Transportation Euqity Act: A Legacy for Users

TRANSPORTATION EQUITY ACT: A LEGACY FOR USERS

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RETIREMENT SECURITY

Mr. DURBIN. Mr. President, I rise this afternoon to speak to the Senate and those following this debate about a dramatic change that is taking place in America, even as we meet and discuss so many other important issues. One of the pillars of family security in America is crumbling. Retirement security in this country is in a crisis. The defined benefit plan, the kind of pension plan that guarantees a retirement amount to a worker who gives a lifetime of loyalty to his company or his employer, is becoming an endangered species.

The number of employees covered by employer-paid defined benefit plans has fallen from 30 million to 22 million in the last 20 years. By contrast, the number of people in defined contribution plans, into which both worker and employer pay with no guaranteed payout, has grown to about 55 million from 19 million.

This trend, along with the steep losses that people with defined contribution plans, such as 401(k)s, have experienced in the last few years, and President Bush's plan to shift part of the Social Security guarantee into private accounts, frankly, means that we are going to put at risk retirement security in America, more than we have seen in modern times.

Tuesday night, a bankruptcy court decided to allow United Airlines to shift responsibility for its defined benefit pension plan to the Federal pension insurance system. United Airlines moved all four of its pension plans into the Pension Benefit Guaranty Corporation with the promise that United Airlines would pay that corporation $1.5 billion. The willingness of PBGC to accept this arrangement, unfortunately, rings the death knell for defined benefit pension plans in America.

United is the latest and the largest example of the fact that corporations are no longer keeping their promises to employees, and the Government insurance system that was designed to protect employees in the case of such catastrophe has become overused and underfunded to a critical State. And this, coupled with the lack of personal savings, with the dramatic increase in consumer debt of families across America, with the growing vulnerability of families to medical bills, and with the assault on guaranteeing benefits of Social Security by this administration, is leading this Nation to a point that could not even have been imagined just a few years ago.

There used to be a three-legged stool that you could count on for your future. Everybody knew it. You went to work; every payroll you paid into Social Security, which would be there when it came time to retire; you took some of your paycheck and you paid into your pension system, if the company provided one, and then, if you could, put some money into savings. The idea is that all three would come together to give you a sense of security and comfort in your old age.

The Chicago bankruptcy court that decided Tuesday night that United Airlines could walk away from its pension commitments unfortunately foreshadows many changes to come, and none of them positive, for working people and working families across America.

United Airlines, the second largest airline in America, is in bankruptcy. It took the pension liability which it had into the bankruptcy court and said: We have to walk away from it. The bankruptcy court agreed. And when United Airlines turned over all of its pension plans to the Pension Benefit Guaranty Corporation, it basically said it would save $645 million a year that it would not have to put into the promised payments to pension plans for its employees.

Judge Eugene Wedoff presided over that decision. To an overflow courtroom on Tuesday, he said this was unavoidable. To quote him exactly:

The least bad of the available choices here has got to be the one that keeps an airline functioning, that keeps employees being paid.

And that was the choice. From his point of view, to ask United to pay what it promised to pay to its employees and to its retirees would mean that the airline may cease to exist. But to walk away from those responsibilities for the employees and to say instead that the airline would survive certainly raises many troublesome questions.

The way that the Pension Benefit Guaranty Corporation is structured, it only guarantees that a part of pension plans it took over from United and other companies based on a pretty complicated formula would actually be paid to the employees. So many employees, whether United Airlines employees or others whose plans are taken over by this corporation, lose part of their pensions. In this case, it is estimated that United employees will lose an average of 25 percent of their pensions under this arrangement.

Keep in mind what these employees have been through. They have been battered by record layoffs. They have made voluntary pay and benefit reductions for years. They have increased their hours. They have made a lot of personal sacrifices to reach this point. And now, as it appears their airline was nearing the end of bankruptcy, comes this decision to walk away from the pension obligation.

