[Congressional Record Volume 145, Number 135 (Thursday, October 7, 1999)]
[Senate]
[Pages S12235-S12239]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. MOYNIHAN (for himself, Mr. Jeffords, Mr. Leahy, Mr. 
        Kerrey, Mr. Robb, Mr. Rockefeller, Mr. Sarbanes, Mr. Grams, and 
        Mr. Lieberman):
  S. 1708. A bill to amend the Employee Retirement Income Security Act 
of 1974 and the Internal Revenue Code of 1986 to require plans which 
adopt amendments that significantly reduce future benefit accruals to 
provide participants with adequate notice of the changes made by such 
amendments; to the Committee on Finance.


              the pension reduction disclosure act of 1999

  Mr. MOYNIHAN. Mr. President, I rise today, joined by Senators 
Jeffords, Leahy, Grams, Kerrey, Robb, Rockefeller, and Sarbanes, to 
introduce legislation to provide greater disclosure of the impact of 
pension plan conversions.
  This is the second bill I have sponsored this session aimed at 
achieving transparency of the effects of traditional pension plan 
conversions to ``cash balance'' plans, which have become extremely 
controversial in recent months. At least 300 large U.S. companies have 
converted to cash balance plans in the last few years.
  Cash balance plans combine certain features of ``defined benefit'' 
and ``defined contribution'' plans. Like defined contribution plans, 
cash balance plans provide each employee with an individual account 
representing a lump-sum benefit. Like traditional defined benefit 
plans, cash balance plan contributions are made primarily by the 
employer and are insured by the Pension Benefit Guaranty Corporation.
  The calculation of benefits under cash balance plans, however, 
differs from other defined benefit plans. Whereas a traditional defined 
benefit plan grows slowly in the early years and more rapidly as one 
approaches retirement, cash balance plans de-accelerate 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, an older worker's starting account balance may remain static for 
years--typically referred to as the ``wear away'' period.
  The controversy over cash balance plans arises in part because 
present disclosure requirements are inadequate. Under present law, when 
an employer amends a defined benefit pension plan in a manner which 
significantly reduces the rate of future benefit accrual, the employer 
must provide participants with an advance written notice of the 
amendment. The law does not, however, require employers to disclose the 
effect the amendment will have on participants. In fact, it does not 
even require employers to disclose that benefits will be reduced. All 
that present law requires is that employers provide participants with a 
summary or copy of the plan amendment. Consequently, current law can be 
satisfied with a summary buried in an obscure document. In some cases, 
workers have complained that their employers purposefully obscured 
benefit reductions. As a result, employee anger over cash balance plans 
has grown, resulting in several class action lawsuits being filed in 
just the last three years.
  The Pension Reduction Disclosure Act will strengthen existing law by 
requiring disclosure of information which will enable employees to 
determine the effects of benefit reductions. Specifically, before the 
plan is changed, each adversely-affected employee must receive 
illustrative examples showing the effects of the change on various 
employee groups. Moreover, each employee must have the opportunity to 
receive the benefit formulas for the old and new versions of the plan 
so that he or she can make specific comparisons of both plans. Then, 90 
days after the plan is changed, each adversely-affected employee must 
have, upon request, the opportunity to receive an individual benefit 
comparison prepared by the employer. This information will provide 
employees with the knowledge they need regarding pension benefit 
reductions, while imposing minimal burden on employers.
  The Pension Reduction Disclosure Act, is a modified version of 
legislation I introduced in March entitled The Pension Right to Know 
Act (S. 659). The new measure attempts to address concerns raised by 
employers concerning S. 659. For example, the new measure requires 
disclosure only for adversely-affected employees, not all employees, in 
order to meet employer concerns that S. 659 was too broad in its reach. 
Moreover, the new bill addresses employer concerns that it would be 
difficult to provide individual benefit comparisons before the 
amendment effective date due to a lack of individual data. Under the 
bill introduced today, individual benefit comparisons would be required 
no earlier than 90 days after the effective date, and then only upon 
request. (To enable employees to compare the old and new plans before 
the effective date, this bill provides illustrative examples and, upon 
request, the benefit formulas for the old and new plans.) Another 
change is that the new bill allows the Secretary of Treasury to develop 
alternative and simplified compliance methods where appropriate, as in 
cases where there is no fundamental change in the manner in which 
benefits are determined. Moreover, the Secretary may reduce the advance 
notice period from 45 days to 15 days in cases in which the 45-day 
requirement would be unduly burdensome because the amendment is 
contingent on a merger, acquisition, disposition or other similar 
transaction.

