[Congressional Record Volume 143, Number 48 (Tuesday, April 22, 1997)]
[Senate]
[Pages S3419-S3424]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




          STATEMENTS ON INTRODUCED BILLS AND JOINT RESOLUTIONS

      By Mr. D'AMATO (for himself, Mr. Murkowski, Mr. Dodd, Mr. 
        Sarbanes, Mr. Gramm, Mr. Shelby, Mr. Mack, Mr. Faircloth, Mr. 
        Allard, Mr. Lott, Mr. Domenici, Mr. Akaka, Mr. Inouye, Mr. 
        Coats, Mr. Cochran, Mr. Roberts, Mr. Brownback, Mr. Coverdell, 
        Mr. Specter, and Mr. Nickles):
  S. 621. A bill to repeal the Public Utility Holding Company Act of 
1935, to enact the Public Utility Holding Company Act of 1997, and for 
other purposes; to the Committee on Banking, Housing, and Urban 
Affairs.


             the public utility holding company act of 1997

  Mr. D'AMATO. Mr. President, today I introduce the Public Utility 
Holding Company Act of 1997. This legislation is substantively 
identical to S. 1317 which the Senate Banking Committee reported in the 
104th Congress. The bill would repeal the Public Utility Holding 
Company Act of 1935, [PUHCA] and would transfer residual regulatory 
authority from the Securities and Exchange Commission to the Federal 
Energy Regulatory Commission and State public service commissions.

  Mr. President, this bill is introduced with the bipartisan 
cosponsorship of Senators Murkowski, Dodd, Sarbanes, Gramm, Shelby, 
Mack, Faircloth, Allard, Lott, Domenici, Akaka, Inouye, Coats, Cochran, 
Roberts, Brownback, Coverdell, and Specter.
  Mr. President, this legislation would eliminate duplicative, 
unnecessary regulation which unfairly burdens a few utility holding 
companies. It would allow holding companies to improve service and 
possibly lower the costs of consumers' utility bills. The bill would 
enhance existing regulatory tools and provide State and Federal 
regulators new authority to ensure that they can protect energy 
consumers from unfair rate increases.
  PUHCA was originally enacted more than six decades ago to regulate 
public utility holding companies. At that time, this Federal statute 
was needed to fill the regulatory gap that enabled holding companies to 
conceal assets by creating and speculating in public utility companies.
  Mr. President, PUHCA has achieved the congressional purpose--it broke 
up the mammoth holding company structures that existed more than half a 
century ago. PUHCA is not only outdated, it is the relic of a different 
era. Today there is strong regulation of the energy industry at the 
State and Federal level. In addition, the Federal securities laws' 
registration and disclosure requirements have become effective tools 
for the SEC to protect investors and ensure the integrity of the market 
for public utility holding company securities.
  Originally enacted to protect consumers and investors, PUHCA has 
become an unnecessary impediment to efficient and flexible business 
operations. Currently, there are 180 public utility holding companies 
in the United States. Of these 180 companies, 165 are exempt from PUHCA 
and only 15 companies are subject to direct SEC regulation. As a 
result, PUHCA imposes a burdensome regulatory scheme on these 15 
registered holding companies and prevents them from diversifying into 
new business areas. PUHCA keeps these holding companies from 
diversifying, limits their growth opportunities and options, and 
requires the companies to apply for SEC permission to engage in almost 
all new business activities.
  PUHCA also hinders the growth of nonregistered, exempt holding 
companies. Once exempt companies expand their business across State 
lines they too become subject to PUHCA's restrictions. As a result, 
exempt companies refrain from expanding across State lines even when 
such a move would lead to cheaper and more efficiently produced energy 
for consumers. Similarly, PUHCA prevents non-utility holding companies 
from diversifying into utility business.

  Mr. President, PUHCA is more than just another example of Government 
overregulation--it is an impediment to both the deregulation of the 
energy industry and to the growth and diversification of existing 
businesses. Since many States have begun to deregulate the energy 
industry and Congress plans to review energy reform issues, the time 
for PUHCA reform is now. This year, in my own backyard, Long Island, 
two utility companies will merge.

[[Page S3420]]

