Pension Equity Act of 2004 - Conference Report

PENSION FUNDING EQUITY ACT OF 2004-CONFERENCE REPORT

Mr. DURBIN. Mr. President, although I rise in support of the conference report for the Pension Funding Equity Act, I have serious reservations about the lack of relief for multiemployer pension plans. This provision is yet another instance of the White House undermining conference committee negotiations and shutting out fair and full participation by Democratic conferees.

During the 108th Congress, Democrats have been locked out of conference negotiations time and time again in an unprecedented manner. This includes the energy bill, Medicare prescription drug benefit, and the omnibus appropriations. Given the importance of addressing the use of the 30-year Treasury bond rate to compute pension liabilities, our side reluctantly agreed to a conference on this bill as a test case for bipartisan cooperation. Unfortunately, the Senate has failed that test.

The Senate version of this legislation, which passed by a vote of 86-9, would have provided relief to all 1,600 multiemployer pension plans and the 9.7 million workers who have such pensions. During the conference negotiations, there was a tentative agreement to provide relief to 20 percent of the multiemployer plans and to reduce the amount of relief that the Senate version would have provided by roughly half. But then the White House interfered and insisted that the relief for multiemployer pension plans be dramatically reduced. Offers to cover 12 percent or even 10 percent of all multiemployer pension plans-only half of the original conference agreement-were rejected.

As a result, this conference report-approved by a party-line vote-provides relief to less than 4 percent of all multiemployer pensions and provides less than one-third of the relief provided by the Senate version.

In addition to my concerns regarding this procedural breakdown in the conference committee, I also am troubled by the substance of this provision that the White House insisted be reduced. This conference report provides only $250 million in relief to multiemployer pension plans. These plans receive no aid from the other provisions in this legislation.

Without relief from Congress, these plans will remain in crisis. For example, in Rockford, IL, the local iron workers union has a pension plan that covers more than 400 participants and has approximately 100 employer contributors. This plan is in jeopardy. Although multiemployer pension plans often are characterized as providing pensions for "unionized workers," bear in mind that more than 60,000 businesses-mostly small businesses-contribute to multiemployer pension plans. In Rockford, if the iron workers' pension plan is not viable, the 100 companies and contractors that contribute to that plan and act as its signatories may face collapse if faced with the plan's failure and its withdrawal liability.

Therefore, we must provide aid to protect the millions of workers covered by multiemployer pensions and the tens of thousands of small businesses that employ these workers. Today, I am joining with Senators KENNEDY, BAUCUS, DASCHLE, and others to introduce a bill that would provide fair and equitable aid for these troubled multiemployer pensions. I hope this measure will be enacted as quickly as possible.

Despite my concerns regarding the lack of relief for multiemployer pensions, I rise in support of the conference report because of its deficit reduction contribution relief and its 30-year Treasury bond rate fix. For almost 6 months, I have worked to ensure that DRC relief-especially for the airline and steel industries-would be included in any pension legislation enacted by this Congress.

The DRC relief in this conference report would provide more than $1.6 billion in aid to the airline and steel industries over the next 2 years for companies that had well-funded pension plans as recently as 2000, but need assistance now. This aid would allow these industries to regain their financial footing by providing relief from DRC surcharges of up to 80 percent in 2004 and 2005. This assistance is vital for United Airlines, based in my home State Illinois. As a result, the pensions of almost 130,000 participants in United's pension plans, including over 22,000 participants in Illinois, will be more secure.

I also support this conference report because it would provide a 2-year replacement of the 30-year Treasury bond rate in computing pension liabilities. Nationally, this provision will provide $80 billion in relief to the 31,000 companies that provide single-employer pension plans and cover nearly 35 million workers and retirees.

I have heard from many Illinois companies supporting this provision. They include Caterpillar, Goodyear, John Deere, Smurfit Stone and the Children's Memorial Hospital. Unless this provision is enacted before April 15, the pension funding requirements for these companies will grow by millions of dollars and the pensions of thousands of Illinois workers will be in jeopardy.

Although this conference report is not perfect, I will vote in favor of it to provide aid to the airline and steel industries and to companies that provide single-employer pensions. However, I also look forward to working with my colleagues on both sides of the aisle to provide adequate and equitable relief to multiemployer pension plans as soon as possible.

Mr. KYL. I want to express my great disappointment with this conference agreement and to explain why I will vote against it.

This legislation, H.R. 3108, was originally intended to provide a temporary solution to a legitimate and serious problem facing all defined benefit pension plans-the interest rate used to calculate funding liabilities, the 30-year Treasury bond, is no longer being issued by the Federal Government, and consequently the rate has dropped to a point that companies would be forced to contribute far in excess of what is necessary to their pension plans if Congress does not provide a remedy. I have always supported efforts to make this necessary change to the interest rate and, in fact, I believe that President Bush put forward a reasonable permanent solution last year.

Because of disagreements over that permanent interest rate change, however, Congress was forced to seek a temporary solution to give us additional time to resolve our differences. H.R. 3108, as originally approved by the House, only included temporary interest rate relief; and that is all it ever should have included.

