Month: September 2004

Benefitsblog will be on hiatus while I complete some projects.

The New York Times is reporting: “IBM Employees Get $320 Million in Pension Suit.” According to the article:

Under the settlement, which is subject to approval by the court, IBM would pay at least $300 million to current and former employees and $20 million to employees who had not been at the company long enough to earn a pension. The payment of $300 million settles all disputes that arose when IBM changed its pension plan the first time, in 1995, to an interim design called a pension-equity plan.

But the settlement leaves unresolved the two claims in the class-action lawsuit that pertain to cash-balance pensions. IBM intends to appeal those claims. One remaining claim is at the very heart of the case: whether cash-balance pension plans by definition discriminate against older workers.

PlanSponsor.com has a good summary of the development here and reports that the settlement caps IBM’s liability with respect to the cash balance plan issue at $1.4 billion if IBM were to lose that issue on appeal.

From the Wall Street Journal article here:

IBM Treasurer Jesse Greene said that “this settlement protects the company and our shareholders.” He said that even if it loses the sections it is appealing, “the remedies are within IBM’s ability to handle.” IBM said it expects to prevail on appeal.

As part of the Economic Growth and Tax Relief Reconciliation Act of 2001 (“EGTRRA”), Congress enacted a provision requiring a plan to roll over the accounts of participants that exceed $1,000 (but do not exceed $5,000) and are distributable, if the participant does not elect to roll over the account directly or to receive the distribution. This EGTRRA provision, however, was not effective until the DOL issued guidance, and EGTRRA required the DOL to issue this guidance by June 7, 2004, which it did in the form of proposed regulations discussed here. The DOL has announced that it has finalized those regulations (access them here) providing guidance and establishing a safe harbor pursuant to which a fiduciary of a pension plan subject to Title I of ERISA will be deemed to have satisfied his or her fiduciary responsibilities in connection with the provisions. Also, the DOL has issued a final class exemption permitting a fiduciary of a plan, who is also the employer maintaining the plan, to establish, on behalf of its separated employees, an individual retirement plan at a financial institution which is the employer or an affiliate. The effective date of the final regulations is March 28, 2005.

There are a number of interesting differences between the proposed and the final regulations, the most notable of which is the fact that the DOL has extended the safe harbor to rollovers of mandatory distributions of $1,000 or less. The DOL states in the final regulations that it “believes that the availability of the safe harbor for such distributions may increase the likelihood that such amounts will be rolled over to individual retirement plans and thereby may promote the preservation of retirement assets, without compromising the interests of the participants on whose behalf such rollovers are made.”

Another major change to these final regulations has to do with the fees and expenses that can be assessed against an individual retirement plan. The DOL explains that “[m]ost commenters objected to the provision limiting fees and expenses to income earned by the individual retirement plan” and argued “that the income to be generated by the investments permitted by the safe harbor against which expenses may be assessed would be very limited, while the costs attendant to maintaining such individual retirement plans would tend to be higher than individual retirement plans with respect to which the account holder contributes and maintains contact with the institution.” Commenters argued that this problem would limit the number of individual retirement plan providers that would be willing to accept rollover distributions in accordance with the safe harbor regulation.

Accordingly, the DOL has provided in the final regulations that “[a]ll fees and expenses attendant to an individual retirement plan, including investments of such plan, (e.g., establishment charges, maintenance fees, investment expenses, termination costs and surrender charges) shall not exceed the fees and expenses charged by the individual retirement plan provider for comparable individual retirement plans established for reasons other than the receipt of a rollover distribution subject to the provisions of section 401(a)(31)(B) of the Code.” The DOL states that the “comparability standard” is sufficient to protect individual retirement plans from being assessed unreasonable fees. (Interesting assumption here in light of recent controversies over unreasonable 401(k) fees and expenses. )

Regarding the effective date provisions, the DOL provides that:

(1) The final regulation shall apply to the rollover of mandatory distributions made on or after March 28, 2005.

(2) The EGTRRA automatic rollover provisions will be effective March 28, 2005. The DOL states: “Section 657(c)(2)(A) of EGTRRA provides that the requirements of section 401(a)(31)(B) of the Code requiring automatic rollovers of mandatory distributions to individual retirement plans do not become effective until the Department prescribes a final regulation. Inasmuch as it appears clear that Congress did not intend fiduciaries to be subject to the automatic rollover requirements under the Code in the absence of a safe harbor, the Department as well as Treasury and IRS believe that the effective date of the Code’s rollover requirement must be determined by reference to the effective date of this regulation, which is the point in time when plan fiduciaries may first avail themselves of the relief provided by the safe harbor.“

(3) Prior to the March 28, 2005 effective date, fiduciaries may rely in good faith on the regulation for purposes of satisfying their fiduciary responsibilities under section 404(a) of ERISA with regard to the selection of an institution to receive a rollover of a mandatory distribution and the initial investment choice for the rolled-over funds made before the effective date of this regulation. However, the class exemption is not available prior to the effective date for purposes of the prohibited transactionr relief afforded by the exemption.

Broc Romanek‘s post entitled “SEC Brings Enforcement Action over GE Compensation Disclosures” discusses an important SEC administrative proceeding release here. The subject matter of the release is a certain executive’s perks and benefits received under a post-retirement consulting agreement.

Two great articles on blogs worth noting:

(1) From Fortune.com, “It’s Hard to Manage if You Don’t Blog: Business embraces the new medium as executives read—and write—blogs.” Excerpt:

Jonathan Schwartz, president and COO of Sun Microsystems, has recently criticized statements by Intel executives, mused that IBM might buy Novell, and complained about a CNET.com article—all by writing a blog on a Sun website. Yep, blogs—which are a way to post text to a website—have found their way into business. Schwartz is the highest-ranking executive yet to embrace the new medium, which is burgeoning globally. About 35,000 people read his blog [http://blogs.sun.com/roller/page/jonathan] in a typical month, including customers, employees, and competitors.

The article notes that Schwartz encourages all of Sun’s 32,000 employees to blog, though only about 100 are doing it so far. You can access their blogs here.

