“ENHANCING RETIREMENT SECURITY:

H.R. 10, THE COMPREHENSIVE 

RETIREMENT SECURITY

AND PENSION REFORM ACT OF 2001” 

HEARING

BEFORE THE 

SUBCOMMITTEE ON EMPLOYER-EMPLOYEE RELATIONS 

OF THE 

COMMITTEE ON EDUCATION AND 

THE WORKFORCE 

HOUSE OF REPRESENTATIVES

ONE HUNDRED SEVENTH CONGRESS

FIRST SESSION

HEARING HELD IN WASHINGTON, DC, APRIL 5, 2001 

Serial No. 107-12 

Printed for the use of the Committee on Education 

and the Workforce

U.S. GOVERNMENT PRINTING OFFICE 

WASHINGTON : 2002 

77-904 pdf 

For sale by the Superintendent of Documents, U.S. Government Printing Office 

Internet: bookstore.gpo.gov Phone: (202) 512-1800 FAX: (202) 512-2250 

Mail: Stop SSOP, Washington, DC 20402-0001
ii

COMMITTEE ON EDUCATION AND THE WORKFORCE 

JOHN A. BOEHNER, Ohio, Chairman 

THOMAS E. PETRI, Wisconsin GEORGE MILLER, California 

MARGE ROUKEMA, New Jersey DALE E. KILDEE, Michigan 

CASS BALLENGER, North Carolina MAJOR R. OWENS, New York 

PETER HOEKSTRA, Michigan DONALD M. PAYNE, New Jersey 

HOWARD P. “BUCK” McKEON, California PATSY MINK, Hawaii 

MICHAEL N. CASTLE, Delaware ROBERT E. ANDREWS, New Jersey 

SAM JOHNSON, Texas TIM ROEMER, Indiana 

JAMES C. GREENWOOD, Pennsylvania ROBERT C. “BOBBY” SCOTT, Virginia 

LINDSEY O. GRAHAM, South Carolina LYNN C. WOOLSEY, California 

MARK E. SOUDER, Indiana LYNN N. RIVERS, Michigan 

CHARLIE W. NORWOOD, JR., Georgia RUBEN HINOJOSA, Texas 

BOB SCHAFFER, Colorado CAROLYN McCARTHY, New York 

FRED UPTON, Michigan JOHN F. TIERNEY, Massachusetts 

VAN HILLEARY, Tennessee RON KIND, Wisconsin 

VERNON J. EHLERS, Michigan LORETTA SANCHEZ, California 

THOMAS G. TANCREDO, Colorado HAROLD E. FORD, JR., Tennessee 

ERNIE FLETCHER, Kentucky DENNIS KUCINICH, Ohio 

JIM DeMINT, South Carolina DAVID WU, Oregon 

JOHNNY ISAKSON, Georgia RUSH D. HOLT, New Jersey 

BOB GOODLATTE, Virginia HILDA L. SOLIS, California 

JUDY BIGGERT, Illinois SUSAN DAVIS, California 

TODD RUSSELL PLATTS, Pennsylvania BETTY McCOLLUM, Minnesota 

 PATRICK J. TIBERI, Ohio 

 RIC KELLER, Florida 

 TOM OSBORNE, Nebraska 

 JOHN ABNEY CULBERSON, Texas 

Paula Nowakowski, Chief of Staff 

John Lawrence, Minority Staff Director

SUBCOMMITTEE ON EMPLOYER-EMPLOYEE RELATIONS 

SAM JOHNSON, Texas, Chairman

ERNIE FLETCHER, Kentucky, Vice Chairman ROBERT E. ANDREWS, New Jersey

JOHN BOEHNER, Ohio DONALD M. PAYNE, New Jersey 

MARGE ROUKEMA, New Jersey DALE E. KILDEE, Michigan 

CASS BALLENGER, North Carolina LYNN N. RIVERS, Michigan 

PETER HOEKSTRA, Michigan CAROLYN McCARTHY, New York 

HOWARD P. “BUCK” McKEON, California JOHN F. TIERNEY, Massachusetts 

THOMAS G. TANCREDO, Colorado HAROLD E. FORD, Jr., Tennessee 

JIM DeMINT, South Carolina 

PATRICK J. TIBERI, Ohio 
iii

Table of Contents 

Table of Contents...........................................................................................................iii

OPENING STATEMENT OF CHAIRMAN SAM JOHNSON, SUBCOMMITTEE 

ON EMPLOYER-EMPLOYEE RELATIONS, COMMITTEE ON EDUCATION 

AND THE WORKFORCE, U.S. HOUSE OF REPRESENTATIVES.......................... 2 

STATEMENT OF THE HONORABLE ROB PORTMAN, U.S. HOUSE OF 

REPRESENTATIVES, MEMBER OF CONGRESS, 2ND DISTRICT OF OHIO......... 6 

STATEMENT OF THE HONORABLE BENJAMIN CARDIN, U.S. HOUSE OF 

REPRESENTATIVES, MEMBER OF CONGRESS, 3RD DISTRICT OF 

MARYLAND ................................................................................................................. 9 

STATEMENT OF NANCI S. PALMINTERE, DIRECTOR OF TAX, LICENSING 

AND CUSTOMS, INTEL CORPORATION, SANTA CLARA, CALIFORNIA, 

TESTIFYING ON BEHALF OF THE AMERICAN BENEFITS COUNCIL ............ 23 

STATEMENT OF RICHARD A. TURNER, ASSOCIATE GENERAL COUNSEL, 

AMERICAN GENERAL FINANCIAL GROUP, HOUSTON, TEXAS, TESTIFYING

ON BEHALF OF THE AMERICAN COUNCIL OF LIFE INSURERS (ACLI) ....... 28 

STATEMENT OF KAREN W. FERGUSON, DIRECTOR, PENSION RIGHTS 

CENTER, WASHINGTON, D.C. ................................................................................ 30 

APPENDIX A - WRITTEN OPENING STATEMENT OF CHAIRMAN SAM 

JOHNSON, SUBCOMMITTEE ON EMPLOYER-EMPLOYEE RELATIONS, 

COMMITTEE ON EDUCATION AND THE WORKFORCE, U.S. HOUSE OF 

REPRESENTATIVES.................................................................................................. 43 

APPENDIX B - WRITTEN STATEMENT OF THE HONORABLE ROB 

PORTMAN, U.S. HOUSE OF REPRESENTATIVES, MEMBER OF CONGRESS, 

2ND DISTRICT OF OHIO............................................................................................. 47 

APPENDIX C - WRITTEN STATEMENT OF THE HONORABLE BENJAMIN 

CARDIN, U.S. HOUSE OF REPRESENTATIVES, MEMBER OF CONGRESS, 3RD

DISTRICT OF MARYLAND ...................................................................................... 53 

APPENDIX D - WRITTEN STATEMENT OF NANCI S. PALMINTERE, 

DIRECTOR OF TAX, LICENSING AND CUSTOMS, INTEL CORPORATION, 

SANTA CLARA, CALIFORNIA, TESTIFYING ON BEHALF OF THE AMERICAN 

BENEFITS COUNCIL ................................................................................................. 59
iv

APPENDIX E - WRITTEN STATEMENT OF JUDITH F. MAZO, SENIOR VICE 

PRESIDENT, THE SEGAL COMPANY, WASHINGTON, D.C., TESTIFYING ON 

BEHALF OF THE BUILDING AND CONSTRUCTION TRADES DEPARTMENT, 

AFL-CIO AND THE NATIONAL COORDINATING COMMITTEE FOR 

MULTIEMPLOYER PLANS....................................................................................... 69 

APPENDIX F - WRITTEN STATEMENT OF RICHARD A. TURNER, 

ASSOCIATE GENERAL COUNSEL, AMERICAN GENERAL FINANCIAL 

GROUP, HOUSTON, TEXAS, TESTIFYING ON BEHALF OF THE AMERICAN 

COUNCIL OF LIFE INSURERS (ACLI).................................................................... 87 

APPENDIX G - WRITTEN STATEMENT OF KAREN W. FERGUSON, 

DIRECTOR, PENSION RIGHTS CENTER, WASHINGTON, D.C.......................... 97 

APPENDIX H - WRITTEN STATEMENT OF DALLAS L. SALISBURY, 

PRESIDENT AND CEO, EMPLOYEE BENEFIT RESEARCH INSTITUTE, 

WASHINGTON, D.C................................................................................................. 115 

APPENDIX I - WRITTEN STATEMENT OF THE NATIONAL ASSOCIATION OF 

FEDERAL CREDIT UNIONS, WASHINGTON,D.C. ............................................. 123 

APPENDIX J - WRITTEN STATEMENT OF THE PRINCIPAL FINANCIAL 

GROUP, WASHINGTON, D.C. ................................................................................ 127 

APPENDIX K - WRITTEN STATEMENT OF THE INVESTMENT COMPANY 

INSTITUTE, WASHINGTON, D.C. ......................................................................... 133 

Table of Indexes.......................................................................................................... 141
1

HEARING ON “ENHANCING RETIREMENT SECURITY: H.R. 10, 

THE COMPREHENSIVE RETIREMENT SECURITY 

AND PENSION REFORM ACT OF 2001” 

______________

Thursday, April 5, 2001 

U.S. House of Representatives, 

Subcommittee on Employer-Employee 

Relations,

Committee on Education and the Workforce, 

Washington, D.C.

 The Subcommittee met, pursuant to call, at 10:40 a.m., in Room 2175, Rayburn 

House Office Building, Honorable Sam Johnson, Chairman of the Subcommittee 

presiding.

 Present: Representatives Johnson, Fletcher, Boehner, Ballenger, McKeon, Tiberi, 

Tierney, Kildee, Andrews. 

 Staff Present: David Frank, Professional Staff Member; Christopher Bowlin, 

Professional Staff Member; George Canty, Counselor to the Chairman; David Connolly, 

Jr., Professional Staff Member; Peter Gunas, Director of Workforce Policy; Patrick 

Lyden, Professional Staff Member; Heather Oellermann, Staff Assistant; Deborah L. 

Samantar, Committee Clerk/Intern Coordinator; Jo-Marie St. Martin, General Counsel; 

Brian Compagnone, Minority Staff Assistant/Labor; Camille Donald, Minority 

Legislative Associate/Labor; Joycelyn Johnson, Minority Staff Assistant; Peter Rutlege, 

Minority Senior Legislative Associate/Labor; and Michele Varnhagen, Minority Labor 

Counsel/Coordinator.

Chairman Johnson. The Committee will come to order. A quorum being present, the 

Subcommittee on Employer-Employee Relations will come to order. 

 We are meeting today to hear testimony on H.R. 10, which is the Comprehensive 

Retirement Security and Pension Reform Act of 2001. 
2

OPENING STATEMENT OF CHAIRMAN SAM JOHNSON, SUBCOMMITTEE ON 

EMPLOYER-EMPLOYEE RELATIONS, COMMITTEE ON EDUCATION AND 

THE WORKFORCE, U.S. HOUSE OF REPRESENTATIVES 

Chairman Johnson. Under committee rule 12, opening statements are limited to the 

chairman and ranking minority member of the Subcommittee. However, this morning I 

am going to allow Mr. Tierney to make an opening statement. And when Mr. Andrews 

gets here, we will allow him to make a short statement as well. Therefore, if other 

Members have statements, they may have them included in the record. 

 With that, I ask unanimous consent for the hearing record to remain opening for 

14 days till to allow Member statements and other extraneous material references during 

the hearing to be submitted in the official hearing. 

 Is there any objection? 

 Without objection, so ordered. 

 Today, we are going to look at a bill that will directly improve retirement security 

in America, H.R. 10, the Comprehensive Retirement Security and Pension Reform Act of 

2001, which is Mr. Cardin and Portman's act. And Mr. Portman just finally walked in. 

They are the two sponsors. Well, you had to come a long way, didn't you, Rob? 

 This will make retirement security more available to millions of workers by, one, 

expanding small business retirement plans which cover 75 percent of the work force, 

allowing workers to save more, addressing the needs of an increasingly mobile workforce 

through greater portability, making pensions more secure, and cutting red tape that has 

hamstrung employers who want to establish pension plans for their employees. 

 I am pleased that Rob Andrews, the Subcommittee's ranking member, who will 

join us later, has joined me in support of this important legislation, the most significant 

overall of pension law in 25 years. 

 It is no secret that, with the cooling economy, people have watched their 

retirement accounts fall. Of course, this makes them uneasy. They are saving for their 

golden years, retirement; and their nest egg is dwindling. 