  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 millions of dollars in 
attorneys' fees, but with proper disclosure they might not have 
occurred.
  I want to acknowledge the work of the Clinton Administration in 
helping to craft this measure. The bill largely follows the outline of 
a proposal suggested by the Administration in July which was developed 
in collaboration with my staff. The Departments of Treasury and Labor 
have provided great insight and creativity in developing this bill, and 
I thank them for their assistance. Two of our distinguished House 
colleagues, Congressman Robert Matsui of California and Congressman 
Jerry Weller of Illinois, are introducing this legislation in the other 
chamber, so hopefully it will become law this year.
  In closing, let me repeat what I have said in the past. 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 or 
obfuscate the projected benefit employees will receive under a cash 
balance plan or any other pension arrangement, notwithstanding the fact 
that some pension consultants have advocated cash balance plans for 
that very purpose.
  As I said upon introduction of my earlier legislation on this topic, 
it is time to let the sun shine on pension plan conversions. I urge the 
Senate to support this important measure.
  I ask unanimous consent that a copy and summary of the bill be 
included in the Record.

[[Page S12236]]

  There being no objection, the material was ordered to be printed in 
the Record, as follows:

                                S. 1708

       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 Reduction Disclosure 
     Act of 1999''.

     SEC. 2. NOTICE REQUIRED FOR CERTAIN PLAN AMENDMENTS REDUCING 
                   FUTURE BENEFIT ACCRUALS.

       (a) General Notice Requirements.--Section 204(h) of the 
     Employee Retirement Income Security Act of 1974 (29 U.S.C. 
     1054(h)) is amended to read as follows:
       ``(h) Notice Requirements for Pension Plan Amendments 
     Reducing Accruals.--
       ``(1) In general.--If an applicable pension plan is amended 
     so as to provide for a significant reduction in the rate of 
     future benefit accrual of 1 or more applicable individuals, 
     the plan administrator shall--
       ``(A) not later than the 45th day before the effective date 
     of the amendment, provide the written notice described in 
     paragraph (2) to each applicable individual (and to each 
     employee organization representing applicable individuals), 
     and
       ``(B) in the case of a large applicable pension plan--
       ``(i) include in the notice under paragraph (2) the 
     additional information described in paragraph (3),
       ``(ii) make available the information described in 
     paragraph (4) in accordance with such paragraph, and
       ``(iii) provide individual benefit statements in accordance 
     with section 105(e).
       ``(2) Basic written notice.--The notice under paragraph (1) 
     shall include a summary of the important terms of the 
     amendment, including--
       ``(A) the effective date of the amendment,
       ``(B) a statement that the amendment is expected to 
     significantly reduce the rate of future benefit accrual,
       ``(C) a description of the classes of applicable 
     individuals to whom the amendment applies, and
       ``(D) a description of how the amendment significantly 
     reduces the rate of future benefit accrual.
       ``(3) Additional information to be provided by large 
     applicable pension plans.--
       ``(A) In general.--The information described in this 
     paragraph is--
       ``(i) a description of the plan's benefit formulas 
     (including formulas for determining early retirement 
     benefits) both before and after the amendment and an 
     explanation of the effect of the different formulas on 
     applicable individuals,
       ``(ii) an explanation of the circumstances (if any) under 
     which (for appropriate categories of applicable individuals) 
     the amendment is reasonably expected to result in a temporary 
     period after the effective date of the amendment during which 
     there are no or minimal accruals,
       ``(iii) illustrative examples of normal or early retirement 
     benefits meeting the requirements of subparagraph (B), and
       ``(iv) notice of each applicable individual's right to 
     request, and of the procedures for requesting, the 
     information required to be provided under paragraph (4) and 
     under section 105(e).
       ``(B) Illustrative examples.--Illustrative examples meet 
     the requirements of this subparagraph if such examples 
     illustrate the adverse effects of the plan amendment. Such 
     examples shall be prepared by the plan administrator in 
     accordance with regulations prescribed by the Secretary of 
     the Treasury, and such regulations shall require that the 
     examples--
       ``(i) reflect fairly the different categories of applicable 
     individuals who are similarly affected by the plan amendment 
     after consideration of all relevant factors,
       ``(ii) show a comparison of benefits for each such category 
     of applicable individuals under the plan (as in effect before 
     and after the effective date) at appropriate future dates, 
     and
       ``(iii) illustrate any temporary period described in 
     subparagraph (A)(ii).