(2) From the Salt Lake Tribune: “Parker: ‘Rathergate’ illustrates the promise of blogs.” Some great writing, including this excerpt:

The implication that bloggers are slacker dust bunnies has delighted bloggers, the best of whom are lawyers, professors, scientists, renegade journalists and techies of various sorts . . . [T]he blogosphere isn’t just a challenge to journalism in its currently stagnant state, but a potential boon to problem-solving of a higher order. The beauty of the blogosphere is that it is self-igniting, self-propelling and self-selecting, a sort of intellectual ecosystem wherein the best specimens from various disciplines descend from the ethers, converge on an issue and apply their unique talents. Though virtually newborn, the blogosphere has blossomed exponentially in a matter of Earth-time seconds . . .

Bloomberg.com is reporting: “Wal-Mart, General Motors May Use Bush Plan to Cut Health Costs.” The article quotes Richard Berner, chief U.S. economist at Morgan Stanley in New York , as saying that “t]he surge in health-care costs has damped economic growth because companies are wary of raising salaries or adding workers.” According to the article, companies like General Motors, Wal-Mart, Intel Corp. and Textron Inc are now considering HSAs. Excerpt:

“The data is crystal clear,” said Chief Executive Rick Wagoner of General Motors, the nation’s largest buyer of health care through its employee-benefits program. “The U.S. is spending more on health care than any other country.”

While General Motors says health care adds $1,400 to the cost of each car, Honda Motor Co. of Japan, which has a national health-care system, spends only about $400 extra, said Sung Won- Sohn, chief economist at Wells Fargo & Co. in Minneapolis.

“That hurts jobs,” Sohn said. “It’s like any other cost; like we see the cost of oil is hurting economic growth and raising prices. Health care slows economic growth.”

More from the article:

Aetna Inc., the third-largest U.S. health insurer, said employers using plans similar to the savings accounts held health-care cost increases to 3.7 percent.

CCH has a good overview of the Working Families Tax Relief Act of 2004 (H.R. 1308) which was adopted by the House on September 23 by a vote of 339-65 and by the Senate 92-3 on the same day. The bill now goes to the President for his signature.

Under the Act, Archer Medical Savings Account (“MSA”) provisions have been extended through December 31, 2005. Here is what the CCH report has to say about MSAs:

Archer MSAs have not fulfilled the initial vision of many lawmakers. Participation has lagged and now they have a new competitor: Health Savings Accounts (HSAs). Dan Perrin, Executive Director of the HSA Coalition in Washington, D.C. told CCH Tax & Accounting that HSAs are “supplanting MSAs in the marketplace. Ninety-nine percent of the time, consumers are converting to HSAs.” Perrin predicted that this trend would continue unabated in 2005. MSA balances may be rolled over into HSAs.

Also, the Act extends the ERISA and PHSA provisions relating to mental health parity to benefits for services furnished before January 1, 2006. The conference agreement also extends the Code provisions relating to mental health parity to benefits for services furnished on or after the date of enactment and before January 1, 2006. Thus, the excise tax on failures to meet the requirements imposed by the Code provisions does not apply after December 31, 2003, and before the date of enactment (i.e. under the legislation, there would be a “gap” period concerning the excise tax. The excise tax imposed on plans for failure to meet the mental health parity requirements would not apply after 2003 and before the date of enactment.)

In addition, the new law devotes a separate title to “Technical Corrections”, covering 15 major issues. Some of them relate to benefits as follows (taken directly from the Joint Explanatory Statement of the Committee of Conference):

Amendments Related to the Medicare Prescription Drug, Improvement, and Modernization Act of 2003:

Additional tax relating to health savings accounts.-Under present law, section 26(b) provides that “regular tax liability” does not include certain “additional taxes” and similar amounts. Under present law, regular tax liability does not include the additional tax on Archer MSA distributions not used for qualified medical expenses (sec. 220(f)(4)). The provision adds to the list of such amounts the additional tax on distributions not used for qualified medical expenses (sec. 223(f)(4)) under the rules relating to health savings accounts.

Health coverage tax credit–Under present law, section 35(g)(3) provides that any amount distributed from an Archer MSA will not be taken into account for purposes of determining the amount of health coverage tax credit (“HCTC”) an individual is eligible to receive. Under the provision, section 35(g)(3) is amended to provide that amounts distributed from health savings accounts are not to be taken into account for purposes of determining the amount of HCTC an individual is entitled to receive.

Amendments Related to the Economic Growth and Tax Relief Reconciliation Act of 2001:

Rounding rule for retirement plan benefit and contribution limits.-Section 611 of EGTRRA increases the dollar limits on qualified retirement plan benefits and contributions under Code section 415, and adds a new rounding rule for cost-of-living adjustments to the dollar limit on annual additions to defined contribution plans. This new rounding rule is in addition to a pre-existing rounding rule that applies to benefits payable under defined benefit plans. The provision clarifies that the pre-existing rounding rule applies for purposes of other Code provisions that refer to Code section 415 and do not contain a specific rounding rule.

Excise tax on nondeductible contributions.-Under section 614 of EGTRRA, the limits on deductions for employer contributions to qualified retirement plans do not apply to elective deferrals, and elective deferrals are not taken into account in applying the deduction limits to other contributions. The provision makes a conforming change to the Code provision that applies an excise tax to nondeductible contributions.

SIMPLE plan contributions for domestic or similar workers.-Section 637 of EGTRRA provides an exception to the application of the excise tax on nondeductible retirement plan contributions in the case of contributions to a SIMPLE IRA or SIMPLE section 401(k) plan that are nondeductible solely because they are not made in connection with a trade or business of the employer (e.g., contributions on behalf of a domestic worker). Section 637 of EGTRRA did not specifically modify the present-law requirement that compensation for purposes of determining contributions to a SIMPLE plan must be wages subject to income tax withholding, even though wages paid to domestic workers are not subject to income tax withholding. The provision revises the definition of compensation for purposes of determining contributions to a SIMPLE plan to include wages paid to domestic workers, even though such amounts are not subject to income tax withholding.

