Statement By Rep. Bernard Sanders on Cash Balance Amendment

STATEMENT BY REP. BERNARD SANDERS ON CASH BALANCE AMENDMENT

Mr. Chairman, this tri-partisan amendment is cosponsored by Gil Gutknecht; George Miller, the Ranking Member of the Education and Workforce Committee; Maurice Hinchey; and Rahm Emanuel. This amendment also has the strong support of the AARP, the largest senior citizen group in this country representing over 35 million Americans, the AFL-CIO and the Pension Rights Center.

Mr. Chairman, last year this amendment passed the House by a vote of 258-160. Two years ago, a similar amendment passed by a vote of 308-121. By voting for this amendment, we will be protecting the retirement benefits of some 8 millions of American workers who have seen their pensions slashed by as much as 50% through age discriminatory cash balance pension schemes - and the 14 million more who still have traditional defined benefit plans that could be converted to cash balance schemes. The reason that this amendment is coming up again today is that despite the very strong tri-partisan support that we have seen in the House, this amendment has yet to be implemented into law and it is imperative that we keep fighting and keep standing with American workers.

Mr. Chairman, this amendment is simple and straightforward. In July of 2003, a federal court ruled that IBM's cash balance pension plan violates federal anti-age discrimination law. The Judge in this case is expected to award damages to IBM employees any day now after which the company will appeal to the 7th Circuit Court of Appeals. Our amendment would simply prohibit the federal government from assisting in overturning this pro-worker court decision. IBM deserves its day in court like every other litigant. But taxpayer money should not be used to support an age-discriminatory cash balance plan, and this amendment gives Congress the opportunity to make that very clear.

Mr. Speaker: Let's be very clear. While this particular lawsuit involves IBM's conversion to a cash balance plan, there are hundreds of other companies that have done exactly the same thing - companies like AT&T, Duke Energy, CBS, Bank of America, Enron, and WorldCom. It is not only IBM employees who are hurting, but millions of workers from one end of this country to the other who have also been affected, people whose retirement dreams were shattered when companies changed the rules of the game and slashed the retirement benefits that were promised to their employees.

This precedent-setting court ruling against cash balance plans confirms what American workers have been saying for years: cash balance pension conversions discriminate against workers based on age, are illegal and, without adequate protections for older workers, must be stopped.

Mr. Chairman, let me just read a brief excerpt from the ruling of Judge Murphy:

"In 1999, IBM opted for a 'cash balance formula.' The plan's actuaries projected that this would produce annual savings of almost $500 million by 2009. These savings would result from reductions of up to 47 percent in future benefits that would be earned by older IBM employees. The 1999 cash balance formula violates the literal terms of the Employee Retirement Income Security Act. IBM's own age discrimination analysis illustrates the problem."

Mr. Chairman, I became involved in this issue several years ago when many hundreds of IBM employees in Vermont contacted my office and told me that the pensions they had been promised by the company had been cut by 20 to 50 percent. Imagine that. Workers staying at a company through good times and bad times, providing loyalty to their employers, and then one day the company sends out a message which says, in so many words, thank you for your years of dedicated service, but forget about the promises that we made to you regarding the retirement that you and your family were anticipating. Thank you very much, but we've changed our minds, we've pulled the rug out from underneath you, we're cutting your pensions by up to 50 percent. And, Mr. Chairman, let me reiterate that while my experience in my state was with IBM workers, the same problem is impacting workers of hundreds of different companies.

Mr. Chairman, for those Members who will tell us that cash balance conversions are good things and should be supported, I would remind them of a report from the Congressional Research Service that I requested. According to the Congressional Research Service, the Speaker of the House and the Majority Leader would see their pensions slashed by as much as 69% under a cash balance plan. In fact, every single Member of Congress that the CRS examined in its report would be worse-off under a cash balance plan than under the traditional defined benefit plan that Members of Congress have now. The older the Member of Congress is, the worse-off they would be under a cash balance plan, according to the CRS report. Frankly, I was not really shocked that when I offered an amendment last year to convert Congressional defined benefit pensions to a cash balance scheme, the Rules Committee refused to place it in order. If converting to a cash balance plan would be disaster for Members of Congress and unfair because the retirement benefits we are expecting, then it is equally unfair for millions of American workers.

Finally, Mr. Chairman let me address some of the claims of opponents of this amendment. They will tell you that we have voluntary pension system. But they forget to tell you that companies that do have defined benefit plans receive some of the most generous tax breaks the federal government gives - amounting to some $89 billion a year. Companies that discriminate on the basis of age don't deserve these enormous tax breaks.

The opponents will also tell you they have a study that shows that workers are better off. The supporters of cash balance plans cite a study by the Society of Actuaries that they claim says that most employees fare better under a cash balance plan. However, according to the Wall Street Journal, "the Society of Actuaries itself doesn't endorse those conclusions, saying the study was never intended to compare how workers fare in the different plans. 'The study certainly doesn't say the workers are better off,' says the Society's senior research actuary, Thomas Edwalds." (December 16, 1999, Page A1)

According to the same Wall Street Journal article, "Employers . . . . increasingly acknowledge that switching to the new [cash balance] plans does reduce benefits for many veteran employees. And, the article also says that "Many younger workers are no more likely to collect a benefit from these newfangled plans than they are from traditional pensions. And when they do collect, they often fare only a little better under a cash-balance system."

Mr. Chairman, in case there is any confusion among the Members about what this issue is really about, let me close with some quotes from the very actuaries who have been peddling cash balance plans to corporate America:

In a July 27, 1989 letter from Kwasha Lipton to Onan Corporation about cash balance plans, the consultant notes, "One feature which might come in handy is that it is difficult for employees to compare prior pension benefits formulas to the cash balance approach."

Similarly, Joseph Edmunds stated at a 1987 Conference of Consulting Actuaries, "[I]t is easy to install a cash balance plan in place of a traditional defined benefit plan and cover up cutbacks in future benefits."

Likewise, William Torrie of PriceWaterhouseCoopers at the October 18-23, 1998 Society of Actuaries meeting said, "[C]onverting to a cash balance plan does have an advantage of it masks a lot of the changes . . . ."

Finally, Mr. Chairman, the age discriminatory impact of these plans has been clear for years. Kyle N. Brown, a retirement and pension lawyer with Watson Wyatt Worldwide said at a Society of Actuaries Conference in October of 1998:

The economic value that is accrued, is different in hybrid plans than it is for traditional plans. In essence, that is part of the reason why you want to put these plans in. You know you are trying to get a different pattern of accrual. Well, what that means is that for your older, longer service workers, that their rate of accrual is going to go down. There is going to be a reduction in their rate of accrual.

Mr. Chairman, these cash balance plans are age discriminatory and the actuaries who sold them to corporate America have known they were since the beginning. This House should stand with workers and not allow the federal government to intervene in judicial proceeding to rob American workers of their pensions.