[House Hearing, 109 Congress]
[From the U.S. Government Publishing Office]



 
                    FUNDING RULES FOR MULTIEMPLOYER


                  DEFINED BENEFIT PLANS IN H.R. 2830,


                 THE ``PENSION PROTECTION ACT OF 2005''

=======================================================================

                                HEARING

                               before the

                SUBCOMMITTEE ON SELECT REVENUE MEASURES


                      COMMITTEE ON WAYS AND MEANS
                     U.S. HOUSE OF REPRESENTATIVES

                       ONE HUNDRED NINTH CONGRESS

                             FIRST SESSION

                               __________

                             JUNE 28, 2005

                               __________

                           Serial No. 109-48

                               __________

         Printed for the use of the Committee on Ways and Means



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                      COMMITTEE ON WAYS AND MEANS

                   BILL THOMAS, California, Chairman

E. CLAY SHAW, JR., Florida           CHARLES B. RANGEL, New York
NANCY L. JOHNSON, Connecticut        FORTNEY PETE STARK, California
WALLY HERGER, California             SANDER M. LEVIN, Michigan
JIM MCCRERY, Louisiana               BENJAMIN L. CARDIN, Maryland
DAVE CAMP, Michigan                  JIM MCDERMOTT, Washington
JIM RAMSTAD, Minnesota               JOHN LEWIS, Georgia
JIM NUSSLE, Iowa                     RICHARD E. NEAL, Massachusetts
SAM JOHNSON, Texas                   MICHAEL R. MCNULTY, New York
PHIL ENGLISH, Pennsylvania           WILLIAM J. JEFFERSON, Louisiana
J.D. HAYWORTH, Arizona               JOHN S. TANNER, Tennessee
JERRY WELLER, Illinois               XAVIER BECERRA, California
KENNY C. HULSHOF, Missouri           LLOYD DOGGETT, Texas
RON LEWIS, Kentucky                  EARL POMEROY, North Dakota
MARK FOLEY, Florida                  STEPHANIE TUBBS JONES, Ohio
KEVIN BRADY, Texas                   MIKE THOMPSON, California
PAUL RYAN, Wisconsin                 JOHN B. LARSON, Connecticut
ERIC CANTOR, Virginia                RAHM EMANUEL, Illinois
JOHN LINDER, Georgia
BOB BEAUPREZ, Colorado
MELISSA A. HART, Pennsylvania
CHRIS CHOCOLA, Indiana
DEVIN NUNES, California

                    Allison H. Giles, Chief of Staff

                  Janice Mays, Minority Chief Counsel

                                 ______

                SUBCOMMITTEE ON SELECT REVENUE MEASURES

                     DAVE CAMP, Michigan, Chairman

JERRY WELLER, Illinois               MICHAEL R. MCNULTY, New York
MARK FOLEY, Florida                  LLOYD DOGGETT, Texas
THOMAS M. REYNOLDS, New York         STEPHANIE TUBBS JONES, Ohio
ERIC CANTOR, Virginia                MIKE THOMPSON, California
JOHN LINDER, Georgia                 JOHN B. LARSON, Connecticut
MELISSA HART, Pennsylvania
CHRIS CHOCOLA, Indiana

Pursuant to clause 2(e)(4) of Rule XI of the Rules of the House, public 
hearing records of the Committee on Ways and Means are also published 
in electronic form. The printed hearing record remains the official 
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                            C O N T E N T S

                                                                   Page

Advisory announcing the hearing..................................     2

                               WITNESSES

Congressional Budget Office, Douglas Holtz-Eakin, Director.......     5

                                 ______

Clark Construction Company, Charles Clark........................    21
Motor Freight Carriers Association, Timothy P. Lynch.............    25
Safeway Inc., Jim Morgan.........................................    33
The Segal Company, Judith F. Mazo................................    36

                       SUBMISSION FOR THE RECORD

Pignatelli-O'Neal, Joanne, Valley Steam, NY, letter..............    58


                    FUNDING RULES FOR MULTIEMPLOYER



                  DIFINED BENEFIT PLANS IN H.R. 2830,



                 THE ``PENSION PROTECTION ACT OF 2005''

                              ----------                              


                         TUESDAY, JUNE 28, 2005

                     U.S. House of Representatives,
                               Committee on Ways and Means,
                                 Subcommittee on Oversight,
                                                    Washington, DC.

    The Subcommittee met, pursuant to notice, at 10:02 a.m., in 
room 1100, Longworth House Office Building, Hon. Dave Camp 
(Chairman of the Subcommittee) presiding.
    [The advisory announcing the hearing follows:]

ADVISORY

FROM THE 
COMMITTEE
 ON WAYS 
AND 
MEANS

                SUBCOMMITTEE ON SELECT REVENUE MEASURES

                                                CONTACT: (202) 226-5911
FOR IMMEDIATE RELEASE
June 28, 2005
No. SRM-3

                Camp Announces Hearing on Funding Rules

                for Multiemployer Defined Benefit Plans

          in H.R. 2830, the ``Pension Protection Act of 2005''

    Congressman Dave Camp (R-MI), Chairman, Subcommittee on Select 
Revenue Measures of the Committee on Ways and Means, today announced 
that the Subcommittee will hold a hearing on the multiemployer pension 
provisions of H.R. 2830, the ``Pension Protection Act of 2005.'' The 
hearing will take place on Tuesday, June 28, 2005, in the main 
Committee hearing room, 1100 Longworth House Office Building, beginning 
at 10:00 a.m.
      
    In view of the limited time available to hear witnesses, oral 
testimony at this hearing will be from invited witnesses only. However, 
any individual or organization not scheduled for an oral appearance may 
submit a written statement for consideration by the Subcommittee and 
for inclusion in the printed record of the hearing.
      

BACKGROUND:

      
    More than 9.8 million workers participate in multiemployer defined 
benefit plans, which are collectively bargained pension arrangements 
involving unrelated employers, usually in a common industry. The 
Pension Benefits Guaranty Corporation (PBGC) estimates that 
multiemployer pension programs are underfunded by more than $150 
billion; that is, these pension programs have promised $150 billion 
more in benefits than they have assets to pay according to current 
funding levels in the plans.
      
    To address the current underfunding in these plans, Education and 
Workforce Chairman, John A. Boehner (R-OH), Chairman Bill Thomas (R-CA) 
and Rep. Sam Johnson (R-TX) introduced H.R. 2830 on June 9, 2005. 
Provisions included in this legislation create a structure for 
identifying multiemployer pension plans that may be facing funding 
problems and providing quantifiable benchmarks for measuring efforts to 
improve the plan's funding. Plans that are between 65 and 80 percent 
funded are classified as ``yellow zone'' plans that are in intermediate 
financial problems. Trustees of yellow zone plans would be required to 
adopt a program that will improve the health of the plan by one-third 
within 10 years. Trustees would be prohibited from increasing benefits 
that could cause the plan to fall below the 65 percent funded status. 
Plans that are less than 65 percent funded and face significant funding 
problems would be classified as ``red zone'' plans. Trustees would be 
required to develop a plan to exit the red zone funding status within 
10 years, among other requirements. Additionally, H.R. 2830 requires 
increased reporting and disclosure requirements for all plans.
      
    In announcing the hearing, Chairman Camp stated, ``This bill seeks 
to address the shortfalls in the pension funding requirements that have 
led to the underfunding of many of our Nation's pensions programs. The 
changes will help increase the transparency of the funding status of 
multiemployer pension plans and provide new tools to enable troubled 
plans to regain their financial health.''
      

FOCUS OF THE HEARING:

      
    The hearing will focus on the funding rules for multiemployer 
defined benefit plans contained in H.R. 2830, the ``Pension Protection 
Act of 2005.''
      

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noted above.

                                 

    Chairman CAMP. Good morning. The Committee on Ways and 
Means Subcommittee on Select Revenue Measures hearing on 
funding rules for multiemployer defined benefit plans will come 
to order. Today, we begin an examination of the multiemployer 
pension plan reforms included in H.R. 2830, the Pension 
Protection Act of 2005. Single-employer pension plans are 
facing serious challenges. Our goal is to ensure that 
multiemployer plans, which many Americans rely upon, do not 
face similar problems. This hearing will provide Members of the 
Subcommittee with information on proposed reforms intended to 
strengthen those multiemployer plans. Some 1,600 multiemployer 
plans cover nearly 9.8 million working people. These plans 
operate under distinct rules and are the subject of collective 
bargaining agreements. They allow workers to move between 
employers while accumulating retirement benefits. They also 
rely financially on the many employers involved in each plan to 
provide resources. These employers share responsibility for the 
plans' liabilities, placing companies and those they employ at 
risk if things go wrong. Most important is the obvious need for 
companies and workers to cooperate in keeping plans properly 
funded.
    Those who fund and depend on multiemployer arrangements 
have for some time been discussing ways to improves plans' 
strength. It is promising to see mutual recognition of the need 
for change because multiemployer plans cannot be turned over to 
the Pension Benefit Guaranty Corp. (PBGC). Plan solvency and 
financing are of paramount concern. A weak plan can be so 
potentially burdensome that employers may be unable to survive, 
increasing the financial pressure on those who remain behind 
with the responsibility of funding the plans' promises. This 
kind of financial codependence means all stakeholders--
retirees, workers, and employers--can face a potential loss. To 
obtain a sense of the scope and condition of multiemployer 
plans, our first witness will be Douglas Holtz-Eakin, Director 
of the Congressional Budget Office (CBO). Our panel from the 
private sector will discuss business and professional 
perspectives in how current law governing operation of 
multiemployer plans should be adjusted to ensure these plans 
can deliver what is promised. Those on the panel have been part 
of ongoing discussions about possible improvements to H.R. 2830 
and will undoubtedly benefit from their insights as to how 
plans can be improved. I now yield to Mr. McNulty for any 
opening remarks he may wish to make.
    Mr. MCNULTY. Thank you, Mr. Chairman, and I join you in 
welcoming all of our witnesses today, and I support the efforts 
of this Subcommittee to bring this important issue to the 
forefront of our legislative agenda. This is a time when many 
of our workers are feeling less secure about their financial 
future and retirement. They see their employers or employers of 
their friends and relatives renege on pension promises that 
were made to the workers. These employers are failing their 
workers in different ways, such as not adequately funding their 
pension promises or dumping the pension liabilities on the 
PBGC. These promises are being broken after employees have kept 
their end of the bargain and have given many years of faithful 
service. Recent developments in the retirement area make this 
hearing even more relevant. Today, we will focus on a set of 
funding reforms that are being advanced by the employers who 
sponsor these plans, union representatives who negotiate the 
workers' benefits under the plans, and the trustees who manage 
these plans. The level of cooperation among these groups is 
admirable. I applaud the representatives who keep working to 
reach common ground among the competing interests in the group. 
I encourage you to continue this process. I would request that 
the interests of the workers and retirees are not shortchanged 
in the process.
    Today, many of our workers believe that their retirement is 
under assault. Pension plans are being terminated without 
sufficient assets to pay the promised benefits. In these cases, 
the workers bear a significant portion of the loss. Social 
Security is under attack, and retirees can see their guaranteed 
benefit possibly being taken away under proposals supported by 
this administration. More than half our workforce currently 
have no work-related pension plan. Those who have this benefit 
are losing it. This gives us a strong incentive to work 
together to protect the benefits of those workers who have 
them, especially those workers who have a benefit under the 
defined benefit pension plan, such as a multiemployer plan. 
Multiemployer plans have been affected by what has been 
referred to as ``the perfect storm'': falling interest rates 
and a weak stock market. This has eroded funding levels in many 
plans, but there is good news. Losses in the multiemployer 
plans are not as large as the losses incurred by single-
employer pension plans. According to the PBGC's Pension 
Insurance Data Book for fiscal year 2004, the multiemployer 
program was in surplus from 1982 to 2002. The program reported 
a deficit of $236 million in 2004 compared to a deficit of 
$23.3 billion for single-employer plans. I hope we can work 
together to solve this problem. As we continue, I hope we will 
remain committed to balancing all the competing interests in 
order to reach an acceptable resolution. Mr. Chairman, I thank 
you. I ask that all of the other Members of the Subcommittee be 
allowed to present statements for the record, and I yield my 
time.
    Chairman CAMP. Without objection. Thank you. Now we will 
turn to our first witness, the Director of the CBO, who has 
appeared before this Committee many times, Mr. Douglas Holtz-
Eakin. You have 5 minutes. We have your written testimony. If 
you could summarize your written testimony, your full statement 
will appear in the record, and you may now proceed. Thank you 
for being here.

   STATEMENT OF DOUGLAS HOLTZ-EAKIN, DIRECTOR, CONGRESSIONAL 
                         BUDGET OFFICE

    Dr. HOLTZ-EAKIN. Mr. Chairman, thank you for the 
opportunity for the CBO to be here, Congressman McNulty and 
Members of the Committee. You do have our written statement. I 
will use the 5 minutes to summarize three key points: Point 
number one, that multiemployer plans face significant 
underfunding that places both firms and workers at risk, firms 
at risk for higher contributions in the future, and works at 
risk for the failure to receive compensation that they have 
earned. Number two, that the much larger scale of the single-
employer plans and the larger scale of their problems need not 
disguise the important policy problems that face the 
multiemployer plans; in particular, the much lower level of 
exposure of the PBGC in this area is not a good indicator of 
the underlying policy dilemma. Three, that probably the key 
policy issue that faces the Committee is how to enhance timely 
disclosure of funding status and to tighten funding rules. 
Multiemployer plans have some key features with which the 
Committee is familiar. The first is their collective nature, a 
shared structure across both employers and the unions with 
which the negotiations are made, and the obligation to maintain 
funding in that setting. Contributions are collectively 
bargained, and this produces different dynamics than are 
present in the single-employer plans.
    The other key feature is the low level of the PBGC 
guarantee. There is a very small guarantee, about $13,000, the 
top pension guarantee in this setting, as opposed to $46,000 
for a single-employer plan. With that comes a much lower 
premium paid into the PBGC, and the flip side of that is that a 
greater fraction of the risks are shared by employers and 
workers, placing a much more important emphasis on funding of 
these plans to be able to get through economic distress. 
Another key feature of the multiemployer plans is their 
concentration in a relatively small number of industries. In 
particular, over 50 percent are present in the construction and 
trucking industries alone, and if one adds up a small list of 
areas of the economy, you quickly exhaust the location of the 
1,600 plans and 10 million workers who are affected by 
multiemployer plans. Now, the second points have to do with the 
adequacy of funding overall and the PBGC exposure. As was 
mentioned by Mr. McNulty, the PBGC estimates that plans in the 
aggregate are underfunded by about $150 billion at present. In 
contrast, the single-employer plans are short by about $450 
billion. This produces a broad exposure to underfunding among 
participants in the multiemployer plans. As this slide shows, a 
small fraction, 11 percent, are actually in plans that are 
adequately funded at present, and a significant number, over a 
quarter, are in plans that are funded at under 70 percent of 
the required rates.
    However, very little of this underfunding would likely end 
up on the books of the PBGC. As has been true in the past, 
premiums into the PBGC have largely exceeded the loans going 
out. There is a 2004 deficit, a shortfall of assets versus 
liabilities of $236 million for the PBGC, contrasted to the $23 
billion that was mentioned for the single-employer plans. In 
one expands the set to those plans that are not already 
insolvent but those which could possibly become solvent, the 
exposure of the PBGC is another $108 million. In contrast, if 
you do the same computation for single-employer plans, the 
PBGC's exposure is about $96 billion. So, the order of 
magnitude of exposure of the PBGC is much smaller. Instead, the 
exposure is at the firms and the workers, and there the key 
policy issues are to find a way to adequately fund these plans 
so as to be able to survive the economic circumstances that 
might shift through time. In particular, given the 
concentration in different industries and the funding across 
those industries, you must put funding in place sufficient to 
weather shifts in profitability and competitiveness of 
industries going forward, both for the known problems and for 
those which might transpire in the future. Step one in doing 
that is to more quickly identify underfunding, make available 
such information to all stakeholders involved--the trustees, 
the workers, the firms, and the PBGC. Greater transparency 
helps for monitoring on the part of all parties. It is also 
useful to have forward-looking measures, not those concentrated 
in the present but those which can anticipate funding problems 
going forward and disclose future problems in a timely fashion 
as well. Then the second step is having identified these kinds 
of situations, have adequately tight rules so that funding is 
maintained and, where necessary, beefed up in order to have 
these plans survive into the future. As I said, I am pleased to 
have the chance to be here today Look forward to answering your 
questions.
    [The prepared statement of Mr. Holtz-Eakin follows:]
Statement of Douglas Holtz-Eakin, Director, Congressional Budget Office
    Mr. Chairman, Ranking Democratic Member McNulty, and Members of the 
Subcommittee, thank you for this opportunity to discuss the financial 
status of and government insurance for multiemployer defined-benefit 
pension plans. My presentation today will focus on three general 
points:

      Although multiemployer pension plans and single-employer 
pension plans are both designed to provide specified monthly benefits 
to workers at retirement, there are major differences between the two 
types of plans in how they are structured.
      The multiemployer plans, as a group, are significantly 
underfunded--by an amount estimated by the Pension Benefit Guaranty 
Corporation (PBGC) to total $150 billion. In contrast to its 
responsibility for single-employer plans, PBGC underwrites a relatively 
small portion of the benefits associated with any shortfall in 
multiemployer plans.
      Given the financial exposure that both workers and 
employers face in multiemployer plans, questions arise about whether 
current funding rules should be altered to better promote the long-term 
financial security of the plans and whether additional changes should 
be made to promote the availability of timely, accurate information 
about the financial condition of the plans.
Characteristics of Multiemployer Pension Plans
    Given all of the recent attention on PBGC's single-employer 
insurance program, it is sometimes easy to overlook the smaller 
multiemployer program. According to PBGC's estimates, last year the 
agency provided insurance coverage to 9.8 million participants in about 
1,600 multiemployer plans. Those participants constituted over 20 
percent of all participants in a defined-benefit plan whose pension is 
protected under the Employee Retirement Income Security Act (ERISA).
    A multiemployer plan is a pension arrangement between a labor union 
and a group of at least two unrelated employers, usually in a common 
industry. Like a single-employer pension plan, a multiemployer plan 
generally provides specified monthly benefits at retirement. But unlike 
participants in a single-employer plan, whose benefits generally are 
based on years of service and a measure of earnings, participants in a 
typical multiemployer plan receive benefits based on a flat dollar 
amount for each year of service in employment covered by the plan. For 
example, a worker in a plan that credits participants with $100 per 
month for each year of service who retires after 30 years of service in 
covered employment would be eligible for a monthly pension of $3,000 
per month (or $36,000 per year).
    Also unlike participants in a single-employer plan, participants in 
a multiemployer plan generally can continue to accrue credits toward 
their pension when they change employers, as long as the new employer 
is a part of the plan. That portability makes such plans particularly 
attractive in industries such as construction, in which workers move 
from work site to work site, sometimes employed by different companies.
    Participation in multiemployer plans is heavily concentrated in 
certain sectors of the economy. Half of all participants are in just 
two industries: construction and trucking (see Table 1); and few 
workers in those industries are in single-employer plans. Those two 
industries account for less than one-tenth of all private-sector 
employment.

Table 1. Participation in PBGC-Insured Multiemployer Plans, by Industry,
                                  2003
------------------------------------------------------------------------
                                              Insured Participants
------------------------------------------------------------------------
                                             Number          Percent
------------------------------------------------------------------------
Construction                                 3,542,568               37

---------------------------------------
========================================================================
------------------------------------------------------------------------

    Source: Congressional Budget Office based on Pension Benefit 
Guaranty Corporation, Pension Insurance Data Book 2004 (Spring 2005), 
p. 89.