Rollovers among various types of retirement plans.-Section 641 of EGTRRA expanded the rollover rules to allow rollovers among various types of tax-favored retirement plans. The provision makes a conforming change to the cross-reference to the rollovers rules in the Code provision relating to qualified retirement annuities.

Amendment Related to the Small Business Job Protection Act of 1996:

Defined contribution plans.-The Small Business Job Protection Act of 1996 amended section 401(a)(26) (generally requiring that a qualified retirement plan benefit the lesser of 50 employees or 40 percent of the employer’s workforce) so that it no longer applies to defined contribution plans. Section 401(a)(26)(C) (which treats employees as benefiting in certain circumstances) was not repealed even though it relates only to defined contribution plans. The provision repeals section 401(a)(26)(C).

Some helpful links regarding the Act:

Working Families Tax Relief Act of 2004 (H.R. 1308)
Committee on Ways and Means, Summary of Conference Report
Joint Explanatory Statement of the Committee of Conference
Thomas Bill Summary & Status

As noted in this previous post here, the House of Representatives on Tuesday (237-162) approved the Gutknecht-Sanders Amendment pertaining to cash balance plans, which reads as follows:

None of the funds appropriated by this Act may be used to assist in overturning the judicial ruling contained in the Memorandum and Order of the United States District Court for the Southern District of Illinois entered on July 31, 2003, in the action entitled Kathi Cooper, Beth Harrington, and Matthew Hilleshein, Individually and on Behalf of All Those Similarly Situated vs. IBM Personal Pension Plan and IBM Corporation (CivilNo. 99-829-GPM).

For those who are interested in reading the debate which took place on the floor of the House of Representatives over the Amendment, continue reading . . .

AMENDMENT NO. 5 OFFERED BY MR. SANDERS

Mr. SANDERS. Mr. Chairman, I offer an amendment.

The CHAIRMAN pro tempore. The Clerk will designate the amendment.

The text of the amendment is as follows:

Amendment No. 5 offered by Mr. Sanders:

At the end of the bill, insert after the last section (preceding the short title) the following new section:

SEC. __X. None of the funds appropriated by this Act may be used to assist in overturning the judicial ruling contained in the Memorandum and Order of the United States District Court for the Southern District of Illinois entered on July 31, 2003, in the action entitled Kathi Cooper, Beth Harrington, and Matthew Hillesheim, Individually and on Behalf of All Those Similarly Situated vs. IBM Personal Pension Plan and IBM Corporation (Civil No. 99-829-GPM).

The CHAIRMAN pro tempore. Pursuant to the order of the House of Tuesday, September 14, 2004, the gentleman from Vermont (Mr. Sanders) and a Member opposed each will control 20 minutes.

The Chair recognizes the gentleman from Vermont (Mr. Sanders).

Mr. SANDERS. Mr. Chairman, I yield myself 7 minutes.

Mr. Chairman, this tripartisan amendment is cosponsored by the gentleman from Minnesota (Mr. Gutknecht), the gentleman from California (Mr. George Miller), the gentleman from New York (Mr. Hinchey), and the gentleman from Illinois (Mr. Emanuel). This amendment also has the strong support of the AARP, the largest senior citizen group in this country, representing over 35 million Americans; the AFL-CIO, representing all of organized labor; and the Pension Rights Center.

Mr. Chairman, last year, this amendment passed the House by a vote of 258 to 160. Two years ago, a similar amendment passed by a vote of 308 to 121. By voting for this amendment today, we will be protecting the retirement benefits of some 8 million American workers who have seen their pensions slashed by as much as 50 percent through age discriminatory cash balance pension schemes and the 14 million more American workers who still have traditional, defined benefit plans that could be converted to cash balance schemes. That is the issue today: standing up for those workers and protecting the pensions that they have been promised.

The reason that this amendment is coming up again today is, despite the very strong, tripartisan support that we have seen in the House, this bill has yet to be implemented into law, and it is imperative that we keep fighting and keep standing with American workers who want us to do that.

Mr. Chairman, this amendment is simple and straightforward. In July of 2003, a Federal court ruled that IBM’s cash balance pension plan violates Federal anti-age discrimination law. The judge in this case is expected to award damages to IBM employees any day now, after which the company will appeal to the Seventh Circuit Court of Appeals.

Our amendment today would simply prohibit the Federal Government from assisting in overturning this pro-worker court decision. IBM deserves its day in court, like every other litigant, but taxpayer money should not be used to support an age-discriminatory cash balance plan. And this amendment gives Congress the opportunity to make that very clear.

Mr. Chairman, let us be very clear. While this particular lawsuit involves IBM’s conversion to a cash balance plan, there are hundreds of other companies that have done exactly the same thing. This is not just IBM; it is hundreds of companies, companies like AT&T, Duke Energy, CBS, Bank of America, Enron, WorldCom and many others. It is not only IBM employees who are hurting but millions of workers from one end of this country to the other who have also been affected, people whose retirement dreams have been shattered when companies change the rules of the game and slash the retirement benefits that were promised to their employees.

This precedent-setting court ruling against cash balance plans confirms what American workers have been saying for years: Cash balance pension conversions discriminate against workers based on age, are illegal and, without adequate protections for older workers, must be stopped. And that is what we are here to do today.

Mr. Chairman, let me just read a brief excerpt from the ruling of Judge Murphy: “In 1999, IBM opted for a cash balance formula. The plan’s actuaries projected that this would produce annual savings of almost $500 million by 2009. These savings would result from reductions of up to 47 percent in future benefits that would be earned by older IBM employees. The 1999 cash balance formula violates the literal terms of the Employee Retirement Income Security Act. IBM’s own age discrimination analysis illustrates the problem.” That was Judge Murphy.

Mr. Chairman, I became involved in this issue several years ago when hundreds of IBM employees in Vermont contacted my office and told me that the pensions that they had been promised by the company had been cut by 20 to 50 percent. In fact, the largest town meeting that I have ever held in Vermont, and I have held many, was for some 700 IBM workers who came out to demand that the company rescind the changes that had been made in their pension plan.