 This merger is expected to reduce energy bills for Long Island energy 
customers who currently pay the highest rates for energy in the 
continental U.S. The merger will not only lead to lower rates, but it 
should also mean better service for customers.
  While Long Island's energy customers can finally look forward to 
lower rates, PUHCA prevents other utility companies from expanding, 
merging, and offering new services to consumers. Like any other utility 
merger, the State, the FERC and other Federal regulators will have to 
approve this merger. Under PUHCA, if either of these companies was a 
registered holding company or the merger involved companies from 
neighboring States, the companies would also have to seek SEC approval 
of the merger in advance and at all subsequent stages of restructuring. 
For example, if this merger included utility companies from New Jersey 
or Connecticut, PUHCA's restrictions on diversification and burdensome 
requirements, could have prevented a merger that would benefit 
consumers, investors, and business.
  As one of the leaders in energy deregulation, New York State provides 
an example of why PUHCA reform is necessary now. Without PUHCA reform, 
companies will choose alternative corporate structures to avoid PUHCA's 
restrictive requirements, preventing the efficient restructuring of the 
energy industry. Congress must reform PUHCA so that the energy industry 
will be efficient and consumers can realize the reduction in rates and 
improvement in services they deserve.
  Mr. President, the bill I introduce today follows the SEC's Division 
of Investment Management's 1995 recommendation to conditionally repeal 
PUHCA since ``the current regulatory system imposes significant costs, 
in direct administrative charges and foregone economies of scale and 
scope, that often cannot be justified in terms of benefits to utility 
investors.'' The legislation has been crafted in consultation with 
State and Federal utility regulators, public interest groups, the 
Senate Energy Committee, and both registered and non-registered utility 
companies.
  Mr. President, let me summarize the purpose of the bill. The Public 
Utility Company Act of 1997 would maintain the provisions of the 1935 
Act essential to consumer protection. In fact, the bill enhances 
consumer safeguards by enabling energy regulators to oversee all 
holding company operations. Specifically, the bill makes it easier for 
FERC and State public service commissions to protect consumers from 
paying nonutility related costs by giving the regulators expanded 
authority to review the books and records of all holding company 
activities to determine energy rates. At the same time, the bill would 
preserve FERC's authority to review transactions, acquisitions, and 
mergers of utilities and would clarify the FERC and state commission's 
authority to allocate costs when setting rates. The bill also gives 
state commissions vital enforcement backup to ensure that they can 
access all the books and records necessary to make rate determinations.

  Mr. President, the goal of PUHCA reform is increased competition--to 
make sure consumers ultimately pay lower utility rates not higher ones. 
While some would prefer to address PUHCA reform in the larger context 
of comprehensive energy deregulation, there is no reason to delay 
consideration of this separate bill I introduce today. Rather than 
package PUHCA with comprehensive reform of the federal energy laws, 
PUHCA reform can proceed, on a stand alone basis, as it does not affect 
the larger energy issues which my knowledgeable colleagues on the 
Energy Committee are considering.
  In fact, the experts in the energy field, lead by the distinguished 
chairman and former ranking member of the Energy Committee, Senators 
Murkowski and Johnston, who testified before the Banking Committee on 
this issue last year, believe that PUHCA reform should move 
independently of, and separate from, full energy deregulation. PUHCA 
reform is a necessary first step in creating an efficient energy 
industry.
  Mr. President, I have been a proponent of PUHCA reform for 16 years. 
Congress should allow consumers access to the cheapest power and the 
best services by repealing this burdensome and unnecessary law. The 
American people deserve and expect an efficient energy industry 
unfettered by unnecessary regulation. The legislation I introduce today 
accomplishes this by removing the energy industry from the 60-year-old 
regulatory shackles put in place by PUHCA. I urge my colleagues to 
support this legislation so that we may provide consumers with a highly 
efficient energy market that has better consumer protections.
  Mr. President, I ask unanimous consent that the full text of the bill 
be printed in the Record.
  There being no objection, the bill was ordered to be printed in the 
Record, as follows:

                                 S. 621

       Be it enacted by the Senate and House of Representatives of 
     the United States of America in Congress assembled,

     SECTION 1. SHORT TITLE.

       This Act may be cited as the ``Public Utility Holding 
     Company Act of 1997''.

     SEC. 2. FINDINGS AND PURPOSES.

       (a) Findings.--The Congress finds that--
       (1) the Public Utility Holding Company Act of 1935 was 
     intended to facilitate the work of Federal and State 
     regulators by placing certain constraints on the activities 
     of holding company systems;
       (2) developments since 1935, including changes in other 
     regulation and in the electric and gas industries, have 
     called into question the continued relevance of the model of 
     regulation established by that Act;
       (3) there is a continuing need for limited Federal and 
     State regulation in order to ensure the rate protection of 
     utility customers; and
       (4) limited Federal regulation is necessary to supplement 
     the work of State commissions for the continued rate 
     protection of electric and gas utility customers.
       (b) Purposes.--The purposes of this Act are--
       (1) to eliminate unnecessary regulation, yet continue to 
     provide for consumer protection by facilitating existing rate 
     regulatory authority through improved Federal and State 
     commission access to books and records of all companies in a 
     holding company system, to the extent that such information 
     is relevant to rates paid by utility customers, while 
     affording companies the flexibility required to compete in 
     the energy markets; and
       (2) to address protection of electric and gas utility 
     customers by providing for Federal and State access to books 
     and records of all companies in a holding company system that 
     are relevant to utility rates.

     SEC. 3. DEFINITIONS.

