[Congressional Record Volume 141, Number 176 (Wednesday, November 8, 1995)]
[House]
[Pages H11915-H11923]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
PROVISION IN BUDGET RECONCILIATION BILL ALLOWS CORPORATIONS TO REMOVE
EXCESS PENSION FUNDS
The SPEAKER pro tempore. Under a previous order of the House, the
gentleman from Massachusetts [Mr. Neal] is recognized for 5 minutes.
Mr. NEAL of Massachusetts. Mr. Speaker, we are here tonight to
discuss a provision that was included in budget reconciliation. This
provision would allow corporations to remove excess funds from
overfunded pension plans for any reason. There is only one way to
describe this provision and that is the raiding of pension plans.
Ten years ago we were faced with a similar situation. Let me read a
quote from the Nov. 3, 1985 edition of the New York Times. The article
was entitled ``Raking in Billions from Company Pension Plan.''
At an increasing pace, some of the most familiar names
incorporate . . . have already withdrawn or are trying to
withdraw, $8 billion in surplus pension money. They are
diverting this money to other corporate use, such as take
over financing and capital investments and offering their
employees substitute pension plans . . . Workers across the
country are growing increasingly concerned that the stream of
retirement income generated under the present pension system
might disappear by the time they retire . . . Some blue-chip
companies have been accused of cynically using pension funds
bank accounts and tax exempt savings account.
It is almost eerie how this quote from 10 years ago applies today.
This quote could have been in today's New York Times.
During the 1980's, approximately $20 billion in pension funds were
drained by companies. Congress acted responsibly and passed legislation
to protect pensions.
The pension provisions in the House budget would undo all the good
Congress had done in one fell swoop. It has been estimated that this
provision could result in $40 billion leaving pension funds.
Once again corporations are looking to take money from pension plans
to use for their own whims. We cannot allow pension funds to be used as
tax free corporate checking accounts.
I have been reviewing the newspaper clippings on this issue and all
across the country it is perceived as a bad idea. I want to share with
you some of these headlines.
``Leave Those Pension Funds Alone'' Business Week October 23, 1995.
``The GOP Had Better Get Business Off The Dole, Too'' Business Week
October 16, 1995.
``Pension Pirates'' New York Times, October 27, 1995.
[[Page H 11916]]
``The Great Pension Fund Raid, Part II'' Los Angeles Times, October
17, 1995.
``An Unconscionable Raid on Pensions'' Chicago Tribune, October 2,
1995.
``Keep Paws Off Pension Fund Assets'' Chicago Tribune, September 25,
1995.
``The New Tax-Free Corporate Checking Account'' Newsday, September
21, 1995.
``Cut Now, Pay Later'' Plain Dealer, Cleveland Ohio, October 3, 1995.
``Protect Pension Fund Assets'' Sunday Patriot, Harrisburg, PA,
October 1, 1995.
I could go on and on but I think I have made my point. Congress
should protect pension plans. The Senate has heard this message. The
Senate voted overwhelmingly by a vote of 94 to 5 to delete their more
restrictive corporate reversion provision.
Mr. Speaker, why has the House not yet heard this message? The
headlines have made it clear. This provisions is an unconscionable
provision.
Why is this provision needed? The House budget provides a huge tax
cut to the wealthy and tax benefit to corporations at the expense of
the middle class.
Our No. 1 economic problem is our low national savings rate. We have
to encourage individuals to save for retirement. This provision does
the opposite.
One of the main reasons for the Republican tax reform proposals is to
increase the national savings rate. Our decline in savings can be
attributed to declining private-sector contributions to employee
pension plans. The provision in the budget is contradictory. This
provision will allow corporations to immediately suck money out of
pension funds.
The proponents of this provision argue this provision will free up
money and put it to work for job creation. An analysis done by the
General Accounting Office [GAO] shows that most pension money is
invested such as stocks and bonds that yield a financial return and
provide capital to other companies.
Plan fiduciaries are required by law to invest plan assets for the
exclusive benefit of participants and to seek the highest rate of
return for a given level of risk. The provision in budget regulation
has no such safeguard.
I served on the Banking Committee during the S&L crisis and this is
the ghost of the S&L crisis. We cannot afford to put the Pension
Benefit Guaranty Corporation [PBGC] at risk. We cannot afford a
taxpayer bailout of the PBGC.
I cannot think of one logical reason to include this provision in
reconciliation. We cannot have a provision that is bad retirement
policy. This provision does not belong in budget reconciliation. We
have to protect the pensions of hard working Americans. We cannot let
corporations siphon pension funds.
I have with me several editorials, letters to the editor, and
articles about the corporate pension reversion which I will place in
the Record.
The information referred to is as follows:
[From the Arizona Republic, Nov. 1, 1995]
Proposal Benefits IRS, Wall Street, Not Pension Plans
No better time than right now for pension-dependent
retirees to contact Senators McCain and Kyl about a House-
passed measure that would permit employers to withdraw
``excess'' assets from pension plans. The measure is prompted
by the taxes that will be due on the monies withdrawn from
pension plans by employers encouraged to do so by the
prospect of plump after-tax windfalls to strengthen their
balance sheets.
This revenue-raising idea starts with today's high-flying
financial markets: plan asset valuations are looking fatter
than needed to meet future benefit obligations. This,
however, assumes that the stock market will continue to fly
high. Returning today's paper-value cushion to employers
transfers the risk of tomorrow's market-value loss to
pensioners.
Botton-line-driven corporate managers will be hard-pressed
not to regard an immediate balance-sheet windfall as more
important than a potential pension shortfall. It is naive to
think that these decision makers, pressured by the demands
and expectations of Wall Street, are likely to forego a
windfall in deference to the best interests of a constituency
of powerless retirees, when management can order up from its
CFOs conveniently rosy, asset-value prognostications to
justify its actions.
Dependent as I am on my pension, I am loath to accept the
risk of this high-flying market crashing and burning just so
my former employer can enjoy that one-shot balance-sheet
windfall.
The (transitory) budget benefits gained through taxation of
pension-asset drawdowns is an incipient threat to the
financially weak Pension Benefit Guaranty Corporation, a
federal insurance fund that protects pensioners from plan
failures.
This ill-advised House measure--as short-sighted as all the
past careless measures that have placed the Medicare and
Social Security trust funds in jeopardy today--awaits Senate
approval. Now is the time to write.--Arnold E. Buchman,
Scottsdale.
____
[From the New York Times, Oct. 19, 1995]
Don't Let Companies Skim Pension Funds
To the Editor:
``A Hard-Hearted Tax Bill'' (editorial, Oct. 12) neglects
to mention one provision of the Republican tax bill that
needs to be eliminated or modified: the proposal that makes
it easy for companies to take ``excess'' assets out of
employee pension plans, with little or no penalty, and to use
those funds for nonpension purposes.
The Joint Committee on Taxation has estimated that the
proposal would cause $40 billion of assets to be taken out of
plans over the next five years. This could be disastrous for
both taxpayers and retirees with private pensions.
Taxpayers would be at risk because a taxpayer bailout of
underfunded pension plans would be more likely in an economic
downturn. Retirees would be hurt because they would be less
likely to receive cost-of-living increases in the future and
because they would experience less security in their basic
pensions.
The Pension Benefit Guaranty Corporation has indicated in a
study the extent to which a plan that is overfunded can
quickly become underfunded. A plan that is 125 percent funded
could become underfunded with a 10 percent drop in the stock
market, coupled with a 1 percent drop in interest rates.
Giving companies the right to extract $40 billion would
only exacerbate that situation.
The main justification of House Republicans for this piece
of corporate welfare is that it would raise an estimated $10
billion or more in corporate income tax revenues over seven
years, thus helping to reduce the deficit. This is false
economy, since it raises the possibility of another savings
and loan association-type bailout and of retirees losing all
or part of the pension they have earned.
Congress should either eliminate the provision from the tax
bill, or modify it to allow employees and retirees to share a
portion of whatever ``excess'' assets a company chooses to
take out of its pension plan.--Charles Londa, Houston, Oct.
12, 1995.
