[Congressional Record Volume 144, Number 88 (Tuesday, July 7, 1998)]
[Senate]
[Pages S7577-S7578]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. D'AMATO (for himself and Mr. Murkowski):
  S. 2267. A bill to amend the Internal Revenue Code of 1986 to grant 
relief to participants in multiemployer plans from certain section 415 
limits on defined benefit pension plans; to the Committee on Finance.


           multiemployer defined benefit pension legislation

  Mr. D'AMATO. Mr. President, today I introduce legislation with my 
friend and colleague, Senator Murkowski, to correct an inequity in the 
Tax Code that deprives working people of hard earned pension benefits. 
The problem is section 415 of the Internal Revenue Code, which sets 
compensation based limits and a dollar limit on pension plans. In 
effect, these section 415 limits discourage retirement savings.

  Workers are being denied the full benefits that they have earned 
through many years of labor and on which they and their spouses have 
counted in planning their retirement. We can all appreciate the 
frustration and anger of workers who are told, upon applying for their 
pension, that the federal government won't let their pension plan pay 
them the full amount of the benefits that they earned under the rules 
of their plan. For some workers, this benefit cutback means that they 
will not be able to retire when they wanted or needed to. For other 
workers, it means retirement with less income to live on, and in some 
cases, retirement without health care coverage and other necessities of 
life.
  The bill that Senator Murkowski and I are introducing today will give 
these workers relief from the most confiscatory provisions of section 
415 and enable them to receive the full measure of their retirement 
savings, consistent with the policy goals of the National Summit on 
Retirement Savings recently sponsored by the President and the 
Congress.
  Mr. President, Congress has recognized and corrected the adverse 
effects of section 415 on government employee pension plans. In fact, 
as part of the Small Business Jobs Protection Act of 1996 and the Tax 
Relief Act of 1997, we exempted government employee pension plans from 
the compensation-based limit, from certain early retirement limits, and 
from other provisions of section 415. Relief measures for workers 
covered by multiemployer plans have been passed three times by the 
Senate, most recently in the Senate version of the Taxpayer Relief Act 
of 1997. Unfortunately, those changes were not maintained in the 
Senate/House Conference Report.
  Section 415 was enacted more than two decades ago when the pension 
world was quite different than today. The section 415 limits were 
designed to contain the tax-sheltered pensions that could be received 
by highly paid executives and professionals. The passage of time and 
Congressional action has stood this original design on its head. Today, 
the limits are forcing cutbacks in the pensions of rank-and-file 
workers. Executives and professionals are now able to receive pensions 
far in excess of the section 415 limits by establishing non-qualified 
supplemental retirement programs.
  Generally, section 415 limits the benefits payable to a worker by 
defined benefit pension plans to the lesser of (1) the worker's average 
annual compensation for the three consecutive years when his 
compensation was the highest (the compensation-based limit); and (2) a 
dollar limit that is sharply reduced if a worker retires before the 
Social Security normal retirement age of 65 or 66.
  The compensation-based limit assumes that the pension earned under a 
plan is linked to each worker's salary, as is typical in corporate 
pension plans (e.g., a percentage of the worker's final year's salary 
for each year of employment). That assumption is wrong as applied to 
multiemployer pension plans. Multiemployer plans, which cover more than 
ten million individuals, have long based their benefits on the 
collectively bargained contribution rates and years of covered 
employment with one or more of the multiple employers which contribute 
to the plan. In other words, benefits earned under a multiemployer plan 
generally have no relationship to the wages received by a worker from 
the contributing employers. The same benefit level is paid to all 
workers with the same contribution and covered employment records 
regardless of their individual wage histories.