       For purposes of this Act--
       (1) the term ``affiliate'' of a company means any company 5 
     percent or more of the outstanding voting securities of which 
     are owned, controlled, or held with power to vote, directly 
     or indirectly, by such company;
       (2) the term ``associate company'' of a company means any 
     company in the same holding company system with such company;
       (3) the term ``Commission'' means the Federal Energy 
     Regulatory Commission;
       (4) the term ``company'' means a corporation, partnership, 
     association, joint stock company, business trust, or any 
     organized group of persons, whether incorporated or not, or a 
     receiver, trustee, or other liquidating agent of any of the 
     foregoing;
       (5) the term ``electric utility company'' means any company 
     that owns or operates facilities used for the generation, 
     transmission, or distribution of electric energy for sale;
       (6) the terms ``exempt wholesale generator'' and ``foreign 
     utility company'' have the same meanings as in sections 32 
     and 33, respectively, of the Public Utility Holding Company 
     Act of 1935, as those sections existed on the day before the 
     effective date of this Act;
       (7) the term ``gas utility company'' means any company that 
     owns or operates facilities used for distribution at retail 
     (other than the distribution only in enclosed portable 
     containers or distribution to tenants or employees of the 
     company operating such facilities for their own use and not 
     for resale) of natural or manufactured gas for heat, light, 
     or power;
       (8) the term ``holding company'' means--
       (A) any company that directly or indirectly owns, controls, 
     or holds, with power to vote, 10 percent or more of the 
     outstanding voting securities of a public utility company or 
     of a holding company of any public utility company; and
       (B) any person, determined by the Commission, after notice 
     and opportunity for hearing, to exercise directly or 
     indirectly (either alone or pursuant to an arrangement or 
     understanding with one or more persons) such a controlling 
     influence over the management or policies of any public 
     utility company or holding company as to make it necessary or 
     appropriate for the rate protection of utility customers with 
     respect to rates that such person be subject to the 
     obligations, duties, and liabilities imposed by this Act upon 
     holding companies;
       (9) the term ``holding company system'' means a holding 
     company, together with its subsidiary companies;
       (10) the term ``jurisdictional rates'' means rates 
     established by the Commission for the

[[Page S3421]]

     transmission of electric energy in interstate commerce, the 
     sale of electric energy at wholesale in interstate commerce, 
     the transportation of natural gas in interstate commerce, and 
     the sale in interstate commerce of natural gas for resale for 
     ultimate public consumption for domestic, commercial, 
     industrial, or any other use;
       (11) the term ``natural gas company'' means a person 
     engaged in the transportation of natural gas in interstate 
     commerce or the sale of such gas in interstate commerce for 
     resale;
       (12) the term ``person'' means an individual or company;
       (13) the term ``public utility'' means any person who owns 
     or operates facilities used for transmission of electric 
     energy in interstate commerce or sales of electric energy at 
     wholesale in interstate commerce;
       (14) the term ``public utility company'' means an electric 
     utility company or a gas utility company;
       (15) the term ``State commission'' means any commission, 
     board, agency, or officer, by whatever name designated, of a 
     State, municipality, or other political subdivision of a 
     State that, under the laws of such State, has jurisdiction to 
     regulate public utility companies;
       (16) the term ``subsidiary company'' of a holding company 
     means--
       (A) any company, 10 percent or more of the outstanding 
     voting securities of which are directly or indirectly owned, 
     controlled, or held with power to vote, by such holding 
     company; and
       (B) any person, the management or policies of which the 
     Commission, after notice and opportunity for hearing, 
     determines to be subject to a controlling influence, directly 
     or indirectly, by such holding company (either alone or 
     pursuant to an arrangement or understanding with one or more 
     other persons) so as to make it necessary for the rate 
     protection of utility customers with respect to rates that 
     such person be subject to the obligations, duties, and 
     liabilities imposed by this Act upon subsidiary companies of 
     holding companies; and
       (17) the term ``voting security'' means any security 
     presently entitling the owner or holder thereof to vote in 
     the direction or management of the affairs of a company.

     SEC. 4. REPEAL OF THE PUBLIC UTILITY HOLDING COMPANY ACT OF 
                   1935.

       The Public Utility Holding Company Act of 1935 (15 U.S.C. 
     79a et seq.) is repealed, effective 18 months after the date 
     of enactment of this Act.

     SEC. 5. FEDERAL ACCESS TO BOOKS AND RECORDS.

       (a) In General.--Each holding company and each associate 
     company thereof shall maintain, and shall make available to 
     the Commission, such books, accounts, memoranda, and other 
     records as the Commission deems to be relevant to costs 
     incurred by a public utility or natural gas company that is 
     an associate company of such holding company and necessary or 
     appropriate for the protection of utility customers with 
     respect to jurisdictional rates for the transmission of 
     electric energy in interstate commerce, the sale of electric 
     energy at wholesale in interstate commerce, the 
     transportation of natural gas in interstate commerce, and the 
     sale in interstate commerce of natural gas for resale for 
     ultimate public consumption for domestic, commercial, 
     industrial, or any other use.
       (b) Affiliate Companies.--Each affiliate of a holding 
     company or of any subsidiary company of a holding company 
     shall maintain, and make available to the Commission, such 
     books, accounts, memoranda, and other records with respect to 
     any transaction with another affiliate, as the Commission 
     deems to be relevant to costs incurred by a public utility or 
     natural gas company that is an associate company of such 
     holding company and necessary or appropriate for the 
     protection of utility customers with respect to 
     jurisdictional rates.
       (c) Holding Company Systems.--The Commission may examine 
     the books, accounts, memoranda, and other records of any 
     company in a holding company system, or any affiliate 
     thereof, as the Commission deems to be relevant to costs 
     incurred by a public utility or natural gas company within 
     such holding company system and necessary or appropriate for 
     the protection of utility customers with respect to 
     jurisdictional rates.
       (d) Confidentiality.--No member, officer, or employee of 
     the Commission shall divulge any fact or information that may 
     come to his or her knowledge during the course of examination 
     of books, accounts, memoranda, or other records as provided 
     in this section, except as may be directed by the Commission 
     or by a court of competent jurisdiction.