    As with single-employer plans, the percentage of the nation's 
private-sector wage and salary workers participating in multiemployer 
plans has been declining for over two decades (see Figure 1). In recent 
years, only about 4 percent of private-sector employees have been in 
multiemployer plans, down from almost 8 percent in 1980. (The 
comparable figures for the single-employer plans are 15 percent and 27 
percent.)
Figure 1.
Share of Private-Sector Employees Who Participate in PBGC-Insured 
        Pension Plans
    (Percentage of private-sector wage and salary workers)

    [GRAPHIC] [TIFF OMITTED] 26381A.001
    

    Source: Congressional Budget Office based on Pension Benefit 
Guaranty Corporation, Pension Insurance Data Book 2004 (Spring 2005), 
p. 58.
    Note: Data for 1981 through 1984 were unavailable.
    Moreover, in both types of plans, the percentage of participants 
still working has steadily declined, and the percentage who have 
retired or who are vested but have not yet begun receiving a pension 
has steadily risen. In recent years, about half of all participants are 
still working in a job covered by their plan, compared with three-
quarters in 1980 (see Figure 2).
Figure 2.
Share of Participants in PBGC-Insured Pension Plans Working in a Job 
        Covered by Their Plan
    (Percentage of total participants)

    [GRAPHIC] [TIFF OMITTED] 26381A.002
    

    Source: Congressional Budget Office based on Pension Benefit 
Guaranty Corporation, Pension Insurance Data Book 2004 (Spring 2005), 
pp. 57 and 88.
    Note: Data for 1981 through 1984 were unavailable.
    Nearly three-quarters of participants in multiemployer plans and 
two-thirds of those in single-employer plans are in plans with more 
than 10,000 people. Participation in relatively small plans (those with 
fewer than 1,000 participants, for example) is more likely for people 
in single-employer plans; about 9 percent of participants in single-
employer plans are in such plans, while just 3 percent of participants 
in multiemployer plans are (see Table 2).

      Table 2. Participants in PBGC-Insured Multiemployer and Single-Employer Plans, by Size of Plan, 2004
----------------------------------------------------------------------------------------------------------------
                                                        Multiemployer Plan             Single-Employer Plan
                                                           Participants                    Participants
         Number of Participants in Plan          ---------------------------------------------------------------
                                                      Number                          Number
                                                    (Thousands)       Percent       (Thousands)       Percent
----------------------------------------------------------------------------------------------------------------
10,000 or More                                             7,248              74          22,425              65
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----------------------------------------------------------------------------------------------------------------

    Source: Congressional Budget Office based on Pension Benefit 
Guaranty Corporation, Pension Insurance Data Book 2004 (Spring 2005), 
pp. 55 and 86.
Funding
    The benefits paid by multiemployer plans are financed by 
participating employers through contributions generally specified in 
collective bargaining agreements. Those contributions are typically 
based on the number of hours worked by employees covered by the plan. 
Thus, if a plan is sponsored by employers that all have 100 covered 
full-time employees, each employer pays a comparable amount into that 
plan, while a firm with 200 such workers pays twice as much.
    Like single-employer plans, multiemployer plans can become 
underfunded for a number of reasons. For example, underfunding may have 
resulted from plans' adopting a lower discount rate, which would 
increase the present value of their future liabilities, or from a drop 
in the value of their assets. Under those conditions, sponsors of both 
types of plans are allowed to amortize the underfunding over as many as 
30 years.
    A unique concern in the financing of multiemployer plans is the 
treatment of firms that leave them. If a plan is adequately funded--
that is, it contains enough assets to pay the present and future vested 
claims that participants have already accrued--then a firm's departure 
would not affect the plan's financial status. But if the plan is 
underfunded, then the remaining employers would be left with the 
departing firm's share of the unfunded liabilities. To address that 
problem ERISA established a special set of rules for firms that wish to 
discontinue their cosponsorship of a multiemployer plan. Such a sponsor 
owes a ``withdrawal liability,'' which represents the firm's pro rata 
share of the plan's unfunded liabilities, and must make payments 
periodically over a multiyear schedule specified in statute. However, 
those rules may not help if the firm leaves the plan because it has 
gone out of business.
    According to forms filed by multiemployer plans in 2002, most 
participants are in plans that appear to be underfunded (see Table 3). 
In 2002, 26 percent of participants were in plans with assets 
sufficient to cover less than 70 percent of projected liabilities; 51 
percent were in plans with assets to cover 70 percent to 89 percent; 
and 12 percent were in plans to cover 90 percent to 99 percent. Only 11 
percent of participants were in plans that had at least enough assets 
to cover projected liabilities. The average funding ratio in that year 
was 77 percent, and underfunded plans existed in every major industry 
(see Table 4). (According to unpublished data from PBGC, the average 
funding ratio fell to 71 percent in 2003.)

Table 3. Participants in PBGC-Insured Multiemployer Plans, by Percentage
                   of Plans' Liabilities Funded, 2002
------------------------------------------------------------------------
                                      Multiemployer Plan Participants
     Funding Ratio (Percent)     ---------------------------------------
                                  Number (Thousands)        Percent
------------------------------------------------------------------------
Less Than 70                                  2,511                  26
ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½
ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½
ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½
ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½
------------------------------------------------------------------------

    Source: Congressional Budget Office based on Pension Benefit 
Guaranty Corporation, Pension Insurance Data Book 2004 (Spring 2005), 
p. 94.


 Table 4. Funding of PBGC-Insured Multiemployer Plans, by Industry, 2002
------------------------------------------------------------------------
                                       Average Funding Ratio (Percent)
------------------------------------------------------------------------
Construction                                                         77
------------------------------------
====================================
ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½
------------------------------------------------------------------------

    Source: Congressional Budget Office based on Pension Benefit 
Guaranty Corporation, Pension Insurance Data Book 2004 (Spring 2005), 
p. 95.
The Role of the PBGC
    While single-employer and multiemployer pensions originally were 
treated similarly under ERISA, enactment of the Multiemployer Pension 
Plan Amendments Act of 1980 changed the treatment of multiemployer 
plans significantly. PBGC's multiemployer program is legally distinct 
from its single-employer program, and cross-subsidization between the 
two programs, including mixing assets and receipts from premiums, is 
not permitted.
    The insured events under the two programs are very different. For 
single-employer plans, PBGC insures against the termination of an 
underfunded plan. If a single-employer plan is terminated without 
sufficient assets to pay all current and future promised benefits, PBGC 
takes over the plan's assets and liabilities and attempts to recover 
additional funds from the sponsor. PBGC then makes monthly benefit 
payments to beneficiaries, up to a limit set in law. For multiemployer 
plans, the insured event is the insolvency of a plan. A multiemployer 
plan is considered insolvent if, in a given year, it does not have 
sufficient funds on hand to pay promised benefits in that year. In that 
event, the plan's benefit payments are limited to an amount guaranteed 
by PBGC, and the agency provides loans to the plan on a quarterly basis 
to make up for any funding shortfall. PBGC does not take over the plan, 
and the plan remains in operation. The loans continue until the plan 
recovers or until all vested benefits have been paid. If the plan 
recovers from insolvency, it is required to repay all of the 
outstanding loans on a commercially reasonable schedule in accordance 
with regulations. In most cases to date, however, the plans have not 
recovered, and PBGC has had to write off the loans.
    The guarantee limits on benefits in the two programs also differ 
substantially. In the single-employer program, the current limit on 
annual benefits for a worker retiring at age 65 with a single-life 
annuity is about $46,000. For the multiemployer program, the limit is 
lower and depends on a participant's promised benefits and number of 
years of service in the plan. For example, the maximum annual guarantee 
for a worker with 30 years of covered employment is about $13,000.
    The multiemployer program is financed through a premium that is 
levied on plans according to the number of insured participants. 
Currently, that annual premium is $2.60 per participant, and in 2004, 
PBGC collected about $25 million in premium receipts. In contrast, the 
premium in the single-employer program is based on a per-participant 
charge (currently $19 per participant) plus an additional charge (of $9 
per $1,000 of underfunding per participant) for plans that are 
underfunded. In 2004, PBGC collected a total of $1.5 billion in 
premiums in the single-employer program.
    As with the single-employer program, the annual cashflows of the 
multiemployer program are recorded in the federal budget. Premium 
collections and repayments of loans are shown as offsetting receipts, 
while benefit payments, financial assistance (loans), and 
administrative expenses appear as outlays. Only rarely has the budget 
recorded an annual deficit for the multiemployer program.
    In contrast to that of PBGC's single-employer program, the 
financial condition of the multiemployer program has been generally 
favorable. The program was in surplus from 1985 to 2002 and fell into 
deficit only recently, in 2003 and 2004 (see Figure 3). At the end of 
fiscal year 2004, PBGC's multiemployer account had assets (from 
premiums and investment returns) totaling about $1.1 billion. At the 
same time, it had liabilities totaling $1.3 billion. Nearly all of 
those liabilities represented the present value of nonrecoverable 
future financial assistance that PBGC expected to provide to insolvent 
multiemployer plans. The net position of the multiemployer program, the 
difference between assets and the present value of liabilities, was a 
deficit of $236 million. (At the same time, PBGC's single-employer 
program had a deficit of $23.3 billion.)
Figure 3.
Net Financial Position of PBGC's Multiemployer Program
    (Millions of dollars)

    [GRAPHIC] [TIFF OMITTED] 26381A.003
    

    Source: Congressional Budget Office based on Pension Benefit 
Guaranty Corporation, Pension Insurance Data Book 2004 (Spring 2005), 
p. 82.
    Note: Data for 1981 through 1984 were unavailable.
    The difference between PBGC's exposure in the single-employer and 
multiemployer programs is illustrated by other financial information 
provided by PBGC. According to the agency's estimates, at the end of 
2004, total pension underfunding was $150 billion in multiemployer 
pension plans and $450 billion in single-employer plans. Furthermore, 
by PBGC's estimates, it was ``reasonably possible'' that multiemployer 
plans would require future financial assistance of about $108 million; 
the comparable liability for single-employer plans was $96 billion.
    The contrast between the financial condition of PBGC's 
multiemployer program and its single-employer program is partly a 
result of the quite different responsibilities that the agency has for 
each. In effect, employers and their workers bear much more of the 
risks associated with underfunding in multiemployer plans than they do 
in single-employer plans.
    In a multiemployer plan that is underfunded, employers bear more of 
the risks because a firm must pay an exit fee when it withdraws. 
Moreover, to the extent that the plan remains underfunded, the 
remaining firms are required to increase their payments into the plan. 
Workers bear more of the risks because the level of the pension 
guaranteed by PBGC is much lower for multiemployer plans that are 
insolvent than it is for single-employer plans that the agency has 
taken over.
Issues
    For the millions of workers who are employed in a company that 
participates in a multiemployer defined-benefit pension plan, the 
promised annuity is often an important part of their retirement income. 
Unlike most other forms of compensation, which workers receive when 
they provide their services, pension benefits may be paid long after 
they are earned. Therefore, the availability of benefits from 
multiemployer plans depends on the adequate funding of those benefits 
in advance.
    Funding rules that are strict, along with strong enforcement, 
lessen the need for (and therefore the appropriate price of) pension 
insurance. Conversely, looser funding requirements increase the risks 
to the insurance provider (in this case, PBGC) and raise the 
appropriate price of the insurance.
    PBGC's experience over the past 25 years might lead one to conclude 
that the existing structure of funding requirements and pension 
insurance has worked much better in the multiemployer program than in 
the single-employer program. The agency's financial reports show very 
little exposure, either historically or prospectively, resulting from 
multiemployer plans, whereas billions in claims have been booked in the 
single-employer program, and tens of billions in claims are likely to 
be acquired over the next quarter century.
    However, the level of claims should not be the sole measure by 
which policies addressing pension funding and insurance are assessed. 
The overall question to ask is, are the goals of the pension system 
being achieved in the most efficient manner and with the least impact 
on the economy in general?
    Toward that end, one issue is whether current funding rules should 
be altered to better promote the long-term financial security of 
multiemployer plans and thereby lessen the chances that they will not 
be able to pay the promised pensions. For instance, some observers have 
raised concerns that limits on employers' contributions (designed to 
prevent firms from reducing their tax liabilities by overfunding 
pensions) have led to underfunding and limited flexibility. Similarly, 
some have suggested that tax rules (both the deductibility of 
contributions and the applicability of excise taxes to overfunding) 
have encouraged plans' trustees to increase benefits above the levels 
that could be safely maintained in the event of an industry downturn or 
a fall in the ratio of active to retired workers.
    A second issue is whether additional changes should be made to 
promote the availability of timely, accurate information about the 
financial condition of the plans. For multiemployer plans, achieving 
transparency is more complicated than it is for single-employer plans, 
and it may be even more important to participants in multiemployer 
plans than to those in single-employer plans because of the difference 
in the guaranteed amounts in the two programs. Concerns have been 
raised, for example, that firms not represented on a plan's board of 
trustees are not receiving adequate information. Concerns have also 
been raised about whether disclosure rules are sufficient, although 
they were enhanced last year.

                                 

