[Congressional Record Volume 145, Number 48 (Thursday, March 25, 1999)]
[Extensions of Remarks]
[Page E577]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]


        THE INTRODUCTION OF THE TAX CODE SECTION 415 RELIEF BILL

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                           HON. JERRY WELLER

                              of illinois

                    in the house of representatives

                        Thursday, March 25, 1999

  Mr. WELLER. Mr. Speaker, a great deal of attention is being focused 
on retirement security by this Congress and by the Administration. Most 
of us recognize the need to make saving for retirement, through private 
pension plans and personal savings, a priority for all Americans. And, 
many of us recognize that complex and irrational pension rules in the 
Internal Revenue Code actually discourage retirement savings. Among 
such rules are limits under Code section 415 they deny workers the full 
benefits they have earned.
  I rise today to introduce legislation on behalf of workers who have 
responsibly saved for retirement through collectively bargained, 
multiemployer defined benefit pension plans. These workers are being 
unfairly penalized under limits imposed by Code section 415. They are 
being denied the full benefits that they earned through many years of 
labor and on which they and their spouses have counted in planning 
their retirement.
  We can all appreciate their frustration and anger when they are told, 
upon applying for their pension, that the federal government won't let 
the 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 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, for some, it means 
retirement without health care coverage and other necessities of life.
  The bill that I am introducing today will give all of these workers 
relief from the most confiscatory provisions of Section 415 and enable 
them to receive the full measure of their retirement savings.
  Congress has recognized and corrected the adverse effects of Section 
415 on government employee pension plans. Most recently, as part of the 
Tax Relief Act of 1997 (Public Law 105-34) and the Small Business Jobs 
Protection Act of 1996 (Public Law 104-188), we exempted government 
employee pension plans from the compensation-based limit, from certain 
early retirement limits, and from other provisions of Section 415. 
Other relief for government employee plans was included in earlier 
legislation amending Section 415.
  Section 415 was enacted more than two decades ago when the pension 
world was quite different than it is 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. 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.


                       Compensation-Based Limits

  Generally, Section 415 limits the benefits payable to a worker by 
defined benefit pension plans to the lessor of: (1) the worker's 
average annual compensation for the three consecutive years when his 
compensation was the highest, the so-called ``compensation-based 
limit''; and (2) a dollar limit that is sharply reduced for retirement 
before the worker's Social Security normal retirement age.
  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 
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.
  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, workers' 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 would be if they were covered by corporate plans.
  Thus, the premises on which the compensation-based limit is founded 
do not fit the reality of workers covered by multiemployer plans. And, 
the limit should not apply.
  My bill would exempt workers covered by multiemployer plans from the 
compensation-based limit, just as government employees are now exempt.


                         Early Retirement Limit

  Section 415's dollar limit is forcing severe cutbacks in the earned 
pensions of workers who retire under multiemployer pension plans before 
they reach age 65.
  Construction work is physically hard, and is often performed under 
harsh climatic conditions. Workers are worn down sooner than in most 
other industries. Often, early retirement is a must. Multiemployer 
pension plans accommodate these needs of their covered workers by 
providing for early retirement, disability, and service pensions that 
provide a subsidized, partial or full pension benefit.
  Section 415 is forcing cutbacks in these pensions because the dollar 
limit is severly reduced for each year younger than the Social Security 
normal retirement age that a worker is when he retires. For a worker 
who retires at age 50, the reduced dollar limit is now 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 worn out after years 
of physical challenge who is forced into early retirement is 
nonetheless subject to a reduced limit. 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.
  My 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.
  Finally, I am particularly concerned that early retirees who suffer 
pension benefit cutbacks will not be able to afford the health care 
coverage they need. Workers who retire before the Medicare eligibility 
age of 65 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.

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