     Such comparison shall be based on benefits in the form of a 
     life annuity and on actuarial assumptions each of which is 
     reasonable (and is so certified by an enrolled actuary) when 
     applied to all participants in the plan.
       ``(4) Supporting information relating to calculation of 
     benefits.--
       ``(A) In general.--Each individual who receives or who is 
     entitled to receive the information described in paragraph 
     (3) may (after so receiving or becoming so entitled) request 
     the plan administrator to provide the information described 
     in subparagraph (B).
       ``(B) Information.--The plan administrator shall, within 15 
     days after the date on which a request under subparagraph (A) 
     is made, provide to the individual information (including 
     benefit formulas and actuarial factors) which is sufficient--
       ``(i) to confirm the benefit comparisons in the 
     illustrative examples described in paragraph (3)(B), and
       ``(ii) to enable the individual to use the individual's own 
     personal information to make calculations of the individual's 
     own benefits which are similar to the calculations made in 
     such examples.

     Nothing in this subsection shall be construed to require the 
     plan administrator to provide to an individual such 
     individual's personal information for purposes of clause 
     (ii).
       ``(C) Time limitation on requests.--This paragraph shall 
     apply only to requests made during the 12-month period that 
     begins on the later of the effective date of the amendment to 
     which it relates or the date the notice described in 
     paragraph (2) is provided.
       ``(5) Sanctions.--
       ``(A) In general.--In the case of any egregious failure to 
     meet any requirement of this subsection with respect to any 
     plan amendment, the provisions of the applicable pension plan 
     shall be applied as if such plan amendment entitled all 
     applicable individuals to the greater of--
       ``(i) the benefits to which they would have been entitled 
     without regard to such amendment, or
       ``(ii) the benefits under the plan with regard to such 
     amendment.
       ``(B) Egregious failure.--For purposes of subparagraph (A), 
     there is an egregious failure to meet the requirements of 
     this subsection if such failure is--
       ``(i) an intentional failure (including any failure to 
     promptly provide the required notice or information after the 
     plan administrator discovers an unintentional failure to meet 
     the requirements of this subsection),
       ``(ii) a failure to provide most of the individuals with 
     most of the information they are entitled to receive under 
     this subsection, or
       ``(iii) a failure which is determined to be egregious under 
     regulations prescribed by the Secretary of the Treasury.
       ``(B) Excise tax.--For excise tax on failure to meet 
     requirements, see section 4980F of the Internal Revenue Code 
     of 1986.
       ``(6) Special rules.--
       ``(A) Plain language.--The notice required under paragraph 
     (1) shall be written in a manner calculated to be understood 
     by the average plan participant who is an applicable 
     individual.
       ``(B) Notice to designees.--The notice and information 
     required to be provided under this subsection may be provided 
     to a person designated, in writing, by the person to which it 
     would otherwise be provided.
       ``(7) Alternative methods of compliance with enhanced 
     disclosure requirements in certain cases.--The Secretary of 
     the Treasury shall prescribe such regulations as may be 
     necessary to carry out this subsection. The Secretary of the 
     Treasury may--
       ``(A) prescribe alternative or simplified methods of 
     complying with paragraphs (3) and (4) in situations where--
       ``(i) there is no fundamental change in the manner in which 
     the accrued benefit of an applicable individual is determined 
     under the plan, and
       ``(ii) such other methods are adequate to reasonably inform 
     plan participants who are applicable individuals of the 
     impact of the reductions,
       ``(B) reduce the advance notice period in paragraph (1)(A) 
     from 45 days to 15 days before the effective date of the 
     amendment for cases in which compliance with the 45-day 
     advance notice requirement would be unduly burdensome because 
     the amendment is contingent on a merger, acquisition, 
     disposition, or other similar transaction involving plan 
     participants who are applicable individuals or because 45 
     days advance notice is otherwise impracticable,
       ``(C) permit the comparison of benefits under paragraph 
     (3)(B)(i) to be based on a form of payment other than a life 
     annuity, or
       ``(D) specify actuarial assumptions that are deemed to be 
     reasonable for purposes of the benefit comparisons under 
     paragraph (3)(B)(i).
       ``(8) Applicable individual.--For purposes of this 
     subsection, the term `applicable individual' means, with 
     respect to any plan amendment--
       ``(A) each participant in the plan, and
       ``(B) each beneficiary who is an alternate payee (within 
     the meaning of section 206(d)(3)(K)) under a qualified 
     domestic relations order (within the meaning of section 
     206(d)(3)(B)(i)),