    Chairman CAMP. Well, thank you very much. I guess my first 
question is: In your testimony you indicate that the 
multiemployer plans were in surplus until 2002 and that 
obviously the deficits are relatively recent. What happened 
that resulted in or led to this change in circumstance?
    Dr. HOLTZ-EAKIN. That part of the dynamics are similar to 
the single-employer plans. The largest impact is the falling 
stock market and thus the decline in the value of the assets 
behind the plans. Also, to some extent, any change in actuarial 
assumptions to reflect lower interest rates would beef up the 
size of the liabilities. Those two effects would put the plans 
into the deficit.
    Chairman CAMP. You also indicated that the PBGC has 
estimated underfunding in multiemployer plans could be as high 
as $150 billion. Is this concentrated in particular industries?
    Dr. HOLTZ-EAKIN. It is concentrated in the industries that 
were on the slide. The PBGC's numbers indicate that about 45 
percent of that is in construction; another nearly 30 percent 
is in the trucking industry. So, reflective of the 
concentration of the plans in those areas, the underfunding is 
there as well.
    Chairman CAMP. I realize those are the largest number of 
multiemployer plans. Is it those particular industries that 
have concentrations, or is it just because they have the most 
multiemployer plans?
    Dr. HOLTZ-EAKIN. It is a little bit of both. I think the 
dominant fact that comes out of looking at the numbers is that 
the multiemployer plans as a whole are underfunded. They look 
very similar in their overall funding to the list of single-
employer plans that are declared underfunded by the PBGC. So, 
essentially the multiemployer universe is underfunded, and the 
level of underfunding is comparable.
    Chairman CAMP. Are there any special considerations in 
those particular industries that would make funding for those 
plans particularly difficult to achieve?
    Dr. HOLTZ-EAKIN. I think on a going-forward basis there are 
no special considerations that probably apply. There is the 
legacy of underfunding from the past and a set of transitions 
to any new rules that would have to be--you would have to take 
into consideration the financial condition of those industries. 
But I do not think that there is anything that looking forward 
singles out particular industries. Indeed, it would be 
desirable not to, to make sure that regardless of the industry 
in which the plan is located, there are adequate funding rules 
put in place so that workers will receive the compensation they 
have already earned, regardless of what happens in that 
industry over time.
    Chairman CAMP. All right. Thank you very much. Mr. McNulty 
may inquire.
    Mr. MCNULTY. Thank you, Mr. Chairman. Thank you, Mr. 
Director, for being here today and for your service to the 
country. In your testimony, you kind of pretty clearly stated 
what the problems are for us to look at, and toward the end of 
your oral testimony, you mentioned in general terms some of the 
solutions that we should be looking at. But could you be a 
little bit more specific in that regard about improving the 
system and where we go from here so that we could get more 
specific about what we might be able to do in the form of 
legislation?
    Dr. HOLTZ-EAKIN. Let me start by what appear to be things 
to take off the table. In contrast to the single-employer plans 
where it appears that the insurance itself is underpriced, that 
does not appear to be the case here. This is not a PBGC issue. 
It is about the funding rules that apply within these plans. 
There----
    Mr. MCNULTY. You mentioned tightening the rules. Can you 
expand on that?
    Dr. HOLTZ-EAKIN. I think you want to focus on two things. 
First, there is a self-enforcement mechanism built into 
multiemployer plans because of the multiple stakeholders, 
allowing them to see more clearly the actual status of the plan 
at a point in time. So, quick disclosure using things that are 
close to market value so that you can see the status at any 
point in time provides automatic incentives for employers to 
not get stuck with the bill and for workers to make sure they 
are going to get their pension. So, there is an information 
component to this which augments the natural incentives of 
these kinds of plans. The second is rules. Make the funding 
tighter. There I think that singling out significantly 
underfunded plans and putting in place a mechanism to ensure 
that they become adequately funded, regardless of future 
collective bargaining agreements, making sure that that is a 
binding commitment is important.
    Mr. MCNULTY. Thank you, Mr. Director. I yield back my time, 
Mr. Chairman.
    Chairman CAMP. Thank you. The gentleman from Illinois, Mr. 
Weller, may inquire.
    Mr. WELLER. Thank you, Mr. Chairman. This is an important 
hearing, and, Dr. Holtz-Eakin, I appreciate your participation 
this morning. When I think of the multiemployer pension funds 
in the district I represent in the south suburbs and rural 
areas outside the city of Chicago, I think of a lot of building 
trades people, those that we see working on the roads, those we 
see working on the construction of commercial and residential 
projects in my area, which is growing rapidly. So, when we talk 
about pensions, multiemployer pensions, those are the people I 
think of because they are my neighbors and they all have 
concerns. It is my understanding there are about 16,000 
multiemployer pension funds, there are about 65,000 employers 
that participate in these multiemployer pensions funds, and 
there are just less than 10 million workers that are directly 
affected. Are those numbers accurate, Dr. Holtz-Eakin?
    Dr. HOLTZ-EAKIN. I think the plans are closer to 1,600, but 
the rest is on the mark.
    Mr. WELLER. From the standpoint of the PBGC, can you talk 
about how the PBGC treats single-employer pension funds versus 
multiemployer funds, the difference between those two when it 
comes to PBGC?
    Dr. HOLTZ-EAKIN. Probably the key difference is with a 
single-employer plan, the PBGC, ultimately the key act is 
termination of the plan and the PBGC taking over control of the 
plan and having to use the assets available to meet the benefit 
commitments. In the multiemployer context, the triggering issue 
is insolvency, the inability of the plan to meet this year's 
retirement payments with the resources on hand. At that point 
the PBGC does not take over ownership. Instead, it provides 
loans so as to be able to meet at least the minimum promised 
retirement benefit for that year and for subsequent periods as 
necessary. Ideally, one might imagine those loans would be 
repaid as the plan is restored to health, but in practice they 
typically are not. So, the PBGC services on an ongoing basis 
the benefit promises.
    Mr. WELLER. You had noted in your statement that the PBGC 
estimates it may be required to provide $108 million in 
financial assistance to multiemployer pension plans while the 
potential PBGC exposure for single-employer plans could be 
nearly $100 billion. Think about that, $108 million versus $100 
billion. Is the difference in PBGC exposure a sign that 
multiemployer pension funds are in better shape? Or does it 
reflect multiemployer plans placing funding burdens on every 
employer who participates? How do you differentiate that 
projected need for financial assistance?
    Dr. HOLTZ-EAKIN. It is certainly not the case that it 
indicates they are in better shape. As I mentioned to the 
Chairman, if you look at the underfunded single-employer plans, 
the funding ratios are comparable to the typical funding ratio 
in the entire multiemployer plan universe. So, there is 
significant underfunding of the multiemployer plans as a whole. 
The PBGC is simply less exposed. It has a smaller benefit 
guarantee, and more of the risk is shifted as a result of the 
other stakeholders, firms in the form of making up the 
underfundings or workers in the form of lower pension benefits 
than they anticipated. So, the small exposure of the PBGC does 
not adequately measure the size of the policy problem, 
particularly if you are a participant in this particular 
system.
    Mr. WELLER. One statistic there, you know, I said there 
were 1,600 multiemployer pension funds. How many single-
employer pension plans are there?
    Dr. HOLTZ-EAKIN. There are about 44 million workers 
covered, and we can get that number for you for the record. I 
do not know it off the top of my head.
    Mr. WELLER. Thank you. Thank you, Mr. Chairman, for the 
opportunity to question.
    Chairman CAMP. Thank you. The gentleman from California, 
Mr. Thompson, may inquire.
    Mr. THOMPSON. Thank you, Mr. Chairman. Just to pick up on 
that last question, should we be more concerned--one 
underfunding problem, should that be of greater concern to us 
than the underfunding problem in the other plan?
    Dr. HOLTZ-EAKIN. There are different kinds of concerns. I 
would say that for workers in either a single-employer or 
multiemployer plans, concerns are comparable. If you are 
underfunded, you are underfunded, and your pension promise is 
at risk. The threshold question in single-employer plans is 
whether the large exposure of the PBGC will be allowed to spill 
over into the budget as a whole and require more taxpayer 
resources to shore it up. At the moment, there is no statutory 
authority or requirement for the budget as a whole to cover any 
of the large PBGC exposures. There may, however, be obvious 
pressure to come up with some money. That is the real 
difference in this circumstance.
    Mr. THOMPSON. Thank you. I think in your opening statement 
or maybe in response to somebody's question, you talked about 
how we got into this deficit problem. I apologize if I am 
causing you to explain something that I should already know. 
But do we have some means by which we can adjust this as 
problems happen? You talked about the downturn in the stock 
market. Is there an ongoing means where this kind of self-
adjusts, or do we have to play catch-up once a problem occurs?
    Dr. HOLTZ-EAKIN. In general, if one thinks of the way the 
funding schemes work, number one is you would like to have it 
be as forward-looking as possible so you can anticipate the 
future and the liabilities and assets that you will have 
available. I think that is a beneficial part of any reform, 
thinking about looking ahead instead of just focusing on this 
year's insolvency. Number two, it is useful to quickly revalue 
both assets Liabilities. The big action in the multiemployer 
plans will be on the asset side. The stock market goes down, it 
should be recognized right away that there are fewer resources 
available to meet pension commitments. At that point, a new 
plan should be put in place which brings the funding up to an 
adequate level. So, it doesn't mean you have to have dramatic 
shifts in the amount of payments that people make, but you 
should recognize dramatic shifts in the underlying funding 
status. Rules that smooth the underlying funding status 
disguise that and make it harder to recognize problems as they 
develop.
    Mr. THOMPSON. Thank you. Mr. Chairman, I yield back.
    Chairman CAMP. Thank you. The gentleman from Indiana, Mr. 
Chocola, may inquire.
    Mr. CHOCOLA. Thank you, Mr. Chairman. Dr. Holtz-Eakin, 
thanks for being here today. Just quickly, I keep trying to 
figure out why there is such a significant level of 
underfunding in multiemployer and single-employer, and you were 
asked that earlier, and I keep trying to figure out: Is it bad 
behavior by the employers? Are they not living up to their 
funding obligations? Is it bad formulas that drive the funding? 
One of the things that is offered is the stock market has 
declined. At 10,300, the stock market is at a historically high 
level. Is there a timing issue? Are we going to see that the 
funding levels are going to increase because the stock market 
recently has performed better? It is a lot different than at 
9,000 to have it at 10,300.
    Dr. HOLTZ-EAKIN. I think that there is no quicker way for 
me to get into trouble than to forecast the stock market.
    Mr. CHOCOLA. No, I am not asking you----
    Dr. HOLTZ-EAKIN. I will do that anyway.
    Mr. CHOCOLA. I am just saying today, because the stock 
market is historically at pretty high levels.
    Dr. HOLTZ-EAKIN. It will help if the market rises, but I do 
not think anyone would anticipate a return to the levels in the 
late nineties and thus solve the funding problem through that 
mechanism. Instead, I think at the core of the broad exposure 
is a fact that even though in following the rules--I mean, 
there is no evidence anyone did not follow the rules. The rules 
permit very slow recognition of the decline in the asset 
values. So, for years after the assets actually go down in 
value, there does not appear on the books to be any problem. 
There is no requirement to make above-average payments to 
increase funding, and that is at the root of the impact of the 
stock market decline on the funding status in both systems at 
the moment.
    Mr. CHOCOLA. I think your third point was to enhance 
disclosure of the funding status and also to tighten the 
funding obligations. So, would that help if you--does the 
disclosure aspects and obligations fix some of the timing of 
the value of the underfunded levels?
    Dr. HOLTZ-EAKIN. I think that you do three steps. Step one 
is quickly recognize that the plan has become underfunded, so 
you do that. Then step two, disclose it to workers, firms, and 
all the participants in a multiemployer plan. At that point you 
have clear incentives in a collective bargaining setting to get 
more funding in to honor the promise. Then step three, support 
that with a set of funding rules which require that to take 
place as well so as not to have this end up being a PBGC 
problem.
    Mr. CHOCOLA. Isn't there a bit of a catch-22 in some of the 
proposed reforms with the yellow zone and red zone plans? If 
you require underfunded plans to accelerate their funding, 
aren't you placing a burden on some of the companies that are 
part of the plan that may ultimately result in their demise, 
and then putting more pressure on the other employers and 
actually making the health of the multiemployer plan in worse 
shape than in better shape? Do you see a catch-22 there, and is 
that a concern or not for you?
    Dr. HOLTZ-EAKIN. It is a question of magnitude. I think 
that as a de novo starting strategy, it is a perfectly good 
one. Picking up some of these problems in midstream raises the 
concerns that you mentioned. However, because there is a look-
ahead provision--you are looking ahead over, you know, 7 years 
or so--you can anticipate problems and not have abrupt changes 
in the requirements for payments that would place these firms 
in a really tough position of coming up with the cash. So, I 
think by having it put in a forward-looking framework, it 
alleviates that concern to some extent.
    Mr. CHOCOLA. Thank you. Thank you, Mr. Chairman. I yield 
back.
    Chairman CAMP. Dr. Holtz-Eakin, just to follow up the 
disclosure point that you made that employers would then be 
able to address that in collective bargaining agreements, those 
often are multiyear contracts. So, are you suggesting they 
would go in and open those up again and make those changes 
immediately?
    Dr. HOLTZ-EAKIN. No. My point was concentrated on the sort 
of economic incentives that that would embed in the system. By 
recognizing this as quickly as possible at the next available 
moment, both firms and workers would have an incentive to come 
to terms with this.
    Chairman CAMP. All right. The gentlewoman from Ohio, Ms. 
Tubbs Jones, is recognized for 5 minutes.
    Ms. TUBBS JONES. Mr. Chairman, thank you very much for the 
recognition. Dr. Holtz-Eakin, it is nice to see you again. I am 
going to pass on questioning this morning. I know you all do 
not believe it, but I am. Thanks.
    Chairman CAMP. The gentlewoman from Pennsylvania, Ms. Hart, 
is recognized for 5 minutes.
    Ms. HART. Thank you, Mr. Chairman. My colleague from 
Indiana asked as part of his question about the cause for 
underfunding, and I did not hear you answer that. So, aside 
from the fact that it might be the performance of the markets, 
is there something else?
    Dr. HOLTZ-EAKIN. Well, the performance of the markets took 
place within a set of rules that, A, allows the decline in 
asset values to be masked to some extent, and, B, may not 
provide sufficiently strong funding requirements. So, the 
markets is a mechanism explanation after the fact. Where did 
the asset values go? You can see that. There is the different 
issue, which is how should a system recognize that assets are 
going to change in value, that that is inevitable, and make 
sure that there are incentives to fully fund pensions 
regardless of that.
    Ms. HART. So, then would you support some changes to the 
rules that would actually be more--I did not read through all 
your testimony. Do you actually suggest certain changes in your 
testimony?
    Dr. HOLTZ-EAKIN. We really focused on the broad areas that 
I mentioned. We do not have specific legislative 
recommendations. However, the folks who will be on the panel 
after this are part of groups that have worked very hard and 
are focused in those areas, recognition of plans that have 
moderate or even extreme degrees of underfunding and forward-
looking attempts to address that as part of new funding rules. 
So, I think that would be a good place for that discussion.
    Ms. HART. One of your slides broke down the sections of 
industry that actually have multiemployer plans, and I am 
wondering if in that analysis you discovered if a higher 
percent of, for example, the constructions ones are underfunded 
versus maybe the ones that are retail trade. Did you notice 
that the underfunding is focused more toward a certain 
particular industry?
    Dr. HOLTZ-EAKIN. One of the slides--the last one I showed--
shows the typical funding ratio by industry, so construction 
about 77 percent, manufacturing 83, service 83, retail trades 
78, and trucking 70 percent. That is not a fraction of plans 
that are underfunded, but that is the overall funding ratios. 
We can get more detail to you if you are interested in those 
questions.
    Ms. HART. Yes, I am. I am trying to determine if maybe 
there is some problem, for example, with the downturn in 
manufacturing, but it does not look like that is the problem. I 
am trying to figure out maybe if there is some issue with our 
economy in those particular industries that might have been 
contributing to the problem.
    Dr. HOLTZ-EAKIN. I think the presence of the plans fits the 
labor markets of those industries, and those labor market 
incentives are very important. The portability of this pension 
across work sites and across employers explains the 
concentration in those industries. The adequacy of the funding 
rules is the central issue in making sure that those pensions 
would survive any industry booms or busts, as the case may be. 
The economy will ultimately always change its structure over 
time, and the key is to make sure that the pension plan 
promises are honored regardless of that. So, I do not think it 
is an industry problem.
    Ms. HART. Okay.
    Dr. HOLTZ-EAKIN. I think the plans are in those industries 
because those are the right incentives for those industries, 
and then the funding rules are meant to make sure it survives 
any industry dynamics.
    Ms. HART. Okay. Just one final musing, and I am not sure 
how much time you spent on some of the State pension plans for 
State teachers organizations and those kinds of organizations, 
but a lot of them have been over the last 10 years or so well 
overfunded because they have these pretty high requirements and 
that sort of thing. I am worried about us going to the point 
with our requirements that we end up significantly overfunding 
these plans, because you don't to have all that tie-up, you 
know, you want to have people to have control over more of 
their money if you can, that sort of thing. Do you think we are 
in danger of that if we make significant changes to the funding 
rules?
    Dr. HOLTZ-EAKIN. There are really two instruments that 
would be available to address that concern. The simplest is, 
you know, just raise the amount that one could overfund the 
plan and still have tax deductibility. That is a clear 
consideration here, particularly given the collective 
bargaining agreements. I think that is important to think 
about. The second way to address that is to more closely match 
the risks on the assets and the liabilities, and in this case, 
since the liabilities do not shift much through time, you have 
to have fairly safe assets to match up in the same way. If they 
are all moving up and down at the same time, you will stay 
properly funded even without overfunding them in the aggregate. 
Those are two different strategies for dealing with that issue.
    Ms. HART. Thank you. I yield back, Mr. Chairman.
    Chairman CAMP. Thank you. Dr. Holtz-Eakin, in response to 
Ms. Hart's question, though, there is joint and several 
liability in the multiemployer plans, which, to the extent 
industries have had financial difficulties, there is going to 
be a cascading burden of pension liability, and I think that is 
the point that she was sort of getting at. Did you see that in 
any of your research?
    Dr. HOLTZ-EAKIN. Well, certainly the history has been that 
while the rules allow for this withdrawal of liability and the 
idea is to keep the plan funded, if there is an economic shift 
and downturn in that industry and there is large withdrawals, 
that is not a mechanism that will be adequate to take care of 
that. You will have to go to something else in that case.
    Chairman CAMP. All right. Thank you. The gentleman from 
Texas, Mr. Doggett, may inquire.
    Mr. DOGGETT. Thank you, Mr. Chairman. Thank you for your 
testimony. The last issue that you address in your written 
testimony concerns transparency and the availability of 
accurate information to participants, an issue that I have been 
concerned with and have had legislation with Congressman George 
Miller and a number of our colleagues the last two sessions. 
Our language has basically been included within Congressman 
Boehner's measure. Have you done any evaluation--you have 
indicated in your written testimony the importance of getting 
information to participants, but have you attempted any kind of 
evaluation of the adequacy of that language in accomplishing 
that task?
    Dr. HOLTZ-EAKIN. We have not yet done a specific evaluation 
of Mr. Boehner's bill, but it does, upon reading, appear to be 
concentrated in the areas that we highlighted in the testimony. 
In that respect, it is certainly on track, and we can work with 
you further in looking at the details about the magnitudes.
    Mr. DOGGETT. I believe the data indicates that while 
multiemployer plans have done better the single-employer plans, 
still about one in four participants is in a plan that is 
funded only to about the 70-percent level.
    Dr. HOLTZ-EAKIN. I think you have to be careful in saying 
that one has done better than the other. I think that most 
multiemployer plans are underfunded; only 11 percent are fully 
funded. Given that they are underfunded and given that single-
employer plans are underfunded, they look about the same. So, I 
do not think in terms of funding either has a large advantage 
over the other. It is the case that there are a significant 
number of workers who are in plans that show substantial 
underfunding. It is a pervasive phenomenon.
    Mr. DOGGETT. As to those significant number of workers in 
underfunded plans, it would be likely that a significant number 
of them are not aware of whether their plan is underfunded or 
how underfunded it is under current conditions.
    Dr. HOLTZ-EAKIN. It is certainly the case that it would 
improve their ability or their representative's ability to take 
appropriate steps if they knew quickly the pension status.
    Mr. DOGGETT. As you are well aware, on a different aspect 
of this, there is considerable concern that if too many changes 
are made, employers will drop plans. Again, do you have any 
observations as relates to the Boehner bill, particularly with 
reference to those companies that are in the endangered or 
yellow zone, as to what the likelihood is that employers will 
drop plans if those changes are made?
    Dr. HOLTZ-EAKIN. We do not have that, and it is something 
that we would be happy to work with you on. I think it is an 
important issue. It has come up in both the multiemployer and 
the single-employer context, and the instruments are different, 
premiums on the single employers, and here funding rules, but 
the same issues arise.
    Mr. DOGGETT. Have there been any attempts in previous 
Congresses to mandate that certain types of employers have 
pension plans?
    Dr. HOLTZ-EAKIN. I am sorry?
    Mr. DOGGETT. Have there been any attempts in previous 
Congresses to mandate that certain types of employers have 
pension plans in contrast with the voluntary system that has 
been our tradition?
    Dr. HOLTZ-EAKIN. Not to my knowledge, but we should go 
check. That is not my area of expertise.
    Mr. DOGGETT. Thank you for your testimony.
    Chairman CAMP. Thank you. Thank you, Dr. Holtz-Eakin. We 
very much appreciate your testimony Look forward to working 
with you in the weeks and months ahead. Thank you.
    Dr. HOLTZ-EAKIN. Thank you.
    Chairman CAMP. And now our panel, please come to the dais: 
Charles Clark, President of Clark Construction Co. from the 
great State of Michigan; Timothy P. Lynch, President and chief 
executive officer of the Motor Freight Carriers Association; 
James Morgan, Vice President of the Collectively-Bargained 
Benefits, Safeway, from Pleasanton, California; and Judith F. 
Mazo, Senior Vice President and Director of Research, The Segal 
Company. I want to welcome our panel. Thank you all for coming 
and testifying. We will start with Mr. Clark. We do have your 
written statement. You have 5 minutes to summarize your 
testimony. Thank you for being here, and you may proceed.

