The Night Congress Moved the Risk Downhill

Public Law 113-235 became law on December 16, 2014, appropriating money for the fiscal year ending September 30, 2015.^[1] Two of its provisions are the subject of this piece.

Section 630 rewrote the part of the Dodd-Frank Act governing which swaps an insured bank may keep on its own books.^[2] Division O, the Multiemployer Pension Reform Act, let the sponsors of pension plans in critical and declining status suspend benefits participants had already earned, including those of retirees already drawing them.^[1]

Nothing in the record establishes that the people behind one provision knew anything about the other, and this piece does not claim they did. The claim is about the bill: both were in it, both were enacted in the same act on the same day, and they moved protection in opposite directions for different groups.^[1][2]

01The deadline

H.R. 83 began as an unrelated bill and was used as the vehicle for the omnibus, which is why the roll call carries a bill title about something else.^[12] Mother Jones described what it became: a "massive 11th-hour government funding bill that congressional leaders negotiated in the hopes of averting a government shutdown."^[6]

The House agreed to it 219 to 206, at 9:37 p.m. on December 11, 2014.^[12] The Senate agreed 56 to 40, at 9:50 p.m. on December 13.^[13] The act was enacted December 16.^[1]

The package was reported at the time as roughly $1.1 trillion. That figure is not in the statute, which is itemized division by division and states no aggregate.^[1] It comes from an Associated Press photo caption carried on the HuffPost story cited here rather than from that story's own text.^[9]

02The rider

The provision Section 630 changed carries its own title. At 124 Stat. 1648 the enacted heading reads: "SEC. 716. PROHIBITION AGAINST FEDERAL GOVERNMENT BAILOUTS OF SWAPS ENTITIES." The table of contents, at 124 Stat. 1380, renders it in sentence case: "Sec. 716. Prohibition against Federal Government bailouts of swaps entities."^[3]

Section 716 operated as a condition, carried in subsection (d), and Section 630 replaced that subsection in full.^[3][2] Both versions are set out below complete, headings and enumerations intact and nothing elided, because a reader checking this piece should not have to take an author's word for which parts matter.

The permitted category changed shape. Under the original a bank qualified by staying inside a defined set of reference assets, the ones a national bank may hold; under the replacement it qualifies by staying outside a single excluded type, itself subject to two exceptions.^[3][2] The original subsection also carried a third paragraph, which made acting as a swaps entity for credit default swaps a bank-permissible activity only where those swaps were cleared. The replacement subsection has no third paragraph, and both texts are printed above so that the comparison does not depend on this description of them.^[3][2] Section 630 amended Section 716 rather than striking it.^[2] Warren called the provision a repeal on the Senate floor, and House Oversight Democrats later called the 2014 change a repeal.^[28][16] Those are their words.

03Who wrote it

In May 2013, the New York Times reported that Citigroup's "recommendations were reflected in more than 70 lines of the House committee's 85-line bill," and that "[t]wo crucial paragraphs, prepared by Citigroup in conjunction with other Wall Street banks, were copied nearly word for word. (Lawmakers changed two words to make them plural.)"^[5] NPR reported the same finding: "70 of the 85 lines in the final House bill reflected Citigroup's recommendations."^[7] Mother Jones, which published the drafting document, credited the count to the Times.^[6]

The bill those lines were counted against was H.R. 992, the Swaps Regulatory Improvement Act, which carries the attestation "Passed the House of Representatives October 30, 2013."^[4]

Then it stalled, and then it moved. Mother Jones, in December 2014: "The bill passed the House in October 2013, but the Senate never voted on it. For months, it was all but dead. Yet on Tuesday night, the Citi-written bill resurfaced."^[6]

Those are two steps and this piece keeps them apart. The 70-of-85 comparison was run against the 2013 House bill; the same drafted measure was later placed in the 2014 spending bill. Nobody re-ran the count against Section 630's text, so this piece does not say that 70 of its lines came from Citigroup. What is documented is a count against H.R. 992, and a relocation.