 It is time to act now to help people better prepare for the day when they no longer 

show up for work every morning. And the best way is to give these people peace of mind 

and enact H.R. 10. 

 One of the committee's long-standing objectives has been to find ways to expand 

pension coverage especially by small business, to make ways to make pensions more 

portable. H.R. 10, introduced by Representatives Rob Portman and Ben Cardin, who are 
3

among our witnesses today, address the retirement savings gap in a comprehensive way. 

 Improving retirement security is a top priority of this Congress this year to ensure 

America's future. But 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, secure 

retirement. And the time for action is now. 

 This legislation is truly bipartisan. In the last Congress, the committee reported a 

virtually identical bill by a bipartisan vote. In July, the House passed H.R. 1102, which 

was a bill last year, by a vote of 401 to 25. This bill has a broad spectrum of support. 

Over 150 Republicans and nearly 100 Democrats are cosponsors. They may have more 

by now. 

 More than 100 groups have endorsed the bill, both business and union; from 

AFSME, the Teamsters, the Laborers International, the National Education Association, 

to the U.S. Chamber, the National Federation of Independent Businesses, the National 

Association of Manufacturers, the American Benefits Council, and the American Council 

of Life Insurance. 

 In the future, the committee will, again, mark up these provisions, the full 

committee, of the bill within our jurisdiction, and those amending the Employment 

Retirement Income Security Act, ERISA. This bill contains many ERISA amendments to 

simplify pensions action, promote retirement coverage, including granting relief from 

excessive PBGC premiums for new small business plans, accelerating the vesting of 

workers accounts, repealing and modifying a wide range of unnecessary and outdated 

rules and regulations, providing more frequent benefits, statements to workers, requiring 

enhanced disclosure and other protections when future pension benefits are reduced, as in 

the case of conversion to a cash balance account, and repealing the so-called full funding 

limit that arbitrarily limits defined benefit plan funding to a less than actuarially sound 

level.

 We are committed to strengthening the retirement security of workers and their 

families by expanding private-pension coverage and protecting their pension and 

retirement savings. Unnecessarily complex regulations that have little benefit reduce the 

incentive for employers to offer pension plans. 

 Congress must increase access to pension plans by further simplifying 

regulations, which today make it difficult for many employers to offer pension plans. 

H.R. 10 is a significant step toward achieving these goals. 

 It is my goal and that of Chairman Boehner, who is with us today, to mark up this 

legislation and move it to the floor in coordination with the Committee on Ways and 

Means, of which I am also a member. And I welcome my two compatriots. 
4

I look forward to working with Mr. Andrews and Members of both sides of the 

aisle to see the Portman-Cardin bill enacted into law. Strengthening our private 

employer-based pension system is a critical issue for all Americans, especially the 76 

million baby boomers who are nearing retirement age. 

 This legislation increases retirement security for millions of Americans by 

strengthening that third leg of retirement security, our pension system. I am confident we 

can continue down this bipartisan path, ensuring workers their golden years are 

comfortable and secure. 

 And now I yield to Mr. Tierney, who is the ranking member present, for a 

statement if you so desire, sir. 

WRITTEN OPENING STATEMENT OF CHAIRMAN SAM JOHNSON, 

SUBCOMMITTEE ON EMPLOYER-EMPLOYEE RELATIONS, COMMITTEE ON 

EDUCATION AND THE WORKFORCE, U.S. HOUSE OF REPRESENTATIVES – 

SEE APPENDIX A

Mr. Tierney. Thank you, Mr. Chairman. Mr. Portman, Mr. Cardin, I congratulate you 

on a job well done. You have been at this for a considerable period of time, and it has 

taken a lot of effort and perseverance. I also think it has taken a lot of listening from the 

two of you, as I have noted changes in the bill over several years that I have been here; 

and I congratulate you for having that ability and willingness and for the work that you 

have done. 

 You address a large group of people and small businesses obviously that need this 

kind of relief, and this is a good step forward. And I don't intend to be critical, but I want 

to make a couple remarks of things that I hope will be considered in the long run. I know 

both you gentlemen have thought about them in the past. 

 It is my understanding that the Senate intends or may provide for individual 

savings credits when it reviews this version of the bill, talking about lower- and 

moderate-income savers up to about $50,000 receiving a tax credit for contributions. For 

taxpayers less than $30,000 a year, the credit will match up to 50 percent of $2,000 into 

any qualified retirement plan; and for others, it will cap or match up to about 30 percent 

or some amount that hasn't been capped yet. 

 I hope that there will be some consideration for amendments that might be offered 

under this committee or the Ways and Means or on the floor, some serious consideration 

for that, because I think it broadens out the number of people that this bill attracts. And 

from conversations with each of you and listening to the remarks that were made in the 

past, I don't think that is necessarily repugnant to you. So I hope that there will be some 

consideration for that. 

 Also, for the small business tax credit, providing 50 percent credit to employers 

contributing to plans for non-highly compensated employees up to a maximum of 3 

percent of their salary, another provision that I think, and I hope others may think, would 
5

be an improvement on an already good bill. 

 Lastly, I know that my colleague from Massachusetts, Richard Neal, and I think 

your work, Mr. Cardin, is talking about a version, a credit version of the retirement 

savings account that would match up to 50 percent of qualified pension contributions up 

to $2,000, with a phase-out beginning at $30,000. 

 Again, while this is a good piece of legislation, I think that, if it has any failure, it 

is that it doesn't reach down to everybody. It doesn't provide for the kind of relief that 

Americans earning less than $50,000, less than $30,000 are entitled to. And we should 

be concerned when we are concerned about savings for the savings of all Americans. 

 And so I congratulate you on addressing it for many Americans. I look forward to 

your cooperation and assistance on trying to expand the bill out so that it covers, in fact, 

everybody. Thank you, Mr. Chairman. 

Chairman Johnson. Thank you, John. 

 Now, I would like to introduce our first panel of witnesses. The first panel 

consists of my friends and colleagues from the Committee on Ways and Means, the 

bipartisan sponsors of H.R. 10, Representatives Rob Portman and Ben Cardin. 

 Rob Portman is currently in his 8th year in Congress representing the Second 

Congressional District in southwest Ohio. He has taken the lead in the Committee on 

Ways and Means on the retirement security issues and has authored a number of bills that 

have been signed into law. Rob served in the first Bush White House, first as associate 

counsel to the President and then as director to the White House Office of Legislative 

Affairs.

 Ben Cardin has represented Maryland's Third Congressional District since 1987.

He is the ranking member of the Ways and Means Human Resources Subcommittee and, 

along with Rob Portman, was instrumental in crafting the first major reform of the IRS in 

50 years, and in changing pension laws to make it easier for more Americans to 

contribute to private pension plans. Prior to coming to Washington, Ben was Speaker of 

the Maryland House of Delegates. 

 It is great in my view to see two committees working together in concert to pass a 

bill of this nature. And let me remind the witnesses that, under our committee rules, they 

must limit their whole statements to 5 minutes, if you would. And the entire written 

statements can appear in the record and will be admitted. 

With that said, Mr. Portman, would you begin your testimony. 
6

STATEMENT OF THE HONORABLE ROB PORTMAN, U.S. HOUSE OF 

REPRESENTATIVES, MEMBER OF CONGRESS, 2ND DISTRICT OF OHIO

Mr. Portman. With pleasure, Mr. Chairman. I want to start by thanking you very much 

for holding this hearing and for all your work on this bill. You just mentioned that it is 

nice to have the different committees working together. You realize you are the bridge 

between these committees. Being on Ways and Means, you have been one of the people 

with whom we have worked and relied on to get this product through the Subcommittee 

and in the full Committee on Ways and Means. And I am delighted that you are chairing 

this Subcommittee and that you have such a strong interest in this legislation. We are 

lucky to have you. 

 I also want to thank you for not holding me in contempt for my tardiness this 

morning. I was downtown. 

Chairman Johnson. You will get a $50 fine when you walk out the door. 

Mr. Portman. You are more generous than I remembered you. 

 But it is, indeed, a pleasure to have you in this position to be able, again, to move 

this through on a bipartisan, a bicameral, and a bicommittee basis. 

 And Mr. Tierney, Mr. Fletcher, Chairman Boehner, thank you all for being here.

Mr. Boehner was the Subcommittee chairman in the last Congress and helped us move 

this process forward and improved the bill as it went forward. And his leadership role in 

the full committee also is very helpful in terms of this process and in terms of education 

reform and so many others things. So we are delighted with his success and ascension to 

the chairmanship. 

 What I thought I might do today is talk a little about the bigger picture, what we 

are trying to do here. You laid it out very well, Mr. Chairman. I want to touch on briefly 

some of the major elements of the bill and what is under your jurisdiction, and then have 

Ben do all the hard work. And we will be open for any questions that you might have. 

 Congress has, of course, made strengthening Social Security a priority, as has this 

new administration. And I fully agree with that, as does Mr. Cardin, as do members of 

this panel. But we also believe very strongly that Congress needs immediately to expand 

retirement security in other ways. And that is what this is really all about. We have an 

opportunity to do that. 

 Specifically, we can strengthen retirement savings by strengthening our private 

employer-based system in pretty dramatic ways. And this is a critical issue for all 

Americans. I look forward to talking to Mr. Tierney about his comments, but we do 

address retirement security for all Americans already in this legislation. While there may 

be some differences on what credits we should or should not include in the legislation, 

our goal is, in fact, to expand it for every American. And we believe that the most 
7

effective way to do that is to get small businesses engaged in the business of providing 

pensions, retirement security, and so that everyone can benefit. 

 That is why, over the last 4 years, actually, my partner in this, Ben Cardin, and I 

have been working on comprehensive improvements to the system. This year, we have 

reintroduced legislation as H.R. 10. It is really very similar to H.R. 1102 that passed the 

House with almost, well, with 401 votes twice last year. In fact, it has passed the House 

five times, I am told, Ben. I am not quite sure what our problem is. We can't seem to get 

it done. But we are going to keep at it for another 4 years if we have to. Hopefully, this 

year we won't. Hopefully, we can get it done in this Congress and with this new 

administration. 

 I am delighted to say, Mr. Chairman, you mentioned on the co-sponsorships, we 

do now have 285 co-sponsors, including 160 Republicans, about 120 Democrats, and 14 

members of this Subcommittee. Again, we really appreciate the Subcommittee taking the 

lead with this on this issue. 

 What we try to do is strengthen, as you mentioned, that third leg. We have Social 

Security, the public pension system. We have private savings, which we also deal with in 

this bill through IRA expansions. And then we have the third leg, which is the employer 

system. Defined benefit plans as well as defined contribution plans are addressed in this 

legislation both in a comprehensive way. 

 Let me just give you a couple of statistics to talk to you about how bad things are 

now. More than half the workers in this country have no retirement savings now under 

any kind of a pension, not even a simple, or a SEP plan, or a 401(k), safe harbor, nothing. 

 We know for a fact that over 20 percent of small businesses today that only 20 

percent of the small businesses today, those with less than 25 employees, offer any kind 

of a pension. 

 So we have a real problem out there. And at a time when not enough workers 

have pension coverage, we also have an overall savings rate that is dangerously low, and 

talk about economics for just a minute. The savings rate in this country which this 

Subcommittee has talked about before is something that all economists, right, left and 

center, agree is very troubling for our country. In fact, in February of this year, as you 

know, the Commerce Department reported that our Nation's savings rate was a minus 1.3 

percent. 

 The economic argument on pension reform is sometimes overlooked. Let me just 

touch on that. The current slowdown in our economy, Mr. Johnson mentioned it, talked 

about the capital markets, this has spurred an interest in tax relief, I think appropriately.

And a lot of economists have pointed to tax relief as an effective way to spur 

consumption and get down consumer debt. We, of course, agree with that. I think it will 

help.

 But in addition to that, we need to encourage Americans to, not just consume and 

reduce debt, but also save. And the savings will strengthen the long-term financial 

security, of course, of individuals and families; but it also will provide a number of 
8

positive effects for the U.S. economy as a whole and do so in a short term. 

 Of course, that is what provides our economy with a ready source for investment 

capital. Assets and employer-sponsored retirement plans and IRAs today, Mr. Chairman, 

total more than $5 trillion. And pension assets alone account for over 26 percent of all 

equity holdings and, in fact, over 12 percent of all taxable bond holdings in the United 

States. So a significant part of our savings is tied up in these pensions. 