     SEC. 6. STATE ACCESS TO BOOKS AND RECORDS.

       (a) In General.--Upon the written request of a State 
     commission having jurisdiction to regulate a public utility 
     company in a holding company system, and subject to such 
     terms and conditions as may be necessary and appropriate to 
     safeguard against unwarranted disclosure to the public of any 
     trade secrets or sensitive commercial information, a holding 
     company or its associate company or affiliate thereof, 
     wherever located, shall produce for inspection books, 
     accounts, memoranda, and other records that--
       (1) have been identified in reasonable detail in a 
     proceeding before the State commission;
       (2) the State commission deems are relevant to costs 
     incurred by such public utility company; and
       (3) are necessary for the effective discharge of the 
     responsibilities of the State commission with respect to such 
     proceeding.
       (b) Effect on State Law.--Nothing in this section shall 
     preempt applicable State law concerning the provision of 
     books, records, or any other information, or in any way limit 
     the rights of any State to obtain books, records, or any 
     other information under Federal law, contract, or otherwise.
       (c) Court Jurisdiction.--Any United States district court 
     located in the State in which the State commission referred 
     to in subsection (a) is located shall have jurisdiction to 
     enforce compliance with this section.

     SEC. 7. EXEMPTION AUTHORITY.

       (a) Rulemaking.--Not later than 90 days after the date of 
     enactment of this Act, the Commission shall promulgate a 
     final rule to exempt from the requirements of section 5 any 
     person that is a holding company, solely with respect to one 
     or more--
       (1) qualifying facilities under the Public Utility 
     Regulatory Policies Act of 1978;
       (2) exempt wholesale generators; or
       (3) foreign utility companies.
       (b) Other Authority.--If, upon application or upon its own 
     motion, the Commission finds that the books, records, 
     accounts, memoranda, and other records of any person are not 
     relevant to the jurisdictional rates of a public utility 
     company, or if the Commission finds that any class of 
     transactions is not relevant to the jurisdictional rates of a 
     public utility company, the Commission shall exempt such 
     person or transaction from the requirements of section 5.

     SEC. 8. AFFILIATE TRANSACTIONS.

       Nothing in this Act shall preclude the Commission or a 
     State commission from exercising its jurisdiction under 
     otherwise applicable law to determine whether a public 
     utility company may recover in rates any costs of an activity 
     performed by an associate company, or any costs of goods or 
     services acquired by such public utility company from an 
     associate company.

     SEC. 9. APPLICABILITY.

       No provision of this Act shall apply to, or be deemed to 
     include--
       (1) the United States;
       (2) a State or any political subdivision of a State;
       (3) any foreign governmental authority not operating in the 
     United States;
       (4) any agency, authority, or instrumentality of any entity 
     referred to in paragraph (1), (2), or (3); or
       (5) any officer, agent, or employee of any entity referred 
     to in paragraph (1), (2), or (3) acting as such in the course 
     of his or her official duty.

     SEC. 10. EFFECT ON OTHER REGULATIONS.

       Nothing in this Act precludes the Commission or a State 
     commission from exercising its jurisdiction under otherwise 
     applicable law to protect utility customers.

     SEC. 11. ENFORCEMENT.

       The Commission shall have the same powers as set forth in 
     sections 306 through 317 of the Federal Power Act (16 U.S.C. 
     825d-825p) to enforce the provisions of this Act.

     SEC. 12. SAVINGS PROVISIONS.

       (a) In General.--Nothing in this Act prohibits a person 
     from engaging in or continuing to engage in activities or 
     transactions in which it is legally engaged or authorized to 
     engage on the effective date of this Act, if that person 
     continues to comply with the terms of any such authorization, 
     whether by rule or by order.
       (b) Effect on Other Commission Authority.--Nothing in this 
     Act limits the authority of the Commission under the Federal 
     Power Act (16 U.S.C. 791a et seq.) (including section 301 of 
     that Act) or the Natural Gas Act (15 U.S.C. 717 et seq.) 
     (including section 8 of that Act).

     SEC. 13. IMPLEMENTATION.

       Not later than 18 months after the date of enactment of 
     this Act, the Commission shall--
       (1) promulgate such regulations as may be necessary or 
     appropriate to implement this Act; and
       (2) submit to the Congress detailed recommendations on 
     technical and conforming amendments to Federal law necessary 
     to carry out this Act and the amendments made by this Act.

     SEC. 14. TRANSFER OF RESOURCES.

       All books and records that relate primarily to the 
     functions transferred to the Commission under this Act shall 
     be transferred from the Securities and Exchange Commission to 
     the Commission.

     SEC. 15. EFFECTIVE DATE.

       This Act shall take effect 18 months after the date of 
     enactment of this Act.

     SEC. 16. AUTHORIZATION OF APPROPRIATIONS.

