[Congressional Record (Bound Edition), Volume 150 (2004), Part 1]
[Senate]
[Pages 360-361]
[From the U.S. Government Publishing Office, www.gpo.gov]




                       PENSION FUNDING EQUITY ACT

  Mr. ENZI. Mr. President, I do want to talk a little bit this morning 
about the pension bill, which is the current bill we are considering. I 
am sure all of us can remember our first jobs when we came home with 
our first paycheck, anxious to spend it, and if our parents happened to 
be around they gave some advice and suggestions for us. First, they 
probably suggested we figure out where we were going and, secondly, 
that we put something away. If it was before college, it was probably 
for college. If it was after college, it was probably a suggestion that 
we start thinking about when we retire.
  The pension funding laws that we are considering today have that same 
objective. We have reached a major crossroads in the private pension 
system that affects the retirement security of millions of American 
workers. The funding requirements for defined benefit plans contained 
in the Employer Retirement Income Security Act--ERISA is what it is 
usually referred to--and the Internal Revenue Code are very complex. 
Yet their goal is clear, and that is to make sure a plan has sufficient 
assets to pay the future benefits when workers retire.
  I am not sure there has been much explanation on the difference 
between defined benefits and defined contributions. The ones we are 
talking about are defined benefits. There is a transition happening in 
this country. As fast as companies can, they are going to define 
contributions. That is where they say how much they will put away for 
future retirement, as opposed to this crisis area which is defined 
benefits. Defined benefits means you are guaranteed something when you 
retire; based on the length of time you have worked and maybe how much 
money you have made, it is a defined benefit. It is what you are going 
to receive.
  So there can be a lot of complexities to calculating how to have 
enough money so that at the time you retire there is money in the bank 
to pay the annuity that you deserve at that point in time.
  So we can see why there would be kind of a rush to the defined 
contribution, which is where the company at that point in time knows 
exactly what they have to pay in each year and they are willing to do 
that, but they are not telling you that you are going to have a 
specific amount when you do happen to retire. There will be money 
there, but it will not be a specific plan of receipt at that point in 
time.
  All we are talking about in this particular pension bill are the 
defined benefit plans. That was set up under law so that when a company 
says you will have these benefits, you know that the Federal Government 
is providing some oversight to make sure those benefits will be 
available when the time for you to retire happens.
  So companies are forced to show they have the resources on hand to 
make these future benefit payments when they come due. Pension law must 
be finely tuned to accurately reflect the plan's ability so that the 
appropriate funding levels can be determined.
  Unfortunately, the current system is off key. We have had some 
different things happen than we have had to worry about in this system 
for a long time. The outdated 30-year Treasury rate, which is what is 
used to calculate a plan's current liability, has distorted the funding 
levels. Simply put, a lower interest rate means employers have to put 
more cash into their plans to satisfy the pension funding requirements, 
and continued use of this artificially low interest rate places the 
worker's retirement, the pension plan, and the employer's business at 
risk. If all of the money for the retirement plans was actually being 
held in 30-year Treasurys, then that would be an accurate calculation, 
but it is not. It has not been for quite awhile.
  We have not changed the way that it is calculated. So continued use 
of this artificially low interest rate does place the retirement plan, 
the worker's retirement, and the business itself at risk, particularly 
if we expect them to make up differences that occur for a number of 
reasons in a very short period of time.
  Pension plans are built over a long period of time, and it has always 
been the intent that they be built over a long period of time, so that 
when the person retires the money is there, and what we are trying to 
do in this bill is to make sure all of those things happen. A business 
that goes out of business no longer provides the security for the 
employee, and too steep of a curve for putting money in there keeps 
them from doing the business they are designed to do, which over even a 
short period of time can eliminate that business. A bankrupt business 
does not provide the kind of security that is needed for the retirement 
system. Under the current system, with the 30-year Treasury rate, 
businesses will have to divert billions of dollars from development and 
job creation to satisfy the misguided funding rules of the 30-year 
Treasury. Again, if that is where all the money was--it is where very 
little of the money is--then that would be an accurate way to do it.
  The number of defined benefit pension plans in this country is 
steadily declining. I have given you a little bit of the reason why 
that is, but it is due in large part to the complex and restrictive 
pension laws. In 1983, there were 175,000 defined benefit pension 
plans. Today there are fewer than 35,000. Many more companies may 
choose to freeze or discontinue their plans when faced with 
artificially inflated funding payments. We must act now to prevent 
further deterioration of the pension system and to protect our economic 
recovery. But we must not act in haste to pass long-term sweeping 
changes that might undermine the retirement security of American 
workers.
  A use of the obsolete 30-year Treasury rate has combined with recent 
stock market losses and economic conditions to create what we are all 
referring to as ``the perfect storm'' for the pension fund environment. 
Last year the Pension Benefit Guarantee Corporation had a record $11.2 
billion deficit. The amendment offered today will provide temporary 
relief to recover from this perfect storm, while Congress considers 
comprehensive pension funding reform--comprehensive reform, but not 
just done in a hurry so it is just an overreaction.
  The amendment provides the following temporary relief. I am very 
pleased this is supported in a very bipartisan way. There were 
agreements to limit the number of amendments, to make sure the second-
degree amendments were germane to the main amendment, so that we can 
get this wrapped up in a hurry and get some temporary relief in place.
  What the bill does, it replaces the 30-year Treasury bond rate with a 
conservative long-term corporate composite rate. This is done for a 
period of 2 years. It also defers a portion of accelerated deficit 
reduction contributions by airlines and steel companies for 2 years. 
That is the accelerated deficit reduction, accelerated because of this 
perfect storm. That is just for a period of 2 years. It also defers the 
amortization of recent investment losses by multiemployer plans for 2 
years, which allows these collectively bargained plans time to return 
to the bargaining table.
  I stress this relief is temporary. It does not forgive a pension 
plan's debt. It contains the important safeguards to prevent further 
decline in the financial health of a plan. It gives the plans time to 
recover their footing--and this may be just as important--and gives 
Congress time to carefully consider the best way to improve the 
troubled pension funding system.
  It is often the case here that if something is worth reacting to, it 
is worth overreacting to. We have to be careful not to overreact to the 
pension system's current funding troubles. Replacing the 30-year 
Treasury rate along with improving economic and market

