Serial No. 106-51


Printed for the use of the Committee on Education

and the Workforce

Table of Contents










Table of Indexes *

he Subcommittee met, pursuant to notice, at 11:00 a.m., in Room 2175, Rayburn House Office Building, Hon. John A. Boehner, Chairman of the Subcommittee, presiding.

Present: Representatives Boehner, Petri, Roukema, Ballenger, Andrews, Kildee, Romero-Barcelo, and McCarthy.

Staff Present: Amy Cloud, Staff Assistant; David Connolly, Jr., Professional Staff Member; David Frank, Professional Staff Member; Rob Green, Professional Staff Member; Mark Rodgers, Workforce Policy Coordinator; Deborah Samantar, Office Manager; Gail Weiss, Minority Staff Director; Cedric R. Hendricks, Minority Deputy Counsel; Woody Anglade, Minority Legislative Associate/Labor; Marjan Ghafourpour, Minority Staff Assistant/Labor; Cassandra Lentchner, Minority Special Counsel/Investigations, and Gregory Jefferson, Minority Counsel/Investigations.

Chairman Boehner. Presiding. The Subcommittee on Employer-Employee Relations will come to order.






For the past several months, the Subcommittee has focused on the nation's health care system. Today, we begin a look at an equally important topic, the nation's retirement system. Specifically, we will look at a Bill that addresses some of the most significant impediments to improving the retirement security of American workers.

H.R. 1102, the Comprehensive Retirement Security and Pension Reform Act of 1999, makes retirement security available to millions of workers by: (1) expanding small business retirement plans, (2) allowing workers to save more, (3) addressing the needs of an increasingly mobile workforce through greater portability and other changes, (4) making pensions more secure, and (5) cutting the red tape that has hamstrung employers who want to establish pension plans for their employees.

I am very pleased that Rob Andrews, the Subcommittee's Ranking Member, has joined me in support of this major legislation. I am equally pleased that the Administration has also been quite supportive.

One of the Committee's longstanding objectives has been to find ways to expand pension coverage, especially by small business, and ways to make pensions more portable. The bipartisan bill introduced by our colleagues, Rob Portman of Ohio, and Ben Cardin of Maryland, who are our witnesses today, address the retirement savings gap in a comprehensive way.

Improving retirement security is a top priority in this Congress as we work to secure America's future. However, improving retirement security is not just about fixing Social Security. It is also about expanding access to private pension plans and making innovations that will maximize every American's opportunity for a safe and secure retirement. The time for action is now. Just yesterday, the Commerce Department reported that the Nation's savings rate fell to an all-time low in May, a negative

1.2 %.

This bill has a broad spectrum of support; about 60 Republicans and 40 Democrats are cosponsors. The organizations endorsing the bill include about 25 unions and about 20 business-oriented groups from AFSCME, the Teamsters, the Laborers, the National Education Association, the U.S.Chamber, NFIB, and the National Association of Manufacturers.

Within the next few weeks, the Committee will take up those provisions of the Bill within our jurisdiction; those amending the Employee Retirement Income Security Act, or as we like to refer to it, ERISA. The bill contains many ERISA amendments that will significantly contribute to expanding pension coverage and improving retirement security for workers. I am sure we are going to hear about the bill's key provisions from our two witnesses, and I will need to outline them all for you.

We are committed to strengthening the retirement security of workers and their families by expanding private pension coverage and protecting their pensions and retirement savings. Unnecessarily complex regulations which have little benefit, reduce the incentive for employers to offer pension plans. I think Congress must increase access to pension plans by further simplifying regulations which today make it difficult for many employers to offer plans to their employees. The legislation we have before us today is a significant step toward achieving those goals.

Pension reform is a critical issue for our nation's increasingly mobile workforce, and it spans the generation gap. It concerns both younger workers, whose retirement security is in most doubt today, and older workers, who are now approaching retirement age. And whether you are an older worker, a member of Generation X, or somewhere in between, everyone has a stake in this.

The consideration of H.R. 1102 is not the end, but merely the beginning of this Committee's consideration of ERISA pension issues. The financial and benefits worlds have changed dramatically in the 25 years since ERISA has passed. For example, the Dow Jones average has risen almost exactly 10,000 points during that time. We will plunge into a detailed review of ERISA-related retirement issues this fall and into next year.

It is my goal to mark up this legislation in time for it to be included in Reconciliation. I am referring now strictly to the Portman-Cardin Bill, and look forward to working with Mr. Andrews to see that we can move our portion of this bill through this Committee in an expeditious way.

And with that, I would like to yield to my colleague, Mr. Andrews.








Mr. Andrews. Thank you, Mr. Chairman. Thank you for convening the Subcommittee for this Hearing. I want to begin by congratulating Mr. Portman and Mr. Cardin for the excellent work they have done on this Bill. I know they have worked on it for a number of years. I know they have consulted with many different points of view, and I am proud to be one of the cosponsors of this legislation and to extend, along with you, Mr. Chairman, my hand of cooperation to try to get it enacted.

The newspapers this morning are filled with news about the newly increased budget surplus projections; good news for all of us. One of the centerpieces of the news is the impact that will have on Social Security and the importance of investing a great deal of that surplus in Social Security. I do not think there is really much disagreement around here about that.

But the untold story in the headlines is the story that we are really here this morning to talk about, which is the private side of the public-private pension arrangement that most Americans rely on. In fact, too few Americans rely on it, because not enough employers have had sufficient incentives, and they have had to bear too many costs with respect to adopting their own pension plans and strengthening them.

I became a supporter of this legislation because I believe that it takes some important steps in reversing that imbalance and that it will encourage employers throughout the country to invest in retirement plans. And it does so in two ways. First, it creates more flexible, and I believe realistic, financing arrangements for an entrepreneur who is struggling to meet her bills or meet his payroll, but also set some money aside for the pension of the employees. These are time of incredible change and dynamism in the economy. That change and dynamism carries with it the need for flexibility for people who are running businesses, and I believe this bill takes an important step in that direction.

Second, the Bill I think makes an excellent attempt to simplify procedures for complying with the rule without weakening protections. I have no interest and I do not think the Chairman does either in diluting or weakening any of the procedural protections that Americans enjoy who are members of pension plans. But we do certainly have an interest in reducing the cost of compliance and in expediting procedures for decision-making within those plans. And I think this bill achieves that.

Finally, I think the bill introduces some important new fairness considerations that are long overdue. Frankly, many of them touch upon the Ways and Means jurisdiction and not ours. I would particularly point to the modifications in Section 415 of the Internal Revenue Code. This is a truly anomalous situation where persons who drive trucks for a living or are electricians or plumbers who work very, very hard and never make a whole lot of money doing it, are prohibited from receiving their full pension because of an unintended and irrational anomaly in the underlying law. The way this Bill corrects that I think is a very important step forward, and it is an important aspect of my support.