   STATEMENT OF CHARLES CLARK, PRESIDENT, CLARK CONSTRUCTION 
                   COMPANY, LANSING, MICHIGAN

    Mr. CLARK. Thank you, Mr. Chairman. I am very happy to be 
here. This is a unique experience for me, and I am sitting in a 
place I don't think I really imagined myself being. So, it is a 
great treat. We and the organizations that I represent are 
supportive of this proposed legislation. I represent the 
Associated General Contractors of America, its 32,000 members, 
especially its 7,000 general contractors and 12,000 specialty 
trade contractors. The AGC represents both union and open-shop 
contractors, and more than 50 percent of our 98 chapters across 
the country have members that participate in the collective 
bargaining process, and they are represented on Taft-Hartley 
pension funds. Forty percent of the multiemployer funds across 
the country are construction related. I also represent Clark 
Construction Company. We are based in Michigan. We have annual 
revenues of about $250 million. We were founded 60 years ago by 
my father, and we have been run by myself and my brother, John, 
since 1981. Both John and I hope that one or more of our three 
active children will take on the responsibility of running this 
company at some time.
    Since Clark Construction's beginning, we have participated 
in the collective bargaining process and have been a member of 
the fund since their inceptions. I have also ben actively 
involved in the collective bargaining process. Last year, we 
contributed over $225,000 to multiemployer pension funds, 
including $95,000 to the Michigan Carpenters Fund, of which I 
am a trustee and was appointed by the Michigan Chapter of the 
AGC. We also contribute to the Laborers and the Teamster Funds. 
In the nineties, the Michigan Carpenters Fund approached 100 
percent funding. According to the IRS Code, funding in excess 
of 100 percent is no longer a deductible expense for the 
contributing company. As a trustee, it is our fiduciary 
responsibility to prevent overfunding. So, an increase in 
benefits to the participants was required since a reduction of 
contributions was prohibited by the collective bargaining 
process. In other words, the trustees really had no choice; 
since they could not reduce funding, they had to increase--they 
could not reduce contributions. They had to increase funding.
    Later, in 2001, the markets went wrong, and those funds 
became underfunded. But since ERISA disallows a reduction of 
benefits to the current beneficiaries, to correct the situation 
contributions to the fund then had to be increased or accruals 
to the active participants reduced. Fortunately, the Michigan 
Carpenters acted timely, and events played out favorably. 
Things could have been much worse, very much worse. Raising the 
deductible rates, as this legislation proposes, would have let 
us build a buffer in the nineties that would have helped us 
account for severe market fluctuations, would have added 
stability to our fund, confidence to our members, and 
predictability to the process. The changes proposed seemed 
minor, but they are essential to the long-term health of these 
funds. The Michigan Laborers also went through similar 
pressures and solutions. These scenarios are very typical to 
many Michigan funds and point to our necessary support of this 
legislation. Thank you.
    [The prepared statement of Mr. Clark follows:]
  Statement of Charles Clark, President, Clark Construction Company, 
                           Lansing, Michigan
    Thank you for this opportunity to testify on multiemployer pension 
plans. I am testifying on behalf of the Associated General Contractors 
of America (AGC), a national trade association representing more than 
32,000 companies, including 6,800 of America's leading general 
contractors and 12,000 specialty contractors. AGC is the voice of the 
construction industry.
    AGC represents both union and open-shop contractors in a network of 
98 chapters across the country, including at least one chapter in every 
state and Puerto Rico. Over half of those chapters represent 
contractors that contribute to Taft-Hartley multiemployer pension 
plans. Over half of AGC chapters serve as the collective bargaining 
representative of one or more multiemployer bargaining units that 
negotiate collective bargaining agreements with a construction trade 
union, such as local affiliates of the International Union of Operating 
Engineers, the Laborers' International Union of North America, the 
United Carpenters and Joiners of America, the International Association 
of Bridge, Structural, and Ornamental Reinforcing Iron Workers, the 
International Union of Bricklayers and Allied Craftworkers, the 
International Brotherhood of Teamsters, and the Operative Plasterers' 
and Cement Masons' International Association. Those chapters typically 
sponsor multiemployer pension plans with each union that they bargain 
with and have responsibility for appointing management trustees to the 
jointly-trusteed plans.
    The construction industry provides for more than 40% of 
multiemployer plans nationwide, predominantly due to their portability 
for workers. As employees move from job site to job site and between 
employers, multiemployer pension plans are the best way for union 
contractors to voluntarily provide a decent retirement benefit. We 
believe that the legislation you are considering today will improve and 
strengthen these plans for current and future retirees, while allowing 
collective bargaining parties and trustees flexibility in meeting the 
needs of the plans. Multiemployer pension plans need to be treated 
differently from single-employer plans, as I will explain.
    I am Chuck Clark, president and CEO of Clark Construction in 
Lansing, Michigan, and a member of the Michigan Chapter AGC. While we 
are not the Clark Construction seen on signs around the Capital, we are 
one of the Top 100 companies on ENR's Construction Management list, and 
one of the Top 350 General Contractors nationwide. We are also proud to 
be one of the Top 10 largest construction employers in the State of 
Michigan. Clark Construction employs 150 full-time employees and 
finished $250 million worth of construction projects last year, mostly 
in Michigan. We are a family-run, closely-held operation; my father 
began the business in 1968 and remained active until my brother, John, 
and I began running it in 1981. Both John's children as well as my own 
are active in the business.
    Clark Construction makes substantial contributions to the Michigan 
Carpenters Pension Fund (the Carpenters Fund) and to the Michigan 
Laborers Pension Fund (the Laborers Fund), which cover all of Michigan 
except for Detroit and its vicinity. In 2004 alone, my company 
contributed $95,752.84 to the Carpenters Fund and $110,828.61 to the 
Laborers Fund. We also contribute to the Central States Teamsters 
Fund.1
    In the past, I have served on the committees that negotiate on 
behalf of the Michigan Chapter AGC for collective bargaining agreements 
with the Carpenters and with the Laborers. Currently, I am one of six 
management trustees on the Carpenters Fund. I will spend most of my 
testimony describing this plan, but I will also mention the Laborers 
Fund for comparison.
    There are 9,665 beneficiaries in the Carpenters Fund: 2,796 
retirees, 4,036 actives, and 2,883 who are entitled to future benefits 
but not currently working. Fewer than 600 employers contribute to this 
plan. On average, we employ 50 carpenters per year.
    In the late 1990s, the Carpenters Fund, like most plans in 
Michigan, was fully funded and close to hitting the maximum 
deductibility level as detailed in Section 404(a)(1) of the Internal 
Revenue Code, which was then set by Congress at 100% fully funded,. If 
the fund had hit the maximum level, the employer contributions no 
longer would have been tax deductible, which would have been a 
financial penalty on contributing employers. It is a contractual and 
fiduciary duty of trustees to ensure that this never happens, so we 
were forced to grant benefit increases.
    In terms of the maximum deductibility level, multiemployer pension 
plans function quite differently from single-employer plans. 
Multiemployer pension plans are Taft-Hartley Plans, with an equal 
number of trustees from management and from labor. The contributions 
made by employers to the funds are negotiated as part of a collective 
bargaining agreement, during which time management and unions decide on 
a wage and fringe package. In our case, the Carpenters agreement and 
the Laborers agreement are negotiated by the Michigan Chapter AGC and 
the local council for the respective unions. Our agreements typically 
last for three years, after which the parties go back to the bargaining 
table. In other cases, the parties negotiate every two years, four 
years, or alternative, yet regular, intervals.
    The collective bargaining agreement dictates the hourly rate for 
contributions to the plan that an employer will make on behalf of 
covered employees. Traditionally in Michigan plans, labor and 
management have negotiated an overall increase in the wage and fringe 
package for employees. It is then up to the union to decide how to 
allocate the overall increase among wages, pension fund contributions, 
health-and-welfare fund contributions, training fund contributions, and 
any other agreed-upon benefits. Some AGC chapters negotiate specific 
increases to be allocated in specific ways. In either case, the amount 
of the employer's pension fund contribution is determined by the 
collective bargaining process.
    Therefore, in the late 1990s, when plans approached the fully-
funded ceiling, at which time contributions would no longer be tax 
deductible, the option of discontinuing contributions to the plan was 
NOT available to contributing employers. Employers are legally bound to 
the negotiated levels set under the collective bargaining agreement. 
Instead, trustees needed to make benefit improvements in order to 
ensure plans stayed under the ``magic level'' and contributing 
employers did not face additional taxes. While Congress might have 
intended that contributing employers reduce contribution levels to stay 
under the maximum deductibility level, this is, in effect, impossible.
    Interestingly, Clark Construction employs two teamsters and has for 
many years. While we do not plan to withdraw from this plan, we have 
been informed that it would cost in excess of $123,000 to withdraw.
    In the case of the Carpenters Fund, contributing employers like 
Clark Construction pay $3 per hour per worker for pension benefits. In 
1997, we were approaching full funding and decided to give a 12% 
``kicker'' for 1997 and previous plan years. This involves multiplying 
the accrual value by 12%. This backward-looking benefit improvement 
kept us from hitting the maximum deductibility level and was a benefit 
increase that the fund could afford.
    The unforeseeable stock market losses and economic downturn in 
2001-2002 hit the plan soon after these benefits were made. Because of 
the maximum deductibility level, there was no way for the plan to save 
for the rainy day that was upon us; we had been forced to spend the 
excess money the plan had accrued. In 2003, the market did not improve 
and the fund was not making its investment assumptions. Under the ERISA 
rules, once benefit increases are given, they cannot be taken away; 
they can only be modified for the future. For the first time in the 
history of the plan, we were facing employer withdrawal liability and a 
future funding deficiency (although several years off).
    On September 1, 2003, the trustees of the Carpenters Fund decided 
to reduce the formula for future benefit accruals from 4.3% to 1.0%, 
and to put the resulting money into the plan. After receiving the 2004 
valuation from the plan actuaries, we looked back and realized that the 
2003 plan year had not been as bad as expected, so we increased the 
accruals for2003 to 3% and left future years at the 1% level.
    The bargaining parties also agreed to put an additional $.10 per 
year into the plan, uncredited. Uncredited simply means that there is 
no resulting benefit increase for the employee. In essence, the 
employee has taken what could have been a $.10 wage improvement out of 
his pocket and agreed to put it into the pension plan, with no benefit 
other than a healthier plan. This $.10 will be increased by $.10 each 
year until it reaches $.50. The actuaries have determined that the plan 
will be back at the fully funded level after five years, as long as 
hours worked and market assumptions are met. At this point, employer 
contributions will be $3.50 per worker, of which $.50 will be 
uncredited.
    In comparison, the Laborers Fund made different choices. This plan 
is slightly larger than the Carpenters Fund, with 23,815 beneficiaries, 
including 12,237 active workers, 3,151 retirees receiving benefits, and 
8,427 individuals who are eligible but not working. Approximately 1,000 
employers contribute to this plan.
    The Laborers Fund was also approaching the maximum deductibility 
level in the late 1990s. Trustees decided to increase survivor benefits 
for spouses and enhance benefits for early retirees. As you can 
imagine, the retirement age for construction workers is on average much 
younger than the age at which Social Security benefits kick in.
    Facing a funding problem, in 2001, the Laborers Fund increased 
contributions by $.50 per worker per hour. This will increase every 
year for two more years. While the fund reported employer withdrawal 
liability for the first time ever on September 1, 2004, our actuary 
reports that the plan will be fully funded again in five years and the 
future funding deficiency avoided for now.
    The two plans I have described are typical of the rest of the plans 
in Michigan, and we believe that they are representative of most of the 
plans to which AGC members contribute or serve as trustees. The biggest 
fixable problem that these plans have faced over the last ten years is 
the maximum deductibility level. If Congress would raise that level to 
140%, as is laid out in this legislative proposal, many of the 
immediate funding problems we faced in 2002 could be avoided in the 
future. Plans could save money and provide a cushion from bargaining 
cycle to bargaining cycle, rather than fund benefits, in order to avoid 
a ceiling.
    In addition, AGC has been working on a legislative proposal with a 
broad coalition of employer, union, and multiemployer plan 
representatives known as the Multiemployer Pension Plan Coalition. I 
expect that you will hear more about this from other witnesses. 
Nevertheless, I would echo their comments on the importance of making 
changes for those plans that are approaching bankruptcy. The incredible 
benefit of multiemployer pension plans is that, if an employer leaves 
the plan, the other employers employ the workers and cover the costs. 
This plan structure has served the construction industry well for over 
40 years, and we do not want to see it changed.
    Nevertheless, when pension plans approach bankruptcy, it threatens 
the financial well-being of all contributing employers--in some cases, 
many thousands--and could result in a string of bankruptcies and 
massive unemployment. The proposal developed by the coalition would 
help pension plans approaching bankruptcy by offering additional tools 
to achieve financial solvency. Currently, the only tool employed by the 
IRS is the minimum funding hammer, which begins as a fine of 5% and 
rises quickly to 100% of employer contributions. Worst of all, this 
fine goes to the general treasury, not to the retirees whose plan may 
soon be bankrupt. The coalition proposal would, in effect, turn this 
fine into a mandatory employer surcharge paid directly to the fund 
(outside the collective bargaining agreement). At the same time, 
trustees would have the ability, just like the PBGC, to disregard the 
last five years of benefit changes and disallow lump-sum payments, 
which are like a run on the bank. These two changes would offer funds 
greater financial footing, giving trustees additional time, and 
bargaining parties the stimulus, to make the necessary difficult 
choices. We hope to see these two changes as an amendment to this 
legislation.
    Again, thank you for the opportunity to testify today on behalf of 
AGC. I look forward to your questions.

                                 

    Chairman CAMP. Thank you very much. Mr. Lynch, again, your 
statement is part of the record, and you have 5 minutes. Thank 
you for being here.

 STATEMENT OF TIMOTHY P. LYNCH, PRESIDENT AND CHIEF EXECUTIVE 
          OFFICER, MOTOR FREIGHT CARRIERS ASSOCIATION

    Mr. LYNCH. Thank you. Good morning. My name is Tim Lynch, 
and I am the President and chief executive officer of the Motor 
Freight Carriers Association. I want to begin by thanking 
Subcommittee Chairman Camp and Ranking Member McNulty for 
holding this hearing on H.R. 2830, the Pension Protection Act 
of 2005. While I cannot speak to all of the provisions of H.R. 
2830, I can say that with respect to Title II, the sponsors of 
H.R. 2830 have done something very important. They have 
addressed a problem before it becomes a crisis. They have done 
that by providing the tools for labor, management, and plan 
trustees to deal with the problem without resorting to 
additional government regulation. Most importantly, they are 
providing the framework for dealing with the problem before it 
grows so large that the only recourse is government 
intervention through the PBGC. In our view, that is no small 
accomplishment, and we pledge to work with the members of the 
Committee on Ways and Means to ensure enactment into law.
    I am here today as a representative of an association of 
trucking industry employers who, by virtue of their collective 
bargaining agreement, are major participants in a number of 
multiemployer pension plans. In addition, I was a participant 
in discussions that began last October with other industry 
Labor representatives that ultimately resulted in a coalition, 
the Multiemployer Pension Plan Coalition, that developed a 
legislative proposal addressing many of the problems facing 
multiemployer pension plans. Because H.R. 2830 contains many of 
the recommendations of the coalition, I believe it represents 
an excellent opportunity for legislative action. The coalition 
proposal is the only proposal that has the full support of 
contributing employers, organized labor, and those responsible 
for the governance and administration of multiemployer plans--
in other words, all of the parties most directly affected by 
the MPPAA statute. I would like to focus my comments this 
morning on two provisions of the legislation: funding rules for 
multiemployer plans in endangered status and those in the 
critical status. Both of these provisions are similar to 
recommendations that the coalition proposed, but they contain 
significant differences that I would like to discuss. The 
coalition proposal envisioned an early warning system for plans 
that were at risk but not necessarily heading for severe 
financial difficulties. Plans in this category would be 
required to develop a benefit security plan to improve the 
funding ratio. That approach can be described as a flexible 
benchmark that takes into account plan differences and 
encourages plan trustees to prudently balance plan assets 
Liabilities.
    In contrast, H.R. 2830 establishes a hard benchmark with 
very stringent and time-definite standards as part of the 
funding improvement plan. This approach forces all plans in the 
endangered category to meet the same funding ratio target 
regardless of what the funding ratio is on enactment. Plans at 
the higher end of the endangered category, for example, those 
with a funding ratio of between 75 and 79 percent, undoubtedly 
will be able to meet the one-third improvement benchmark. 
Unfortunately, plans at the lower end, for example, those with 
a funding ratio of between 66 and 69 percent, will have a 
virtually impossible task. The level of benefit modifications 
coupled with additional employer contributions needed to meet 
that benchmark over the 10-year timeframe will be very 
detrimental to both contributing employers and plan 
participants. We would request then that consideration be given 
to alternative approaches, certainly maintaining benchmarks but 
not ones that create an insurmountable and unreasonable 
financial burden on contributing employers. Multiemployer plans 
in the trucking industry cannot afford to lose the base of 
small-company contributing employers who in turn cannot afford 
the additional contributions potentially required under these 
benchmarks. With respect to the funding rules in the critical 
status, this provision is similar to the approach suggested by 
the coalition's category for plans with severe funding problems 
or what was referred to as the red zone. Under the coalition 
proposal, the most difficult and controversial remedies--
additional employer contributions above what was contractually 
obligated to pay in the form of a mandatory surcharge, and 
benefit modifications--are reserved for those plans that face 
the severest funding problem. This is in part designed as a 
strong incentive to plan trustees to do all they can to solve 
the plan's problems before entering the red zone category.
    I believe it is to the credit of those in the coalition and 
the interests that they represent that they recognize the risk 
and concern attendant to both additional contributions and 
benefit modifications. Any significant increases in employer 
contributions run the very real risk of jeopardizing the large 
pool of small employers typically involved in multiemployer 
plans. Conversely, any significant modifications in the benefit 
plan raise important issues of labor-management relations, 
employee trust, and fundamental issues of fairness with 
retirees. I would respectfully suggest and assure the members 
of this Subcommittee that you will have no more spirited debate 
over these two issues than we had in the coalition. But we 
understand that you cannot solve the problems facing a severely 
underfunded plan without both components. I would urge the 
committee to include both concepts as tools available to 
address the funding problems for plans in the critical status. 
Mr. Chairman, I would be happy to answer any questions.
    [The prepared statement of Mr. Lynch follows:]
 Statement of Timothy P. Lynch, President and Chief Executive Officer, 
                   Motor Freight Carriers Association
    Mr. Chairman and Members of the Select Revenue Measures 
Subcommittee.
    Good morning. My name is Timothy Lynch and I am the President and 
CEO of the Motor Freight Carriers Association (MFCA). I want to begin 
by thanking Chairman Dave Camp for holding this hearing on H.R. 2830, 
the Pension Protection Act of 2005.
    I am here today as a representative of an association of trucking 
industry employers who by virtue of their collective bargaining 
agreement are major participants in a number of multiemployer pension 
plans. In addition, I was a participant in discussions that began last 
October with other industry and labor representatives that ultimately 
resulted in a coalition--the Multiemployer Pension Plan Coalition--that 
developed a legislative proposal addressing many of the problems facing 
multiemployer pension plans.
    MFCA member companies are key stakeholders in multiemployer pension 
funds. They are concerned about the current framework for multiemployer 
pension plans and strongly believe that if not properly addressed, the 
problems will increase and possibly jeopardize the ability of 
contributing employers to finance the pension plans. The end result 
could put at risk the pension benefits of their employees and retirees.
    In my testimony today, I will discuss the coalition's 
recommendations and the corresponding provisions of H.R. 2830. It is 
important that the coalition's recommendations be viewed in the context 
in which they were negotiated: both labor and management understanding 
that changes are needed. Additionally, these recommendations represent 
a unique opportunity in that they are the only reform proposal having 
the full support of contributing employers, organized labor, and those 
responsible for the governance and administration of multiemployer 
plans. In short, those most directly affected by the MPPAA statute.
MOTOR FREIGHT CARRIERS ASSOCIATION
    MFCA is a national trade association representing the interests of 
unionized, general freight truck companies. MFCA member companies 
employ approximately 60,000 Teamsters in three basic work functions: 
local pick-up and delivery drivers, over-the-road drivers and 
dockworkers. All MFCA member companies operate under the terms and 
conditions of the Teamsters' National Master Freight Agreement (NMFA), 
one of three national Teamster contracts in the transportation 
industry.
    Through its TMI Division, MFCA was the bargaining agent for its 
member companies in contract negotiations with the Teamsters for the 
current National Master Freight Agreement (April 1, 2003--March 31, 
2008). Under that agreement, MFCA member companies will make 
contributions on behalf of their Teamster-represented employees to 90 
different health & welfare and pension funds. At the conclusion of the 
agreement, MFCA companies will be contributing $12.39 per hour per 
employee for combined health and pension benefits, or a 33% increase in 
benefit contributions from the previous contract. This is in addition 
to an annual wage increase.
DESCRIPTION OF PLANS
    MFCA member companies, along with UPS, car-haul companies and food-
related companies are typically the largest contributing employers into 
most Teamster/trucking industry-sponsored pension plans. The Teamster/
trucking industry benefit plans vary widely in size, geographic scope 
and number of covered employees. The two largest plans--the Central 
States Pension Fund and the Western Conference of Teamsters Pension 
Fund--have reported assets of $18 and $24 billion respectively and 
cover over 1 million active and retired employees in multiple states.
    As Taft-Hartley plans, these pension funds are jointly-trusteed (an 
equal number of labor and management trustees) and provide a defined 
benefit (although some plans offer a hybrid defined benefit/defined 
contribution program). MFCA member companies are represented as 
management trustees on most of the plans to which they make 
contributions. In an effort to help improve the management of the 
plans, MFCA member companies have made a concerted effort to nominate 
as management trustees individuals with backgrounds in finance, human 
resources, and employee benefits.
RELATIONSHIP BETWEEN COLLECTIVE BARGAINING AND THE PENSION PLANS
    In a report to Congress last year, the General Accounting Office 
(GAO) stated that multiemployer plans ``contribution levels are usually 
negotiated through the collective bargaining agreement'' and that 
``[b]enefit levels are generally also fixed by the contract or by the 
plan trustees.'' In our case, that is only partially correct: the NMFA 
only establishes a contribution rate. It does not set a pension benefit 
level. It is worth reviewing for the Subcommittee the relationship 
between collective bargaining and the multiemployer pension plans.
    Like most multiemployer plans, our plans are maintained and funded 
pursuant to collective bargaining agreements. During each round of 
bargaining, the industry and union bargain and agree on the per-hour 
contribution rate required to be paid by employers to the plans for 
pension and health benefits. Once the rate is established, however, the 
role of the collective bargaining process and of the collective 
bargaining parties with respect to the plans--in terms of the level of 
benefits, the administration of delivering those benefits, management 
of plan assets, etc.--is over. For employers, the only continuing role 
in the plans is to make the required contractual contributions. That 
is, unless the plan, over which the employers have no control, runs 
into financial crisis. I will talk more about that in a moment.
    Each multiemployer pension plan is a separate legal entity managed 
by an independent board of trustees. It is not a union fund controlled 
by the union. Nor is it an employer fund, over which the employer has 
control. Rather, by law, the plans are managed independently by their 
trustees under a complex set of statutory and regulatory requirements. 
Although the trustees are appointed--half by the union and half by the 
employer--each trustee has a legal obligation to act not in the 
interest of the union or employer that appointed them, but rather with 
a singular focus on the best interests of the plans participants. 
Trustees who do not act in the best interest of participants may be 
held personally liable for breach of their fiduciary duty.
    As noted earlier, employers' role with respect to multiemployer 
pension plans is limited to making contributions unless the plan runs 
into financial difficulty. Under current law, employers are ultimately 
responsible for any funding deficiency that the multiemployer plan may 
encounter. Specifically, if a multiemployer plan hits a certain 
actuarially-calculated minimum funding level, employers in the fund are 
assessed a five percent excise tax and their pro-rata share of the 
funding shortfall or face a 100% excise tax on the deficiency.
HOW WE GOT TO WHERE WE ARE
    1980 was a watershed year in the history of the trucking industry. 
In that year Congress passed two major legislative initiatives--the 
Motor Carrier Act (MCA) and the Multiemployer Pension Plan Amendments 
Act (MPPAA)--that radically altered the profile of the industry and the 
landscape for industry-sponsored pension plans. The first brought about 
deregulation of the trucking industry and ushered in an era of 
unprecedented market competition. The second, while perhaps not 
recognized at the time, upset the essential balance between exiting and 
entering employers that is key to maintaining a viable multiemployer 
pension program.
    To put this in some perspective, I have included in my statement 
(Appendix A), a list of the top 50 general freight, LTL carriers who 
were operating in 1979, the year just prior to enactment of MCA and 
MPPAA. Of those 50, only 7 are still in operation and of those 7 only 5 
are unionized. Virtually all of the 43 truck companies no longer in 
business had unionized operations, and consequently were contributing 
employers to industry-sponsored pension plans. There have been no 
subsequent new contributing employers of similar size to replace these 
departed companies. And beyond the top 50 there were literally 
hundreds, perhaps thousands, of smaller unionized truck operators who 
also have fallen by the wayside. The simple fact is that since 1980 
there has not been a single trucking company of any significant size to 
replace any of the departed companies on the Top 50 list.
    And what happens when these companies leave the plans? Their 
employees and retirees become the responsibility--not of the PBGC--but 
of the plans and their remaining contributing employers. In short, the 
remaining contributing employers function as a quasi-PBGC ensuring the 
full pension benefit.
    One of the key elements of the MPPAA statute was the ability to 
recover assets from withdrawing employers or withdrawal liability. 
Unfortunately, that has not been the case. One of the largest trucking 
industry plans reports that bankrupt (withdrawing) employers ultimately 
pay less than 15% of their unfunded liability. And what happens when 
these liabilities are not fully recovered? They become the 
responsibility of the remaining contributing employers. This represents 
one of major differences between the treatment of liabilities of single 
versus multiemployer pension plans.
    Nothing highlights the inequity of this situation more than the 
bankruptcies of two contributing employers: Consolidated Freightways 
(CF) and Fleming Companies. Both companies were in the top 10 category 
of contributing employers to the Central States plan. They also 
sponsored their own company, single-employer plan for their non-
collective bargaining covered employees. The PBGC has assumed 
responsibility for the CF plan with a potential liability in excess of 
$250 million and the Fleming plan with a projected liability in excess 
of $350 million or a combined liability for PBGC of over $600 million.
    Conversely, the Fleming and CF employees/retirees covered under 
multiemployer pension plans like Central States will now be the 
responsibility of the remaining contributing employers (less whatever 
these plans can recover in withdrawal liability payments). These 
beneficiaries will be entitled to a guaranteed full pension benefit. 
This will only add further cost to what is already one very stark 
financial fact of life for the Central States fund: half of its annual 
benefit payments now go to beneficiaries who no longer have a current 
contributing employer.
    MPPAA delineates a very different role for PBGC with respect to 
single employer versus multiemployer plans. The GAO report identifies 
four: monitoring, providing technical assistance, facilitating 
activities such as plan mergers, and financing in the form of loans for 
insolvent plans. In contrast to PBGC's more aggressive role with single 
employer plans, these are relatively passive activities. It was not 
until the recent Congressional debate over whether to provide limited 
relief to multiemployer plans that attention was focused on the need to 
have a better understanding of the true financial condition of these 
plans. And underlying that need was a concern whether the relief would 
provide assistance for a truly short-term issue or mask a more 
fundamental, long-term problem.
    Furthermore, the remedies available to multiemployer plans in the 
form of amortization relief, short-fall methodology or waivers are 
often viewed as ``last resort'' solutions. There are no intermediate 
steps that can assist a plan well before it reaches this point.
DEVELOPMENT OF COALITION PROPOSAL
    Last October, we began participating in a small working group of 
trucking company and union representatives to try to develop 
recommendations that would be acceptable to multiemployer plans, unions 
and contributing employers. The objective was to develop a legislative 
proposal that would alleviate the short-term consequences of funding 
deficits and promote long-term funding reform for multiemployer plans. 
As a representative of contributing employers, I entered those 
discussions with a clear mission to protect the economic interests of 
my membership. My union counterparts entered with a similar mission to 
protect the interests of their membership.
    Early on in those discussions, we agreed on several fundamental 
issues that ultimately formed the basis for our recommendations.

