[Congressional Record Volume 150, Number 6 (Tuesday, January 27, 2004)]
[Senate]
[Pages S266-S270]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
PENSION FUNDING EQUITY ACT OF 2003
The ACTING PRESIDENT pro tempore. Under the previous order, the
Senate will resume consideration of H.R. 3108, which the clerk will
report.
The assistant legislative clerk read as follows:
A bill (H.R. 3108) to amend the Employee Retirement Income
Security Act of 1974 and the Internal Revenue Code of 1986 to
temporarily replace the 30-year Treasury rate with a rate
based on long-term corporate bonds for certain pension plan
funding requirements and other provisions, and for other
purposes.
Pending:
Grassley amendment No. 2233, of a perfecting nature.
Kyl amendment No. 2234 (to amendment No. 2233), to limit
the liability of the Pension Benefit Guaranty Corporation
with respect to a plan for which a reduced deficit
contribution is elected.
Kyl amendment No. 2236 (to amendment No. 2233), to restrict
an employer that elected an alternative deficit reduction
contribution from applying for a funding waiver.
The ACTING PRESIDENT pro tempore. Under the previous order, the time
between now and 12:30 p.m. shall be equally divided between the bill
managers or their designees.
The Senator from Arizona.
Mr. McCAIN. Mr. President, a series of high profile events, including
the Iowa caucuses, the State of the Union Address, the passage of a
massive Omnibus appropriations bill, and today's primary in New
Hampshire have overshadowed our consideration of this measure, and that
is regrettable.
The pension bill that is almost sure to pass this Chamber is folly.
The amendment offered by Senators Grassley, Baucus, Gregg, and Kennedy,
while addressing the short-term interests of a handful of special
interests, could further exacerbate a severe pension underfunding
problem. I might say this measure is recognized as such by the
administration.
[[Page S267]]
As an editorial in yesterday's Washington Post noted:
Not for the first time, Congress has muscled up to an
important problem, taken a good look at it and resolved to
make it worse.
I ask unanimous consent that the editorial of Monday, January 26,
entitled ``Pension Perniciousness'' be printed in the Record.
There being no objection, the material was ordered to be printed in
the Record, as follows:
[From the Washington Post, Jan. 26, 2004]
Pension Perniciousness
Not for the first time, Congress has muscled up to an
imported problem, taken a good long look at it and resolved
to make it worse. The problem is the vast hole in the
nation's corporate pension schemes, and the perverse rules
that helped create them. Congress's solution, championed in
the Senate by an alliance of Sens. Charles E. Grassley (R-
Iowa), Judd Gregg (R-N.H.), Max Baucus (D-Mont.) and Edward
M. Kennedy (D-Mass.), is to reward the hole-diggers with what
amounts to a $16 billion loan from taxpayers.
About one in five private-sector workers has a ``defined-
benefit'' pension, the sort in which an employer guarantees a
certain pension to its workers when they retire. To pay for
these future benefits, employers are supposed to put
sufficient money into a pension fund; the problem is they
often don't. The gap between money put aside and money needed
in the underfunded pension plans comes to an enormous $350
billion. When companies go bust, the Pension Benefit Guaranty
Corp., the government-backed entity that insures pensions,
gets saddled with plans that are in deficit. As a result, the
PBGC itself has a deficit of 11.2 billion, which taxpayers
may have to plug eventually. As more companies go bust, more
of the $350 billion problem out there in the private sector
will land on taxpayers' shoulders.
Why do companies run these pension deficits? Because
regulations perversely encourage them to do so. If a firm
gives workers a pay raise, it will have to pay for that
immediately; if it gives them an increase in their pension,
accounting rules allow it to defer the cost into the future.
This deferral is especially tempting for cash-strapped
companies--which often means ones with a strong chance of
going bust. Bethlehem Steel, for example, upped its pension
promises and declared bankruptcy three years later. Wobbly
companies that underfund their pensions would pay extra
insurance premiums if the insurer were a private company. But
the PBGC's rules do not allow it to price risk properly,
adding a further incentive for shaky companies to hitch a
free ride with the others.
