Tierney E-Alert: Update on Your Retirement Security

Tierney E-Alert: Update on Your Retirement Security

December 16, 2005

Dear Friend,

In the past year, national attention has been focused on a number of key retirement security issues. As the legislative year comes to a close, I want to give you an update on these key issues.

Historically, America has relied on the "three-legged stool" retirement security concept - Social Security, pensions and savings. As you know, the President's proposal to privatize Social Security did not move forward after Members of Congress held 1,000 public meetings around the country (around 20 in our district) and it became clear that the concept was seen as harmful, not helpful, to retirement security.

The non-partisan Congressional Budget Office certified that Social Security is capable of paying full benefits to all retirement, survivor and disability beneficiaries through 2052. There are numerous proposed actions to resolve portions of any modest long-term gap, and a combination of several from that list would serve the purpose. I believe we should take a page from the Ronald Reagan-Tip O'Neill book of the 1980's and have a bi-partisan group propose which combination is best suited for and acceptable to the most people for strengthening and preserving Social Security.

Privatization was risky in several ways - threatening the long-term viability of the program without increasing retirement resources. I have supported two simple laws that experts attest will appreciably increase personal savings. The 401(k) Automatic Enrollment Act of 2005, H.R. 1508, would encourage companies to automatically enroll employees in 401(k) plans. The Boston Center for Retirement Research estimates that automatic enrollment could increase participation by 90%. The Direct Deposit Savings Act of 2005, H.R. 1048, would make saving for retirement easier by permitting taxpayers to divert their federal income tax refund into more than one account, allowing them to spend part of their refund and place another portion directly into personal savings or an Individual Retirement Account (IRA). Both should be passed into law as soon as possible.

The country's traditional pension system (especially guaranteed "defined benefit pensions") is at risk and in need of serious reform. In too many instances, companies are breaking their promises to retirees by defaulting on their pension obligations. Even though employees have earned benefits from a career of hard work and generally sacrificed pay raises or more vacation time as a trade-off for future pension benefits, an increasing number of companies are using bankruptcy proceedings to shed pension responsibilities.

Under current law, only a limited amount of these lost benefits can be covered by the government Pension Benefit Guaranty Corporation (PBGC), meaning, for instance, an estimated 120,000 current and former United Airlines employees and their families are in great danger. They could face benefit cuts averaging 25-50% if United Airlines is allowed to proceed with its bankruptcy proposal. Other airlines, and companies in other industries, appear to be contemplating similar action to shed their pension obligations rather than have to compete with firms who used the process to trim costs.

Congress is acting on a bill that supporters say would partially reform pension law, but these same proponents admit it stops far short of what must be done. They claim to "hope" the bill's deficiencies and faults can be corrected during a House-Senate conference to reconcile the differences between the House and Senate bills. I believe the following to be just some of the problems that should be resolved before it is worthy of support:

* The bill so far does nothing to protect struggling airline employees and retirees. Companies that do not want to terminate plans must have extra time and assistance from the PBGC to develop a way to save their plans;
* The bill does not stop companies from dumping plans in bankruptcy or protect employees whose company (i.e. United) is now in the process. It should provide that companies must first exhaust realistic financing alternatives and engage early on PBGC's expertise in exploring options; and
* The bill, in particular the interest rate calculation and penalty provisions, makes the pension crisis worse. An analysis by two independent agencies, the Congressional Budget Office and the Pension Benefit Guaranty Corporation, concluded that the bill worsens the pension crisis and increases the chances of a massive taxpayer bailout and the loss of billions of dollars in employee and retiree benefits.

I will continue to work toward improvement of pension reform legislation as we must do all that we can to prevent workers' hard-earned retirement benefits from being reduced or eliminated and protect the retirement security of thousands of employees, retirees and their families. I will continue to fight this fight. Retirement security is a matter affecting all of us, regardless of our current age. It should get the attention it warrants and demands.

Sincerely,

Signature - John F. Tierney
John F. Tierney
Member of Congress

http://www.house.gov/tierney/enews/retirement12162005.shtml