Certainly there are issues that are raised, and as this Committee looks at the Bill, there will be attempts to comment upon it; perhaps change it and improve it in some ways. I was encouraged to hear the Chairman talk about his desire to conduct a full review of pension issues as the year goes on. I support that, and we look forward to participating in it.

One of the things I would like to do without objection this morning is to offer a statement from the Pension Rights Center which comments upon the Portman-Cardin Bill for the record, so some of the other views can be heard as well.

Chairman Boehner. Without objection, so ordered.





Mr. Andrews. So, again, I would like to commend our colleagues for offering this Bill. I know that the Reconciliation Mark-up is rather expeditious. If time permits, I would like us to seek more views from outside the Members of the Congress, but I do understand the schedule, and I look forward to hearing what the Members have to say this morning.


Thank you.

Chairman Boehner. Thank you, Mr. Andrews.

We are pleased this morning to welcome two of our colleagues. Rob Portman is my neighbor in Ohio, who represents the Second District in Ohio, and is a Member of the Ways and Means Committee. Ben Cardin represents the Third District in Maryland, also is a Member of the Ways and Means Committee. Let me just say to both of you congratulations on a job well done. Rob and I both know that you have worked diligently on this legislation over the last three years or so. It is a prime piece of legislation that we are interested in, and certainly interested in your views today.

So with that, Mr. Portman, you may begin.





Mr. Portman. Well, thank you, Mr. Chairman, and let us return that compliment. Sometimes among our colleagues, eyes glaze over when we raise the word pensions. So, we appreciate very much the Members of the Subcommittee's interest and your personal commitment to it, Mr. Chairman, as well as the interest of your Ranking Member in working with the Ways and Means Committee, which has not always been the case, to try to improve our pension system. I think it is really something we can do this year, and we can make a big difference.

Social Security, Mr. Andrews mentioned, is a top priority for the Administration and for Congress this year, as it should properly be. While both Mr. Cardin and I those efforts strongly we also believe that Congress has a tremendous opportunity this year to expand retirement security in other ways. Specifically, of course, we are talking about taking steps this year to significantly increase the availability of secure retirement savings through the private employer-based pension system.

This is a critical issue to all Americans, but particularly to baby-boomers, those 76 million Americans who are now approaching retirement and do not have the savings that they should have for a comfortable retirement.

As the Chairman mentioned, over the last few years along with Mr. Cardin, Members of this Subcommittee and others, we have been working on comprehensive improvements to the pension system. We have introduced H.R. 1102 this year, called the Comprehensive Retirement Security and Pension Reform Act. It really just builds on what we have been trying to do over the last several years in Congress on simplifying and expanding pension. Actually the House has taken the lead on a lot of that. If enacted, this legislation would constitute the most sweeping reforms of our pension laws in well over a generation.

I am delighted to say, Mr. Chairman, that as of today, we have over 100 cosponsors on this; over 40 Democrats and over 60 Republicans. They include you Mr. Chairman, the Ranking Member, Mr. Andrews, and other Members of the Subcommittee. We are very encouraged by the possibility of including this in the tax bill and moving forward expeditiously. We very much appreciate your willingness and your staff's willingness to expedite this issue so that we can perhaps have Mark-ups in Ways and Means and this Subcommittee and full Committee prior to moving forward with the tax legislation this year. Most of these provisions are in the tax code, and would be part of a tax bill.

I would like to briefly, if I could, outline the problem. You have charts in front of you, I hope. There is a larger chart over here to my right and your left. I think Ben Cardin will go into more detail on some of our provisions.

For starters is just how important this is as a part of our retirement security. We talk about the three legs to retirement security. It is amazing to me when you look at the degree to which we already rely on these pension plans, including defined benefit plans, a more traditional way to describe pensions, but also the defined contribution plans, the 401(k)s, 457s, 403(b)s.

Unfortunately, although pensions are a critical component of America's retirement safety net, we have a number of problems in the pension system. Not all is well with our pension system, even though it is almost one-third of what people rely on, only half of American workers currently have a pension. Now, this is as compared to the early 1980s when it was 48 percent. Mr. Chairman, we have not succeeded in expanding pensions in this country. Mr. Andrews alluded to that earlier in terms of our thoughts about Social Security. We have got to figure out ways to expand private pensions. Sixty million American workers have no pension at all; no 401(k), no Simple Plan, nothing.

Small businesses, of course, are particularly hit by the rules and regulations in our current pension system. Far fewer than half of the workers who work for small businesses have any kind of pension whatsoever. In fact, only 19 percent of small businesses, described as businesses with 25 or fewer employees, have any kind of a pension plan at all now.

The pension coverage problems we have come at a time when, as alluded to by the Chairman and Mr. Andrews, our overall savings rate is dangerously low. The personal savings rate in this country, which is the amount of money people save for retirement and other needs is at an historically low level. This morning's report from the Commerce Department is shocking; -1.2% in the month of May. That is the lowest since Commerce started keeping records in 1959. We believe it is the lowest in history when combined with our other poor performance over the last year. For economists looking long-term, whether they are on the right or the left or in the middle, this is the single most troubling statistic out there in our economy today.

So whom do pensions benefit? Well, it turns out they benefit everyone, but in particular they provide a needed backstop to Social Security for people who are in the lower and middle income areas. Pension frankly, means the difference between retirement subsistence and the ability to have a secure retirement for millions and millions of Americans.

This chart shows that at least 70 percent of current pension recipients are considered middle income or below. And among those who are participating in pension plans today 77 percent are middle-and lower-income workers. So by taking action to expand retirement savings this year through expanding private pensions, we are going to help those workers who are most in need of bolstering their retirement income.

The Portman-Cardin legislation is designed to address these deficiencies we talked about in our current pension system. Simply put, it lets workers save more for retirement. It makes it less costly and burdensome for employers, particularly smaller businesses, to establish pensions and improve existing ones. And we modernize the pension laws to address the increasingly mobile 21st century workforce.

Mr. Cardin will address some of the substance, but let me just touch on a few of the highlights and then touch on a couple of the issues that are specifically within the jurisdiction of this Subcommittee.

We increase contribution limits. Over the last 20 years, Congress has increasingly lowered the limits. But what we are really doing is just restoring them back to the 1982-1983 levels.

Catch-up contributions which are particularly important for women who have been out taking care of kids who come back into the workforce. We allow people coming back who are 50 years and older to add an additional catch-up contribution, 5,000 bucks.

Increased portability as I said, for workers who are changing jobs more and more. In the 21st century, we are told that the average worker will hold nine jobs by the age of 32. Our pension system, unfortunately, is not prepared for this, so we need to adjust it to allow both faster vesting and rollover from job to job of pension savings. We have that in this provision.

