[Congressional Record Volume 141, Number 118 (Thursday, July 20, 1995)]
[Senate]
[Pages S10336-S10338]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]


          CONCERNING LEGISLATION TO SUSPEND THE REACHBACK TAX

  Mr. COCHRAN. Mr. President, today I am sending a ``Dear Colleague'' 
letter to all Senators with information concerning S. 878, a bill I 
introduced to amend the Coal Industry Retiree Health Benefit Act of 
1992. Specifically, the legislation suspends the so-called reachback 
tax. My letter responds to issues raised about this legislation by my 
distinguished colleague from West Virginia, Senator Rockefeller. I hope 
this information will be helpful to all Senators in considering the 
merits of the bill.
  I ask unanimous consent that my letter and the enclosed fact sheet be 
printed in the Record.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:

                                                  U.S. Senate,

                                  Washington, DC, July 19, 1995.  
       Dear Colleague: In late May, I sent you a letter seeking 
     your support for S. 878--a bill to provide equitable relief 
     for the Reachback companies from the retroactive tax imposed 
     by the Coal Industry Retiree Health Benefit Act of 1992 (Coal 
     Act). You have since received a letter from Senator 
     Rockefeller expressing alarm at S. 878 and concern about 
     attempts to amend the Coal Act.
       On Thursday, June 22, the House Ways and Means Subcommittee 
     on Oversight held a hearing on the Coal Act. The hearing 
     examined the inequities of the Coal Act, its impact on the 
     Reachback companies, and the current and projected surplus in 
     the Combined Benefit Fund. Last month, a federal district 
     court ruled the Coal Act unconstitutional and enjoined its 
     application to the Unity Real Estate Company.
       Contrary to the fears expressed by proponents of the Coal 
     Act, I have no intention of jeopardizing in any way the 
     benefits promised to retired miners by the members of the 
     Bituminous Coal Operators Association (BCOA). Nor will S. 878 
     do that. A fact sheet attached to this letter specifically 
     responds to some of the concerns expressed in Senator 
     Rockefeller's letter regarding S. 878.
       I am optimistic that, based on the record established in 
     the House hearing together with other information which has 
     been developed, we can move forward to amend the Coal Act in 
     a way which relieves its harsh impact on the Reachback 
     companies, while at the same time insuring the benefits which 
     were in fact promised to the retired miners by the BCOA.
           Sincerely,
                                                     Thad Cochran,
                                                     U.S. Senator.
       Enclosure.

   Reachback Tax Facts--A Primer on the Coal Industry Retiree Health 
                          Benefits Act of 1992

