November 16,2005

Grassley on Senate Consideration of the Pension Security and Transparency Act of 2005

Floor Statement Sen. Chuck Grassley
Chairman, Committee on Finance
Senate Consideration of the Pension Security and Transparency Act of 2005
Wednesday, Nov. 16, 2005

I’m very pleased that the Senate is turning its attention here this morning to the PensionSecurity and Transparency Act of 2005. This is a bipartisan bill that every Member of the UnitedStates Senate should be proud to support. This is a bill that is about one thing – improving theretirement security of all Americans. And it will improve Americans’ retirement years in a lot ofdifferent ways. Much of the public focus on this legislation has been on the comprehensive pensionfunding reforms that are in the bill. Those reforms are very important, but before I talk about them,I want to spend a couple minutes talking about the other important provisions in this bill.

Number one – this bill represents a completion of the post-Enron retirement plan reforms thatI have worked on with my good friend, Senator Baucus. We all remember that when Enron spiraledinto bankruptcy and the value of Enron’s stock evaporated, Enron employees had their 401(k) planslocked in Enron stock. They had no chance to diversify their 401(k) portfolios, and they wereblocked from selling Enron stock at the same time top executives were cashing out. This bill wouldsay that is unacceptable. Employees shouldn’t be forced to stuff their 401(k) plans with companystock. Diversification is the most fundamental principal of a sound investment strategy. Thebipartisan legislation before us today would guarantee that employees have a right to diversify their401(k) accounts.

This bipartisan bill also seeks to increase savings by adopting new rules to promote“automatic enrollment” in 401(k) plans. Very often, the hardest dollar to save is that first dollar.Once people begin to save, it can become a habit that lasts a lifetime. Automatic enrollment meansthat saving that first dollar will be easier – and it means that millions of Americans will be savingmore. The bipartisan bill before us today also simplifies retirement plan rules – making it easier andless burdensome for employers to give retirement plans to their employees. These types of changeswill be particularly helpful to small businesses, which are often discouraged from sponsoring aretirement plan because of the costs and burdens.

The bipartisan bill before us today would allow small businesses to combine a defined benefitplan with a 401(k) plan into one simple plan called a “DB-k”. This new type of combined plan willgive employees the best of both worlds at the same time.

And speaking of combining the best of both worlds, the bipartisan bill we are consideringtoday provides long-needed clarification that cash balance and other types of “hybrid” pension plandesigns are not inherently age discriminatory. Hybrid pensions combine positive features of bothtraditional pension plans and defined contribution plans. These plans have long provided meaningfulretirement benefits to employees. Today, we will help lift the cloud of legal uncertainty hanging overthese plans. At the same time, we also ensure that the rights of participants are protected and that theplans truly do meet the needs of today’s mobile workforce by requiring faster vesting of employeebenefits in these plans.

And finally, I want to talk about the pension funding changes in the bill. This bill honors apromise that we made as a Congress in 1974 when ERISA was enacted. That promise was that thepensions of rank-and-file employees should not depend on the financial solvency of their employer.

ERISA says it is okay for the non-qualified pensions of senior management to be exposed to thecompany’s risk of bankruptcy. But when it comes to rank-and-file employees – people who workhard all their lives in hopes of a pension – those people’s golden years should not be ruined becausetheir employer falls on hard times. ERISA has worked pretty well for the last 30 years in most cases,but we’ve found in recent years that there are times that the promise is not honored. So today, weare here to fulfill the promise and to let the American people know that if you’ve been promised apension, we’re going to make sure you receive it. The pension funding reforms in this bill also standfor another bedrock American principal – that you’re responsible for your own promises. We allknow that most companies fund their pension plans responsibly. Unfortunately, there are a few whohave abused loopholes in the current rules to avoid funding their pensions. Those who have takenadvantage of the loopholes have also often dumped their pension plans on the PBGC. They’veessentially said, “We can’t pay our bills. Someone else is going to have to pay them for us.”

Unfortunately, the people who they want to pay are other employers who have done the right thingand funded their plans well. Those employers get stuck with the bill in the form of higher PBGCpremiums. That’s not fair, and it’s no way to run a pension system.

Even more unfair is the concept of a taxpayer bailout of the PBGC. As we have watched thefinancial condition of the PBGC deteriorate rapidly in recent years, the prospect of such a bailout hasbecome increasingly real. The bipartisan bill before us today will reverse this decline over time byimproving pension funding and bringing in additional premium revenue to the PBGC.

This bipartisan bill represents a huge leap forward for retirement security. I want to thank mygood friend, Senator Baucus, the Ranking Member of the Finance Committee, for his outstandingdedication to this legislation. He has been a great partner in working together with me to advancethis bill through the Finance Committee and to the Senate floor. I also want to thank Chairman Enziand Senator Kennedy – we’ve had a great partnership working together as two Committees on thislegislation, and I commend their dedication to the important reforms in the bill. They have both beentireless in their efforts to get us to this point, and I look forward to working closely with them andall of my colleagues in the Senate as we continue to work toward the goal of getting this bipartisanlegislation to the President for his signature.