We cut pension red tape. As Mr. Andrews said, there is an increasing complexity of the laws governing pensions. This is one reason businesses are not in the business of providing pensions. This is both in the private sector and in the non-profit sector, and in the government sectors. So we reduce the costs and the liabilities associated with pensions.

Let me just touch again on a couple of the issues that are specifically under your jurisdiction, and if you have more questions about these, perhaps Mr. Cardin and I can give you at least our input on them as you go through your process.

First is in the area of regulatory relief. I understand what is in your jurisdiction is the anti-cutback rule. We reform the anti-cutback rule, pretty much eliminate it, but then put in place additional protections for workers. The anti-cutback rule basically says you cannot take away any payment options in which a beneficiary can get a pay out. The problem is that when you have, as we have seen so often in the last couple of decades, companies that are merging, acquisitions and so on, you end up with a bunch of different plans and a bunch of different pay outs. This is a discouraging factor right now for businesses getting into pensions and keeping pensions. So it will enhance the ability of employers to assimilate plan participants and it will also assist participants in consolidating retirement savings during a merger, an acquisition, and so on. Again, this is a very important regulatory relief provision that is in the Subcommittee's jurisdiction.

We make annual summaries elective. Right now plan administrators must provide all plan participants with the details after the annual report is filed with the Department of Labor. We believe that very few people make use of this. A lot of trees are destroyed as a result, and it is something that we think ought to be elective. In other words, if people ask for the information, they should be able to get it and more. However we ought not to have this requirement out there.

In terms of small business incentives, the Chairman talked a little bit about this, and in the Ways and Means Committee jurisdiction there are a number of things, like the tax credit for small businesses, we think are going to be important. However in your jurisdiction, we allow loans for small business owners. We believe this is really something that should have been in the legislation all along, but it was an oversight. It kind of fell between the cracks, frankly because of the jurisdiction differences between the Ways and Means Committee and this Committee. And this in essence says, if you are a Sub S or you are a partnership, you can take out the same loan that somebody else can. It will help small business owners and decision makers in whether or not to have a pension or to be able to take a loan out.

Reduce small business PBGC premiums. We think this is important because it will encourage small businesses to have defined benefit plans. This is for a 100 employee or smaller company. Instead of about 19 bucks per participant, it goes down to 5 bucks per participant. We have heard testimony and talked to people in the private sector who tell us it will be important to offer this kind of a premium discount.

Pension insurance for small business owners, that is the PBGC back up. We want to be sure that small business owners can get the same kind of insurance that others do by helping them to be able to offer these plans.

In the area of sounder pension funding, which I know is a particular concern of this Subcommittee, our legislation does a number of things in this area like faster vesting, and so on. We also repeal the 150 percent of current liability funding limit.

This has gotten some press recently, and if you have questions maybe we can get into it. But I think some of the press has been misleading on this in the sense that there is a two-pronged test now. One is whether you have 150 percent of current liability funding. In other words, there is a cap at 150 percent, so companies do not put too much aside in the pensions that they take a deduction on. Then there is another one which I think is the more sound prong, and that is future requirements. That prong stays in place.

We believe strongly though, that you ought to repeal the 150 percent rule as Mr. Andrews said earlier, to give companies more flexibility. This is not about these big companies that over funded plans. They are already over funded. This does not affect them at all. This is for more of the entrepreneurial, smaller and mid-sized companies that may have an under funded plan or when the stock market goes up and down, they cannot always pay for those projected future benefits. So you do not want to have this rule in place, because it does not help the workers and it does not allow them to be able to have the flexibility to offer pensions. Again, we think it is a good provision to help with more sound pension funding and perhaps there has been some misinformation out there on it.

Modification of plan valuations allows you to use prior year data rather than current year data. The reason for that is companies do not have the data available, so it is incomplete information. Again, it is sounder pension funding as well as regulatory relief.

These are just some of the issues that are within your jurisdiction exclusively, and we think are very important parts of the legislation. We would be pleased to give you whatever input we can on these and to thank you all for taking such a strong interest in this. As Mr. Boehner said, there are over 100 groups that have endorsed this; I am sorry, over 100 cosponsors that endorse it. Over 60 groups have endorsed it from the NFIB, the Small Business Council, the Chamber of Commerce and NAM to the AFL-CIO. We have a pretty broad, diverse cross-section of people who care about this and who are interested in it.

This is a chance this year to truly help Americans save more for their retirement. Imagine the impact we could have if we could get every worker in America involved in some kind of a pension plan. Imagine the savings impact we would have and the kind of retirement options we would have. It is a tremendous opportunity, and I encourage Congress through your good work, to seize that this year.

Thank you, Mr. Chairman.





Chairman Boehner. Mr. Cardin?





Mr. Cardin. Thank you, Mr. Chairman.


Mr. Boehner and Mr. Andrews, I want to thank both of you for your leadership on this issue and for giving us the opportunity to testify and to hold a Hearing on this subject. I think that the concerns regarding private pensions in this nation are extremely important and we need to deal with them for two reasons we have talked about, but it is worth repeating.

One is income security for our retirees. Social Security is very important, and we are all committed to trying to do everything we can to preserve Social Security for future generations. But Social Security was never intended to be the sole income for people that retired. It was one of a three-legged stool, as Mr. Portman has pointed out. And we need to do a better job on the private retirement part of income security for retirees. We are not doing anywhere near as much as we thought we would when we created our security system for retirees.

And the second reason, which has already been pointed out, but it is worth repeating and thinking over for a moment, is the Department of Commerce's figures yesterday regarding a negative savings ratio for this country. We look at our economy and we brag, and rightly so, that we have the strongest economy in the world. We see our stock market going up. We see our inflation rates low. We see unemployment low. All the economic indicators, we are told, are very positive. Yet, as we are growing, we are spending more than we are actually earning. We are going into a negative position during very strong economic times. Suppose we were going through a recession? Where would we be?

So I would encourage us to be very concerned about that figure that came out this past week. I know the headlines are more about the budget surplus and how we are going to deal with a tax cut, or how we are going to deal with Medicare, but we should be talking about why we are not saving more as a nation. You are taking that step by holding this Hearing today.

That is why Rob Portman and I introduced H.R. 1102 Mr. Chairman, and I want to underscore the working relationship I have with Mr. Portman. I want to congratulate him for his commitment over many years on this issue. We have tried to work, and I think we have worked in a very bipartisan way. We understand that to get things done we need to work in a bipartisan way, and we have worked closely with the Administration to listen to their concerns.

We believe that this is rebuilding our nation's private pension system. I use the word rebuilding, because over the last 20 years we have taken steps backwards in allowing Americans an easy way to put money away for retirement. When you look at the limits that we have put on both defined contributions and defined benefit plans, what we do in this legislation is that we return them to what they used to be. You just adjust for inflation. We are not anywhere near what we would have been but for the changes we made in the 1980's. So we think we are rebuilding our system, allowing the contribution limits to be more reasonable for Americans to put money away for their own retirement.