There is, as Congress is demonstrating, no political
constituency for fixing this problem. Weak companies with
underfunded pensions lobby lawmakers for permission to
continue their imprudence; labor leaders from those same
firms lobby lawmakers in the same direction; nobody is on the
other side. In the deal currently being cooked up, a group of
hard-pressed companies led by the steel industry and the
airlines will be given a special break for two years; if any
of these firms goes bust in the meantime, the public will end
up shouldering the deficits, which is why the congressional
measure amounts to a taxpayer loan.
Yet taxpayer support for people in defined-benefit pension
plans is a perverse notion. Fully one in two private-sector
workers has no company plan whatever. Why should the less
fortunate bail out the lucky ones?
Mr. McCAIN. Mr. President, the editorial goes on to say:
There is, as Congress is demonstrating, no political
constituency for fixing this problem. Weak companies with
underfunded pensions lobby lawmakers for permission to
continue their imprudence; labor leaders from those same
firms lobby lawmakers in the same direction; nobody is on the
other side. In the deal currently being cooked up, a group of
hard-pressed companies led by the steel industry and the
airlines will be given a special break for two years; if any
of these firms goes bust in the meantime, the public will end
up shouldering the deficits, which is why the congressional
measure amounts to a taxpayer loan.
Yet taxpayer support for people in defined-benefit pension
plans is a perverse notion. Fully one in two private-sector
workers has no company pension plan whatever. Why should the
less fortunate bail out the lucky ones?
Once again, Congress is poised to give another handout to certain
airline, steel, and labor interests, regardless of the costs this could
impose on the employees and retirees of these businesses and ultimately
on American taxpayers. By allowing these entities to dig their already
underfunded plans further into debt, we are creating a very real risk
of defaults. When this occurs, the Federal agency that ensures private
sector fixed benefit plans, the Pension Benefit Guaranty Corporation,
or PBGC, will be the first to try to cover this liability. The PBGC
itself is hugely in deficit and ultimately the American taxpayer is on
the hook.
I join the PBGC in opposing this proposal that relieves severely
underfunded pension funds of the obligation to make deficit reduction
contributions, or DRCs, to catch up on their deficits. As the PBGC's
director has said:
Giving a special break to weak companies with the worst-
funded plans is a dangerous gamble.
In a letter to the majority leader last week, the directors of the
PBGC, Cabinet Secretaries Chao, Snow, and Evans, wrote:
It would be irresponsible to amend the interest rate bill
with any additional provisions that would significantly
further exacerbate systemic plan underfunding. If H.R. 3108
were amended to do so, we as the PBGC board would recommend
that the President veto the legislation.
The Grassley, Baucus, Gregg, and Kennedy amendment does just that. In
addition to being fiscally irresponsible, the amendment is grossly
unfair, once again lavishing Federal largesse on selected industries
and companies.
Explaining why the pension system is already in jeopardy, the PBGC
directors wrote:
The PBGC reported a record single-employer program deficit
of $11.2 billion through the end of 2003, three times larger
than any previously recorded deficit. Last year, the General
Accounting Office added the PBGC's single-employer pension
program to its ``high risk'' Federal program list. In
addition, the PBGC remains exposed to $85 billion in pension
underfunding in single-employer plans sponsored by
financially weak employers. The PBGC also reported the first-
multiemployer deficit in two decades.
As the Secretaries explained in another letter sent last November:
The DRC rules were put into place to guard against the
continuing deterioration of funding levels in underfunded
plans. These rules were designed to protect participants'
accrued benefits and the financial integrity of the
pension insurance system. Suspension of the DRC rules
would mean a significant further reduction in the
resources available to meet the promises made to existing
and future retirees. Moreover, suspending DRC rules would
jeopardize pension funding in the future, as companies
begin to fund their plans less prudently in anticipation
of extraordinary relief from their contributions when the
plans become underfunded.