 It is a way we can immediately increase our savings rate and, therefore, increase 

the pool of capital, which will in effect permit greater production of goods and services in 

our economy. And this increased capital accumulation, of course, also generates 

additional tax revenues in our system. So there is an economic argument here that is 

sometimes overlooked about the importance of doing this and doing it now. 

 Some might argue that the Federal tax expenditure that is involved--and you and I 

deal with this all the time with the Joint Tax Committee--for pensions and retirement 

savings is significant. However, evidence also demonstrates that this expenditure is a 

highly-efficient use of the Federal tax dollar, particularly as compared to other tax relief. 

 Data from the Commerce Department shows that benefits paid by employersponsored pensions are 4.6 times as large as the foregone Federal tax collections. Think 

about that. This is a very efficient way for us not to get more of a hit on Federal 

revenues, but in fact to get more revenues into the Treasury and help the economy. 

 The investments in the employer-sponsored pension systems contained in this bill 

would clearly be a sound Federal expenditure that is going to translate also into 

meaningful retirement benefits for all Americans. 

So I just wanted to lay that out, because that is something we don't talk about 

enough, I think, is the fact that this is going to be extremely important in helping our 

economy and helping our savings rate. 

Chairman Johnson. I think the time of the gentleman has expired. 

Mr. Portman. I thank the gentleman. And I look forward to the comments from my 

colleague.

Chairman Johnson. Well, unlike the Ways and Means, Mr. Boehner wants these things 

to run on time. And I might add he supported this bill full-blown last time, and it was he 

who helped get it through this committee and intends to, I believe, do it again. So we 

appreciate that. 

 Thank you, Mr. Portman. The rest of your testimony can be entered into the 

record.
9

WRITTEN STATEMENT OF THE HONORABLE ROB PORTMAN, U.S. HOUSE OF 

REPRESENTATIVES, MEMBER OF CONGRESS, 2ND DISTRICT OF OHIO- SEE 

APPENDIX B

Chairman Johnson. Mr. Cardin, you may begin your testimony. 

STATEMENT OF THE HONORABLE BENJAMIN CARDIN, U.S. HOUSE OF 

REPRESENTATIVES, MEMBER OF CONGRESS, 3RD DISTRICT OF MARYLAND 

Mr. Cardin. Thank you, Mr. Chairman. I want to echo the comments of Mr. Portman in 

thanking you for your leadership, not only on this committee, but on the Committee on 

Ways and Means. 

Mr. Boehner, I want to thank you also for your leadership, in particular the 

provisions that are under the ERISA statute. They are complicated provisions, and you 

have been very helpful to us in crafting this bill. 

Mr. Andrews is not here, but I hope you will express my thanks to him. He has 

been very encouraging in his work on strategies on the Democratic side to make sure that 

we can keep the bipartisan momentum for the passage of this legislation. 

Mr. Portman mentioned the fact that this is truly a bipartisan bill. I want to thank 

Rob for all of his help on both sides of the aisle to keep us focused on keeping our 

coalition strong. It is not only bipartisan, but we have reached out to all elements within 

the pension community. 

 This bill doesn't do everything that everybody wants, but we think it is a bill that 

is well balanced and enjoys broad support, because we have been able to keep it 

balanced; and we want to continue to do that. 

Mr. Portman has indicated the great need for it. I am not going to repeat what he 

has said, except to mention one point. A person who enters the workforce today, when 

that person retires, the number of people who are over 65 in this country as a percentage 

of the total population will increase from about 12.8 percent, which it is today, to 20 

percent of our population. I think that is somewhat a sobering thought. We really need 

to do a much better job on private savings and private retirement. 

 What I would like to say is this bill makes progress by going backwards. We 

tried to deal with some of the problems that we have created during the last 20 years, 25 

years, in our pension laws that have made it more difficult, particularly for small 

companies to establish employer-sponsored pension plans. So we try to simplify the 

system to make it easier for an employer to provide pension opportunities for their 

employees. 

 So we restore some of the limits, which basically don't even get us back up to 

where we would have been if we had adjusted for inflation. And we adjust the limits on 
10

all the plans, whether it is a 401(k), a 403(b), a 457. All those defined contribution plans 

are increased to $15,000. We increase the IRA contributions. 

 We make it easier for defined benefit plans. We have been taking steps to make it 

more difficult for employers to continue defined benefit plans; but our bill increases the 

limits and makes it easier for these plans to continue. 

 We provide for the portability among all the plans. I would like to name that 

provision after my daughter who, at the age of 31, already has five different pension 

plans, and they are all very small. And she was very tempted to cash out. I told her, no, 

wait. Help is on the way. This committee is going to act in a very timely way, and we 

are going to be able to continue to allow her to combine these plans and keep them for 

her retirement. 

 One provision that I want to just emphasize that I am really very pleased about is 

this catch-up contribution. It allows individuals who are 50 years of age or older to put 

an extra $5,000 into defined contribution plans. 

 And the reason for that is, quite frankly, two things: first, when you are younger, 

your first intentions are to educate your family, to pay off the mortgage on your home, 

and you don't really have the wherewithal sometimes to put money away for retirement. 

This allows you to be able to take care of your retirement needs after those obligations 

have been completed. 

 It is particularly important for women, many of whom have left the workforce, are 

now returning to the workforce after they have raised their families, to be able to have 

enough money put away for their retirement. The bill also deals with many, many 

provisions under the jurisdiction of this committee, under the ERISA statutes. 

 Dealing with small business, we really focus on trying to help small business be 

able to establish employer plans. The IRS user fees; as you pointed out, the premiums 

under the PBGC; and the 5500 filings. 

 We also deal with complexity by trying to deal with the highly compensated 

employee rules that we think have been unduly burdened upon particularly smaller 

companies, the subchapter S problems. 

 The notice requirements under ERISA, we try to clean up and make them really 

do what we intended them to do and not be a burden. 

 Let me just respond to Mr. Tierney's question, if I might, for my final comments. 

I appreciate your concerns and I agree with you. We would like to expand the bill. We 

were trying to be as frugal as possible on the use of Federal revenues. 

 And I am pleased to point out that those who are asking us to do more, we 

applaud you. We would like to do more. We had in our original bill a tax credit for 

small business. We are sorry that that was taken out of the bill. 
11

The bill that we filed is identical, basically identical to the bill that enjoyed broad 

bipartisan support on the floor of Congress with 401 votes. We hope, as it works its way 

through Congress, that we can work with the different groups to see whether we cannot 

expand the bill to even be more inducement for individuals and companies to deal with 

retirement security. We look forward to working with the committee. 

Chairman Johnson. Thank you, Mr. Cardin. I appreciate your comments. 

WRITTEN STATEMENT OF THE HONORABLE BENJAMIN CARDIN, U.S. 

HOUSE OF REPRESENTATIVES, MEMBER OF CONGRESS, 3RD DISTRICT OF 

MARYLAND- SEE APPENDIX C 

Chairman Johnson. And since you brought up the subject of small business, either one 

of you can answer it, can you tell us what, in your opinion, are the major reasons small 

employers are far less likely to offer pension plans to their workers than large employers. 

And how does this bill remedy that situation? 

Mr. Portman. Mr. Chairman, early on in our process, we looked to the private sector for 

that answer and there was actually a survey done that indicated what would be common 

sense, which is the costs, the burdens, and the liabilities. 

 And one reason I am in this business of pensions is I used to practice law and 

represented a lot of small employers and went through some of those issues of costs, 

burdens, and liabilities, particularly in the liability side, which we do address in our 

legislation, incidentally. And that is the notion of the bill, and that is what I was 

responding to earlier. 

 In relation to Mr. Tierney's comments, I agree. We need to do every thing we can 

to expand pension coverage. The most effective way to do that is to get small businesses 

engaged, which is where most lower- and middle-income workers work. Larger 

businesses, for the most part, have pension problems. Some of them even have defined 

benefit plans still. And we encourage that and help promote that in this legislation, 

although those are fewer and fewer as you know. 

 But what we want to do is be sure that we do reduce the cost, reduce the burdens, 

make it so that a small employer doesn't feel like it is possible the whole plan could be 

disqualified for a simple inadvertent error, which is the case now. We think that this 

legislation will take a tremendous step in that direction. 

 We also believe that there is even more you can do in the future to reduce those 

costs, but we think this is the important first step. We think it is the right balance, as Mr. 

Cardin said, to be sure that you still have all the existing security for workers, all the 

provisions that make sure that it is a fair system for those who are not highly 

compensated. But in the end, this will simplify it, Mr. Chairman. We think it will get 

more small businesses engaged. 
12

Mr. Cardin. Just quickly, a small business owner cannot have an individual assigned 

just to deal with pension issues. In some cases, it is very complicated. So the complexity 

clearly has been one of the reasons why. There have been a lot of traps in the law that 

small companies particularly are afraid to go down this road, because they might be 

subject to certain penalties; and it was unintended consequences of some of the 

provisions we put in the law in the 1980s. 

 Then, lastly, let me mention the limits. If a company is looking at establishing a 

pension plan, but they can't get enough money into the pension plan, why bother doing it? 

And the key people who make these decisions look at the limit and say, gee, it is just not 

worth it. 

 So what we are trying to do is give a balanced approach to make it is easier for 

companies to establish pension plans. 

Chairman Johnson. You all talk about making it easier. How do you reduce red tape 

that is involved administratively to help them in this bill? 

Mr. Cardin. There are several points. First, some of the fees are reduced if they decide 

to go into the defined benefit plans. We have also reduced a lot of the red tape on the 

5500 filings, making it easier for them to deal with that. Then the testing rules, we make 

it_for example, there are certain safe harbors that are currently in law, but those safe 

harbors do not apply for the highly compensated employee rules. We say that, if you are 

in the safe harbor, you don't have to worry about the highly compensated rules. 

 So I think the way we have done it is reduce the direct cost, establish safe harbors 

that small companies can get into, and not have to worry about the testing, the expensive 

testing requirements. 

 So they are the major provisions. 

Mr. Portman. Mr. Chairman, I would just add to that that what you are doing in this 

Subcommittee also helps tremendously. I mean, our main focus has been to get at some 

of the complexities and nondiscrimination testing and the top-heavy rules. I think we 

have done that in a fair way, a balanced way. Frankly, some people would like to have 

gone further in the business community. Some people were more worried about worker 

protections and think we went too far. We probably have hit about the right balance. 

 But what you do, reform of the NI cutback rule, for instance, is going to help 

businesses. That is very important. The allowing the summary-end reports to be made 

available electronically is going to help. I mean, that is simplification that saves costs. 

The allowing loans for small business owners from retirement plans, it is not 

permitted now. We think that is an inadvertent trap has been set in the current law where 

some things we think just, you know, are sort of nonsensical that are in current law that 

we try to clean up. 
13

The small business PBGC premiums for new plans, we talked about the defined benefit 

earlier and how we try to encourage that. So actually we do some things on the Ways 

and Means Committee where you have jurisdiction, and we do some things in your new 

Subcommittee where we have jurisdiction that are going to make it easier for businesses. 

ESOPs, for instance, are very excited about this bill. It is going to help them. 

 So we get at these issues. Again, there are other things that we could look at 

down the line depending on how this works. But we think this is the right balance right 

now to give more small businesses engaged in the business of offering retirement plans. 

Chairman Johnson. Thank you. My time is up. 

Mr. Tierney. 

Mr. Tierney. Thank you very much. Again, thank you for your testimony. I also for 22 

years represented a lot of small companies; and I understand perfectly well what you are 

saying, although I do note that SEPs are not a bad vehicle for some and fairly simple 

except nobody seems inclined to market them because they don't make an awful lot of 

money on them. 

 I was wondering, you know, at some point in time, we might move forward on 

trying to address that issue, because I think that is by and large a part of it. The other part 

of it, of course, is many of the small businesses I represented truly were small; and what 

the real impediment for them having plans was they just didn't make enough money. No 

matter how simple you make the forms or whatever, they just didn't have enough money 

to do that. 

 Which brings me back to the drum I was beating before, and I don't mean to be 

contentious about it at all, because I think we can be at some sort of agreement. If we 

really wanted a balanced plan here, wouldn't we also in this vehicle as we move forward 

do something for people that make less than $50,000? I mean, 80 percent of the people 

that are earning wages earn less than $50,000. If we want balance, it seems to me, we 

would include them in this bill. Yet, in order to get this bill moving, if the compromise 

had to be made, we dump out that segment and keep in that. 

