[Congressional Record Volume 145, Number 43 (Thursday, March 18, 1999)]
[Senate]
[Pages S2939-S2941]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. MOYNIHAN (for himself, Mr. Robb and Mr. Kerrey):
  S. 659. A bill to amend the Internal Revenue Code of 1986 to require 
pension plans to provide adequate notice to individuals whose future 
benefit accruals are being significantly reduced, and for other 
purposes; to the Committee on Finance.


                 the pension right to know act of 1999

  Mr. MOYNIHAN. Mr. President, I rise today to introduce legislation to 
provide greater disclosure to employees about the impact on their 
retirement benefits of pension plan conversions.
  Recent media accounts have reported that many large companies in 
America are converting their traditional defined benefit pension plans 
to something called ``cash balance plans.'' A cash balance plan is a 
hybrid arrangement combining certain features of ``defined 
contribution'' and ``defined benefit'' plans. Like defined contribution 
plans, they provide each employee with an account in which his or her 
benefits accrue. But cash balance plans are actually defined benefit 
plans, and therefore provide a benefit for life which is insured by the 
Pension Benefit Guaranty Corporation.
  Cash balance plans, however, differ from other defined benefit plans 
in the calculation of benefits. Whereas the value of an employee's 
retirement benefit in a traditional defined benefit plan grows slowly 
in the early years and more rapidly as one approaches retirement, cash 
balance plans decrease this later-year growth and increase the early-
year growth. Consequently, younger employees tend to do better under 
cash balance plans than under traditional plans, while older employees 
typically do worse. In some cases, upon conversion to a cash balance 
account an older worker's account balance may remain static for years--
typically referred to as the ``wear away'' period.
  It appears that very few workers who have experienced the conversion 
of their company retirement plan to a cash balance arrangement 
understand the differences between the old and new plans. Those who do 
often complain that the new plans treat older workers unfairly. One 49-
year-old engineer profiled by the Wall Street Journal--a rare employee 
who knows how to calculate pension benefits--determined that his 
pension value dropped by $56,000 the day his company converted to a 
cash balance plan.
  Even more disturbing are complaints from some employees that their 
employers obscured the adverse effects of plan amendments. When an 
employer changes the pension plan, the employees have a right to know 
the consequences. There should be no surprises when it is time to 
retire. Unfortunately, current law requires little in the way of 
disclosure when a company changes its pension plan. Section 204(h) of 
the Employee Retirement Income Security Act (ERISA) requires employers 
to inform employees of a change to a pension plan resulting in a 
reduction in future benefit accruals. But that is all. It does not 
require specifics. The 204(h) disclosure can be, and often is, 
satisfied with a brief statement buried deep in a company communication 
to employees. It is imperative that we increase these disclosure 
requirements regarding reductions in pension benefits.
  The bill I am introducing today would require employers with 1,000 or 
more employees to provide a ``statement of benefit change'' when 
adopting plan amendments which significantly reduce benefits. The 
statement of benefit change would provide a comparison, under the old 
and new versions of the plan, of the following benefit measures; the 
employee's accrued benefit and present value of accrued benefit at the 
time of conversion; and the projected accrued benefit and projected 
present value of accrued benefit three years, five years, and ten years 
after conversion and at normal retirement age.
  These benefit measures are standard concepts which will be well 
understood by pension administrators, actuaries and others who work 
with pensions. They will give the employee a clear picture of the 
difference between the old and new plans immediately, periodically over 
a ten-year period, and at retirement. The purpose of the three, five 
and ten-year comparisons is to disclose any ``wear away'' period, in 
which an employee would work without gaining any new benefits. Using 
these comparisons, employees can get a clear picture of the relative 
merits of the two plans.

