[Congressional Record Volume 151, Number 151 (Tuesday, November 15, 2005)]
[House]
[Pages H10196-H10198]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
BROKEN PENSION SYSTEM
The SPEAKER pro tempore. Under a previous order of the House, the
gentlewoman from Ohio (Ms. Kaptur) is recognized for 5 minutes.
Ms. KAPTUR. Mr. Speaker, USA Today on the front of the business page
has a major story: `` `Fundamentally broken' pension system in `crying
need' of a fix: Even companies that play by the rules face
shortfalls.'' It goes on to say that David Walker, the chief of
Congress's nonpartisan Government Accountability Office, describes the
pension system as ``fundamentally broken.''
Mr. Speaker, workers who dedicate years of service to a company
should be able to count on a decent retirement and a measure of
economic security. Yet in this time when more and more companies are
reducing or dropping their defined benefit pension plans and retiree
health coverage, worker earned benefits are often not guaranteed. This
Congress must step up with meaningful pension reform to help shore up
pension plans and encourage companies to continue providing them.
Unfortunately, a bill authored by the gentleman from Ohio (Mr.
Boehner), who chairs the committee here in the House, is not that
needed legislation.
It pays lip service to pension reform for workers, but continues to
protect big corporate interests and executives at the expense of
workers. It is my sincere hope that this Congress will produce
legislation that is truly needed by America and by America's workers.
Private pension plans are supposed to be one leg of a three-legged
stool of retirement security for all American workers, along with
Social Security. However, we live in an era when personal savings are
virtually nonexistent, and Social Security's future is menaced by the
specter of Republican plans to privatize Social Security. Therefore,
workers have to try even harder to shore up increasingly fragile
private pension plans.
Unfortunately, the Republican leaders in this Congress want to pass
legislation which would actually further destabilize and underfund
private pension plans. How in the world can they defend that approach?
Doehler-Jarvis, a company in my district, several years ago was the
victim of a takeover where they had to cancel retiree health benefits,
and they just did it over one weekend. They never even told the workers
they were going to do it. When they filed liquidation bankruptcy, they
pushed their obligations onto the Pension Benefit Guaranty Corporation,
which is going further and further into the red as I speak here this
evening.
Though that was not a perfect solution, that was the only one that
existed at that time. Recently, we have heard the announcement by
Delphi, the largest U.S. automotive manufacturer, that they are going
to declare bankruptcy; and that it is the largest filing of bankruptcy
ever in the history of the automotive industry. It will have a
significant impact on thousands and thousands of workers. And under the
terms of their bankruptcy filing, Delphi is attempting to require its
employees to take pay cuts as high as 63 percent and benefit cuts of up
to 77 percent just, they say, to keep a few of their U.S. plants open.
The current Pension Benefit Guaranty Corporation has a several
billion dollar shortfall already. How in the world are they going to be
able to try to hold things together without that
[[Page H10197]]
fund being shored up, whether it is to help Delphi or anyone else.
Frankly, this Congress should have legislation passed that would
disallow the bankruptcy system to be used by companies to abdicate
their pension and health responsibilities.
However, given the recent flood of companies that have experienced
pension problems or breakdowns, the Pension Benefit Guaranty
Corporation is no longer as fail-safe as it used to be. It had a $23
billion deficit last year, and since the time of President Clinton has
continued to fall from a position of surplus to greater and greater
deficit. The chairman of the committee, Mr. Boehner, dubs his plan the
Pension Protection Plan; but it does nothing to prevent runaway pension
plan terminations, nothing to provide meaningful disclosure and
transparency, or ensure fairness to workers, while rewarding corporate
executives. And it does nothing to adequately protect the workers
pension plans.
Mr. Speaker, true pension reform legislation would repeal special
protections for executives where they can receive these so-called
golden parachutes while employees suffer deep cuts in their promised
benefits. And the bill currently authored here says if an employer does
not fund its pension plan above 80 percent, then workers cannot receive
any increases in benefits or take a lump sum at retirement. No similar
restriction is placed on executives.
And as the amount of guaranteed benefit goes down, for example if the
employer does not fund above 60 percent, the workers' plan must be
frozen with no new benefits allowed.
Mr. Speaker, America can do better than this. We ought to deep six
the Boehner bill and allow the workers of this country to be able to
receive the deferred compensation that was part of the contract that
they signed when they went to work for America's largest corporations.