The one provision that Mr. Portman talked about that I really want to underscore in the reality of the workforce today is allowing those that are 50 or older to put a catch-up contribution away; $5,000 a year. You are just finishing your college commitments for your children, and thinking about retirement, and then you run into the unreasonable limits. This allows you an opportunity at least to take care of your retirement, and to be able to put more money away.

We deal with all types of pension plans, whether they are small businesses, large businesses, state or local government, or non-profit organizations. We have formed a way to try to say let us deal with the realities of the workforce regardless of whether you work for a non-profit or whether you work for profit, whether it is a small business, big business, government, or private sector because, quite frankly, you are liable to work for all of those during your work life. People do move from job to job, from sector to sector, and that is why we think the portability provisions are very important. People have IRAs, 401(k)s, 403(b)s, or 457 plans and they have defined benefit plans. We should be allowing them greater flexibility in dealing with those different plans.

Mr. Portman mentioned, and Mr. Chairman, you have mentioned, the complexity issue. I understand that each one of these provisions that were put into pension law had some good intent when they were placed in the laws. But the collective pension laws that we have today regarding complexity are causing small companies particularly, but also some large companies to give up and not even offer their employees pension plans. It is interesting that we do not put some of these requirements on our own government plans, as we do on the private sector, and it is hurting today. The statistic that Mr. Portman mentioned about less than 20 percent of the small companies offering employer-based pension plans, I think speaks for itself. We need to do a better job to make it easier for companies to provide pension benefits for their employees. Mr. Chairman, you and this Committee have a major part of this legislation under the ERISA statutes, and we welcome working with you on this legislation.

Mr. Portman mentioned one provision that we feel very strongly about and that is pension plans funding 155 percent of current liability limits that were currently in law. That restriction was imposed as a way to raise revenue, pure and simple. It was not a policy judgement that was put in law, and it is hurting making plans safe for their employees. We took the first steps towards removing this unnecessary limit with the Tax Relief Act of 1997, when we raised it from 150 percent to 170 percent by the year 2005.

H.R. 1102 would accelerate that process of removing this barrier from plan funding completely by repealing it beginning in the year 2003, and it makes American workers more certain that they will receive their pensions when they retire. It allows companies to do the right thing, and it allows us to have more money put away for long-term retirement. That makes sense.

Another change that is within your jurisdiction that I just really want to point out is that, the more secure funding stream by adding flexibility to plans' valuations. This is an important point. We do a better job of recognizing the practical problems that face plan administrators trying to determine their funding limits and deduction limits, and we think that provision also makes sense.

Mr. Chairman, there are many, many other provisions. In the interest of time, I would ask that my entire statement be made part of the record. I would encourage you to work as you have, in a bipartisan way, trying to understand that if we continue this type of effort, we really do have a great chance in 1999 to make significant progress to help American workers plan for their own secured retirement. I thank you for your attention.






Chairman Boehner. Let me thank both of our colleagues for coming this morning, and congratulate you once again, because as a business owner who put together a pension plan and profit-sharing plan under ERISA in the late 1970's, I understand pretty clearly the complexity that was involved. Had it not been for my interest as an employer putting together such a plan, I would have had serious questions about whether I should proceed not only because of the complexity, but the cost for a small business to put together these plans. I think that the legislation that you have put together does, in fact, make it easier for small business owners to put these plans into effect.

Let me also comment on the contribution limits that you address. They have not changed. I know even in the plan that I am a participant in and a trustee of that those numbers have not changed. What was a significant contribution in the late 1970's is certainly less than one-third in today's dollars. So addressing those contribution levels I think is more importantly another big improvement that will help more employers and employees in terms of allowing them to put away money for their retirement security.

Let us get back into this personal savings rate. There has been a lot as we have talked about, said today in the papers about it, but the way it is calculated is one of those formulas that goes back decades. I am not sure it takes into account the situation today where there is much less money held in bank savings deposits as opposed to mutual funds, whether they are money market funds or other types of accounts. I am trying to get a feel for whether we have a real crisis out there or if this is not more of a shift away from one type of savings vehicle toward another. Do you have any comments, either one of you?

Mr. Cardin. My understanding is that it is something to be very concerned about. It may not take into consideration the appreciation of an asset that has been previously saved, but it does look at current year income versus savings, and how much as a nation we put away collectively for savings from what we have in income. We are consuming a higher percentage than we have anytime in the history of our nation basically.

Chairman Boehner. But I am not sure if that would include buying stocks or bonds as savings. The paying of principal on the purchase of a home would probably be reflected as spending. So my point is that I am going to try to get my hands around this question in a much more significant way before I jump to a conclusion that we have an alarming problem. I do think we have a problem as a country, no question about it.

Mr. Cardin. If I might; just personal observation is that people are really going out. I mean, look at what is happening to housing sales in your neighborhoods. You put a property up for sale and people auction bid it. I mean, there is a mentality out there to spend right now, and not save. It is a matter that is going to catch up with us one day.

Chairman Boehner. I see that in my household every day. Mr. Portman.

Mr. Portman. John, two quick comments. I am far from an expert on this, but I agree with you. We probably ought to really look at the formula, because it does not include the appreciation of those equities that are increasingly part of Americans' portfolios and would be even more so if could we get this stuff passed. You would have, instead of 37 million Americans, 60 million Americans invested in 401(k)s. But as we look at the savings for retirement which includes investments in equities, we are told by the economists that baby boomers, as a rule, are saving only 40 percent of what they will need for their retirement. In other words, baby-boomers, my generation, our generation, many of us on this panel and in this room, are simply not saving enough.

Now, what do you need for retirement? They tell us you need about 60 percent of our current earnings to have a comfortable retirement, so we are only 40 percent towards the 60 percent, and that is not the savings rate formula you talk about. That does include savings that would include appreciated stocks. So, there is a big problem here in terms of the first issue Ben talked about. It is not necessarily the country's savings rate, but people's security in retirement and their dependency on Social Security, which was never meant, as Ben said, to be the sole source of support.

Second point: As you talk to folks in the real world dealing with foreign investment in this country, they will tell you that as these other countries begin to get back on their feet, whether it is Brazil and, therefore, the rest of Latin America, whether it is the Asian Tigers, or whether it is Europe, which is now seeing somewhat of a resurgence and a stabilization of their economy, that money that has flowed into this country to prop up our economy to provide the investment for our small businesses, to keep out interest rate low, is going to begin to go back to these other countries where there will be some more attractive investments. So this savings rate issue may be something that we have not felt yet, but, as Ben says, it is around the corner.

