Mr. Speaker, I yield myself such time as I may consume. Mr. Speaker, I rise today in support of H.R. 3108, the Pension Funding Equity Act before us. And I do so because of the very concerns that were just raised by my colleague from…
Mr. Speaker, I yield myself such time as I may consume.
Mr. Speaker, I rise today in support of H.R. 3108, the Pension Funding Equity Act before us. And I do so because of the very concerns that were just raised by my colleague from California (Mr. George Miller) and that is this will strengthen and define benefit plans in this country.
I will remind the gentleman that this Congress did pass, the House passed legislation after the Enron scandal to be sure that workers indeed had more options for diversification and to further protect those who are in 401(k)s and in plans like the Enron plan. That legislation is currently in the other body, but we do hope we can act on that yet this year.
I also would agree with the gentleman that we need to go even further with regard to looking at the defined benefit area. That includes looking at the funding rules. It obviously includes looking at the issue of what the discount rate ought to be. Today, we have before us a short-term fix for that problem, but it is only for 2 years. It also means we need to look, I believe, at other issues connected with pension accounting and with PBGC, the Pension Benefit Guarantee Corporation.
But having said all that, the bill before us today is necessary, and it is very important. We need to put this in a little perspective, I think. First, there is no mandate for American businesses to offer pension plans, whether it is a 401(k) or other defined contribution plan or whether it is a defined benefit plan, such as those we are talking about today. Those guaranteed defined benefit plans, of course, are traditionally viewed as the most secure pension plans, and there are millions of Americans who depend on them, not as many as they used to be.
Mr. Speaker, in fact, over the past 18 years, we have gone from 114,000 plans insured by the PBGC, the Pension Benefit Guarantee Corporation, ultimately by the taxpayer, to today where we have roughly 32,000 plans.
In the last four years alone, we have lost over 20 percent of the contribution plans in this country that are defined benefit plans insured by PBGC. So there are not as many Americans today as there used to be depending on these plans, but I believe they are still an incredibly important part of our overall retirement security system, and we ought to do all we can here in Congress to stop the erosion of these plans.
What does that mean? Without a system that is mandated, it means we need to offer better legislative incentives and encouragements for those plan sponsors and for those employees to be in these kinds of plans.
I will also say, Mr. Speaker, that this legislation addresses one of the reasons that we have seen a reduction in plans. It also addresses one of the reasons that we are seeing, even this year, not termination of plans but freezing of plans, where there are no new participants admitted or where existing participants are not able to accrue additional benefits. There is a group out there, one of the consulting firms that does work in this area that has told me they believe up to 20 percent of the plans are currently freezing or looking to freeze or scale back benefits in the near-term; 27 percent of the plans that they work with intend to offer less generous benefits for new hires. So we have got a serious situation here, and we do need to deal with it.
Again, one of the reasons we have seen this deterioration of the defined benefit plan is because of the discount rate. I believe this was talked about earlier, but right now by using this now defunct 30- year rate, we are telling corporations they have to overfund their plans. The 30-year Treasury measurement has been discontinued, therefore, the rate is too low; and, therefore, it is not an accurate measure of what the return will be on these plans over time; therefore, companies are being asked to come up with millions of dollars, in some cases over time billions of dollars, in funds that they do not believe are necessary in order to provide adequate benefits for workers. And at a time when the economy is not doing as well as it should be, particularly in the manufacturing sector, this is a real problem.
It is very important to come up with what we view as an accurate measure for this discount rate. In other words, what rate companies have to use with regard to their contributions to their plans and with regard to the premiums they pay to PBGC. That is what this debate is about today.
I am delighted by the fact that it is a bipartisan discussion. I am delighted by the fact that we have bipartisan cosponsorship of this short-term fix for this problem. What we are saying is that instead of using this defunct 30-year Treasury measurement, which again is outdated, that instead we ought to use a more accurate measure which would be a long-term, conservatively invested corporate bond rate to be chosen by the Department of Treasury. They would choose which corporate bond conservative indexes to use. The corporate bond indices which would be chosen would not be up to us, but we would be establishing here, legislatively, that that ought to be the rate going forward.
This is a huge victory because at least now we are telling those plan sponsors out there, gee, if you want to stay in this defined benefit area or for somebody maybe who is looking to get into the defined benefit area, there will be a more accurate measure, rather than, again, forcing companies and plan sponsors to overinflate their contributions and their premium payments. Rather, it will be an accurate measure, based on something you can predict which is what is the long-term corporate bond rate, again, determined by the Treasury Department based on indices.
That is where we are today. It is extremely important that we move forward with this legislation to give companies a little bit of predictability and certainty, at least over the next two year, as to what will be their liability.
Personally, I would have strongly preferred that we would go beyond 2 years. I think 3 years was a minimum that we should have gone. But this is something we worked at, again, on a bipartisan basis, given the balancing of interests here between the PBGC, the Pension Benefit Guarantee Corporation, their liabilities and concerns, which is ultimately the taxpayer, given the concerns of the employees and having job security and having pension security because this relates to jobs, as well as pensions, given that these contributions affect the bottom line of these companies, and given the need for us to be sure that you have enough incentive to keep plan sponsors in these plans. So this is a two-year period within which we go to a better discount rate.