 I think it brings into question what your colleagues' priorities are if they forced 

you to take those sections out. I am disturbed by what your colleagues' priorities were if 

they are the ones that forced you to take that degree of balance out of that. They are, in 

fact, going to be the people that, when they retire, are going to get less Social Security; 

they are going to have less in the bank. And we ought, I hope, to include them in the path 

forward.

 I guess I am disturbed that if we are fracturing this thing, saying, well, this group 

we are going to deal with first, and we will get to them later, I am not sure we are going 

to get to them later. I think this might be the time to force that issue. 

 If people are really interested--and we have such great bipartisan support in this 

bill, which it appears we do--why not use that capital, political capital to put in and really 
14

strike some balance here and put those programs into this bill and move it forward, as I 

understand is going to be done in the Senate. 

Mr. Cardin. First, if I might respond, I think the bill that you have before you is well 

balanced and will help the system and will help lower-waged workers by having more 

companies establish pension plans. 

 It is a matter of dollars and cents. I agree with you. I support efforts to help 

lower-wage workers within our current pension plans participate. That is why I have 

supported the efforts of some of our colleagues in that direction in the Senate as well as 

in the House. 

 But it is a matter of dollars and cents, in other words, how much money we have 

available. The bill that we present to you is a modest cost bill. It will allow companies to 

establish pension plans, which will help all workers. 

 If we have more dollars that we can put into the plan, then I certainly support the 

efforts on behalf of lower-wage workers to offer additional incentives so they can 

participate in employer-sponsored pension plans. I think that makes sense. I support 

that.

 The one provision that we had in our bill that was removed last year dealt with the 

credit for small business expenses. We think, we hope that, as this bill works its way 

through the process--that can be added. That was not that terribly expensive. And we 

think it would be an improvement. 

 Again, we were cautious. We wanted to do the bill that passed the Congress last 

year. But we hope, as it works its way through both the House and the Senate, if 

additional resources are available, that we can move forward on some of your 

suggestions.

Mr. Tierney. Again, I don't mean this as a criticism of you two gentlemen, because I 

think you are working hard to get through what you can get through and address the 

problem. I guess my point to whomever might be listening out there on that is, you 

know, for another $10 billion, you can do the ERISAs. You know, so you have $50 

billion on this program; and for one-fifth of that added on, you deal with a whole slew of 

people that might not otherwise be covered. To me, it makes sense to do it on this bill. I 

mean, we could certainly analyze whether or not we could move forward at this time on 

that.

Mr. Cardin. The ERISA proposals range anywhere from the dollars you mentioned to 

much, much, much more money. 

Mr. Tierney. But here is the time to draft one. 

Mr. Cardin. It depends on whether you want to make it refundable and what income 

limits you want to apply to them. 
15

Mr. Tierney. I agree with you. But here is the time to do that discussion. Here is the 

time to make one that is affordable. Here is the time, as they are in the Senate going to 

do, come up with a portion where it says this is what we are going to do, it is going to 

bring it in around $10 billion. And if it is refundable or not refundable, we will have the 

debate now. 

 Once this debate moves forward, I think, unfortunately, this is gone for the year, 

perhaps for the whole session. Look how long it has taken you gentlemen just to move 

this vehicle now. I guess my only plea to you would be that, if you have the energy, and 

I know you have the will and the intent, to maybe support those amendments to it that 

would come up that would move in that direction, support if it came out of conference 

committee. 

 And, in the last few seconds, I would like to know, would you support this, 

continue to fight aggressively for this bill if it came out of conference committee with 

provisions in that that were affordable in a $10 billion range for ERISAs. 

Mr. Cardin. Well, absolutely. 

Mr. Portman. Mr. Chairman, I don't know how much time we have. I don't want to go 

over your limits. 

Mr. Tierney. Can I ask you, Rob, just start with the back end of that. Would you 

support it if it came out with the provisions? 

Chairman Johnson. You can answer if you want. 

Mr. Portman. I don't know. I think, you know, we have a bipartisan love-fest here, and 

this bill has got 285 co-sponsors, but I think we have a philosophical difference. I really 

do.

Mr. Tierney. I can get you probably another 150 co-sponsors if you move that 

philosophy toward the people that we are talking about. 

Mr. Portman. You know, you say that 80 percent of workers in America make less then 

50,000 bucks a year and we are not doing anything for them. That is just wrong. 

Mr. Tierney. I never said you are not doing anything for them. I said I would like to see 

you do the ERISA’s for that. 

Mr. Portman. Well, you certainly implied that. Let me give you another statistic. 

Seventy-seven percent of participants in pensions in this country make less than 50,000 

bucks a year. If you are getting some more information there, you can respond to that. 

Mr. Tierney. I already gave you the information. 
16

Mr. Portman. That is a fact. And I just get a little tired of the folks who are critical of 

this process, saying we do nothing for low-income workers. Those low-income workers 

work in those small businesses that you and I used to represent. And they are getting 

nothing now. You know, 19 percent of small businesses aren't offering anything. That is 

what you are trying to do. To me, if you are going to put some money against this, that is 

where I would put it. I mean, I am not saying I would vote against--. 

Mr. Tierney. But I just don't want to see you---you are fighting a fight that isn't out 

there. Nobody said you are not doing anything for them. 

Mr. Portman. But there is a philosophical difference here, I think. You know, it is not 

just that we all agree more should be added. In my view, if I had another 10 billion 

bucks, I would put it against more of what we are doing to try to expand coverage to the 

people you and I used to represent, because that is where I think we are going to get more 

bang for the buck. This $10 billion provision that came out of the Senate Finance 

Committee last year I think will have very little impact, frankly. 

 I think what you need to do instead is you need to tell people whom you and I 

used to represent, hey, there is something in it for you. And because of the 

nondiscrimination rules, you have got to offer it to everybody. Then you get the 

tremendous leverage we talked about. In the testimony, I said 4.6 times the amount of 

tax expenditures you are going to get in terms of benefits, because they are going to get 

matching--you want to increase matching contributions from employers to get more 

people in the system. 

 So I would probably approach it a little differently. I would do what we are trying 

to do in complexity and the burdens and the liabilities; but, also, I would probably make 

the system a little more attractive for small businesses so that you can give those people 

coverage.

 If you do an ERISA that goes--that is nonrefundable, then you probably have 

more impact on those low-income workers. But that gets very complicated and has all 

kinds of compliance problems, as we have seen with the ITC. It gets very expensive, 

obviously.

 So I just wanted to make it clear that, you know, I understand what you are 

saying. I agree with you in terms of the goal. But I think there is a difference in terms of 

how we approach--how you get to that goal. 

Mr. Tierney. Thank you. 

Chairman Johnson. Thank you, Mr. Portman. Mr. Andrews has joined us. Thank you 

for catching the train on time. 

Mr. Andrews. I apologize for my tardiness. The 8:13 train was an hour delayed, 

thereby resulting in a massive forfeiture of Amtrak's pension fund. 
17

Chairman Johnson. I thought it was all the Democrats sitting on the tracks. 

Mr. Andrews. I don't think it was that. But I apologize. 

Mr. Cardin. I hope it was not a problem coming through Baltimore, was it? 

Mr. Andrews. Never through Baltimore. It always works through Baltimore. 

Chairman Johnson. Mr. Andrews, you are recognized for a statement, if you wish. 

Mr. Andrews. Thank you, Mr. Chairman. First, let me thank you and commend you for 

your openness and spirit of collegiality in your early days as chairman of the 

Subcommittee. I am very encouraged by that, and I appreciate and look forward to a 

strong working relationship between us and among our members. 

 I wanted to briefly express my enthusiastic support for the legislation that Mr. 

Portman and Mr. Cardin have put forward. It does not by any stretch of the imagination 

address every problem in America's pension system, but it strongly and positively affects 

a number of those problems. 

 I appreciate their persistence in this goal over the last few years. I think that last 

year's outstanding vote on the House floor is evidence of the breadth of support that they 

have built. 

 I briefly want to say the three major reasons that I support the legislation and then 

suggest a fourth area that I believe our Subcommittee, along with our friends from Ways 

and Means, ought to pursue in the future. 

 First of all, the modification of the overfunding rules is a major plus for small 

businesses. The present Tax Code essentially outlaws investing more money into a 

pension fund. When an entrepreneur or employer wants to put more money away, we 

make it difficult to do; and we ought to do the opposite. And that is what this bill does. 

 Secondly, I think that the catch-up provisions will be beneficial to many people, 

but particularly to women who leave the workforce or cut back on their compensated 

work time for family obligations and then who wish to catch up for those missed years or 

lower-contribution years at another point in their lives. This legislation is going to make 

that possible. And I think it is going to secure an economic future for many workers, 

most especially women. 

 Third, I think that the legislation is commendable because it finally addresses the 

anomaly of section 415 of the Internal Revenue Code. By pure accident of circumstance, 

there are, I suppose, hundreds of thousands, perhaps even millions, of workers who have 

put their money away over the years, enjoyed good success in the investment of that 

money, and now find that they can't collect what they are entitled to, that the collection of 

those funds would result in the disqualification of their pension plan from tax-favored 

status. No one ever intended that. And it is important that that problem be remedied, and 
18

that is what the bill does. 

 The final suggestion, and I know Mr. Cardin has already co-sponsored this effort, 

along with Mr. Neal and Mr. Rangel, is an idea to try to write into our law a mechanism 

that would help lower-income workers begin to save voluntarily, legislation that would 

provide for a tax credit of 50 percent for contributions for workers making $25,000 a year 

and less. And then a diminishing matching contribution for workers making between 

$25,000 and $50,000 a year is something that I strongly support. 

 And I think it would go a long way toward addressing the concern that the GAO 

pointed out last year in a study that Mr. Owens and I asked for that points out that there 

are tens of millions of Americans with no pension coverage at all. Many of these 

individuals are low-income people working in industries with small profit margins. And, 

frankly, the commendable employer incentive mechanisms that are in this bill probably 

won't do much to help those folks, and we need to find a mechanism that does. 

 At any rate, again, I appreciate your indulgence with my tardiness. And I strongly 

encourage my colleagues to continue this effort and look forward to working with them 

on the floor to enact this bill. I yield back. 

Chairman Johnson. Thank you, Mr. Andrews. We charged Mr. Portman $50 for being 

late. You will get the same bill when you leave. I thank you for your comments. By the 

way, we had a discussion of the subject you ended with just before you walked in for 

about 5 minutes. 

 I would like to recognize now Mr. Fletcher, who is the vice chairman of this 

Subcommittee for questioning. 

Mr. Fletcher. Thank you, Mr. Chairman. And I appreciate both of you coming and the 

work you have done. In the past, having owned a small business and set up several 

different funds for the employees and owners as well, I realize the complexity that small 

businesses face. And actually, we--it is a significant cost that could be put into 

retirement. And any reduction of red tape, et cetera, is very welcome. 

 Also considering the fact that folks stay--or spend less time under one employer 

than they used to in the past, there is a lot of transferring going on, the provisions of 

portability. I wonder if you could discuss that. I know, Congressman Cardin, you 

mentioned your daughter might be helped by such a plan; and obviously, portability may 

help with that. 

 I know I had the experience of workers--when they left, most of them generally 

cashed out. A few rolled it over into an IRA, but most cashed out. So maybe both of 

you, Mr. Cardin, you can discuss that; and, Mr. Portman, that would be helpful. 

Mr. Portman. I want to say briefly that, since the provision is named after Ben's 

daughter, I am going to let him talk about it more, but you are right. Most workers cash 

out. And I commend Ben's daughter for not doing so. She's maybe providing a new 

model. But isn't it amazing, most people, we are told, actually cash out of these things 

and pay the surcharge. So it is a tremendous problem. We try to make it seamless, 
19

particularly between 401(k)s, 457s, 403(b)s, that you can just move the plan from one 

account to another and not have to have separate accounts. 

Mr. Cardin. As you know, we have different sections of the code dealing with different 

types of employers, whether it is government and nonprofit or for-profit, and then we do 

have different types of plans even within those categories. It is not unusual for 

employers--for people to change jobs frequently. That is the current workforce. And it is 

not unusual for someone in their thirties to have worked for four, five, six different 

employers that have different types of plans and even to work for the same employer that 

offers different opportunities. 

 So it is--what happens is, if you only have $1,000 or $2,000 in that account, and 

then you leave the employer, it is very tempting to cash out. Because you look at what 

will that mean when you reach retirement and all the administrative chores connected 

with that one account. And it is--you say, well, I might as well withdraw all the money, 

pay the taxes, and do something else with it. What you end up doing with it is usually 

not put it into additional retirement. 