       There are authorized to be appropriated such funds as may 
     be necessary to carry out this Act.

     SEC. 17. CONFORMING AMENDMENT TO THE FEDERAL POWER ACT.

       Section 318 of the Federal Power Act (16 U.S.C. 825q) is 
     repealed.

  Mr. MURKOWSKI. Mr. President, I rise to cosponsor the Public Utility 
Holding Company Act of 1997. Enactment of this legislation is long 
overdue.
  Mr. President, the Public Utility Holding Company Act was enacted in 
1935 to curb serious abuses by utilities that hurt consumers. Back then 
it was needed, but since then much has

[[Page S3422]]

changed. As a result, PUHCA now does more harm than good.
  This legislation will eliminate unnecessary regulation. It will also 
streamline and make more effective the regulation that is still needed. 
By doing so, it will promote competition in the electric power industry 
without jeopardizing consumer protections.
  Over the past six decades, a comprehensive State-Federal regulatory 
system has been developed to protect consumers. In a nutshell, State 
public utility commissions regulate transactions that are intrastate in 
nature, and the Federal Energy Regulatory Commission regulates those 
that are interstate in nature. State commissions perform their 
regulatory activities pursuant to State law, and the FERC performs it 
pursuant to the Federal Power Act.
  With the maturity of both State and Federal utility regulation, PUHCA 
is now at best superflouous, but in some instances it actually 
interferes with appropriate regulation. For example, the Ohio Power 
court case held that decisions by the Securities and Exchange 
Commission under PUHCA preempt FERC's regulatory authority over 
utilities under the Federal Power Act. This legislation solves that 
problem by giving the FERC clear and exclusive authority to address 
matters within its jurisdiction and expertise. It will also enhance the 
ability of State regulatory agencies to do their jobs. In short, the 
streamlining of the regulatory system proposed by this legislation will 
not diminish needed consumer protection, and in several important ways 
it will actually enhance it.
  If the regulatory system created by PUHCA were necessary for consumer 
protection, then the regulatory burdens it imposes might be justified. 
But as everyone now acknowledges, PUHCA is not needed to protect 
consumers. As a result, regulatory costs caused by PUHCA are simply 
passed on to consumers in the form of higher rates without any 
offsetting consumer benefits.
  Congress has long recognized that PUHCA creates problems. In 1978, 
the Public Utility Regulatory Policies Act provided an exemption from 
PUHCA for certain types of electric power generators. In 1992, the 
Energy Policy Act gave additional exemptions to certain other types of 
electric power generators. These were Band-Aid fixes to PUHCA; needed, 
but not a complete solution. Fundamental reform of PUHCA is needed and 
is justified. The time is ripe to streamline and modernize the act. It 
is for these reasons that I am cosponsoring Senator D'Amato's 
legislation.
  Mr. President, there may be some who will try to use this legislation 
as a vehicle to restructure the electric utility industry, including to 
impose retail wheeling or to federally preempt State public utility 
commissions. I will strenuously resist any such effort. I have received 
assurances that Senator D'Amato is of like mind. This is not the place 
to do this. Retain wheeling and other utility competitive issues are 
not linked to the issues involved in PUHCA reform. Moreover, retail 
wheeling and other Federal Power Act matters are entirely within the 
jurisdiction of the Committee on Energy and Natural Resources, not the 
Committee on Banking, Housing and Urban Affairs, to which this 
legislation will be referred. Electric utility issues are very complex, 
and they are very significant not only to consumers but also to this 
Nation's competitiveness and economic well-being. These kinds of 
changes cannot, and will not be made without careful and complete 
consideration by the Committee on Energy and Natural Resources of all 
aspects of the issues and questions they raise. That is why the 
Committee on Energy and Natural Resources is now in the process of 
reviewing the factors that affect the competitiveness of the electric 
power industry.
  Mr. President, it is for these reasons that I am today cosponsoring 
this legislation and I hope that it will soon be on the President's 
desk for his signature.
                                 ______
                                 
      By Mr. HATCH (for himself, Mr. Conrad, Mr. Cochran, Mr. Gregg, 
        Ms. Moseley-Braun, Mr. Enzi, Mr. Inouye, Mr. Baucus, Mr. Reid, 
        Mr. D'Amato, Mr. Kyl, Mr. Ashcroft, Mr. Domenici, Mr. Hagel, 
        Mr. Bond, Mr. Thomas, Mr. Murkowski, and Mr. Nickles):
  S. 622. A bill to amend the Internal Revenue Code of 1986 to modify 
the application of the pension nondiscrimination rules to governmental 
plans; to the Committee on Finance.


