Mr. President, I allocate myself 7 minutes of the 10 we have on our side. A year ago, we were working on a pension bill, and we were working on the bill in two separate committees. We passed bills out of both committees. Then the two…
Mr. President, I allocate myself 7 minutes of the 10 we have on our side.
A year ago, we were working on a pension bill, and we were working on the bill in two separate committees. We passed bills out of both committees. Then the two committees met together, and we merged it into one bill. There were a lot of difficulties in doing that process. It took quite a while. At the end of November we still had several problems and because of that, the media pronounced the bill dead. A week later, we had revived it and passed it in the Senate with just two votes in opposition to it and 97 in favor. All that in just 1 hour. Then it was brought to life on the House side. They passed the bill in December of 2005.
Then, in March 2006, a conference was named, and we worked on it diligently for hours virtually every day. A lot of moving parts started to fit into place. Some wondered if it would never get done.
I looked up the last major revisions we did on a pension bill. They were not nearly as expansive as this. This is the biggest revision of pension laws to be enacted in the past 32 years.
I noticed, in 1987, a big pension reform conference started in early March. The conference committee started a little earlier, but the bill was enacted until December 22. In 1994, there was a second pension reform conference. Again, the conference started in March of that year. The conferees wound up the conference agreement a little earlier than in 1987. This time, the bill was enacted on December 8, 1994. So we are way ahead of schedule compared to those two conferences. But we had to do it in a little different method than we might have liked to get to this point. Nevertheless, it is the most sweeping amendment to ERISA and the Internal Revenue Code in over 30 years. It is nearly identical to the product and agreements made by the members of the conference committee in a bipartisan manner. I am proud we have before us the most sweeping changes to our Nation's retirement laws since the enactment of ERISA itself.
This legislation will provide greater security for our Nation's workers who have retirement benefit plans and greater stability for the Pension Benefit Guaranty Corporation. There is little doubt this bill will be the foundation on which the future of our retirement system rests.
Today, we secure the future for American workers and their families. We ensure their hard work is rewarded and their hard-earned dollars go towards their retirement needs.
At the outset of the pension debate, I laid out three guiding principles that must be followed when the bill is enacted. Each of these has been satisfied in this bill that I am proud to have helped craft as chairman of the conference committee.
The first guiding principle is: The money workers earn for retirement must be there when they retire. This legislation contains tougher funding rules to ensure the money is there when workers enter retirement.
The pension bill puts an end to phony pension accounting rules that inflated the apparent value of pension plans, relied on inaccurate measurements of liabilities, and permitted funding holidays through the use of credit balances when plans were seriously underfunded.
Promises made to workers for their retirement will be promises kept by assuring the money needed is in the fund and by appropriately limiting when benefits may be increased, freezing future accruals, and restricting the rapid out-flow of lump sums and shutdown benefits when the plan gets into serious trouble. The bill also imposes discipline on management by restricting new executive compensation when pension plans are in trouble.
The second guiding principle is: The new rules we craft should not be so draconian that they become the cause of more bankruptcies and pension plan terminations.
The conference committee leaders spent nearly 4 months debating this exact point with regard to ``at risk'' triggers. In the final bill, I believe we have found a proper balance.
The legality of cash balance and other hybrid pension plan designs is clarified on a prospective basis under ERISA, the Internal Revenue Code, and the Age Discrimination in Employment Act, thus ending legal challenges that have driven hundreds of quality employers out of the defined benefit system. We have always felt that these plans are valid under the Code, ERISA and the ADEA.
The final guiding principle is: A taxpayer bailout of the PBGC is not an option. The full faith and credit of the United States does not stand behind the private pension insurance systems, and I am committed to keeping it that way by shoring up the finances of the agency without a taxpayer bailout.
The legislation repeals the full funding exemption on the variable rate premium which reduces the deficit at the PBGC by billions over the next 10 years. With this single vote, we will make the most sweeping changes to ERISA since its enactment in 1974.
I urge my colleagues to vote in favor of this bill. Our future generations are counting on it.
I ask unanimous consent that the following letters be printed in the Record.
Mr. President, this bill is nearly identical to the product and agreements made by members of the conference committee in a bipartisan manner. I am proud that we have before us the most sweeping changes to our Nation's retirement laws since the enactment of ERISA itself.
This legislation will provide greater security for our nation's workers who have retirement benefit plans and greater stability for the Pension Benefit Guaranty Corporations, PGBC. There is little doubt that this bill will be the foundation on which the future of our retirement system rests. Today, we secure the future for American workers and their families. We ensure their hard work is rewarded and their hard earned dollars go towards their retirement needs.
I would like to review some important aspects of this legislation. For more than a year we have been working on a package of pension funding rules that will strengthen defined benefit plans and thus, protect plan participants from the fear of poverty in their retirement years. When I have concluded that, I will speak about the process surrounding the pension reform bill.
