U.S. Representative Sandy Levin
12th District of Michigan

(Washington D.C.)- The House Ways and Means Republicans today approved a highly controversial pension reform bill, the "Pension Protection Act of 2005," which would likely increase the number of companies terminating their pension plans, depriving workers of hard-earned retirement benefits they were promised. Opposing the Republican proposal, Congressman Sander Levin (D-Royal Oak) instead supported the Democratic substitute that does not include harmful provisions that will make it more difficult for companies to balance the immediate need to increase competitiveness and fund future pension obligations.  The Democratic substitute also prevents top executives from receiving big bonuses and new benefits while they underfund and terminate the pension plans of their rank and file employees.

“Let’s be clear: the Republican bill hits right at the manufacturing industry and smacks the American worker in the face,” said Congressman Levin. “The Republican bill is not about protecting pensions – it’s about driving guaranteed benefit pension plans out of business. We need to stand up for American workers by safeguarding their pensions, not passing policies that make it harder for companies trying to do the right thing.”

Sponsors of the legislation claim that the purpose is to make companies fully fund their pension obligations.  However, non-partisan experts have concluded that the bill would actually increase liabilities for the federal Pension Benefit Guaranty Corporation, which insures defined benefit pension plans.  Democrats agreed with business and labor groups that the Republican-backed proposal would cause companies to terminate their pension plans, not fund them.

Michigan’s auto industry has become the focus of pension’s debate in recent months with Troy’s Delphi Corporation filing for Chapter 11 protection and publicly debating the fate of its pension plan.  As our manufacturing industry struggles to meet the challenges of global competition, this bill imposes unpredictable pension funding requirements that are likely to require large payments when companies can least afford it, and penalizes them from making those payments in advance during more prosperous times.

“Republicans are once again demonstrating their callous indifference to the needs of manufacturing companies and workers,” said Levin.  “Theses changes would dramatically increase the chances that manufacturing workers in Michigan and across the country would lose benefits they earned.  This bill does nothing but keep our manufacturing industry from remaining strong and competitive.”

Defined benefit pension plans are especially common in traditional manufacturing companies with unionized workforces.  Levin pointed out that the Republican rush to make changes harmful to companies with defined benefit pension plans is just part of their ongoing indifference to the crisis in the manufacturing sector.  Republicans are also using an increase in premiums paid by companies with defined benefit pension plans to raise $6.2 billion for their budget reconciliation bill.

Earlier this week, House Democrats on the Ways and Means Committee sent the below letter to Chairman Bill Thomas expressing their opposition to the Republican proposal approved today, arguing: “now is not the time to consider legislation that could further jeopardize the health of our pension system and undermine the pension benefits of millions of American workers.” The bill approved today does just that.

November 7, 2005

The Honorable Bill Thomas
Chairman
Committee On Ways and Means
1102 Longworth House Office Building
Washington, D.C. 20515

Dear Chairman Thomas,

We write to urge you to reconsider the Committee on Ways and Means markup of H.R. 2830, the “Pension Protection Act.”  We fear that this legislation may further harm the already precarious defined benefit system in our country.  H.R. 2830, if enacted, could weaken the Pension Benefit Guaranty Corporation (PBGC).  The PBGC, a government quasi-insurance agency, guarantees a minimum benefit for each worker who participates in a defined benefit plan  covered by the agency.

We recognize that legislation to strengthen the defined benefit system is in order.  But, the issue is far too important to be considered in legislation during the waning days of the Congressional session.  As normal, your Chairman’s Mark will be released with little time for an analysis.  There have been major changes since this legislation was originally developed.  We strongly urge a re-examination of this legislation in light of these changes.  
 
The PBGC, in a series of briefings with lawmakers, has consistently maintained that it  would be better under current law than under H.R 2830.  If the PBGC is better off without this legislation then the pension benefits of American workers would be more secured without it.  These two elements are directly linked, harm to the PBGC means harm to workers’ pensions.  On October 10, 2005, the PBGC informed lawmakers that if H.R. 2830 were to become law, unfunded pension claims are likely to increase by at least $2.5 billion over a 10-year period.

We are also concerned that H.R. 2830 could discourage companies from adequately funding their plans.  Many plan sponsors, who currently have adequately funded plans, have warned that the legislation could cause employers to quickly exit the defined benefit system. We believe many of these employers want to honor the pension promises that were made to their workers.  Severely burdensome funding rules, however, imposed at a time when many companies are struggling to make a financial recovery from a weak economy, low interest rates and a fallen stock market, would provide a very attractive incentive for companies to use bankruptcy laws to walk away from their pension obligations. We have seen this occur much too often.  According to the director of PBGC, Bradley Belt, the agency currently has a record 350 active bankruptcy cases.  Congress should not be in the business of making the termination of pension plans in bankruptcy more attractive than maintaining these plans for the benefit of workers.

On April 5, 2005, the Wall Street Journal reported that major corporations were being advised by a well-known consultant to use the bankruptcy laws as the way to dump their pension liabilities.  If we make pension funding too burdensome with no corresponding reform of bankruptcy laws, we would merely have succeeded in driving more companies to dump their pension liabilities under the shield of bankruptcy.  Should we move forward with H.R. 2830 in its current form, we believe the risk of accelerating more plan terminations is too great.  Congress must first enact legislation that would remove the incentive for corporations to seek protection from their pension liabilities in bankruptcy.

We must work together in a bipartisan manner to protect the retirement benefits of millions of American workers.  If H.R. 2830 is enacted we fear that more companies would turn to  bankruptcy laws to seek protection from the financial strain of the new funding requirements contained in the bill.  Now is not the time to consider legislation that could further jeopardize the health of our pension system and undermine the pension benefits of millions of American workers. Hard working Americans deserve better.

Sincerely,

House Ways and Means Democrats

(####)

Home Page  |  Press List