Despite these warnings and a $400 billion gap between what companies
have contributed to their pension funds and what they owe under their
plans, why is the Senate ready to give companies whose pensions are
severely underfunded a pass on their obligations to ensure their
employees' retirement pay? Because, we are told, economic forces beyond
anyone's control have come together to create a ``perfect storm.''
The extraordinary coincidence of low interest rates and a poorly
performing stock market, proponents claim, has led to big losses and
created a unique hardship for these companies' pension funds.
A look at historical contributions suggests, however, that the
anomalous ``perfect economic weather'' of the last decade is as likely
an explanation for the current sorry shape of pension plans as the
``perfect economic storm.'' In the 1990s, record stock market returns
allowed companies radically to reduce or simply not budget for pension
contributions. Whereas single-employer pension contributions totaled
$63 billion between 1980 and 1984, between 1990 and 1995 single-
employer pension contributions amounted to only $26 billion.
Clearly, today's economic climate is not what it was in the late
1990s, and I do not question that many companies now face significant
liabilities to their pension funds. I am not proposing that nothing be
done, and the base bill, H.R. 3108, provides enormous relief to all
pension funds by adjusting the way in which contributions and assets
are calculated so as to reduce companies' obligations to their pension
funds by $80 billion.
The Grassley, Baucus, Gregg, and Kennedy amendment, however, would
give another huge break to a very select group of entities. Why, when
companies' pension liabilities are so high, should we let a favored few
walk away from their responsibilities to their employees and retirees?
Why should the Senate permit these select entities to use money that
should go to reduce their pension deficits for other purposes, and
invite them to dig themselves deeper in the hole, especially when it is
likely that the American taxpayers, many of whom have no pension plans,
are going to have to bail them out?
[[Page S268]]
We can talk about economic ``perfect storms,'' interest rates, and
bull and bear markets, but I hope that people understand that we are
really talking about the ability of retirees to pay their heating
bills, buy needed medicine and groceries, and visit their
grandchildren. Even if, as I suspect the managers and union officials
who support the amendment cynically calculate, the PBGC will assume
pension liabilities if plan sponsors default, the benefits that
participants will get from PBGC will likely be far less than what they
were counting on receiving.
There is no doubt that current pensions laws are in desperate need of
reform, but I don't support DRC relief in a vacuum.
The amendment contains yet another bailout of certain airlines, steel
producers, and one apparently very special labor union. DRC relief is
granted to these entities with no restrictions. Any other entity that
wants to receive DRC relief has to show that it is able to meet its
future contributions in a timely manner. Let me repeat that. Any other
entity that wants DRC relief must show that it can make its future
contributions. Certain passenger airlines, steel producers, and one
union, however, get a DRC break, regardless.
Let us talk about the airline industry. I was one of the first people
to support giving financial assistance to this industry in the
aftermath of September 11. At the onset of the Iraq War, I supported,
with some reservations, additional temporary relief to the industry.
But here we are again facing another cry for help and an outstretched
hand. Let us review the assistance to the airlines over the past few
years.
After September 11, Congress provided to the airlines $5 billion in
direct payments to compensate for losses stemming from the September 11
attacks; $10 billion in loan guarantees; Federal terrorism insurance;
$68 million in reimbursements for increased insurance costs; and,
liability protection against claims arising in connection with the
September 11 attack.
Later in 2001, Congress provided that the Federal Government assume
responsibility for security from the airlines.
In the legislation that established the Department of Homeland
Security, Congress extended the terrorism insurance.
In the Iraq Wartime Supplemental Appropriations Act, Congress
provided $2.3 billion directly to the airlines in the proportional
share each carrier has paid the TSA or collected in passenger security
and air carrier security fees, and suspended security fees from June 1
through September 30, 2003. This has been estimated to provide a
savings of $700 million to airlines.
Congress has appropriated almost $200 million to reimburse airlines
for hardened cockpit door installation.
In the FAA reauthorization bill that was just signed into law
Congress once again extended terrorism insurance--through March 30,
2008.