[From the USA Today, Nov. 15, 2005]
``Fundamentally Broken'' Pension System in `Crying Need' of a Fix
(By Marilyn Adams)
Washington.--Most surviving American steelmakers long ago
abandoned costly pensions plans. But AK Steel still covers
most of its 7,500 workers with a plan that pays retirees a
monthly benefit based on tenure and past wages--a coveted
defined-benefit plan.
AK has never missed a benefit payment to a pensioner or a
payment to fund the plan. That's a source of pride for the
105-year-old Middletown, Ohio, company.
Nonetheless, the assets of the AK pension plan fall $1.3
billion short of meeting estimated future obligations. The
plan's long-term survival isn't assured.
Much of the attention in the raging pension-reform debate
in Congress and the executive branch focuses on big companies
such as United Airlines and other corporate giants that have
used Chapter 11 bankruptcy-court reorganization to dump
defined-benefit pension plans on the already overburdened
government insurer, the Pension Benefit Guaranty Corp. But
it's also cases such as AK Steel--a relative corporate good
guy that has seen assets fall short of liabilities even while
the company follows the rules--that have reformers fearing a
possible financial catastrophe on the scale of the savings-
and-loan meltdown 15 years ago.
David Walker, chief of Congress' non-partisan Government
Accountability Office, describes the pension system as
``fundamentally broken.'' He's frustrated that policymakers
so far have been unable to solve a problem that's been
documented over and over.
``There's a crying need,'' he says.
Business, Congress and the Bush administration agree that
the U.S. system of private pensions is badly in need of
fixing. What they haven't agreed on is how to fix it. Despite
alarming statistics, years of studies and urgent calls for
reform from advocates on all sides, Rep. John Boehner, R-
Ohio, a sponsor of the pending House bill on pension reform,
rates chances of passage by both houses of Congress this year
as slim. Senate Majority Leader Bill Frist, R-Tenn., said
Monday that the Senate bill might reach that chamber's floor
by next week.
If Congress fails to act, ``The problem will become much
worse,'' said Bradley Belt, PBGC executive director. ``To
call upon taxpayers--most of whom don't have defined-benefit
pensions--to pay for the benefits of those who do would be
fundamentally unfair.''
In total, defined-benefit pension plans offered by private
employers are underfunded by $450 billion, up from $39
billion just five years ago. The PBGC itself has a deficit of
at least $23 billion. PBGC numbers coming out today are
expected to paint an even bleaker picture: The high number of
failed plans has left it without enough assets to cover
future benefits. As more plans fail, the agency's deficit
will grow.
In recent years, Huffy bicycles, Big Bear supermarkets,
Polaroid, Kaiser Aluminum, Bethlehem Steel, WestPoint
Stevens, Archibald Candy and United Airlines have terminated
their plans and transferred responsibility for them to the
PBGC. What worries PBGC officials now is how many other large
companies are out there with ailing plans covering tens of
thousands of workers.
The PBGC last year calculated that financially weak
companies with a reasonable chance of terminating their
pensions are $96 billion short of covering promised benefits.
gm a concern
The PBGC won't say whether General Motors, whose pension
plan is the biggest in U.S. industry, is among them. But the
PBGC estimates that if financially troubled GM had to
terminate its plan soon, it would be underfunded by $31
billion, an estimate first reported by The New York Times.
Using a different accounting method, Credit Suisse First
Boston estimates the underfunding at $12.3 billion.
GM, whose plan covers 600,000 participants, disputes those
figures but declined to provide its own estimate. It is not
required by law to do so. ``We don't think it's appropriate
to view the pension plan on a termination basis,'' because GM
has no plan to end it, said GM spokesman Jerry Dubrowski.
The U.S. Securities and Exchange Commission, meanwhile, is
investigating how GM reports pension-plan liabilities in its
financial statements as part of a broader look into the
automaker's accounting.
PBGC director Belt fears the mounting pension crisis could
approach the scope of the savings-and-loan debacle that
pushed the Federal Savings and Loan Insurance Corp. into
insolvency in 1989 and cost taxpayers $200 billion.
If the PBGC, which is supported by insurance-premium
payments from pension-plan sponsors, were to sink too deeply
into red ink, a giant taxpayer bailout might be the only way
to keep millions of pensioners from losing their checks.
Stopgap pension relief for companies expires Dec. 31.
Without comprehensive reform legislation this year, temporary
rules will take effect that will increase the contributions
companies must make to their plans as well as the insurance
premiums they must pay the PBGC. U.S. Labor Secretary Elaine
Chao says the price of doing nothing about reform will be
``very bad'' for plan sponsors.
The pension system in Corporate America is in trouble for
many reasons, some within the control of Washington
policymakers and some not.