Mr. Chairman, think about it. Think about workers staying at a company through good times and bad times, providing loyalty to their employers because, among other reasons, they expect to receive certain agreed-upon pensions when they retire. And then, Mr. Chairman, one day, out of nowhere, the company sends a document, maybe it is an e-mail, which says, in so many words: Thank you, employees, for your dedicated service to the company, but forget about the promises that we made to you regarding the retirement that you and your family were anticipating. Forget about it. That is gone.

And, in many instances, while pulling the rug out from under their employees, we are seeing older workers, years of service to a company, suddenly find that the pensions that they had been planning on, the retirement dreams that they had been expecting, slashed by up to 50 percent.

Mr. Chairman, for those Members who will tell us that cash balance conversions are good things and should be supported, and there will be some today, I would remind them of a report from the Congressional Research Service that I requested. And very simply, what I asked the CRS to tell me is, what impact would a conversion to cash balance mean for Members of Congress, because I hear over and over again, Members of Congress, they want the American people to have what they have.

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Well, surprise, surprise. What the CRS reported was that, if Congress converted to cash balance payment plans, our retirement benefits would go down, down, down. So, if any Member today thinks that it is a great idea to force cash balance payment plans on the workers of America, I hope that they will do the same thing for the Members of Congress and cut their pensions by up to 50 percent.

Mr. Chairman, all over this country today, there is enormous pension anxiety. People who have worked for decades are wondering whether the promises made to them will be kept. That is the issue today. Let us vote for this tripartisan amendment.

Mr. Chairman, I reserve the balance of my time.

Mr. ISTOOK. Mr. Chairman, I claim the time in opposition to the amendment.

The CHAIRMAN pro tempore. The gentleman from Oklahoma (Mr. Istook) is recognized for 20 minutes.

Mr. ISTOOK. Mr. Chairman, I yield myself such time as I may consume.

Mr. Chairman, maybe people do not realize what we are actually debating. We are not debating pension plans. We are not debating conversion of pension plans from one type to another. We have before us the amendment by the gentleman from Vermont to this Transportation and Treasury appropriation bill, and maybe people do not realize what the amendment says.

The amendment says that you cannot use any of the money appropriated in this bill to assist in overturning the judicial ruling on a particular court case. That case, which was in the Southern District of Illinois, decided last year, was the action of Kathi Cooper, Beth Harrington and Matthew Hillesheim, Individually and on Behalf of All Those Similarly Situated v. IBM.

The amendment says, do not use any of the money in this appropriations bill to assist in overturning a court case to which the United States Government is not even a party. It is a case between IBM and some workers at IBM. Not only that, this bill does not contain funding for the judicial system, nor do I believe it is the role of this Congress to say, when I like a court decision, I am going to come here with a bill that says, nobody can overturn this court decision. If I do not like a court decision, I am going to come here with a bill that says, we must overturn the court decision.

Now, we can change underlying law. That is our job. But it is not our job to say, we are going to decide a particular court case. If we want to change the law that governs the entire country, we ought to do it, but not come with a bill that has nothing to do with the judicial system and say, you cannot use this to overturn a court case between IBM and some of its workers.

Now, there is a lot of controversy, we know, about types of pension plans and conversions of pension plans. We have legislation that is being considered. We have the Treasury Department, which is working on potential regulations relating to those conversions. And the Treasury Department works with every company in the country and every individual covered by a pension plan in the country, and you cannot say you do not communicate with each other.

[Time: 15:30]
But, again, that is not what this says. It says, do not help somebody overturn a court case to which you are not a party. Come on, get real. Besides which, there has been other litigation on this case, and other courts came down on the other side. I think there have been four cases around the country. Three went one way; this one went the other.

If we want to talk about the issues, let us bring legislation to talk about what pension laws should be generally, not try to say we are going to overturn a court case with an action before this Congress in the amendment.

One final thing just because I know that the proponents of the amendment are getting into the merits of the case. Basically, that case said, well, it is age discrimination if somebody is going to work for a company longer and so their benefits earn more interest than somebody that works for a shorter period of time. And this court decided that was age discrimination. If money accrues more interest because it is invested longer, they call that age discrimination. I do not. I do not think most people who apply common sense would think that.

But this amendment does not belong on this bill. This is not changing the law of the land. This is trying to change the outcome of a lawsuit that is now on appeal to which the United States is not even a party. We should not be doing that.

I ask for opposition to this amendment.

Mr. Chairman, I reserve the balance of my time.

Mr. SANDERS. Mr. Chairman, I yield 4 minutes to the gentleman from Minnesota (Mr. Gutknecht), a gentleman who has been very active in supporting workers on pension issues.

Mr. GUTKNECHT. Mr. Chairman, I thank the gentleman for yielding me time.

I want to agree in most part with what the chairman said about this issue. It probably is not the appropriate time to have a big debate about pension policy, but I come to a completely different conclusion.

He said this amendment does not belong on this bill. It is a shame that we have to talk about this amendment on this bill, because it really is about pension policy, and it is about age discrimination, and it is about one company in particular. Now, I do disagree with the gentleman from Vermont (Mr. Sanders). I do not think all of these cash balance plans are inherently evil. And, frankly, there have been a number of companies that have converted their pension plans working with the collective bargaining units, working with their employees, giving employees their choice that have done things the right way. So these are not inherently evil things in terms of pension.

As we go forward as a society, as people change jobs more often, the idea of a cash balance plan may make some sense; but it does not make sense when you have a system that works the way it did in the IBM employees’ case, and that is where they were given no choice, they were given no say. These were people with vested benefits.

Let me remind Members about what vested says about things. This is the quotation from Webster’s Collegiate Dictionary. It says: “Fully and unconditionally guaranteed as a legal right, benefit, or privilege.”