And the only point that we make here is, you can help people provide for their retirement, which all of us are forced to do now with Social Security. Second, we can help provide the kind of investment and savings out there that is needed to stabilize our own economy, focusing on retirement into the next century because pension savings is always going to be and should be an even more substantial part of our real savings.

Chairman Boehner. Mr. Andrews.

Mr. Andrews. Thank you. I appreciate my colleagues' testimony this morning.

Mr. Cardin, I wanted to talk to you about the importance of the catch-up contributions that you cite in your testimony, because I think it relates to the problem of the rising cost of college education in the following way. There are people who at the age of, say, 28 have a child and have another child when they are 30. By the time those two children are through college, the parents would be 52 - 55 years old, somewhere in that range. A lot of families have to devote really every nickel of discretionary income and then some to save for their children's education. They get that job finished by the time they are 54 or 55 years old, and they realize that they have not put much away for retirement.

I think one of the very attractive provisions of your bill is the additional increase for workers 50 and older for this kind of catch-up provision. There are many of my constituents who find themselves in the position where anything they are able to generate until their mid-50s, sometimes later, went to education for their children. And now that that job is behind them, they want to try to catch up. I just wondered if you would comment on the value of that provision in terms of that example.

Mr. Cardin. Well, I think you have spelled out exactly why we think this is an extremely important provision based on all the statistics that we have seen. I have talked to a lot of people who are in private business selling pension plans and doing pension plans and they will tell you that it is very difficult to get people, young families that have college commitments, interested in retirement. They believe that investing in their children's education is their top priority, and it is difficult to get them interested in a pension plan.

Once they get into their late 40s, it becomes much more of an interest to people to be actively involved in putting money away for retirement. At that time they can be prevented for many reasons, including low limits. People in the pension business believe giving a $5,000 catch-up, we call it catch-up at that point, will be a very helpful tool for people to have adequate resources put away for their income security when they retire.

Mr. Andrews. I also want to comment on the very important correction that you make in the 155 percent funding limitation. You ever talk about a contrary provision! ERISA is supposed to be a law that is about encouraging the creation of pensions and making sure they are strongly funded. If I understand your improvement, it completely phases out if I am not mistaken, that funding limit. Here is my understanding as to why that is necessary:

You have a very small plan that has present value funding needs of say $200,000. And under the present law, the plan cannot have more than $310,000, which is 155 percent. Let us say you have an employer who has $290,000 in the plan and wants to put more money away for his or her employees. They cannot under the present law. And what makes it even worse is that that $290,000 could very quickly become $220,000 if it is invested in a way that would let that happen. You know, the fluctuations of the market in the last 12 months would bear that out.

So it seems to me any provision that discourages employers from putting more money into these plans does not make a whole lot of sense. I assume it reflects Mr. Cardin's comment that this was backwards thinking in an attempt to get revenue in some reconciliation bills of the 1980s that these policies were backed into. It is time to correct that and come at it head-on. I wonder what you think about that.

Mr. Cardin. You will find that many of the pension provisions were put into law not for good policy, but to raise revenue or to comply with the revenue concerns. This is clearly one that was done that way, and it should be corrected.

Mr. Andrews. Again, I thank you very much for your testimony.

Chairman Boehner. Mr. Petri.

Mr. Petri. Thank you, Mr. Chairman. I would like to second, your questioning the accuracy of the individual savings rate in our country. I think it probably is outdated, and I would not hang my hat totally on that. There is no way our country can be as dynamic as it can be, with the huge flows of investment into infrastructure and modernizing without it coming from somewhere. And so, either there is a tremendous imbalance somehow in our economy or the savings rate is really a little higher than it looks. I think the latter is the case.

But leaving that aside, I think you are absolutely on target, and I am happy to be a cosponsor of your legislation trying to modernize and reduce overhead costs for people saving and thereby reduce some of the barriers for them. Say, we have a national interest in people being independent and being able to provide for themselves, and for their future. It is penny wise and pound foolish to prevent people from saving. We will get it some way or another. I do not think you are probably going to get rid of death taxes at the end of the day, and the government will get its share one way or another. Meanwhile, we ought to let people have security and let them put money away. That will be invested back into the economy and will help us all. So I very much commend you for this bipartisan effort.

I wonder if one or the other of you would care to comment on the provisions that you are making. You alluded to them generally. Jim Jeffords was very interested in and has worked on from time to time, when he was in the House and now in the Senate, reducing barriers to portability and enabling people to save for their retirement as they move from part-time to full-time, or from one type of employment whether public, private, non-profit, whatever. Could you discuss how you try to improve the situation for these people?

Mr. Portman. Thank you, again, Mr. Petri, for your early cosponsorship and for those supportive words.

The reality is that people are changing jobs more and more and particularly young people. As I said earlier, we are told by the Department of Labor that people will change jobs nine times before they are age 32. What happens now is a lot of folks will leave a job and they cannot roll their pension plan into the new employer's pension plan. They will simply cash out and take the penalty. What we are trying to do is avoid that, and encourage people to continue to build up that nest egg.

So what we do is permit what should have been permitted a long time ago, which is simple and which I believe should be non-partisan, a rollover. If you are in a 457 plan and you are a government employee and you want to go into a private sector job, now you cannot roll over your 457 savings, even though it is tax-deferred. Everything is the same into a 401(k). The same with a 403(b), if you are in a non-profit or if you are a school teacher. So we allow portability in the sense of rollover from account to account.

Earl Pomeroy has done work on the House side as well. You mentioned some of the other folks who have been involved in it, and he is cosponsor of the Bill and has worked with us on this. This is something that is long overdue.

Mr. Petri. That is helped by the reform when we went to a defined contribution instead of a defined benefit federal retirement system. We probably could not have done it before that, but now we can?

Mr. Portman. Right. And I will tell you another one that is interesting. Under our bill, you can take some of those defined contribution benefits and apply them towards service credits on your defined benefit plan. What is the impact of that?

Well, talk to some of your public employees about it, but it makes the defined benefit plan mean more, and it makes the defined contribution plan mean more. So they are likely want to participate in each. There are some things like that we think will help with regard to the requirements of the new century in terms of mobility.

Faster vesting from five years to three years on our vesting requirement, for the same reason, to get people involved while they are still at that workplace.

Chairman Boehner. Mr. Kildee.

Mr. Kildee. I think Mr. Romero was here ahead of me.

Chairman Boehner. Ms. McCarthy was. Ms. McCarthy?

Ms. McCarthy. Thank you.

Mr. Portman. You are lot more polite than we are on Ways and Means, I can tell you.

Ms. McCarthy. I have a couple of questions. I can probably understand the American people because my husband, and I certainly, was always a saver. Whether it was $10 a week, I always went to the bank and put in money. Of course, that was wiped out in the first year of college for my son.