  In preparing this bill, my staff has consulted a number of actuaries 
and pension attorneys. I believe it is a good approach to resolving the 
problems I have discussed, and I am happy to work with others to 
incorporate suggestions to further improve the bill.
  Of course, many call this measure as intrusive or unnecessary. Some 
employer groups have criticized the idea of requiring individualized 
benefits calculations for every employee, saying that this requires 
reviewing each employee's salary history. But that seems a strange 
complaint given that we are talking about cash balance plans, which 
already require highly individualized calculations. If an employer can 
provide personalized account balances under a cash balance arrangement, 
then the employer can provide such information for the old plan.
  Moreover, recently completed regulations appear already to 
contemplate individualized comparisons. Regulation 1.411(d)-6, just 
finalized by the Internal Revenue Service, requires that in order

[[Page S2940]]

to determine if a reduction in future benefit accrual is 
``significant,'' employers must compare the annual benefit at 
retirement age under the amended plan with the same benefit under the 
plan prior to amendment. Therefore, the concept of benefit comparisons 
is not a new one.
  And indeed, some companies are proving by their actions that benefit 
comparisons are not unduly burdensome. Kodak, the prominent employer 
headquartered in Rochester, New York, recently announced that it will 
convert to a cash balance plan, and that it will give its 35,000 
participants in the company-sponsored pension plan the choice between 
the old plan and the new. To help employees make an informed decision, 
Kodak will provide every plan participant with an individualized 
comparison of his or her benefits under the old and new versions of the 
plan. The company is also providing computer software that will allow 
employees to make the comparisons themselves. That is the difference 
between corporate behavior that is responsible and corporate behavior 
that is unscrupulous. As usual, Kodak sets a fine example.
  I believe that such disclosure not only is in the best interest of 
employees, but also of the employer. Several class action lawsuits have 
been filed in the last three years challenging conversions to cash 
balance plans. These suits will likely cost hundreds of thousands, if 
not millions, of dollars in attorneys' fees. But with proper 
disclosure, they might not have occurred.
  In closing, let me be clear about one thing. I take no position on 
the underlying merit of cash balance plans. Ours is a voluntary pension 
system, and companies must do what is right for them and their 
employees. But I feel strongly that companies must fully and 
comprehensibly inform their employees regarding whatever pension 
benefits the company offers. Companies have no right to misrepresent 
the projected benefit employees will receive under a cash balance plan 
or any other pension arrangement.
  It is time to let the sun shine on pension plan conversions. I urge 
the Senate to support this important legislation.
  I ask unanimous consent that the text of my bill be printed in the 
Record.
  There being no objection, the bill was ordered to be printed in the 
Record, as follows:

                                 S. 659

       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 ``Pension Right to Know Act''.

     SEC. 2. NOTICE REQUIREMENTS FOR LARGE PENSION PLANS 
                   SIGNIFICANTLY REDUCING FUTURE PENSION BENEFIT 
                   ACCRUALS.

       (a) Plan Requirement.--Section 401(a) of the Internal 
     Revenue Code of 1986 (relating to qualified pension, profit-
     sharing, and stock bonus plans) is amended by inserting after 
     paragraph (34) the following new paragraph:
       ``(35) Notice requirements for large defined benefit plans 
     significantly reducing future benefit accruals.--
       ``(A) In general.--If a large defined benefit plan adopts 
     an amendment which has the effect of significantly reducing 
     the rate of future benefit accrual of 1 or more participants, 
     a trust which is part of such plan shall not constitute a 
     qualified trust under this section unless, after adoption of 
     such amendment and not less than 15 days before its effective 
     date, the plan administrator provides--
       ``(i) a written statement of benefit change described in 
     subparagraph (B) to each applicable individual, and
       ``(ii) a written notice setting forth the plan amendment 
     and its effective date to each employee organization 
     representing participants in the plan.

     Any such notice may be provided to a person designated, in 
     writing, by the person to which it would otherwise be 
     provided. The plan administrator shall not be treated as 
     failing to meet the requirements of this subparagraph merely 
     because the statement or notice is provided before the 
     adoption of the plan amendment if no material modification of 
     the amendment occurs before the amendment is adopted.
       ``(B) Statement of benefit change.--A statement of benefit 
     change described in this subparagraph shall--
       ``(i) be written in a manner calculated to be understood by 
     the average plan participant, and
       ``(ii) include the information described in subparagraph 
     (C).
       ``(C) Information contained in statement of benefit 
     change.--The information described in this subparagraph 
     includes the following:
       ``(i) Notice setting forth the plan amendment and its 
     effective date.
       ``(ii) A comparison of the following amounts under the plan 
     with respect to an applicable individual, determined both 
     with and without regard to the plan amendment:

       ``(I) The accrued benefit and the present value of the 
     accrued benefit as of the effective date.
       ``(II) The projected accrued benefit and the projected 
     present value of the accrued benefit as of the date which is 
     3 years, 5 years, and 10 years from the effective date and as 
     of the normal retirement age.