____
[From the Valley Independent, Oct. 6, 1995]
Tell Congress to Let Our Pensions Alone
The outcry from the public should be loud enough to rattle
the halls of the Capitol. The message should be don't mess
with our pensions.
The House Ways and Means Committee has approved a measure
that could endanger the retirement security of 13 million
Americans.
At least that's the claim of three Cabinet members--Labor
Secretary Robert Reich, Treasury Secretary Robert Rubin and
Commerce Secretary Ronald Brown, who serve on the board
overseeing the federal Pension Benefit Guaranty Corp.
By permitting companies to make withdrawals from pension
plans at any time and for any purpose, Republicans expect the
plan to raise $9.5 billion for the government because
companies would pay corporate income taxes on the
withdrawals. Currently, withdrawals are permitted only if the
money is used for retirees' health benefits. The proposal is
part of a bill intended to reduce the budget deficit by $38
billion over seven years.
The Cabinet trio say this measure would trigger the
withdrawal of up to $40 billion from pension plans in the
next five years--twice what was removed by companies during
the corporate takeover frenzy of the 1980s.
``We are going to see raids on pension assets that will
make the train robberies during the days of Jesse James pale
in comparison,'' Reich said.
Ways and Means Chairman Bill Archer, R-Texas, calls these
charges by Cabinet members a politically motivated attempt to
scare people and claims the measure will give workers more
retirement protection by encouraging employers to fund
pensions at a higher level. He said the legislation would
require corporations making withdrawals to leave an ample
cushion of 25 percent more than needed to meet current
liabilities.
But according to an analysis by the pension benefit agency,
20 to 50 plans on an underfunded watch list suffered
withdrawals in the 1980s of what were then considered excess
assets.
Also, the agency said an examination of 10 large plans
shows the Ways and Means limit on withdrawals isn't enough to
protect pension plans if the companies go bankrupt and their
pension plans are terminated. Such plans would be left with
less than 90 percent of the money needed to meet its
obligations, the agency said.
Referring to the pension raids in the '80s, Brown said:
``We know what happened when the barn door was open. We
closed the barn door. This would reopen the barn door. It's
illogical.''
More than illogical, it is a violation of trust--the
American workers' trust that the money for their pension will
be there when they are eligible to retire.
Along with attempts to cut Social Security and Medicare,
this threatens the ability of workers to afford retirement in
the near future. If people reaching retirement age must keep
working, this means less jobs will
[[Page H 11917]]
be available for the young. This is what's really illogical. It will be
just another reason unemployment and welfare rolls will rise.
Don't let that barn door be reopened. Protect your future
by letting your congressman know how you feel.
You can write Rep. Frank Mascara, D-Charleroi, at 1531
Longworth House Office Building, Washington, D.C., 20515.
____
[From the USA Today, Sept. 22, 1995]
Today's Debate: Pension Protection--Attempt To Trim Deficit Puts
Pensions in Danger
Is your company's pension plan solid? If so, it may soon be
ripe for picking--by your boss.
A proposal moving toward passage in Congress would allow
corporate raids on business-financed pension funds. At risk--
$80 billion in savings in those funds plus billions more in
taxpayers' money because the funds are federally insured.
The technicalities of what House Republican tax-writers are
doing sound safe enough. New rules would merely eliminate a
50% tax penalty on money withdrawn from pension accounts in
excess of 125% of that needed to meet current liabilities.
Only the 125% cushion is bogus.
A study by the Pension Benefit Guarantee Corp. found that
even such supposedly healthy funds, if terminated suddenly
by, say, a business bankruptcy, could pay less than 90% of
promised retiree benefits.
On top of which, even the surplus can quickly disappear if
stocks go south or interest rates decline.
That's what's happened to a lot of pension plans that
companies raided for their surpluses in the 1980s. For
example, ASI Holding took $120 million from a supposedly
overfunded plan in 1988. It's now $86 million underfunded.
Enron Corp. took out $232 million in 1986 and is now $82
million underfunded. If either company goes out of business,
taxpayers will pick up the bill.
Indeed, taxpayers are now liable for $71 billion from such
underfunded plans. A bear stock market, and the GOP proposal
could up that by $80 billion. And along with taxpayers, a lot
of once comfortable pensioners will be at risk, too. Federal
insurance only picks up $30,000 in annual benefits.
So, why are Republicans racing to take this gamble? To
raise money to pay off hundreds of billions in tax breaks and
yet balance the budget by 2002. Funds withdrawn from pensions
are subject to corporate taxes. Authors estimate they'll
raise $10.5 billion from them.
That misses the whole point of deficit cutting--to stop the
government from draining away private savings needed for
investment and growth. For every $1 this plan cuts from the
deficit, $4 in pension savings and potential investment go
out the window.
Still, such pension raids for deficit cutting aren't new.
Reforms in 1982, 1986, 1987, 1993 and 1994 put limits on
pension contributions, and even penalized companies for
overfunding their plans, all in the name of deficit-
reduction. The result: a steady decline in national savings--
the key to growth--and a rise in underfunding of pension
plans.
Now, the nation has little savings left. Congress should
try to reverse the process, not exacerbate it.
____
[From Business Week, Oct. 23, 1995]
Leave Those Pension Funds Alone
Who ``owns'' the $100 billion in surplus money in Corporate
America's pension plans, the retirees or the companies?
Either way, Congress' proposal to allow corporations to tap
surplus pension funds is a bad idea. It's a short-term policy
that will generate quick tax bucks to help balance the budget
at the expense of overall savings in the nation. It may be
good for companies, it may not even hurt retirees, but it is
bad government policy.
Virtually all U.S. retirement plans are shaped by the
government's need for revenue rather than the family's or the
economy's need for savings. Employee contributions to 401(k)
plans are capped by the government at $9,240. This year,
Congress actually cut the 401(k) contribution by not
compensating for inflation. It needed more tax income to make
up for a cut in revenues that occurred when trade tariffs
were reduced. That's ridiculous, given that if people with
401(k)s could sock away more money for retirement, more
capital would be available for economic growth and jobs.
The limits on individual retirement accounts are even
tighter--$2,000 if you are not in another pension plan. Self-
employed people with Keoghs get a much better deal: They can
save up to $30,000 or 15% of their income annually tax-free.
If entrepreneur can save that much for the future, why not
corporate employees? Washington should be encouraging all to
put more money into pension plans, not less.
____
[From Business Week, Oct. 16. 1995]
The GOP Had Better Get Business Off the Dole, Too
(By Mike McNamee)
Christmas came early on K Street. Washington's business
lobbyists awoke one morning in late September to find a $40
billion present from Ways and Means Chairman Bill Archer (R-
Tex.): a proposal to let companies reclaim and spend massive
assets locked away in overfunded pension plans. The loophole
was designed mainly to help budget-cutting Republicans, who
will garner $10.5 billion in taxes if companies pull out $40
billion in assets, as expected. But Archer's gift was a big
hit in Corporate America--and like the very best presents, it
was pretty much a surprise. ``We didn't ask for it,'' says a
pension lobbyist, ``but you can bet we're defending it now.''
So much for ending ``corporate welfare'' as we know it.
Early this year, Republican radicals swore they would erase
the GOP's image as the Skybox Party. House Budget Chairman
John R. Kasich (R-Ohio) targeted $30 billion in special
corporate tax breaks for elimination. Strategists warned of a
public-relations disaster if Republicans slashed the social
safety net while leaving a cocoon of $86 billion in subsidies
and breaks for Big Business.
unchallenged
Did the majority of Republicans get the message? No. Some
have learned to talk the talk: Archer, for example, portrays
his pension-raid plan as the centerpiece of ``corporate tax
reform.'' But in reality, ``corporate welfare continues
unchallenged,'' complains former Bush aide James P.
Pinkerton. Even the GOP's struggle to carve $1 trillion from
the budget over the next seven years can't shake its
reflexive urge to shower business with federal largesse. If
they can't repress that instinct, Republicans will never
convince voters that they have been reborn as the champions
of the middle class.
Most of the biggest corporate breaks were never in peril.
