[Congressional Record Volume 145, Number 82 (Thursday, June 10, 1999)]
[Senate]
[Pages S6864-S6866]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. MURKOWSKI (for himself, Mr. Stevens, and Mr. Santorum):
  S. 1209. A bill to amend the Internal Revenue Code of 1986 to restore 
pension limits to equitable levels, and for other purposes; to the 
Committee on Finance.


                Modifications to the Section 415 Limits

  Mr. MURKOWSKI. Mr. President, I rise today to introduce legislation 
on behalf of workers who have responsibly saved for retirement through 
collectively bargained, multiemployer defined benefit pension plans. I 
am pleased to be joined by Senators Stevens and Santorum in sponsoring 
this bill. This legislation would raise the Section 415 limits and 
ensure that workers are not unfairly penalized in the amount they may 
receive when they retire.
  Under the current rules, for some workers, benefit cutbacks resulting 
from the current rules 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.
  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 then two decades ago when the pension 
world was quite different than it is today. The Section 415 limits were 
designed to place limits on pensions that could be received by highly 
paid executives. The passage of time and Congressional action has stood 
this original design on its head. The limits are forcing cutbacks in 
the pensions of middle income workers.
  Section 415 limits the benefits payable to a worker in a defined 
benefit

[[Page S6865]]

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 ``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. Unfortunately, that formula does not work properly when 
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 form the 
contributing employers. The same benefits 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 the 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.
  This bill would exempt workers covered by multiemployer plans from 
the compensation-based limit, just as government employees are now 
exempt.
  Section 415's dollar limits have also been 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 severely 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.
  This 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 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. 1209

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

     SECTION 1. AMENDMENT OF 1986 CODE.

       Except as otherwise expressly provided, whenever in this 
     Act an amendment or repeal is expressed in terms of an 
     amendment to, or repeal of, a section or other provision, the 
     reference shall be considered to be made to a section or 
     other provision of the Internal Revenue Code of 1986.

     SEC. 2. GENERAL RETIREMENT PLAN LIMITS.

       (a) Defined Benefit Plans.--
       (1) Dollar limit.--
       (A) In general.--Subparagraph (A) of section 415(b)(1) 
     (relating to limitation for defined benefit plans) is amended 
     by striking ``$90,000'' and inserting ``$180,000''.
       (B) Age adjustments.--Subparagraphs (C) and (D) of section 
     415(b)(2) are each amended by striking ``$90,000'' each place 
     it appears in the headings and the text and inserting 
     ``$180,000''.
       (C) Collectively bargained plans.--Paragraph (7) of section 
     415(b) (relating to benefits under certain collectively 
     bargained plans) is amended by striking ``the greater of 
     $68,212 or one-half the amount otherwise applicable for such 
     year under paragraph (1)(A) for `$90,000' '' and inserting 
     ``one-half the amount otherwise applicable for such year 
     under paragraph (1)(A) for `$180,000' ''.
       (2) Limit reduced when benefit begins before age 62.--
     Subparagraph (C) of section 415(b)(2) is amended by striking 
     ``the social security retirement age'' each place it appears 
     in the heading and text and inserting ``age 62''.
       (3) Limit increased when benefit begins after age 65.--
     Subparagraph (D) of section 415(b)(2) is amended by striking 
     ``the social security retirement age'' each place it appears 
     in the heading and text and inserting ``age 65''.
       (4) Multiemployer plans and plans maintained by governments 
     and tax exempt organizations.--Subparagraph (F) of section 
     415(b)(2) is amended to read as follows:
       ``(F) Multiemployer plans and plans maintained by 
     governments and tax exempt organizations.--
       ``(i) In general.--In the case of a governmental plan 
     (within the meaning of section 414(d)), a plan maintained by 
     an organization (other than a governmental unit) exempt from 
     tax under this subtitle, a multiemployer plan (as defined in 
     section 414(f)), or a qualified merchant marine plan, 
     subparagraph (C) shall be applied as if the last sentence 
     thereof read as follows: `The reduction under this 
     subparagraph shall not reduce the limitation of paragraph 
     (1)(A) below (i) $130,000 if the benefit begins at or after 
     age 55, or (ii) if the benefit begins before age 55, the 
     equivalent of the $130,000 limitation for age 55.'.
       ``(ii) Definitions.--For purposes of this subparagraph--