Now, these employees showed up for work one day, and they thought they had a pension benefit plan that was vested, that was theirs, that was fully and unconditionally guaranteed; and all of the sudden they found out that day that vested does not mean what they thought it meant. And they finally wound up getting this case before a Federal judge in a Federal court. And the Federal court, and I believe the Federal court in this case was absolutely right, said, wait a second. You cannot do this because the way pensions accrue value is you get most of the benefit.

There is sort of an ascending curve in pension benefits, and it is toward the end of your working career when you get the most benefit. So people who had worked for IBM for 20 years and were going to retire in 5 or 6 years, and I will say that IBM under enormous pressure did rescind the original package that they put in front of the employees, they made it a little better for older workers.

But it did not change the basic facts. First of all, the employees were given no choice even if they were vested. What it did and the reason why IBM and a lot of other employees wanted to convert to these cash balance plans is because they understood that it was a way to shave off those benefits for older workers in the last 5 or 6 years that they might be working for the company.

The bottom line is this: what they were really trying to do is get their hands in the pension funds, because they realized and their actuaries realized that most of these pension funds were overfunded, and they could literally move that money from the pension fund to their bottom line by making these conversions.

Companies are now coming and saying, gee whiz, this is going to cost us billions of dollars. Well, yes, it is going to cost billions of dollars because that was the employees’ money. It did not belong to the employer. In fact, in some respects pension funds do not belong to the employee or employer. It is money being held in trust. And one company broke that trust, and the

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Federal courts have come down on them very heavily.
I agree with the chairman, we should not have to be offering this amendment today because it is just outrageous for us to think that our own Federal Government would attempt to intervene in a case in which they are not a party to try and overturn a hard-won victory for the employees of IBM. This is an outrage. This is where we, whether Republicans or Democrats, ought to stand together and say it is wrong to steal from pension funds.

Support the Gutknecht-Sanders amendment.

[Begin Insert]

I come to the floor as a cosponsor of this important amendment. IBM employs about 5000 people in my district and there are close to 5000 IBM retirees across the state of Minnesota. Their employees are also my constituents and I, therefore, have a vested interest in ensuring IBM employees are treated fairly.

Fifty years ago a salary was the most important thing to workers. Times have changed. today pensions and other benefits are the main reasons workers choose a particular company. It is important we encourage employers to keep their promises to their employees and not change their pension plans in midstream.

When an employee becomes vested in a pension plan he or she expects to receive those benefits. “Vested” according to my Webster’s Collegiate Dictionary means “fully and unconditionally guaranteed as a legal right, benefit, or privilege.” These expected benefits should not be taken away.

Unfortunately, IBM did just that. Perhaps IBM received bad business advice, but the method by which IBM went about switching to a cash balance pension plan was far from exemplary. Let me remind you we’re not talking about a company in dire fiscal straits. We’re talking about a very healthy company.

Originally IBM offered only those employees within five years of retirement a choice between the old and new pensions plans. While I am pleased they expanded this choice to cover more employees after the employees rightly expressed their outrage, I believe the court case brought against IBM should proceed without intervention by the U.S. Treasury Department.

I wish IBM had adopted models used by other companies when they switched to alternatives to traditional defined benefit pension plans.

For example, Honeywell, another company with many employees in Minnesota, across America, and around the world, switched to a pension equity plan in 2000. Honeywell offered all their employees a choice between remaining in the old plan and switching to the new plan. This is the model of how I feel companies should proceed in this area.

The Director of Benefits for Eaton Corporation, Ellen Collier, testified in front of the House Education and Workforce Committee this year that her company has given employees the choice between two retirement plans. Motorola, Deloitte & Touche, Northern States Power, Eastman Kodak and many other companies have all given their employees choice between old and new plans.

I understand that cash balance plans are a reality of the modern world and we should not discourage companies from offering them. I, however, do feel there are right and wrong ways to go about converting from one plan to another.

IBM handled this inappropriately and I believe the court case should proceed without federal government involvement.

This amendment overwhelmingly passed the House last year by a vote of 258 to 160 with strong support from both sides of the aisle. It is supported by the AARP. I urge my colleagues to support the Sanders/Gutknecht Amendment.

[End Insert]

Hon. GIL GUTKNECHT,
House of Representatives,
Washington, DC.
DEAR REPRESENTATIVE GUTKNECHT: AARP supports the Gutknecht-Sanders amendment to the Transportation, Treasury and Independent Agencies Appropriations Act for Fiscal Year (FY) 2005 to ensure that the Internal Revenue Service (IRS) does not use any funds in contravention of current law prohibitions on age discrimination in pension plan funds and to specifically prohibit the IRS from issuing regulations or implementing any other measure that would conflict with the July 31, 2003, federal court ruling in Kathi Cooper, et al. v. IBM Personal Pension Plan, et. al.

AARP has long been concerned with the legal basis for the hybrid cash balance formula and the significant age discriminatory issues that arise when employees convert defined benefit pension plans to a cash balance formula. We believe that a careful review of the legal distinction between defined benefit and defined contribution plans such as was conducted by the federal court in Cooper makes clear that the most common designs for hybrid cash balance plans do not fit within the current legal framework of the Internal Revenue Code (IRC), the Age Discrimination in Employment Act (ADEA), and the Employee Retirement Income Security Act (ERISA).

As the court concluded in Cooper, the cash balance plan formula discriminates against older workers, and older workers are particularly disadvantaged when an employer converts from a defined benefit pension plan to a cash balance plan. These longer-term employees have given up wages and accepted a lower pension in the early years of their employment in exchange for the larger future benefits from their employer’s traditional defined benefit pension plan. Without adequate protection, older workers will now lose some of the benefits they were promised. Older workers generally have less time to accumulate benefits under a new cash balance formula, have a harder time leaving their current job if compensation and benefits are cut, will have fewer prospects of finding a new job, and are less able to adjust to the changes that may dramatically reduce their retirement security (for example, they have less time to adjust by increasing their savings for retirement).

In September 1999, the IRS imposed a moratorium on corporate plans that convert traditional defined benefit plans to a cash balance formula so the agency could review the matter. The moratorium suspended consideration of approximately 300 pending applications submitted by corporations to convert an existing plan to a cash balance formula. The Treasury initially proposed regulations in December 2002 that would have lifted the moratorium and permitted corporations to establish cash balance plans. However, the IRS withdrew the proposed regulations in July of this year.

