[Congressional Record (Bound Edition), Volume 149 (2003), Part 5]
[Extensions of Remarks]
[Pages 6051-6052]
[From the U.S. Government Publishing Office, www.gpo.gov]




              WHAT IF A PENSION SHIFT HIT LAWMAKERS, TOO?

                                 ______
                                 

                          HON. BERNARD SANDERS

                               of vermont

                    in the house of representatives

                       Wednesday, March 12, 2003

  Mr. SANDERS. Mr. Speaker, I want to share with you an article which 
appeared in the March 9th New York Times. It is not acceptable to me 
that millions of older American workers could lose the pensions they 
were promised by their companies because of a conversion to a cash 
balance pension. My experience in working with IBM employees in Vermont 
has shown me that these cash balance schemes are extremely unfair and 
could cut the expected retirement benefits of older workers by up to 50 
percent.
  Every member of Congress enjoys a defined benefit pension plan. We 
can figure out exactly how much we will receive when we retire by 
computing the years we have served, our salaries and the age at which 
we retire. A study I recently requested from the Congressional Research 
Service, CRS, shows very clearly that if members in Congress were in 
cash balance plan they would receive substantially less in pensions 
than in the defined benefit plan we currently enjoy.
  President Bush has proposed regulations that would legalize age 
discrimination in cash balance pension conversion. These proposed 
regulations would give the green light to Fortune 500 companies to raid 
the pension benefits of millions of older workers. It seems to me that 
if Congress allows this extremely unfair proposal to go into effect, 
and jeopardizes the pensions of American workers, it should be prepared 
to do the same thing for itself.
  Mr. Speaker, if cash balance plans are good enough for American 
workers, they should be good enough for members of the U.S. Congress. 
My understanding is that the Pension Security Act is supposed to go on 
the floor for debate sometime this month. During that time it is my 
intention to offer an amendment which would give all vested employees 
the right to choose which pension plan works best for them under a cash 
balance conversion. If that amendment does not succeed, I intend to 
offer another amendment that would convert the traditional pensions of 
members of Congress into cash balance plans if the President's proposal 
goes into effect. What's good for the American worker should be good 
for members of Congress.

                [From the New York Times, March 9, 2003]

              What if a Pension Shift Hit Lawmakers, Too?

                        (By Mary Williams Walsh)

       As members of Congress prepare to reform the pension 
     system, they might want to think hard about the proposals on 
     the table. A new study has examined what would happen to 
     their own retirement benefits if the changes that some favor 
     for other workers were applied to them. The answer might give 
     them pause.
       Virtually every senator and representative would lose out, 
     the study found--in some cases by hundreds of thousands of 
     dollars--if their current Congressional pensions were 
     switched to a controversial variant called a cash-balance 
     pension.
       One big loser, for example, would be Representative Rob 
     Portman, a major sponsor of the House Republicans' pension 
     legislation. He had built up a pension benefit worth $337,857 
     by the end of 2002, if taken as a single payment, the study 
     found. But if Mr. Portman had instead earned his benefits 
     under a cash-balance plan, he would get $239,185, based on an 
     age of 48 and 10 years of service.
       Mr. Portman will turn 48 this year. (The study used 
     approximate ages in calculating the hypothetical totals.)
       The study, done by the Congressional Research Service, 
     shows that other members of Congress would suffer losses of 
     varying amounts, depending on their ages and years of 
     service.
       Congress will be deliberating on significant pension 
     legislation in the coming months, including proposals that 
     would affect benefit levels and the strength of the pension 
     system itself. An especially contentious debate is looming 
     over regulations proposed by the Bush administration on how 
     companies could convert their traditional pension plans to 
     the cash-balance variety.
       The existing Congressional pension plan is generous, and no 
     one is really planning to trade it in for a new, stripped-
     down version. For years, however, private-sector employers 
     nationwide have been replacing traditional pension plans with 
     newer ones that are generally meant to be less costly for the 
     companies to offer, but that in many cases yield smaller 
     benefits, or transfer all the risk to workers.
       Seen in that context, the Congressional Research Service 
     study shows how well members of Congress are insulated from 
     some trends in the private sector.
       Since the 1980's, hundreds of large companies have switched 
     from traditional to cash-balance plans. These plans combine 
     features of the traditional pension with yet another type of 
     retirement plan, the 401(k), in which employees manage their 
     own retirement money and sometimes receive matching 
     contributions from employers. They are called cash-balance 
     plans because employees periodically receive notice of a 
     hypothetical cash balance that they can track as it grows.