Oil drillers and timber companies didn't lose any sleep over
their loopholes--not with Texan Archer and, until recently,
Oregon Senator Bob Packwood in charge of tax policy.
Republicans who had long denounced the ``socialism'' of the
Tennessee Valley and Bonneville Power authorities ``got real
quiet when their party started winning seats in the
Northwest, the land of cheap electricity,'' says Robert J.
Shapiro of the Progressive Policy Institute, a Democratic
think tank. Big exporters will continue to enjoy sales help
from the Export-Import Bank and the Agriculture Dept.'s
marketing-promotion programs.
Even where budget-cutters did propose small nicks in
corporate welfare, lobbyists have come roaring back. Iowa
Republicans reminded House Speaker Newt Gingrich (R-Ga.) that
they're hosting the first event of the 1996 primary season--
and persuaded him to eliminate the Ways & Means panel's cap
on tax breaks for ethanol, a boon to corn farmers and
agribusiness giant Archer-Daniels-Midland Co. Home-state
shipping interests prevailed over ideological purity for
Senate Majority Whip Trent Lott (R-Miss.), who forced $46
million in maritime subsidies back into the budget.
Budget pressures ultimately may doom some subsidies. The
imperative to cut $13 billion from farm programs, for
example, may guarantee that something like the Freedom to
Farm Act--a 7-year reduction in price supports--will prevail.
The pork that's packed into the Pentagon's appropriation will
certainly be trimmed in hard negotiations between Capitol
Hill and the White House. And tax breaks for pharmaceuticals
markers' Puerto Rican plants, long under assault, may slowly
wither away.
That's a start--but it's not enough. A GOP that believes
social welfare breeds personal dependency can't go on
pretending that corporate welfare builds a strong economy.
The party that's bold enough to reform health care for the
elderly ought to show the same fortitude when tackling oil
drillers and airplane manufacturers. If Republicans can't
wake up to the glaring disparity in their positions, they can
be sure the voters will.
____
[From the New York Times, Oct. 27, 1995]
Pension Pirates
By James H. Smalhout
Congress is playing politics with pensions and ignoring the
financial risk to workers and taxpayers. A proposal in the
House budget reconciliation bill, passed yesterday, would let
any company with a strong pension fund take money out of it
for any reason as long as the plan maintained a cushion of 25
percent more than the cost of paying current benefits. The
Senate is debating a similar proposal.
Letting companies dip freely into pension funds is a bad
idea. Federal pension laws understate the costs of keeping
plans afloat, so even a 50 percent cushion might not be
enough to withstand volatility. And the country already has a
serious pension problem: about 25 percent of private plans
together come up short of their current obligations by $71
billion.
Still, this flawed proposal, written by Bill Archer,
chairman of the Ways and Means Committee, responds to a
serious concern. Some companies with flush pension plans have
become targets for hostile takeovers. Predators want to grab
surplus pension money to shore up their own funds. This is
one reason why WHX, a West Virginia steelmaker with a weak
plan, has been trying to take over Teledyne, which has a $1
billion pension surplus.
The natural defense for target companies is to remove the
attractive nuisance of surplus pension money. So employers
with good plans are under pressure to take money out of them
to survive. This was easy in the 1980's, when companies could
simply terminate their plans and turn the liabilities over to
insurance companies to pay the benefits. But these deals were
often risky, so Congress set excise taxes as high as 50
percent, which have all but ended them.
[[Page H 11918]]
Companies can take money out of their plans to cover
retirees' health care premiums. But this provision has little
value unless a company has many retirees. Dynamic young firms
like Teledyne do not.
Concern about the plight of takeover targets should not
move Congress to let these companies raid their pension funds
at will. The contributions of a worker and his company become
larger--and his benefits increase faster--the longer he stays
on the job. So it doesn't follow that a pension plan has a
healthy future just because it has a surplus today.
The sensible approach is to require plans to maintain a
precautionary surplus. Without extra assets to protect
against volatility and rising costs, a plan is just a long-
term Ponzi scheme like Social Security. And that's very risky
for taxpayers, who stand behind failing pension funds.
Last year, Congress and the Clinton Administration ducked
the fundamental issue of how to provide workers with secure
pensions while protecting taxpayers. They raised taxes on
weak pension plans and passed slightly stricter financing
requirements. But these measures were hopelessly inadequate.
And by taxing companies with weak plans, they strengthened
the urge to merge that puts companies like Teledyne under
pressure from pension pirates.
That is why Representative Archer is proposing to allow
companies to take extra pension money for any corporate
purpose. In his favor, the Government does not do a good job
of detecting which companies are strong enough to keep their
pension promises. But his legislation is unwise. No law
should let companies tap retirement money without recognizing
the long-term financial costs.
There is a better way. Workers and taxpayers could be
protected by requiring companies to secure their pension
benefits with a guarantee from triple-A rated insurance
companies. This would keep companies like WHX from ending up
with weak plans. If the creditworthiness of the pension plan
and the company was so weak that private insurance couldn't
be obtained, benefits would be frozen. Companies in such
sorry shape have no business making false promises to their
workers.
President Clinton has vowed to veto the budget package, and
the veto would likely be sustained. The House should use the
opportunity to make sure that companies keep their pension
plans in good shape, not to declare open season on workers
who have paid to have safe and secure pensions.
____
[From the Los Angeles Times, Oct. 17, 1995]
The Great Pension Fund Raid, Part II
Americans covered by pension plans with defined benefits
had better watch out for the frenzied congressional effort to
allow companies to divert money from these employee
retirement funds. Congressional Republicans are trying to
lift safeguards that were imposed in 1990 to prevent raids on
pension funds. Making it easier for some companies to
withdraw so-called excess assets could put these plans at
risk. This is one item in the huge tax package working its
way through Congress that should be abandoned.
Under current law, companies may withdraw excess assets--
defined as those exceeding 125% of the amount needed to meet
projected pension obligations--without penalty, but only if
the money is used for health benefits for retirees. For
withdrawals for other purposes, companies must pay tax
penalties of 25% to 50% as well as income taxes. Congress
imposed the penalties five years ago in response to corporate
raiders who took over companies in the 1980s and tapped
surplus pension funds, a move that left both retires and the
government at risk. About $20 billion was pulled out of the
private pension system then, according to the Pension Benefit
Guaranty Corp., the federal agency that insures defined-
benefits pension funds.
The House Ways and Means Committee has already cleared a
bill, sponsored by Bill Archer (R-Tex.), to allow firms to
withdraw funds for any purpose without notifying pension
participants. The withdrawals would be subject to an excise
tax of only 6.5% (in addition to income taxes). Any
withdrawals before next July 1, would escape the excise tax--
an undesirable inducement to use surplus funds quickly. The
Senate Finance Committee is considering a similar measure.
Proponents stress that under the change the government
stands to raise about $9.5 billion over seven years because
many more companies would tap pension money. But a
potentially negative effect of the legislation is that an
estimated $30 billion in pension funds could be withdrawn.
Raiding excess pension assets would be particularly tempting
to financially weak companies.
Might current overfunded pension funds become underfunded?
Yes. After all, companies are never absolutely sure of how
much they will need to pay retirees in pension benefits. That
depends on how long retirees live and other variables, such
as interest rate fluctuations.
For all these reasons, these changes in the use of excess
pension funds should be opposed. Pensions are a crucial
factor in the national savings rate, and financial saving is
something government policy should encourage, not discourage.
____
[From the Chicago Tribune, Oct. 3, 1995]
Pension Proposal Aids Raids
(By Kathy Kristof)
In a move that both startled and horrified pension
advocates, a key congressional committee passed a proposal
making it easier for some companies to raid their employee
pension plans.
The provision is a key of a sweeping tax overhaul that
would save the government an estimated $30 billion over five
years. As a result, it has a good chance of passing into law,
despite the fact that everyone from the American Association
of Retired Persons to the AFL-CIO is fighting against the
pension provisions, Washington insiders say.
``This is going to make pension plans a tax-free checking
account for companies,'' says Neil Hennessy, deputy executive
director of the Pension Benefit Guaranty Corp. (PSGC), a
government agency that backs defined benefit pension plans.
