Schumer Provision to Aid Families Victimized by Madoff Scandal, Protect Worker Pensions and Promote Job Growth Passes Senate

Press Release

Today, U.S. Senator Charles E. Schumer announced that his provision to help workers with pension funds that were devastated by the Bernie Madoff scheme, passed the Senate last night. Representative Dan Maffei introduced companion legislation in the House. Pension funds account for trillions of dollars in the U.S. economy and their underfunding leads to restricted U.S. job growth and reduced retirement security for millions of Americans. Specifically, pension funds in Syracuse, New York have been devastated by the Bernie Madoff scandal. In some instances, Syracuse workers saw their pension funds decrease in value by 90%. Schumer successfully included the provision, which is very similar to the Pension Protection Act of 2010 that he introduced last month, as part of a broad package that includes tax cuts for businesses and aid for the unemployed. The legislation must now be conferenced with the House jobs bill.

"Pension plans and the workers they support have been devastated by the Madoff Ponzi scheme," said Schumer. "We must use every tool available -- including the tax code -- to minimize the pain from these losses, so that hard working men and women do not have to bear the whole burden of the evil acts of one man."

"These unions were the unfortunate victims of the biggest Ponzi scheme we've ever seen," Maffei said. "We can't undo the incredible wrong that Madoff perpetrated, but we can give these unions more time to try to recoup their pension fund losses. It's incredibly important we help them stay in business during these extraordinarily tough times. I want to thank Senator Schumer for his leadership on this issue and thank all of his colleagues for passing this important legislation."
The provision works in very specific ways to strengthen pension funds that have been devastated by fraud and recession. The new law would change the funding rules for pension funds to allow businesses to recover from the impacts of the Madoff scandal and the recession. Current law dictates that an employer or union must invest capital in a pension fund once it meets the legal requirements for being "underfunded." Right now, the Madoff scandal and the recession have devastated the funding status of many plans, and if the pension funding requirements are not changed, some of these plans will have to be shut down. Under Schumer and Maffei's legislation, employers and unions will be allowed to "amortize" losses that resulted from both market losses and Madoff losses in 2008 over a longer period than traditionally allowed.

Normally, multiemployer pension plans are lowered to amortize the losses over a 15-year period. This process allows them to "spread out" the loss over a number of years, meaning that employers or unions can reduce the amount they have to put into the plan every year in order to be considered dully funded. The Schumer bill says that in the case of Madoff losses, the amortization period is extended to 40 years. The change will allow more plans to stay solvent.

The process of amortization in pension funds is similar to processes that take place with loans every day. For example, "John Smith" gets a loan from "Capital Bank" to purchase a car. The loan requires a fixed monthly payment over 4 years, but due to the recession John is forced to take a 25% cut in pay at his place of employment and can no longer meet the monthly payments. John goes to the bank and tells them that he can still pay the loan back but needs more time and a reduced monthly payment. Under this scenario, the bank agrees and allows John to pay off his loan over a 5 year period instead of a 4 year period. In the end, the situation is a win-win for John and the Bank. He keeps his car and they get paid for their loan.

Schumer said that the bottom line is that employers or unions, under current law, have to make up significant loses to their plan over a period of 15 years. The cash to make up for losses has to come up from somewhere, and it could require unions or employers to add dollars that would otherwise be used for jobs growth or for other benefits like health insurance, or they would have to increase their union dues. Schumer and Maffei's bill extend the period over which the Madoff losses have to be made up to 30 years, from 15 years. This allows each payment to be smaller, therefore reducing the amount of cash that would otherwise be used for health benefits or job creation.

Schumer added, "This legislation will accomplish two chief goals. We're going to free up capital so businesses can invest in job growth and we're going to aide those who were taken advantage of by Bernie Madoff."

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