      Because of the diversity of multiemployer plans, a one-
size-fits-all approach would not be productive. Instead remedial 
programs would be targeted to those plans facing the greatest financial 
problems.
      Multiemployer plans function as a quasi-PBGC, with 
contributing employers assuming plan liabilities and shielding the 
federal agency from that responsibility until plan bankruptcy. 
Unfortunately, plan trustees don't have all the tools available to the 
PBGC to address funding problems.
      Furthermore, most of the tools available to address 
funding problems become available too late in the process and are often 
viewed as ``last-resort'' remedies by federal agencies.
      All parties to the plans deserve more timely and 
meaningful disclosure of information about the status of the plans.
      The need to establish an early warning system for ``at 
risk'' plans and a separate category for ``severely underfunded'' 
plans.
      The burden to fix the problem of severely underfunded 
plans should not be borne disproportionately by any one party to the 
plans. To do otherwise would, in fact, jeopardize the continued 
viability of the plan and its defined benefits.

    This process ultimately was expanded to include employer and union 
representatives from other industries. The result was a coalition 
proposal that has the support of a wide range of business and labor 
organization interests.
RECOMMENDATIONS FOR LEGISLATIVE ACTION
    From the perspective of the contributing employers, the key 
elements of the coalition proposal are as follows.
FUNDING RULES
    Multiemployer plans would be required to have strong funding 
discipline by accelerating the amortization periods, implementing 
funding targets for severely underfunded plans and involving the 
bargaining parties in establishing funding that will improve plan 
performance over a fixed period of time. In addition, the proposal 
would limit the ability for plan benefit enhancements unless the plan 
reaches certain funding levels.
FUNDING VOLATILITY
    By virtue of their collective bargaining agreements, contributing 
employers must make consistent payments regardless what gains are 
achieved in the financial markets. (This is in contrast to single 
employer plans that may avoid contribution payments in lieu of above-
average market returns.) However, the volatility of these plans occurs 
in the form of funding deficiencies. The coalition proposal would 
address this situation by allowing the plans to use existing extension 
and deferral methods to permit time for the bargaining process to 
address the underfunding over a rational period of time.
EARLIER WARNING SYSTEM
    The coalition proposal suggested a ``yellow zone'' or early warning 
system. The goal of the yellow zone concept was to make sure plans 
would be cautious in their approach to balancing plan assets and 
liabilities. Plans in the yellow zone would have to improve their 
funded status in a responsible manner, one that does not put extreme 
pressure on the benefits provided or eliminate the ability for 
employers to operate in a highly competitive marketplace. The coalition 
proposal was designed to strike a reasonable balance through creation 
of a bright line standard for an improving funded status but not one 
that imposes an insurmountable and unreasonable financial burden on 
contributing employers. While it is important that yellow zone plans 
develop a program for funding improvement, the burden to do so should 
be commensurate with the ability to recover over a rational period of 
time.
PLANS WITH SEVERE FUNDING PROBLEMS
    Under the coalition proposal, plans facing severe funding problems 
would find themselves in a ``red zone'' or essentially reorganization 
status. When a plan is in reorganization status, extraordinary measures 
would be necessary to address the funding difficulties. It is here that 
the concept of shared responsibility for balancing plan assets and 
liabilities fully comes into play. Reorganization contemplates a 
combination of contribution increases--above those required under the 
collective bargaining agreement--and benefit reductions--though 
benefits at normal retirement age are fully protected--to achieve 
balance.
TRANSPARENCY AND DISCLOSURE
    The Pension Funding Stability Act of 2004 greatly improved the 
transparency of multiemployer plans. The coalition proposal would 
expand those disclosures and place additional disclosure requirements 
for plans that are severely underfunded in the red zone.
WITHDRAWAL LIABILITY
    The coalition proposal would strengthen and clarify withdrawal 
liability rules to protect the remaining contributing employers from 
assuming a disproportionate and unfair burden from non-sponsored 
participants.
PENSION PROTECTION ACT OF 2005--TITLE II MULTIEMPLOYER PLANS
    How then do we view Title II of H.R. 2830? We believe that H.R. 
2830 addresses, in part, all of the issues that we suggested were in 
need of reform. Several provisions of the legislation represent a 
significant--and innovative--approach to solving the funding problems 
facing multiemployer pension plans. We believe that H.R. 2830 meets the 
overall objective of alleviating the short-term consequences of funding 
deficits while promoting long-term funding reform for multiemployer 
pension plans.
Early Warning System
    H.R. 2830 contains the suggested early warning system for plans 
viewed as ``at risk'' through the establishment of a category called, 
``endangered plans.'' While we are in agreement with this approach 
toward financially ailing plans, we have one very important--and 
critical--issue that needs to be addressed in order to gain our full 
support.
    The coalition proposal contained what could be described as 
flexible benchmarks for plans in the endangered category while H.R. 
2830 establishes very stringent and time-definite standards. H.R. 2830 
contemplates a one-size-fits-all approach and consequently, does not 
adequately take into consideration the multiemployer bargaining 
environment in which these plans operate. Additionally, depending upon 
the actual date of enactment and the effective dates for compliance, 
plans--and their underlying collective bargaining agreements--could be 
facing very different circumstances and hence their ability to meet the 
targets.
    For example, plans that only enter the yellow zone some time after 
the date of enactment undoubtedly will be able to meet the 33 1/3% 
improvement benchmark. It also possible that plans at the higher end of 
the yellow zone (e.g., 75-79% funded) could meet the benchmark. But as 
the percentage of underfunding increases through the yellow zone 
category, plans will have a very difficult, if not impossible, task of 
meeting the benchmarks with plans at the lowest end (e.g., 66-70%) 
facing an insurmountable hurdle. The level of benefit modifications 
coupled with additional employer contributions needed to meet this 
benchmark will be detrimental to both contributing employers and plan 
participants.
    We would request that the Committee give consideration to 
alternative approaches to the treatment of plans in the endangered 
category. Specifically, we suggest that plans have more flexibility to 
meet appropriate benchmarks and consideration be given to some form of 
a proportional approach to the benchmarks. In other words, take into 
account that plans at the lower end of the zone cannot be held to the 
same standard of improvement as plans in the upper range. Additionally, 
the timing for the 10-year improvement plan needs to recognize the 
timing of the plan sponsors' collective bargaining agreements.
Plans With Severe Funding Problems
    H.R. 2830 establishes a second category of plans--``critical''--
that is designed to address plans with the severest funding problems. 
Unfortunately, the tools necessary to address these problems are not 
included in H.R. 2830. Under the coalition proposal, the most difficult 
and controversial remedies--additional employer contributions and 
benefit modifications--are reserved for those plans that face the most 
difficulties. The members of the coalition recognize--and don't take 
lightly--the impact of additional employer contributions and benefit 
modifications. Any significant increases in employer contributions run 
the very real risk of jeopardizing the large pool of small employers 
typically involved in multiemployer plans. Conversely, any significant 
modifications in the benefit plan raise important issues of labor/
management relations, employee trust and fundamental fairness with 
retirees.
    However, all members of the coalition recognize that we cannot 
solve the problems facing ``critical'' plans without those two tools. 
Consequently, I would urge in the strongest terms possible that the 
Committee give consideration to including language that puts meaningful 
remedies back into the ``critical'' category of plans.
Funding Rules
    H.R. 2830 will require plans to have strong funding discipline by 
accelerating the amortization periods, implementing funding targets for 
severely under funded plans and involving the bargaining parties in 
establishing funding that will improve plan performance over a fixed 
period of time. In addition, H.R. 2830 will limit the ability for plan 
benefit enhancements unless the plan reaches certain funding levels. 
While the legislation proposes a 15 year amortization schedule for 
increases and decreases, we would ask that further consideration be 
given to a 10 year schedule. We believe a 10 year schedule will provide 
stronger funding discipline.
Funding Volatility
    H.R. 2830 attempts to provide additional tools to plan trustees to 
address the problems of a short-term funding deficiency and funding 
volatility. The coalition proposal addressed this issue by allowing the 
plans to use existing extension and deferral methods to permit time for 
the bargaining process to address the under funding over a rational 
period of time. We would urge the Committee to consider a more 
expansive list of tools for plan trustees to utilize in addressing 
funding volatility.
    Additionally, one of the objectives of the coalition was to 
preclude funding deficiencies--and the attendant penalties--from 
occurring during the collective bargaining agreement cycle. In the case 
of the excise tax penalty, this provides no benefit to plan funding and 
represents a punitive assessment against contributing employers.
Transparency and Disclosure
    H.R. 2830, coupled with the earlier requirements under the Pension 
Funding Stability Act, provide additional information to plan 
participants, contributing employers, and employee organizations that 
should improve the dissemination of important plan information.
Withdrawal Liability
    H.R. 2830 strengthens and clarifies the withdrawal liability rules 
to protect contributing employers from assuming a disproportionate and 
unfair burden from non-sponsored participants.
    Mr. Chairman, thank you for giving me the opportunity to present 
the views of the Motor Freight Carriers Association. I look forward to 
working with the members and staff of this Subcommittee on the Pension 
Protection Act of 2005. I would be happy to answer any questions you 
may have.
TOP 50 LTL CARRIERS IN 1979
         1.  Roadway Express
         2.  Consolidated Freightways
         3.  Yellow Freight System (Yellow Transpertation)
         4.  Ryder Truck Lines
         5.  McLean Trucking
         6.  PIE
         7.  Spector Freight System
         8.  Smith's Transfer
         9.  Transcon Lines
        10.  East Texas Motor Freight
        11.  Interstate Motor Freight
        12.  Overnite Transportation
        13.  Arkansas Best Freight (ABF Freight System)
        14.  American Freight System
        15.  Carolina Freight Carriers
        16.  Hall's Motor Transit
        17.  Mason & Dixon Lines
        18.  Lee Way Motor Freight
        19.  TIME-DC Inc.
        20.  Wilson Freight Co.
        21.  Preston Trucking Co.
        22.  IML Freight
        23.  Associated Truck Lines
        24.  Central Freight Lines
        25.  Jones Motor-Alleghany
        26.  Gateway Transportation
        27.  Bowman Transportation
        28.  Delta Lines
        29.  Garrett Freightlines
        30.  Branch Motor Express
        31.  Red Ball Motor Freight
        32.  Pilot Freight Carriers
        33.  Illinois-California Exp.
        34.  Pacific Motor Trucking
        35.  Central Transport
        36.  Brown Transport
        37.  St. Johnsbury Trucking
        38.  Commercial Lovelace
        39.  Gordons Transports
        40.  CW Transport
        41.  Johnson Motor Lines
        42.  System 99
        43.  Thurston Motor Lines
        44.  Walkins Motor Lines
        45.  Santa Fe Trail Transportation
        46.  Jones Truck Lines
        47.  Merchants Fast Motor Lines
        48.  Murphy Motor Freight
        49.  Maislin Transport
        50.  Motor Freight Express
    Bold = Still Operating on 06/27/05

                                 
    Chairman CAMP. Thank you very much for your testimony. Mr. 
Morgan, you have 5 minutes, and your written statement is part 
of the record.

  STATEMENT OF JAMES V. MORGAN, VICE PRESIDENT, COLLECTIVELY-
BARGAINED COMPENSATION AND BENEFITS, SAFEWAY INC., PLEASANTON, 
                           CALIFORNIA

    Mr. MORGAN. Thank you. Chairman Camp, Congressman McNulty, 
and members of the Committee, my name is Jim Morgan, and I am 
Vice President of Collectively-Bargained Compensation and 
Benefits at Safeway. I am testifying on behalf of Safeway and 
also the Food Marketing Institute. Safeway is one of the 
largest U.S. food and drug retailers; FMI represents 26,000 
supermarkets. I have been involved with jointly trusteed, labor 
and management benefit funds for over 30 years, and for most of 
that time I have served as an employer trustee on numerous 
retail industry funds. My job puts me in contact with many 
funds, and I am currently a trustee on several funds. A few 
facts about Safeway and its pension funds. Safeway has 190,000 
employees; 77 percent of its employees are covered by over 400 
collective bargaining agreements; and most of our unionized 
employees and many of those in the industry participate in 
multiemployer pension plans. Labor and management pension funds 
are funded by employer contributions and by investment 
earnings. Contributions are bargained by employers and unions 
in collective bargaining negotiations. Benefit levels generally 
are set by the trustees of the funds, and by law, the employer 
and the union trustees of such funds have an equal vote.
    When the stock market suffered huge losses in 2000-2003 at 
the same time interest rates declined, the funding status of 
many multiemployer plans suffered greatly. In many of our 
funds, the trustees have taken significant actions to avoid 
funding deficiencies while the bargaining parties have 
negotiated collective bargaining agreement changes to aid 
funding recovery. We believe the actions of fund trustees, 
employers, and unions have been and will continue to be 
responsible and judicious and that their responses to a very 
unusual series of events have been prudent. Some funds have 
worse problems and need substantial help to recover; others, 
more modest assistance. We believe the legislative changes 
represented by H.R. 2830 provide a reasonable and rational 
framework for multiemployer plans to work through their funding 
problems without putting additional financial pressure on the 
PBGC. We think several features of proposed law changes are 
particularly important. First, funds need specific guidelines 
to assist trustees in making longer-term funding decisions. 
trustees need to know when to act to prevent funding 
deficiencies and to adopt a plan with achievable benchmarks to 
avoid such deficiencies. We believe trustees need to take 
action when a funding deficiency is projected within 7 years.
    Second, we believe there is a need for greater transparency 
with respect to information about multiemployer pension funds 
and not just with respect to participants, but also many 
contributing employers do not have access to such information 
because they do not appoint trustees to a particular fund. 
Third, funds at times need

access to short-term funding relief, extending the time they 
have to avoid a funding deficiency. This additional time allows 
trustees and bargaining parties enough time to develop and 
implement a recovery plan. There are laws on the books today, 
such as IRC section 412(e), which allow for such relief. We 
believe these rules need modifications to be effective. Fourth, 
the funding ceiling for tax deductibility of employer 
contributions is too low. Funds should be able to receive tax-
deductible contributions to provide funding cushion in 
difficult times. The FMI has been working for the past year to 
develop recommendations for comprehensive pension reform. FMI 
has worked extensively with many other groups to develop a 
common ground on many issues, and in many cases we have 
succeeded. We applaud the sponsors of H.R. 2830 for recognizing 
Congress must address multiemployer plans as part of 
comprehensive pension reform. H.R. 2830 provides a reasonable, 
rational framework for multiemployer plans to work through 
their problems. The proposed legislation will provide tools 
which will allow these plans to solve their funding problems 
without direct government intervention and without putting 
additional pressure on the PBGC. We believe if Congress acts 
now, multiemployer plans can solve their own problems so they 
do not become a burden to the Federal Government or the 
taxpayers. Again, Chairman Camp and members of this Committee, 
I thank you for the opportunity to testify on this important 
topic I would be glad to answer any of your questions.
    [The prepared statement of Mr. Morgan follows:]
    Statement of Jim Morgan, Vice President, Collectively-Bargained 
   Benefits, Safeway Inc., Pleasanton, CA Chairman Camp, Congressman 
                 McNulty and Members of the Committee:
    I am Jim Morgan, Vice President of Collectively-Bargained 
Compensation and Benefits, Safeway Inc., Pleasanton, CA. I am 
testifying on behalf of Safeway and the Food Marketing Institute (FMI), 
which represents 26,000 retail supermarkets and food wholesalers.
    I've been involved with jointly trusteed, labor and management 
Taft-Hartley benefit funds for over 30 years, and for most of that time 
have served as an Employer Trustee on numerous retail industry funds. 
My job puts me in contact with many funds, and I am a trustee on 
several funds.
    Let me spend a minute on a few facts about the scope of the 
industry and the funds you should know, which include:

      Safeway has 190,000 employees in the U.S. and Canada.
      77% of these employees are covered by over 400 collective 
bargaining agreements.
      Supermarkets employ 3.5 million Americans, 1.3 million of 
whom are covered by collective bargaining agreements.
      Most of Safeway's unionized employees, and many of those 
in the industry that are covered by collective bargaining agreements, 
participate in multi-employer pension plans, which in total cover about 
9.7 million people.