       ``(iii) A table of all annuity factors used to calculate 
     benefits under the plan, presented in the form provided in 
     section 72 and the regulations thereunder.

     Benefits described in clause (ii) shall be stated separately 
     and shall be calculated by using the applicable mortality 
     table and the applicable interest rate under section 
     417(e)(3)(A).
       ``(D) Large defined benefit plan; applicable individual.--
     For purposes of this paragraph--
       ``(i) Large defined benefit plan.--The term `large defined 
     benefit plan' means any defined benefit plan which had 1,000 
     or more participants who had accrued a benefit under the plan 
     (whether or not vested) as of the last day of the plan year 
     preceding the plan year in which the plan amendment becomes 
     effective.
       ``(ii) Applicable individual.--The term `applicable 
     individual' means--

       ``(I) each participant in the plan, and
       ``(II) each beneficiary who is an alternate payee (within 
     the meaning of section 414(p)(8)) under an applicable 
     qualified domestic relations order (within the meaning of 
     section 414(p)(1)(A)).

       ``(E) Accrued benefit; projected retirement benefit.--For 
     purposes of this paragraph--
       ``(i) Present value of accrued benefit.--The present value 
     of an accrued benefit of any applicable individual shall be 
     calculated as if the accrued benefit were in the form of a 
     single life annuity commencing at the participant's normal 
     retirement age (and by taking into account any early 
     retirement subsidy).
       ``(ii) Projected accrued benefit.--

       ``(I) In general.--The projected accrued benefit of any 
     applicable individual shall be calculated as if the benefit 
     were payable in the form of a single life annuity commencing 
     at the participant's normal retirement age (and by taking 
     into account any early retirement subsidy).
       ``(II) Compensation and other assumptions.--Such benefit 
     shall be calculated by assuming that compensation and all 
     other benefit factors would increase for each plan year 
     beginning after the effective date of the plan amendment at a 
     rate equal to the median average of the CPI increase 
     percentage (as defined in section 215(i) of the Social 
     Security Act) for the 5 calendar years immediately preceding 
     the calendar year before the calendar year in which such 
     effective date occurs.
       ``(III) Benefit factors.--For purposes of subclause (II), 
     the term `benefit factors' means social security benefits and 
     all other relevant factors under section 411(b)(1)(A) used to 
     compute benefits under the plan which had increased from the 
     2d plan year preceding the plan year in which the effective 
     date of the plan amendment occurs to the 1st such preceding 
     plan year.

       ``(iii) Normal retirement age.--The term `normal retirement 
     age' means the later of--

       ``(I) the date determined under section 411(a)(8), or
       ``(II) the date a plan participant attains age 62.''

       (b) Amendments to ERISA.--
       (1) Benefit statement requirement.--Section 204(h) of the 
     Employee Retirement Income Security Act of 1974 (29 U.S.C. 
     1054(h)) is amended by adding at the end the following new 
     paragraphs:
       ``(3)(A) If paragraph (1) applies to the adoption of a plan 
     amendment by a large defined benefit plan, the plan 
     administrator shall, after adoption of such amendment and not 
     less than 15 days before its effective date, provide with the 
     notice under paragraph (1) a written statement of benefit 
     change described in subparagraph (B) to each applicable 
     individual.
       ``(B) A statement of benefit change described in this 
     subparagraph shall--
       ``(i) be written in a manner calculated to be understood by 
     the average plan participant, and
       ``(ii) include the information described in subparagraph 
     (C).
       ``(C) The information described in this subparagraph 
     includes the following:
       ``(i) A comparison of the following amounts under the plan 
     with respect to an applicable individual, determined both 
     with and without regard to the plan amendment:
       ``(I) The accrued benefit and the present value of the 
     accrued benefit as of the effective date.
       ``(II) The projected accrued benefit and the projected 
     present value of the accrued benefit as of the date which is 
     3 years, 5 years, and 10 years from the effective date and as 
     of the normal retirement age.
       ``(ii) A table of all annuity factors used to calculate 
     benefits under the plan, presented in the form provided in 
     section 72 of the Internal Revenue Code of 1986 and the 
     regulations thereunder.


