Opening Statement of The Honorable Sam Johnson, Chairman, Subcommittee on Employer-Employee Relations of the Committee on Education and the Workforce, and a Representative in Congress from the State of Texas

July 15, 2003

Good afternoon and welcome to an historic hearing on a very important issue before these two Subcommittees – the Employer-Employee Relations Subcommittee of Education and the Workforce and the Select Revenues Subcommittee of Ways and Means.

I also want to welcome my Co-Chairman Jim McCrery and our ranking members Rob Andrews and Mike McNulty.

As a member of both full Committees, I particularly appreciate the efforts of Chairman Boehner and Chairman Thomas to work together on issues of joint jurisdiction and especially on the critical issue of pension security for American workers.

Today we are eager to hear members of the Administration explain their recent proposal regarding defined benefit pension funding rules.

This hearing is the second in a series of hearings that my Subcommittee has held on the issue of defined benefit plans.

As we learned in our previous hearing, the number of defined benefit plans has been declining for years, in part due to over-regulation.

We are currently at the center of a “Perfect Storm,” with plans struggling under a down market, low interest rates, and an aging workforce.

ERISA and the Internal Revenue Code require companies to evaluate the cost of projected benefit payments and then set aside cash to fund those payments.

The interest rate used to determine how much interest their cash might earn is the subject of this hearing because that rate was the 30-Year Treasury Bond.

Almost two years ago, the Treasury Department stopped issuing the 30-Year Treasury Bond and the temporary fix we legislated will expire in less than six months.

I believe everyone on the dais today understands the urgency for workers, companies and taxpayers of finding a suitable, long-term replacement for the 30-Year T-bill rate for pension funding purposes.

It is in everyone’s best interest if pension promises are funded at accurate levels.

Over-funded plans leave companies making unnecessary contributions that take away funds from capital improvements or hiring new employees, and under-funded plans leave workers and retirees at risk of losing benefits and that could leave taxpayers at risk through the Pension Benefit Guaranty Corporation.

Last week, the Administration proposed changes that would move the measurement of liabilities away from the 30-year T-bills to a corporate bond blend rate.

The proposal also increases pension funding disclosures to employees and limits the ability of financially-troubled companies to increase benefits.

We appreciate the Administration’s efforts to bring a proposal to the table and look forward to hearing definitive details of the proposal.

We want to work toward a permanent solution.

Our second panel today consists of witnesses with expertise in the pension industry who will give us their responses to the Administration’s proposal and their perspective on the health of defined benefit plans.

The panel consists of representatives of the business community, actuaries, and academics.

I am hopeful that all the witnesses today will be able to enlighten both subcommittees on the important task of preserving our defined benefit system and continuing to encourage employers to provide retirement security to American workers.