Citizen Works

Pension Reform
Legislative Overview

Now that Congress has done accounting reform, the next round of corporate reform will likely focus on pensions.

The House has already passed a bill, H.R. 3762, introduced by Rep. John Boehner (R-OH), but it should hardly count as reform. Karen Friedman, legislative director of the Pension Rights Center, calls it "a business protection plan."

What makes H.R. 3762 so odious to reformers is not only that it doesn't tackle some of the most basic problems with the current pension system, like the overconcentration of company stock in employee portfolios or the lack of worker representation on pension boards, but that it also could make pension protection worse by removing provisions of current law that require equity between plans offered to top executives and lower-paid employees.

On the brighter side, H.R. 3762 would:

Require employers to notify workers 30 days in advance of any trading freezes or "blackout" periods;
Prohibit executives from selling shares during "blackout" periods;
Allow workers to sell shares of matching 401(k) contributions after holding the shares for three years; and
Allow workers to use pretax wages to pay for professional investment advice.

The bill echoed many of the provisions President Bush called for in his March 8 address on pension reform.

Senate Democrats, meanwhile, have been dragging their feet on pensions, even as they've been trying to make pensions one of the five major issues to help distinguish them from Republicans in the fall elections.

Last December, Sens. Jon Corzine (D-NJ) and Barbara Boxer (D-CA) took the first shot at pension reform and introduced S. 1838, whose centerpiece was a provision that prevented employees from having more than 20% of their 401(k) plan invested in company stock (Enron employees had 62% of their portfolio in Enron stock). But the AFL-CIO was not willing to get behind the plan and the bill never went anywhere.

In March, Senator Ted Kennedy (D-MA) revealed his plan, S. 1992, which has been supported by a coalition of coalition that includes the Pension Rights Center, AFL-CIO, AARP and Citizen Works. These groups see S. 1992 as the only halfway decent reform with any chance of passing in the current Congress.

The Kennedy bill encourages diversification by saying that employers can offer company stock as an investment option in 401(k) plans or they can offer company stock as a matching grant, but they can't do both. The bill also requires workers to be represented on pension boards and requires employers to take out insurance to protect workers' savings, along with standard provisions to encourage more independent investment advice and protections from arbitrary lockdowns.

It eked out of the Health Education Labor and Pensions Committee on an 11-10 party-line vote and drew the ire of such pro-business lobbyists as the American Benefits Council.

However, the Senate Finance Committee also claimed jurisdiction on pension reform and in July, its members finally agreed on a bare bones set of reforms that avoided even the mild Kennedy proposals on diversification and employee representation. The Senate Finance proposals focused on allowing workers to divest from company stock after 3 years, requiring notification of blackout periods, requiring quarterly benefits statements, and setting standards for investment advice - a plan that is barely distinguishable from what Bush and the Republicans have proposed.

Before the August break, Senate Majority leader Tom Daschle (D-SD) promised to make pension reform a focus in the fall, outlining some principles at a press conference:

"Our plan allows workers to hold employers accountable and get their money back if the people responsible for protecting their investments abuse that trust," he said. "Our plan makes it easier for workers to sell their company stock and diversify their holdings."

In total, more than 25 pension reform bills have been introduced since the Enron bankruptcy. The vast majority offer some combination of allowing workers to divest from company stock after a set period of time, requiring workers to be notified of lockdowns, preventing or limiting insider traders during lockdowns, promoting better investment advice, and requiring workers to receive quarterly benefit statements.

Other reform proposals include a portable pension system (H.R. 4482, Rep. Dick Gephardt (D-MO)), improved protection for employees in bankruptcy proceedings (H.R. 5221 (Rep. Bill Delahunt (D-MA) /S. 2798 (Sen. Dick Durbin (D-IL)) , and even an Enron-specific disgorgement fund composed of Enron and Andersen proceeds (H.R. 3634), proposed by Rep. Maxine Waters (D-CA) back in January.

In all likelihood, though, the pension reform that both parties can agree on will be a bare-bones minimum that will do little to prevent future Enrons and WorldComs -- unless citizens demand real reforms.