    Safeway is one of the largest food and drug retailers in North 
America, with over 1,800 stores. These include 325 Vons stores in 
Southern California and Nevada, 113 Dominick's stores in the Chicago 
metropolitan area, 137 Randalls and Tom Thumb stores in Texas, 38 
Genuardi's stores in the Philadelphia area, as well as 17 Carrs stores 
in Alaska. Safeway has an extensive network of manufacturing, 
distribution and food processing facilities in support of its stores.
    Multi-employer labor and management pension trust funds are funded 
by the contributions of contributing employers and by investment 
earnings on those contributions. Contributions are bargained by 
employers and unions in collective bargaining negotiations, and benefit 
levels generally are set by the trustees of the funds. By law, the 
employer and the union trustees of such funds have an equal vote.
    When the stock market suffered huge losses in 2000-2003 at the same 
time interest rates declined, the funding status of many multi-employer 
plans suffered greatly to the point where many funds faced a funding 
deficiency which required action by the trustees and in many cases by 
the bargaining parties. In many of our funds, the trustees have taken 
drastic actions to avoid funding deficiencies, while the bargaining 
parties have negotiated collective bargaining agreement changes to aid 
funding recovery.
    We believe the actions of fund trustees and of employers and unions 
have been and will continue to be responsible and judicious, and that 
their responses to a very unusual series of events have been prudent. 
Some funds have worse problems and need help to recover, others need 
more modest assistance.
    Several features of the proposed law changes are particularly 
important:
    The funding ceiling for the tax-deductibility of employer 
contributions is too low, particularly during periods of strong 
investment returns. Funds should be able to receive tax-deductible 
contributions to provide a funding cushion in difficult times without 
being forced to raise benefit levels to avoid tax deductibility 
problems. It is important to be able to ``save for a rainy day.''
    Funds need specific guidelines to assist Trustees in making longer-
term funding decisions which require them to look out over a number of 
years to detect potential funding deficiencies, and to adopt a plan 
with achievable benchmarks to avoid these deficiencies.
    Funds at times need access to short-term funding relief extending 
the time they have to avoid a funding deficiency. This additional time 
allows trustees and bargaining parties enough time to develop and 
implement a recovery plan. There are laws on the books today, such as 
IRC Section 412(e), which allow for such relief. Unfortunately, such 
relief has proved unobtainable and there are not clear guidelines for 
trustees and bargaining parties to determine when such relief will be 
granted by Treasury.
    Some funds are concerned about hitting underfunding levels which 
could trigger an excise tax. The implications of a funding deficiency 
for contributing employers, the plans and their participants can 
trigger payments outside of the collective bargaining process. 
Contributing employers are assessed by the plan trustees for additional 
contributions in an amount equal to their proportionate share of the 
amount necessary for the plan to meet its minimum funding requirements. 
If the excise tax is triggered it can be equal to 5% of that 
assessment. In the event that all contributing employers fail to make 
up the shortfall in a timely fashion, the excise tax may be increased 
to 100% of the shortage.
    In addition, we agree with Congress there is a need for greater 
transparency with respect to information about multi-employer pension 
funds. Many contributing employers do not have access to such 
information because they do not appoint trustees.
Need for Change
    FMI has been working for the past year to develop recommendations 
for comprehensive pension reform. In addition, our industry has worked 
with the trucking industry, other employer groups, and other union 
representatives to address multiemployer pensions funding reform.
    We applaud the sponsors of H.R. 2830 for recognizing that Congress 
must address multiemployer pensions as part of comprehensive pension 
reform legislation.
    We believe that legislative changes represented by H.R. 2830, the 
Pension Protection Act, provide a reasonable and rational framework for 
multi-employer pension plans to work through their funding problems 
without putting additional financial pressure on the Pension Benefit 
Guaranty Corporation.
H.R. 2830_The Pension Protection Act
    The multiemployer pension provisions in H.R. 2830 incorporate four 
fundamental principles which FMI and its member companies believe are 
essential to accomplishing fundamental reform:

      Greater transparency and greater flexibility for all 
plans;
      An early warning system for what the proposed legislation 
terms ``endangered'' and ``critical'' plans;
      Immediate steps to stabilize these plans; and
      Perhaps most importantly, objective, quantifiable 
benchmarks that measure the plan's funding improvement and provides 
reasonable targets for the Trustees and the bargaining parties.

    We believe that the mechanisms created by H.R. 2830 will accurately 
address the unique nature of multiemployer plans. As a result, all 
parties (contributing employers, unions, and Trustees) will have the 
ability to act responsibly on behalf of employees by providing an 
accurate measure of expected liabilities over a longer time frame and 
by providing a schedule to correct any funding problems on the horizon 
before they reach a crisis stage.
    We further believe that H.R. 2830 provides these solutions in a 
manner that will also maintain the collective bargaining rights of all 
the parties.
    In summary, we in the retail food industry strongly support efforts 
to reform our nation's pension funding laws. Those of us who contribute 
to and participate in multiemployer pension plans are asking Congress 
to recognize the ways in which these plans differ from single-employer 
pension plans, and to enact changes to existing laws that will give us 
the tools to manage these plans more effectively, so that we can 
continue to provide great retirement benefits for our millions of 
employees and retirees well into the future without ever becoming a 
burden on the federal government.
    Again, Chairman Camp and members of this Subcommittee, I thank you 
for the opportunity to testify on this important topic. I am glad to 
answer any of your questions.
    Food Marketing Institute (FMI) conducts programs in research, 
education, industry relations and public affairs on behalf of its 1,500 
member companies--food retailers and wholesalers--in the United States 
and around the world. FMI's U.S. members operate approximately 26,000 
retail food stores with a combined annual sales volume of $340 
billion--three-quarters of all food retail store sales in the United 
States. FMI's retail membership is composed of large multi-store 
chains, regional firms and independent supermarkets. Its international 
membership includes 200 companies from 50 countries.

                                 

    Chairman CAMP. Thank you very much, Mr. Morgan. Ms. Mazo, 
thank you for being here. I also want to acknowledge and 
welcome your father to the committee room today. I understand 
he has an upcoming birthday. You still have 5 minutes, and I 
would ask that you summarize your testimony in that time. But 
thank you for being here.