    nondiscrimination rules for government pension plans legislation

  Mr. HATCH. Mr. President, I rise today to introduce legislation with 
Senators Conrad, Cochran, Gregg, Moseley-Braun, Enzi, Inouye, Baucus, 
Reid, D'Amato, Kyl, Ashcroft, Domenici, Hagel, Bond, Thomas, and 
Murkowski that would make permanent the current moratorium on the 
application of the pension nondiscrimination rules to State and local 
government pension plans. During the last Congress, I introduced 
similar legislation as S. 2047. And this year, a similar provision was 
included in S. 14, introduced by Senator Daschle.
  The current laws governing private pension plans contain specific 
rules aimed at ensuring that pension plans do not discriminate in favor 
of highly paid employees. For nearly 20 years, State and local 
government pension plans have been deemed to satisfy these complex 
nondiscrimination rules until Treasury can figure out how or if these 
rules are applicable to unique government pension plans. This bill 
simply puts an end to this stalled process and dispels two decades of 
uncertainty for administrators of State and local government retirement 
plans. Let me summarize the evolution of this issue and why this bill 
is being introduced today.
  Mr. President, the Federal Government has long ago established a 
policy of encouraging tax-deferred retirement savings. Most retirement 
plans that benefit employees are employer-sponsored tax-deferred 
retirement plans. Over the years, Congress has required that these 
plans meet strict nondiscrimination standards designed to ensure that 
they do not provide disproportionate benefits to business owners, 
officers, or highly compensated individuals relative to other 
employees.
  In response to the growing popularity of employer-sponsored tax-
deferred pension plans, Congress passed the Employee Retirement Income 
Security Act [ERISA] in 1974 to enhance the rules governing pension 
plans. However, during consideration of ERISA, Congress recognized that 
nondiscrimination rules for private pension plans were not readily 
applicable to public pension plans because of the unique nature of 
governmental employers. Former Representative Al Ullman stated, during 
Ways and Means Committee consideration of ERISA, that Congress was not 
prepared to apply nondiscrimination rules to public plans, saying that:

       The committee exempted Government plans from the new higher 
     requirements because adequate information is not now 
     available to permit a full understanding of the impact these 
     new requirements would have on governmental plans.

  After studying the issue, the Internal Revenue Service on August 10, 
1977, issued News Release IR-1869, which stated that issues concerning 
discrimination under State and local government retirement plans would 
not be raised until further notice. Thus, an indefinite moratorium was 
placed on the application of the new rules to government plans.

  In 1986, Congress passed the Tax Reform Act of 1986, which made 
further changes to pension laws and the general nondiscrimination 
rules. On May 18, 1989, the Department of the Treasury, in proposed 
regulations, lifted the 12-year public sector moratorium and required 
that public sector plans comply with the new rules immediately. 
However, further examination revealed, and Treasury and the IRS 
recognized, that a separate set of rules was required for State and 
local government plans because of their unique features.
  Consequently, through final rules issued in September 1991, the 
Treasury reestablished the moratorium on a temporary basis until 
January 1, 1993, and solicited comments for consideration. In addition, 
State and local government pension plans were deemed to satisfy the 
statutory nondiscrimination requirements for years prior to 1993. Since 
then, the moratorium has been extended three more times, the latest of 
which is in effect until 1999.
  Mr. President, here we are, in April 1997, 23 years since the passage 
of

[[Page S3423]]

ERISA, and State and local government pension plans are still living 
under the shadow of having to comply with the cumbersome, costly, and 
complex nondiscrimination rules. Experience over the past 20 years has 
shown that the existing nondiscrimination rules have limited utility in 
the public sector. Furthermore, the long delay in action illustrates 
the seriousness of the problem and the doubtful issuance of 
nondiscrimination regulations by the Department of the Treasury.
  Mr. President, during consideration of another extension of the 
moratorium, a coalition of associations representative of State and 
local governmental plans summarized their current position in a letter 
to IRS Commissioner Margaret Richardson dated October 13, 1995.

       In our discussions with Treasury over the past two years, 
     there have been no abuses or even significant concerns 
     identified that would warrant the imposition of such a 
     cumbersome thicket of federal rules on public plans that 
     already are the subject of State and local government 
     regulation.
       Accordingly, while we always remain open to further 
     discussion, as our Ways and Means statement indicates, the 
     experience of the past two years in working with Treasury to 
     develop a sensible and workable set of nondiscrimination 
     rules for governmental plans has convinced us that the task 
     ultimately is a futile one--portending tremendous cost, 
     complexity, and disruption of sovereign State operations in 
     the absence of any identifiable problem.

  Mr. President, the sensible conclusion of this 20-year exercise is to 
admit that the Treasury is not likely to issue regulations for State 
and local pension plans and Congress should make the temporary 
moratorium permanent.
  Furthermore, there are examples to support this legislation. Relief 
from the pension nondiscrimination rules is not a new concept. In 
reality, Mr. President, State and local government pension plans face a 
higher level of scrutiny. State law generally requires publicly elected 
legislators to amend the provisions of a public plan. Electoral 
accountability to the voters and media scrutiny serve as protections 
against abusive and discriminatory benefits.