     whose future benefit accruals under the plan may reasonably 
     be expected to be reduced by such plan amendment.
       ``(9) Terms relating to plans.--For purposes of this 
     subsection--
       ``(A) Applicable pension plan.--The term `applicable 
     pension plan' means--
       ``(i) a defined benefit plan, or
       ``(ii) an individual account plan which is subject to the 
     funding standards of section 302.
       ``(B) Large applicable pension plan.--The term `large 
     applicable pension plan' means an applicable pension plan 
     which had 100 or more active participants as of the last day 
     of the plan year preceding the plan year in which the plan 
     amendment becomes effective.''
       (b) Individual Statements.--Section 105 of the Employee 
     Retirement Income Security Act of 1974 (29 U.S.C. 1025) is 
     amended by adding at the end the following new subsection:
       ``(e)(1) The plan administrator of a large applicable 
     pension plan shall furnish an individual statement described 
     in paragraph (2) to each individual--
       ``(A) who receives, or is entitled to receive, under 
     section 204(h) the information described in paragraph (3) 
     thereof from such administrator, and
       ``(B) who requests in writing such a statement from such 
     administrator.
       ``(2) The statement described in this paragraph is a 
     statement which provides information which is substantially 
     the same as the information in the illustrative examples

[[Page S12237]]

     described in section 204(h)(3)(B) but which is based on data 
     specific to the requesting individual and, if the individual 
     so requests, information as of 1 other future date not 
     included in such examples.
       ``(3) Paragraph (1) shall apply only to requests made 
     during the 12-month period that begins on the later of the 
     effective date of the amendment to which it relates or the 
     date the notice described in section 204(h)(2) is provided. 
     In no case shall an individual be entitled under this 
     subsection to receive more than one such statement with 
     respect to an amendment.
       ``(4) Notwithstanding section 502(c)(1), the statement 
     required by paragraph (1) shall be treated as timely 
     furnished if furnished on or before--
       ``(A) the date which is 90 days after the effective date of 
     the plan amendment to which is relates, or
       ``(B) such later date as may be permitted by the Secretary 
     of Labor.
       ``(5) Any term used in this subsection which is used in 
     section 204(h) shall have the meaning given such term by such 
     section.
       ``(6) A statement under this subsection shall not be taken 
     into account for purposes of subsection (b).''

     SEC. 3. EXCISE TAX ON FAILURE TO PROVIDE NOTICE BY DEFINED 
                   BENEFIT PLANS SIGNIFICANTLY REDUCING FUTURE 
                   BENEFIT ACCRUALS.

       (a) In General.--Chapter 43 of the Internal Revenue Code of 
     1986 (relating to qualified pension, etc., plans) is amended 
     by adding at the end the following new section:

     ``SEC. 4980F. FAILURE OF DEFINED BENEFIT PLANS REDUCING 
                   BENEFIT ACCRUALS TO SATISFY NOTICE 
                   REQUIREMENTS.