United is the second largest airline. It operates more than 3,400 flights a day to more than 200 destinations. It is based in my home State of Illinois. It has 60,000 employees and thousands of retirees, all of whom will be affected by this decision.

Let us take a look at each of the groups of employees at United and how they will be impacted. The United flight attendants pension plan covers 28,600 participants. Under this Government takeover of the pension plan, the most senior flight attendants will receive about $500 less a month than the $2,500 they were promised in pension payments, about a 20-percent cut. This is significant because most of them have never earned more than $40,000 a year. Flight attendants who are less senior and have less flying hours with the company could lose up to half of what they would receive with their promised pension plan. They have said they may strike on this. I hope it does not come to that, not just because of the fact that it is a corporation in my State but because I am a loyal customer of United.

Sixteen Senators recently joined me in a letter to the Pension Benefit Guaranty Corporation asking for that agency to explain why it agreed with United to turn over all four pension plans since as recently as 2 weeks ago officials of the same agency told negotiators they thought each plan should be considered separately. The flight attendants were told at the time their pension plan might have been saved, but now, sadly, it has been lumped in with all the pension plans at United and faces dramatic cuts.

Take a look at the ground employees, the mechanics, the people who fix the airplanes and maintain them and handle the bags. There are 36,100 of them at United, both active and retired. They were promised benefits of $4 billion. Their plan has only $1.3 billion in assets. So based on this agreement with the Pension Benefit Guaranty Corporation, on average, they will lose about 25 to 27 percent of their pension benefits. Retired members were promised an average benefit of $1,400 a month, and they could lose on average 19 percent of that promise.

While United was back in court on Wednesday asking for further concessions from the unions on their contracts, the International Association of Machinists and Aerospace Workers announced that 94 percent of its United members had authorized a strike if their contract to work was cancelled. The machinists may feel they have no choice. This, of course, would throw United's financial future into more uncertainty and jeopardy.

The United pilots have a pension plan that covers 14,100 people. The pilots reached a deal with United last year to save much of their benefit, but it is unclear how that will be affected by this new agreement with the Pension Benefit Guaranty Corporation. Pilots have generous pensions. They fly some of the most demanding routes. They have to be well trained and well skilled, and they, of course, are examined constantly to make certain they have the skills to be pilots. They would normally expect to see anywhere from $80,000 to $100,000 of pension benefits after a lifetime of service to the airline, but if this Government agency takes over, the maximum guarantee the Government offers is no more than $45,613 per person for those who retire at age 65 in the year 2005. Keep in mind, pilots are forced to retire at age 60 under rules governing pilots in America, so they would receive less than $45,613. A Government takeover would cut most of their anticipated pension benefits by as much as half.

Under the management plan, there are 42,700 participants encompassing administrative and public contact employees. This is more difficult to quantify in terms of their pension loss. However, the machinists union, which represents some of these workers, says the ramp employees could lose up to 59 percent of their promised pensions, and public contact representatives could lose up to 55 percent. These estimates take into account the likelihood that United will offer a 401(k)-type plan once it emerges from bankruptcy. As we know, there are no guarantees with a 401(k) any more than there is a guarantee that if one buys a mutual fund or a stock today that it will be worth more tomorrow. It is a gamble. It is a risk. It can play an important part in savings toward retirement, but it certainly does not provide any guaranteed benefits such as those that existed for employees who worked at United for decades. It is a gamble that the President is contemplating to bring to Social Security by privatizing Social Security: Let us move from guaranteed benefits in Social Security to the possibility that one will do well in the stock market.

Well, if a person's pension is in trouble now, and it may not survive the bankruptcy court, and the future of Social Security under the President's plan puts one at that same risk when it comes to investment, how can a person be certain they will ever be able to retire? How did we reach this point?

Pension promises that in hindsight may have been unrealistic were made. The terrorism of 9/11 changed the market for airlines across America. High fuel costs, increased competition from startup carriers all contributed to the losses that brought United into bankruptcy.