Citigroup defended the change on the record. Its executive vice president wrote on December 12, 2014 that the correction "simply limits the swaps that are 'pushed out' to the riskiest types, while preserving banks' ability to serve clients in the agriculture, energy and farm commodities sectors," and that "[p]ushing derivative activity into less-regulated markets is likely to increase, not decrease, systemic risk." The same statement noted that H.R. 992 had "passed the House of Representatives last year in a bipartisan 292-122 vote."^[14]

04The phone calls

Salon reported on December 12, 2014 that "JPMorgan CEO Jamie Dimon personally called members of the House yesterday to urge them to vote in favor of the bill, which funds most of the government through the end of the fiscal year."^[10] Because the article is dated December 12, "yesterday" is December 11, the night of the House vote.

The sourcing chain is thinner than the sentence looks. Salon attributes the calls to the Washington Post, which cited "a person familiar with" Dimon's effort. That Post story is not among this piece's sources, so the account arrives at one remove from a single anonymous source. Salon also records the limit of what is known: "It's unclear which members of Congress Dimon contacted as part of his vote-whipping effort."^[10] No source here names a member he called or quotes anything he said.

The White House worked the same votes. HuffPost: "Hours after declaring White House support for the package, Obama was forced to send Chief of Staff Denis McDonough to the Hill to round up votes."^[9] That article carries a December 12 byline and places the sentence in a passage about the end of the night of the House vote, which the Clerk dates to December 11.^[12] The date of the trip is inferred from that placement rather than stated, a weaker inference than the Dimon dating.

Nancy Pelosi, on December 11: "So here we are in the House, being blackmailed to vote for an appropriations bill … this is a ransom, this is blackmail. You don't get a bill unless Wall Street gets its taxpayer coverage."^[11]

Elizabeth Warren went to the Senate floor on December 12. The Congressional Record has her at page S6749: "I am back on the floor to talk about a dangerous provision slapped in a must-pass spending bill at the last minute solely to benefit Wall Street." On her own correspondence with the bank: "Citigroup's response to my letter? Stonewalling. A year has gone by and Citigroup didn't even acknowledge receiving my letter." On the vehicle: the provision "is attached to a bill that needs to pass or else the entire Federal Government will grind to a halt. Think about that kind of power."^[28] C-SPAN carries a clip of the remarks, published December 14.^[29]

One line from that speech circulates in a form she did not deliver. The Congressional Record has: "This provision would repeal a rule called prohibition against Federal Government bailouts of swaps entities."^[28] Her office's text, labelled as prepared for delivery, renders it with the title in capitals and an aside: "This provision would repeal a rule called, and I'm quoting the title of the rule, 'PROHIBITION AGAINST FEDERAL GOVERNMENT BAILOUTS OF SWAPS ENTITIES.'"^[8] The prepared version is the one that gets quoted; the delivered version is what the Record holds.

05The other rider

Division O was offered as a bipartisan amendment. The committee working copy is captioned "as offered by Mr. Kline and Mr. George Miller" and dated December 9, 2014, two days before the House vote.^[17] That copy is a pre-enactment draft; the text that became law is in the public law.^[1]

What it changed sits in one clause. ERISA's anti-cutback rule, at 29 U.S.C. 1054(g)(1), reads: "The accrued benefit of a participant under a plan may not be decreased by an amendment of the plan, other than an amendment described in section 1082(d)(2) or 1441 of this title."^[20] That is section 204(g).