But here is my question? My husband and I, we, had a pension plan. Basically, we were counting on that for our retirement when unfortunately, in our late 40s, his company went into bankruptcy. We lost everything. When he died, I got a check for $3,000. What I am asking is are there protections for the workers in what you are setting up because a lot of us that do not make a lot of money are always concerned if we going to lose that money? So are there protections in your particular Bill that would make sure if a company went bankrupt, those pension plans would be there for the workers?

Mr. Cardin. That is a very good question. I am going to try to answer it the best that I can. There are current protections in law that are not changed by this legislation. That, obviously was not adequate in your circumstance, but there are current premiums that are paid in order to try to protect plans from that type of a circumstance. I am not sure exactly the situation of your husband's employer.

We do not modify that. What we try to do is provide more flexibility in two respects. First, to make it easier for a company to be able to adequately fund their plans, which today that is not necessarily the case.

Second, to make it easier for companies that merge and consolidate to be able to maintain and expand their pension commitments, which also is difficult in today's market, because of the current laws. This will make it easier for a company to continue a plan, which today may be difficult because of the restrictions that are imposed on consolidations.

So I think we make it easier for companies to do the responsible thing, and we certainly do not compromise any of the protections that are currently in law.

We also try to make it more common sense. Take for example the notification issue. We change significantly the notification to employees because quite frankly, we think that the current rules are so cumbersome and so complicated that employees really do not understand what is going on. So we try to simplify that and make it easier.

And then, last, the portability issues we think will make a great deal of sense because people do change jobs, and in many cases won't have any benefits from any jobs because they are not there long enough, and they cannot take their benefits with them. This legislation makes it a lot easier for you to accumulate with different employers and be able to have some safety when you retire.

Mr. Portman. I would only add one thing. Ben is right, we do not go into those protections. The PBGC premiums pay for insurance, and insurance would be there. I do think there are a couple of things that we do that would help in a generic situation that you are referring to. And one is what Mr. Andrews was talking about earlier, which is this full funding issue.

If a company is capped by a 150 percent of current liability, and has a lot of young workers, or is an entrepreneurial company moving up and invests in equities, that may be a real problem to have a plan at all. But certainly to have that money when there is a retirement, or in the case that you raise, somebody is severed from their employment because of death is another issue. So it will help to be able to provide the money in the plan for those kinds of contingencies.

Second, although there is some legitimate policy differences on where we come out on this, what we are trying to do in this plan is to keep the defined benefit plan, which is what you are talking about as compared to a 401(k) alive. You know, for years I think we have kind of used, and Ben referred to it earlier, well-intended regulatory approaches to this that have been kind of suspenders and belts. It has resulted in, around this country, more and more companies leaving defined benefit plans.

What we say is, hey, with regard to the 415 limits, let us do away with 100 percent of compensation. So, it does not directly respond to your question, but what we are trying to do is increase all the limits for instance. We take the limits, it was $136,000 in 1982 and is currently $130,000, up to $180,000 on the benefit from a defined benefit plan.

So we want to make these plans richer, make them more attractive, and reduce the unnecessary regulations. With any luck, there will be more PBGC-backed plans out there, rather than what we have seen over the last decade which is fewer and fewer.


Ms. McCarthy. Thank you. Thank you, Mr. Chairman.

Chairman Boehner. Mr. Ballenger.

Mr. Ballenger. Mr. Chairman, first of all let me say I think that what you are trying to do is a great idea and so forth. A quick history from my own company is we started off with a profit-sharing plan, and when we had bad year we had a very difficult time explaining to the employees why their profit-sharing did not grow. So we switched into a defined benefit plan, and that was going great guns until the government started playing with it. And we decided to hell with this, and we liquidated and gave it to the employees, and we started an ESOP. Now, I do not know whether an ESOP is involved in this at all, but we also have a 401(k) plan, and I would be curious to know what effect it would have on an ESOP?

Also, is there anything in there about the mandatory distribution to anybody that has got a retirement plan of any kind at 70-and-a-half years old, where the federal government makes you take it whether you want it or not? They are going to make you use it up before you die. Is there any regulation that you all play with in that situation?

So two questions: ESOP and mandatory distribution.

Mr. Cardin. I am glad you mentioned ESOP. I do not think we have anything on ESOP, but there is some legislation that is pending and I know Mr. Portman agrees with me, that could weaken ESOP plans. ESOP is another form of pension for employees through ownership, and it is something that we want to encourage. We have in the last couple of years, and we need to continue to do that.

There have been at least suggestions in the President's budget that could impact that and we have some concern about.

Mr. Portman. We do have that one minor ESOP provision that might or might not apply to your situation; reinvestment.

Cass, this may or may not apply in your situation, but a lot of small businesses that have established ESOP plans have viewed it as discriminatory that they cannot reinvest the ESOP dividends, and we provide for that. Again I do not know whether this would help your situation, but now we believe there is a disparity in the treatment of ESOP dividends. We eliminate that by allowing those dividends to be reinvested directly, without the loss of the dividend deduction, which you currently would not have.

So for ESOPs, this actually does affect it. ESOPs are not a retirement vehicle, but it is deferred savings, and this allows ESOP companies to be able to do what everybody else can do.

Mr. Ballenger. Now, on the distribution, we have dealt with that. We have provided for greater flexibility on distribution. Let me just caution you that the scoring that we have received has that at a relatively high cost. So it is something that we are concerned about. How we are going to deal and pay for it?

Mr. Portman. But that is one that Ben and I feel from a policy perspective should be dealt with. Because to force somebody to take retirement benefits at 70-and-a-half or face a penalty does not make sense not only in our increasingly mobile workforce, but our increasingly aging workforce. I think we agree that we ought to be encouraging people who want to work, that they continue to stay in the workplace and work. If you are 75 years old and still going to work, why should you have to have a penalty for keeping your retirement savings in there, while you are still working full time?

Mr. Petri. Plus, why should you force people to consume rather than to keep invested in capital-productive assets from the national point of view?

Mr. Cardin. We agree.

Mr. Portman. Having said that, the revenue impact is substantial, and we are working through that now. But our Bill does do that. At 70-and-half, we let you keep at least $100,000 there all through your working life. Last year, we did even more but the revenue impact was even greater.

Mr. Ballenger. You couldn't make that retroactive, could you?


Mr. Portman. Maybe just for Members of Congress.


Mr. Ballenger. Thank you very much.

Mr. Portman. Strike that from the record, please.

Chairman Boehner. Is the gentleman from North Carolina trying to be helpful this morning?


Mr. Ballenger. I thought I posed some problems, especially the ESOP situation. that large numbers of people are involved in and so it is important that it should be recognized as a retirement system. Even though the employee does not, in our particular case, make any donation to it, it is still being put away for their future retirement.