``Nobody anticipated that Congress would do this.''
``It's unbelievable,'' adds Cindy Hounsell, staff attorney
at the Pension Rights Center. ``It's a return to the 1960s.''
What the provision would do is simple. It would drastically
reduce tax penalties for taking money out of an
``overfunded'' pension, cutting the excise tax to 6.5 percent
from penalties that range from 20 to 50 percent today.
Indeed, it would actually give companies an incentive to raid
their pensions quickly--before July 1, 1996--by waiving all
tax penalties for taking surplus money out of pensions that
have more than 125 percent of the money needed to pay future
retiree benefits.
Under the proposed rules, the government would still make
money if a company raided its pension, because any amount
``distributed'' from a pension is considered taxable income.
Companies that raided their pensions before July 1 would pay
income tax, but no penalties on the amounts withdrawn.
Currently, if companies take money out of a defined benefit
pension, they must pay income and excise taxes on the amount
withdrawn--similar to the taxes and penalties you would face
if you withdrew money early from an individual retirement
account. However, the corporate penalties are currently much
more severe, amounting to between 20 and 50 percent of the
withdrawn amount in addition to regular income taxes paid on
the money.
In the end, a corporation that took money out of a pension
today would lose 80 to 85 percent of the withdrawn amount to
federal taxes, says Bruce Ashton, a Los Angeles-based pension
attorney.
The high penalties were instituted in the late 1980s, after
a wave of corporate raiders took over companies, spent their
pension ``surpluses'' and ultimately left both retirees and
the government at risk. The government, in the form of the
Pension Benefit Guaranty Corp., insures defined benefit plans
to specified limits, essentially putting taxpayers on the
hook for any big losses to the pension system. However, some
retirees are also at risk because the government insurance
covers only up to set amounts--currently to about $2,574 in
monthly benefits. Those who were promised more could lose any
excess amounts in a pension plan failure.
How can it be risky to withdraw money from a pension when
the company has more than 125 percent of the amount it needs
to pay future benefits?
The tricky thing about pension surpluses--and shortages--is
they're all estimated. In reality, companies don't know
precisely how much they'll need to pay retiree pension
benefits. The real cost will depend on how long employees
live and collect monthly payments--and on how much the
company earns on its savings in the interim.
The proposed law stipulates that companies that decided to
withdraw funds from an overfunded plan would not be required
to inform their workers, says Hennessy.
How much damage could this do to the income of future
retirees?
``It's hard to judge,'' says Hennessy. ``It is very
difficult for consumers to stop a raid of their pension when
the law allows it. But most people are paid what they are
owed by their plan.''
In fact, many believe the law has wings for one simple
reason. It could allow the government to immediately collect
billions in income taxes from companies that take money out
of the pension and declare it as income. At the same time,
the risks are hard to quantify, and the costs--anticipated in
future pension plan failures--aren't likely to hit for years,
probably long after today's congressional leaders are
retired.
____
[From the Chicago Tribune, Oct. 2, 1995]
An Unconscionable Raid on Pensions
Whenever the big fiscal squeeze is on in Washington--as it
is now--politicians of all stripes are tempted to dip into
money pots wherever they can find them.
One of the most inviting stashes is the nearly $5 trillion
salted away in pension funds. Republicans on the House Ways
and Means Committee recently sanctioned a raid on corporate
pension funds as a way to raise new revenues and help them
balance the budget.
Democrats blasted the tax-writing panel's action,
contending it would threaten workers' nest eggs and could
leave taxpayers with a sizable bill if any pension plans go
belly-up as a result.
But with Congress cutting spending on social programs, the
Clinton administration has been pushing to let private
pension funds invest in low-income housing and other so-
called economically targeted investments. While the White
House is technically correct that this doesn't constitute a
raid on pension
[[Page H 11919]]
funds, it's at least a thinly veiled sneak attack.
The point is that both parties should keep their grubby
hands off pension-fund assets. Employers pay into retirement
funds, hoping they will grow enough to cover the payouts
promised to retirees. By law, fund managers should be
concerned solely with investing to increase benefits for plan
participants, and the money in a fund should be thought of as
belonging to the participants.
House Republicans, however, decided to ease the rules so
employers could withdraw ``excess'' money from pension
funds--cash above future pension needs--and use it for
anything they want. They said the companies would invest it
in new plant and equipment and not jeopardize the funds
because they still would be required to have a 25 percent
cushion as insurance to meet future obligations.
Even with the cushion, Democrats contend the drawdown of
assets will make some funds vulnerable to lower returns if
the economy and stock market sour. Then, the administration
argues, the government would have to come to the rescue of
underfunded pensions, with taxpayers footing the bill.
Republicans would increase the odds for greater unfunded
pension liabilities and for some funds to go under. Why?
Because while the move would divert up to $40 billion from
the pension system, companies would have to pay income tax on
the money, raising nearly $10 billion over seven years.
It's a terrible gamble at the wrong time. Many pension
funds already are underfunded. Workers aren't saving
adequately for retirement and, early in the next century,
Social Security will face serious financial woes. Republicans
and Democrats alike should keep their hands out of the
pension fund cookie jar.
____
[From the Chicago Tribune, Sept. 25, 1995]
Keep Paws Off Pension Fund Assets
(By Bill Barnhart)
Have you noticed? Squirrels are especially busy gathering
nuts as fall begins this year. That means a harsh winter lies
ahead, according to some nature lovers.
Well-heeled financial backers of the current Republican
majority in Congress--perhaps sensing that the good days
won't last much longer for them, either--are busy grabbing
for everything they can get as fast as they can get it. Under
cover of the high-profile debates about budget deficits,
welfare reform and Medicare, they are stuffing their cheeks
with smaller morsels that don't get media attention.
A few weeks ago legislation emerged to weaken the nation's
securities laws that protect small investors in favor of the
interests of the ``entrepreneur.'' (This Republican Congress
may be remembered best for giving entrepreneurship a bad
name.)
The latest is a proposed raid on corporate pension funds,
which represent the storehouse of retirement savings for
millions of American workers. Instead of helping their
employees gather retirement nest eggs that will withstand the
vagaries of financial markets, certain employers have decided
they want free access to the so-called excess dollars in
company pension plans.
Many employees these days aren't being covered by pension
plans at all, but are expected to sock it away themselves
through such tax-advantaged programs as 401(k) plans and
individual retirement accounts. A big worry is whether they
are saving enough.
There is no provision in the rules for workers who have
been fortunate enough to see their 401(k) or IRA portfolio
value grow in the current bull market to declare an
``excess'' and withdraw funds for a vacation without paying a
tax penalty.
But that's exactly what certain employers pushing a bill
recently passed out of the House Ways and Means Committee
want to do with employee pension fund assets. Only instead of
a vacation, the fun and games could involve more ego-building
mergers and acquisitions by a handful of financiers who would
use pension fund assets to pay for their deals. It happened
in the 1980s, and it can happen again.
``We though we'd put an end to those things,'' said Martin
Slate, executive director of the Pension Benefit Guaranty
Corp., which has the unenviable task of making good when
employers skip out on their employee pension obligations.
Employers pushing this measure say they want to use the
locked-up capital to grow and create jobs. That may be. But
companies such as Chrysler, with large unrestricted cash
amounts on their balance sheet often become sitting ducks for
hostile takeover artists. Unlocked pension fund assets on the
balance sheet are as inviting as cash to a raider. Certainly,
the employees would not get to vote on the use of their
``excess'' pension funds.
Slate's agency estimates that $30 billion to $40 billion in
pension assets would be raided if the provision now under
consideration passes. That's $30 billion to $40 billion less
of an already shrinking cushion of pension fund surplus.
Meanwhile, the level of unfunded pension liabilities has been
growing.
A law enacted in 1990, largely in response to the raids on
pension funds during the previous decade, bans employers from
withdrawing the alleged excess employee pension funds, except
under limited circumstances to pay retiree health benefits.
Some companies advocate a limited change in the law to
permit them to tap a conservatively derived surplus in their
employee pension funds to pay health care benefits for active
workers. That idea deserves consideration because it would
benefit employees. But to turn any amount of pension fund
assets into a company checking account for any purpose is
dangerous public policy.