The enacted text, at 128 Stat. 2799, announces itself in its own heading and then carves the exception in its first operative sentence: "(9) BENEFIT SUSPENSIONS FOR MULTIEMPLOYER PLANS IN CRITICAL AND DECLINING STATUS.—(A) IN GENERAL.—Notwithstanding section 204(g) and subject to subparagraphs (B) through (I), the plan sponsor of a plan in critical and declining status may, by plan amendment, suspend benefits which the sponsor deems appropriate."^[1]

Section 204(g) remains law and was not repealed. The new provision carved an exception out of it, the first breach in a protection that had stood since ERISA, for one category of plan.^[20][1]

The power reaches people already retired, and the definition says so: "(i) SUSPENSION OF BENEFITS DEFINED.—For purposes of this subsection, the term 'suspension of benefits' means the temporary or permanent reduction of any current or future payment obligation of the plan to any participant or beneficiary under the plan, whether or not in pay status at the time of the suspension of benefits."^[1]

A procedure was built around it. Participants are notified of an application and given "an individualized estimate (on an annual or monthly basis) of such effect on each participant or beneficiary." Then they vote, and "the suspension shall go into effect following the vote unless a majority of all participants and beneficiaries of the plan vote to reject the suspension."^[1][18] The threshold is a majority of all participants and beneficiaries, not of those voting, so a ballot never returned counts against rejection.

For a plan Treasury designates systemically important, an adverse vote does not end the matter. The act directs the Secretary of the Treasury, "notwithstanding such adverse vote," to permit either the proposed suspension or a modification of it.^[1] Treasury's own summary puts it plainly: even against a majority vote, "the Treasury Department is required by Congress to permit the implementation of such benefit reductions or a modified version of such reductions."^[19]

The act also constrained the cuts it authorized, and omitting that would overstate the case. Benefits "cannot be reduced to less than 110 percent of the amount that PBGC guarantees," there are "[n]o benefit reductions for retirees age 80 and above (as of the effective date of the benefit reduction)," none to disability benefits, and reductions "must also be distributed equitably over the participant and beneficiary population."^[19]

06Who paid

On September 25, 2015, the trustees of the Central States, Southeast and Southwest Areas Pension Plan applied to suspend benefits.^[23] Treasury published notice in the Federal Register on October 23 and requested comments.^[30]

The proposed cuts were tiered rather than a single across-the-board percentage, which is why contemporaneous accounts disagree: each was describing a different tier. Federal law, the application says, "requires that benefits attributable to Tier 1 be reduced to the maximum extent permissible," so the Tier 1 amount "does not include any formula developed by the Board of Trustees, but instead is generally equal to 110% of the benefit amount guaranteed by PBGC."^[31]

Tiers 2 and 3 carry their own caps, each in its own sentence and each conditioned on the same length of service. For Tier 2, "the benefit reduction to participants with at least 20 years of Contributory Service Credit as of July 1, 2016 will not be greater than 50% of the amount that would otherwise have been payable." The parallel Tier 3 sentence sets that cap at 40%. Underneath both sits the general provision: a plan amendment "will reduce participants' monthly pension benefits to 1% of the Tier 2 and Tier 3 contributions that have been made on their behalf as of that date," before adjustments for early retirement and survivor elections.^[31]

The application works the arithmetic itself: "if a participant has a plan benefit of $1,000 per month on July 1, 2016, and 1% of the total contributions made on that participant's behalf is $800, then the $1,000 benefit will be reduced by $200 to $800 effective July 1, 2016."^[31]

Treasury's later denial letter relays the plan's own estimate of the scale: "The Application states that the Plan is projected, absent suspension, to become insolvent within ten years, and that, if the Application were approved, approximately 270,000 people would have some portion of their pension benefits reduced beginning in July of this year."^[23] The letter is dated May 6, 2016, so July of that year is meant, and the 270,000 is the applicant's figure restated by Treasury rather than found by it.

The Pension Rights Center, an advocacy organization, wrote on October 6, 2015 that it had been "inundated with calls from retirees who are receiving letters from their pension plan informing them that their pension is slated to be cut by as much as 70 percent."^[21] That is what participants were told, relayed by an organization taking their calls; the plan's own figures are the tiers above.