Mr. Cardin. There is no question that through employee stock ownership, individual employees get an opportunity to accumulate wealth for retirement that is available to them when they retire. It is a growing field, and it is helping us deal with income security requirements for individuals.

Mr. Ballenger. Thank you. Thank you, Mr. Chairman.

Chairman Boehner. Governor?

Mr. Romero-Barcelo. Thank you. Thank you, Mr. Chairman. I would like to congratulate both you and Mr. Portman, Mr. Cardin, on the very, very comprehensive pension reform bill that you have presented and also, obviously, on the work that you have put into this bill. I see it addresses most of the concerns that I heard both from employees and from employers.

I would just like to ask a couple of questions. One: When you demonstrated the graph from the Bureau of Economic Analysis on the savings, do they consider home equity or is home equity not included in the savings? Do you know?

Mr. Cardin. We do not have the answer. I thought it was any appreciation is not considered; any current contribution to equity would be considered. That is what I thought. So that the Chairman's point about appreciated assets would not be considered savings.

Mr. Romero-Barcelo. Because, obviously, there is a lot more home ownership today than we had many, many years ago.

Mr. Cardin. Right. But if you put money into your home, that is, you actually pay money into your home, that would be considered savings.

Mr. Romero-Barcelo. The other question: My accountant has told me you cannot deduct our $3,000 from the IRA because you have this other pension plan, and that is reduced. Is that issue addressed in here or because you have a Keogh Plan and that reduces your IRA tax deduction it will remain the same? That is a disincentive.

Mr. Cardin. Well, what we do is increase all limits, including IRA limits. I do not know what plans you are referring to, but for example 401(k)s are increased to $15,000. Current law is $10,000, so that you would get a significant increase.

Mr. Portman. IRAs go up to $5,000.

Mr. Cardin. IRAs go up to $5,000 under our proposal.

Mr. Romero-Barcelo. But I said, when you have both plans one plan reduces the other deduction, right?

Mr. Cardin. Correct.

Mr. Romero-Barcelo. But is that...

Mr. Cardin. That is still, and we do not change that position.

Mr. Romero-Barcelo. Thank you. Those are the questions I had.

Chairman Boehner. Mrs. Roukema.

Mrs. Roukema. All right. Thank you.

I am going to ask our panelists, and I did hear what Mr. Portman said and I think Mr. Cardin nodded his head too, or maybe vice versa, that these are long overdue. I had, prior to your making that statement, written that down for myself in connection with the question. The way you have presented it, and the way we have heard the questions that have been presented to you, there do not seem to be any negatives. I know about the revenue loss, but that is entirely different as far as I am concerned in terms of the pension benefits and the investment benefits that there are.

Can you put yourselves in the position of maybe the critics? I understand that you have compromised a great deal. What would still be an outstanding criticism of what seems to me to be long overdue for the benefit of pensioners; anything? I know that you have to compromise with the business...

Mr. Portman. Let me take a crack at this.

Mrs. Roukema. I mean with the labor community, but what is the question?

Mr. Portman. Well, first of all, you are to be commended for your work on this over the years, because you have followed this at a time when...

Mrs. Roukema. Yes.

Mr. Portman. ...others eyes were glazing over on this Committee, and you and I talked several years ago about your interest in moving this forward.

I think probably the biggest opposition we have had is from the Treasury Department and others who believe, and maybe this will be in some of this pension rights material that Mr. Andrews put in the record, that this will benefit wealthy Americans at the expense of workers somehow. It is an interesting argument, and as I said earlier in defense to Mrs. McCarthy, there are various policy differences here.

But I view pensions, particularly defined benefit plans, as like the Titanic sinking, and someone saying, "gee, I am worried there might be an officer in the lifeboat, so we do not want to put lifeboats out." I mean, look at what we have in our country, folks, in terms of defined benefit plans, but also in terms of pension coverage. I think that we should look at this as an opportunity to greatly expand coverage and go to the decision makers, who are usually small business owners, because they are not covered. How can we make this work for you so that you can cover millions and millions of workers?

As you know, we keep the non-discrimination laws in place. So, if in John Boehner's old company or in another small business you want to offer us one of these plans, you have to get the lower-and middle-income workers involved in it. This will lead to more education, which will lead to more matches, which is going to lead to more coverage. So, it will help everybody.

But I think the biggest criticism that we have seen, Marge, is probably from folks who think that because we relieve some of the regulatory burdens and let people save more for their retirement, we are directing this at the decision makers who are owners and officers of companies. Somehow we are going to benefit them at the expense of workers, and I think it is just the opposite, and we have to take these steps and maybe even do more.

Mr. Cardin. I think Rob has really summarized some of the concerns that have been expressed, and quite frankly we have tried to deal with all those issues. We have tried to listen to people's legitimate concerns. There are provisions that we are modifying or recommending repeal of that were put in the law to try to protect certain types of workers over time.

We do not think we have jeopardized any of those protections by the way that we try to coordinate the different sections of the pension law. There may be others who view that differently, and it is worth taking a look at what they have to say, and seeing whether it is a legitimate concern that we need to deal with. We just urge them not to add complexity upon complexity upon complexity, because the end result is you do not get a pension plan under those circumstances.

So I think what Rob is explaining is that a lot of these provisions that we are modifying were well-intended, but the cumulative effect is to deny people pensions, and what we have tried to do is balance reform so that everyone can benefit. We believe that particularly lower-wage and middle-wage workers will benefit the most because higher-wage workers can always figure out a way to put money away for retirement. They can always figure out a way. It is the lower-wage workers that need the help.

Mrs. Roukema. That is very important, and I am glad that you reemphasized that. You pointed that out in your presentation about the middle-and lower-income accessibility here, and I am glad that you stress that.

I do want to say my cosponsorship is long overdue, and I cannot explain the time lapse here.

Mr. Portman. Thank you.

Mr. Cardin. Thank you.

Mrs. Roukema. But I strongly support you.

Mr. Portman. Thank you, Marge.

Chairman Boehner. Mr. Kildee?

Mr. Kildee. Thank you, Mr. Chairman. I have a couple of questions here.

Many employees of the federal government have previously worked for state and local government. Does your bill address those that might want to roll over their state and local retirement savings into the Thrift Savings Plan?

Mr. Cardin. We have been told by our helpful staff that the answer is yes. But Rob and I cannot quite figure out how we do it, but we are told that we do it.

Mr. Kildee. Okay, well, that is why we have staff, right?

Chairman Boehner. If the gentleman will yield?

Mr. Kildee. Happy to yield, Mr. Chairman.

Chairman Boehner. As a former state and local official, I have a 457 plan in Ohio. But the 457 plan that I have which looks like a 401(k) to most people, is not actually my property under current law. It is the property of the state and held by the state for my benefit. I brought up as a question before, what kind of changes to 457 plans do we in fact, make?