 So what we want to do is change the rule so that you are allowed to keep these 

retirement funds in a consolidated account, portability, subject to certain restrictions 

based upon the requirements of each of the plans. And we are able to do that in a way, 

and we have used some of the concepts that I think it was Mr. Blunt that came to us with 

Earl Pomeroy. And we think it makes an awful lot of sense and will encourage people to 

consolidate these accounts and then keep them for retirement security rather than cash 

out.

Mr. Fletcher. Mr. Portman, one of the questions--I know there is some allowability in 

rules, in other words, if the plans have different benefit structures or whatever it appears.

And I am looking at the section 405, and I wonder if you can explain. I know there is 

some effort to protect if there is transfer. If you could help explain that just a little bit 

under section 405. And maybe, I am asking a more specific question. 

Mr. Portman. No, that is fine. This is a very sensitive area as you can imagine. The 

cash balance plans have gotten a lot of publicity in the last couple years. I mentioned 

earlier--alluded to the fact that many larger companies are still offering defined benefit 

plans. But they are fewer and fewer. 

 In fact, if you look at what has happened in the last 15 years, as Ben alluded to 

earlier, you have more restrictions, more limits, even a reduction of contribution limits or 

benefit limits, and you see fewer and fewer defined benefit plans. It is just a reality, a 

dramatic decrease. And you also see this movement of some companies from a 

traditional defined benefit plan to a cash balance plan. 

 What we do is not tell businesses that they are prohibited from doing so, because, 

after all, companies are not mandated to offer anything, and you don't want to create a 

situation where you have less incentive to offer a plan by putting more and more 

mandates in place. But, instead, we do provide for greater disclosure. We do provide for 

sooner notification. We think that is probably the right balance right now in terms of 
20

how you deal with this issue. 

 We know the Senate has taken a strong interest in this. The Treasury Department 

has had some comments on this. And we are open to other suggestions, Dr. Fletcher. 

And if you had some or other members of this committee, we would love to hear them. 

But right now, we are focused on disclosure and notification for workers to make it fair 

for workers who are caught in this situation. 

 With the cash balance, we understand there are some more senior employees who 

might not receive the same benefit that they thought they had accrued or would receive. 

There are also a lot of workers, particularly, obviously, younger workers who would get 

more of a benefit. And most of the analysis comes back showing that most workers, and 

clearly the younger workers, actually could stand to benefit more from most of the cash 

balance plans that have been proposed. 

 So it is an interesting issue that has a lot of emotion around it. We think the way 

to deal with it right now is through disclosure and increased notification. 

Mr. Fletcher. Thank you very much. And I commend you on the work. It is very 

complicated. I think you have given a great deal of flexibility and a lot of information 

that is available to the participants. Thank you very much. 

Chairman Johnson. Mr. Kildee is recognized for questions. 

Mr. Kildee. Just briefly, I am cosponsor of this bill. And I will not claim that the bill is 

perfect or covers as much as maybe we would want. But this bill was written on Capitol 

Hill, not Mount Sinai, and most of our bills do improve afterwards. So I think you are on 

the right track here, and that is why I am cosponsoring the bill. Perhaps there are some 

people who could be helped, and we maybe can help--but this is a great step down the 

road. And I don't think it will hurt any other worker. And we can address those other 

problems at another time, too. But I think you ought to be commended for your work on 

this bill. 

Mr. Portman. Thank you. 

Mr. Cardin. Thank you, Mr. Kildee. I thank you for those comments. When we 

started, Mr. Andrews was not here, but I really want to underscore the importance that 

Mr. Andrews has been, particularly on the Democratic side, in helping us with strategies.

And I thank both of you for your continued support. 

Mr. Portman. Mr. Chairman, can I just for a moment mention Mr. Andrews as well, 

because last year Mr. Boehner and Mr. Andrews took the lead in your committee on 

some very important issues, and some of them were pretty tough. Since Mr. Andrew 

mentioned it, I want to mention the repeal of the current liability funding limit that is in 

this legislation. Again, I couldn't agree more with what Mr. Andrews said. And I will 

say that Mr. Andrews took some risks in taking that position, because there are others 

who feel strongly on the other side. Of course, the facts are with us, right, Mr. Andrews? 
21

But I mean, honestly, there are some difficult issues in the pension area that has some 

emotion attached to them. And if your goal is at the end of the day to provide more 

retirement security for more people, I think there is a fairly clear path. But I think you 

showed some courage in taking that one on in particular and some others. I think we 

have got a better bill as a result. So thank you. 

Chairman Johnson. Thank you. And the Chair recognizes the Chairman of the Full 

Committee, Mr. Boehner. 

Mr. Boehner. Mr. Chairman, thank you, and thanks for having this hearing this 

morning. Let me congratulate you and Mr. Andrews for your ongoing efforts to work 

with this bill. 

 Let me congratulate Mr. Portman and Mr. Cardin for your tireless efforts at 

keeping this issue in front of the Congress. The fact that we voted on it so many times 

over the last few years is a testament to your tenacity. 

 Let me also say thank you for the cooperation that you have given us with these 

issues that we share jurisdiction on. I think it has worked out very well over the last 3 or 

4 years. And I know that I speak on behalf of Mr. Johnson and Mr. Andrews and say 

thank you. We have had a good working relationship. 

 As some of you may recall, as we went through this testimony in prior years, I set 

up my own defined contribution plan, two plans, a pension plan and a profit-sharing plan, 

defined contribution plan in my own company some 23 years ago. And I remember 

looking at this for several years trying to make a determination as to whether it was worth 

the expense, the effort, and the record keeping to even begin for someone such as myself 

with, at the time, three or four other employees. 

 But I made the decision mostly because it was in my own self-interest. But the 

hurdles that have been there in law and the expense for small employers and small plans 

is tremendous. And I think the changes that are outlined in this bill will, in fact, make it 

easier for small employers to get into the pension business. 

Mr. Boehner. I think it is very important. I am glad that I did it. My employees are 

very glad that I did it. These plans today are multimillion-dollar plans, to the benefit of 

myself and my employees who have participated in them. 

 Let me just mention the cash balance issue that you have just talked about, Rob.

With cash balance plans there have been a few rocky moments over the last few years, 

but I think all of us who have been involved in this issue for some time understand that 

cash balance plans are a way to preserve defined benefit plans, which as we all know 

have been shrinking dramatically over the last 20 years. 

 We have to be very careful that we do not make it difficult for people to transition 

to cash balance plans, which are a form of defined benefit plans, and thereby create a 

situation where they frankly just eliminate the defined benefit plan for their newer 
22

workers, and it goes away forever. 

 I do think most of the problems in those conversions have been resolved. I think 

the safeguards that we outlined in the bill before us really do make sense, to require more 

disclosure, to give earlier notification. Almost all companies today are protecting those 

older workers that tend to have difficulty in those conversions. 

 I think we are dealing with it in a very responsible way in this bill, and I would 

hope that we do not get into the traditional fight over trying to go too far. It may sound 

good up front, it may be well-meaning and well-intentioned, but we have to look at the 

big picture and make sure we do not throw the baby out with the bath water. 

 With that much, again, I want to say thank you for coming today, and keep up the 

good work. 

Chairman Johnson. Do you guys want to ask him a question? 

Mr. Portman. Yes, I would. I would like to ask him how he has been so patient with us. 

 One of the problems, Mr. Chairman, has been that when you bring this bill the 

floor, it tends to be under a Ways-and-Means type rule, which means a closed rule, and it 

tends to be focused on the Tax Code and not ERISA, so as not to open it up to other 

issues.

 We just want to tell you that we appreciate the patience Chairman Boehner has 

shown in the past, and Ranking Member Andrews, and I know you will show, being a 

member of the Committee on Ways and Means, with that process. 

I hope we can once again get a strong letter, or maybe even include some of this 

in the bill on the floor. I also appreciate what Mr. Boehner said with regard to cash 

balances. It is a sensitive area, if we have the right balance at this point. We will see 

how it works. 

 I don't want to leave without saying that over the next month we hope we will be 

dealing with this issue again as to how to deal with the ERISA provisions within this bill. 

 Speaking for Mr. Cardin, too, we feel very strongly about the ERISA provisions.

We feel the bill is not complete without them. We will do everything in our power to 

make sure they are part of the final product. 

Chairman Johnson. Thank you. I'm sure Mr. Boehner and I agree with you on that 

subject. We appreciate your testimony and your response to the questions. 

 You can be excused at this time, if you desire. Thank you very much. 

Chairman Johnson. We welcome the next panel now, if they would take their seats. 
23

Our first witness will be Nanci Palmintere, the Director of Tax, Licensing and Customs 

for Intel Corporation in Santa Clara, California. She has worked at Intel for 22 years. Ms. 

Palmintere is testifying on behalf of the American Benefits Council. I think she has her 

daughter with her, somewhere. 

 Next would be Judy Mazo, Senior Vice President and Director of Research at The 

Segal Company, a national actuarial benefits and compensation consulting firm. She is 

appearing on behalf of the Building and Construction Trades Department of the AFLCIO, and on behalf of the National Coordinating Committee for Multi-Employment 

Plans.

 Following her will be Richard Turner, Associate General Counsel at the American 

General Financial Group. Mr. Turner is the Chairman of the Pension Committee, the 

American Council of Life Insurers, on whose behalf he is testifying, and I suppose he is 

from Texas. 

 Is that right? 

Mr. Turner. Yes, sir. 

Chairman Johnson. The last witness on this panel is Karen Ferguson, Director of the 

Pension Rights Center in Washington, D.C. 

 Let me remind the witnesses that under our committee rules, they must limit their 

oral statements to 5 minutes. The entire written statement is allowed to be included in the 

record. We will allow the entire panel to testify before we begin to question the 

witnesses.

 Let me explain the lights in front of you. There will be a green light that comes 

on, telling you, you have 5 minutes. The yellow light will come on at 1 minute, and the 

red light will tell you your time has expired. 

Chairman Johnson. Ms. Palmintere, you may begin your testimony. 

STATEMENT OF NANCI S. PALMINTERE, DIRECTOR OF TAX, LICENSING 

AND CUSTOMS, INTEL CORPORATION, SANTA CLARA, CALIFORNIA, 

TESTIFYING ON BEHALF OF THE AMERICAN BENEFITS COUNCIL 

Ms. Palmintere. Thank you, Mr. Chairman, and members of the Subcommittee. 

 I am Nancy Palmintere. I am Director of Taxes for Intel Corporation, and a 

member of Intel's retirement plan administration committee. 
24

Intel is the world's largest manufacturer of integrated circuits and is also a leading 

manufacturer of computer networking and communication products. 

 Intel maintains a 401(k) plan, a profit-sharing plan, and a defined benefit pension 

plan, with total assets of approximately $6 billion, as well as a number of multilateral 

retirement plans from companies we have recently acquired. 

 I am here today representing the American Benefits Council, of which Intel is an 

active member. The Council is a public policy organization representing principally 

Fortune 500 companies, as well as other organizations that assist employers of all sizes in 

providing benefits to employees. 

 It is a privilege for me to be with you here to discuss H.R. 10, the Comprehensive 

Retirement Security and Pension Reform Act. This legislation has been cosponsored by 

more than 280 Members of the House, including 14 Members of this Subcommittee, and 

has the support of more than 100 organizations representing groups as diverse as 

teachers, police officers, State legislators, union workers, and businesses of all sizes. 

 This bipartisan legislation will strengthen our Nation's employment-based 

retirement system, and will give individual Americans new tools to save for their 

retirement. 

Mr. Chairman, your commitment to give careful consideration to the portions of 

H.R. 10 that come within the Subcommittee's ERISA jurisdiction means that we have a 

real opportunity to move this entire bill through Congress this year. 

 The Council wants to thank you, Chairman Boehner, and Ranking Member 

Andrews for your longstanding commitment to this legislation. 

 I would like to focus my remarks on the ERISA elements of the bill that would 

simplify pension regulation, improve pension funding, and give employers new 

incentives to offer retirement plans. H.R. 10 contains a series of simplification proposals 

that will streamline today's often incomprehensible pension rules. 

 Throughout my career, Mr. Chairman, I have dealt with countless issues involving 

our company's retirement plans and the plans of the companies that we have acquired. It 

is my conclusion, from more than 20 years of experience, that the astounding complexity 

of pension regulation and the onerous burdens associated with plan administration drive 

many people to reduce or limit their retirement programs, and deters some employers 

from initiating retirement plans at all. Not only are business people leery of the cost of 

complying with pension rules, but many fear that the legal and regulatory complexity will 

impose burdens from which they will never find relief. 