When it came time for the Senate to consider H.R. 3108, it was viewed as a "must do" bill, and thus attracted additional items that I believe should not have been included.

My primary concern is that the Senate added relief from the "deficit reduction contribution" for certain severely underfunded plans. The DRC is a special catch-up contribution that seriously underfunded plans-generally, plans that are 90 percent funded or less-are supposed to make to bring their plans back to full-funding. When the Senator began discussing adding DRC relief for airlines, steel companies, and possibly other industries, I expressed my opposition.

I believe that the DRC relief is harmful to workers, unfair to healthy pension plans, unfair to competitors who are not receiving the relief, and exposes taxpayers to unacceptable risks.

Underfunded plans are harmful to workers because they jeopardize expected pension benefits-especially for workers who are to receive larger pensions than the Pension Benefit Guarantee Corporate-PBGC-will guarantee, such as airline pilots. Companies should be required to fund their pension promises to their employees, they should not be excused from these promises.

DRC relief is unfair to healthy plans because an underfunded plan that fails will pay benefits using the insurance premiums paid to the PBGC by healthy plans. Further, many plans have made the difficult yet responsible financial decisions to fully fund their pensions. It is unfair to excuse other companies, who may have been less responsible, from these same promises.

The DRC waiver in the conference agreement applies only to certain airline and steel companies. The DRC waiver is really a back-door bailout for some companies and is unfair to their competitors that cannot benefit from the waiver, either because they have fully funded their pension plans or because they offer a different kind of retirement benefit to their employees.

Finally, the DRC waiver exposes taxpayers to a greater risk that the PBGC will require a taxpayer bailout. The PBGC recently reported a deficit of $11.2 billion in its single-employer insurance plan for fiscal year 2003-a record. While the PBGC estimates it will have sufficient assets to meet obligations for years to come, the failure of several large plans could change that.

Further, PBGC estimates that the sum total of all single-employer pension plan underfunding is about $400 billion. And Congress-meaning the U.S. taxpayers-would certainly bail out the PBGC, rather than allow the entire insurance system for defined benefit pension plans to collapse.

Because the Senate was insistent upon providing some DRC relief, however, I worked with my colleagues in the Republican leadership and on the Senate Finance Committee to scale back the relief so that it would cause less damage to our pension system, would be less harmful to competition, and would expose the taxpayers to marginally less liability. I worked to reduce the DRC waiver to 80 percent of the DRC liability in the first year and 60 percent in the second year. The idea was that by the second year, and with the interest rate relief, plans should begin turning their finances around such that they can make a greater percentage of the necessary payments to bring their plans back to full funding. This is what the Senate approved in its version of H.R. 3108 and I am very disappointed that the Senate position was abandoned during the conference negotiations.

I am also disappointed that we could not agree to protect the taxpayers from increased liabilities that could occur as a result of the DRC waiver. At a minimum, we should have stipulated that the PBGC would be "held harmless" for any benefit increases that occur during the waiver period. I believe we should have protected healthy plans and taxpayers by adopting a "hold harmless" provision for the PBGC. One of the big dangers with the DRC waiver is that the plans claiming the waiver will fail anyway in the near future, and by granting these plans a DRC waiver their funding situation will be even worse when the PBGC assumes these plans. A "hold harmless" provision would have mitigated this harm and limit the drain on healthy plans.

The DRC waiver is exactly the wrong thing to do. The system of DRC payments was devised because companies were habitually underfunding their plans. We should not aid and abet habitual underfunders by waiving much of their DRC liability. I must vote against the conference agreement because the DRC waiver is more comprehensive than what was approved by the Senate; because it fails to protect taxpayers; because the waiver is unfair to healthy plans that have responsibly funded their promises; and because the waiver provides a back-door bailout to certain airlines and steel companies, which is unfair to their competitors. I agree that there may be problems with the DRC system and that reforms may be in order. But we should make any reforms through a more thoughtful and deliberate process, taking into consideration the experience and recommendations of the PBGC.

Mr. HARKIN. Mr. President, I rise to discuss my thoughts before this very difficult vote on the Pension Funding Equity Act conference bill. The bill arrives at a reasonable immediate solution to a very complicated problem. However, I do have concerns about the larger problem of pension funding rules in the US, and I have grave concerns about the treatment of multi-employer plans in this conference bill.

I supported this bill when it passed the Senate in January by a vote of 86-9. That bill provided a reasonable approach to funding single-employer plans-a 2 year corporate bond rate. I was especially satisfied with the 2-year amortization of losses for multi-employer plans.

When the White House wanted this provision struck in conference, an agreement was arrived at by conferees to cover the 20 percent of multi-employer plans most in need. The White House, however, held up these important negotiations and insisted on virtually eliminating multi-employer relief.

Clearly, immediate funding relief is needed. We have known that this was coming for well over a year. With the drop in the 30-year treasury rate corresponding directly with declining stock values, pension plans have become drastically underfunded. This situation doesn't just hurt the bottom line right now, it hurts the defined benefit system as a whole and jeopardizes the retirement security of millions of workers.