[[Page S7578]]

  A second assumption underlying the compensation based limit is that 
workers' salaries increase steadily over the course of their careers so 
that the three highest salary years will be the last three consecutive 
years. While this salary history may be the norm in the corporate 
world, it is unusual in the multiemployer plan world. In multiemployer 
plan industries like building and construction, a worker's wage 
earnings typically fluctuate from year-to-year according to several 
variables including the availability of covered work and whether the 
worker is unable to work due to illness or disability. An individual 
worker's wage history may include many dramatic ups-and-downs. Because 
of these fluctuations, the three highest years of compensation for many 
multiemployer plan participants are not consecutive. Consequently, the 
section 415 compensation-based limit for these workers is artificially 
low; lower than it should be if they were covered by corporate plans.
  The dollar limit under section 415 is forcing severe cutbacks in the 
earned pensions of workers who retire under multiemployer pension plans 
before they reach age 65. For example, construction work is physically 
hard, and is often performed under harsh climatic conditions. Workers 
are worn down sooner than those in most other industries. Often, early 
retirement is a must. Multiemployer pension plans accommodate these 
needs of their covered worker by providing for early retirement, 
disability, and service pensions that provide a subsidized, partial or 
full pension benefit.
  As it stands now, section 415 is forcing cutbacks in these pensions 
because the dollar limit is severely reduced for each year you are 
under the normal Social Security retirement age. For a worker who 
retires at age 50, the dollar limit restricts their pension at about 
$40,000 per year.
  This reduced limit applies regardless of the circumstances under 
which the worker retires and regardless of his plan's rules regarding 
retirement age. A multiemployer plan participant who becomes disabled 
and is forced into early retirement is nonetheless subject to the 
reduced limit. In addition, a construction worker who, after 30 years 
of demanding labor, has well-earned a 30-and-out service pension at age 
50, is nonetheless subject to the reduced limit.
  Our bill will ease this early retirement benefit cutback by extending 
to workers covered by multiemployer plans some of the more favorable 
early retirement rules that now apply to government employee pension 
plans and other retirement plans. These rules still provide for a 
reduced dollar limit for retirements earlier than age 62, but the 
reduction is less severe than under the current rules that apply to 
multiemployer plans.
  Mr. President, I am particularly concerned that early retirees who 
suffer pension benefit cutbacks will not be able to afford the health 
care coverage that they need. Workers who retire before they become 
eligible for Medicare are typically required to pay all or a 
substantial part of the cost of their health insurance. Section 415 
pension cutbacks deprive workers of income they need to bear these 
health care costs. This is contrary to the sound public policy of 
encouraging workers and retirees to responsibly provide for their 
health care.
  I urge my colleagues on both sides of the aisle to cosponsor this 
important and necessary legislation.
  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. 2267

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

     SECTION 1. TREATMENT OF MULTIEMPLOYER PLANS UNDER SECTION 415 
                   LIMIT ON DEFINED BENEFIT PENSION PLAN BENEFITS.

       (a) Dollar Limit Reduction.--Subparagraph (F) of section 
     415(b)(2) of the Internal Revenue Code of 1986 (relating to 
     plans maintained by governments and tax-exempt organizations) 
     is amended--
       (1) by striking ``and tax-exempt organizations'' in the 
     heading and inserting ``, tax-exempt organizations, and 
     multiemployer plans'', and
       (2) by inserting in the first sentence ``a multiemployer 
     plan (as defined in section 414(f)),'' after ``subtitle''.
       (b) Average Compensation Limit.--Paragraph (11) of section 
     415(b) of such Code (relating to a special limitation rule 
     for governmental plans) is amended to read as follows:
       ``(11) Special limitation rule for governmental and 
     multiemployer plans.--In the case of a governmental plan (as 
     defined in section 414(d)) or a multiemployer plan (as 
     defined in section 414(f)), subparagraph (B) of paragraph (1) 
     shall not apply.''.
       (c) Combining and Aggregation of Plans.--
       (1) Combining of plans.--Subsection (f) of section 415 of 
     such Code (relating to combining of plans) is amended by 
     adding at the end the following:
       ``(3) Exception for multiemployer plan.--Notwithstanding 
     paragraph (1) and subsection (g), a multiemployer plan (as 
     defined in section 414(f)) shall not be combined or 
     aggregated with any other plan maintained by an employer for 
     purposes of applying the limitations established in this 
     section.''.
       (2) Conforming amendment for aggregation of plans.--
     Subsection (g) of section 415 of such Code (relating to 
     aggregation of plans) is amended by striking ``The 
     Secretary'' and inserting ``Except as provided in subsection 
     (f)(3), the Secretary''.
       (d) Effective Date.--The amendments made by this section 
     shall apply to plan years beginning after December 31, 1997.
                                 ______