The ability and willingness of American workers to save
adequately for their retirement is a major concern these days
for individuals and the economy as a whole. Letting employers
raid their employees' storehouse is no answer to the problem.
The fat-cat squirrels should stick to their own nests.
Dumb question: Why doesn't the dividend yield figure relate
to the price of the stock, so that when the price per share
changes so does the yield statistics?
It does, but sometimes the change goes unreported in
newspaper stock listings because of rounding. For example, a
stock with a $2.40 per share annual dividend selling at $60
would have a reported dividend yield of 4.0 percent in the
stock listings. If the stock price dropped to $59.125, the
yield would rise to 4.05 percent, which still would be
reported at 4.0 percent. If the stock price dropped to
$59.00, the yield would be 4.06 percent, rounded up to 4.1
percent in the listings.
Recently, market commentators have noted that dividend
increases have not kept up with stock price increases. To the
extent that is true, the changes in reported dividend yields
will be less frequent because the dividend represents a
smaller part of the share price and the rounding problem
becomes more pronounced.
____
[From the AARP Bulletin, November 1995]
Pension Forecast: New Raids Coming?
(By Robert Lewis)
A debate that everybody thought was settled five years ago
over who owns pension assets--workers or employers--has
suddenly reignited.
Touching off the controversy is a Republican plan in
Congress to allow corporations to withdraw reserve assets
from pension plans and use the funds for purposes other than
pensions.
Under a provision included in a tax bill that recently
passed the House Ways and Means Committee, employers could
tap these assets just so long as they left a cushion of at
least 25 percent over what is needed to pay current pension
obligations.
Rep. Bill Archer, R-Texas, chairman of the Ways and Means
Committee and author of the plan, said the ``pension
reversion'' provision would be good for corporations, and
also good for the overall economy.
``This will allow companies with excess money in their
pension plans to put that money to use,'' he said in a
prepared statement, ``to create new jobs, opening up
opportunities to expand the economy.''
But critics see dangers for pension plans in the GOP
proposal. They argue that a 25 percent cushion is not enough
margin to prevent currently overfunded plans from becoming
underfunded should their assets decline during economic
downturns.
The Pension Benefit Guaranty Corp. (PBGC), the federal
agency that insures pensions, calculates that a plan with a
25 percent cushion could become underfunded if the stock
market dropped 10 percent or interest rates fell two
percentage points.
``The [GOP plan] makes pensions vulnerable to stock market
downturns,'' says Karen Ferguson, of the Pension Rights
Center, a Washington advocacy group. ``It could place
pensions at risk should firms get into financial trouble.''
Clinton administration officials attacked the proposal,
charging that it would allow companies to siphon up to $40
billion from pension plans and threaten the retirement
security of 11 million workers and 2 million retirees
enrolled in some 22,000 plans.
If the plan become law, Labor Secretary Robert Reich told
reporters, ``We're going to see raids on pension assets that
will make the train robberies during the days of Jesse James
pale in comparison.''
AARP officials also criticized the GOP plan, contending it
would ``bring back the large pension raids of the late
1980's, ``when employers diverted some $20 billion of pension
funds to other purposes. Much of the money was used to
finance corporate takeovers and leveraged buyouts.
In 1990, the federal government sought to curb pension
reversions by making employers subject to a 50 percent excise
tax if they withdrew pension assets and terminated the fund,
or a 20 percent excise tax if they established a successor
plan. Firms pay federal income taxes on top of that.
Archer's bill would repeal the excise tax for six months,
then reduce it to 6.5 percent through 2000. Congressional
analysts estimate companies, as a response to Archer's bill,
would pull $40 billion from pension funds.
If they did, that would generate $10 billion in tax
revenue, experts figure, suggesting this may be the real
reason for the Archer proposal.
But Labor Secretary Reich says such a gain may be illusory,
since the federal government insures the nation's 58,000
conventional company pensions covering 41 million workers.
When plans fail the PBGC steps in and runs them, keeping
pensions flowing to beneficiaries. Although the PBGC is
financed by insurance premiums paid by corporate pension
sponsors, any shortfalls conceivably could end up being paid
by taxpayers.
At the heart of the controversy is a question of who owns
the assets of pension funds.
[[Page H 11920]]
Lynn Dudley of APPWP--The Benefits Association, which
represents large corporations, has no doubts about the
matter. ``Excess assets belong to the employer,'' she says.
But pension advocates say the money is deferred
compensation and belongs to workers. Still other suggest the
money belongs right where it is--in the pension trust.
``Employers simply should not be permitted to put workers'
pension-fund money at risk, as would happen with this
proposal,'' says AARP lobbyist David Certner.
____
[From the Washington Post, Oct. 31, 1995]
Two Bad Ideas
The enormous budget-balancing bills that the House and
Senate passed last week each contain some corporate tax
increases. Two in the House version of the bill are bad ideas
and ought to be dropped in the conference that now begins.
One would make it easier for corporations to remove
supposedly excess funds from their pension reserves and use
the money for other purposes. Thought it would result in some
increased tax payments, it is less a tax increase than a
benefit that corporations actively sought--and that critics
say would leave the affected pension funds in weakened
condition.
The other would phase out a low-income housing tax credit
meant to induce corporations to invest in such housing in
return for somewhat lower taxes. Again, it is hardly the
corporations that would be the primary losers were it to
disappear.
Republicans have pointed to the corporate tax increases--
they prefer to call them adjustments or reforms--as evidence
that theirs is an evenhanded budget in which they squeeze
their own traditional constituencies and not just those of
the other side. But ``corporate tax increases,'' the
principal burdens of which would likely fall on retired
workers and lower-income renters, prove nothing of the kind.
Current law imposes a prohibitive penalty in addition to
the corporate income tax on withdrawals of supposedly excess
amounts from pension funds unless the money is used to help
pay retiree health benefits. The House bill would greatly
reduce the penalty and in effect ease the definition of
excess while permitting withdrawals for any purpose an
employer wished.
Billions would likely be withdrawn, and since the
withdrawals would still be subject to tax, it's true that
revenues would go up. But organized labor, the Clinton
administration and such groups as the American Academy of
Actuaries have warned that the soundness of a significant
number of pension funds could well be threatened in the
process. They note that the value of pension fund assets
are volatile; they go up when the stock and other
securities markets are strong but can just as easily turn
down again. It's hard to know exactly where to draw the
danger line in a matter such as this, but it's easy to
know on which side to err. The Senate last Friday wisely
decided to err on the side of caution and knocked a
similar pension provision out of its bill by a vote of 94
to 5.
The phase-out of the housing credit was never in the Senate
bill. The credit is one of the few remaining devices for
adding to the stock of low-income housing in the country. The
subsidized housing programs on the spending side of the
budget are being cut back, if not shut down, even as the need
for such housing continues to grow.
The credit is probably not the most efficient way to
produce the housing, but it has been a steady source of added
supply at relatively modest cost, and it would seem to be
perfect Republican program in that the housing would be
provided mainly through private initiative.
The House bill would use the proceeds from both these
corporate ``tax increases'' mainly to finance the extension
of other corporate tax breaks. For the corporate sector as a
whole, they're a wash, while in social terms they would leave
the budget more lopsided, not less. On these two issues,
present law should be preserved.
____
[From the Philadelphia Inquirer, Oct. 3, 1995]
Pension-Mania
Workers and retirees will be hurt if Congress allows
companies to raid pension funds easily.
It was a standard scam of the Decade of Greed: Corporate
raiders skimmed off pension funds to pay their debt and line
their pockets. Managements of companies such as Simplicity
Pattern Co., Faberge Inc. and Pennsylvania Engineering Corp.
removed a total of $21 billion from pension funds in the
1980s. Congress finally stopped this in 1990 with a
prohibitive tax.
Lo and behold, only five years later, the House Ways and
Means Committee has voted to end the special, 50 percent tax
that has stopped companies from raiding pension funds. The
panel's Republicans say, unpersuasively, the relief would
apply only to pension funds holding millions more than they
really need.