Last year, I supported a measure known as the Pension Funding Equity Act. We passed it hoping that we could temporarily use an alternative calculation to lower pension liability payments and to make our way through this stormy situation. It did not work. Now United Airlines is not alone in this predicament. Delta Airlines' pension plans are underfunded by $5 billion, and it has threatened to file Chapter 11. Northwest Airlines may be in trouble, too, according to equity researchers at Bear Stearns. And we should believe that a lot of other airlines are looking with great interest at United Airlines and its current situation.

Some people at American Airlines have said they want to keep their pension plans, but they are concerned about the competitive advantage United will now have because it does not have to fund its own pensions.

After the airlines, retirement experts say the auto industry may be the next to default on its defined benefit plans, leaving virtually no companies left that offer guaranteed retirement benefits. Let me give some illustration of this.

Today's Wall Street Journal says:

By far, the industry accounting for the biggest portion of underfunding is auto makers and automotive-parts companies. The plans of those companies are $45 billion to $50 billion shy of promises made to workers.

Delphi Corp., the No. 1 U.S. auto supplier, is struggling with declining sales at its top customer and former parent, General Motors Corp., plus big pension obligations and higher raw-materials cost. Delphi has an unfunded pension liabili-ty of $4.3 billion and $9.6 billion in retiree health-care liabili-Ðties. .....

We are in the midst of debating the asbestos bill. It is interesting on this asbestos bill the lineup of groups supporting it. That is another outstanding liability for companies like General Motors. Many of us believe the trust fund in the asbestos bill is underfunded. We believe many major corporations with asbestos liability are anxious to sign up for the trust fund because they will be the benefactors more than smaller and medium-sized corporations. So both General Motors and the United Auto Workers have endorsed the asbestos bill.

Certainly, they have to look forward and say asbestos liability will threaten the payment of health care benefits and retirement benefits to the workers. So here there is a situation where victims of asbestos exposure may receive limited compensation under the trust fund plan that has been endorsed by companies that expose them to asbestos because those companies want to limit their liability in the future because of such things as pension liabilities.

As we can see, this is a free-for-all and the losers ultimately are going to be either victims of asbestos exposure, in this instance that I used, or the workers themselves and we'll see retiree benefits disappearing.

The United Airlines deal is the largest pension default in the history of the United States. Before it, Bethlehem Steel's $3.6 billion pension default in 2002 set the record. There is a pattern, and the pattern is that the workers get hurt the most.

I am offering legislation with Senator Kennedy and Congressman George Miller of California that would attempt to make it more difficult for corporations to offer superior pension deals to their high-ranking directors and officers while the company is shifting its unfunded pension liabilities to the Government or treating older workers unfairly during a conversion from a traditional defined benefit plan to a cash balance plan.

Why in the name of fairness and justice should the officers of a bankrupt corporation be receiving superior pension deals and bonuses while the people who faithfully worked for that company for decades are being cut loose, their jobs eliminated, or the promised retirement benefits are not paid?

If there is any justice in this done, we should demand of these corporate officers that they at least sacrifice to the same level as the employees who are the victims of their mismanagement. Rank-and-file workers should not be sent to the back of the line in bankruptcy court while executives get a free pass. Time and again, workers have faced the back of the line in this country.

Mr. President, you may remember an amendment I offered to the bankruptcy bill a few weeks ago. It was rejected overwhelmingly by the Senate. Let me tell you how radical this amendment was. It would have allowed bankruptcy courts to reach back and take the sweetheart deals that were given to these officers and CEOs and put the money back into the corporation to benefit the employees and the retirees.

I gave the example of several CEOs, including Ken Lay of Enron, who abuse their companies. You remember reading about Dennis Koslowski of Tyco. This man had a unique lifestyle at the expense of his corporation. He had the corporation buy his family a shower curtain. Well, what is wrong with that? Mr. Koslowski did some pretty shrewd shopping. He found a $30,000 shower curtain. That takes some doing. He took the money out of the corporation, while it was facing financial trouble, and then turned and said to the employees: Sorry, we are going to cut you loose. Retirees, we can't pay what we promised you, and shareholders, you lose, too. So for his shower curtain deal and a lot of other things, I think Mr. Koslowski should have been held accountable. He was in criminal court, but he certainly should be held accountable.