 Among the many simplification provisions contained in H.R. 10 is reform of the 

anti-cutback rule, which today frustrates pension portability and complicates pension plan 

operation. Reform of the rule will greatly enhance the ability of companies to assimilate 

plan participants and their benefits in the wake of business acquisitions. 
25

H.R. 10's many other provisions to reduce administrative burdens include 

allowing employers to make summary annual reports available electronically, folding 

suspension of benefit notices into the basic plan document, and expanding the time frame 

in which distribution notices may be given. 

 The Council believes the cumulative effect of such simplifications will be truly 

significant in improving the health of our private retirement system and encouraging new 

pension coverage. 

 The Council is also pleased that H.R. 10 repeals the current liability funding limit 

that has often prevented employers from funding the pension benefits that have been 

promised to workers. The bill would leave in place the preexisting and more appropriate 

funding limit, which is tied to the future benefit costs rather than current liabilities. 

 The current liability limit, which was added to the law in 1987 to raise Federal 

revenue, forces systematic under-funding of pension plans and erratic contribution 

patterns. If this limit is not removed, some employers may be in the position of being 

unable to make up the shortfall and forced to curtail benefit plans or even terminate them. 

Removal of the limit will instead allow employers to provide future retirees with the 

security that comes from pension funding. 

 At this point, I want to thank you very much for the opportunity to appear. We at 

the Council look forward to working with you to enact this important legislation. 

Chairman Johnson. Thank you. I appreciate your comments. The rest of your 

statement will be entered in the record. 

WRITTEN STATEMENT OF NANCI S. PALMINTERE, DIRECTOR OF TAX, 

LICENSING AND CUSTOMS, INTEL CORPORATION, SANTA CLARA, 

CALIFORNIA, TESTIFYING ON BEHALF OF THE AMERICAN BENEFITS 

COUNCIL- SEE APPENDIX D 

Chairman Johnson. Ms. Mazo, you may begin your testimony now. 

STATEMENT OF JUDITH F. MAZO, SENIOR VICE PRESIDENT, THE SEGAL 

COMPANY, WASHINGTON, D.C., TESTIFYING ON BEHALF OF THE 

BUILDING AND CONSTRUCTION TRADES DEPARTMENT, AFL-CIO AND THE 

NATIONAL COORDINATING COMMITTEE FOR MULTIEMPLOYER PLANS 

Ms. Mazo. Thank you, sir. 

Mr. Chairman and Mr. Andrews, it gives me great pleasure to be here today on 

behalf of the Building and Construction Trades Department of the AFL-CIO and the 

National Coordinating Committee for Multiemployer Plans. 
26

Both the BCTD, as we call it--it is hard to avoid acronyms when you have such 

long names for your organizations, but both of these organizations very, very strongly 

support H.R. 10, primarily for one of the reasons that Mr. Andrews highlighted, because 

of the relief from Internal Revenue Code section 415 that it would provide for 

multiemployer plans that would enable us to pay the full benefits. 

 It is an anomaly, but we have lower-paid people who end up losing their pensions, 

or part of them, because of section 415. This bill would resolve that. We support that 

very, very highly. 

 There are many other provisions of the bill that are of interest to us. There are 

some that are not of particular interest to the multiemployer world. I want to mention just 

a few that are within the ERISA bounds, and also just to mention a little bit to give you 

some framework for multiemployer plans. 

 The other thing, interestingly, the deduction limits that were mentioned are very 

important in many cases in multiemployer plans, where as we run up against what we 

would call artificial limits, employers who have agreed in collective bargaining to put a 

certain amount into a pension plan, and the workers have said, "I would rather have that 

go into the plan than my wage," and then the employer cannot take the deduction, that is 

clearly wrong and we welcome any relief that can come about for that. 

 I want to just highlight two features of multiemployer plans that I think 

demonstrate why so many of the features of the bill are of relevance to us. 

 That is that the plans do provide portability, internal portability. People who 

work for any employer that has an agreement with that union, all of their pension credits, 

all of their service, are added together within the multiemployer plan, and they can move 

from job to job within the plan and not forfeit anything, not even have to worry about 

rolling over. 

 The second thing is that multiemployer plans to a very great extent are vehicles 

for small employers who employ union workers to come together and effectively transfer 

all the burden of administration, all of the red tape burden that is all taken over by the 

trust. Many, many of the employers contributing to multiemployer plans, in fact, are 

small employers who would be unable to provide benefits for their workers if it were not 

for the multiemployer plans. So we very much appreciate efforts to soften the regulatory 

burdens to enable us to meet the benefit goals more directly. 

 I want to just highlight two of the disclosure-related features of H.R. 10, which 

are directly ERISA features and mention them a little bit, and explain our position on 

them. 

 One is section 504 of the bill, which addresses the disclosure that was discussed 

previously, the disclosure that would be given in the case of an amendment to a plan that 

reduces future benefit accruals. 
27

This was, as was discussed, primarily motivated I believe by concern about 

people's losing what they had expected to get over their careers in cash balance 

conversions. Multiemployer plans are not at all involved in cash balance conversions, 

actually. We have no problem with the bill as it is written. If additional disclosure is 

considered in order to protect people in cash balance conversions, we urge that--as was 

done last year, I believe, in other versions of the bill, that those additional detailed 

disclosures be limited to the conversion situation and not imposed on all pension plans 

whenever an adjustment has to be made in the rate of future benefit accruals. 

 For data reasons and others for multiemployer plans, the burdens would be very 

significant, and it could cause plan funding positions to be harmed if they had to continue 

providing unaffordable benefits. 

 Finally, I just want to mention an issue regarding suspension of benefits and the 

notice requirement. 

 This version of the bill eliminates the need to give a special notice to people who 

continue working after normal retirement age, which would be one of those provisions of 

the law which, frankly, 99.9 percent of all plan sponsors probably violate because it is 

counterintuitive for someone who is not yet retired to be told that he or she is not going to 

get his or her pension. 

 The bill does require that notice be given to people who go back to work if their 

pensions are going to be withheld. 

 I am going to take one more second, if you do not mind. As good citizens, we 

think notice should be required for multiemployer plans in a slightly broader situation, 

which I will discuss on a technical basis with counsel. But I am in the odd situation of 

saying, please regulate us more than the bill actually does in order to safeguard 

participants' expectations. 

Chairman Johnson. Thank you very much. We appreciate your comments. 

 The rest of your statement may be entered in the record. 

WRITTEN STATEMENT OF JUDITH F. MAZO, SENIOR VICE PRESIDENT, THE 

SEGAL COMPANY, WASHINGTON, D.C., TESTIFYING ON BEHALF OF THE 

BUILDING AND CONSTRUCTION TRADES DEPARTMENT, AFL-CIO AND THE 

NATIONAL COORDINATING COMMITTEE FOR MULTIEMPLOYER PLANSSEE APPENDIX E

Chairman Johnson. I don't think that is too bad an acronym, NCCMP. It is so long 

everybody has to say it all. Thank you for your testimony. 

Mr. Turner, you may begin your testimony now. 
28

STATEMENT OF RICHARD A. TURNER, ASSOCIATE GENERAL COUNSEL, 

AMERICAN GENERAL FINANCIAL GROUP, HOUSTON, TEXAS, TESTIFYING 

ON BEHALF OF THE AMERICAN COUNCIL OF LIFE INSURERS (ACLI) 

Mr. Turner. Thank you, Mr. Chairman. I am Richard Turner, Associate General 

Counsel for the American General Financial Group and for VALIC, an American 

General company. I am also the current Chair of the Pension Committee of the American 

Council of Life Insurers, the ACLI. I am pleased to be here today on behalf of the ACLI. 

Mr. Chairman, years ago Congress recognized the need to place primary reliance 

on private sector sources to assure the adequacy of retirement income. As a result, it 

encouraged employers and employees to use a voluntary private retirement system to 

supplement the economic protection offered by public programs such as Social Security. 

 Since then, America has gone on to build a retirement system that is the envy of 

the world, and we are very proud to be a part of that system. The Council applauds the 

introduction of H.R. 10, the Comprehensive Retirement and Pension Reform Act of 2001. 

If adopted, this measure will help Americans save more for retirement in both private 

savings plans and employer-sponsored retirement plans. 

 In addition, we believe that the measure will increase coverage of non-covered 

employees and expansion of retirement savings. 

 This legislation is being considered at a critical time. With the aging of the baby 

boom generation, coupled with the uncertain future of government entitlement programs 

such as Social Security and Medicare, it is critical that employer-sponsored plans and 

individual savings be strengthened to meet the retirement security challenges of the 21st 

century.

 Contrary to a common assertion, Mr. Chairman, the majority of current pension 

participants and recipients are not wealthy. Census Bureau data from 1997 indicates they 

are middle-income Americans. For example, 77 percent of pension participants have 

earnings below $50,000. These trends are similar for pension recipients. Among married 

couples, 70 percent had incomes below $50,000. Among widows and widowers, 55 

percent of pension recipients had incomes below $25,000. 

 When viewed in terms of pension dollars, over 50 percent of pension benefits go 

to elderly retirees with adjusted gross incomes below $30,000. With additional 

incentives, simplification, and expansion, this system will increase that security in terms 

of both the numbers of individuals covered as well as the amount of retirement income 

received.

 In addition, it is a perfect complement to marginal tax rate cuts, because an 

increased level of retirement savings means an increased level of investment capital for 

the economy. This translates into increased levels of GNP, and increased standards of 
29

living for Americans. 

Mr. Chairman, we support the bill in its entirety, including the ERISA provisions 

that are of interest to this Subcommittee. In addition, we would like to highlight three 

specific provisions of the bill. 

 First, we would highlight the restoration of plan limits. The legislation would 

increase the limitation on voluntary pre-tax contributions to 401(k), 403(b) and 457 plans 

to $15,000. As the baby boom generation nears retirement, these increased limits will 

allow them to increase their retirement savings, thereby ensuring greater retirement 

security.

 Next, we would highlight the provisions for catch-up contributions. We believe 

that allowing individuals to catch up their retirement contributions in later years when 

other financial obligations have been satisfied will only increase retirement security. 

This provision is especially helpful to working women, who are the most likely to be in 

and out of the work force during their younger working lives. 

 Finally, Mr. Chairman, we would highlight the repeal of the 25 percent of 

compensation limit on contributions. The repeal of this limit on contributions and similar 

limits that apply to schoolteachers, health care workers, and employees of State and local 

governments will allow individuals to increase their retirement savings. This provision is 

particularly meaningful to middle-income individuals who are most likely to be subject to 

the cap. 

 This provision would have a positive impact on small businesses, where pension 

coverage is weakest. 

Mr. Chairman, these changes can help real participants. Public school teachers 

and college professors who participate in their State's defined benefit plans are the only 

employees whose contributions are reduced in real terms just because they participate in 

a defined benefit plan. 

 In addition, under the current rules, those same schoolteachers and college 

professors, hospital workers, and other 403(b) participants can also see their contribution 

limits reduced significantly and disproportionately, just because they change employers 

or reduce their working hours. 

 All of these concerns are addressed and resolved in the pension legislation that 

you are considering. If I might add one more example, I know it is discussed frequently, 

the number of individuals who contribute up to the dollar limits today. 

 In fact, one additional note is that if your compensation is below $42,000, by 

definition, if you are subject to the 25 percent limit, you could not contribute the $10,500, 

which is the limit today. 

 Again I want to commend you, Chairman Johnson, and the members of the 

Subcommittee for your recognition of the vital role that employer-sponsored plans play in 
30

the retirement security of this Nation. We encourage all members of this committee to 

endorse H.R. 10 and to work for passage of this comprehensive pension legislation. Your 

efforts on behalf of this measure will ensure the future retirement security of millions of 

Americans. 

 The ACLI looks forward to working with you, Chairman Johnson, as well as 

Chairman Boehner and members of this committee, as we move forward to enact this 

vitally important pension legislation. 

Chairman Johnson. Thank you, Mr. Turner, for your testimony. 

WRITTEN STATEMENT OF RICHARD A. TURNER, ASSOCIATE GENERAL 

COUNSEL, AMERICAN GENERAL FINANCIAL GROUP, HOUSTON, TEXAS,

TESTIFYING ON BEHALF OF THE AMERICAN COUNCIL OF LIFE INSURERS 

(ACLI)- SEE APPENDIX F 

Chairman Johnson. Mrs. Ferguson, you may begin your testimony now. 