[[Page 6052]]

       In theory, the cash-balance pension has virtues that make 
     it superior to the 401(k): it is paid for and managed by the 
     employer, and it is guaranteed by the federal government; a 
     401(k) has no such guarantee. But in the real world, 
     companies that have converted traditional pension plans to 
     the cash-balance variety have reduced some employees' 
     retirement benefits sharply. The worst losses have generally 
     befallen older workers.
       Statistics on the trend are sketchy. But a 2002 audit of 60 
     corporate pension conversions by the Labor Department's 
     Office of Inspector General found that in 13 cases--about 20 
     percent--workers were deprived of retirement benefits. They 
     were losing about $17 million a year because companies used 
     improper calculations in making the conversions.
       Extrapolating these lost benefits to the hundreds of 
     pension conversions across the country, the office said, the 
     affected workers ``may be underpaid between $85 million and 
     $199 million annually.'' The office called for heightened 
     regulatory vigilance.
       Even assuming proper calculations, cash-balance pensions 
     can mean lower payments than in the traditional approach. 
     Cash-balance plans differ from traditional plans, which are 
     set up to let workers build the biggest part of their benefit 
     in the years just before they retire. The idea was to promote 
     worker loyalty by giving workers an incentive to stay with 
     one company.
       Many graying baby boomers in traditional plans may not know 
     it, but now that they are passing 50 and amassing the bulk of 
     their pensions--they are becoming very expensive to their 
     employers. Companies that have converted to cash-balance 
     pensions have been able to reduce labor costs by ending their 
     traditional plans before many workers enter this high-accrual 
     stage.
       Cash-balance pensions build benefits more evenly over the 
     course of a worker's career. For some people, they can yield 
     larger benefits than traditional plans, particularly for 
     younger workers who often jump from job to job.
       In switching to cash-balance pensions, some companies have 
     notified employees in technical jargon or euphemisms that 
     have left workers clueless about what is really happening. 
     But as older employees started to realize that the 
     conversions could mean individual losses in the tens of 
     thousands of dollars, they began to pepper the Equal 
     Opportunity Employment Commission with age-discrimination 
     complaints. Some have filed class-action lawsuits against 
     their companies. The most prominent case, still pending, 
     affects more than 140,000 employees at I.B.M.
       In 1999, the Internal Revenue Service, which regulates 
     pensions, placed a moratorium on conversions, to give 
     specialists a chance to sort out their legality.
       Now the Bush administration has proposed regulations that 
     would settle the issue, laying out basic rules for making 
     cash-balance conversions legal. Public comment will be 
     accepted until Thursday, and hearings are scheduled for April 
     9. If the proposed regulations take effect, the moratorium 
     will be lifted.
       Critics of cash-balance plans fear that an end to the 
     moratorium would prompt a flood of pension conversions. They 
     and their advocates in Congress doubt that the regulations 
     would adequately protect older workers.
       ``There are millions and millions of workers today who are 
     scared to death that the pensions they have been promised, 
     that they have worked their whole life for, will not come 
     through,'' said Representative Bernard Sanders, a Vermont 
     independent who has long opposed cash-balance pension 
     conversions.
       Proponents of cash-balance pensions have argued that 
     conversions are usually harmless. They note that some 
     companies have voluntarily sweetened their cash-balance plans 
     after older workers complained.
       In general, members of Congress who have served the longest 
     would face the greatest losses if they were given a cash-
     balance payout.
       Patrick J. Purcell, the Congressional Research Service 
     economist who conducted the study, said he worked with each 
     lawmaker's age and years of service without knowing whom the 
     numbers applied to, ``so there would be less reason for 
     people to question the results.''
       He then used standard actuarial methods to compress each 
     pension--normally taken as a lifelong stream of monthly 
     checks--into a lump-sum payment.
       Calculating the lump-sum value made comparison possible 
     with cash-balance benefits, which are normally given in a 
     single payment.
       Mr. Purcell then calculated what the lawmakers' 
     hypothetical cash-balance benefit would be if they had had 
     such a pension from the day they entered Congress. That 
     approach made for a more straightforward comparison and 
     possibly gave an advantage to the cash-balance plan. In 