  Moreover, precedent exists for Congress to grant relief from the 
nondiscrimination rules. In 1986, the Congress established the Thrift 
Savings Fund for Federal employees. As originally enacted, the fund was 
required to comply with the 401(k) nondiscrimination rules on employee 
contributions and matching contributions to the fund. However, in 1987, 
as part of a Continuing Appropriations Act for 1988, the Congress 
passed a provision that made these nondiscrimination rules inapplicable 
to the Federal Thrift Savings Fund. Thus, Congress has reaffirmed the 
need to treat governmental pension plans as unique.
  Mr. President, this legislation is not sweeping, nor does it grant 
any new treatment to these plans. Because of the moratorium, 
governmental plans are currently treated as satisfying the 
nondiscrimination rules. Lifting the moratorium would impose on 
governmental pension plans the cost task of testing for discrimination 
when no significant abuses or concerns exist. In fact, finally imposing 
the nondiscrimination rules at this juncture may require benefits to be 
reduced for State and local government employees and force costly 
modifications to these retirement plans. This legislation coincides 
with the principle of allowing a State to enjoy the right to determine 
the compensation of its employees.
  Mr. President, with another expiration of the moratorium looming in 
the future, I believe it is time to address this issue. I have no 
illusion that it will be resolved quickly. The complexities of these 
rules and the uniqueness of governmental plans have brought us to where 
we are today. I believe that, as Senators better understand the history 
of this issue, they will agree with us that the appropriate step is to 
end this uncertainty and make the temporary moratorium permanent.
  Mr. President, I ask unanimous consent that the text of the bill be 
printed in the Record.
  There being no objection, the bill was ordered to be printed in the 
Record, as follows:

                                 S. 622

       Be it enacted by the Senate and House of Representatives of 
     the United States of America in Congress assembled,

     SECTION 1. MODIFICATIONS TO NONDISCRIMINATION AND MINIMUM 
                   PARTICIPATION RULES WITH RESPECT TO 
                   GOVERNMENTAL PLANS.

       (a) General Nondiscrimination and Participation Rules.--
       (1) Nondiscrimination requirements.--Section 401(a)(5) of 
     the Internal Revenue Code of 1986 (relating to qualified 
     pension, profit-sharing, and stock bonus plans) is amended by 
     adding at the end the following:
       ``(G) Governmental plans.--Paragraphs (3) and (4) shall not 
     apply to a governmental plan (within the meaning of section 
     414(d)).''.
       (2) Additional participation requirements.--Section 
     401(a)(26)(H) of such Code (relating to additional 
     participation requirements) is amended to read as follows:
       ``(H) Exception for governmental plans.--This paragraph 
     shall not apply to a governmental plan (within the meaning of 
     section 414(d)).''.
       (3) Minimum participation standards.--Section 410(c)(2) of 
     such Code (relating to application of participation standards 
     to certain plans) is amended to read as follows:
       ``(2) A plan described in paragraph (1) shall be treated as 
     meeting the requirements of this section for purposes of 
     section 401(a), except that in the case of a plan described 
     in subparagraph (B), (C), or (D) of paragraph (1), this 
     paragraph shall only apply if such plan meets the 
     requirements of section 401(a)(3) (as in effect on September 
     1, 1974).''.
       (b) Participation Standards for Qualified Cash or Deferred 
     Arrangements.--Section 401(k)(3) of the Internal Revenue Code 
     of 1986 (relating to application of participation and 
     discrimination standards) is amended by adding at the end the 
     following:
       ``(G)(i) The requirements of subparagraph (A)(i) and (C) 
     shall not apply to a governmental plan (within the meaning of 
     section 414(d)).
       ``(ii) The requirements of subsection (m)(2) (without 
     regard to subsection (a)(4)) shall apply to any matching 
     contribution of a governmental plan (as so defined).''.
       (c) Nondiscrimination Rules for Section 403(b) Plans.--
     Section 403(b)(12) of the Internal Revenue Code of 1986 
     (relating to nondiscrimination requirements) is amended by 
     adding at the end the following:
       ``(C) Governmental plans.--For purposes of paragraph 
     (1)(D), the requirements of subparagraph (A)(i) shall not 
     apply to a governmental plan (within the meaning of section 
     414(d)).''.
       (d) Effective Date.--
       (1) In general.--The amendments made by this section apply 
     to taxable years beginning on or after the date of enactment 
     of this Act.
       (2) Treatment for years beginning before date of 
     enactment.--A governmental plan (within the meaning of 
     section 414(d) of the Internal Revenue Code of 1986) shall be 
     treated as satisfying the requirements of sections 401(a)(3), 
     401(a)(4), 401(a)(26), 401(k), 401(m), 403 (b)(1)(D) and 
     (b)(12), and 410 of such Code for all taxable years beginning 
     before the date of enactment of this Act.

  Mr. CONRAD, Mr. President, I rise today as an original cosponsor of 
legislation to modify the application of pension nondiscrimination 
rules to State and local governmental pension plans. This legislation, 
originally introduced by Senator Hatch and myself in the 104th 
Congress, will provide relief to State and local governments from 
unnecessary and overly burdensome Federal regulations.
  Pension nondiscrimination laws are to assure that workers at all 
levels of employment are given access to the benefits of tax-exempt 
pension plans. As employers, State and local governments employ a wide 
range of workers, from judges to firefighters to teachers. Each 
occupation requires that its unique circumstances be considered when 
determining pension benefits. Laws that were created by the Federal 
Government do not adequately address the needs of the diverse work 
force of State and local governments.
  Public pension plans are negotiated by popularly elected governments 
and subject to public scrutiny. They do not require a high degree of 
Federal review. The process of enacting these plans promotes fair 
benefits for governmental employees. Public pension plans have been 
given temporary exemption from nondiscrimination laws for almost 20 
years, and the result is that full-time public employees enjoy almost 
twice the pension coverage rate of their counterparts in the private 
sector. It is time to make this temporary exemption permanent.
  This bill enjoys a wide range of support from State and local 
governments, as well as public employee representatives. I urge my 
colleagues to join Senator Hatch and me, along with a bipartisan group 
of Senators, to ease the burden of Federal regulation on State and 
local governments. I look forward to this bill's consideration in 
committee and on the Senate floor.
                                 ______
                                 