I have been concerned as this bill has evolved that it represents a band-aid approach that addresses immediate funding obligations without fixing the larger problem. There are perverse incentives that actually prevent employers from keeping money in the pension plan when times are good, so that we end up having to bail them out when times are bad. We need to put serious effort in the coming years to work out defined benefit pension plan funding in general.

I don't believe we take these long-term problems seriously enough. Two years ago, when we came up with the initial readjustment of the 30-year treasury rate, it was my hope that we would address these problems before the issue came up again. But, here we are-2 years later and no farther ahead. I am afraid that unless we focus on this issue this Congress, we'll be looking at simply extending this rate again in 2 years without any understanding of the impact of this rate on defined benefit pensions, on the economy, or on the Pension Benefit Guarantee Corporation.

I am sure that it comes as no shock to my colleagues that the stock market actually falls from time to time. Sometimes, by more than 25 percent. Yet, we allow companies to transfer funds out of their pensions when times are good, leaving only a 25 percent cushion for when times are bad. We offer little in the way of incentives to pad plans in the good years to carry them through the bad years.

Many advocates characterize this funding climate as the "perfect storm." I believe that it's a storm that could have been more easily weathered had companies been prepared for a rainy day. However, the onus is reasonably on Congress to establish tax and accounting policies that create positive incentives to do so. I think we should consider increasing the funding level required prior to a section 420 transfer, at the same time, increasing the amount of money that can be kept on hand receiving favorable tax treatment.

I look forward to working with my colleagues to find a more precise solution to this delicate balance between making defined benefit pensions attractive for companies, while protecting workers. I share with my colleagues the goal of ensuring the viability of the defined benefit system.

Having said that, there is no other answer for the immediate problems facing us than to provide the funding relief provided in this measure. I think we absolutely need to do something now for the companies we can help. We need to help the airlines, we need to help the machinists. Eighty percent of this bill makes sense and is the right policy for the moment. Unfortunately, the White House has chosen to play politics with the income security of workers in multi-employer plans, and of the businesses that participate in those plans. There is no good reason for dropping these plans from the agreement, except to cause pain to certain working families. I plan to work with Senator KENNEDY and other colleagues very soon to repair the harm done in this portion of the bill to members of the construction trades, the Teamsters, IBEW, Plumbers and Steamfitters, Sheet Metal, Finishing Contractors, Operating Engineers, Bricklayers and other participants in multi-employer plans.

I am supporting this conference bill to help enact its truly necessary provisions-the vast bulk of the legislation which will keep other plans from freezing in the face of the current funding situation. But I will not drop my concern for those who are harmed.

(At the request of Mr. DASCHLE, the following statement was ordered to be printed in the RECORD.)
Mr. KERRY. Mr. President, I would like the record to show my views on the conference on H.R. 3108, the Pension Funding Equity Act. The conference report includes several provisions that I support. Most important among them is funding relief for single-employer defined-benefit pension plans, which will aid 35 million workers. The conference report also closes a huge tax loophole utilized by the wealthiest Americans to shield investment income known as the small insurance company loophole, or Section 501©(15). I applaud the work that crafted these provisions. I am particularly pleased that the pensions of hard-working Americans in the auto, steel, airline and other industries will have safer pensions and more secure retirements. I strongly support these provisions, and I can understand why many of my colleagues will cast a vote for this conference report.

The problem, and the reason for my opposition to the overall conference report, is that it provides hardly any relief for millions of Americans participating in multi-employer pension plans, despite strong bipartisan support for such relief in the original Senate bill. The Senate bill provided relief to all multi-employer plans, and that bill passed the Senate by the overwhelming vote of 86 to 9. After that, the conferees agreed on a bipartisan basis to limit relief to the 20 percent of plans that most needed it. But then, we have been told, the White House insisted that multi-employer relief be essentially gutted. I regret that the White House and the Republican conferees, on a strictly partisan basis, have done this. It means that nearly 10 million Americans who participate in multi-employer pension plans have been cast aside for no good reason.

The Republicans' insistence that multi-employer relief be stripped from the legislation, despite overwhelming Senate support for more widespread relief, also means that America's small businesses that participate in multi-employer plans will receive very little help. As ranking member on the Committee on Small Business and Entrepreneurship, I believe that to ignore small business is to ignore the great engine of our economy. More jobs are created in America by small businesses than any other sector of our economy.

Just a week ago, President Bush claimed that "the small business agenda is vibrant and foremost on our agenda." He said that it's important to reduce taxes, so "small businesses have got more money to invest and to expand." But at the same time the White House was pulling the rug out from under thousands of small businesses. More than half of the 65,000 employers in multi-employer plans are small businesses-real small businesses run by real families. So despite the President's rhetoric about small business, the White House has refused to help small business owners provide more secure pensions for themselves and their workers. These small businesses won't be able to invest and expand because they'll be paying excise taxes imposed by the IRS due to the crisis in their pension plans.

Mr. President, I support funding relief for single-employer plans. I am very glad that Congress has acted to help Americans participating in those plans. I am also glad to see tax loopholes closed whenever possible. But I regret that the Senate, after voting 86 to 9 to help Americans in both single-employer and multi-employer plans, is now leaving nearly 10 million Americans and thousands of small businesses out in the cold