       ``(I) Qualified merchant marine plan.--The term `qualified 
     merchant marine plan' means a plan in existence on January 1, 
     1986, the participants in which are merchant marine officers 
     holding licenses issued by the Secretary of Transportation 
     under title 46, United States Code.
       ``(II) Exempt organization plan covering 50 percent of its 
     employees.--A plan shall be treated as a plan maintained by 
     an organization (other than a governmental unit) exempt from 
     tax under this subtitle if at least 50 percent of the 
     employees benefiting under the plan are employees of an 
     organization (other than a governmental unit) exempt from tax 
     under this subtitle. If less than 50 percent of the employees 
     benefiting under a plan are employees of an organization 
     (other than a governmental unit) exempt from tax under this 
     subtitle, the plan shall be treated as a plan maintained by 
     an organization (other than a governmental unit) exempt from 
     tax under this subtitle only with respect to employees of 
     such an organization.''

       (5) Cost-of-living adjustments.--Subsection (d) of section 
     415 (related to cost-of-living adjustments) is amended--
       (A) in paragraph (1)(A) by striking ``$90,000'' and 
     inserting ``$180,000'', and
       (B) in paragraph (3)(A)--
       (i) by striking ``$90,000'' in the heading and inserting 
     ``$180,000'', and
       (ii) by striking ``October 1, 1986'' and inserting ``July 
     1, 1999''.
       (b) Defined Contribution Plans.--
       (1) In general.--Subparagraph (B) of section 415(c)(1) 
     (relating to limitation for defined contribution plans) is 
     amended to read as follows:
       ``(B) the participants' compensation.''
       (2) Conforming amendment.--Section 415(n)(2)(B) is amended 
     by striking ``percentage''.
       (c) Cost-of-Living Adjustments.--
       (1) Plans maintained by governments and tax exempt 
     organizations.--Paragraph (1) of section 415(d) (as amended 
     by subsection (a)) is amended by striking ``and'' at the end 
     of subparagraph (B), by redesignating subparagraph (C) as 
     subparagraph (D), and by inserting after subparagraph (B) the 
     following new subparagraph:
       ``(C) the $130,000 amount in subsection (b)(2)(F), and''
       (2) Base period.--Paragraph (3) of section 415(d) (as 
     amended by subsection (a)) is amended by redesignating 
     subparagraph (D)

[[Page S6866]]

     as subparagraph (E) and by inserting after subparagraph (C) 
     the following new subparagraph:
       ``(D) $130,000 amount.--The base period taken into account 
     for purposes of paragraph (1)(C) is the calendar quarter 
     beginning July 1, 1999.''
       (3) Rounding rule relating to defined benefit plans.--
     Paragraph (4) of section 415(d) is amended to read as 
     follows:
       ``(4) Rounding.--
       ``(A) $180,000 amount.--Any increase under subparagraph (A) 
     or (D) of paragraph (1) which is not a multiple of $5,000 
     shall be rounded to the next lowest multiple of $5,000.
       ``(B) $130,000 amount.--Any increase under subparagraph (C) 
     of paragraph (1) which is not a multiple of $1,000 shall be 
     rounded to the next lowest multiple of $1,000.''
       (4) Conforming amendment.--Subparagraph (D) of section 
     415(d)(3) (as amended by paragraph (2)) is amended by 
     striking ``paragraph (1)(C)'' and inserting ``paragraph 
     (1)(D)''.