STATEMENT OF JUDITH F. MAZO, SENIOR VICE PRESIDENT AND DIRECTOR 
                 OF RESEARCH, THE SEGAL COMPANY

    Ms. MAZO. Thank you. I thought I would bring along a 
pensioner just so that we keep it real. Mr. Chairman and Mr. 
McNulty, it is a pleasure to be here. The last time that I was 
working closely with your Committee was much happier times. It 
was when we were working on what became EGTRRA, and we were 
increasing the ability of multiemployer plans to share the 
wealth that they were accumulating during the 1990s with the 
participants by relieving some of the pressure of the limits on 
benefits. Today, unfortunately, we are looking at a reversal of 
problems. I would like to put a few things in context. You have 
had a very good outline of where things stand and what the 
multiemployer universe looks like. All of my colleagues to my 
right have pointed out one thing which is one of the answers to 
the questions you put to Dr. Holtz-Eakin: What caused the 
problem? One of the things that did cause the problem was the 
deduction limits, and that caused--as Mr. Clark described, it 
forced many multiemployer plans to increase benefits under 
situations where the trustees might not otherwise have believed 
that that was prudent and appropriate to do so in order to 
protect the employers not only from losing tax deductions but 
from actually being punished for putting in more than--for 
living up to their bargaining agreements. None of these 
employers throws money in to shelter their own taxes. They have 
bargaining agreements. They live by their agreements. They put 
in what they are required. They were told in the 1990s, ``You 
won't be able to deduct this, and you are going to get punished 
with an excise tax unless the plans increase benefits.'' In 
something like 75 percent of our client plans--by the way, I 
work with the Segal Company, which is the actuarial consultant 
to roughly 30 percent of the multiemployer plans in the 
country, covering about half of the participants in these 
plans. So, when I talk about our experience, it is a very broad 
range of plans in different industries.
    That situation was very typical, and it dug a much deeper 
hole, we think, than would have been necessary, but it was 
necessary to protect the employers. One of the good things 
about H.R. 2830 is that it lifts the lid on that. In addition, 
in the meantime the IRS has come around to some more what we 
believe appropriate interpretations of the deduction rules, so 
that we are hopeful this problem will be at least mitigated in 
the future. Another question that a number of you asked and a 
very appropriate one is: Are these industry-specific problems? 
Is this caused by particular problems in given industries? I 
think as you can see from the distribution of where the 
underfunding is, it is not necessarily an industry-specific 
problem. I want to tell you a tale of two industries that shows 
how different ways can be handled. Right after ERISA, there 
were a series of multiemployer plans that terminated at a time 
when the benefits were not guaranteed by PBGC unless the agency 
agreed to do so, and they were the pension plans covering milk 
drivers, the home delivery of milk, an industry that has 
disappeared. Those pension plans were disappearing along with 
the industry. They were severely underfunded, and the PBGC 
stepped in, and part of that experience led to the development 
and passage of the Multiemployer Pension Plan amendments Act.
    Another industry that had multiemployer plans, in fact, the 
original prototype multiemployer plans, was in garment 
manufacturing. Both the ladies' garment and the men's garment 
industries, their plans started in the thirties. Those plans, 
upon the enactment of the Multiemployer Pension Act in 1980, 
were significantly underfunded. They have not become PBGC wards 
of the State. They have put the clamps down on any benefit 
increases. They gritted their teeth and got contribution 
increases. They pursued all of their measures. It has not been 
a happy ride for them, but the plans along with the industries 
are largely being put to bed, the industries in this country, 
without turning to the PBGC for big infusions of money. Those 
are industries that have gone away because of the shifts in the 
economy, but given tools that were appropriate at the time that 
they were running into trouble, they solved their problems. 
What we are looking for today is updating and modernization of 
the tools so that industries facing turmoil or facing maybe not 
long-term turmoil but volatility in the market for their goods, 
volatility in the investment markets, will have the opportunity 
to take the deep breath, to take the measures necessary, and to 
resolve their problems the way earlier plans were able to do so 
without turning to the government for relief. Thank you.
    [The prepared statement of Ms. Mazo follows:]
  Statement of Judith F. Mazo, Senior Vice President and Director of 
                      Research, The Segal Company
    I am pleased to be here today to discuss the provisions of H.R. 
2830 that are aimed at reforming and strengthening the funding rules 
that govern multiemployer defined benefit pension plans. The Segal 
Company is an international employee benefits, compensation and human 
resources consulting firm that serves close to 30% of the nation's 
multiemployer pension plans. Our clients provide a secure retirement 
income for more than half of the workers covered by multiemployer 
plans.
    I appear here on behalf of a broad coalition of plans, employers, 
employer associations and labor organizations that sponsor 
multiemployer plans. The Coalition has put forth a carefully 
negotiated, balanced proposal for multiemployer pension plan reform, 
which has evolved through the efforts of many of the system's largest 
stakeholders. I am pleased to see that you will also be hearing today 
from representatives of the Motor Freight Carriers Association and the 
Associated General Contractors, both of which are part of our 
Coalition.
    In fact, the Coalition represents the overwhelming majority of 
employers and virtually all of the unions in the construction, 
trucking, entertainment, service and food industries, as well as the 
membership of the National Coordinating Committee for Multiemployer 
Plans (NCCMP), which directly represents over 600 jointly-managed 
multiemployer pension, health, training and other trust funds and their 
sponsoring organizations across the economy.
    The NCCMP is a non-profit, non-partisan advocacy organization 
formed in 1974 to protect the interests of plans and their participants 
following the passage of ERISA and the increasingly complex legislative 
and regulatory environment that has evolved since then. The Segal 
Company has been the technical advisor to the NCCMP since its 
formation; I have been a member of its Working Committee for 25 years.
    Initially, I want to congratulate Chairman Camp and the members of 
the Subcommittee for the care that you are taking to address the 
special issues facing multiemployer plans as distinct from the single-
employer issues and problems. We appreciate the considerable effort on 
your part and by your staff to understand the special characteristics 
of multiemployer plans, the industries that support them and the labor-
relations contexts in which they function, and to shape legislation 
appropriate for the multiemployer community rather than attempting to 
shoehorn multiemployer plans into the very-different single-employer 
requirements. We look forward to working together to refine the 
multiemployer provisions to be sure they achieve your goal and ours--
stronger plans that do an even better job of meeting the needs of their 
participants, their employers and the industries that foster and 
sustain them.
Background
    There are nearly 1600 multiemployer defined benefit pension plans 
in the country today. They provide benefits to active and retired 
workers and their dependents and survivors in virtually every area of 
the economy. Because of their attractive portability features, 
multiemployer plans are most prevalent in industries, like 
construction, which are characterized by mobile workforces. According 
to the latest information from the Pension Benefit Guaranty 
Corporation, multiemployer plans cover approximately 9.7 million 
participants, or almost one in every four Americans working in the 
private sector who still have the protection of a guaranteed income 
provided by a defined benefit plan. With few exceptions, these are 
mature plans that were created through the collective bargaining 
process 40, 50 or even 60 years ago and have provided secure retirement 
income to many times the current number of participants since their 
inception. Although some mistakenly refer to them as ``union plans,'' 
the law has required that these plans be jointly managed with equal 
representation by labor and management on their governing boards since 
the passage of the Labor Management Relations (Taft-Hartley) Act in 
1947.
    This active participation by both management and labor 
representatives (many of whom are also participants in the plans) 
provides a clear distinction between single employer and multiemployer 
plans. Multiemployer plans are regulated not only under the tax and 
employee benefits laws and regulations and the watchful eyes of the 
Department of Labor, the Internal Revenue Service and the Pension 
Benefit Guaranty Corporation, with which all private-sector benefit 
plans must comply. In addition, they are subject to a second overlay of 
regulation, the federal labor-relations laws. Most important among 
these laws and regulations, the Taft-Hartley Act requires that the 
union and management fiduciaries who serve on these joint boards 
operate these plans for the ``sole and exclusive benefit'' of plan 
participants. This, of course, echoes and reinforces the capstone of 
ERISA, which imposes fiduciary obligations on plan fiduciaries that put 
at risk the personal assets of those who fail to meet their 
obligations.
    It is estimated that over 65,000 employers contribute to 
multiemployer pension plans. The vast majority of these are small 
employers. For example, in the construction industry, which makes up 
more than 50% of all multiemployer plans (but just over one-third of 
the participants), it is estimated that as many as 90% of all such 
employers employ fewer than 20 employees. By sponsoring these industry 
plans, employers are able to ensure that their employees have access to 
comprehensive health and pension benefits and, through the jointly 
managed training and apprenticeship plans, the employers have access to 
a readily available pool of highly skilled labor, none of which would 
be feasible for individual employers to provide.
    Funding for multiemployer plans comes from the negotiated wage 
package agreed to in collective bargaining. For example, if the parties 
agree to an increase in the wage package of $1.00 per hour over three 
years, the $1.00 may be allocated as 40" to the health benefit plan, 
20" to pensions, 5" to the training fund and the remaining 35" taken in 
increased wages. Although for tax purposes the contributions that 
employers make to employee benefit plans are considered to be employer 
contributions, the funding comes from monies that would otherwise be 
paid to the employees as wages, health coverage or the like. Through 
collective bargaining the employees explicitly agree to take less in 
pay in order to fund the pension, so many of them feel as though they 
are making the contributions.
    For the overwhelming majority of contributing employers, their 
regular involvement with the plans is limited to remitting their 
monthly payments to the trust funds as required pursuant to their 
collective bargaining agreements. For these small companies, the funds 
are the perfect substitute for making a large financial commitment to 
human resources functions, providing administrative services and 
meeting today's complex compliance requirements while providing 
economies of scale that would otherwise make such benefit plans 
unaffordable for small business. In effect, the employers have 
outsourced their employee benefits operations to the multiemployer 
plans and their labor-management boards of trustees.
    Since the passage of the Multiemployer Pension Plans Amendments Act 
of 1980, participants of multiemployer plans have been covered by the 
benefit guarantee provisions of the PBGC. Unlike single employer plans, 
however, the PBGC is more like a reinsurer of last resort for 
multiemployer plans. Instead of having PBGC pick up the pieces when an 
employer goes out of business, all of the employers who contribute to 
these plans self-insure against the risk of failure by one another. 
Under the multiemployer rules, employers who no longer contribute, or 
cease to have an obligation to contribute to the plan, must pay their 
proportionate share of any unfunded vested benefits that exist at the 
time of their departure. This obligation, known as withdrawal 
liability, recognizes the shared obligations of employers in 
maintaining an industry-wide skilled labor pool in which employees may 
move among contributing employers dozens of times during their careers.
    This system of shared risk has protected both the participants and 
the PBGC, as evidenced by the fact that it has had to intervene in 
around 36 multiemployer cases over the past 25 years. The reduced risk 
to the PBGC is also reflected in a much lower premium for multiemployer 
plans--$2.60 per participant per year, versus $19 per participant per 
year plus a variable premium for single employer plans. The PBGC 
guarantees a much lower benefit for multiemployer plans. The guarantee 
formula is expressed as an accrual rate, with the maximum at $35.75 per 
month per year of service. This works out to $12,870 per year for a 
participant with 30 years of service, compared with a maximum 
guaranteed annual benefit for single employer plans of roughly $45,000, 
for someone who retires at age 65. As of the last fiscal year, PBGC's 
multiemployer guaranty program showed a small deficit--about $236 
million--which was in fact an improvement over the prior year. So the 
multiemployer program, which covers more than 20% of the people with 
PBGC-guaranteed pensions, has a projected deficit equal to about 1% of 
that projected for the single employer program.
    The multiemployer system of pooled risk and mutual employer 
financial guarantees has been both one of the greatest strengths and 
major weaknesses of the multiemployer system. In the early 1980s, the 
presence, or even the threat of withdrawal liability produced a 
chilling effect on the growth of multiemployer plans that has persisted 
in several industries despite the fact that most have had no unfunded 
benefits for most of that time. On the other hand, for many, the threat 
of unfunded liabilities provided an incentive to plan fiduciaries to 
adopt and follow conservative funding and investment policies that, in 
combination with a robust economy, led the plans to become fully 
funded.
    Nevertheless, rather than being able to build a buffer against 
future economic downturns, this success led plans to experience 
problems at the top of the funding spectrum. In the late 1980s and 
throughout the 1990s, plans began to hit the full funding limits of the 
tax code. Under these provisions, employers that contribute to plans in 
excess of these limits were precluded from receiving current deductions 
for their contributions to the plans. Compounding the situation, 
employers who continued to make their contributions also faced an 
excise tax for doing so, despite the fact that the collective 
bargaining agreements to which they were signatory obligated them to 
continue to make them. Although in rare instances the bargaining 
parties negotiated ``contribution holidays,'' timing considerations and 
the fact that in most cases the plan fiduciaries and bargaining parties 
were different people meant that plan trustees had no choice other than 
to increase plan costs by improving benefits to bring plan costs up to 
the level of plan income to protect the deductibility of employer 
contributions. Further, once adopted, the actions taken to improve the 
plan of benefits in order to protect the employers cannot be rescinded 
under the anti-cutback provisions of ERISA. We estimate that over 75% 
of multiemployer defined benefit pension plans were forced to make 
benefit improvements as a result of the maximum deductible limits, even 
when the trustees were skeptical about being able to cover the costs in 
the long term. Overall, multiemployer plans were very well funded as 
the plans approached the end of the millennium, with the average funded 
position for all multiemployer plans at 97% (see The Segal Company 
Survey of the Funded Position of Multiemployer Plans--2000).
    In the three years that followed, however, these same plans, like 
all investors, suffered significant losses as the markets plunged into 
a deep and prolonged contraction. For the first time since the ERISA 
funding rules were adopted in 1974--in fact, for the first time since 
before the beginning of World War II--the markets experienced three 
consecutive year of negative performance. Not only were plans unable to 
meet their long term assumed rates of return on their investments, like 
just about all investors the plans saw their principal decline. For 
many of these mature multiemployer plans that depend on investment 
income for as much as 80% of their total income, the loss of 
significant portions of the assets caused a rapid depletion of what for 
most had been significant credit balances in their funding standard 
accounts. The most recent Segal Company multiemployer funding report 
shows a significant decline from the 97% in 2000, although the average 
funded position is still relatively healthy at 83%. Nevertheless, these 
investment losses have left a number of plans at all levels of funding 
facing credit balances approaching zero, meaning these plans face a 
funding deficiency in the near future (see The Segal Company Survey of 
the Funded Position of Multiemployer Plans--2004). According to the 
most recent estimates, as many as 15% of all plans are projected to 
have a funding deficiency by the year 2008 and an additional 13% face 
the same fate by 2012 (assuming benefit levels and contribution rates 
remain unchanged).
    The implications of a funding deficiency for contributing 
employers, the plans and their participants are potentially 
devastating. Once a plan's credit balance drops below zero, 
contributing employers may have to be charged additional amounts to 
make up the shortage so that the plan can meet its minimum funding 
requirements. This is above the amounts they have promised to pay in 
their collective bargaining agreements. In addition, they are required 
to pay an excise tax by the IRS equal to 5% of that assessment. It the 
full shortfall is not made up in a timely fashion, the excise tax may 
be increased to 100% of the shortage.
    For many of the contributing employers, especially those in 
industries like construction that operate through competitive bidding 
and traditionally have small profit margins, they have bid their work 
throughout the year based on their fixed labor costs (including the 
negotiated pension contributions). For them, receiving an assessment 
for what could be multiples of the total contributed for the year, 
could be enough to drive them into bankruptcy. In this instance, the 
concept of pooled risk among contributing employers means that the 
shortage amounts as well as the excise taxes owed by the bankrupt 
employers would be redistributed among the remaining employers, 
invariably pulling some at the next tier into a similar fate. As more 
and more employers fail, those companies that are more financially 
secure begin to worry about being the ``last man standing.'' The result 
is that they will also seek ways to abandon the plan before all of 
their assets are at risk. When all of the employers withdraw, the 
assets of the plan will be distributed in the form of benefit payments 
until the assets on hand are sufficiently depleted to qualify for 
assistance from the PBGC. At that point, participants' benefits will be 
reduced to the maximum guaranteed levels, as noted above, which are 
likely to represent only a fraction of the amount to which they would 
otherwise be entitled.
A Balanced, Negoitated Industry-Wide Response
    Trustees of most plans faced with the prospects of an impending 
funding deficiency have already taken action to address the problem to 
the extent possible. For the most part, that has involved reducing 
future accrual rates or ancillary benefits that have not yet been 
earned, as the current anti-cutback rules prohibit reducing benefits 
that have already accrued, including all associated features such as 
early retirement subsidies and the like. In many cases, this has 
involved substantial reductions (e.g. 40% by the Western Conference of 
Teamsters, 50% by the Sheet Metal Workers National Pension Plan and the 
Central States Teamsters Pension Plan, and 75% in the case of the 
Plumbers and Pipefitters National Pension Plan). But financial impact 
of adjusting only future benefits is limited, especially for mature 
plans that have relatively small numbers of active workers earning new 
benefits. These actions on their own may be insufficient to avoid a 
funding deficiency. Moreover, it can be counterproductive to take too 
much away from the active workers, because they are the ones who must 
agree to increase funding for the pension plan.
    Additionally, the modest recovery of the investment markets 
experienced in 2004 is only marginally helpful. For example, a $1 
billion fund in 2000 that suffered a 20% decline in assets through 2003 
would have to realize an annualized rated of return of 15% every year 
for the remainder of the decade to get to the financial position by 
2010 it would have had it achieved a steady rate of 7.5% for the full 
ten year period. Other relief, including funding amortization 
extensions under IRC Section 412(e) or the use of the Shortfall Funding 
Method, have been effectively precluded as options by the IRS. 
Consequently, the only alternative available requires a legislative 
solution.
    When the Pension Funding Equity Act of 2004 failed to give 
multiemployer plans short-term relief to help them over the current 
crisis, various groups began to evaluate alternatives. The objective 
was to find ways to strengthen plan funding to avoid or minimize risks 
that the trustees and the parties can control, and to provide 
additional tools to the plan fiduciaries and bargaining parties for 
plans that face imminent funding crises so that they can bring their 
liabilities and resources into balance. A broad cross section of groups 
that deal with many varieties of multiemployer plans from many 
different perspectives entered into extensive negotiations to develop a 
set of specifications for reform that all could agree on. The resulting 
specifications for reform reflect a carefully conceived compromise 
between employer and labor groups, undoubtedly quite different from 
what either group would have designed independently, but reflective of 
a desire by all parties to preserve the plans as valuable sources of 
retirement income security on a cost-effective basis. The result was 
the current coalition proposal, a copy of which is attached as an 
addendum to this testimony. Here is a summary of that proposal:
Summary of Coalition Proposal
    The proposed specifications for multiemployer reform include three 
major components, supplemented with several clarifying and remedial 
changes intended to make the system work more effectively for plans, 
their participants and their contributing employers.
    The first component is applicable to all multiemployer plans and 
has two major provisions geared to strengthening funding requirements 
for plan amendments that increase or decrease plan costs (specifically 
unfunded actuarial accrued liabilities) related to past service and to 
require that new benefits designed to be paid out over a short period, 
like 13th checks, be amortized over that payout period.
    The other major provision would allow plans to build a ``cushion'' 
against future contractions in investments, and to save for the lean 
years when times are good, by increasing the maximum deductible limit 
to 140% of the current limits and repealing the combined limit on 
deductions for multiemployer defined benefit and defined contribution 
plans.
    The second component of the Coalition proposal applies to plans 
that have potential funding problems, defined as those with a funded 
ratio of less than 80%, using the market value of assets compared to 
the actuarial value (as used for minimum funding) of its actuarial 
accrued liability. Such plans would be required to develop and adopt a 
``benefit security plan'' that would improve the plan's funded status. 
Plans in this category would not be able to adopt amendments to improve 
benefits unless the additional contributions related to such amendment 
more than offset the additional costs to the plan. Amendments that 
violate that restriction would be void, the participants would be 
notified and the benefit increase would be cancelled.
    To provide additional tools to help multiemployer plans deal with 
looming funding problems, they would have ``fast track'' access to 
five-year amortization extensions and the Shortfall Funding Method if 
certain criteria were met. IRS authorization could be withheld only in 
certain circumstances and applications would need to be acted upon 
within 90 days or the approval would be automatic. Additional 
restrictions that currently apply to plans with amortization extensions 
would also apply, although it would be clarified that plans could 
increase benefits if the result would be to improve the plan's funding 
because the increase generates contributions above and beyond the 
amounts needed to pay for the benefit increases.
    The third and most critical component involves plans that have 
severe funding problems or will be unable to pay promised benefits in 
the near future. The intent is to prevent a funding deficiency that 
could trigger a downward spiral of the plan and its contributing 
employers and ultimately thrust the funding of the benefits onto the 
PBGC. This would be accomplished by providing the bargaining parties 
and plan fiduciaries with additional tools beyond those currently 
available to bring the plan's liabilities and resources back into 
balance.
    The Coalition proposal modifies the current multiemployer-plan 
reorganization rules to provide a useful mechanism for plan sponsors, 
much like a Chapter 11 bankruptcy reorganization. ERISA currently has 
reorganization rules governing plans that are nearing insolvency, but 
those rules were adopted at a time when the major concern was a plan's 
ability to meet its payment obligations to current pensioners. Today, 
even those plans with the most severe funding problems have sufficient 
assets to meet their obligations to current pensioners. The Coalition 
proposal suggests several new triggers to reorganization that reflect 
the problems of mature plans, recognizing that funding ratios below 
65%, a plan's short term solvency and a plan's demographic 
characteristics (i.e. the relationship between the present value of 
benefits earned by inactive vested and retired participants to that of 
currently active participants) can play an important role in a plan's 
ability to meet its obligations to all participants, current and 
future.
    Once a plan is in reorganization, notice would be given to all 
stakeholders and the government agencies with jurisdiction over the 
plans that the plan is in reorganization and describing the possible 
consequences. Once in reorganization, plans would be prohibited from 
paying out full or partial lump sums, social security level income 
options for people not already in pay status, or other 417(e) benefits 
(except for the $5,000 small annuity cashouts). Within thirty days, 
contributing employers would be required to begin paying a surcharge of 
5% above their negotiated contribution rates. If the bargaining 
agreement covering such contributions expires more than one year from 
the date of reorganization, the surcharge would increase to 10% above 
the negotiated rate and remain there until next round of bargaining. 
Once in reorganization, the normal funding standard account continues 
to run, but no excise taxes or supplemental contributions will be 
imposed if the plan encounters a funding deficiency.
    Not later than seventy-five days before the end of the first year 
of reorganization, the plan fiduciaries must develop a rehabilitation 
plan to take the plan out of reorganization within ten years. The plan 
would set forth the combination of contribution increases, expense 
reductions (including possible mergers), benefit reductions and funding 
relief measures (including amortization extensions) that would need to 
be adopted by the plan or bargaining parties to achieve that objective. 
Annual updates to the plan of rehabilitation would need to be adopted 
and reported to the affected stakeholders. Although the proposal 
anticipates the loosening of the current anti-cutback rules with 
respect to ancillary benefits (such as subsidized early retirement 
benefits, subsidized joint and survivor benefits, and disability 
benefits not yet in pay status), a participant's core retirement 
benefit at normal retirement age would not be reduced. Additionally, 
with one minor exception which follows current law regarding benefit 
increases in effect less than 60 months, no benefit for pensioners 
already in pay status would be affected. Finally benefit accruals for 
active employees could not be reduced below a specified ``floor'' as a 
means of ensuring that the active employees whose contributions support 
all plan funding, remain committed to the plan.
    The proposal anticipates that these ancillary benefits become 
available as part of a menu of benefits that can modified to protect 
plans from collapsing under the weight of previously adopted plan 
improvements that are no longer sustainable, but that cannot be 
modified under the current anti-cutback restrictions. Without such 
relief participants would receive lower overall benefits on plan 
termination and the plan would be eliminated for future generations of 
workers. Within seventy-five days of the end of the first year a plan 
is in reorganization, the plan trustees must provide the bargaining 
parties with a schedule of benefit modifications and other measures 
required to bring the plan out of reorganization under the current 
contribution structure (excluding applicable surcharges). If benefit 
reductions alone are insufficient to bring the plan out of 
reorganization, the trustees shall include the amount of contribution 
increases necessary to bring the plan out of reorganization 
(notwithstanding the floor on benefit accruals noted above). The 
trustees shall also provide any other reasonable schedule requested by 
the bargaining parties they deem appropriate.
    The bargaining parties will then negotiate over the appropriate 
combination from among the options provided by the trustees. Under this 
proposal, benefits for inactive vested participants are subject to 
reduction to harmonize the impact on future benefits for this group as 
well as for active participants.
    The proposal includes suggestions for: bringing the current rules 
on insolvency in line with the proposed reorganization rules; 
strengthening withdrawal liability provisions; and providing 
construction industry funds with additional flexibility currently 
available to other industries to encourage additional employer 
participation. It also includes provisions that address recent court 
rulings. One suggested change would allow trustees to adjust the rules 
under which retirees can return to work and still receive their pension 
benefits and another would confirm that plans can rescind gratuitous 
benefit improvements for current retirees adopted after the date they 
retired and stopped generating employer contributions.
The Challenge
    For more than half a century, multiemployer plans have provided 
benefits for tens of millions of employees who, using standard 
corporate rules of eligibility and vesting, would never have become 
eligible. They offer full portability as workers move from one employer 
to another, in a system that should be held out as a model for all 
defined benefit plans. More importantly, the system of collective 
bargaining and the checks and balances offered by joint employer--
employee management has enabled the private sector to take care of its 
own without the need for government support.
    Yet the current funding rules, previously untested under the 
unprecedented unfavorable investment climate experienced in recent 
years, have the potential not only to undermine the retirement income 
security of millions of current and future workers and their 
dependents, but to force large numbers of small businesses out of 
business and eliminating participants' jobs.
    Congress now has an ideal opportunity to enact meaningful reform 
supported by both the employer and employee communities, who have 
coalesced behind a responsible proposal that will enhance plan funding 
and provide safeguards to plans, participants, sponsoring employers and 
the PBGC, without adding to the already burgeoning debt. We know that 
our proposal is unlikely to be the last word, of course, and we embrace 
the opportunity to work with the Subcommittee and with others, 
including others in the private sector with a stake in multiemployer 
plans, to strengthen and polish the ultimate result. Along those lines, 
there are a few points regarding the way H.R. 2830 adapts the ideas 
that have been put forth that we believe deserve mention at this stage.
    Section 202 of the Bill contains new funding and other requirements 
for multiemployer plans that are in ``endangered'' status that go well 
beyond what the Coalition has recommended for plans facing potential 
funding problems (colloquially referred to as the ``Yellow Zone''). 
While we think there may be some merit in further tightening the reins 
on plans that may be heading for serious trouble, it is important that 
the standards not be so stringent that they could create insupportable 
costs for employers and thereby harm rather than help with plan 
funding.
    Section 202 also creates a new category--multiemployer plans in 
``critical'' status--which is set up to address the special problems of 
plans that are near the brink of failure. As noted, the Coalition 
agrees that a program like this is needed (in our proposal, it takes 
the form of a redesigned approach to plan reorganization). However, the 
role of plan trustees at this point is vital to plan survival and, we 
believe, they need additional authority to restructure and revitalize 
seriously troubled plans substantially beyond what is proposed in H.R. 
2830. Again, we anticipate working with you and your staff to come up 
with a suitable solution to these important policy questions, as well 
as to deal with the inevitable technical issues that arise in any 
legislative effort in this extraordinarily complex area.
Conclusion
    The Coalition understands that whatever legislation is ultimately 
passed will include some provisions that are distasteful to the 
employers, the employees or both, because it will of necessity be a 
compromise. Our aim is to make sure that, in the end, the environment 
for multiemployer plans will be improved, so that they, their 
contributing employers and their participants are all well-served. The 
alternative is not the continuation of the status quo, but a much worse 
fate that includes: the loss not only of accrued ancillary benefits, 
but a substantial portion of a participant's normal retirement benefit 
as plans are assumed by the PBGC; the demise of potentially large 
numbers of small businesses, the accumulation of unbearable cost 
burdens for the surviving companies in multiemployer plans and the 
loss, not only of pension benefits, but the jobs from which such 
benefits stem; and an increase in taxpayer exposure at the PBGC, an 
agency that is already overburdened.
    In closing, I would like to thank you for taking the time to engage 
in this important discussion and for the opportunity to be with you 
here today.

