[Congressional Record Volume 151, Number 85 (Thursday, June 23, 2005)]
[Senate]
[Pages S7312-S7313]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. HARKIN (for himself, Mr. Kennedy, Mr. Durbin, Mr. 
        Feingold, Mrs. Boxer, and Mr. Dayton):
  S. 1304. A bill to amend the Employee Retirement Income Security Act 
of 1974 and the Internal Revenue Code of 1986 to protect pension 
benefits of employees in defined benefit plans and to direct the 
Secretary of the Treasury to enforce the age discrimination 
requirements of the Internal Revenue Code of 1986; to the Committee on 
Health, Education, Labor, and Pensions.
  Mr. HARKIN. Mr. President, I rise today to introduce a piece of 
legislation to fix a huge oversight in pension policy.
  In the early 1990s, a large number of U.S. companies began a process 
of switching their traditional defined benefit pension plans to what's 
referred to as ``cash balance'' pension plans. A cash balance pension 
is insured, like a traditional plan, through the PBGC. However, it 
looks more like a defined contribution plan to participants because the 
benefit is expressed as some percent of play plus some guaranteed 
interest rate. This isn't necessarily a bad idea, in and of itself. 
However, in practice, many of the employees working for these companies 
were not told what these changes would mean for them. Some companies 
had their employees work for years without earning any more benefits. 
Many of those employees didn't figure that out for a very long time. 
Unfortunately, their lack of understanding in this situation was a key 
benefit to management. However, once they figured out what was 
happening, the retirees were furious.
  As two consultants who helped put these plans together said at an 
Actuaries conference in 1998:

       ``I've been involved in cash balance plans five or six 
     years down the road and what I have found is that while 
     employees understand it, it is not until they are actually 
     ready to retire that they understand how little they are 
     actually getting.''
       ``Right, but they're happy while they're employed.''

  One of the most abusive practices in cash balance conversions is 
known as ``wear away. `` The company freezes the value of the benefits 
employees already earned, which by law cannot be taken away once given. 
However, the employer opens a cash balance account for that worker at a 
much lower dollar level. So they end up working for years contributing 
to this lower cash balance account, not realizing that contribution is 
meaningless because their old benefits were higher. At the same time, 
younger workers do get money added to their account every day. This is 
clearly age discrimination, and bad pension policy.
  In 1999, I introduced a bill to make it illegal for corporations to 
wear away the benefits of older workers during conversions to cash 
balance plans. I offered my bill as an amendment. Forty-eight Senators, 
including 3 Republicans, voted to waive the budget point of order so we 
could consider this amendment. We did not have enough votes then, but I 
believe the tide is turning.
  After that vote, more and more stories came out about how many 
workers were losing their pensions. In September of 1999, the Secretary 
of the Treasury put a moratorium on conversions from defined benefit 
plans to cash balance plans. That moratorium has

[[Page S7313]]