Mr. Cardin. We are being told that you could take the balance in your 457 plan and actually transfer it under the Thrift Savings Plan to the Trustees of the Thrift Savings Plan and therefore have one plan rather than two.

Mr. Kildee. Under this bill?

Mr. Cardin. Yes, under this bill.

Mr. Kildee. Okay, I think there are many employees of the federal government, including congressional employees, who have worked in state and local government who have a 457 or some variation thereof. So your bill would allow that transfer then?

Mr. Cardin. That's correct.

Mr. Kildee. Let me ask you this. You said that you want to really help benefit some of the lower-paid workers. How specifically would your bill help the lower paid workers?

Mr. Cardin. First, we think that it will make it easier for employers to have employer-sponsored pension plans. Many employer-sponsored pension plans are subsidized by the employer. They contribute some encouragement for the employee to put money away or some are fully funded by the employer. That makes it easier for lower-wage workers. We found in the Thrift Savings Plan the fact that government as an employer offers some incentives, so that lower-wage workers are much more likely to participate. And if we can get more employers to offer these plans, we think it helps lower-wage workers. They are the ones who are working for small companies who do not have any pension opportunities today.

And second we think is the portability rules. A lot of times, a person who is a low-wage worker has a minimal amount accumulated when they leave one job to the second job. They cash it out, because they do not want to keep that little bit of money around, so they say, we might as well take it and use it. Well with portability, we allow those monies to be accumulated, and I think we have a better chance of keeping the money in retirement for that lower-wage worker than under current law.

Mr. Portman. Let's say Mr. Kildee, even in the multi-employer context. There, I am not sure that those workers would be deemed to be low-wage workers or not even middle-wage workers, but they are at the lower end of the multi-employer workforce. This would tend to be laborers such as, a carpet layer, a carpenter, or a welder. The reason we changed the 100 percent of compensation rule, which says in essence, their benefit when they retire can exceed 100 percent of their compensation is that it is the people at the relatively low end in the multi-employer context who get hurt by that. It is not the people at the high end. So a guy who has worked hard all his life, and takes early retirement because he is worn out from that physical labor, sometimes faces a real shock. His pension benefit he has been paying into all these years is going to be capped.

That is what Mr. Andrews was referring to earlier, I believe. What we are doing here is targeted more toward the lower end of those people who are involved in those multi-employer plans. So even there, we are not helping the folks at the top, but we are trying to help the people who are at the bottom of that plan.

Mr. Kildee. I thank both of your for your responses. Thank you very much. Thank you for your testimony.

Chairman Boehner. We have had references this morning to defined contribution plans, and defined benefit plans, and I have had concerns for some time about the long-term viability of defined benefit plans. We would all like to believe that it is the right type of plan for our country and for workers, long-term. I have had concerns for some time about the ability of an employer to say to a young worker, if you work here and you stay here during your entire career, I as the employer am going to be here all through your retirement. How an employer can look someone in the eye today and say, 60 years from now, 70 years from now, I am still going to be paying your benefit, with a straight face brings grave concerns to me.

Having said that, let me follow up on that. We have seen, as we went through the restructuring of American industry in the 1980's and into the 1990's, there were some large employers who now have a significantly higher number of retired workers than they have full-time workers. In all honesty, GM would probably be near the top of the list. That puts quite a strain on their balance sheet.

My question is this: Is there anything in the legislation that you brought before us that would tilt the playing field between one, allowing the employer to decide the flexibility as to what type of plan he wanted, or two, is there anything in the legislation that would tilt the balance between defined benefits plans and defined contribution plans?

Mr. Portman. Well first of all, we were careful not to simply focus on one or the other. We were careful to add provisions on the defined benefits side that we think will help with regard to regulatory relief, and with regard to limits. I said earlier, keep these plans alive. I mean, if a company wants to offer that kind of plan to provide, as you say, the incentive for the worker to stay, we want to be sure that the opportunity is available to the employer. So, we do a number of things to help on the defined benefit side.

Now, PBGC seems to be quite supportive, at least privately and I think publicly, of what we are trying to do because they realize, as we said earlier, if you do not start to make these changes, as you said, these are going to go the way of the buffalo. The buffalo is back now, so maybe that is a good analogy.

We do not tilt it, John, but on the defined contribution plan we also provide a number of benefits to the employer and to the worker, because ultimately as you know, you are only going to offer a defined contribution plan if your workers are going to participate. And this says to the worker, if you are willing to put aside some of your income it is really exempting it from taxes and is a good deal for the employee, we will let you put more aside. You can get a real nest egg going that in the old days you could only get from a defined benefit plan. That is what the catch-up contribution is really about, getting that nest egg and building it up. We will reduce some of the burdens for the employer, so that there are fewer administrative costs. More money is going to go into benefits and into matches.

Again, by doing all these things we think you will have better education, better matches, and so on. So, we do not tilt it but we provide something for each.

I would just mention one other thing I probably should not get into because it is a very controversial area. I just throw it out, since we are having this intellectual discussion; the cash balance plans. There is a lot of controversy over them right now.

We chose not to get into it in our bill to the extent of discouraging cash balance plans. It is my personal view, and I won't speak for Ben on this, that if we get into the business of restricting cash balance plans too much, we are going to find fewer and fewer employers who are going to offer a defined benefit plan. Cash balance is a sort of hybrid between the two; defined contribution and defined benefit. However, it is still a defined benefit plan. It still is based on a formula. It is just a formula that is not as much based on seniority as it is on the sense of having your own account. As you work, even in your early years, you can get more benefits so it is actually better for younger workers.

We do provide a requirement that companies provide better information as they move to a cash balance plan, if they chose to do that. We do not go so far as to say that there ought to be severe government regulations on this new vehicle, because we think, frankly that may be the wave of the future for a lot of companies and a lot of employees.

Ben wants to comment.

Mr. Cardin. Yes, I might add that cash balance accounts are really a way to save defined benefit plans, and to bring them up to date and meaningful for a greater number of workers, especially younger to middle-aged workers who see their cash balances. It makes it more relevant to them. But there is some controversy. We have had conversations with the Department of Labor. We would like to try to find some way to deal with it in this legislation.

Mr. Petri. Mr. Chairman?

Chairman Boehner. Mr. Petri.

Mr. Petri. Before you wrap the Hearing up, I just want to say that you have done such a bang-up job on bringing this forward in a non-partisan way, and it affects millions of Americans in a constructive direction. Do you have any time to work on Social Security now?


Mr. Portman. Mr. Cardin is going to solve that one.

Mr. Cardin. We heard about it. Maybe we should give that to your Committee.

Chairman Boehner. Any other Members have questions?

If not, we want to thank both of you for coming. We look forward to continuing to work with you.

The Hearing is adjourned.


Whereupon, at 12:18 p.m., the Subcommittee was adjourned