mask the pension plan's unfunded liabilities and, No. 2, contribute less money to a pension plan. The greater extent to which a pension plan is underfunded, the greater the risks to the Pension Benefit Guaranty Corporation, the Federal insurer of the pension plans. Then, obviously, if that comes up short, the taxpayers pick up the bill.
Opponents of the Finance Committee provision argue that the most important risk factor for the Pension Benefit Guaranty Corporation is the financial health of a plan sponsor. This is not entirely true. Whether a plan is underfunded is an equally important risk factor. Specifically, if the company goes into bankruptcy and pushes the pension liabilities onto the PBGC, guess who is holding the bag for those unfunded liabilities--it is the PBGC. In the most extreme cases, then the taxpayers might be left holding the bag.
My opponents cannot tell half of the story. Yes, the financial health of the plan sponsor is important, but so is the funding status of the plan. What we have here is an issue of underfunding. I told you that from an actuarial perspective, higher interest rates mean lower plan liabilities. When a plan's sponsor uses a higher interest rate to determine its liability, the sponsor is effectively masking the plan's liabilities. In other words, the plan's liabilities are artificially understated. I want to emphasize the word ``artificial'' because what we have here is a case where the carriers that oppose the Finance Committee provision are trying to take advantage of a special funding rule based on an artificial funding status.
I went to great lengths to say to my colleagues during 2006 how we tried to take into consideration--between the two committees, the Labor Committee and the Finance Committee--considerations of the different financial conditions of the various air carriers and to give them some choice. Specifically, if a plan sponsor using the normal 6-percent rate is 100 percent funded, the plan sponsor is only required to contribute money to cover the current year's costs. If the plan is, say, 115 percent funded, the plan sponsor may use the excess to cover the current year liabilities. In some cases, the plan sponsor will not have to contribute any money because the excess would cover the current year costs. Carriers that are using the 8.25-percent are contending that, because their plan is 116 percent funded, they do not have to make the current year contribution. The problem here is that the 116-percent funding status is artificial. It is artificial because the 8.25 rate effectively masks the underfunding of the plan.
So I ask my Senate colleagues, should a plan that is artificially funded be permitted to avail itself of a rule that is only available to plans that are adequately funded? Or put another way--this is fuzzy funding math. It is fuzzy in the way it puts the plan at risk. Should plans that are artificially funded be allowed to skip making their current year contributions? In that case, are they not just digging the hole deeper?
The Finance Committee provision says that if these carriers use the 8.25-percent rate, which results in an artificial funding level, these carriers cannot skip their current year's contributions. So the Finance Committee provision makes good on the promise that was made to Senators during the year 2006; that is, that we are allowing carriers that did not freeze their plans to use a more favorable interest rate to determine their past liabilities--the same deal that was given to frozen plans. What we are also saying, however, is that if you are using the more favorable rate, you have to contribute the current year's cost. That is the grand compromise of 2006.
Again, the same deal was given to the other set of airlines and/or other corporations--to freeze their plan. To do otherwise would, No. 1, adversely affect active workers and, No. 2, allow these carriers to dig a deeper hole by allowing pension liabilities to continue to grow.
Moreover, taxpayers can end up being on the hook for these unfunded liabilities.
It all comes down to this bottom line: Workers, retirees, and taxpayers are in better shape if there is more money in the retirement plans. Workers, retirees, and taxpayers are in worse shape if there is less money in the retirement plans. Management wins if the company puts less money into the plan and workers, retirees, and taxpayers lose.
A vote for this amendment is a vote to put less money in the retirement plan. A vote against this amendment is a vote to put more money in.
Let me make sure I said that right. A vote for the amendment is a vote to put less money in the retirement plan. A vote against the amendment is a vote to put more money into the retirement plan. If you vote for the amendment, you are putting workers and retirees--and you ought to be concerned about taxpayers, most of all--at risk.
I hope my colleagues join me in opposing this amendment.
I yield the floor.
Mr. President, I wasn't present on the floor when the maneuvering that just took place happened that puts this Senate in a very difficult position, but it gets us into a very bad and dangerous situation.
The maneuvering of the Democratic leader and floor manager that was just done is not used very often in the Senate. In fact, substituting-- putting a modification of a substitute that was agreed to by two separate committees that jointly brought this to the floor is something that I think is very unprecedented. This process of filling the tree so that only the majority party can decide what amendments can come up is not only dangerous and can keep this very important piece of legislation from being passed, but it is dangerous for the whole process of the Senate's comity in getting the job done.
As I said, this substitute was the product of two committees--not one committee but two committees--and by the overwhelming support of people on those committees that we needed to not only reauthorize the Federal Aviation Administration and do everything we can to improve airport safety, as well as airport facilities, but also the financing of it, to make sure there is plenty of money available to get the job done.
On safety at the airports, we have the Commerce Committee doing their work. On financing it, we have the tax-writing Finance Committee making sure the money is available. These two committees do their work almost in a unanimous way, and it comes to the Senate floor. That ought to be a procedure that gets this bill through this body quickly, without a lot of controversy, and by an overwhelming vote that reflects the comity that went into it and that reflects the need of the airline industry, both for commerce and for the passenger.
These joint deals should not be taken lightly, and because one amendment is offered that a few powerful Senators do not like, and their unwillingness to set it aside so we could work on other amendments as we tried to work out a compromise was not accepted, they take this extraordinary measure that only a manager of a bill can do to ask to modify an amendment by taking out the provision of the bill which dealt with the Durbin amendment that was before the Senate. That is nothing else, just blatant political power to get around something that people did not want to deal with. This was something that was agreed to between the two committees. That move breaches the deal.
What is more, the Democratic leader has backstopped the breach of the deal by this procedure we call ``filling the tree'' so that only amendments can be offered that can get unanimous consent to offer them, and that is very difficult to do and is only done for the sole purpose of keeping the issue dealing with the Durbin amendment from debate and finality on the floor of the Senate.
All day long the floor managers could have set aside the Durbin amendment, as I said, and moved along to other business. That is what the Finance Committee does in similar situations. We have already heard speakers before me say there are very real possibilities of working out compromises on that amendment that the majority manager did not like.
Let it be clear that we could have processed other business if Senator Durbin would have deferred action on his amendment, and we would have been moving along. We would not be in this position that is dangerous from two standpoints: dangerous whether or not this important legislation can be passed, and dangerous from the standpoint of working together on other legislation that needs to be done in future weeks.
I yield the floor.