       The Fiction: S. 878 would ``create a new tax break for 
     certain companies. . .''
       The Fact: Creating a new tax break is the last thing which 
     S. 878 would do. S. 878 would relieve several hundred 
     American companies unjustly subjected to a retroactive tax 
     under the financing mechanism of the Coal Act.
       The Fiction: S. 878 ``jeopardizes the health benefits of 
     retired miners. . .''
       The Fact: This is incorrect. Here is what S. 878 does:
       Provides for any surplus in the United Mine Workers of 
     America (UMWA) Combined Benefit Fund to be used as a premium 
     credit for the Reachback companies unfairly and perhaps 
     illegally taxed by the Coal Act;
       If there is no surplus in the Combined Benefit Fund, 
     Reachback companies would receive no premium credit;
       If the fund falls within 10 percent of its operating 
     expenses, Reachback companies would be required to 
     immediately resume premium payments.
       Trustees of the fund acknowledged, and the GAO confirmed, 
     on October 1, 1994, that the fund had 96,237 beneficiaries 
     receiving coverage for hospitals, physicians, vision, 
     hearing, speech, ambulance, hospice, home health, 
     psychotherapy and group therapy, pregnancy and medically-
     necessary abortion, drug and alcohol rehabilitation plus 
     prescription drugs and life insurance.
       Our best information suggests only 29 percent of those 
     beneficiaries are retired bituminous coal miners. Some 85 
     percent of those covered by this fund already are eligible 
     for Medicare. The fund covers retired miners and spouses, 
     parents, children, grandchildren and other dependents in the 
     home. Not one of those beneficiaries has ever had a claim 
     rejected because the fund was insolvent--much less in 
     jeopardy of insolvency.
       The Fiction: The Coal Act ``has successfully ensured that 
     the health benefits which were promised by these miners' 
     employers continue.''
       The Fact: Reachback companies never signed contracts 
     promising to provide lifetime healthcare benefits to former 
     employees, much less to their families. Many of the 
     Reachbacks have been out of the bituminous coal business 10, 
     20, 30 and even 40 years. Others have been non-union 
     operators for decades.
       The unfortunate truth is the Congress should not have 
     created a new tax against the class of companies now known as 
     Reachbacks. Reachback companies had no legal or moral 
     commitments or promises--and certainly no binding contracts--
     which obligated them to pay lifetime healthcare benefits and 
     life insurance for former employees and their families. 
     However, those companies which do have such obligations, 
     should fulfill those obligations.
       The Fiction: ``In the late 1980s and early 1990s, a number 
     of large companies had stopped paying into the employer fund 
     which financed the health benefits of their former workers. 
     This placed the health benefits of the retirees at risk.''
       The Fact: In truth, the crisis atmosphere was created by 
     the UMWA and the Bituminous Coal Operators' Association 
     (BCOA). The BCOA did not comply with the contract provisions 
     for increased health care benefit contributions. The UMWA did 
     not pursue the legal remedies to enforce the contract 
     guarantee provisions which would have assured the financial 
     health of the funds.
       Furthermore, it was the BCOA and the UMWA who pooled their 
     resources in 1991 to launch, promote and win passage of a new 
     funding mechanism benefitting both the union and the BCOA. 
     That solution was to reach back across the decades to impose 
     retroactive Federal taxes on private businesses.
       Under this ill-conceived policy, any company which had ever 
     signed a National Bituminous Coal Wage Agreement (NBCWA) 
     between 1950 and 1987 would have to pay $2,349.38 per year, 
     per beneficiary assigned by the Social Security 
     Administration. The annually-adjusted premiums run from 1993 
     through 2043. The Treasury Department and the Internal 
     Revenue Service also must participate in this overreach of 
     Federal tax authority to impose $100 per day, per beneficiary 
     penalties on any Reachback company which does not pay 
     promptly.
       The Fiction: ``. . . Many of these companies (the 
     Reachbacks) have been held liable for the lifetime health 
     benefits of their 