been in effect now for over three years. In April of 2000, I offered a 
Sense-of-the-Senate resolution to stop this practice, and it passed the 
Senate unanimously.
  There are hundreds of age discrimination complaints currently pending 
before the EEOC based on some of these abusive cash balance 
conversions. Clearly, something must be done to address this issue 
that's been floating around now unresolved for over five years.
  Before, I said that wear-away is the least fair practice during 
conversion. And I have to say that now, public sentiment is really 
coming around to acknowledge that unfairness. However, aside from wear-
away, there's another problem in shifting from a traditional pension to 
cash balance. In a traditional plan, you accrue most of the benefits 
toward the end of your career, because there's usually some kind of 
formula that multiplies top pay times years of service. People tend to 
earn more salary toward the end of their careers, and if that is 
multiplied times more years served, the pension grows quickly in later 
years. But in a cash balance plan, younger workers do better because 
they are given a flat percent of pay plus some guaranteed interest 
credit. Interest is good for young people, they have many years to 
accrue and compound it. So if you get caught in mid-life, mid-career in 
one of these transitions, you get the downside of both plans.
  Before I go any further, I want to be clear on one point--cash 
balance pensions can be a great deal for workers. Some. And they may 
help fill a needed niche in the pension world to cover the half of the 
workforce that currently has no pension. But I will continue my long 
battle to oppose the unilateral decision of a company to cut off a 
promise for an older worker, give that money to a younger worker, and 
not view it as age discrimination.
  That is what this issue is all about. It is fairness. It is equity. I 
know discussion of pension law can become very convoluted. But this can 
be boiled down pretty simply. It is about what we think a promise from 
an employer ought to mean.
  There is one thing that has distinguished the American workplace from 
others around the world. We have valued loyalty. At least we used to. 
That is one of the reasons pension plans exist--the longer you work 
somewhere, the more you earn in your pension program. Obviously, the 
longer you work someplace, the better you do your job, the more you 
learn about it, the more productive you are. We should value that 
loyalty.
  But here, companies are able to take away the benefits of the longest 
serving workers. What kind of a signal does that send to the workers? 
It tells workers they are fools if they are loyal because if you put in 
20 or 25 years, the boss can just change the rules of the game, and 
break their promise. It tells younger workers that it would be crazy to 
work for a company for a long time, that it's best to hedge your bets 
and move on as soon as it is convenient. It's crazy to trade current 
pay for the promise of future benefits. So why even take into account 
the fact that you're being offered a pension plan? This is a very 
dangerous road to go down.
  This destroys the kind of work ethic we have come to value and that 
we know built this country. But some of these cash balance conversions 
counter all of that. Here is an analogy. Imagine I hire someone for 5 
years with a promise of a $50,000 bonus at the end of 5 years of 
service. At the end of 3 years, however, I renege on the $50,000 bonus. 
But the employee has 3 years invested. Had they known that the deal was 
going to be off, perhaps they would not have gone to work for me. They 
could have gone to work someplace else for a total higher compensation 
package. Now imagine that they hire a new guy to join the team, and 
they give him part of that $50,000 bonus they promised me. Is that the 
way we want to treat workers in this country, where the employer has 
all the cards and employees have none, and employers can make whatever 
deal they want, but can change the rules at any time?

  That is why I am introducing this legislation. It is simple. It says 
that you have to give older, longer serving employees a choice, at 
retirement, when their pension plan is converted to a cash balance plan 
to get the benefits earned in the old plan instead. It also says that 
employers must start counting the new cash balance benefits where the 
old defined benefit plan left off, instead of starting the cash balance 
plan at a lower level than an employee had already earned.
  This isn't a radical idea. I was very pleased that in February of 
2004, the Administration came out with a cash balance proposal that 
recognized that these transitions are hard on workers. It not only 
prohibits wear-away but provides for 5 year transition credits for 
workers caught in the middle of a conversion. Treasury reaffirmed its 
commitment to this approach in this year's budget request.
  I was excited when Treasury first came to the table with a proposal 
to do more to protect workers here. I was so encouraged by this that I 
convened a series of meetings over the course of last summer to get all 
interested parties to the table--everyone from participant rights 
advocates to industry groups to consultants. I heard some really great 
ideas, and some that I didn't agree with. But I think there is still 
room to find answers to this problem. So I'm putting my plan back on 
the table today. And I really hope that we can continue a meaningful 
dialog on this issue.
  If we do that, this year, we can enact meaningful participant 
protections moving forward so that there is another pension option out 
there to cover the roughly half of Americans with no pension at all. 
But I also want to make it clear that this Senator will never sit idly 
by as older workers get the rug pulled out from under them just as they 
thought they were on solid ground for their retirement. I won't stand 
idly by and watch their money redistributed in an age-discriminatory 
way. We can have this dialog and we can find a way to fix what's broken 
here, but not by blessing some of these blatant abuses.
                                 ______