Bernie Ebbers, CEO of WorldCom, didn't piddle around with a shower curtain; he took $408 million out of a company right before it went into bankruptcy court. How can we sit around and say: That is OK, that is management; those guys are in the boardroom; don't worry about them; but say to the worker out in the plant or to the retiree who is counting on a retirement benefit plan or the shareholder: You are going to have to lose because Mr. Ebbers needed $408 million out of the company before he dumped it in bankruptcy? We should have recaptured the assets he took out of the corporation before it went into bankruptcy. Maybe it would not have made the corporation solvent, but at least it would have been a fair allocation of the resources of that corporation to the people who deserve the benefits from them in bankruptcy.

My amendment lost on a vote of 40 to 54. It was entirely too radical for the Senate, to think that these CEOs would be held accountable for their conduct, that they would accept personal responsibility for what they did. No way. Yet their workers and their retirees had to pay the price. They were held responsible for this terrible mismanagement.

We also tried to raise the minimum wage during that bankruptcy debate. I guess we are just wasting our time in this place. It has been over 8 years since we raised the minimum wage in this country. We were told the head of a family who works 40 hours a week at a minimum wage and has two or three kids should not be able to lift his family above poverty. At a time when we have record productivity in our corporations and record corporate profits, why in the world can't we bring ourselves to make certain that workers in America get fair compensation? I don't understand it. If we value work and value families and value children, why aren't we paying a decent wage to many people who get up and go to work every single day, sometimes two jobs a day? But, no, we can't pass that here. That is too radical.

Now the President wants to privatize Social Security. He wants to make sure that two of the sources of retirement security--Social Security and pensions--will no longer have guaranteed benefits. The third source, of course--private savings--has never been guaranteed. President Bush says that is part of the ownership society. But, unfortunately, we are headed for a society for the owners, by the owners, and of the owners, where the workers are more vulnerable than they have ever been in generations in America.

We ought to step back for a second. We ought to try to decide what is important in this society in which we live. Is it important for us to protect the CEOs from their mismanagement of these companies? Is it important for us to say to Mr. Bernie Ebbers, You won't be held accountable for taking $408 million out of the corporation you dumped in bankruptcy? Is it important for us to make sure that people who make more than $1 million a year get handsome tax cuts while we are deep in debt as a nation, trying to come up with the money to fight a war, or is it more important for us to give fair compensation to people who go to work? Is it more important for us to step up and talk about guaranteeing and securing the pensions of hard-working people, who stayed with a job year after weary year because a husband says to his wife: Honey, I am going to hang in there for 2 years because I get my retirement. And look what happens. Months before you retire, or even months after you retire, they pull the rug out from under you.

This is a looming retirement security crisis. Baby boomers are set to retire in large numbers in just a few years. This country is not saving for retirement. Our 401(k)s have taken a huge hit in the last 5 years. Defined benefit pension plans are almost extinct. Medicare is running a huge deficit. And Social Security has been targeted for benefit cuts. The three-legged stool of retirement security is looking a bit wobbly today.

Listen to what people around the country are saying about retirement insecurity. An editorial in the Denver Post said this:

The retirement benefits offered by Social Security were originally designed as one leg of the three-legged stool that also included a worker's pension and a family's private savings. But American families don't save like they used to, and the national saving rate has been declining for the last 35 years. At the same time, American companies as a whole have been cutting back--or in some cases defaulting--on the pension coverage they once offered employees.