STATEMENT OF KAREN W. FERGUSON, DIRECTOR, PENSION RIGHTS 

CENTER, WASHINGTON, D.C. 

Ms. Ferguson. Thank you, Mr. Chairman. I am Karen Ferguson, Director of the 

Pension Rights Center. The Center is a nonprofit consumer organization that has been 

working to promote and protect the retirement security of American workers, retirees, 

and their families for the past 25 years. We very much appreciate the opportunity to 

testify today. 

 I would like to start by commending the Subcommittee and Congressman 

Portman and Congressman Cardin for their willingness and your willingness to tackle 

what is one of the most difficult and most overlooked challenges facing the Nation today:

how to ensure that Americans who have worked a lifetime will have the retirement 

savings they will need to pay their basic bills when they are too old to work. 

 As you know, Social Security provides a critical safety net, but as you also know, 

it pays the typical retiree less than the minimum wage, and that retiree needs at least 

twice that amount to maintain his or her pre-retirement standard of living. 

 I am here this morning because we are deeply concerned that the major provisions 

of this legislation would diminish rather than increase the likelihood that the majority of 

hardworking Americans will receive adequate incomes in retirement. 

 Although the bill may achieve its stated objectives of making retirement security 

available to millions of workers by, among other things, expanding small business 

retirement plans and allowing workers to save more, the reality is that for a great many 
31

workers, merely creating more plans and allowing more money to be sheltered from taxes 

could undermine rather than enhance their retirement security. 

 Our concerns are that the measures, these major measures, will primarily help 

higher-paid individuals while jeopardizing the future retirement security of millions of 

ordinary workers. I would like to also say that contrary to the statement by Congressman 

Portman, our understanding is that these measures would reduce rather than increase the 

personal savings rate for the country. 

 I would like to begin first by addressing the centerpiece provisions of the bill, and 

then turn to the specific ERISA issues within the jurisdiction of this Subcommittee. 

 The provisions of the bill that have received the most attention would increase the 

amounts individuals could shelter from taxes in savings plans, such as 401(k)s and IRAs.

The bill would provide particularly generous tax breaks for the very small proportion, 5 

percent, of higher-earning employees who are now contributing the maximum, $10,500 a 

year, to 401(k) plans. If these employees are age 50 or over, the bill would allow them to 

nearly double their contributions, and if they are employers, it would permit them to more 

than double that amount, to a total of $45,000 a year. 

 Contributions at this rate would certainly encourage more employers to set up 

401(k)s, but it would not increase the retirement security of the 95 percent of 401(k) 

contributors now contributing less than the current maximum. It is important to note that 

currently half of all full-time year-round workers earn less than $32,000 a year. These 

workers simply cannot afford to contribute two-thirds of their after-tax earnings to a 

401(k).

 But far more troubling from a retirement policy perspective is that the increased 

limits will inevitably encourage more employers to jettison their traditional pension and 

profit-sharing plans. That is because 401(k)s are cheaper than traditional plans. 

 Unlike traditional employer-financed plans that provide benefits to workers at all 

income levels, employers ordinarily do not make any contributions to employees for 

those of their employees who cannot afford to put money in first. By switching from 

employer-paid plans to 401(k)s, companies can significantly cut costs. 

 In the past decade, the number of traditional plans has dropped by 66 percent, but 

of course the shift is far greater because larger companies have simply cut back on their 

traditional plans and emphasized the 401(k)s. Since 401(k)s are so very popular with 

employees who can afford to contribute, as well as employers, this would not be a 

problem but for the fact that despite multimillion-dollar educational efforts, 401 account 

balances remain extremely small. The most recent government figures show that half of 

all 401(k) contributors have less than $16,000 in their accounts. That is a total amount of 

$16,000. If there is data showing that these plans can provide a more realistic source of 

income for more working Americans, then these measures would make sense. We have 

not seen that data. 
32

Others have noted the tax policy aspects of these proposals, and those are discussed in 

our statement and in two articles attached to our statement. 

 I will turn, if I may, to another provision, which I do not know that it has been 

mentioned this morning, but one that has been high on the agenda of many consultants 

and financial institutions. 

Chairman Johnson. Can you highlight that for us, because your time has expired. 

Ms. Ferguson. On the top-heavy rules, I will just refer to the GAO study. The 

protections provided by the top-heavy rules to people in small plans, particularly in small 

401(k)s and particularly in the safe harbor 401(k)s we describe in our statement. Are 

extremely important and should not be eliminated. 

 Elsewhere in our statement, I will simply reference the fact that we discuss the 

cash balance provisions. We think they are woefully inadequate and state the reasons in 

our statement. We are also very, very concerned about the merger and acquisition 

cutback statements that were referenced by the first speaker. 

 We detail some of our concerns about the disclosure provisions. Let me just 

mention one. As it is now written, it appears that the suspension of benefit notice would 

apply to participants in multiemployer plans who return to work for an employer who is 

not their former employer. This could be very serious. It could take away a very 

important protection. 

 I was encouraged that Judy Mazo mentioned that that is not their intention, so I 

hope the legislation will be modified to reflect the intention. 

 Thank you very much. 

WRITTEN STATEMENT OF KAREN W. FERGUSON, DIRECTOR, PENSION 

RIGHTS CENTER, WASHINGTON, D.C.- SEE APPENDIX G 

Chairman Johnson. Thank you for your testimony. We appreciate you being here. 

 Obviously, you are in opposition to the first three witnesses, but we recognize in 

this Congress and in America that we have two sides to almost every question; sometimes 

three. It is good for us to hear both sides of the subject. I think Mr. Andrews agrees with 

me. 

Mr. Andrews. Yes, Mr. Chairman. 

Chairman Johnson. Thank you for your testimony. 
33

I would ask a couple of questions and then let Mr. Andrews ask some if he 

desires.

Ms. Palmintere, your statement said that your voluntary pension plan, if the 

business owner is not convinced to offer a plan, employees do not have the chance to 

earn retirement benefits. That kind of talks to what Ms. Ferguson was just saying. 

 Why is a business owner so hesitant to offer a plan under the current system, and 

how would H.R. 10 change this? 

Ms. Palmintere. As was discussed previously by Congressman Portman, a good piece of 

the problem related to smaller businesses implementing plans is both the concerns about 

liability and also the costs and administrative aspects that really deter people from 

wanting to venture down that path. 

 Prior to working at Intel, which, unfortunately goes back about 25 years or so, I 

did also work in the pension and benefit plan area for small businesses and have had 

some experience. I found that the true administrative aspects are really one of the key 

deterrents, and some of the things in this bill with respect to electronic notification and 

other items like that really help to minimize the pain of administration. 

 Anything that can help do that, I think, really does encourage businesses to go 

forth with plans. 

Chairman Johnson. So you think it would reduce the administrative costs to small 

businesses?

Ms. Palmintere. I think some of that absolutely would. 

Chairman Johnson. Thank you. 

 If any of you wish to add comments when we talk to one of the other witnesses, 

you would be welcome to do it. If you would just let me know, I will recognize you. 

Mr. Turner, you mentioned catch-up contributions. How would they be beneficial 

to working women, and how would they increase the retirement security for women? 

Mr. Turner. Mr. Chairman, it is not uncommon for individuals, both men and women, 

to move in and out of the marketplace, and particularly for working women who may 

oftentimes choose to stay home with their children when they are growing up. They 

might move out of the work force for any number of reasons, however. 

Chairman Johnson. Because they make more money than we do in the stock market, 

right?

Mr. Turner. That may be. 
34

But for those individuals, Mr. Chairman, the current structure of the limitations 

would not give them an opportunity to make up for those years when they were not able 

to save for their retirement. 

 We see that frequently with participants who are in their later years and would 

like to make up for those earlier years when they were not able to contribute because they 

were not working, or because they just did not have the financial resources to do so, this 

would allow them to make those contributions and have a much more secure retirement. 

Chairman Johnson. Thank you. 

Ms. Mazo, you state that there are some participants who lose out in a benefit 

formula change. Could you give us an example? 

Ms. Mazo. In terms of a benefit formula change? 

Chairman Johnson. Yes. 

Ms. Mazo. There would be people who would lose out if, for example, a plan were_I 

will give you an example of a multiemployer plan that I know about. 

 This plan is in the unusual situation of having_facing a significant financial threat.

In order to remain affordable, the plan or the trustees are considering reducing the 

subsidy for early retirement benefits that people would now be entitled to. You could 

now retire, I think, after 20 years of service on a full pension. They are not sure that they 

can afford that for the future. 

 If a change of this type were made in the first place in a multiemployer plan 

situation, it is a highly political situation because union officers are part of the running of 

the plan, and they run for office, so they would be cutting benefits of people who vote for 

them. They would only make such a change if they were facing extreme financial 

stringency, and they would clearly publicize this. So some people would not get the early 

retirement benefit that they would otherwise have expected. 

 The plans would let everybody know that the rule has changed, and your bill 

would strengthen the certainty that that kind of a notice would be given. 

 In that case, it would be very difficult for the plan to calculate every single one of 

maybe 5,000 or 10,000 working people: What would this person have actually 

accumulated if they worked 20 years; what is their service history, et cetera? The plan 

would not be in a position to give everybody a detailed set of numbers on what they 

would otherwise have given. 

 For these kinds of changes, the impact is pretty understandable to individuals.

The changes that are harder for people to grasp are, for example--or that may be harder--

are when a plan is converted from a regular defined benefit plan to a cash balance plan.
35

Our request is just that if you add more disclosure requirements for those conversion 

situations, that care is taken that it does not--that you don't require that every change 

require the plan to give a lot of detail, changes where the impact is evident on their face. 

Chairman Johnson. Thank you. 

Ms. Ferguson, you indicate that we are going to lose people. They are going to 

have less opportunity to save. Would you explain that? 

Ms. Ferguson. Yes, Mr. Chairman. One of the biggest dangers of making 401(k)s so 

very attractive, even more attractive than they are now, is that the business owner in 

many cases will be able to take care of himself or herself adequately through the 401(k). 

If you put $30,000 a year, even, and compound it with reasonable stock market 

performance, you can according to experts amass $5 million very, very quickly. 

 The problem with 401(k)s is that despite their many positive features, they require 

employees to contribute first before they get anything. Most employers now match 

employee contributions, but if you don't put anything in, if you cannot afford to put 

anything in, you get nothing from the plan. 

 One of the reasons we have seen this wholesale retreat from pension and profitsharing plans in the last two decades has been because 401(k) plans are cheaper for 

employers precisely because they don't have to put in for any money for lower-income 

workers who cannot afford to contribute. 

So it is common sense. If you make these plans incredibly attractive, you will 

lose the remaining ones, and there are many remaining pension and profit-sharing plans 

that are financed by employers and provide income to workers of all income levels. 

 Until the advent of 401(k)s, we actually had a quite ingenious system in which 

enticing the employer to contribute through tax bribes and other means did result in a 

trickle down of benefits to lower-income workers. 

 The multiemployer plans Judy Mazo has described are a perfect example. There 

are millions of very low-income laborers, construction workers, who are now able to pay 

their bills in retirement because they had employer-financed plans. Our concern is the 

retreat from those kind of plans to the do-it-yourself savings plans that many people 

cannot afford to take advantage, or full advantage of, is not the way that the Nation's 

retirement policy should go. 

Chairman Johnson. I kind of believe that if you put in only $5 a month, your resources 

are going to be immense by the end of the time you retire. 

Ms. Ferguson. I wish that were true. Unfortunately, the statistics do not bear it out.

That is what we have been hearing time and time again. Also, people who are living 

paycheck to paycheck have to pull the money out to buy a house. 
36

Chairman Johnson. Do you agree that money quadruples over time? 

Ms. Ferguson. We have heard the rule of--whatever it is. 

Chairman Johnson. If they leave it in. 

Ms. Ferguson. For the workers who cannot afford to contribute adequately to these 

plans, when their employer moves from a traditional, let's say, profit-sharing plan to a 

401(k), it is a pay cut for those workers who cannot afford to contribute. The employer is 

putting in less for them while putting in something for others. 

Chairman Johnson. I need to adhere to my own rule. 

 Do you have one comment? 

Ms. Palmintere. Yes, Mr. Chairman. I do have a comment with respect to that. 

 First off, a 401(k) plan is not necessarily the only type of defined contribution 

plan there is. A defined contribution plan also could be a plan where an employer 

contributes money. 

 For example, Intel has both a 401(k) plan and a defined contribution plan. Our 

position is we do not make an employee match because we feel we should treat all of our 

employees equally. Therefore, we contribute a portion of the company's funds to all 

employees. 

