[Congressional Record Volume 148, Number 9 (Thursday, February 7, 2002)]
[Senate]
[Pages S491-S492]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. WELLSTONE:
  S. 1919. A bill to amend the Employee Retirement Income Security Act 
of 1974 to provide for improved disclosure, diversification, account 
access, and accountability under individual account plans; to the 
Committee on Health, Education, Labor, and Pensions.
  Mr. WELLSTONE. Mr. President, I rise today to introduce an extremely 
important bill, the Retirement Security Protection Act of 2002. I urge 
my colleagues to join me in pressing for its swift consideration.
  As the Enron debacle continues to unfold, it exposes serious gaps in 
the framework of protections to shield Americans from corporate excess 
and irresponsibility. Perhaps nowhere is our vulnerability more 
apparent than in the area of retirement security.
  As thousands of Enron employees saw much of their life savings 
vanish, the company's top executives walked off with fortunes for 
retirement locked in. Enron spent over $1 million to insure that Ken 
Lay would receive $440,000 in annual retirement income while 
simultaneously encouraging employees to risk their own retirement 
security by loading up on excessive amounts of soon-to-be worthless 
stock.
  Unfortunately, some of the Enron circumstances are by no means 
unique. Similar disparities between rank-and-file employee and 
executive retirement security have become increasingly common in 
corporate America. Similarly disastrous outcomes for employees' 
retirement security have occurred at other companies, such as Lucent 
and Polaroid.
  We must take steps now to address these fundamental inequities.
  Nearly eight decades ago, the Federal Government established a 
compact with all Americans to provide a basic level of security in 
their retirement years. Social security became and still is the 
essential cornerstone of the American promise of retirement security. 
We must do everything in our power to protect the dignity of social 
security for older Americans.
  In the 1970s, we recognized the need to protect what was then 
becoming a second lynchpin of retirement security: employer-provided 
pension plans, or so-called ``defined benefit'' plans. In ERISA, the 
Employee Retirement Income Security Act, we took steps to protect the 
security of such plans. We created a system for insuring them against 
loss, and we put into place portfolio diversification rules to help 
assure their solvency. No more than 10 percent of assets in a defined 
benefit plan, that is, in a traditional pension plan, may be held in 
the employer's company stock.
  The Federal Government has not thus far taken steps to provide 
similar protections with respect to other retirement savings accounts, 
for example, 401(k) plans. This is because, until relatively recently, 
such plans were much fewer in number, and they had largely been viewed 
as a supplement to workers' social security and defined benefit plans.
  The world of retirement security has changed, however, and it is 
still changing. Now, traditional defined benefit, or pension, plans 
have essentially given way to defined contribution plans, such as 
401(k)s, as the primary retirement security vehicle after social 
security. These new plans have been popular with mobile younger 
workers, and a boon to employers who have enjoyed substantial cash and 
administrative savings by switching out of their traditional pension 
plans and into these new ones.
  In 1984, there were 30 million defined benefit participants and 7.5 
million participants in 401(k) plans. By 2001, this relationship was 
reversed, with just 20 million defined benefit participants and an 
estimated 42 million 401(k) participants. In a 1998 survey, 57 percent 
of U.S. households said that the only pension plan available to them 
was a 401(k) plan. That percentage undoubtedly has increased since 
then.
  Meanwhile, measures to ensure the integrity of these 401(k) plans 
have not kept pace with their proliferation and importance. Such plans 
clearly carry considerable risks for the retirement security of 
millions of Americans, as the Enron and other situations have 
demonstrated. Unfortunately, the potential for additional disasters 
remains high. Recent reports indicate some 20 major corporations at 
which the 401(k) plan is more than 60 percent invested in company 
stock.
  When the 401(k) portfolios of employees are overinvested in their 
company's stock and that company's stock crashes, the individual losses 
suffered by workers and retirees who see their entire retirement 
savings obliterated are only a piece of the story. The human and 
capital costs to society of such failures are multiplied many times 
over. Family members who themselves may be struggling will find that 
they are forced to pitch in to help their loved ones. Retirees will be 
forced to spend many additional years in the workplace to recover even 
a portion of what they lost. Individuals without family or savings to 
see them through will turn to government for support.
  It's important to remember that these retirement plans come with a 
heavy price tag for taxpayers. Under current law, pension plans that 
meet certain standards net considerable tax advantages for both the 
companies that sponsor them and the individuals who participate in 
them. These provisions cost the government an estimated $100 billion 
per year in foregone revenue. In my view, that is money well invested. 
But we do our best to ensure that we are reaching our actual policy 
goal.
  The primary policy rationale for tax favored treatment of these plans 
today is that they promote retirement security for millions of 
Americans. There is hardly a more important policy goal. But while 
traditional pension plans are carefully regulated to manage the level 
of risk involved while promoting that goal, 401(k) and similar plans 
currently offer no such protections. Our support for 401(k)s is not 
matched by adequate disclosure, portfolio diversification and 
accountability measures. The huge risks of individual overexposure to 
company stock have been demonstrated in no uncertain terms, yet the 
danger continues with no appropriate government response, despite the 
major public investment.
  That is the reason that I am introducing the Retirement Security 
Protection Act of 2002. The legislation is designed to maximize the 
flexibility and benefits that retirement savings plans provide for both 
employers and employees, while minimizing the risk of future Enrons.
  First, my proposal seeks to improve the flow of information between 
plan sponsors and participants, particularly for those plans with 
significant employer stock holdings.
  Second, I am proposing that employers take steps to safeguard their 
employees' retirement by providing them and the government with an 
estimate of the extent to which their retirement is dependent on 
employer stock and property. Employers will be required to reduce that 
level of dependency across all retirement plans to 20 percent by the 
year 2008. Companies that sufficiently limit the amount of employer 
stock in their plans as a whole are deemed to meet the 20 percent 
standard.
  While my plan uses the same, 20-percent diversification target as 
other proposals, it also encourages and rewards employers who sponsor 
traditional pension plans by allowing them to maintain higher levels of 
company stock in their defined contribution 401(k) plans. It also seeks 
to spur innovation by permitting employers to obtain a waiver from the 
Department of

