Pension Funding Equity Act of 2003

PENSION FUNDING EQUITY ACT OF 2003

Mr. GRASSLEY. Mr. President, in turn, I thank the Senator from New Hampshire as the chairman of the committee dealing with some pension legislation. I thank him for his cooperation. That cooperation has been over a long period of time, going back to at least a year when we started efforts to work together on pension legislation so we would have a solid approach on the floor of the Senate.

Mr. President, the replacement of the so-called "30-year Treasury" interest rate has reached an emergency. This is the statutory rate used to value pension liabilities.

There is an inverse relationship between interest rates and pension liabilities: As interest rates go up, pension liabilities go down. Conversely, as interest rates go down, pension liabilities go up. Small changes in interest rates mean big differences in pension contributions.

Current interest rates are at historic lows. Low interest rates have caused pension plan liabilities to skyrocket. To make matters worse, the recession that began in 2000 brought down stock values.

The combination of unusually low interest rates and the decline in stock values have combined to worsen the pension plan funding problem. Just when you think things can't get any worse, they do.

In October 2001, the U.S. Department of the Treasury discontinued the 30-year Treasury bond. The 30-year bond is the statutory rate used by pension plans to value their liabilities. While the Treasury Department still calculates the yield on the 30-year Treasury bond, the number is increasingly "soft."

To help plans cope with high funding requirements, Congress adjusted the rate to 120 percent of the 30-year Treasury shortly after the terrorist attack of September 2001. That adjustment was effective for 2002 and 2003. Plans were depending on Congress to extend that relief before December 31, 2003. We missed our deadline.

At the end of the last session, we needed unanimous consent to pass an interest rate bill, but we did not have UC to proceed. The objections were not over replacing the rate, they were over deficit reduction contribution, or "DRC relief" and over relief to mutliemployer plans.

Let me talk about DRC relief for a moment. There is an honest difference of opinion in the Senate over whether or not to grant DRC relief to underfunded pension plans.

The real answer to the question of whether underfunded plans should be given DRC relief is: It depends.

If a company is otherwise healthy but in a cyclical industry, should the combination of the economic downturn and an arbitrary pension rule force them into bankruptcy?

I respectfully suggest that DRC payments should not force an otherwise healthy company into bankruptcy. Remember, the company could survive if the Government takes its thumb off the pension DRC scale for a little while.

So what should Congress do?

The Senate Finance Committee decided that we should provide temporary relief to overburden plans. The HELP Committee did not take action on this issue.

Out of respect to the HELP Committee, we agreed to winnow back the relief to qualifying airlines and steel firms, but to allow others to apply to the Government for relief so long as they meet the qualification requirements. The bill provides only 2 years of limited DRC relief. Relief for 2004 is limited to 80 percent of the deficit reduction contribution.

In 2005, the DRC relief is further limited to only 60 percent of the otherwise payable deficit reduction contribution.

Plans that were poorly funded in 2000 are not eligible for this relief. We are concerned that for the healthy companies, the DRC creates an artificial cash demand on companies. The DRC is well-intentioned, but it may be a flawed requirement.

We wish we had time now to simply reform the DRC. If we had anticipated the amount of time it has taken us to get to this point, we would have reformed the DRC. As an alternative to reform, we are providing short-term DRC relief to qualifying companies.

Now, let me turn to the multiemployer plans.

The same fiscal and financial conditions that have caused the pension funding crisis among single-employer plans are working against the multiemployer plans.

Since we have already given 2 years of relief to single-employer plans (in 2002 and 2003), it is only fair that we now provide some relief to the multiemployer plans.

This amendment gives multiemployer plans an extra couple of years to amortize their experience losses. If we don't give them relief, excise taxes will cascade down the employers who contribute to the plan. The excise taxes and penalties will hurt the employers-not the unions. The excise taxes start at 5 percent, but they quickly increase to 100 percent.

These taxes do not help fund the pension plan. They just enrich the Federal Government.

The reason that this relief is a little different from the single-employer language is that the multiemployer plans are structured very differently than a single-employer plan.

A multiemployer plan consists of tens, or hundreds, or a thousand employers contributing to the same fund. Each employer may have a slightly different arrangement for its work force. With all those employers and all the potential differences in the individual arrangements, the plan cannot change overnight.

The language that we are bringing to the floor gives the multiemployer plans a little extra time to rearrange their contributions and benefits before these excise taxes would take effect. It gives the plans time to go back to the bargaining table and renegotiate.

This package has been drafted to give temporary funding relief to both single-employer and multiemployer defined benefit pension plans.

Currently these plans are straining to pay their contributions. Relief is limited in duration. It will expire at the end of 2005.

Our objective is always to balance the requirement that participants' benefits be funded and guaranteed, but to do so without driving otherwise healthy employers into insolvency.

Pension funding rules need to be revised. We know that. While we work toward that goal, however, this proposal will lessen the burden that usually low interest rates place on plan funding.

I yield the floor.