I don't begrudge the airlines the assistance Congress has provided to
date, and I understand that the industries' health is inextricably
bound to the well-being of our economy. That said, I won't continue to
support special aid to airlines without some accountability. We can't
seem to go more than 6 months without the airline industry asking
Congress for another handout. I have not doubt that they will be up
here again soon asking for tax relief, relief from security fee
obligations, or some other form of aid.
I urge my colleagues to stand up for workers and taxpayers, and
against a bailout. Disregarding the interests of their employees and
members, management and labor have joined in urging Congress to support
the amendment by Senators Grassley, Baucus, Gregg, and Kennedy, that is
premised on the hope that companies' currently inadequate pension
assets will recover, not through contributions, but through rising
interest rates and a robust stock market. I know the Super Bowl is
coming up, but this ``Hail Mary'' pass is not the right move. Let us
spend a little time crafting a true pension reform bill rather than
simply rushing through a bill that will benefit a handful of coddled
industries at the risk of workers and taxpayers throughout this
country.
If, as I am afraid will happen, however, the amendment providing
select DRC relief is adopted, and this folly is enacted into law, I
would expect that companies and unions that avail themselves of this
relief will freeze the compensation of their highest paid officials at
the same time. If companies and unions determine that they cannot or
will not make contributions to their severely underfunded pension plans
and honor their obligations to their rank and file, they should not
then turn around and increase the princely sums being paid to their top
executives. We will be watching.
To reiterate, the airlines were major recipients of this pending
amendment, the Grassley-Baucus-Gregg-Kennedy amendment. After September
11, Congress already provided the airlines $5 billion in direct
payments to compensate for losses stemming from September 11, $10
billion in loan guarantees, Federal terrorism insurance, $68 million in
reimbursement for increased insurance costs, and liability protection
against claims arising in connection with September 11. Later, Congress
provided that the Federal Government assume responsibility for security
for the airlines. The list goes on and on about what we have already
done for the airlines and now another bailout for the airlines. I
really strongly object to the selectivity of this amendment and I don't
know how you rationalize it.
I thank my colleagues.
The ACTING PRESIDENT pro tempore. Who yields time?
The Chair recognizes the Senator from Montana.
Mr. BAUCUS. Mr. President, is there a time limit?
The ACTING PRESIDENT pro tempore. There is a time limit. The Senator
has 9 minutes 42 seconds remaining.
Mr. BAUCUS. Mr. President, I ask unanimous consent that I have an
additional 5 minutes. Perhaps it has to be yielded to me by someone.
Mr. REID. Mr. President, I ask unanimous consent that the request be
modified so that if someone from the majority wishes to speak for an
extra 5 minutes after Senator Baucus, they be allowed to do so.
The ACTING PRESIDENT pro tempore. Without objection, it is so
ordered.
Working For A Better America
Mr. BAUCUS. Mr. President, I simply wish to say thank you. I rise to
say thanks to all my colleagues, particularly here in the Senate, my
friends and family in Montana and across the country, my wife Wanda and
my son Zeno, my mother, and so many others. Thank you for the best
wishes, the get-well cards, flowers, phone calls, and e-mails for the
past few weeks. It is astounding how much we do live in kind of a
global village and how connected we are. I deeply appreciate the
concern of so many of my very good friends.
A few weeks ago, I underwent surgery for a condition known as
subdural hematoma which was the result of a fall I took in November
while running in what is called the JFK 50 Miler in Maryland. You might
ask, Why in the world would someone want to run 50 miles? I sometimes
ask myself. Nonetheless, it was then that I took a fall, and as a
consequence of that fall, I had this condition called subdural
hematoma.
I must say I am very grateful to the doctors, nurses, and everyone
who was very helpful. They have encouraged me to take my time. They
didn't want me to do something stupid or dumb, or to get back to work
too quickly. Unfortunately, as you well know, we have 24-hour news
service these days. When I was at home, I had an extremely bad case of
cabin fever. I could hardly wait to get back to work. The doctor said
stay home. Wanda said stay home. My friends said stay home. So I stayed
home for a little while.