In its FY 2005 budget, the Administration proposed legislation that would have addressed some of the concerns related to cash balance plan conversions. AARP was pleased that the legislative proposal recognized the problem with so called “wear-away” and recommended a ban on the wear-away of any benefits at any time after a cash balance plan conversion. In recognition of the transition problem faced by workers, the Administration’s proposal also included a five-year “hold harmless” period after each cash balance plan conversion.

While the proposal is a step in the right direction, it does not go far enough. More can be done to ensure that older workers are adequately protected from the impact of a “pension pay cut” in any conversion to a cash balance plan. In fact, many of the recent pension conversions–recognizing the harm to older workers–have provided older and longer-service workers with more generous transition relief, including a choice to remain in the old plan rather than move to the new cash balance plan. This is further confirmation that business can and should do the right thing for their older, longer-service employees.

AARP believes that Treasury should not take any action that would encourage companies to change their pension plans in a manner that is contrary to the age discrimination laws and the federal court ruling. Rather, Congress should act to ensure that older workers are protected in any cash balance conversion. We urge adoption of this amendment.

Thank you for your leadership and dedication to strengthening the private pension system and protecting the pension benefits of workers. Please let me know, or have your staff call Frank Toohey (202-434-3760) of our Federal Affairs office, if we can be of further assistance.

Sincerely,

Michael Naylor,
Director of Advocacy.

Mr. SANDERS. Mr. Chairman, does the gentleman have additional speakers?

Mr. ISTOOK. Mr. Chairman, I have another speaker that may be arriving, but they are not here at this time; and other than that, I know of no other Members seeking time.

Mr. SANDERS. Mr. Chairman, I yield 4 minutes to the gentleman from Illinois (Mr. Emanuel).

Mr. EMANUEL. Mr. Chairman, I thank the gentleman for yielding me time.

I would like to commend the gentleman from Vermont (Mr. Sanders), the gentleman from Minnesota (Mr. Gutknecht), the gentleman from California (Mr. George Miller), the gentleman from New York (Mr. Hinchey) for their leadership on this issue.

We have been down this road before. We dealt with this earlier where a bipartisan group of Members of Congress came together and sent a clear message as it relates to retirement and pensions that you cannot do what IBM and other corporations tried to do. And Congress in that issue was not left versus right. As my colleague from Minnesota (Mr. Gutknecht) always says, it is about right versus wrong. And a bipartisan group came together as it relates to the retirement plans of Americans who negotiated a deal and woke up in the middle of the night and had that deal abrogated, and that is not right.

Now, as my colleague from Minnesota said, there is a right way and a wrong way and you can create a win-

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win situation. For the older workers who have a defined benefit plan, we are going to honor that. And for younger workers, we are going to get you into a 401(k) or what is called typically a defined contribution, that can happen as well. But you cannot wholesale change something people negotiated in good faith, won at the negotiating table and try in a backhanded way to take that money away. And if we had done that, and as my colleague from Vermont (Mr. Sanders) has shown, if Members of Congress had opposed all of the sudden a cash balance type of retirement system, people here with 18, 20 years would lose hundreds of thousands of dollars in their retirement plan. They would not think it is right. And if it is not right for a Congressman, it should not be right for people who are employees of companies who agreed to something. That would be wrong.
Now, we are dealing with two cases here: the particular case of IBM and the general issue of retirement plans. On the IBM case, I think it is appropriate for this amendment because to date the Treasury Department has consistently tried to find a way, and this is the latest vehicle to get involved in this IBM case as it relates to the retirement plan and IBM’s attempt to go to a cash balance retirement plan which would cheat older workers of many years of their retirement savings that they agreed to and have knowledge that they have when they retire.

We need to stop Treasury from doing what they have been trying to do for 2 years. I do compliment them for their resourcefulness. They have never missed an opportunity to try to figure out a back door to imposing cash balance as a retirement plan.

Now, in general, the larger subject, and, unfortunately, we in this Congress have not gotten to dealing with retirement plans yet as I in my city, we have United Airlines, we have a crisis in people’s retirement plans, but we have a subject here. We as a society have told people, save for your retirement outside of Social Security. It is important for you to save and not just rely on Social Security. And here you have a case of workers who have saved outside of Social Security, done everything they have been told to do, and then corporate America is allowed to walk away and cheat them of that.

You cannot tell people on one hand, you need to save for your retirement, and on the other hand let corporate America steal from it or cheat them of it. You either tell them one thing and have the laws of the land follow it, or you tell them another thing and have the laws of the land follow it.

And the deal we are having here on this, because we have no other venue in dealing with the retirement crisis in America, is that we have to tell people, you are going to save outside of retirement and the laws of the land are going to respect what you have done for your life, which is to plan for you and your spouse’s retirement and so you can retire with dignity, with Social Security, health care as well as the retirement plan you have in the private sector. And our laws are not going to undercut what you have done your whole life. And we are not going to allow management, I understand the pressure management is under, but we are not going to allow them to walk away with what they agreed to.

You can create, as Secretary of Treasury John Snow did at CSX when he was in private sector, he went to a cash balance, and did right. He did right to older workers. He did right to younger workers, and he did right to his bottom line and his shareholders; and he did not cheat anybody.

It is high time the folks in the Treasury Department get their greedy little hands off and stop trying to figure out every way to undermine working men and women in this country and retirees from what they have earned rightfully at the negotiating table.

Mr. SANDERS. Mr. Chairman, does the gentleman’s status remain the same?

Mr. ISTOOK. Mr. Chairman, I just received a note that there is a Member that is on his way.

Mr. SANDERS. Mr. Chairman, I yield 2 minutes to the gentleman from Massachusetts (Mr. Tierney).

Mr. TIERNEY. Mr. Chairman, I thank the gentleman from Vermont (Mr. Sanders) for yielding me time.