Listen to this letter to the Contra Costa Times in Walnut Creek, CA:

I am a retired 74-year-old woman and get Social Security benefits, a private pension, payments from 401(k)s. Prior to the dot-com disaster a few years ago, my 401(k) was worth almost $300,000. It quickly dropped to half, [that value] and is slowly recovering. If it were not for my pension and Social Security, I would be very, very nervous about how I would survive what remains of my life.

Another letter to the editor dated March 16 from a Shreveport, LA, paper:

In this time of corporate scandals, lost pensions, and stagnant wages, working people need something that is guaranteed and risk-free; that was always the genius of Social Security. ..... Social Security does need improvement, but that should mean ensuring benefits, not putting them on a Wall Street roller coaster. There are plenty of opportunities to invest in the stock market. Congress and the president should strengthen Social Security to make sure working people get the benefits we've paid for. We deserve it.

We owe it to our workers and their families to take an honest look at these issues and come up with some real solutions. We need to take a look at the Pension Fairness and Full Disclosure Act. We need to strengthen Social Security, not weaken it by privatizing it. We should encourage people to save for retirement, create incentives, tax incentives and other payroll incentives, for people to save. And we should encourage companies to pay what they promised workers and not allow them to get away with underfunding their pension plans.

As part of the reform of the Pension Benefit Guaranty Corporation, premiums are necessarily going up, and the companies that underfund their pension plan will have to pay more into it so the guarantee of this Pension Benefit Guaranty Corporation is worth something. We need to make sure that this agency meets its obligation to all American workers.

Today, the Pension Benefit Guaranty Corporation is $23 billion in debt. Who is going to bail it out? At a time when we are going to give $32 billion in tax cuts next year to people making over $1 million a year--$32 billion to people making over $1 million a year--at a time when we are facing record deficits, at a time when we are concerned about the survival of Medicare and Medicaid, it is clearly time for some thoughtful leadership in this country.

What happened with United Airlines, sadly, is a symptom of a real problem that is undermining the retirement security of every American family. We have been diverted from looking at the broader retirement security issues by the administration's Social Security privatization proposal. It is time to look at how to address the entire retirement income equation and provide more security, not less.

There was a time in America when we valued work, we valued workers, we valued the worker's family, and we said: We are going to provide you with basic dignity. You get up and go to work every single day, you set a good example for your family, you contribute to your company and your community, and America will be a better place and we will stand behind you. We will make certain that when the day comes for retirement, no matter what happens, Social Security will be there to provide some basic safety net for you and your family.

We will watch the workplace for you, too. We will do our best to make sure it is safe so you are not injured while you are working on the job. If you are injured, we will see you are compensated fairly.

When it comes to the wage you earn, we hope you will do better than the minimum wage, but we will guarantee there will be a minimum wage in America so there will be some basic dignity in work and the hardest working people in America, trying to raise a family, can get by.

It was part of a social contract. It was America as a family, coming together. We were protecting our own. We were committed to our own. But there is a new attitude in Washington. You can feel it. That attitude of the so-called ``ownership'' society says, remember this, we are all in this alone. We do not come together to help one another, to protect one another, to care about one another. That is abandoning a fundamental principle in America.

We believe in the goodness of the people who live in this country. We believe in the fairness of our economic system. We believe the Government should stand for justice in a system where unjust things are occurring. But if you look at what happens in the Senate and the House day in and day out, time and time again, one wonders if we walked away from that commitment. We wonder if we are not dealing with some situation of noble savages being turned loose in a wilderness with the hope they survive. I hope it does not come to that.

Sadly, for tens of thousands of United Airline employees who just a few years ago were glorying in the fact that they work for one of the best airlines in the world, the bottom is falling out. The pension they worked for, for a life, is disappearing. They have taken wage cuts. The future is totally uncertain.

There are no guarantees in a free market system. There are winners and losers. But when you have made a promise to an employee, shouldn't you be held to that promise? Shouldn't you have a social contract, a binding contract, that the promise won't be broken?

I am afraid it has been broken here. This pillar of family security in America is crumbling. What will your Congress do to deal with it?

I yield the floor.

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