SANDERS/GUTKNECHT PENSION AMENDMENT
TO TRANS-TREAS APPROPS (H.R. 5025):
CONSTITUTIONALLY FLAWED & HARMFUL TO EMPLOYEES' RETIREMENT SECURITY

The Sanders Amendment would deny funding to the Treasury Department and IRS to assist in overturning an isolated and ill-founded federal district court case holding hybrid pension plans (such as cash balance and pension equity) to be age discriminatory. This amendment is constitutionally flawed and based on misleading assertions regarding age discrimination. It will further the climate of hostility faced by employers that voluntarily sponsor pension programs, leading more and more companies to abandon these programs. The result will be clear and substantial harm to the retirement security of American families.

• Hybrid Pension Plans Deliver Meaningful Benefits to Today's Workers and Older Workers Are Protected in Conversions. Hybrid pension plans combine the best features of traditional defined benefit pensions and 401(k) plans. These plans provide greater retirement benefits than traditional pensions for the vast majority of workers while preserving important guarantee features for employees (pension insurance, employer funding and investment risk, spousal protections). Moreover, recent cash balance conversions have been handled well. Ninety percent of employers (all except those in dire financial straits) provide generous transition assistance to protect the interests of older workers.

• Current Law Protects Against Reductions in Pension Benefits. Current law offers ironclad protection against reductions in pension benefits that employees have already earned. Charges that earned pension benefits have been cut by cash balance conversions are patently false. Conversions may on occasion mean that, for a small group of workers with very long-service, pension benefits for future service will not be as large as would have been the case under the traditional plan. But benefits for these employees continue to go up (not down) and benefits for the vast majority of workers with less than career-long service go up markedly under hybrid pension plans.

• Amendment Violates Separation of Powers. Analyzing last year's identical Sanders amendment, University of Chicago Professor of Law Richard Epstein wrote, "[The amendment] itself is contrary to the constitutional principle of separation of powers. The provision prevents the President from faithfully executing the laws and manipulates the appellate process to deny the judiciary access to the views of the Treasury Department, which normally receives deference in interpreting complex statutory provisions." Professor Epstein further states, "The Executive Branch is effectively handcuffed in its ability to articulate its position in regulations or litigation, and the courts are deprived of an important source of information that allows them to decide an important case. The situation is made worse because any statement that the Executive Branch is still allowed to make by regulation or in litigation is necessarily piecemeal and therefore misleading." (11/3/03 Epstein Letter to American Benefits Council.)

• Legal Authorities Say Hybrid Plans Age Appropriate; IBM Decision Out of Step. The overwhelming weight of legal authority makes clear that hybrid plans such as cash balance are age appropriate. The Cooper v. IBM decision that concluded otherwise conflicts with all other federal courts that have addressed the issue (see Eaton v. Onan, Campbell v. BankBoston, Tootle v. ARINC, Inc.) as well as the statutory structure and legislative history of the pension age discrimination statute. Unbelievably, the Cooper decision rules simple compound interest illegal in pension plans. Indeed, the judge's logic would invalidate every one of the more than 1,200 hybrid pension plans in the U.S. (covering more than 7 million employees), even where there has been no conversion.

• Employers Will Abandon Voluntary Pension System if Hybrid Plans Undermined. The U.S has a voluntary pension system in which no employer is required to offer a pension plan. Employers that have moved to hybrid plans have already concluded that traditional pensions do not meet their needs and the needs of their workforces. If these hybrid plans are undermined, employers will exit the defined benefit pension system altogether (as many employers have already done), impairing the retirement security of millions of American families.