During that time period, it is explicit in what we are doing here today, that this Congress will be getting busy in looking at these bigger issues. And they have to do, again, with the pension funding rules, with accounting rules, working with the PBGC, working with Treasury and working with outside groups. After all, those who are making decisions as to whether to offer pensions day to day, whether to freeze or not, whether to go to some sort of a convention, perhaps to a cash balance plan, those are people we need to hear from.
Congress can come up with what we think are great ideas, but if they do not work in the real world, who gets hurt in the end? It is the employees who do not have that guaranteed benefit that is so important, such an important part of our overall retirement security plan in this country.
Mr. Speaker, I reserve the balance of my time.
Mr. Speaker, I yield such time as he may consume to the gentleman from Texas (Mr. Sam Johnson), a distinguished member of the Committee on Ways and Means, also chair of the subcommittee of the Committee on Education and the Workforce on Employee-Employer Relations.
(Mr. SAM JOHNSON of Texas asked and was given permission to revise and extend his remarks.)
Mr. Speaker, will the gentleman yield?
Mr. Speaker, I thank my good colleague from Maryland for yielding.
I want to echo the concerns he raised about this not being the more comprehensive approach that is needed. I also want to thank him for working with me and other Members on both sides of the aisle over the last 3 years in putting together more comprehensive legislation from which this corporate bond rate is taken, and that is the Portman-Cardin legislation my colleague talked about. It did go to the Committee on Ways and Means; it has not come to the floor yet. I do think we will have the opportunity to take up that legislation in the future because it does address not only some of the other issues connected with the defined benefit plans but also defined contribution plans.
Mr. Speaker, I yield such time as he may consume to the gentleman from Massachusetts (Mr. Neal) for purposes of a colloquy, a member of the Committee on Ways and Means.
Mr. Speaker, will the gentleman yield?
Mr. Speaker, I would say first it is an excellent question, and he raises a concern that I also have with this legislation.
As my colleague indicated, section 415 of the Tax Code limits the maximum pension benefit that can be paid from a defined benefit plan. For 2003, that dollar limit is $160,000 annually paid in the form of a lifetime annuity. If that worker decides to take a lump sum benefit instead, this annuity, the 415 limit, would also be converted into the lump sum.
Under current law, pension plans must use the 30-year Treasury rate to convert the 415 limit into a lump sum; and of course, because the 30-year Treasury is not a good rate, as we have talked about today, and because it fluctuates a great deal, it is very difficult for businesses to determine with any amount of certainty how much money it has to set aside to pay lump sum benefits. Although volatility is never good, it is particularly problematic for small plans; and it is these 415 plans that are typically in smaller businesses.
The legislation before us, H.R. 3108, would have allowed businesses to use a flat rate of 5.5 percent to convert the 415 limit. We think that was good policy. This provision would allow businesses, particularly small ones that I know the gentleman from Massachusetts (Mr. Neal) is concerned about, to fund their pension plans with more certainty.
That provision was dropped in this amendment being considered today because it would have had an effect on lump sum distributions, and we did make an agreement with all parties that lump sums would not be affected one way or another by this short-term 2-year change in the discount rate. So that provision would have increased the 415 limit in some circumstances and reduced it in others. So it would have affected lump sums.
Nonetheless, the provision is extremely important to small business. I appreciate the gentleman from Massachusetts (Mr. Neal) raising it and appreciate his support. I hope we can get it back in the bill, and I believe that we can as this bill moves forward when more permanent legislation is considered.
Mr. Speaker, I yield such time as he may consume to the gentleman from Wisconsin (Mr. Ryan), my colleague on the Committee on Ways and Means, a distinguished Member.
Mr. Speaker, I yield myself such time as I may consume, and I want to thank my colleague. He ended up by saying that he appreciates the responsible bipartisan work that has been done in this area. I want to thank him and the gentleman from Maryland (Mr. Cardin), who spoke earlier, and I also want to thank the gentleman from Texas (Mr. Sam Johnson), who we heard from a moment ago, and I want to thank the gentleman from Ohio (Mr. Boehner), who we will hear from in just a minute.
This has been a bipartisan effort from the start, and it is something we need to continue to focus on. We need to do two things: One, today we need to do this short-term fix. Second, we need to look more comprehensively at these issues. First, at all the funding issues
and other PBGC issues, some of which were raised by the gentleman from North Dakota (Mr. Pomeroy) and the gentleman from Maryland (Mr. Cardin), the lump-sum issues, and that will be done in the next 2 years if we are to meet our commitment under the legislation we are passing today.
The second thing we need to do, though, is we need to look more comprehensively at retirement security generally, and that is what the Portman-Cardin legislation builds on, and, hopefully, we can continue to do that.
Mr. Speaker, I yield back the balance of my time.