[[Page S10337]]
     former employees in a slew of court decisions based on their 
     contractual commitments.''
       The Fact: This is inaccurate. This complex claim is traced 
     to a clause inserted in the 1978 pension and benefit trust 
     documents. In short, the clause said any employer which ever 
     employed any participant covered by a UMWA benefit plan is 
     obligated to the terms and conditions of the of the National 
     Bituminous Coal Wage Agreement of 1978, as amended, and to 
     any successor agreements.
       The truth is there is nothing in the so-called 
     ``evergreen'' litigation to suggest--much less to hold--that 
     companies are liable to provide lifetime health benefits to 
     their former employees. More importantly, a final decision on 
     the ``evergreen'' theory has yet to be made, as the 
     ``evergreen'' litigation remains pending before at least 
     three different federal judges.
       Since passage of the Coal Act, the facts have demonstrated 
     that the Reachback companies never authorized or agreed to 
     any obligation which would have perpetually bound them to 
     contribute to UMWA funds, without regard to the terms of 
     their contracts with the UMWA or whether their employees 
     continued to be represented by the union.
       Furthermore, there is absolutely nothing in the so-called 
     ``evergreen'' clause which would apply to all of the 
     Reachbacks. Consider these two glaring facts, then ask 
     yourself how ``evergreen'' could possibly be linked to the 
     Reachbacks:
       First, the so-called ``evergreen'' clause did not even 
     appear in any of the trust documents until 1978. Many of the 
     Reachback companies did not sign or agree to the 1978 or 
     later NBCWAs.
       Second, even among those companies which did sign the 1978 
     or later agreement, the so-called ``evergreen'' clause could 
     impose no liability on the majority of companies which left 
     the bituminous coal industry. That's because the clause is 
     based on the amount of bituminous coal produced and/or the 
     number of UMWA coal miner hours worked. If there is no 
     bituminous coal produced, there are no tons or miner hours to 
     drop into an equation. Therefore, there is no math here on 
     which to build a case of branding the Reachbacks as party to 
     the retiree healthcare program, the Coal Act or the Combined 
     Benefit Fund.
       The Fiction: ``Holding Reachback coal companies liable for 
     the healthcare benefits of their former employees was the 
     best way to shore up the health benefits trust fund and 
     simply means expecting that promises are kept.''
       The Fact: The Reachbacks made no promises to provide 
     lifetime healthcare benefits for industry retirees. These 
     Reachbacks satisfied all of their obligations, including 
     claims from the union, when they left the bituminous coal 
     business or ended their association with the union. Far from 
     ``dumping'' or ``orphaning'' former employees, as some would 
     suggest, the Reachback companies were participating in a 
     multi-employer retiree health benefits system.
       Historically, as companies chose not to participate in 
     subsequent bituminous coal wage agreements, the remaining 
     signatory companies continued covering the costs of retirees 
     who had worked for others. Companies entering the business 
     which signed a bituminous coal wage agreement paid into the 
     funds on the same basis as companies which had been in the 
     business, although they may not have had any retirees. This 
     approach was the core concept behind the multi-employer 
     retiree health benefits system.
       When Reachbacks ended their participation in bituminous 
     coal wage agreements, they had contributed many millions of 
     dollars to pay benefits for retired miners from other defunct 
     companies or from companies which had elected not to sign 
     future wage agreements.
       The Fiction: ``The Cochran bill pretends that a surplus in 
     the health fund exists. That phoney surplus is then used to 
     give a tax break to this favored group of companies.''
       The Fact: Trustees and managers of the fund itself have 
     confirmed a huge surplus exists. The fund has reported these 
     surpluses in each monthly statement. A telephone call today 
     will confirm this. The General Accounting Office (GAO) 
     estimated last June the surplus would be at $103 million at 
     the end of the fund's first fiscal year, October 1, 1994. The 
     GAO was off by 10 percent. The fund actually reported an 
     almost $115 million surplus on October 1, 1994. Although the 
     magnitude of the surplus was debated by three expert 
     witnesses at the June 22 hearing, it was clear that the fund 
     will continue to sustain a steady surplus into the next 
     century.
       The Fiction: Reachbacks are ``a favored group of 
     companies.''
       The Fact: This is incorrect. Congress harmed all of these 
     Reachbacks, devastated many and ruined others. It certainly 
     did not do them any favors. The tax has caused perhaps 
     irreparable damage to many small and family-owned businesses. 
     It has forced the cancellation or postponement of hard-earned 
     raises for hundreds of thousands of innocent working men and 
     women throughout the country.
       The Fiction: ``Make no mistake about it, the deficit would 
     be increased in order to pay for this tax break. . .''
       The Fact: The deficit was increased by passage of the 
     Reachback Tax. Repeal of the Reachback Tax would lower the 
     deficit. The Reachback provision of the Coal Act increased 
     the deficit because it immediately appropriated an additional 
     $10 million to the Social Security Administration. Those 
     funds were consumed long ago and Social Security still has a 
     staggering backlog of Reachback appeals.
       Passage of the Reachback Tax also has forced the Department 
     of Health and Human Services, the Department of Treasury, the 
     Internal Revenue Service, the Department of Justice and other 
     Federal agencies to spend millions of dollars to administer, 
     monitor, enforce and adjudicate the tax. The Reachback Tax 
     also robbed the Treasury of millions in revenues because the 
