[Congressional Record Volume 143, Number 48 (Tuesday, April 22, 1997)]
[Senate]
[Pages S3422-S3423]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      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.
                                 ______