       ``(a) Imposition of Tax.--There is hereby imposed a tax on 
     the failure of a plan administrator of an applicable pension 
     plan to meet the requirements of subsection (e) with respect 
     to any applicable individual.
       ``(b) Amount of Tax.--
       ``(1) In general.--The amount of the tax imposed by 
     subsection (a) on any failure with respect to any applicable 
     individual shall be $100 for each day in the noncompliance 
     period with respect to such failure.
       ``(2) Noncompliance period.--For purposes of this section, 
     the term `noncompliance period' means, with respect to any 
     failure, the period beginning on the date the failure first 
     occurs and ending on the date the failure is corrected.
       ``(c) Limitations on Amount of Tax.--
       ``(1) Overall limitation for unintentional failures.--
       ``(A) In general.--In the case of failures that are due to 
     reasonable cause and not to willful neglect, the tax imposed 
     by subsection (a) for failures during the taxable year of the 
     employer (or, in the case of a multiemployer plan, the 
     taxable year of the trust forming part of the plan) shall not 
     exceed $500,000 ($1,000,000 in the case of a large applicable 
     pension plan).
       ``(B) Taxable years in the case of certain controlled 
     groups.--For purposes of this paragraph, if all persons who 
     are treated as a single employer for purposes of this section 
     do not have the same taxable year, the taxable years taken 
     into account shall be determined under principles similar to 
     the principles of section 1561.
       ``(2) Waiver by secretary.--In the case of a failure which 
     is due to reasonable cause and not to willful neglect, the 
     Secretary may waive part or all of the tax imposed by 
     subsection (a) to the extent that the payment of such tax 
     would be excessive relative to the failure involved.
       ``(d) Liability for Tax.--The following shall be liable for 
     the tax imposed by subsection (a):
       ``(1) In the case of a plan other than a multiemployer 
     plan, the employer.
       ``(2) In the case of a multiemployer plan, the plan.
       ``(e) Notice Requirements for Pension Plan Amendments 
     Reducing Accruals.--
       ``(1) In general.--If an applicable pension plan is amended 
     so as to provide for a significant reduction in the rate of 
     future benefit accrual of 1 or more applicable individuals, 
     the plan administrator shall--
       ``(A) not later than the 45th day before the effective date 
     of the amendment, provide the written notice described in 
     paragraph (2) to each applicable individual (and to each 
     employee organization (as defined in section 3(4) of the 
     Employee Retirement Income Security Act of 1974) representing 
     applicable individuals), and
       ``(B) in the case of a large applicable pension plan--
       ``(i) include in the notice under paragraph (2) the 
     additional information described in paragraph (3), and
       ``(ii) make available the information described in 
     paragraph (4) in accordance with such paragraph.
       ``(2) Basic written notice.--The notice under paragraph (1) 
     shall include a summary of the important terms of the 
     amendment, including--
       ``(A) the effective date of the amendment,
       ``(B) a statement that the amendment is expected to 
     significantly reduce the rate of future benefit accrual,
       ``(C) a description of the classes of applicable 
     individuals to whom the amendment applies, and
       ``(D) a description of how the amendment significantly 
     reduces the rate of future benefit accrual.
       ``(3) Additional information to be provided by large 
     applicable pension plans.--
       ``(A) In general.--The information described in this 
     paragraph is--
       ``(i) a description of the plan's benefit formulas 
     (including formulas for determining early retirement 
     benefits) both before and after the amendment and an 
     explanation of the effect of the different formulas on 
     applicable individuals,
       ``(ii) an explanation of the circumstances (if any) under 
     which (for appropriate categories of applicable individuals) 
     the amendment is reasonably expected to result in a temporary 
     period after the effective date of the amendment during which 
     there are no or minimal accruals,
       ``(iii) illustrative examples of normal or early retirement 
     benefits meeting the requirements of subparagraph (B), and
       ``(iv) notice of each applicable individual's right to 
     request, and of the procedures for requesting, the 
     information required to be provided under paragraph (4) and 
     under section 105(e) of Employee Retirement Income Security 
     Act of 1974.
       ``(B) Illustrative examples.--Illustrative examples meet 
     the requirements of this subparagraph if such examples 
     illustrate the adverse effects of the plan amendment. Such 
     examples shall be prepared by the plan administrator in 
     accordance with regulations prescribed by the Secretary, and 
     such regulations shall require that the examples--
       ``(i) reflect fairly the different categories of applicable 
     individuals who are similarly affected by the plan amendment 
     after consideration of all relevant factors,
       ``(ii) show a comparison of benefits for each such category 
     of applicable individuals under the plan (as in effect before 
     and after the effective date) at appropriate future dates, 
     and
       ``(iii) illustrate any temporary period described in 
     subparagraph (A)(ii).

     Such comparison shall be based on benefits in the form of a 
     life annuity and on actuarial assumptions each of which is 
     reasonable (and is so certified by an enrolled actuary) when 
     applied to all participants in the plan.
       ``(4) Supporting information relating to calculation of 
     benefits.--
       ``(A) In general.--Each individual who receives or who is 
     entitled to receive the information described in paragraph 
     (3) may (after so receiving or becoming so entitled) request 
     the plan administrator to provide the information described 
     in subparagraph (B).
       ``(B) Information.--The plan administrator shall, within 15 
     days after the date on which a request under subparagraph (A) 
     is made, provide to the individual information (including 
     benefit formulas and actuarial factors) which is sufficient--
       ``(i) to confirm the benefit comparisons in the 
     illustrative examples described in paragraph (3)(B), and
       ``(ii) to enable the individual to use the individual's own 
     personal information to make calculations of the individual's 
     own benefits which are similar to the calculations made in 
     such examples.