In reality, this change is a needless risk to workers, to
retirees and to the federal corporation that safeguards the
system. The Pension Benefit Guarantee Corporation is
adamantly opposed to the change. Indeed, the PBGC says it
would let companies use pension plans ``as tax-free corporate
checking accounts.''
Considering how important pensions are to workers and
retirees, it's not clear that the rules ought to be changed
at all. When a company's pension-fund investments have done
extremely well, creating a real excess, the company gets the
benefit of going years without putting more money into the
plan. Or, the company can transfer some or all of the excess,
without penalty, to pay for health-care benefits for
retirees.
Even those who say the 50 percent tax should be lowered
must admit that the House Republican plan goes way too far.
It proposes only a 6.5 percent tax on withdrawals of
supposedly excess pension funds, and for the first half of
1996, no penalty at all!
This is a gimmick to raise revenue--since corporations
would pay income tax on the pension money they withdraw. But
lawmakers shouldn't be indulging in tax gimmicks at all, let
alone one that could undercut the safety of pensions for
millions of workers and retirees.
The biggest flaw in the House plan is how it defines a
pension plan with truly ``excess'' funds: A plan that holds
more than 125 percent of its current liabilities--that is,
the pension benefits employees have already earned.
But the PBGC says that threshold isn't nearly high enough.
A new report by a business group called the Committee for
Economic Development, anticipating how baby boomers will
burden the pension system, expresses similar concern.
The retirement security of American workers has been
hammered in recent years by corporate downsizing, corporate
raiders and the like. Now it's being shaken further by cuts
in entitlements such as Medicare. A new raid on pension funds
makes no sense whatsoever.
____
[From the Long Island (NY) Newsday, Sept. 21, 1995]
The New Tax-Free Corporate Checking Account
(By Marie Cocco)
You can tell when something big is happening at the House
Ways and Means Committee. The lobbyists all age by about 25
years and undergo sex-change operations, as the powerful
replace the mere note-takers.
The power quotient was unimpressive this week as the panel
crafted a measure billed as one to close corporate loopholes.
Still lots of empty seats; still too many twentysomething
women clutching cellular phones. And that got Rep. Jim
McDermott (D-Wash.) wondering.
``Here we have a $10-billion tax increase and nobody
cares,'' he noted. ``So you have to ask yourself, what's
wrong here?''
An appropriate question. Here's the answer: The $10.5-
billion tax ``hike'' innocuously labeled ``corporate pension
reversions'' on the committee's charts is in fact an
invitation for corporations with rich pension funds to raid
the accounts and use the money however they wish. Golden
parachutes. Higher stock dividends. Corporate jets. You name
it.
Students of the 1980s will recall that during the heyday of
the leveraged buyout, a fat pension fund often put a company
``in play.'' That is, the pension assets in excess of what
was expected to be needed for retirees became a piggyback.
Market-manipulators used the money to pursue other companies.
Or a new owner who'd conquered a takeover target would
terminate the pension plan, buy less generous annuities for
the retirees and skim off the excess.
The Pension Benefit Guarantee Corp. says about $20 billion
was siphoned from pension funds during this binge. But that's
only about half the $30 to $40 billion the pension-insurance
agency estimates would be drained out by reopening this
scheme.
How does it work?
Under rules passed in 1990, a corporation can remove
pension money without penalty only if the funds are used to
pay retirees' health benefits. Otherwise, the company pays a
stiff tax penalty on the withdrawal, in addition to income
taxes.
The measure pushed through by committee Republicans would
wipe out the penalty. Companies would pay only income taxes
on the withdrawal. That's how the GOP estimates raising $10.5
billion in new revenue.
But that assumes corporations will actually pay taxes on
the withdrawal. More likely, they will time them to coincide
with tax losses. They could construct it so it's all a wash.
``It has the effect of creating a tax-free corporate
checking account,'' said Assistant Treasury Secretary Leslie
B. Samuels, who, with the Democrats on the panel, tried to
dissuade the Republicans.
The opponents pointed out that even pension funds that are
technically ``overfunded'' now could become underfunded with
a stock market downturn or interest-rate change. They argued
that pension money belongs to current and future retirees.
They tried to warn them that, since the government insures
pensions, the Republicans could be paving the way for the
next savings-and-loan debacle.
The Republicans said Democrats just don't understand free
markets. ``I can't believe that they don't understand our
economic system!'' Rep. William Thomas (R-Calif.) shouted.
Pension money should be used for productive investments, he
argued, not left ``just sitting there doing nothing.''
Someone should let him know pension funds are the nation's
largest source of capital; they own a fifth of all corporate
stock.
[[Page H 11921]]
That would clear up the free-market argument. But it won't save the
Republicans from themselves.
Days ago, they howled about protecting pensions from the
clutches of the Clinton administration. The Labor Department
provides information on investments in things like hospitals
and small businesses to pension managers; the managers
control where to invest. The House abolished the program.
``Our message is simple,'' Majority leader Dick Armey (R-
Texas) crowed. ``Keep your paws off our pensions.''
It's a good sound bite. But nothing more than that.
____
[From the Pittsburgh Post-Gazette, Oct. 1, 1995]
Pension Raid--Don't Raise Revenues by Threatening Pension Benefits
In the 1980s, corporate pirates didn't need a map to find
the buried treasure--it was right there in the pension fund.
High interest rates and a galloping stock market had made
many funds flush. Frequently a company with a very healthy
pension became a takeover target--leverage buyouts were
followed by termination of the pension fund and the use of
the excess cash to pay off debt.
If workers' welfare had been insulated from all the high-
finance brinkmanship, perhaps it wouldn't have been an issue.
But often the plans were replaced with lesser-value pensions
or, on occasion, no pensions at all.
Starting in 1986, Congress set up a system allowing
corporations to draw down excess funds, but with a small
excise tax--10 percent at first, later raised to 15 percent.
But that didn't shield workers. Many overfunded pensions
ended up being underfunded. Twenty of the top 50 underfunded
pension plans had been subject to ``reversions,'' as the
draw-down is called.
In 1990 Congress passed a 50 percent excise tax on
businesses that terminate plans and fail to set up a
successor plan with similar benefits. The tax is 20 percent
on those that replace the plan. Reversions are allowed
without penalty if the money is used to pay retirees' health
benefits.
That's a fairly happy ending to the story. But watch out
for the epilogue. Last week the House Ways and Means
Committee voted to open pension plans up yet again. Plans
that are funded at 125 percent or higher can be drawn down
without penalty through June 1996. After that, the excise tax
will be only 6.5 percent.
The gambit will raise $9.5 billion for the federal Treasury
in corporate income tax, but congressional experts estimate
that it will drain pension funds of some $40 billion in
assets--double the amount that was drawn down in the 1980s.
The federal pension insurance program has decried the move.
The three Cabinet secretaries that sit on its board--Commerce
Secretary Ron Brown, Treasury Secretary Robert Rubin and
Labor Secretary Robert Reich--cited a host of reasons why
this is a bad idea.
A pension that is 125 percent funded on an ongoing basis
may well be underfunded if it were terminated immediately and
had to make good on its obligations. Most plans will not be
terminated immediately, but some will and their beneficiaries
won't be adequately covered. That will put a strain on the
federal insurance system and will probably reduce benefits
for some pensioners.
Even if the plans aren't terminated, interest rates and
market conditions change. Plans that are overfunded today
weren't three years ago and may not be three years from now.
Keeping a cushion makes sense under those circumstances. In
the 1980s, many overfunded plans that were drawn down ended
up underfunded.
Another concern is that companies receive considerable tax
advantages to contribute to pension funds, but will be
allowed to withdraw with no penalty.
That will open the door to a lot of financial gamesmanship.
Also, the pension raid would be encouraged despite the well-
known need to bolster private savings.
Surely there are better ways to balance the budget then to
gamble with the security of private pensions covering
millions of Americans.
____
[From the Cleveland Plain Dealer, Oct. 3, 1995]
Cut Now, Pay Later
Congress should reconsider tax cuts rather than ask poor
people and pensioners to pay for them.