On May 6, 2016, Treasury denied the application. The Special Master wrote that the suspension "fails to satisfy the statutory criteria for approval of benefit suspensions," failing "the criteria of subparagraphs (D) and (F)." The letter names three requirements: that the suspensions "be reasonably estimated to achieve, but not materially exceed, the level that is necessary to avoid insolvency, because the investment return and entry age assumptions used for this purpose are not reasonable"; that they "be equitably distributed across the participant and beneficiary population"; and that the notices "be written so as to be understood by the average plan participant."^[23] Teamsters for a Democratic Union reported that Feinberg said he rejected the application because it used flawed investment assumptions, did not distribute the cuts equally, and sent members an overly technical notice.^[22] Nothing in the letter finds that suspending the benefits was substantively unwarranted.

Central States never suspended benefits under the act. That rests on absence rather than on a document saying so: the application was denied, no source consulted here records any later Central States suspension notice or vote, and the Labor Department's roster of plans that did cut under the act does not include it.^[23][27] It is an inference, section 08 depends on it, and a primary document stating it outright would be better than the evidence available.

07What it cost

In September 2017, the Government Accountability Office measured what Section 630 did. The amended section affected four U.S. banks and "caused them to push out an estimated $265 billion of swaps in notional value as of September 30, 2016, or less than 1 percent of their total derivatives." The original version, reaching 11 banks, "could have affected an estimated $10.5 trillion of swaps in notional value, or about 6 percent of their total derivatives, if the provision had not been amended."^[15]

The $10.5 trillion is GAO's estimate of what the original could have reached, a different proposition from banks retaining $10.5 trillion because of the amendment. Warren and Elijah Cummings put it the stronger way on release: the change "was a massive giveaway to a few big banks, letting them hold onto more than $10 trillion" of risky assets, and "it leaves taxpayers potentially holding the bag if things go bad."^[16] That is two members characterizing GAO, not GAO's finding.

The same report carries the strongest available evidence against this piece's framing, which is why it sits in the body. GAO recorded that "Section 716 seeks to reduce a bank's risk of failure and potential need for federal assistance, but the act's other reforms also seek to mitigate such risks," and that the 11 banks the original would have covered "held financial resources needed to support their swap-related credit, liquidity, and market risk exposures as of September 30, 2016."^[15]

On the pension side the measurement is in people. The Labor Department reported 18 plans, affecting 11 unions, that "under MPRA had reduced benefits an average of 22 percent for 60,620 retirees in pay status with some plans reducing benefits as much as 55 percent." Those plans cover 87,862 participants, the plan population rather than the number cut.^[27]

08Still law?

Section 716 is still there, in the amended form quoted in section 02, under a title that is unchanged.^[2][3]

The pension provision was answered later, and partially. The American Rescue Plan Act created the Special Financial Assistance program, then required that a plan receiving the money "reinstates any benefits that were suspended under section 305(e)(9)" and "provides payments equal to the amount of benefits previously suspended" to those in pay status.^[24] Section 305(e)(9) is the suspension authority the 2014 act added, so the later statute reaches back to that grant of power by its own cross-reference.

PBGC describes the effect: the assistance "includes funds to reinstate previously reduced monthly benefits going forward, and for make-up payments that will restore previously reduced benefits of participants and beneficiaries."^[26]

In December 2022, PBGC announced that the Central States plan would receive approximately $35.8 billion, and described it as "the largest plan expected to receive SFA." The plan covers 357,056 participants and had been projected to run out of money in 2025.^[25]

The reinstatements are at other plans. The 60,620 retirees whose reduced benefits were repaid are at the 18 plans that did cut.^[27] Central States applied and was denied, and on the inference set out in section 06, drawn from absence rather than from a document, it never suspended benefits and so had nothing to reverse. The separation between these two populations rests on that inference.^[23][27]

09What this piece is not

Several things a reader might expect to find here are absent, because the sources consulted do not carry them.

It does not say the two provisions were coordinated. Nothing in the record consulted here addresses whether the people behind Section 630 knew anything about Division O, or the reverse, and no source was found that speaks to it either way.

It does not assign a motive to either provision. Sentences of the form "so that banks could keep trading" or "in order to let trustees cut" describe a purpose, and purpose is not in these documents. The effects are recorded; the intentions are not.