[[Page S492]]

Labor for alternative approaches that manage the risk associated with 
defined contribution plans.
  Finally, I propose broadening the liability for plan losses resulting 
from illegal behavior and improving the remedies available to those who 
have been hurt by such behavior.
  Our compact with American working families is meant to assure them 
the kind of security in their retirement years they have worked so hard 
to achieve. I urge my colleagues to join me in this urgent quest.
  I ask unanimous consent that a summary of the bill be printed in the 
Record.
  There being no objection, the summary was ordered to be printed in 
the Record, as follows:

               Retirement Security Protection Act of 2002

       The Retirement Security Protection Act of 2002 protects 
     employees' retirement security with respect to their 401(k) 
     retirement plans through (1) improved disclosure 
     requirements, (2) new rules to promote plan diversification, 
     and (3) tougher accountability rules.


                      Full and Accurate Disclosure

       1. Annual plan statements: Defined contribution plans would 
     be required to provide annual statements highlighting the 
     percentage of assets in company stock and any restrictions on 
     the sale of that stock and that stress the importance of 
     account diversification for long-term retirement security.
       2. Duty to provide full and accurate information: Plan 
     sponsors and administrators have explicit duty to provide all 
     material investment information to plan participants and 
     beneficiaries.
       3. Fines for false disclosures: Secretary of Labor can fine 
     employers and/or plan administrators up to $1,000 per day for 
     making misleading statements or omitting material information 
     about the value of employer stock or other investment 
     options.


           Improved Diversification and Account Access Rights

       1. Employer responsibility for portfolio diversification or 
     alternative arrangements for risk management: By December 31, 
     2007, employers are responsible for achieving diversification 
     across employees' entire tax qualified retirement portfolios 
     (i.e. defined benefit and defined contribution plans) so that 
     no more than 20% of the employee's total benefits are 
     dependent on company stock. This allows employers sponsoring 
     defined benefit plans to maintain higher levels of company 
     stock in defined contribution plans. Employers will have 
     maximum flexibility in how such diversification is achieved 
     AND the opportunity to obtain a waiver from the Department of 
     Labor for alternative approaches that manage the risk 
     associated with defined contribution plans. Companies that 
     sufficiently limit the amount of employer stock in their 
     plans as a whole are deemed to meet the 20% standard. ESOPs 
     of privately held companies and ESOPs that own more than 50% 
     of the employer are exempt and the Department of Labor is 
     directed to recommend special rules for pure, employer-funded 
     ESOPs.
       2. Ban on employer restraints: Overturns existing rules 
     permitting employers to require employees to invest up to 10% 
     of employee contributions in employer stock.
       3. Faster diversification rights: For publicly-traded 
     companies, permits any participant who has been with company 
     for more than 1 year--regardless of vesting status--to 
     transfer employer stock contributions to other funds. 
     (Maintains the current 10-years participation requirement for 
     employer contributions to ESOPs). The Department of Labor is 
     directed to make recommendations on the application of 
     diversification rights to non-publicly traded company stock 
     within retirement plans.
       4. Lockdown protections for plans with company stock: 
     Requires 30 days advance written notice of plan 
     ``lockdowns'', limits such events to 10 business days, and 
     directs the Secretary of Labor to prescribe regulations to 
     provide for exemptions in case of genuine emergency. Company 
     executives cannot sell company stock during a lockdown 
     period. Plan fiduciaries are liable for violations of their 
     fiduciary duty that result in plan or participant losses 
     during a lockdown.


                        Stronger Accountability

       1. Expanded remedies: Expands the liability for breach of 
     fiduciary duty to knowing participants in the breach (e.g 
     Arthur Andersen in the Enron case) and stipulates that both 
     the plan and the individual participants have the right to be 
     made whole in court, including receipt of compensatory 
     damages.
       2. Fiduciary insurance: Requires all defined contribution 
     fiduciaries to maintain sufficient insurance or bonding to 
     cover financial losses resulting from breach of fiduciary 
     duty.
       3. Employee oversight: Requires employers that offer 
     defined contribution pension plans to appoint an equal number 
     of employer and employee trustees to oversee such plans.
       4. No employer coercion. Makes it illegal for employers to 
     require employees to waive their statutory pensions rights as 
     part of any employment-related agreement (such as a 
     termination or severance package).
       5. Auditor independence: Bars company auditors from also 
     auditing the pension plans.
       6. Whistleblower protections. Expands legal protections for 
     pension plan whistleblowers by extending existing protections 
     to persons other than participants or beneficiaries, 
     increasing the burden of proof on employers to explain their 
     actions, and expanding relief available for violations of 
     whistleblower protections.
       7. Insurance feasibility study: Directs the PBGC to study 
     and report to Congress on insurance options for defined 
     contribution plans.
       8. Labor Department assistance: The Department of Labor 
     shall establish an office of the Participant Advocate to 
     monitor potential abuses of employee pension plan rights and 
     assist plan participants in preventing and resolving abuses.
                                 ______