Central Pension Fund

While Congress Toils to Strengthen Defined Benefit Pensions, DOE Seeks to Ban Them

Since 2005 both Houses of Congress have been working on legislation to strengthen defined benefit pension plans. Defined benefit plans provide traditional lifetime pensions, while 401(k) plans merely provide an opportunity for workers to save money for their own retirement.

401(k) plans are extremely popular with employers because they are cheaper to operate than real pension plans, and the employees take all the risk. Over the last year especially, there has been a wave of defined benefit plan terminations by major U.S. corporations.

In an attempt to stem this increasing abandonment of defined benefit plans, both the U.S. Senate and House passed separate bills in late 2005 to strengthen and assure the future viability of defined benefit plans. In March 2006 members from both Houses began meeting in conference to reconcile the two bills --- with an announced goal of reporting out a final bill in early summer of this year. At the same time, the White House has threatened that if the final legislation is not strong enough to assure the protection of defined benefit pensions, President Bush will veto it.

Given this legislative and Presidential action to preserve defined benefit plans, it was a complete shock on April 27, 2006 when the U.S. Department of Energy (DOE) issued a policy proclamation that, commencing March 1, 2007, DOE will no longer reimburse private sector contractors for the costs of providing defined benefit pensions to new employees. After March 1, 2007 DOE will only reimburse contractor costs for 401(k) plans. It is estimated that 100,000 private sector employees who work for DOE contractors will be affected by this new pension policy.

Just like the corporations that have abandoned their defined benefit plans, DOE justified this new policy as a cost-cutting measure. However, it is one thing for a private sector corporation to decide what benefits it will provide its workers. It is quite something else when the U.S. government dictates what those benefits must be.

Here, a major government agency has declared that literally hundreds of private sector employers must abandon defined benefit pensions --- or lose their government contracts. And the government has directed this abandonment of defined benefit pensions at precisely the same time that Congress is concluding a massive legislative effort to strengthen those plans.

When DOE was confronted by members of Congress over the direct conflict between this new policy and the announced support by the White House for defined benefit plans, DOE officials claimed that they had not consulted with the White House before announcing the new policy.

At the time of this writing, both Houses of Congress had introduced legislation to block this DOE action. The legislation had not yet been voted on. The White House, meanwhile, had remained silent.

General President Giblin and the International Union of Operating Engineers have voiced strenuous objection to this policy announcement by the Department of Energy which, if not reversed, will condemn generations of future workers to retirement insecurity.

May 26, 2006