This amendment is, in fact, about fairness. It is fairness to the American workers. A Federal court ruled in 2003 in the IBM case a conversion to cash balance plan, in that instance, which would have reduced pensions for older workers by 47 percent was a violation of Federal age discrimination rules.

Now, even though that provision has become law, it has not stopped consultants from trying to convince the Treasury Department to issue new guidance that would overturn that rule and other Court rulings in favor of employees.

By prohibiting the Federal Government from assisting in overturning these judicial rulings, this amendment protects millions of people. Those people stand the risk of having their pensions from hard work and long hours taken away from them by the conversion. It is only right and fair and just that we pass this amendment. More than 8 million employees and retirees have lost $334 billion in benefits as a result of pension plans being shifted to cash balance plans inappropriately.

A large number of older Americans, in this case defined by people 40 years and older, have lost up to 50 percent of the values of their plans. So I think what is even worse about this is the fact that President Bush’s administration has supported treating these workers unfairly by backing cash balance plans.

In December of 2002, the IRS proposed lifting the 1999 moratorium on cash balance plan conversion. This year, the administration’s budget proposed to give corporations a green light to violate pension age discrimination laws, while providing inadequate protection to workers affected in the future. These threats by the administration to workers’ pensions demonstrate the importance of passing this amendment.

By voting for this amendment, Congress will be taking another important step toward protecting the rights of workers. I urge my colleagues to do just that. Support this amendment and stand up for America’s workers.

Mr. SANDERS. Mr. Chairman, how much time is left on both sides?

The CHAIRMAN pro tempore (Mr. Thornberry). The gentleman from Vermont (Mr. Sanders) has 3 minutes remaining. The gentleman from Oklahoma (Mr. Istook) has 16 minutes remaining.

Mr. ISTOOK. Mr. Chairman, I yield myself such time as I may consume.

Mr. Chairman, I think it is important to remind people what this amendment is and what this amendment is not.

This amendment is not determining the question of what types of pension plans are permitted by law. This amendment does not determine the question about whether you can convert, if you are a company, from one type of pension plan to another. That is not what we are talking about. This amendment says specifically that you cannot overturn a particular court case between IBM and its workers that is in contradiction of multiple other court cases about whether a retirement plan is age discriminatory or not.

[Time: 15:45]
That case is on appeal. That case is going to be decided under the law as it existed at the time. We are not changing the underlying law. We are not being asked to create a uniform standard for all companies. We are being asked to help people make sure that they do not lose their case on appeal, even if that appeal is contrary to other court decisions, even if that is not a proper role of this Congress. That is what the amendment is about. It is about stopping the overturning of a particular court case.

Mr. Chairman, yes, there is a large part of other issues that are out there that relate to pension plans, and most of the speakers have been talking about those issues. There are many companies that will tell us they made some bad decisions in years past, and because of it, they and their workers are in a tough spot. They may not be able both to pay the benefits they promised to workers in years past and stay in business.

Many companies have gone into bankruptcy because of this; and in bankruptcy court, if it is a reorganization procedure, they can abrogate, or in other words, they can do away with, or change the terms of, prior pension plans. It is a conflict often between people who worked for a company and received certain promises, and they

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want those promises fulfilled and people who currently work for a company, and the company is not going to be able to stay in business if it is stuck with the old pension plan rules.
That is why so many companies want options in this. That is why we are looking at legislation to give companies options. It is a bona fide, honest debate that we need to be having, but it is not what this amendment is about.

This amendment, says, well, you cannot use any money in this particular appropriations bill to help overturn this one case with one set of workers and one company. We should not even be considering an amendment like this, and I oppose it.

Mr. Chairman, I yield 4 minutes to the gentleman from Texas (Mr. Sam Johnson).

(Mr. SAM JOHNSON of Texas asked and was given permission to revise and extend his remarks.)

Mr. SAM JOHNSON of Texas. Mr. Chairman, I rise today to oppose the amendment by the Representative from Vermont.

The gentleman from Ohio (Chairman Boehner) and I are working on legislation to reform the pension system, and this ill-timed amendment will undermine our efforts. I ask my colleagues to refrain from using the appropriations process to undermine our comprehensive reform efforts in the committee of jurisdiction.

The various sponsors of this amendment have had a problem with the conversion of the IBM pension plan 5 years ago. Despite the fact that IBM gave its employees everything they were asking for, the sponsors of this amendment now want to continue pushing this issue past its logical conclusion.

They now want to enshrine in law a flawed court case. The court case essentially found that the time value of money is age discriminatory.

An example might explain this crazy logic. Let us say a 25-year-old and a 52-year-old were hired on the same day to do the same job at the same pay. Their company would make an equal contribution to each employee’s pension account.

The Cooper case found that the equal pension contribution is age discriminatory. Why? Because the 52 year old has less time to accumulate interest before retiring.

Yes, the logic of the case is that interest or the time value of money is age discriminatory. It is flawed logic, and it has been found to be flawed in every other court that has reviewed this issue.

Thousands of cash balance pension plans cover millions of Americans.

To the extent that the flawed logic of this amendment is given any support in Congress, it will undermine pension plans. Given the growing reluctance of businesses to sponsor traditional defined benefit pension plans, this amendment is just one more reason for companies to walk away from this type of pension and our constituents who need them.

We need to oppose this flawed amendment.

Mr. SANDERS. Mr. Chairman, I yield 1 minute to the gentleman from Minnesota (Mr. Gutknecht).

Mr. GUTKNECHT. Mr. Chairman, I hate to rise and oppose two of my good friends, but I thank the gentleman from Texas (Mr. Sam Johnson), who has just given a speech; and I just want to contradict a couple of things he said.

First of all, if the IBM company had given IBMers all they wanted, they would not be in court; and if there were not age discrimination, they would not have won; and if it were not for the IRS and the Department of Treasury wanting to get involved in this case, we would not have to offer this amendment.

This is wrong. As my friend said, this is not a matter of right versus left. It is right versus wrong. It is wrong for employers to steal from pension funds. It is that simple.

