Committee Approves Pension Protection Act

Committee Approves Pension Protection Act
June 30, 2005

WASHINGTON, D.C. - The House Committee on Education & the Workforce today approved the Pension Protection Act (H.R. 2830), comprehensive pension reform legislation intended to protect the interests of workers, retirees, and taxpayers. All 27 Republicans on the Committee voted in support of the bill, while Committee Democrats simply voted "present."

"Our Committee took action today to protect the retirement benefits of American workers. Our Democratic colleagues chose to be spectators in that process instead of participants. That's disappointing, but the good news is that Congress is a giant step closer to fundamental reform of the outdated pension laws that have left workers and taxpayers vulnerable," said Education & the Workforce Committee Chairman John Boehner (R-OH).

"For months Democrats have been clamoring for legislative action on pension reform, but have yet to propose any comprehensive solution for solving our pension crisis," said Boehner. "Today Democrats chose to take a pass on an issue critical to workers, retirees, and taxpayers, and the lack of leadership it demonstrates could not be more apparent."

"We've had 10 hearings on this issue, and Democrats have had ample time to look at our bill and propose changes. We've worked with Democrats, met with them numerous times over the last several weeks, and accepted a number of their changes that have strengthened the bill," said Boehner. "The status quo is clearly unacceptable, and we plan to continue to work with those on both sides of the aisle who are interested in making serious progress on behalf of workers and retirees who are counting on these hard-earned pension benefits."

The Pension Protection Act includes tough new funding requirements to ensure employers adequately and consistently fund their pension plans, provides workers with meaningful disclosure about the financial status of their benefits, and protects taxpayers from a possible multi-billion dollar bailout of the Pension Benefit Guaranty Corporation should the agency's financial condition continue to deteriorate.

During consideration of the bill, the committee approved a substitute amendment offered by Boehner to help resolve the legal uncertainty surrounding cash balance plans, a type of hybrid defined benefit plan that many American workers rely upon for their retirement security.

"Cash balance pension plans - a type of defined benefit plan that is employer-funded, insured by the PBGC, and portable from job to job - represent an important component of worker retirement security, and they account for more than 20 percent of the premium revenue paid by employers to the PBGC," said Boehner. "Cash balance pension plans are the future of the defined benefit system, and it's critically important that Congress act to resolve the legal uncertainty that is jeopardizing generous pension benefits for workers across the country."

The cash balance solution is the result of an agreement reached between Boehner and Ways & Means Committee Chairman Bill Thomas (R-CA). It establishes a simple age discrimination standard for all defined benefit plans that clarifies current law with respect to age discrimination requirements under ERISA on a prospective basis. The bill does not establish different rules for hybrid plans or conversions, but merely sets up a simple age discriminatory standard that all defined benefit plans must meet prospectively. The measure also prohibits employers from reducing or cutting any vested benefits workers have earned during a conversion to a cash balance plan.

The Pension Protection Act includes a number of critical protections aimed at shoring up the defined benefit system so employers can continue to offer these voluntary benefits to workers. Specifically, the bill:

* provides a permanent interest rated based on a modified yield curve that will ensure employers more accurately measure and fund their short-term and long-term pension promises:
* requires employers meet a 100 percent funding target;
* prohibits the use of credit balances for severely underfunded plans;
* phases in reasonable increases in employer premiums paid to the PBGC;
* provides workers in both in single and multiemployer plans with better information about the status of their pension plans; and
* allows employers to provide rank-and-file workers with access to high-quality investment advice as an employee benefit.

The bill also includes numerous reforms to multiemployer pension plans governed by collective bargaining agreements to give trustees, both labor and management, additional tools to appropriately fund their benefit promises. These reforms have been agreed to by a broad coalition of employer and labor groups.

"We've had some difficult decisions to make with this legislation. We want to preserve defined benefit pension plans to ensure workers and retirees can continue to count on these important benefits during their retirement. But we can't tighten the rules so much that employers simply stop offering these plans, jeopardizing worker benefits altogether," noted Boehner. "This is the tightrope we've been walking, and we've taken a balanced approach that addresses these difficult questions."

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