     tax was fully deductible to the corporations to pay it.
       The Congressional Joint Tax Committee has indicated it is 
     likely that Federal tax receipts will increase if the 
     Reachback Tax is repealed. This gain to the Treasury will 
     occur because the contributions to the fund are fully 
     deductible from corporate taxable income.
       Furthermore, the presence of a private union welfare plan 
     in the budget is, in itself, improper Federal tax policy and 
     budget policy.
       The Fiction: The Finance Committee held Coal Act hearings.
       The Fact: No such hearings occurred on the Coal Act. The 
     Senate Finance Subcommittee on Medicare and Long Term Care 
     did hold hearings on the Coal Commission Report on Health 
     Benefits for Retired Coal Miners.
       The Fiction: The GAO wrote Senator Cochran May 25 ``to 
     inform him there is not a growing surplus in the health 
     fund.''
       The Fact: Several members of Congress, including me, have 
     asked the GAO to update its audit of the fund. We are waiting 
     for that report, which the GAO said it could not have ready 
     for the June 22 House Ways and Means Subcommittee on 
     Oversight hearing. The GAO has not reported to me that the 
     fund's surplus is shrinking. What the GAO did report is that 
     a private consulting firm, using medical cost trend rates 
     well above accepted national and industry standards, produced 
     a report per scenarios drawn by the union fund managers that 
     showed the fund might show a deficit in the early years of 
     the next century. However, the GAO and another highly-
     respected private accounting firm previously have suggested 
     the fund will enjoy surpluses in the next century. Towers, 
     Perrin actuaries forecast a $2.6 billion surplus when the 
     fund runs its course in 2043.
       The Fiction: ``The claimed growing surplus in the fund does 
     not exist and has never existed.''
       The Fact: This is inaccurate. The reality of a surplus is 
     not subject to interpretation. Trustees and managers of the 
     fund have confirmed to all interested parties that the fund 
     is in surplus and has been in surplus the past two years. The 
     annual and monthly reports published by the fund confirm 
     this.
       The Fiction: ``There are 341 companies that are currently 
     responsible for paying for health benefits under the act.''
       The Fact: In a June 8 letter from the fund, the acting 
     executive director reported 473 companies are being billed 
     for premiums. There was no accounting for the over 200 other 
     companies which had signed NBCWA contracts between 1950 and 
     1987 and which were originally published as Reachbacks. That 
     list included such notable American businesses as General 
     Motors, which the fund said was obligated for 90 
     beneficiaries, or $2,114,442 this year alone.
       The Fiction: ``Ernst and Young found that the fund is 
     likely to run a $39 million deficit by the year 2003.''
       The Fact: That's only one scenario Ernst and Young 
     suggested in a set of projections commissioned by the fund. 
     Ernst and Young also found a healthy surplus in the fund in 
     another scenario. The scenarios which suggested a deficit 
     used medical cost trend rate projections which are 3.0 to 4.4 
     percent higher than nationally accepted industry standards. 
     Interestingly, Ernst and Young uses 5.5 percent medical trend 
     rate calculations to provide retiree healthcare projections 
     to clients who are Reachback companies. Ernst and Young 
     agreed to use 8.1 percent to 9.9 percent medical cost trend 
     rates to figure projections for the UMWA's combined benefit 
     fund.
       The Fiction: ``The Cochran Dear Colleague says that a court 
     ruling on the constitutionality of the Coal Act is a year 
     away.
       The Fact: The Federal District Court in Pittsburgh ruled 
     June 7 that the Coal Act was a violation of the Fifth 
     Amendment of the Constitution. (Unity Real Estate Co. v. 
     Trustees of the United Mine Workers of America Combined 
     Benefit Fund) Numerous other suits and appeals are pending. 
     It is likely that the Supreme Court will be the final arbiter 
     of the constitutionality of the Coal Act.
       The Fiction: ``The healthcare and security of many 
     vulnerable people rest on the ability of the Senate to deal 
     with the facts and reject myths being spread by companies 
     looking to back away from their own promises.''
       The Fact: The UMWA retirees' health benefit plan should not 
     be the responsibility of the Senate. Rather, it is clearly in 
     the hands of the individuals, their trade union and the 
     companies which have signed and agreed to contracts promising 
     such healthcare and security.
       The Fiction: ``This issue is complex and that complexity 
     can be confusing.''
       The Fact: This is not a confusing issue. Far from it. 
     Actually, it is quite clear cut and straight forward.
       The Congress should never have been drawn into the 
     collective bargaining process between the coal miner union 
     and the coal mine owners. 

[[Page S10338]]

       The union and the owners became strange bedfellows in the 
     coalition which lobbied for passage of the Coal Act and now 
     is fighting any change in the Reachback Tax.
       This legislation has cost American taxpayers tens of 
     millions of dollars.
       Reachback companies made no promises to provide lifetime 
     healthcare benefits to members of the UMWA and should not be 
     subjected to a retroactive, unfair, unjust and perhaps 
     illegal federally-mandated tax and taxpayer-subsidized 
     straightjacket to pay for those benefits.
       Hundreds of innocent private businesses and hundreds of 
     thousands of innocent Americans have wilted because of the 
     poison sprayed on them by the ill-conceived Reachback Tax.
       Even if we in the Congress were to enact remedial 
     legislation this week, where would these companies, their 
     employees, managers and shareholders go to recoup the tens of 
     millions of dollars in premiums already dumped into their 
     fund, as well as their lost incomes, lost wages and lost 
     expenses?
     

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