     practice, some of the most harmful effects of pension 
     conversions occur because employees undergo the change at 
     midcareer.
       Mr. Portman, the Ohio Republican, was unavailable for 
     comment on the study. But a spokesman, Jim Morrell, noted 
     that in 2001, Mr. Portman sponsored legislation requiring 
     companies to notify employees of the way their benefits would 
     be affected in cash-balance conversions. That bill is now 
     law.
       Senator Charles E. Grassley, Republican from Iowa and 
     chairman of the Finance Committee, earned a pension worth 
     $508,266 under the existing plan, based on an age of 70 and 
     18 years of service. Under a cash-balance plan, he would have 
     received only $161,623, according to the study.
       Mr. Grassley is also the former chairman of the Senate 
     Special Committee on Aging and is active on pension issues. A 
     spokeswoman, Jill Gerber, said Mr. Grassley could not comment 
     on the new findings without seeing the study.
       The study also found that Representative Tom DeLay, the 
     House majority leader, had earned a benefit worth $608,143 at 
     the end of 2002 under the current plan. In a cash-balance 
     plan, Mr. DeLay, a Texas Republican, would receive $251,086 
     or 59 percent less, based on an age of 56 and 18 years of 
     service.
       Mr. DeLay did not respond to a request for comment.
       Representative J. Dennis Hastert, the House speaker, 
     qualified for a Congressional pension worth $540,572 at the 
     end of 2002. He would qualify for $164,455 in a typical cash-
     balance plan, the study found, based on an age of 61 and 16 
     years of service.
       Mr. Hastert's press secretary, John Feehery, questioned 
     whether it was fair to single out members of Congress for 
     scrutiny when the entire federal compensation system is 
     skewed toward smaller paychecks and larger pensions compared 
     with the private sector.
       ``The Treasury Department and Congress are looking at ways 
     to make sure that any conversion is fair,'' he added. ``But 
     on the other hand, many companies, given the economic 
     downturn, are faced with the possibility of not being able to 
     offer any plan at all. And that also would be bad for 
     employees.''
       Ms. Gerber noted that pension conversions in Iowa, Senator 
     Grassley's state, generally make it clear that companies are 
     backing away from traditional pensions. In the mid-1970's 
     there were about 1,100 pension plans in Iowa, she said, but 
     now there are fewer than 400. With some companies deciding 
     not to offer any pensions at all, she said, Mr. Grassley sees 
     a need to find some balance between protecting workers' 
     benefits and offering employers incentives to stay in the 
     pension system.
       ``The anti-cash-balance people are just anti-cash-
     balance,'' she said. ``But if you just make cash-balance 
     plans illegal, what are the plan sponsors going to do?''
       The Congressional Research Service, a nonpartisan branch of 
     the Library of Congress, did the study at the request of Mr. 
     Sanders, who has introduced legislation opposing cash-balance 
     conversions in the past--none of it successful. He said he 
     hoped the new findings would ``show the hypocrisy'' of 
     colleagues who would let other people undergo pension 
     conversions but would not have to suffer ill effects 
     themselves.
       ``If they think a cash-balance plan is good enough for 
     American workers, why don't they convert their own 
     pensions?'' he asked in an interview.
       He said he intended to introduce legislation this week that 
     would force Congress to put its money where its mouth is: it 
     would require the conversion of all Congressional pensions to 
     the cash-balance type if the legislators allow the 
     administration's proposed regulations to go forward.
       Mr. Sanders himself would lose 72 percent of his pension if 
     that happened. Based on an age of 61, with 12 years of 
     service, he qualified for a $416,159 lump-sum payment at the 
     end of 2002. In a cash-balance model, he would have received 
     $115,850.
       He would not comment on the prospects for his cash-balance 
     legislation. Perhaps more pragmatically, he said he would 
     also introduce legislation to require companies converting 
     their pensions to let each worker choose whether to keep the 
     old plan or go with the cash-balance plan.
       Some companies have done this voluntarily, he noted.
       ``Kodak has done that,'' he said. ``Motorola has done that. 
     CSX, which is the new secretary of the Treasury's company,'' 
     had done that, he said, referring to John W. Snow, who was 
     chief executive of CSX, the railway company, before Mr. Bush 
     appointed him in December to replace Paul H. O'Neill. As 
     Treasury secretary, Mr. Snow has authority over the proposed 
     regulations.
       All of those companies converted, Mr. Sanders said, ``but 
     they gave workers the choice.''

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