     Nothing in this subsection shall be construed to require the 
     plan administrator to provide to an individual such 
     individual's personal information for purposes of clause 
     (ii).
       ``(C) Time limitation on requests.--This paragraph shall 
     apply only to requests made during the 12-month period that 
     begins on the later of the effective date of the amendment to 
     which it relates or the date the notice described in 
     paragraph (2) is provided.
       ``(5) Special rules.--
       ``(A) Plain language.--The notice required under paragraph 
     (1) shall be written in a manner calculated to be understood 
     by the average plan participant who is an applicable 
     individual.
       ``(B) Notice to designees.--The notice or information 
     required to be provided under this subsection may be provided 
     to a person designated, in writing, by the person to which it 
     would otherwise be provided.
       ``(6) Alternative methods of compliance with enhanced 
     disclosure requirements in certain cases.--The Secretary 
     shall prescribe such regulations as may be necessary to carry 
     out this subsection. The Secretary may--
       ``(A) prescribe alternative or simplified methods of 
     complying with paragraphs (3) and (4) in situations where--
       ``(i) there is no fundamental change in the manner in which 
     the accrued benefit of an applicable individual is determined 
     under the plan, and
       ``(ii) such other methods are adequate to reasonably inform 
     plan participants who are applicable individuals of the 
     impact of the reductions,
       ``(B) reduce the advance notice period in paragraph (1)(A) 
     from 45 days to 15 days before the effective date of the 
     amendment for cases in which compliance with the 45-day 
     advance notice requirement would be unduly burdensome because 
     the amendment is contingent on a merger, acquisition, 
     disposition, or other similar transaction involving plan 
     participants who are applicable individuals or because 45 
     days advance notice is otherwise impracticable,
       ``(C) permit the comparison of benefits under paragraph 
     (3)(B)(i) to be based on a form of payment other than a life 
     annuity, or
       ``(D) specify actuarial assumptions that are deemed to be 
     reasonable for purposes of the benefit comparisons under 
     paragraph (3)(B)(i).
       ``(7) Applicable individual.--For purposes of this 
     subsection, the term `applicable individual' means, with 
     respect to any plan amendment--
       ``(A) each participant in the plan, and

[[Page S12238]]

       ``(B) each beneficiary who is an alternate payee (within 
     the meaning of section 414(p)(8)) under a qualified domestic 
     relations order (within the meaning of section 414(p)(1)),

     whose future benefit accruals under the plan may reasonably 
     be expected to be reduced by such plan amendment.
       ``(8) Terms relating to plans.--For purposes of this 
     subsection--
       ``(A) Applicable pension plan.--The term `applicable 
     pension plan' means--
       ``(i) a defined benefit plan, or
       ``(ii) an individual account plan which is subject to the 
     funding standards of section 412.

     Such term shall not include any governmental plan (within the 
     meaning of section 414(d)) or any church plan (within the 
     meaning of section 414(e)) with respect to which the election 
     provided by section 410(d) has not been made.
       ``(B) Large applicable pension plan.--The term `large 
     applicable pension plan' means an applicable pension plan 
     which had 100 or more active participants as of the last day 
     of the plan year preceding the plan year in which the plan 
     amendment becomes effective.''
       (b) Conforming Amendment.--The table of sections for 
     chapter 43 of such Code is amended by adding at the end the 
     following new item:

``Sec. 4980F. Failure of defined benefit plans reducing benefit 
              accruals to satisfy notice requirements.''

     SEC. 4. EFFECTIVE DATES.

       (a) In General.--The amendments made by this Act shall 
     apply to plan amendments taking effect after the date of the 
     enactment of this Act.
       (b) Special Rules.--
       (1) In general.--The amendments made by this Act shall not 
     apply to any plan amendment for which there was written 
     notice before July 12, 1999, which was reasonably expected to 
     notify substantially all of the plan participants or their 
     representatives.
       (2) Transition.--Until such time as the Secretary of the 
     Treasury issues regulations under sections 4980F(e)(3) and 
     (4) of the Internal Revenue Code of 1986 and section 
     204(h)(3) and (4) of the Employee Retirement Income Security 
     Act of 1974 (as added by the amendments made by this 
     section), a plan shall be treated as meeting the requirements 
     of such sections if it makes a good faith effort to comply 
     with such requirements.
       (3) Notice and information not required to be furnished 
     before 120th day after enactment.--The period for providing 
     any notice or information required by the amendments made by 
     this section shall not end before the date which is 120 days 
     after the date of the enactment of this Act.
                                  ____