We were motivated to make these changes for several reasons. First, plans were underfunded. This occurred due to numerous and complicated reasons. A key factor was the combination of low interest rates and lowered equity values that began in the year 2000. The intersection of these two economic events caused both defined benefit
plans and the federal agency that insures them, the PBGC to show big deficits. More money needed to go into the plans regardless of fluctuations in the economy.
Underfunding was not caused solely by a drop in interest rates and equity values. It was also caused by loopholes in pension funding rules.
Second, as plan deficits rose, required contributions to plans skyrocketed. This put struggling companies in financial peril. When the terrorist attacks occurred on 9/11 the cash flow of many of those same companies froze up. Without big reserves in the plans, they could not make their pension payments any longer. Some of them just declared bankruptcy. In turn, they dumped their pensions on the PBGC. Those pension plan failures were quite large. Among them were some steel companies and a couple of big airlines.
PBGC premiums and asset recoveries from failed pension plans are not enough to cover the cost of paying benefits to participants of the failed plans. Every time there has been a pension plan failure, the PBGC's deficit worsens.
Finally, a taxpayer bailout of the PBGC is not an option. Congress' adverse experience with the savings and loan problems of the past taught us a lesson: A taxpayer bailout of the PBGC is not an option. A taxpayer bailout of the pension insurance agency could only occur if the Congress provided for it. We did not provide for a taxpayer bailout of the PBGC in this bill. Instead, we corrected the pension funding rules.
There have been murmurings in the media and on Capitol Hill that the bills produced in the House and Senate were somehow ``weaker than current law''. The facts plainly show that neither the House nor the Senate bill is weaker than current law and this new bill that the House introduced and passed on Friday July 28, 2006 is not weaker than current law either.
Here are just a few examples of how the pension reform proposal is tougher than current law.
Under the reform proposal: plans must be funded to 100 percent; plans must amortize their debts over 7 years; plans must use updated and accurate mortality tables; plans may not add inflated credit balances to deflated plan assets; liabilities must be valued using a modified yield curve that will better ``duration match'' assets and liabilities of the plans; smoothing for both assets and liabilities may be only 24 months in duration; plans that are seriously underfunded must pay an additional contribution for ``at-risk'' plans. If plans are at-risk for a long enough period of time, they will be subject to an additional requirement to pay a ``load factor'' into the plan which assumes the plan may be at risk of terminating; benefit increases, lump sum payouts and additional accruals are prohibited for certain seriously underfunded plans; payment of shutdown benefits are severely restricted for plans that are underfunded; funding of executive compensation is prohibited when the plan covering rank-and-file workers is underfunded; and premiums payable for pension insurance are dramatically increased and will add billions of dollars to the coffers of the PBGC.
By contrast, under current law a pension need be funded only to 90 percent; liabilities are valued upon the four-year weighted average of a long-term corporate bond and assets are smoothed over as many as five year; a single accelerated payment is required for underfunded plans, but there is no load factor; credit balances are added to assets and can result in inappropriate contribution holidays and there are many other weaknesses in current law that have been corrected in the reform legislation.
One industry that made a compelling case for special transition rules is the airline industry. Because airlines are vital to our economy, Congress agreed that different rules should apply to the plans of the legacy airlines. I am a little disappointed in the language from the House bill because it fails to treat all the legacy airlines equally. I admire the courage of a plan sponsor that makes the tough decision to freeze its plan. When a company is suffering from financial distress or the risk of it, it needs to freeze accruals. But if the company has made other financial sacrifices or the employees have made other concessions in order to keep the plan in place that should, (within limits), be a decision of the company.
The Senate bill gave amortization extensions to all four legacy airlines but required the non-frozen plans to pay into their benefit plans at the ``at-risk'' rate. The frozen plans received a more favorable arrangement--but all the legacy airlines received some more or less equivalent treatment.
Under the House bill, frozen plans receive 17 years to amortize their plan debt and an interest rate of 8.85 percent. The frozen plans would be prohibited from having a follow-on DB plan or a DC plan in which they pay matching contributions. If their plan should terminate within the next 10 years, for any reason other than a terrorist attack, or other similar event, severe termination premiums are to be imposed on the sponsoring company. This language controverts the provisions of the recently enacted reconciliation act, P.L. 109-171, that did not impose a termination premium on plans whose sponsor declared bankruptcy prior to October 18, 2005.
By contrast, nonfrozen plans receive some limited leeway. They would obtain an amortization of ten rather than seven years for the liabilities accrued to date under their plan. They would not have to pay the deficit reduction contribution, DRC, for 2006 or 2007. That waiver of the DRC would be a big help to their finances until the new rules phase in.