Not surprisingly, members of Congress who approved a $245
billion tax cut earlier this year are struggling now with the
delicate question of how to pay for such excess.
A bill recently adopted by the House Ways and Means
Committee, for example, would help to finance the tax cut by
raising about $39 billion over seven years. Some of the
bill's provisions make sense. Others are downright foolish.
One of the most worrisome proposals would make it easier
for companies to withdraw money from their pension funds.
Under the bill, companies would no longer face severe
penalties for withdrawals from pension funds as long as the
maintained a cushion of 125 percent of the assets they needed
to meet their pensions' liability. The proposal, which would
allow companies to withdraw funds for any purpose, would
increase federal revenue because companies must pay taxes on
withdrawals.
Supporters of the change contend that a 125-percent cushion
is adequate. But critics, including the federal Pension
Benefit Guaranty Corp., warn that a seemingly comfortable
cushion could vanish if the stock market tumbles, because
many pension funds are heavily invested in the stock market.
Given the federal government's potential liability, and
disasters like the savings and loan crisis, Congress should
be wary indeed of loosening restrictions. Tough penalties on
withdrawals were instituted precisely to avoid a taxpayer
bailout of pension funds.
Another ill-advised House proposal would raise $23 billion
by sharply reducing the earned income tax credit, which
allows the working poor to receive a credit from
the government even if they don't owe taxes. The Senate
Finance Committee, meanwhile, is endorsing an even larger
cut in the credit--$42 billion over seven years.
Lawmakers are hoping to limit the credit, which was
expanded greatly in President Bill Clinton's 1993 economic
package, in several ways. Some of the proposals merit
consideration--including one that would make childless
workers ineligible for the credit, and another that would
take into account income from Social Security and other
outside sources when determining eligibility for the credit.
Lawmakers should be wary, however, of reducing the value of
the credit for the people it was principally intended to
help--poor families struggling to survive on low wages. The
earned income tax credit was designed to encourage poor
breadwinners to take low-wage jobs instead of relying on
welfare and related benefits. It is one of the last tax
incentives that should be trimmed, not one of the first.
Congress clearly needs to balance its lopsided books. But
lawmakers must take a long-term approach. Reducing pension
protections and tax credits for poor breadwinners may swell
the federal treasury in the short run. But such steps could
increase government spending in the long run.
Senate Majority Leader Bob Dole, who raised the possibility
Sunday of not providing the full $245 billion tax cut, is on
the right track. If Congress wants to avoid blame for foolish
tax increases, it should give up foolish tax cuts.
____
[The Harrisburg (PA) Sunday Patriot-News, Oct. 1, 1995]
Protect Pension Fund Assets
During the wave of corporate buyouts in the 1980s, pension-
fund monies were used to accomplish two-thirds of the largest
mergers, according to Commerce Secretary Ron Brown. All told,
about $20 billion was lifted from private retirement funds to
facilitate corporate takeovers.
But if congressional Republicans have their way, that
period of pension-fund raiding will seem modest.
Last week, the House Ways and Means Committee approved
legislation that would allow corporations to remove $30
billion to $40 billion from pension funds over the next five
years for other purposes. Republicans hope to capture about
$9.5 billion of that in taxes to put toward balancing the
budget.
In the process, they may well put some pension funds at
risk. As most are government guaranteed, taxpayers could be
the losers in the end, along with affected workers and
retirees.
Proponents claim that the 25 percent cushion above current
liabilities that the measure provides is more than adequate
to protect the country's 11 million employees and 2 million
retirees covered by private pension plans. In addition, they
argue that if the surplus pension money is reinvested in
plant and equipment it could mean more jobs and a stronger
company.
According to Ways and Means Chairman Bill Archer, the
proposal could actually make pension plans more attractive to
business and encourage them to make larger contributions.
But as Labor Secretary Robert Reich noted, you couldn't
prove that by what happened in the 1980s. An analysis by the
federal Pension Benefit Guaranty Corp. found that of 50
pension funds on an underfunded watch, 20 experienced
withdrawals in the 1980s of what were then considered
surplus assets.
In addition, the agency said that an examination of 10
large pension funds found that the 125 percent limit was not
sufficient to protect them if they were terminated because of
corporate bankruptcy. Less than 90 percent of the money
required to meet obligations would be available, according to
the agency.
The agency further noted that funds currently considered
sufficient could become underfunded by a modest shift in the
market that reduced interest rates by one percent, combined
with a 10 percent decline in the value of assets.
Even the pro-business Committee for Economic Development
has warned that the present full-funded standard of 150
percent of liabilities is insufficient to ensure the long-
term viability of pension funds.
The 1980s corporate-takeover frenzy, fueled in part by
raids on pension funds, took a heavy toll on this country in
terms of quality companies that were destroyed, thousands of
jobs that were lost, damage inflicted on the environment to
pay off debts, pension-fund depletions and the loss of
employee trust in employers.
It boggles the mind to think that the stage might be set to
go through that again, and at twice the rate of the 1980s.
____
[[Page H 11922]]
[From the Fort Worth Star-Telegram, Sept. 22, 1995]
And Pensions
And on the subject of ideas in new tax bills, one of the
worst is the plan to allow corporations to withdraw money
from their pension plans. The withdrawals would be taxed--an
estimated $10.5 billion over seven years--but this is a bad
idea for two reasons.
First, Americans are worried about their retirement years.
What can they count on? Letting corporations use supposedly
``excess'' pension funds for other purposes merely adds to
the public's unease about its old age.
Second, the federal Pension Benefit Guaranty Corp.--one of
those federal insurance programs, like insured bank deposits,
that are ignored until they cost the taxpayers billions of
dollars--could have to rescue pension plans that become
underfunded because of corporate withdrawals.
We do not need another S&L-style bailout because someone
got greedy and saw a way to get more revenue without raising
taxes.
____
[From the Spartanburg (SC) Herald-Journal, Oct. 2, 1995]
Leave Pension Funds Alone--Congress Shouldn't Enable Companies To
Endanger Retirees' Benefits
Congress should back away from a plan to let companies
spend ``excess'' funds in their pension programs.
The plan, which was approved by the House last week, is
popular with businesses because it would allow companies to
use funds that aren't needed to meet pension obligations.
It is popular with Republicans in Congress because it is
expected to generate $9.4 billion in new federal revenue.
But it's likely to become unpopular with the rest of us if
it ends up affecting our pensions, which it is likely to do.
A key question is: How much money in a pension fund is
``excess?''
The proposed measure would apply to companies that have at
least 25 percent more money in their pension funds than is
needed to cover benefits already earned by their employees.
About 40 percent of the pension funds insured by the
government fall into this category. Companies are expected to
spend up to $40 billion of this money if the law is passed.
But 25 percent is not much of a safety margin when dealing
with financial investments. The Pension Benefit Guaranty
Corp., the government agency that insures pensions, requires
more cushion than that when a company terminates a pension
plan.
Most pension plan funds are used to buy stocks, bonds and
other investment vehicles. The growth of those investments
has led to the excess funds in the pension plans.
But what happens if the stock market plunges? If the
investments of a plan go sour? All of a sudden, a pension
plan that had excess funds no longer has the funds it needs
to meet its obligations.
Who pays the pensions for the retirees then?
Taxpayers, through the Pension Benefit Guaranty Corp.
Does it sound familiar? Think Savings and Loan.
Companies were allowed in the '80s to use excess pension
funds for business use. About $20 billion was taken out of
pension funds then, according to the Guaranty Corp. The money
often was used to pay for leveraged buyouts and mergers.
Workers at many of those companies had their pensions
replaced by plans with much lower benefits.
In response, Congress placed a 50 percent excise tax on
money taken from pension plans. The current proposal would
eliminate that tax.
It should not be allowed to become law.
____
Don't Support Pension Raids
Smoke and mirrors would be preferable to a proposal
approved by the House Ways and Means Committee last month to
let healthy companies withdraw from their workers' pension
funds.
The proposal is designed, primarily, to raise $10 billion
in federal tax revenue at a time when the government is
desperate for money. Giving companies access to large sums of
money would also accommodate business expansion, helpful to
the economy just about any time.