[[Page S2941]]


     Benefits described in clause (i) shall be stated separately 
     and shall be calculated by using the applicable mortality 
     table and the applicable interest rate under section 
     417(e)(3)(A) of such Code.
       ``(D) For purposes of this paragraph--
       ``(i) The term `large defined benefit plan' means any 
     defined benefit plan which had 1,000 or more participants who 
     had accrued a benefit under the plan (whether or not vested) 
     as of the last day of the plan year preceding the plan year 
     in which the plan amendment becomes effective.
       ``(ii) The term `applicable individual' means an individual 
     described in subparagraph (A) or (B) of paragraph (1).
       ``(E) For purposes of this paragraph--
       ``(i) The present value of an accrued benefit of any 
     applicable individual shall be calculated as if the accrued 
     benefit were in the form of a single life annuity commencing 
     at the participant's normal retirement age (and by taking 
     into account any early retirement subsidy).
       ``(ii)(I) The projected accrued benefit of any applicable 
     individual shall be calculated as if the benefit were payable 
     in the form of a single life annuity commencing at the 
     participant's normal retirement age (and by taking into 
     account any early retirement subsidy).
       ``(II) Such benefit shall be calculated by assuming that 
     compensation and all other benefit factors would increase for 
     each plan year beginning after the effective date of the plan 
     amendment at a rate equal to the median average of the CPI 
     increase percentage (as defined in section 215(i) of the 
     Social Security Act) for the 5 calendar years immediately 
     preceding the calendar year before the calendar year in which 
     such effective date occurs.
       ``(III) For purposes of subclause (II), the term `benefit 
     factors' means social security benefits and all other 
     relevant factors under section 204(b)(1)(A) used to compute 
     benefits under the plan which had increased from the 2d plan 
     year preceding the plan year in which the effective date of 
     the plan amendment occurs to the 1st such preceding plan 
     year.
       ``(iii) The term `normal retirement age' means the later 
     of--
       ``(I) the date determined under section 3(24), or
       ``(II) the date a plan participant attains age 62.
       ``(4) A plan administrator shall not be treated as failing 
     to meet the requirements of this subsection merely because 
     the notice or statement is provided before the adoption of 
     the plan amendment if no material modification of the 
     amendment occurs before the amendment is adopted.''
       (2) Conforming amendment.--Section 204(h)(1) of such Act 
     (29 U.S.C. 1054(h)(1)) is amended by inserting ``(including 
     any written statement of benefit change if required by 
     paragraph (3))'' after ``written notice''.
       (c) Effective Dates.--
       (1) In general.--The amendments made by this section shall 
     apply to plan amendments taking effect in plan years 
     beginning on or after the earlier of--
       (A) the later of--
       (i) January 1, 1999, or
       (ii) the date on which the last of the collective 
     bargaining agreements pursuant to which the plan is 
     maintained terminates (determined without regard to any 
     extension thereof after the date of the enactment of this 
     Act), or
       (B) January 1, 2001.
       (2) Exception where notice given.--The amendments made by 
     this section shall not apply to any plan amendment for which 
     written notice was given to participants or their 
     representatives before March 17, 1999, without regard to 
     whether the amendment was adopted before such date.
       (3) Special rule.--The period for providing any notice 
     required by, or any notice the contents of which are changed 
     by, the amendments made by this Act shall not end before the 
     date which is 6 months after the date of the enactment of 
     this Act.
                                 ______