Not the least of the problems is Americans' lengthening
life spans. Retirees are living longer than ever and will
draw pension checks longer than ever. The biggest generation
in history, the baby boom, starts hitting 65 in 2011. Making
things worse is that many pension plans let workers start
drawing benefits after 30 years of work. For many retirees,
that means benefits start in their 50s.
Another factor: Pension funds rely on assets that grow
through investments in stocks and bonds. For five years,
markets have produced lackluster returns.
loopholes in the law
But Congress can do nothing about demographics or
investment returns. So reformers are focusing on loopholes in
the law--and some companies' willingness to exploit them to
avoid or reduce payments.
Private pensions are governed by the Employee Retirement
Income Security Act, passed in 1974 after the collapse of
automaker Studebaker a decade earlier, which left its
retirees almost empty-handed.
The law established the PBGC insurance program, which
covers benefits up to specific annual dollar limits--up to
$45,600 this year for someone retiring at 65--and requires
companies to pay premiums. Over the years, changes have crept
into the law designed to make it easier for firms to comply.
Among the issues that reform proposals address:
PBGC premiums. Almost everyone agrees that without higher
premiums and stricter funding rules, pension problems will
get worse. The Bush administration proposed $30 per worker
per year, up from $19 now.
Skipped payments. Rules allow employers to skip plan
payments by applying excess contributions from an earlier
year as an offset to the minimum requirement for a later
year--even if the plan is underfunded.
``The combination of rules allows companies to go for years
on end without putting any money into their pension plans,''
says Belt.
US Airways, for example, made no contributions to its
pilots' pension plan for years before it was terminated in
2003.
Overpromising. Employers with underfunded plans are allowed
under current rules to sign labor contracts that promise
union members larger benefits that the companies can't
necessarily afford.
Secrecy. Every employer with a troubled plan is required to
tell the PBGC each year how underfunded the plan would be if
it had to be terminated. But the company is not required to
tell the people directly affected: workers and pensioners.
The PBGC is not allowed to tell.
Inadequate funding. PBGC's Belt says funding rules today
simply don't ensure that pension plans are fully funded.
Most controversial is an administration proposal to
penalize companies with poor credit ratings and underfunded
plans by accelerating their plan payments. The thinking is
that those companies are at higher
[[Page H10198]]
risk for pension default and should be required to do more to
keep plans afloat.
`sky is not falling'
Boehner, The Ohio congressman, says such tough medicine
would ``kill the patient'' and prompt some employers to drop
their plans.
AK Steel, for example, says its credit rating has been
below investment grade for years, yet it has never missed a
payment.
Business groups such as the National Association of
Manufacturers acknowledged pension rules require tightening.
But they question the administration's alarming projections
and say companies with pension problems don't represent the
majority.
``Our message is the pension sky is not falling,'' says NAM
spokesman Darren McKinney. ``The problem is not as big as
some would have you believe.''
He says the PBGC's statistics show only 15% of private
defined-benefit plans were funded below 70% in 2002, the
latest data available.
What seems to gall reformers most is the recent pattern of
big companies using Chapter 11 of the bankruptcy code to
jettison the debt of underfunded pension plans, then exit
bankruptcy and survive. U.S. Airways did it, and United is in
the process. Huff and Big Bear did the same in the bankruptcy
court.
Now, reformers fear Delta Air Lines, Northwest Airlines and
auto-parts maker Delphi, all of which filed Chapter 11 cases
recently, will make the same argument to their bankruptcy-
court judges.
``People are using the pension system and bankruptcy code
as a business strategy,''charges Walker of GAO.
ak steel feels penalized
AK Steel agrees. It has seen plenty of competitors unload
their plans. AK says its pension and retiree medical costs
make its steel at least $40 a ton more costly to produce than
some of its competitors'.
``We are penalized because we didn't go bankrupt,'' says
Vice President Alan McCoy.
So, AK has been going to its unions during contract talks,
asking them to agree to freeze members' pension plans so
benefits don't keep growing and so new employees aren't
covered. Three unions, representing 20% of AK's unionized
workforce, have agreed.
``They told us they needed that relief to stay competitive
and stay out of bankruptcy,'' says Tim Imes, president of the
United Steelworkers union in Ashland, KY, that represents AK
workers there. Given pension-plan terminations at Bethlehem
Steel, National Steel and elsewhere, the union knew ``the
monster was real.''
AK officials say they still believe in good pensions but
can't ignore their competition.
``We are disturbed that the bankruptcy system allows what
has happened to happen,'' says McCoy. ``We don't think that's
right.''
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