Grassley Pension Protection, Reform Bill Advances Through Committee
WASHINGTON – Sen. Chuck Grassley, chairman of the Committee on Finance, today received unanimous committee approval of his bipartisan legislation to better protect workers’pensions from corporate malfeasance and shore up the nation’s ailing pension system.
“The fragile state of our nation’s pension plans is catching the attention of Americans everywhere,” Grassley said. “Not long ago, workers used to be fairly sure of a good pension plan. That’s not the case anymore. There are a lot of reasons for that, some within Congress’ control and some not in our control. We need to fix the problems within our control. Today we’ve taken a big step in the right direction.”
Grassley’s bill, the National Employee Savings and Trust Equity Guarantee (NESTEG) Actof 2005, developed with Sen. Max Baucus, ranking member, received unanimous committeeapproval on a voice vote. The measure contains a comprehensive package of reforms to protectworkers’ pensions from corporate malfeasance. Grassley developed the reforms after the Enron andother corporate scandals a few years ago and has worked to enact them since. Key protectionmeasures include:
-- new diversification rights regarding company stock in pension plans;
-- new disclosure for transaction suspension periods, or black-outs, when investment rights aresuspended or reduced, and a requirement that plan managers are financially liable for anylosses during black-outs if they don’t comply with the disclosure requirements;
-- and new disclosure of plan financial status through periodic benefit statements and retirementsavings information.
“We need to protect workers from bad actors and give them more, timely knowledge abouttheir pension funding status,” Grassley said.
Grassley’s measure also would require businesses to better fund their pensions and contributemore to the federal Pension Benefit Guaranty Corp., which insures pension plans. The agency hasa $23.5 billion deficit because weak pension funding rules have allowed some companies to underfundtheir pensions and turn them over to the PBGC. Meanwhile, PBGC premiums have been toolow to finance the agency’s pension obligations. Grassley’s bill:
--increases the premiums paid to the PBGC from $19 per worker each year to $30 for allPBGC-covered pension plans;
-- and requires businesses to use a bond yield curve in pension funding calculations. Undercurrent law, businesses temporarily can use rates developed from a blend of corporate bondsin making pension calculations. That has led to serious under-funding. In June, the PBGCreported that the pensions it covers are underfunded by $354 billion – on average, pensionplans have $7 invested for every $10 in pension benefits promised. Grassley said the yieldcurve will present a more accurate picture of pension obligations.
“One reason that Americans have lost confidence in the pension system is they’ve lostconfidence in the way those plans are funded,” Grassley said. “They’ve seen the tremendous damageleft in the wake of United Airline’s massive pension default, and they know United was onlyfollowing the rules. Companies that fund their pension plans well also have lost confidence in thepension system. They know that when a financially troubled company defaults on its pension, theother companies that pay PBGC premiums have to pick up the losses.
“That’s not fair, and it’s not right. Thankfully, most companies take responsibility for makingsure their pension plans are fully funded, but we can’t let a few bad apples spoil the whole barrel.The PBGC can’t sustain many more hits to its bottom line, and the potential for a taxpayer-fundedbailout is growing every day we do nothing.”
Grassley said some observers have complained that reforming the rules will make companiesabandon their pension plans. “It’s understandable that businesses don’t want to shell out moremoney to fund their pensions,” Grassley said. “Their goal is to make money, not spend it. But at thesame time, everyone plays a part in pension income security. This bill treats both companies andworkers fairly. It’s a reasonable approach that’s meant to prevent a real crisis and bring pension rulesinto the 21st Century.”
More details of the Grassley bill are available at http://www.house.gov/jct/.
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