I prefer the language of the Senate passed bill, S. 1783. I am very sorry that the House did not see fit to accept the Senate language, as it was the result of many and long negotiations. The Nation cannot afford any more airline bankruptcies or terminations of airline pension plans. I hope this legislation will not worsen the finances of the legacy airlines or the pension plans they sponsor.
The language we have before us makes other changes to law as well. For example, it provides clarification regarding the use of automatic enrollment programs for defined contribution plans. It establishes a new portable defined benefit plan that we refer to as the ``DB(k)'' plan. This retirement savings vehicle is especially appealing to small and medium sized companies. The legislation improves portability of retirement savings. It contains many beneficial changes to tax law affecting the provision of health care benefits for public safety officers of state and local governments and for savings in long-term care plans.
There are also rules that recognize the unique situation of rural cooperatives that are very common in my home State and are vital to all rural parts of this Nation.
In addition, the rules for calculating lump sum distributions have finally been updated in this legislation. The change for this calculation will be phased in very slowly so that participants will not be disadvantaged by any sudden change in the rate used to make these calculations. As is the case under current law, the new law allows a plan sponsor to use different assumptions, interest rates and/or mortality tables, to determine lump sum distributions so long as the plan provides that a participant's lump sum amount is no less than the present value determined in accordance with the provision in effect under this legislation.
While single-employer pension funding problems have been quite visible, the funding problems of multiemployer pension plans, that is, plans that are sponsored by big labor unions and the employers who have an obligation to contribute to them, have been invisible. Ironically, the agency that is charged with protecting the integrity of the pension insurance system has consistently declined to recommend changes to the funding rules for these plans. Their argument is that the multiemployer plans are not a threat to the insurance system.
I respectfully submit that, over time, these multiemployer plans have become an unseen threat to the pension insurance system and to the participants in the plans and the employers who must fund them. If there were not risk inherent in these plans, the plans would never have come to Congress asking for changes in their rules. The changes in the pension reform bill will postpone the possible collapse of some multiemployer plans, but it they will not cure it. Much remains work remains to be done in terms of multiemployer reform.
Unlike the single-employer pension system which has been amended numerous times since its enactment in 1974, the rules governing multiemployer plans have been virtually untouched since the enactment of the rules covering these plans in 1980.
In 2003 the multiemployer plans came up to Capitol Hill and asked for a blanket extension of amortization of their plan gains and losses. Congress pared back that request in the provisions applicable to multiemployer plans that appear in the 2004 Pension Funding Equity Act,
I yield 3 minutes to the Senator from Georgia.
The capital preservation rule applies to applicable defined benefit plans, such as cash balance and pension equity plans. To illustrate how the rule operates in the case of a cash balance plan, the rule requires that the cumulative effect of all the interest credits to an employee's hypothetical account may not reduce the account balance below the sum of all the pay credits made to the account.
Yes. The two terms are synonymous. Since the account in a cash balance plan is hypothetical, the contributions credited to it are hypothetical also. Hypothetical contributions is merely another name for pay credits.
The second rule, the loss protection rule, applies to all defined benefit plans that use any form of benefit indexing. Thus, the second rule applies not only to cash balance and pension equity plans but also to other defined benefit plans that index benefits.
The loss prevention rule would apply in the same way as the capital preservation rule in the above example of a cash balance plan. However, because the loss prevention rule applies to a broader group of plans than just applicable defined benefit plans, the rule is written in more general terms than the capital preservation rule, which applies to a narrower universe of plans.
To illustrate how the loss protection rule operates in the case of a defined benefit plan that indexes benefits by reference to changes in the Consumer Price Index, the rule requires that the cumulative effect of such indexing may not cause a decrease in an employee's benefit below what it would have been in the absence of such indexing. Although it is very unlikely, this would occur if there were a sustained period of deflation in which the overall change in the CPI were negative rather than positive. In that extremely unlikely case, the plan could not reflect the cumulative negative change in the CPI.
The capital preservation and loss protection rules are intended to provide long-term protection to employees, so the determination of whether the rules are satisfied is made at the time benefits commence but not beforehand. In the case of plans that index benefits after benefits begin, the determination is made by reference to the benefit in effect at the time benefits begin.
lump sums from hybrid pension plans
Yes. The provisions do apply to all distributions made after the date of enactment.
Yes, it is.
credit counseling
Mr. President, I wish to take a moment and do special thanks
on the bill that was just passed. I congratulate everybody who has worked on the bill. It is going to make a difference for at least 145 million people in the United States. It is a very important bill, and it has been a long road with a lot of twists and a lot of difficulties. They all got ironed out with a very convincing vote.
I appreciate all the people who participated in this effort and were able to lend their expertise, their knowledge, their background, and put together something that will solve the pension difficulties for this country.