[[Page 361]]

conditions should improve the temporary funding deficiencies created by 
this perfect storm. But we have to look beneath the clouds of recent 
unique circumstances to see the true health of the pension funding 
system and identify where reform is needed. We must learn from the 
lessons of the perfect storm to reduce the volatility, to bring pension 
accounting closer to reality, to increase the transparency and 
disclosure of pension information to participants. They deserve to, and 
have to, know where their fund is at all times.
  With this legislation, we give ourselves time to ensure that we make 
the right decisions to strengthen the pension system and improve 
retirement security. These decisions will be very difficult but we have 
to make them. Anything less is unacceptable. We cannot pass the burden 
of a broken pension system on to future generations.
  Of course, while we are doing that we need to make sure we are also 
taking a look at Social Security, because Social Security is a defined 
benefit plan and it is underfunded. We have a chance to fix that. The 
earlier we work on it, the better it can be fixed with the least pain. 
Of course, part of that process has to be to ensure that those who are 
entering the job market continue to pay into Social Security.
  In another 25 or 30 years there will not be anybody here who is here 
now. It will be the generation coming into the job market right now, 
the ones who are going to discover that 15 percent of their paycheck is 
going into a defined benefit plan, Social Security, and that the money 
isn't going to be there when they get out, when they are ready to take 
advantage of it because what goes in today gets paid out today, 
essentially. They could end that defined benefit system because they 
will say we don't owe anything to those people, just ourselves.
  I am hoping that is not the attitude in this country. But it is 
something we have to worry about as well. But the more immediate need, 
the one that is having difficulties right now with the funding process, 
and unlike the Social Security system, is funded--it is funded and we 
are having a crisis with it--that is the one we want to take care of. 
But we need the time to do it right and this bill will give us time to 
do it right.
  I ask people to pay careful attention to the amendments, work in a 
very bipartisan way to get this 2-year solution, so we can come up with 
the overall solution.
  I yield the floor.
  The PRESIDING OFFICER. The Senator from Ohio.
  Mr. DeWINE. I thank the Chair.

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