              The Pension Reduction Disclosure Act of 1999

       Present Law.--Under present law, when an employer amends a 
     defined benefit pension plan in a manner which significantly 
     reduces the rate of future benefit accrual, the employer must 
     provide participants with an advance written notice of the 
     amendment. The law does not, however, require employers to 
     disclose the effect the amendment will have on participants.


     summary of provisions of the pension reduction disclosure act

       Notice Requirements for Pension Plan Amendments Reducing 
     Future Benefit Accruals.--At least 45 days before the 
     effective date of a pension plan amendment that reduces the 
     rate of future benefit accruals, employees adversely affected 
     by the amendment must receive notice of a reduction, as 
     described below.
       Basic Notice.--Pension plans with fewer than 100 
     participants must provide a basic written notice including: 
     the effective date of the amendment; a statement that the 
     amendment is expected to significantly reduce the rate of 
     future benefit accrual; a description of the classes of 
     applicable individuals to whom the amendment applies; and a 
     description of how the amendment significantly reduces the 
     rate of future benefit accrual.
       Enhanced Notice.--Pension plans with 100 or more 
     participants must provide the following information in 
     addition to the basic written notice.
       A description of the plan's benefit formulas before and 
     after the amendments, and an explanation of the effects of 
     the different formulas on participants;
       An explanation of the circumstances under which any 
     ``wearaway'' or other temporary suspension of benefit 
     accruals may occur;
       Illustrative examples showing the adverse effects of the 
     plan amendment by comparing expected benefit accruals for 
     various categories of participants (e.g., participants of 
     similar age and years of service) under the old and new 
     versions of the plan.
       Alternative methods of compliance with enhanced notice in 
     certain cases. The Secretary of the Treasury may prescribe 
     alternative or simplified methods of compliance with the 
     enhanced notice requirements in situations where there is no 
     fundamental change in the manner in which benefits are 
     determined (e.g., where the benefit formula is reduced from 
     1.25 percent of compensation to 1.0 percent of compensation). 
     The Secretary may also reduce the advance notice period from 
     45 days to 15 days for cases in which compliance with the 45-
     day requirement would be unduly burdensome because the 
     amendment is contingent on a merger, acquisition, 
     disposition, or other similar transaction or because 45 days 
     advance notice is otherwise impracticable.
       In the case of plans with 100 or more participants, the 
     plan must provide adversely-affected participants, within 15 
     days of request, the specific benefit formulas and actuarial 
     factors used in the preparation of the illustrative examples. 
     The information must be sufficient to confirm the benefit 
     comparisons provided in the illustrative examples and to 
     enable participants to make calculations of their own 
     benefits under the old and new versions of the plan that are 
     similar to the calculations made in the examples.
       Individual Benefit Statements.--In the case of plans with 
     100 or more participants, an adversely-affected participant 
     may request and receive an individual benefit statement 
     providing information which is substantially the same as the 
     information in the illustrative examples described above, but 
     which is based on data specific to the requesting individual. 
     If the individual so requests, the individual statement must 
     reflect one other future date not included in the examples. 
     As with current law regarding accrued benefit calculations, 
     individual statements must be provided within 30 days of 
     request. The earliest required date for providing individual 
     statements shall be 90 days after the amendment effective 
     date.


                      sanctions for noncompliance

       Egregious Failure to Supply Notice.--Employers failing to 
     provide most of the required notice information to most 
     affected participants, or intentionally failing to provide 
     notice information to any affected participant, shall provide 
     the greater of the benefits available under the old and new 
     versions of the plan and shall also be subject to an excise 
     tax of $100 per day for every day of the noncompliance 
     period.
       Nonegregious Failure to Supply Notice.--Employers failing 
     to provide the required notice information, but not in the 
     egregious manner described above, shall be subject to an 
     excise tax of $100 per day for every day of the noncompliance 
     period.
       Maximum Excise Tax Where Failure Due to Reasonable Cause.--
     In a case where the failure was due to reasonable cause and 
     not willful neglect, the excise tax is limited to $1 million 
     for plans with 100 or more participants and $500,000 for 
     plans with fewer than 100 participants.