The reason we are here today is to try and keep this administration from doing something incredibly stupid, and that is, getting involved in this case which the workers have already won, and they are right, because it is the age discrimination.

Cash balance plans are not intrinsically evil. I said that earlier; but when you do it in such a way so that you shave off the end where people really accrue benefits, the courts have correctly ruled.

Mr. SANDERS. Mr. Chairman, I would inquire as to the amount of time left both on sides.

The CHAIRMAN pro tempore (Mr. Thornberry). The gentleman from Vermont (Mr. Sanders) has 2 minutes remaining. The gentleman from Oklahoma (Mr. Istook) has 11 minutes remaining, and he has the right to close.

Mr. ISTOOK. Mr. Chairman, I intend to reserve the balance of my time for closing.

Mr. SANDERS. Mr. Chairman, I yield 2 minutes to the gentleman from Massachusetts (Mr. Olver).

Mr. OLVER. Mr. Chairman, I applaud the gentleman from Vermont (Mr. Sanders) and the gentleman from Minnesota (Mr. Gutknecht) for their leadership and work on this issue.

The gentleman from Vermont’s (Mr. Sanders) amendment is very clear. It would prohibit the Federal Government from assisting in overturning or, for that matter, in taking any role thereby in overturning the court decision in this case.

Now, the chairman has characterized this amendment as saying that this court decision cannot be overturned. That is not true at all. IBM and the workers for IBM can contest that, and it can be overturned. The amendment merely says that the U.S. Government cannot take part in the overturning.

The gentleman from Texas has said that this amendment would undermine pension reform. Whatever the chairman’s views on the appropriateness of this amendment for this bill, last year this amendment passed this House on this very same bill by a vote of 258 to 160. The chairman was the chairman then. Two years ago, a similar amendment passed the predecessor subcommittee, the Subcommittee on Treasury, Postal Service and General Government, which the chairman was the chairman of also, by a 308 to 121 vote.

So it has been applied to this bill at previous times; and here again, the only issue is that taxpayer money should not be used to support IBM’s age discriminatory cash balance plan, as the court decided. It would be an insult to workers if their own Federal dollars were used to cut their own pension plans, and we should overwhelmingly adopt this amendment today as we have done on two previous occasions to the exact same bill in previous years.

Mr. ISTOOK. Mr. Chairman, I yield myself such time as I may consume.

This amendment is not necessary for us to intervene in a lawsuit that is on appeal. Even if we did, we would be intervening against the weight of what other courts have ruled, and we would also threaten the efforts that this body and many people in it are undertaking, trying to resolve the tricky issues of pension plans, conversions of other pension plans between defined benefit and defined contribution plans.

This does not belong on this bill, and I ask Members to oppose the amendment.

[Begin Insert]

Mr. GEORGE MILLER of California. Mr. Chairman, I rise in support of the Sanders Amendment.

The Sanders amendment would ensure that the Treasury Department does not use any of its funds to undermine the Federal court decision in Cooper v. IBM that held that cash balance conversions violate Federal pension and age discrimination law.

We’ve been here many times before.

In fact, this is the fourth time that the House is voting to protect older workers’ pensions under cash balance pension plan conversions. The last two times the amendment passed by 308-121 and 258-160.

Instead of voting to prevent the Treasury Department from undermining workers’ pensions, I wish we were voting affirmative legislation to set standards for cash balance plans.

This issue has been going on since 1999.

In 1999, IBM converted its pension plan to a cash balance plan. Luckily, its computer savvy workers quickly figured out that the conversions would reduce their expected pensions. The workers mobilized and got Congress to hold hearings.

The Clinton administration imposed a moratorium on approvals of conversions in September 1999. But then, the new Bush administration tried to issue regulations lifting the moratorium and permit conversions without any worker protections.

Immediately 218 Members of Congress wrote to the President urging him to revise the regulations and protect older workers.

Four times the House and Senate have voted to require Treasury to withdraw its regulations and protect older workers.

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Finally, this year, in 2004, the Bush administration relented and withdrew the regulations. The administration even sent up a revised legislative proposal that contained a modicum of older worker protections through it did not go far enough to protect older workers.

But, still the issue is not resolved. Either Congress or the courts must set standards for cash balance plans and conversions to such plans.

The Republican Congress has done nothing on this issue for almost 6 years. If anything, Republican leader would defer to employer lobbying and simply permit cash balance conversions without any protections for older workers.

That’s why the courts may have to be the body that resolves some of these issues.

One court, the Federal district court for the State of Illinois, determined that conversions are illegal. Other courts have disagreed. These cases and others still waiting to be heard will take years to resolve.

This amendment makes clear that the Treasury Department shall not interfere in these cases.

Today worker pension security is in crisis. This administration has done nothing to protect worker’s pensions and done everything to undermine them.

They didn’t protect workers after Enron and Worldcom from employers loading pension plans with employer stock and letting the executive protect themselves while leaving the workers stuck with worthless stock.

They didn’t protect participants in 401(K) plans from a broad range of mutual fund abuses that have decimated retirement nest eggs.

And they are not protecting workers now from rampant pension underfunding. The PBGC, the agency that insures traditional pensions, has a $10 billion deficit. And if the airlines go under, the deficit will increase by another $30 billion. Over 1,000 pension plans are more than $50 million underfunded. And workers don’t even know because the PBGC is required to keep the information secret.

The administration and the Republican majority are doing nothing to protect worker pensions.

I urge my colleagues to vote once again and remind the majority that it is the will of the Congress that older workers be protected in cash balance pension plan conversions.

[End Insert]

Mr. ISTOOK. Mr. Chairman, I yield back the balance of my time.

The CHAIRMAN pro tempore. All time for debate has expired. The question is on the amendment offered by the gentleman from Vermont (Mr. Sanders).

The question was taken; and the Chairman pro tempore announced that the ayes appeared to have it.

Mr. SANDERS. Mr. Chairman, I demand a recorded vote.

The CHAIRMAN pro tempore. Pursuant to clause 6 of rule XVIII, further proceedings on the amendment offered by the gentleman from Vermont (Mr. Sanders) will be postponed.