[Congressional Record (Bound Edition), Volume 151 (2005), Part 19]
[House]
[Pages 26014-26016]
[From the U.S. 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

[[Page 26015]]

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 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

[[Page 26016]]

     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 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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