I don't agree that moving from a pension plan to a DC plan will necessarily keep 

employers from making contributions to employees. I think the position that Intel has 

taken is truly indicative of what really could happen, which I don't think is necessarily 

bad. We do contribute on our employees' behalf. We don't force them to put money in. 

 I don't think other companies will necessarily follow the route that you have 

prescribed to only allow 401(k) contributions. 

Ms. Ferguson. May I comment, Mr. Chairman? I just applaud Intel for having an 

employer-paid defined contribution plan in addition to the 401(k). Your 401(k) is 

obviously a supplement to your other plans, and that is absolutely right. 

Chairman Johnson. Thank you. 

Mr. Andrews? 

Mr. Andrews. Mr. Chairman, thank you. 

 I also want to say that obviously people are paying attention to us. You 

announced the first hearing of the Subcommittee of the year, and my understanding was 

the S&P futures were up 25 points this morning. There is a cause and effect, and I
37

commend you for helping to rally the markets of America. 

 I think the panel was excellent. I appreciate the diversity of views and the wellthought-out testimony very much. I think it will help the Subcommittee in its 

deliberations. 

Ms. Palmintere, I wanted to ask you if you could estimate for us what the savings 

that are incorporated in this bill would mean to Intel on an annual basis. How much 

money might you save? 

Ms. Palmintere. Do you mean from a corporate deduction perspective if we increased 

limits? 

Mr. Andrews. Yes. 

Ms. Palmintere. To be very honest, we have not calculated that in any respect. Our goal 

is not to save money for the corporation, our goal is specifically to provide employees 

with more retirement income. 

Mr. Andrews. How about the savings in administrative costs? 

Ms. Palmintere. The administrative costs are somewhere in the $50,000, $100,000 

range.

 One of the key items that would save administrative costs is the distribution 

electronically of information. That is one key item.

Mr. Andrews. Mr. Turner, I wanted to ask for your insight. As several of the 

witnesses have pointed out, several members, there is a problem with many Americans 

having no private pension coverage at all. These Americans tend to be people in lowwage jobs, working at industries that have low profit margins. It is conceivable that some 

of those individuals will be helped by this legislation, but it is likely that many of them 

will not. 

 What suggestions do you have that we might pursue to try to reach the tens of 

millions of people in the country who have no private pension coverage? 

Mr. Turner. Congressman, that is a wonderful question. I hope that I can be up to the 

answer.

Mr. Andrews. I'm sure you are more than up to it. 

Mr. Turner. At the ACLI, one thing that is very important to our members, and we 

think very important to the benefits community and to Americans who participate in 

retirement plans, is to focus on the programs that we have today, as opposed to creating 

new types of plans. Because one of the things that happens is that it creates more 

confusion. As a result of creating more confusion, it can actually result in fewer
38

employers establishing the plans. 

 I am not sure if that is directly responsive to your question, Congressman. 

Mr. Andrews. It is a difficult question. We certainly would invite anyone to supplement 

the record with a written response as well. It is obviously a very difficult question. 

Ms. Ferguson, I appreciate your testimony. I want to explore with you your 

concern about the catch-up rules, and the example you use in your testimony, your 

written testimony. 

 If I understand it correctly, you use the example of a person who would take full 

advantage of the $200,000 ceiling in a plan that sets aside 2 percent of the salary and 

multiplies that by the number of years of service to reach the benefit. 

 So under that formula, a person who presently could get a maximum of $68,000 

from the pension could be moved up to $80,000, if you follow the numbers. 

 You expressed the concern that what might happen is that the plan would simply 

cut the 2 percent contribution down to 1.7 percent to keep that high-paid person at 

$68,000, and then there would be a resulting benefit cut for everyone else. 

 The question is, why wouldn't they do that now? Why wouldn't they bring the 

person below $68,000 and find some other way to compensate her, and save the money 

with the other people? Why does the increase from the 170 to 200 make any difference? 

Ms. Ferguson. Let me say at the outset, we are talking about the increase in the covered 

compensation level. Actually, I would love to talk about the catch-up provision, as well. 

Mr. Andrews. I'm sorry, I did misidentify it, the increased contribution. 

Ms. Ferguson. The two articles I have attached to my statement give much better 

examples than the one I included in our statement to clarify this point. 

 The question of why wouldn't they do it now, they have a formula--let me just 

say, this is an unintended result of this provision. The intention of the provision is to 

allow company owners and officers to contribute more for themselves and have more of 

it trickle down. It is a well-intentioned provision. One of the arguments is that this may 

eliminate the need to have executives-only pensions that are not protected by the law. 

 In answer to your question, I don't know why they wouldn't do it now. This is 

simply something that could happen in the future. At the current level, they receive a 

certain amount. 

Mr. Andrews. I just don't see the connection to the issue of raising the covered 

compensation level. To answer my own question, the reason they don't do it now, I think 

it would be a lousy recruiting and retention policy. You would lose a lot of good
39

employees that you want to keep. 

 I think that the value of increasing the covered compensation level is it makes 

retention of the plan and distribution of its benefits to everyone, or nearly everyone, a 

more attractive proposition from the point of view of the person who owns the company. 

Ms. Ferguson. The fail-safe response I would offer, and it is in our statement, to assure 

that this unintended consequence that so many commentators have pointed out would not 

happen, we would suggest that the bill be modified so that anybody who takes advantage 

of the increase in the compensation not reduce accrual rates for a 5-year period. That is 

something that has been done in other areas of the pension law. 

Mr. Andrews. I wanted to finish by asking Ms. Mazo a question. 

 I was intrigued by your example of a clerical employee of a union making 

$38,000 a year and not being able to collect her or his full pension. 

 Could you just elaborate on it a little bit? Because I think it very clearly points 

out the need to change section 415. 

Ms. Mazo. Thank you, sir. It is touching, and some of these people in fact call on a 

regular basis saying either, when can I retire, or when am I going to get the rest of my 

money? 

 To take a sort of simplified example, you would have, let's say, a plan for 

plumbers, a multiemployer plan for plumbers. As we all know, plumbers are skilled, 

well-paid--. 

Mr. Andrews. Plumbers are the most important people on the face of the Earth, trust 

me. 

Ms. Mazo. Maybe next to electricians. But they are well paid. 

That plan may provide benefits of, let's say, $50 a month times your years of 

service. It is typical in a multiemployer plan that the benefits are not a percentage of the 

person's individual compensation. It is the exact same benefit for everybody in the plan 

who works the same length of service. So to that extent, they are extremely egalitarian. 

 The plan, let's say for someone with 30 years of service, might end up paying a 

maximum of $45,000 a year, which is a nice pension, and it is a little less than, say, a 

journeyman plumber who might be making $60,000 a year when he retires, but it is a nice 

benefit.

 This person--and frankly, the phrase that is used, it is typically the woman, it is 

the silver-haired ladies, long-term secretaries who work for the labor unions that are part 

of the plan. Say one secretary, she has been working for the labor union a long time and 

is also in the employer plan, and her final pay may be $40,000 a year; not a terrible salary 
40

for a secretary, clerical worker. She has earned a retirement plan of $45,000, but she is 

only allowed to collect what her pay was, so she cannot collect more than $40,000 a year. 

She could be losing $5,000, $6,000, or $7,000 a year, solely because she is paid less than 

most of the people in the plan. 

 One of the important things this bill would do is, for multiemployer plans, it 

would get rid of this pay-based limit and allow the lower-paid people to receive the 

pension that they have earned, even if it is more than what they are actually paid. 

Mr. Andrews. It is correct that under the bill, when and if enacted in this hypothetical, 

she would be permitted to receive the full pension and go up to $45,000, or whatever it 

would be? 

Ms. Mazo. Exactly. 

Mr. Andrews. A lot of us are interested in this bill for that reason. I have had a lot of 

direct personal experience. This lady does not just call you, she calls me all the time. It 

tends to be people who drove trucks and who worked on construction sites, or worked for 

public employers, nonprofit employers, who made modest amounts of money for a long 

period of time and were in plans that were pretty fair and generous. 

 They tend to be collectively bargained, because a lot of us believe collective 

bargaining tends to yield fair and generous plans. 

 It is a truly unfortunate anomaly, and I think both sides, Republican and 

Democrat, deserve credit for including this in this legislation. I think it is one of the key 

strategic reasons that we will be successful on the floor. 

 Thank you. 

Chairman Johnson. Thank you. 

Let me ask just one more, if I might, of Ms. Mazo. Recently the committee 

received kind of an unusual letter from the United States Court of Appeals for the Second 

Circuit. You are probably aware of it. The court was troubled by the conclusion ERISA 

forced it to reach, and it invited Congress to amend the law. 

 In this case before the court, the plaintiff worked for two decades at two full-time 

jobs, one by day and one by night, for two separate employees and as a member of two 

separate unions. Although each employer made full pension contributions through each 

union on the worker's behalf, all contributions were paid into a single multiemployer plan 

pension fund, the one pension forfeiting the other. 

 The court upheld the trustees' decision, since it was not arbitrary and capricious, 

but asked Congress to amend ERISA to impose a duty on multiemployer plans to notify 

each employee who works for multiple participating employers that his ability to collect 
41

more than one pension may be compromised. 

 How widespread do you think this problem is, and would multiemployer plans 

support a change to ERISA? 

Ms. Mazo. Thank you, Mr. Chairman. Committee counsel alerted me to this letter 

yesterday. I actually knew about it because the plan involved is a client of our company. 

 Frankly, when this happened, the administrator of our plan called me up and said, 

"This is terrible. How could we do this to this person? Why were we able to get away 

with it?" I had to talk her down from her outrage. 

 In fact, after hearing from the counsel, I got in touch with the leadership of this 

plan, who asked me specifically to let you know that they are very unhappy with the 

result of that case and plan to amend their plan so it does not happen again. 

 This is an extraordinarily unusual situation. It is a very sad and unfortunate set of 

facts, and I have never heard of this happening before in such a way that a person who is 

working two full-time jobs, and in this case he was a janitor in buildings, a very, very 

hardworking person, I believe he was also told by the union that he would get his full 

pension.

 I suspect that nobody was lying to him. It is because this is so unusual that they 

naturally assumed that the rules would work a different way than they ended up working. 

They had never heard of something like this, so they were not trying to mislead him, they 

just did not expect it. 

 This is an issue which we will be happy to work with counsel on to come up with 

appropriate disclosure if that is necessary. But again, the particular plan, their 

representatives asked me to extend their apologies, both to the gentleman in the case and 

to you all. That was not at all their intended design. 

Chairman Johnson. I would not think so. That is kind of a gross error, I think, on our 

part, and perhaps the court's in not being a little more lenient in their judgment. 

Ms. Mazo. I think there is a question about the constitutional propriety of the court's 

writing to Congress under the separation of powers. 

Mr. Andrews. If the Chairman would yield, I just want to express my own desire to 

work with you and the witnesses and counsel to correct this problem. Our counsel has 

advised us of it as well. It is a truly anomalous and I hope rare result. I hope it is not a 

precedent that the second circuit starts asking us to decide all these cases. 

Chairman Johnson. Thank you all so much for your testimony. We appreciate all of 

you being here today. I know Mr. Andrews and I do, as the leaders of this 

Subcommittee, and everyone who was not here--as you know, Congress adjourned early 

yesterday, so we are lacking a few members, but we do appreciate you being here.
42

Thank you for your attendance. 

 I don't think anyone has any further questions. The Subcommittee is adjourned. 

 [Whereupon, at 12:25 p.m., the Subcommittee was adjourned.]
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Table of Indexes 

Chairman Johnson, 1, 2, 5, 6, 8, 9, 11, 12, 13, 15, 16, 17, 18, 20, 21, 22, 23, 25, 27, 30, 

32, 33, 34, 35, 36, 40, 41 

Mr. Andrews, 9, 16, 17, 32, 36, 37, 38, 39, 40, 41 

Mr. Boehner, 9, 21 

Mr. Cardin, 9, 12, 14, 15, 17, 19, 20 

Mr. Fletcher, 18, 19, 20 

Mr. Kildee, 20 

Mr. Portman, 6, 8, 9, 11, 12, 15, 16, 18, 19, 20, 22 

Mr. Tierney, 4, 13, 14, 15, 16 

Mr. Turner, 23, 27, 28, 33, 37 

Ms. Ferguson, 30, 32, 35, 36, 38, 39 

Ms. Mazo, 25, 34, 39, 40, 41 

Ms. Palmintere, 23, 33, 36, 37