 Mr. JEFFORDS. Mr. President, I am pleased to join Senators 
Moynihan, Leahy, Robb, Kerrey, Rockefeller and Grams of Minnesota in 
the introduction of the Pension Reduction Disclosure Act. This bill 
greatly expands current law and will provide improved disclosure of the 
impact of the conversion of a traditional defined benefit pension plan 
to a cash balance or other hybrid pension plan. We believe that current 
law protections are insufficient to protect the interests of plan 
participants. The Pension Reduction Disclosure Act is an important 
first step in improving worker pension protections. I am also pleased 
that the President supports this bill.
  Appropriate disclosure for cash balance pension plans is a serious 
public policy issue affecting the retirement benefits of millions of 
Americans. At a minimum, employees should have meaningful notice when 
their employer plans to reduce pension benefits in the switch from a 
traditional to a cash balance plan.
  This bill does that.
  First, employers have not always been candid with employees about 
what the changes in pension plans will mean for the employee's 
retirement. Our bill will require that they spell it out in black and 
white, and do so in language that anyone who is not an actuary or tax 
attorney can understand.
  Second, plan sponsors will have to provide this information in a 
timely manner, so that employees can engage their employer and seek 
changes if they choose to do so. As we have seen at IBM and elsewhere, 
companies can misjudge the impact of these changes on their workforce.
  Third, plan sponsors will be required to provide their employees with 
specifics about the effect that the change will have on their 
retirement benefits so that individuals can understand the financial 
impact that the conversion will have on their pension. Once we pass 
this bill, my guess is that employers will think long and hard about 
what changes they want to make to their pension plans.
  Long-serving, loyal employees should not wake up to find their 
pension benefits slashed without even the chance to confront their 
employer. We can't expect people to save for retirement if the sand is 
forever shifting under their feet.
  This bill addresses but one part of the conversion issue. But I think 
it deserves widespread bipartisan support. I believe that there are 
more issues at stake for workers, such as my own concerns regarding the 
pension benefit

[[Page S12239]]

``wear away''. However, the Pension Reduction Disclosure Act is a good 
first step we ought to take to address the legitimate concerns that 
have been raised about these plans.
  We don't have a lot of time, but I hope we can send this bill to the 
President for his signature before we adjourn this fall.
  Mr. LEAHY. Mr. President, I am pleased to join Senator Moynihan and 
Senator Jeffords as a cosponsor of the Pension Reduction Disclosure Act 
of 1999. I believe this bill is a good first step to providing American 
workers with the information they deserve to know about changes to 
their pensions. President Clinton has endorsed our legislation and is 
ready to sign it into law.
  As the controversy surrounding IBM's decision to convert its 
traditional pension plan to a cash balance plan taught many Vermonters, 
Congress needs to revise our laws to require greater disclosure of 
pension changes. When IBM first announced its pension switch, many 
Vermont IBMers told me that they did not have enough information to 
judge the new plan's impact on their pensions. They discovered that 
current Federal law does not even require an employer to explain to its 
employees how any future pension benefits will be reduced. This is not 
right.
  Unfortunately, Vermont IBMers are not alone. At least 325 companies, 
with more than $330 billion in pension-defined benefit assets, have 
adopted cash-balance plans in recent years. This phenomenon is the 
biggest development in the pension world in years. But, as we all know 
now thanks to the tireless efforts of IBMers in Vermont and elsewhere, 
there is a dark side to this corporate trend: the fact that many 
experienced workers face deep cuts in their promised pensions when 
their company switches to a cash-balance plan.
  The Pension Reduction Disclosure Act would require all employers, 
regardless of the size of their pension plan, to notify their employees 
of pension plan changes that would reduce the future benefit accrual 
rate at least 45 days in advance of the change. In addition, this 
legislation would require employers to explain any differences in 
future accrual rates between the old and new plan in a clear and 
meaningful fashion, by providing employees with detailed examples 
showing the difference between the old and new plans.
  This bill complements the Pension Right to Know Act, which Senator 
Moynihan and I introduced earlier in the year. Our earlier bill would 
require employers to provide employees with individualized comparisons 
of future benefits under the old and new plans 15 days prior to the 
conversion for pension plans covering 1000 or more employees. Our 
legislation today also complements the Older Workers Pension Protection 
Act, S. 1600, which Senator Harkin, Senator Jeffords and I introduced 
last month to prevent the wear away of an employee's promised pension 
benefits after a cash balance plan conversion.
  Now is the time for Congress to act to ensure that all employers 
fully disclose the negative effects of their pension plan changes. 
Employees have a right to know how their futures will be affected by a 
company's decision to change its pension plan.
                                 ______