In all seriousness, I am very delighted to be back in this Chamber
and back in the Senate with all of you, doing what I love; that is,
representing Montanans and working to make their lives better.
Following the surgery, I have been asked several times if any of this
has changed my perspective. Does it give me pause? The answer,
obviously, is that it does; clearly, it does. It gives you a deeper
sense of perspective. It is humbling. I am sure the response would be
different for different people, but for me, it caused me to just think
a little more clearly and deeply about what we are all about and what
we are doing.
[[Page S269]]
I must say I think it has been very helpful. It makes one deeply
appreciate what we have in life--our family, our friends, including our
health. It also reinforces one's resolve. It makes you want to keep
driving, pushing, working to create change and help people. You
realize, even more, that we have only a finite amount of time here to
get our work done. It subtly reminds you about the ever-daunting
deadline that time imposes on all of us, the sense we have to get as
much done as we can in the short time we have been given so as not to
waste one day, an hour, or a minute.
It also reinforces what my Indian friends taught me so long ago in
Montana--that we have a moral obligation to leave this place in as good
or better shape than we found it, to pass on to our kids and our
grandkids an America as great as our parents bestowed upon us.
It is written in Scripture that much is expected from those to whom
much has been given. As Americans--particularly as Members of the
Senate--we have been given an awful lot. We have a lot of work ahead of
us.
That is why it is imperative we look to the example of leadership set
by so many here in this Chamber--courageous yet humble leaders such as
my friend and mentor, former majority leader of the U.S. Senate,
Ambassador Mike Mansfield. I don't know of a more gentle, a more
strong, or, in a sense, a more profound man than Mike Mansfield. He is
a man to whom we should all look up for leadership and try to
exemplify, although we may never get there, as much as possible.
We have a big year ahead of us. For my part, I will continue to work
together with all of you--my distinguished colleagues on both sides of
the aisle--to make America an even better place to live, to work, and
to raise a family.
I look forward to passing a new transportation bill that will create
jobs and ensure safety on our Nation's roads.
I look forward to reforming our pension system to ensure that workers
and their families' life savings are protected.
I look forward to working with my good friend, chairman of the
Finance Committee, Senator Chuck Grassley, to pass our JOBS bill,
otherwise known as FSC/ETI reform, and to give a boost to domestic
manufacturing and create jobs.
I look forward to working together to boost agriculture in our
country and get international markets open to U.S. beef as soon as
possible.
I look forward to cracking down on tax cheats. There are too many
people who cheat Americans by breaking the law in our income tax
code. I look forward to making a greater investment in education,
something we do not do enough of in this Chamber.
I look forward to working together to curb the rising number of
uninsured Americans. I was lucky. I had surgery performed by excellent
people. I am fortunate enough to have good health insurance coverage. A
lot of Americans do not. An event like this reminds us that the 43.6
million Americans who go without health insurance must have it. We in
Congress, who do have the security of good health insurance, must do
much more to assure that more Americans and soon all Americans have
health insurance. We are not doing enough.
We tend to get all involved in lots of peripheral issues and not
spend enough time on the core issues. I daresay that health insurance
inadequacy, the cost of health insurance, is probably the first,
second, and third most important issue facing Americans. We do not
spend enough time on it.
We have an aggressive agenda before the Senate. It is up to us to
fulfill the promises we made, set aside partisan differences, and work
together--not talk about it but do it. Do what is right for America.
Move our country forward. It is up to us to lead. People want Congress
to do what is right. Most Americans are not partisan. They are not very
rightwing or very leftwing. Most Americans are in the big middle. They
want the Congress to do what is right. It is up to us to provide that
leadership.
I say thank you. I deeply appreciate my colleagues in the Senate. It
is my distinct honor and privilege to serve here.
I also will address the pension bill and the pending managers'
amendment that will be before the Senate later today. First, I thank
the chairman of the committee, Senator Grassley, and also Senator
Kennedy, who gave some very kind remarks a few days ago, and Chairman
Gregg for their collective persistence, determination, and their
willingness to work together. Here is a good example of the two
committees, the leadership from both committees on both sides of the
aisle, working together to craft a very important piece of legislation.