      By Mr. INOUYE (for himself and Mr. Akaka):
  S. 623. A bill to amend title 38, United States Code, to deem certain 
service in the organized military forces of the

[[Page S3424]]

Government of the Commonwealth of the Phillipines and the Philippine 
Scouts to have been active service for purposes of benefits under 
programs administered by the Secretary of Veterans Affairs; to the 
Committee on Veterans Affairs.


                THE FILIPINO VETERANS EQUITY ACT OF 1997

  Mr. INOUYE. Mr. President, I rise to introduce legislation which 
amends title 38, United States Code, to restore full veterans' 
benefits, by reason of service to certain organized military forces of 
the Philippine Commonwealth Army and the Philippine Scouts.
  On July 26, 1942, President Roosevelt issued a military order that 
called members of the Philippine Commonwealth Army into the service of 
the U.S. Forces of the Far East. Under the command of Gen. Douglas 
MacArthur, our Filipino allies joined American soldiers in fighting 
some of the most fiercest battles of World War II.
  From the onset of the war through February 18, 1946, Filipinos who 
were called into service under President Roosevelt's order were 
entitled to full veterans' benefits by reason of their active service 
in our Armed Forces. Unfortunately, on February 18, 1946, the Congress 
enacted the Rescission Act of 1946 (now codified as section 107, title 
38, United States Code), which states that service performed by these 
Filipino veterans is not deemed as active service for purposes of any 
law of the United States conferring rights, privileges, or benefits. On 
May 27, 1946, the Congress extended the limitation on benefits to the 
new Philippine Scouts units.
  Interestingly enough, section 107 denied Filipino veterans access to 
health care, particularly for nonservice connected disability, and 
denied them other benefits such as pensions and home loan guarantees. 
Additionally, section 107 limited the benefits received for service-
connected disabilities and death compensation to 50 percent of what was 
received by their American counterparts.
  As a result, Filipino veterans sued to obtain relief from this 
discriminatory treatment. The U.S. District Court for the District of 
Columbia, on May 12, 1989, in Quiban versus U.S. Veterans 
Administration, declared section 107 unconstitutional. However, the 
U.S. Court of Appeals for the District of Columbia reversed that ruling 
and the veterans did not file a petition for certiorari to the U.S. 
Supreme Court. Thus, the Congress is the only hope for rectifying this 
injustice.
  For many years, Filipino veterans of World War II have sought to 
correct this injustice by seeking equal treatment for their valiant 
military service in our Armed Forces. We must not ignore the 
recognition they duly deserve as U.S. veterans. Accordingly, I urge my 
colleagues to support this measure which would restore full veterans' 
benefits, by reason of service, to our Filipino allies of World War II.
  Mr. President, I ask unanimous consent that the text of my bill be 
placed in the Record.
  There being no objection, the bill was ordered to be printed in the 
Record, as follows:

                                 S. 623

       Be it enacted by the Senate and House of Representatives of 
     the United States of America in Congress assembled,

     SECTION 1. SHORT TITLE.

       This Act may be cited as the ``Filipino Veterans Equity Act 
     of 1997''.

     SEC. 2. CERTAIN SERVICE IN THE ORGANIZED MILITARY FORCES OF 
                   THE PHILIPPINES AND THE PHILIPPINE SCOUTS 
                   DEEMED TO BE ACTIVE SERVICE.

       (a) In General.--Section 107 of title 38, United States 
     Code, is amended--
       (1) in subsection (a)--
       (A) by striking out ``not'' after ``Army of the United 
     States, shall''; and
       (B) by striking out ``, except benefits under--'' and all 
     that follows and inserting in lieu thereof a period; and
       (2) in subsection (b)--
       (A) by striking out ``not'' after ``Armed Forces Voluntary 
     Recruitment Act of 1945 shall''; and
       (B) by striking out ``except--'' and all that follows and 
     inserting in lieu thereof a period.
       (b) Conforming Amendments.--(1) The heading of such section 
     is amended to read as follows:

     Sec. 107. Certain service deemed to be active service: 
       service in organized military forces of the Philippines and 
       in the Philippine Scouts''.

       (2) The item relating to such section in the table of 
     sections at the beginning of chapter 1 of such title is 
     amended to read as follows:
``107. Certain service deemed to be active service: service in 
              organized military forces of the Philippines and in the 
              Philippine Scouts.''.

     SEC. 3. EFFECTIVE DATE.

       (a) In General.--The amendments made by this Act shall take 
     effect on the date of enactment of this Act.
       (b) Applicability.--No benefits shall accrue to any person 
     for any period before the effective date of this Act by 
     reason of the amendments made by this Act.

                          ____________________