The problem is it would subject workers' pensions to
unacceptable risk, which seems especially unwise during a
time of such uncertainty for Social Security. And in the
event of a few large defaults, it could pin the cost of a
huge bailout by the federal Pension Benefit Guaranty Corp. on
taxpayers. After the federal savings and loan debacle, that's
the last thing we need.
The Republicans' plan is to let companies borrow from
pension plans that have at least 125 percent of the money
they are estimated to need to pay current employees'
pensions. While such loans are now allowed, the government
imposes penalties on them of 20 percent to 50 percent, and it
taxes the money as ordinary income. Consequently, most
companies choose other ways to raise money. Under the
proposal passed by the Ways and Means Committee, the penalty
would be eliminated until next July 1 and raised to only
6.5 percent thereafter.
This would undoubtedly encourage hundreds of healthy
companies to raid their pension funds, providing a windfall
for the government, which would continue to collect taxes on
the money taken out. If everything goes according to plan,
there wouldn't be a problem. But if the economy stumbled and
the stock market tumbled--most pension funds are heavily
invested in it--look out below.
In an instant, pensions would be dangerously underfunded, a
situation that, uncorrected, could require massive infusions
of cash from the PBGC. Without them, pension obligations
might not be met. And with them, the government agency might
have to turn to taxpayers--just as the Federal Deposit
Insurance Corp. did when it had to bail out the S&Ls. A
chilling thought.
Not surprisingly, there is widespread opposition to the
plan among labor unions and the American Association of
Retired Persons. The head of the PBGC is also against it. And
that ought to convince President Clinton to veto the measure
should the Republicans, as expected, muster enough votes to
get it through Congress.
____
[From the Joplin Globe, Oct. 5, 1995]
Proposal Would Allow Corporations To Raid Pension Plans
It appears that little is immune from Congressional
budgetary deliberations. If it can be cut or it will raise
money, it seems to be fair game for Congress.
Now, pension funds are among the fair game.
The House Ways and Means Committee has approved a proposal
to allow corporations to raid their pension plans, raising
billions for the government through income taxes paid on the
withdrawals.
Proponents say the measure would lead to greater retirement
protection while raising $9.5 billion for the government.
Corporations support the measure because they say withdrawal
of excess assets from pension funds can help workers if the
money is used to expand and create more jobs.
Opponents say it would endanger the retirement security of
millions of Americans, just like it did in the 1980s, when
companies legally tapped pension plans, leaving many under-
funded as a result.
Among the opponents are three cabinet secretaries who are
members of the Cabinet-level board overseeing the federal
Pension Benefit Guaranty Corp. (PBGC), which insures pension
plans and takes over those that fail.
They say the proposal would trigger withdrawal of up to $40
billion from pension plans in the next five years--twice that
removed by companies during the corporate takeover frenzy of
the 1980s.
Under the provision, withdrawals from pension funds would
be allowed at any time and for any purpose. Currently,
withdrawals are allowed only for use in retirees' health
benefits. The proposal would require corporations making
withdrawals to leave a cushion of 25 percent more than needed
to meet current liabilities.
Allowing companies to dip into their pension funds would
lead more of them to make large pension contributions for
cushioning or, if they don't already offer pensions, to
create them, said Congressman Bill Archer, R-Texas, Ways and
Means Committee chairman.
Labor Secretary Robert Reich, one of the PBGC board
members, said it didn't happen that way in the 1980s. He said
that at that time the money often was used to finance
leveraged buyouts, sometimes leaving pension plans
underfunded.
Luckily, participants in plans that are underfunded won't
be blind-sided. The Retirement Protection Act, approved last
year, will offer some protection.
Beginning this year, the act requires companies with more
than 100 employees in under-funded pension plans to notify
workers if the plan is less than 90 percent funded. That
means, for example, that an 80 percent-funded plan could pay
only 80 percent of its promised benefits, if the plan failed.
The new ruling will apply to companies with fewer than 100
plan participants beginning next year.
These notifications must provide information about the
plan's funding status and explain the maximum amount of
benefits the PBGC would pay if the plan failed, said Robert
Pennington, an academic associate at the College for
Financial Planning, a division of the National Endowment for
Financial Education. The maximum benefit the PBGC's
insurance fund now pays to a participant is $2,574 a
month.
The total pension shortfall of plans governed by the PBGC
is $71 billion. Some plans are under-insured by more than 40
percent, according to the PBGC, whose own insurance fund is
under-funded.
If you receive a notice that your plan is under-funded,
Pennington said these are some of the things to consider:
How much is the plan under-funded?
Find out how the benefits are being funded.
Think about building a nest egg to cushion the losses.
____
[From the Burlington (IA) Hawk Eye, Oct. 1, 1995]
Pensions at Risk
Congress: New budget plan would let companies raid funds.
Hidden in the congressional budget plan is a proposal that
would allow unprecedented abuse of employee pension funds.
Never at a loss for an analogy, Labor Secretary Robert
Riech said ``You're going to see raids on pension assets that
will make the train robberies during the days of Jesse James
pale by comparison.''
[[Page H 11923]]
The provision would let companies withdraw funds from
pension funds if their assets exceed 125 percent of the
plan's current liability.
Companies could use the money for any reason.
The provision actually encourages companies to withdraw
money by abating the federal excise tax on withdrawals made
before next July. After that a 6.5 percent tax would apply.
Republicans gleefully predict that $40 billion could be
withdrawn over the next five years. That could produce a
windfall in taxes.
Their other argument is that companies could use the money
to expand or create jobs, although the law does not require
that. Companies could just as easily pay bonuses to top
executives or finance the campaigns of friendly politicians.
A flurry of withdrawals would create a nightmare for
pensioners--and taxpayers.
Since 1974, more than 2,000 pension funds have failed. They
were bailed out by the Federal Pension Benefit Guaranty Corp.
The fund insures 56,000 pension plans and 33 million
employees. It effectively obligates taxpayers to guarantee
pensions when private businesses do not.
The obligation is substantial; at last report, U.S. pension
funds were underfunded by $71 billion.
Reich argues soundly that pension plans whose principal is
depleted today might not be able to meet their long-term
obligations.
Lost in the debate is why companies should be allowed to
raid pension funds at all. Or at least without any obligation
to assure their solvency.
A compromise might allow companies to borrow, not simply
appropriate pension funds. That would offer employees and
taxpayers a reasonable assurance that the pensions will be
there, while giving companies a low-cost and renewable source
of money for expansion or other legitimate purposes.
But then reasonable solutions are not what Congress is
necessarily searching for.
____
[From the Tribune, Meadville (PA), Sept. 17, 1995]
Don't Let Companies Raid Pension Plans--Surpluses Mean Future Security
for Workers
A House committee last week passed a new tax bill that
would not only eliminate the earned income tax credit for
many poor families, but would jeopardize the retirement
income of millions of American workers.
The bill would allow corporations to spend surplus money in
pension plans rather than preserve the funds for the health
of the plans to ensure the future security of their work
forces.
Companies with 25 percent more money in their pension plans
than is needed to cover benefits would be able to use that
money as they see fit. About 40 percent of the 58,000 pension
plans insured by the Pension Benefit Guaranty Corp. currently
fit that description, according to congressional estimates.
Legislators are looking at the funds as a means to help
raise revenue to reduce the deficit. If companies were to use
the money, it would generate about $10 billion in tax revenue
over the next seven years.
The irony is that many of the pension plans in question
have developed surpluses because companies use them as a tax
dodge. By dumping money into the pension plans, the
corporations are able to reduce their tax liability. If
Congress wants to generate more tax revenue, it should
legislate against the misuse of legitimate pension funds.
It is likely given the experience of pension fund raids in
the 1970s and 1980s, that new raids by companies would help
fund the current rage toward big mergers, resulting in untold
layoffs and lost jobs.
Some of the pension surpluses also reflect accounting
maneuvers rather than actual assets, raising the prospect
that nationwide pension raids would jeopardize the solvency
of some plans.
That's why the Pension Benefit Guaranty Corp. opposes the
plan, which should be defeated or vetoed.
____
____________________