     SEC. 3. TREATMENT OF MULTIEMPLOYER PLANS UNDER SECTION 415.

       (a) Compensation Limit.--Paragraph (11) of section 415(b) 
     (relating to limitation for defined benefit 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.''
       (b) Combining and Aggregation of Plans.--
       (1) Combining of plans.--Subsection (f) of section 415 
     (relating to combining of plans) is amended by adding at the 
     end the following:
       ``(3) Exception for multiemployer plans.--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, except that such plan shall be combined or 
     aggregated with another plan which is not such a 
     multiemployer plan solely for purposes of determining whether 
     such other plan meets the requirements of subsection 
     (b)(1)(A).''.
       (2) Conforming amendment for aggregation of plans.--
     Subsection (g) of section 415 (relating to aggregation of 
     plans) is amended by striking ``The Secretary'' and inserting 
     ``Except as provided in subsection (f)(3), the Secretary''.

     SEC. 4. EFFECTIVE DATE.

       The amendments made by this Act shall apply to years 
     beginning after December 31, 1999.

  Mr. STEVENS. Mr. President, today I join Senator Murkowski in 
introducing a measure that will fix a problem with the pension limits 
in section 415 of the tax code as they relate to multiemployer pension 
plans.
  This is a problem I have been trying to fix for years, and I hope we 
can resolve this issue during this Congress.
  Section 415, as it currently stands, deprives workers of the pensions 
they deserve.
  In 1996, Congress addressed part of the problem by relieving public 
employees from the limits of section 415.
  It is only proper that Congress does the same for private workers 
covered by multiemployer plans.
  Section 415 negatively impacts workers who have various employers.
  Currently, the pension level is set at the employee's highest 
consecutive 3-year average salary.
  With fluctuations in industry, sometimes employees have up and down 
years rather than steady increases in their wages.
  This can skew the 3-year salary average for the employee, resulting 
in a lower pension when the worker retires.
  I would like to offer an example of section 415's impact to 
illustrate how unfairly the current law treats workers in multiemployer 
plans.
  Assume we are talking about a worker employed for 15 years by a local 
union and her highest annual salary was $15,600.
  The worker retires and applies for pension benefits from the two 
plans by which she was covered by virtue of her previous employment.
  The worker had earned a monthly benefit of $1,000 from one plan and a 
monthly benefit of $474 from the second plan for a total monthly income 
of $1,474, or $17,688 per year.
  The worker looked forward to receiving this full amount throughout 
her retirement.
  However, the benefits had to be reduced by $202 per month, or about 
$2,400 per year to match her highest annual salary of $15,600.
  The so-called ``compensation based limit'' of section 415 of the Tax 
Code did not take into account disparate benefits, but intended only to 
address workers with a single employer likely to receive steady 
increases in salary.
  Currently section 415 limits a worker's pension to an equal amount of 
the worker's average salary for the three consecutive years when the 
worker's salary was the highest.
  Instead of receiving the $17,688 per year pension that the worker had 
earned under the pension plans' rules, the worker can receive only 
$15,253 per year.
  If the worker were a public employee covered by a public plan, her 
pension would not be cut.
  This is because public pension plans are not restricted by the 
compensation-based limit language of section 415.
  This robs employees of the money they have earned simply because they 
were not a public employee.
  We are always looking for ways to encourage people to save for 
retirement and we try to educate people of the fact that relying on 
Social Security alone will not be enough.
  Yet we penalize many private sector employees in multiemployer plans 
by arbitrarily limiting the amount of pension benefits they can 
receive.
  It is wrong, and it should be fixed.
  In addition, by changing the law to allow workers to receive the full 
pension benefits they are entitled to, we will see more money flowing 
to the treasury.
  This is because greater pensions to retirees means greater retirement 
income, much of which is subject to taxes.
  I urge my colleagues to support us in fixing this problem once and 
for all and I thank Senator Murkowski for working with me on this 
issue.
                                 ______