The amendment before the Senate is truly bipartisan. I also thank again
Senator Kennedy for managing the bill in my absence and I deeply
appreciate his kind words on the floor a few days ago.
Now let me turn back to the pension bill and the managers' amendment.
This legislation helps address the retirement security of literally
millions of workers and retirees. It seeks to support the pension
benefits they have earned and upon which they rely for their economic
well-being. It is an important step to help preserve the embattled
defined pension benefit plan. And it is embattled.
The security of our pension system is at stake. Daily we hear
employers are dropping out of the defined benefit plan system. The
reasons are simple. The defined benefit plans require a commitment on
the part of the employer. This is a commitment many employers are no
longer willing to make or can afford to make.
A recent survey found that 15 percent of the defined benefit plan
sponsors have frozen plans since January 1, 2001. That means these
plans will no longer allow workers to earn more benefits. Another 6
percent are actively considering freezing the defined benefit plans.
This could mean that more than one in five employees earning a
guaranteed retirement benefit will not earn future benefits.
We need to ask what caused this and what can we do. According to the
survey, the most common reason for freezing the defined benefit plans
is the cost--not just the total cost but also the volatility and
unpredictability of the cost. It is one thing to have an obligation you
can put in the budget projections. Businessmen love to know what is
going on. We understand that. Then business can build a plan to meet
certain obligations. It is another thing to have costs that vary wildly
from year to year. You do your best to project these costs, but it is
difficult. Having cash available for investment in growth and expansion
is critical to a successful business. Fluctuating minimum contribution
requirements make good business plans very difficult.
In the worst of times, a large unexpected contribution requirement
can spell disaster. It can bankrupt an enterprise. That enterprise has
to turn the unfunded pension liability over to the Pension Benefit
Guaranty Corporation, known as the PBGC.
Last September, the Finance Committee marked up the National Employee
Savings and Trust Equity Guarantee Act, a bill that includes a set of
long-term funding changes to address the situation. That bill provides
temporary relief for companies that are suffering. It provides a
temporary substitute for the 30-year Treasury rate, similar to the
provision in the amendment before the Senate today. It also provides
temporary relief for the deficit reduction contribution for companies
that were well funded in the year 2000. These provisions were designed
to give companies relief from large contribution cash demands.
The Finance Committee bill includes provisions to allow companies to
put more money into their plans when times are good, and the bill
provides for long-term replacement of the 30-year Treasury rate with a
yield curve, which is a conservative basis for liability measurement.
We need to look at long-term reforms such as those included in the
Finance Committee bill. I hope we will do that later this year.
We have an immediate, more pressing need to deal with the problems we
face today: low interest rates, the effects of recent market downturns,
and the resulting high contribution requirements that companies will
face if we do not take action today. Normally, low interest rates are
good, but in this case they tend to exacerbate the problem with respect
to defined benefit guarantee plans. Increased payments
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would have to be made as early as April 15. We must act quickly to
provide the needed relief.
The pending managers' amendment has three important components to
deal with the immediate problems we face. First, it substitutes the
long-term corporate bond rate with a 30-year Treasury rate. Second, it
provides partial relief from deficit reduction contributions from
companies that did not make a deficit reduction contribution in 2000.
And it provides temporary relief from experience loss amortization
payments for multiemployer plans.
These are not long-term solutions. They will provide short-term
relief from contribution volatility for employers who have been
generous enough to provide defined benefit programs for their
employees.
The more important factor in the health of the defined benefit system
and of the PBGC, which guarantees the benefits of the system, is the
health of the employers in response to the plans. The short-term relief
provisions will help. The more employers who stay in the system, the
healthier those employers and the stronger the system.
I look forward to working with my colleagues to come up with a long-
term solution. But the provisions in this bill cannot wait. The
retirement security of millions of workers hangs in the balance. I urge
my colleagues to support this amendment.
____________________