It does not say that 70 of Section 630's lines came from Citigroup. That count was run against H.R. 992 in 2013.^[5][4] Nobody repeated it against the text that became law.

It does not say Section 716 was repealed. Section 630 amended it, and the section remains on the books in the form quoted in section 02.^[2][3] Warren and House Oversight Democrats used the word repeal, and it appears here as their characterization.^[28][16]

It does not say the pension provision repealed ERISA's anti-cutback rule. Section 204(g) is still law. The 2014 act carved an exception out of it for one category of plan.^[20][1]

It does not say Central States retirees lost benefits under the act, and it does not say the $35.8 billion restored any. The application was denied, and the retirees whose suspended benefits were repaid are at other plans.^[23][27] Those are two true statements about two different populations, and any sentence joining them with a causal connective would be false.

It does not give one number for the proposed Central States cuts, because the application does not contain one. The reductions were tiered.^[31]

It does not name a member of Congress that Jamie Dimon called, or quote anything he said. The one source here on the calls records that this is unknown.^[10]

What the record does carry is a sequence. The swaps measure passed the House on its own in October 2013.^[4] The Senate never voted on it, and for months it was, in Mother Jones's description, "all but dead."^[6] It became law fourteen months later inside a bill that funded the government.^[1][6] Warren described the position that created: the provision "is attached to a bill that needs to pass or else the entire Federal Government will grind to a halt."^[28] That is her characterization of the vehicle, and the dates underneath it are documented.

10The case against this piece

Both provisions had defenders making arguments that are not obviously wrong, and the strongest version of each belongs here rather than in a footnote.

On Section 630, the argument was that the original rule pushed risk somewhere worse. Citigroup's executive vice president put it on the record two days before the House vote: the change "simply limits the swaps that are 'pushed out' to the riskiest types," and "[p]ushing derivative activity into less-regulated markets is likely to increase, not decrease, systemic risk."^[14] The measure had also drawn bipartisan support in its standalone form, passing the House 292 to 122.^[14]

Part of that argument survives contact with the record, and the evidence for it is in section 07. GAO found the amended section still pushed out an estimated $265 billion in notional value, and observed that "the act's other reforms also seek to mitigate such risks," and that the banks the original would have covered "held financial resources needed to support their swap-related credit, liquidity, and market risk exposures as of September 30, 2016."^[15] A reader who thinks Section 716 was one control among several, rather than the control, has GAO for company.

What the argument does not reach is the manner. Nothing in Citigroup's defense explains why a measure that had stalled in the Senate for over a year arrived in a government funding bill.

On the pension provision, the argument was that the alternative was worse. Plans in critical and declining status were heading for insolvency, and Central States told Treasury it projected insolvency within ten years absent a suspension.^[23] The act set a floor under any suspension: benefits "cannot be reduced to less than 110 percent of the amount that PBGC guarantees," with no reductions for retirees aged 80 and above, none to disability benefits, and a requirement that reductions be distributed equitably.^[19]

A reader may want the next step, that a suspension floored above the PBGC guarantee leaves retirees better off than an insolvency that drops them to it. That comparison is not made by any source cited here. The floor and the insolvency projection are each documented; joining them is an inference, and it is offered as one.

Against that, Treasury's denial found this particular application failed on its own terms: unreasonable investment return and entry age assumptions, cuts not equitably distributed, and notices not written to be understood by the average participant.^[23] That is a finding about one application rather than about the provision, and the provision is what this piece is about.

11What is confirmed and what is not

Every claim above is sorted here by the kind of evidence behind it.

What would overturn this. A record showing Central States did implement a suspension would break the separation in section 08 and take the S2 row with it. A line count run against Section 630's own text, rather than against H.R. 992, would change what section 03 can say in either direction. A document showing the two provisions were promoted together would add a claim this piece declines to make. Any of those would be worth more than this piece is, and the sources are listed below so that a reader can go looking.