I particularly thank Senator Kennedy, who is the ranking member on my committee. He worked with me through the drafting in committee, getting it through committee, then merging it with the Finance Committee, then getting it through the Senate as a whole, and then serving on the conference committee to get it all ironed out. He has been delightful to work with on this issue and other issues that deal with health, education, labor, as well as the pension bill.
I thank Senators Grassley and Baucus for their extremely hard work. They brought the finance piece, the tax part together. They are experts in that area. They work together extremely well and extremely hard. Without their participation, this bill would not have been possible.
I appreciate everybody's commitment to the private pension system and their willingness to strive for solutions, not just to look at issues, and to make the tough decisions we had to make.
I also thank Senators DeWine and Mikulski, again. They started the hearings on this bill before we ever got to the bill part, the drafting. They have worked together well on the aging issues of this country for a long time. They know them backward and forward.
As the bill went through the process, they made sure that specific instances they were aware of were known, the details were known, and we could consider ways to solve those as part of an entire package as opposed to piecemeal. They were extremely cooperative in working on it.
Through the final days of the conference committee, they were engaged in asking questions and making a difference for this bill. I can't say enough about Senators DeWine and Mikulski and their extraordinary work.
But there are many people who worked behind the scenes to get this bill completed. I thank all of my staff for their diligence, commitment, expertise, and hard work. Since March, many of them have not had a weekend off. They have spent 12, 16, 18 hours a day working this bill. That is a huge commitment. I am sure a weight has been lifted from their backs. Without their expertise, we would not have been able to do it.
First off I would like to thank my staff director, Katherine McGuire. Without her, this bill never would be enacted. She had extraordinary efforts with the committee and then the conference committee and was able to pull people together to get an agreement. A lot of times, it meant not a compromise but finding a whole different way of doing it and engaging people and doing some research to find those other ways and even relying on some other committees to lend their expertise to do it. We made it through.
Greg Dean, our general counsel, played a central role in the investment advice and prohibited transactions bill language. That is a very specialized part. He helped me on the Banking Committee when I was subcommittee chairman there and then moved to this committee. He expertly managed discussions throughout the process, and he brought various players together time and again to move the bill forward. It is a very technical area, and it takes someone with that kind of technical expertise to do it.
I thank Ilyse Schuman, my chief counsel for the committee. She was able to pull together all the legal issues and was able to talk on that level with all of the other Senators and Members of the House to pull this off.
I thank Diann Howland, who is my pension policy director, who bravely agreed to come back to the Hill and take on her third major pension reform. In light of this, she brought a fresh perspective to the complex issues every day and has to be commended for leadership in getting this bill done. She probably knows more about pensions than anybody I have ever met and has been a valuable resource, knowing the history as well as being able to move forward on a new bill and get some things done that are different from what has been done before but things that have preserved pensions for people.
David Thompson brought a superb understanding of the intricate and complex legislation issues to the table and has a unique ability to explain these difficult issues in relatively few words and also explain some of the charts that went along with them. Again, I want to thank Amy Angelier who works as my budget staffer and approps staffer and policy adviser. She knows the intricacies of how the budget and the appropriations and the policy all have to fit together, whether it is pensions or whether it is banking or whether it is the rest of the issues we cover under Health, Education, Labor and Pensions. She was on top of each and every aspect of the budget aspects of this bill and helped guide it to success.
Now, my staff didn't do this alone. My staff worked closely with the staffs of my other Senate conferees, and those individuals deserve thanks. They are Michael Myers, Portia Wu, and Holly Fechner of Senator Kennedy's HELP Committee staff; Kolan Davis, Mark Prater, John O'Neill, Judy Miller, Stu Sirkin, Russ Sullivan, Pat Heck, on the staff of the Finance Committee for Senators Grassley and Baucus.
I especially commend Mark Prater for his leadership over the last week helping us to maneuver through troubled waters. He really knows the tax issues and knows the interplay between the moving parts in that whole area and was a tremendous help.
I would also like to thank the nonpartisan legislative counsels and the staff from the Joint Committee on Taxation for their very long hours and professionalism. They had to be in with all of the different times as all of these meetings were going on. Every person with a pension should join me in thanking Jim Fransen, Stacy Kern, Carolyn Smith, Patricia McDermott, and Nikole Flax.
Finally, I thank my chief of staff, Flip McConnaughey. He did an excellent job holding the office together and keeping a focus on Wyoming's specific issues when the pension conference kicked into full gear.
So I appreciate everybody's support of this legislation. I hope I haven't left anybody out. There have been so many people who have been involved in this, as I said, for just countless hours. It has been an incredible commitment of time and effort and knowledge, and I really appreciate that because without the kind of teamwork that we had on this, we would not have had the kind of approval we have.
I thank the Chair, and I yield the floor.
I thank the Senator.