[Congressional Record Volume 142, Number 44 (Wednesday, March 27, 1996)]
[Extensions of Remarks]
[Page E463]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                                PENSIONS

                                 ______


                          HON. LEE H. HAMILTON

                               of indiana

                    in the house of representatives

                       Wednesday, March 27, 1996

  Mr. HAMILTON. Mr. Speaker, I would like to insert my Washington 
Report for Wednesday, March 27, 1996 into the Congressional Record.

             Pension Plans: Saving for a Secure Retirement

       I am impressed by how many constituents stress the 
     importance of working toward a good pension and a comfortable 
     retirement. They put in many long hours to pay the bills and 
     put their kids through school. They emphasize the value of 
     hard work and sacrifice, and believe that a life of hard work 
     should be rewarded with a secure retirement.
       Many, however, are increasingly concerned about the outlook 
     for their retirements. They find themselves working harder, 
     often at more than one job, but can't seem to find the money 
     to put away for retirement. In the past, Americans could rely 
     on their employer to guarantee a pension, but the trend in 
     recent years has been toward employers providing less 
     generous pension benefits or no benefits at all, reflecting 
     in part the shift from manufacturing to service-oriented 
     businesses.
       The average American will live about 18 years in 
     retirement, more than ever before. Workers will need on 
     average 70% of their pre-retirement income to maintain their 
     standard of living. Today, half of all full-time workers have 
     no private pension coverage. Most Americans rely on a 
     combination of Social Security, individual savings, and 
     pension plans for retirement, but traditional pension 
     benefits represent a shrinking portion of retirement income. 
     Since few pension plans are adjusted for inflation, the 
     benefits retirees ultimately receive can only go so far. 
     Increasingly, employees, rather than employers, are 
     responsible for their pension savings and investment.


                             pension plans

       There are two basic types of private pensions. The more 
     traditional pension plan--a defined benefit plan--involves a 
     company guaranteeing its workers a set monthly pension 
     benefit based on earnings and years of service. A defined 
     contribution plan, in contrast, involves an interest-bearing 
     account established for each employee into which a 
     contribution is made by the employee, and sometimes the 
     employer. The employee is not guaranteed a set monthly 
     benefit, but receives whatever funds are available in his 
     account upon retirement. Of the 64 million active 
     participants covered by private pension plans, about 39% are 
     covered by a define benefit plan,while the remaining 61% are 
     covered by a defined contribution plan.
       In recent years, many employers have shifted from defined 
     contribution plans. The federal government insures and 
     regulates defined benefit plans, adding to their overall 
     cost. Defined contribution plans, like 401(k) plans, are not 
     federally insured and are less complicated and less costly 
     for employers. Career employees tend to favor defined benefit 
     plans because the pension is more predictable and larger. 
     Employees who often change jobs fare better under defined 
     contribution plans because they are portable.


                                concerns

       Concerns have been raised about both types of plans. 
     Defined benefit plans are generally considered safer than 
     contribution plans because they are federally insured and the 
     employer bears the investment risk. Current law, however, 
     does permit businesses to underfund their plans. Furthermore, 
     the soundness of the government fund which insures defined 
     benefit plans has been questioned. Most pension funds are 
     adequately funded, but the federal insurer, the Pension 
     Benefit Guaranty Corporation, has had to step in to pay 
     benefits when bankrupt companies have been unable to do so. 
     Congress, with my support, has taken steps to shore up the 
     insurance fund, but underfunding continues to be a problem 
     among some plans.
       Defined contribution plans create a different set of 
     problems. There are substantial funds invested in these 
     plans. Today 401(k) plans, for example, hold $550 billion in 
     assets for 22 million employees, and these plans continue to 
     grow. These plans, however, are not federally insured. Also, 
     recent news reports have shown a number of these plans to be 
     susceptible to fraud. Investment decisions and risks lie with 
     employees. Consequently, more responsibility is placed on 
     employees to know what options they have, to invest their 
     contributions wisely, and to monitor the management of 
     pension funds.


                            possible reforms

       Congress can take steps to protect pension plans.
       First, Congress should block efforts to let employers 
     withdraw money from currently overfunded pension plans. 
     Current law allows companies to use assets from overfunded 
     plans only for retiree health benefits. Speaker Gingrich 
     favors a change in the law to permit companies to raid 
     surplus pension assets for other business purposes. I 
     strongly oppose this proposal.
       Second, Congress should consider ways to ease the 
     regulatory burden on pension plans to encourage more 
     companies, particularly small businesses, to establish plans 
     for their employees. Tax incentives and simplified, uniform 
     regulations for employers who offer plans can do much to 
     offer American workers some security in their retirement.
       Third, we should look for ways to make pension plans more 
     portable. As workers move from job to job, it is important 
     that they be able to carry benefits and contributions with 
     them. Defined contribution plans offer workers this option, 
     and because of the growth in such plans over the last 10 
     years, workers' pension plans have become more portable. 
     Defined benefit plans are less portable than contribution 
     plans because employers want to encourage their employees to 
     stay at their jobs. In cases where employees do leave, they 
     should be encouraged to roll over their contributions into an 
     IRA rather than cash out their contributions.
       Fourth, we must look at ways to further protect the assets 
     which workers invest in 401(k)'s and other contribution 
     plans, particularly given their recent enormous growth. The 
     Labor Department has proposed several reforms, such as 
     shortening the time an employer has to deposit employee 
     contributions from the current 90-day period and encouraging 
     employers to offer workers general investment information so 
     that employees can better monitor their own plans.


                               conclusion

       Americans understand that planning for the future is 
     crucial, and the sooner they start to save the better. It has 
     become increasingly difficult, however, for workers to set 
     aside a portion of shrinking salaries for retirement.
       Congress should consider measures to protect the integrity 
     of the private pension system as well as Social Security, and 
     encourage businesses to expand coverage to those without a 
     pension plan. I have co-sponsored a bill that would create a 
     federal commission to study the pension issue and develop 
     proposals to increase participation in pension plans and 
     provide more protection for pension assets.

                          ____________________