                                 

    Chairman CAMP. Thank you very much. You referred to the 
deduction ceiling, Ms. Mazo, and H.R. 2830 increases that, I 
believe, to 140 percent.
    Ms. MAZO. Yes.
    Chairman CAMP. In your opinion, how do you think the 
employers that you deal with will react to that raise in the 
deduction ceiling?
    Ms. MAZO. Well, typically, it is not really a matter of the 
employers wanting to put in more money to take greater tax 
deductions. The parties negotiate contributions that they 
believe will be a fair amount that will fund the plan, and at 
the time they do so, they do not necessarily know what is going 
to be needed to fund the plan. It is based on estimates that we 
think maybe there will be--each person in the plan will work 
1,500 hours and we are going to need $15,000 to fund the plan 
this year, so we need $10 a person per year. I have to make up 
numbers that even I can decide in my head, but just multiply 
adding zeros. If, as happened in the 1990s, there is a whole 
lot of work and people work much more than was anticipated, 
more money is going to come in. If the markets are very good so 
that, in fact, the plan does not need as much for the employers 
to meet the cost of the plan from year to year, then, again, 
the contribution levels that were fixed in the bargaining 
agreement may be greater than are needed at a given time. What 
raising the deduction level will do is it will enable the plan 
trustees to save that money that came in in the good years and 
have it there as a buffer for the periods when times are going 
to be bad. They will be bad and hopefully they will be better 
again, but we do not want--the whole point of it is to smooth 
it out over time so that they do not have shocks to the 
negotiating systems and shocks to the employers.
    Chairman CAMP. Thank you. Mr. Clark, I wanted your reaction 
or comment to how employers would see the deduction ceiling at 
140 percent in H.R. 2830.
    Mr. CLARK. Simply I would just say ``Amen'' to the previous 
comments. I know that in 1997 when we reached the funding 
limits, we would have welcomed the opportunity to take a 
balanced approach to what the market and our collective 
bargaining agreement was handing us, and given some increase in 
funding but certainly to build a war chest. Many of the funds--
I know it is definitely the case with the Michigan Carpenters--
have trustees from the management side who have been there 
forever, and they have seen what happens in life. The market 
goes up and down. We get overfunded, we get underfunded. No 
question our counsel would have been let's put some away for a 
rainy day. We would not have run into the problem in 2001 that 
we did face.
    Chairman CAMP. All right. Thank you. Mr. Lynch, in your 
statement you mentioned the non-sponsored participants, and you 
noted that plans for your industry have recovered less than 15 
percent of the assets needed to cover the liabilities of 
companies which withdraw. What effect does H.R. 28thirties new 
withdrawal requirements have on the plans in your industry, if 
you could comment on that?
    Mr. LYNCH. I think the provisions in H.R. 2830 relating to 
tightening up on withdrawal liability rules are very important 
in helping to address part of that problem. I mentioned in my 
written statement that there is one large Teamster trucking 
industry fund where it is estimated that they recover less than 
15 percent of the withdrawal liability that is actually owed. 
So, to the extent the other 85 percent is not captured, that 
then becomes the burden on the remaining contributing 
employers. So, we believe those withdrawal liability rules and 
tightening those up will be helpful.
    Chairman CAMP. All right. Thank you. The gentleman from New 
York, Mr. McNulty, may inquire.
    Mr. MCNULTY. Thank you, Mr. Chairman, and I thank all of 
the panelists for their testimony. Mr. Morgan, do the union 
representatives who are trustees of the plans of which your 
employers are a part support your proposal? If not, what is 
your perception as to why they do not?
    Mr. MORGAN. Congressman, it is difficult for me to say 
whether the union trustees of our various funds would support 
this or not. We think they would support some parts of it. I am 
not sure about other parts.
    Mr. MCNULTY. You do not know the positions of any of them?
    Mr. MORGAN. Well, we have been dealing with the coalition, 
which includes Teamsters and the UFCW, and they have been 
concerned, as was mentioned earlier, about the effect of what 
we have been calling the yellow zone, the endangered group, 
rules on getting to full funding on contribution levels and 
benefit accrual rates. We do not see it quite the same way, but 
I think if there was an area of difference, that might be it.
    Mr. MCNULTY. Okay. Well, I think that would be it because I 
have that concern myself with this proposal, Ms. Mazo, this 
multiemployer plan coalition has put forward. In your opinion, 
how large would the benefit cuts be that would be permitted 
under this proposal to the average worker or the average 
retiree?
    Ms. MAZO. Are you talking about the coalition proposal?
    Mr. MCNULTY. Yes.
    Ms. MAZO. Under the coalition proposal, the benefit cuts 
would not come until the plan is in very severe trouble, that 
is, what we call reorganization. Our proposal would protect 
retirees unless they retired after it was already known the 
plan was in trouble. We do not want people racing for the door 
knowing that benefit cuts are coming. But we would propose not 
to cut the benefits of retirees who had been retired before the 
plan ran into trouble. So, the cuts would really be--and also 
we are talking about not cutting accrued benefits that are 
payable at normal retirement age. The cuts would come in the 
form of taking away some of the subsidies for early retirement, 
some of the added special death benefit provisions that are 
available after retirement, the opportunity to double dip, if 
you will, to retire, draw your benefit, and come back to work. 
Our proposal would allow plans to change the rules and say if 
you are going to come back to work, we are going to withhold 
your pension. I cannot give you an estimate about how large the 
reductions would be because I do not think the reductions would 
be huge. I think much more important, actually, based on the 
experience that we have had in the early days of plan 
reorganization, there would be a huge spur to the parties to 
moderate what the benefit promises are for the future and to 
focus on getting better funded because of the tremendous pain 
that benefit cuts would entail. So, it is kind of like a sword 
of Damocles hanging over their head.
    Mr. MCNULTY. Thank you very much, and I thank everyone on 
the panel for being here and for their testimony.
    Chairman CAMP. Thank you. The gentleman from Illinois, Mr. 
Weller, may inquire.
    Mr. WELLER. Thank you, Mr. Chairman. Ms. Mazo, in your 
testimony, of course, you have indicated you are part of the 
Multiemployer Plan Coalition. Can you share with us who is all 
part of that coalition?
    Ms. MAZO. I cannot give you a complete list, but the 
National Coordinating Committee for Multiemployer Plans itself 
represents a large number of plans and employers and unions, 
including the United Food and Commercial Workers, the 
Teamsters, I think all or just about all of the building 
trades, the Mine Workers, et cetera. In addition, the 
trucking--Mr. Lynch's organization, the Motor Transport 
Organization, the AGC, UPS, Yellow Roadway, major employers, 
all of the specialty construction groups, the sheet metal 
contractors, electrical contractors, and so forth.
    Mr. WELLER. Well, you know, so business, labor, employers, 
workers are all part of this coalition.
    Ms. MAZO. That is right.
    Mr. WELLER. Essentially three of the four panelists 
represent different segments of that coalition today, so 
perhaps it might be best if I direct my question and ask if any 
of the three of you would like to answer that. But, you know, 
one of the biggest concerns that has been raised with me on 
multiemployer pension plans is they have the responsibility the 
PBGC has for single-employer plans in insuring benefits for 
bankrupt employers, yet they do not have all the tools required 
to manage the plans when a crisis threatens that plan's 
survival. How does the proposal of the coalition rectify this 
and at the same time protect the core retirement benefit levels 
for all the participants? Also, are your recommendations 
included in H.R. 2830?
    Ms. MAZO. Some of our recommendations are included. As 
things stand now, many of them are not. But I think that is 
under consideration at this point by the Education and the Work 
force Committee. The philosophy behind our proposal was first 
to try to forestall the problems that were under the bargaining 
parties' and the trustees' control by making it--having higher 
standards for--tighter funding standards for benefit increases 
to not enable trustees to improve benefits unless they are 
pretty sure they can afford them, and that feature of our 
proposal, a variation of it, which was also in the Food 
Marketing Institute's proposal, is in H.R. 2830. Another part 
was, as you have heard, to increase the deduction limits, and 
that is in 2830. A third part was to give plans ready access to 
some of the already existing tools in the law which have been 
difficult for the IRS to deal with, and particularly given the 
funding crisis they have been dealing with in the single-
employer plans. Part of that is in H.R. 2830. It is not in 
there 100 percent.
    Mr. WELLER. Mr. Lynch or Mr. Clark, do you have something 
you would like----
    Mr. LYNCH. When we first began these discussions within the 
coalition, I think there was a general feeling that under 
current law many of the tools to address some of these problems 
occur far too late in the process. They really come into play 
when plans are facing very severe funding problems. So, what we 
have suggested is that some of those things--amortization 
relief, waiver relief--get moved up in the process so the 
trustees can address some of these things sooner rather than 
later where they are really dealing with a very, very difficult 
problem. Much of that is incorporated in H.R. 2830.
    Mr. WELLER. Mr. Clark?
    Mr. CLARK. I agree. I differ from most of the panelists. I 
am not an expert on this. But I do have skin in the game. I am 
an actual contributor to these plans. On top of that, I know 
the beneficiaries personally, and I am a trustee. Anything that 
would allow us to act more quickly to assure those benefits get 
to those that they were intended for is essential.
    Mr. WELLER. Just as a quick follow-up--and I see my time is 
running out here--the provisions that were in the coalition 
proposal that were put forward but were not included in H.R. 
2830, what is the most important provision you feel that needs 
to be added to this piece of legislation to improve it?
    Mr. LYNCH. I think the tools in the red zone. Right now, 
plans falling in the red zone, the most severely underfunded 
plans, there is a big gap in the tools available to the 
trustees and the bargaining parties, and that is a very, very 
important point here. What we tried to do is balance what the 
responsibilities are for the trustees and as well as the 
bargaining parties. So, I would say the red zone is the most 
important component that needs to get back into the 
legislation.
    Mr. WELLER. Well, thank you, and I see my time has expired. 
Thank you, Mr. Chairman. Thank you, panelists.
    Chairman CAMP. Thank you. The gentleman from Texas, Mr. 
Doggett, may inquire.
    Mr. DOGGETT. Thank you, Mr. Chairman. Do each of you and 
the groups that you represent support the disclosure and 
transparency provisions that are in 2830?
    Mr. CLARK. We do.
    Mr. LYNCH. Yes, we do.
    Mr. MORGAN. Yes.
    Ms. MAZO. We support them in principle. I am sorry to have 
to demur, but there are technical aspects of the disclosure 
rules that we do need to address. One of the particular 
features of multiemployer plans is that they are independent 
entities that operate as trust funds to which many employers 
contribute and that cover many people, as has been noted, who 
move among employers and from job to job. Accordingly, the 
plans do not necessarily always have all of the information 
about all of the individuals that might be captured within a 
given employer's own personnel data system, but that is not 
there at the plan level. Similarly, the plans are--operations 
are funded out of the same pool of assets that funds the 
benefits, and so it is not very----
    Mr. DOGGETT. Will you submit to the Subcommittee any 
changes that you think are necessary?
    Ms. MAZO. We will.
    Mr. DOGGETT. That would be useful.
    Ms. MAZO. We definitely support them in principle. It is 
just a question of making sure they are not overwhelming.
    Mr. DOGGETT. Thank you. Mr. Clark, is it your position that 
we need to pass the Boehner bill or 2830 as soon as possible?
    Mr. CLARK. Yes.
    Mr. DOGGETT. Is that your position also, Mr. Morgan?
    Mr. MORGAN. Yes.
    Mr. DOGGETT. Mr. Lynch, while you believe that there need 
to be some changes, particularly in the yellow zone provisions, 
do you also feel that Congress needs to act on perhaps a 
revised Boehner bill this year?
    Mr. LYNCH. Absolutely.
    Mr. DOGGETT. Mr. Clark, has anyone in the groups that you 
represent suggested that we need to attach the Boehner bill or 
any portions of it to some variant of the President's plan to 
privatize Social Security to kind of help boot-strap it 
forward?
    Mr. CLARK. Mr. Congressman, I do not have any knowledge 
someone is for or----
    Mr. DOGGETT. It is not a recommendation that you have made?
    Mr. CLARK. No.
    Mr. DOGGETT. And, Mr. Morgan, has your institute 
recommended that the best way to get the Boehner bill and 
reform of our pension system is to attach it to this faltering 
plan to privatize Social Security?
    Mr. MORGAN. No.
    Mr. DOGGETT. And, Mr. Lynch, has your organization 
recommended that we need to pair up pension reform with 
privatization of Social Security?
    Mr. LYNCH. We have been so singularly focused on trying to 
pass multiemployer pension reform. That has been our singular 
focus.
    Mr. DOGGETT. Do you feel that any step the Congress would 
take to slow down the reform of our pension system would be a 
mistake?
    Mr. LYNCH. I got a feeling I know where you are heading 
with that. We would support any avenues to make it happen.
    Mr. DOGGETT. Ms. Mazo, there clearly has been a good bit of 
debate, as some of the other witnesses indicated, amongst you 
about the best way to solve these problems. What is your 
feeling as to why the Food Marketing Institute's approach, 
particularly as it relates to yellow zone companies, won out 
over what the coalition had proposed, since the coalition seems 
to represent a larger number of employees and industries?
    Ms. MAZO. I would hesitate to speculate what might have 
been in the minds of Chairman Boehner and others as to why it 
won out. I can see the appeal of saying we want hard benchmarks 
to measure the process and to measure the progress. We 
appreciate the idea of imposing more discipline in the so-
called yellow zone plans than we had proposed. Our concern is 
that the benchmarks are so hard that they could cause some 
employers to collapse under the weight and the plans to 
collapse under the weight of the employers.
    Mr. DOGGETT. Mr. Morgan, I understand that if we change the 
deductibility provisions, that will remove a disincentive to 
your members to contribute in good times. What incentive is 
there to increase contributions during good times in a highly 
competitive industry?
    Mr. MORGAN. Well, during good times, meaning investment 
returns are high? Is that what you are referring to?
    Mr. DOGGETT. Yes, sir.
    Mr. MORGAN. Well, then there wouldn't be any particular 
incentive to do that, but it is subject to collective 
bargaining. So, both sides have a say in how the available 
funds are divided among wages and----
    Mr. DOGGETT. Your feeling is then through the collective 
bargaining process, during periods of prosperity there would be 
increases made in contributions?
    Mr. MORGAN. Not necessarily, sir. If there is no need for 
increases there, the moneys would probably be allocated to 
wages or health care.
    Mr. DOGGETT. But in yellow zone companies, in yellow zone 
plans, you think there would be increases.
    Mr. MORGAN. I think there would be, yes.
    Mr. DOGGETT. Thank you, Mr. Chairman.
    Chairman CAMP. Thank you. The gentlewoman from 
Pennsylvania, Ms. Hart, may inquire.
    Ms. HART. Thank you, Mr. Chairman. I have a whole lot of 
questions, but I am going to go, I think, to Ms. Mazo because 
the coalition seems to include the folks who have contacted me 
the most.
    Ms. MAZO. Maybe we should have contacted Mr. Boehner more 
and we would have been in the bill.
    [Laughter.]
    Ms. HART. You explained that, as we are all familiar, the 
multiemployer plans include a number of different employers, 
and some would think that when you have that mix, that would 
imply that there is going to be more stability. I think if you 
look at the figures that we saw in that first panel, that is 
the case. But it is not enough, according to a lot of folks, 
and especially some of my constituents who have contacted me. I 
guess my question is--there are some things you do not like in 
the Boehner bill, and one of the things was the 10-year 
benchmark. I guess my question for you is: What would you 
propose as an alternative to that benchmark?
    Ms. MAZO. We are concerned about a benchmark that is a 
fixed number that cannot be adapted to the needs and the 
situations of varying plans. We have been looking at benchmarks 
that would, for example, have the plans achieve a certain level 
of funding not based on fixed ratios, but covering all of the 
benefits that are being earned in any given year, which is 
called the normal cost, plus paying interest on the existing 
liabilities. We have been looking at giving plans the 
opportunity to reach that kind of benchmark within the 
collective bargaining regime. One of the things that we are 
concerned about in the Boehner bill is that it sets benchmarks 
and sets requirements for achieving certain benchmarks before 
the parties have had the chance to bargain over the situation. 
It appears to potentially in underfunded plans require benefit 
reductions for active workers as an interim step before there 
is any collective bargaining over how to deal with the plan's 
problems. We believe that there should be benchmarks, but they 
should be timed to be achieved within a sustainable period that 
allows for collective bargaining to absorb the cost increases 
and to integrate them into the overall compensation package so 
that the employers are not hit with very high contribution 
increases early on or, conversely, very dramatic benefit cuts 
early on.
    Ms. HART. So, it sounds to me like you want to go more in 
the direction of sort of a re-analysis more often. Is that 
correct?
    Ms. MAZO. I think that is right. Looking at the plan every 
year, achieving progress but progress in a way that fits the 
bargaining cycles, because we think it is very important not to 
take control of the plans out of the hands of the employers and 
the unions who give it life, who are the source of the funds to 
make it go. The bargaining parties have to have the opportunity 
to decide how much to put in and the rate at which they can 
afford to put it in. I am not saying they should have a free 
hand, we only want to put in a dollar, but they should have 
benchmarks that would be absorbable for them under the cycles 
of when their bargaining agreements open and are negotiated.
    Ms. HART. Are you looking for something that would result 
more in a steady funding stream more than swings?
    Ms. MAZO. Absolutely. That is right. We have some data that 
our company has just done looking at the benchmarks in the 
Boehner bill. This looks at about 30-some plans of ours that my 
company works with that would be in the yellow zone. The 
contribution increases that would be required to meet those 
benchmarks range from 7 percent, which is certainly doable, to 
135 percent, which is very, very difficult, to 356 percent down 
to 20 percent. Some of the plans, if it was 20 percent over a 
period of years, they could do that. Where it is 171 percent 
starting right away to get to that point, that would be too 
much for the employers and too much for the employees.
    Ms. HART. Okay. Thanks. I appreciate that. I yield back.
    Chairman CAMP. Thank you very much. The gentlewoman from 
Ohio, Mrs. Tubbs Jones, may inquire.
    Ms. TUBBS JONES. Thank you, Mr. Chairman. I would like to 
continue with that line of questioning, Ms. Mazo. How would you 
express what you are asking in an agreement, or suggesting 
should happen in a multiemployer plan?
    Ms. MAZO. In the----
    Ms. TUBBS JONES. Or in the law.
    Ms. MAZO. In the law. I think the law should set tough 
standards. I think that the parties should not be led into 
temptation about, well, let's just relax. They don't. They 
practically never do, and Mr. Clark and the gentleman here from 
Safeway as trustees can certainly attest to the fact that they 
pay very close attention to the costs. But I think there should 
be standards that when a plan is headed to trouble and it is 
appropriately identified, our suggestion would be perhaps 
identifying them as facing a funding deficiency within 7 years 
or something along those lines. When they are headed to 
trouble, not there, they should be required to look forward--as 
Dr. Holtz-Eakin has suggested and FMI has suggested, they 
should be required to do projections to see what things are 
going to look like down the road and not just say, well, today 
we have got plenty of money so we are going to just sit on our 
hands. Nobody obviously can predict what the market will do, 
and what happened the earlier part of this century, which 
pulled the rug out from everyone, was a catastrophe that could 
not have been planned for and probably should not have been 
planned for. I know, Ms. Hart, you have suggested you do not 
want to force the plans to be overfunded. That is a 
misallocation of resources on everybody's behalf. So, I would 
suggest some kind of standard that sets a reasonable timetable 
and a timetable that can be readjusted as events develop for, 
for example, the plans to aim to reach a responsible funding 
amortization period. Let's say if they start today, within 10 
years from now they should have their liabilities in shape and 
their assets in shape so that by amortizing the benefits over a 
reasonable period, they are amortizing the costs over a 
reasonable period thereafter, they could be fully funded. 
Along----
    Ms. TUBBS JONES. Hold on a second. Let me slow you down.
    Ms. MAZO. Okay.
    Ms. TUBBS JONES. You are heading down a road I was not 
asking about.
    Ms. MAZO. Oh, I am sorry.
    Ms. TUBBS JONES. How would you express in the law the 
ability to factor in labor negotiations when you set a 240-day 
timetable?
    Ms. MAZO. Right, that is a problem. I think the timetables 
have to be based on the later of a fixed date--or maybe an 
earlier date, you know, but a reasonable date, or the year 
after the majority of bargaining agreements expire.
    Ms. TUBBS JONES. Okay.
    Ms. MAZO. You have to time it to the bargaining cycle.
    Ms. TUBBS JONES. Mr. Lynch, are you trying to answer my 
question?
    Mr. LYNCH. If I could add one point, one of the challenges 
that the trustees have in these plans is in a multiemployer 
bargaining scenario, you have multiple contracts that come up 
at various times. Now, in some plans you have maybe three or 
four contracts that represent the bulk of the participants in 
the plan. But you have to try and fix this timeframe so that 
you get the bulk of those plans. We had suggested something 
along the lines of when 75 percent of the participants' 
contracts had been bargained, that is when the clock would 
start.
    Ms. TUBBS JONES. Okay. Mr. Clark, would you like to respond 
to that question?
    Mr. CLARK. Mr. Lynch makes a very good point, and we could 
certainly use that as trustees. It is very much more reasonable 
than the proposed timetable.
    Ms. TUBBS JONES. Mr. Morgan?
    Mr. MORGAN. Well, we think that the current proposed law is 
workable. We do not quite see it the same way as the folks who 
have just spoken to you, but----
    Ms. TUBBS JONES. Well, tell me how you see it.
    Mr. MORGAN. Well, we are employers, too. We obviously don't 
want to be saddled with huge increases in contributions. We 
don't want employers withdrawing from funds because they cannot 
afford it. On the other hand, we think there have to be some 
standards applied to when you do certain things. We think, for 
example, there has to be a trigger. We have suggested 7 years 
to a funding deficiency as one. We think there has to be a time 
limit on how long trustees and bargaining parties have to craft 
a solution. We also think there needs to be a time period set 
for restoring the fund to where it should be, and there should 
be an interim look at where you are, which we think in the 
Boehner bill is a reasonable timeframe. I would add one other 
thing. We have run some of our own actuarial studies to try to 
determine what the impact would be here of the endangered zone 
on large plans that we contribute to and some smaller plans, 
and we have not seen the same results Ms. Mazo referred to. But 
I would suggest that perhaps as funds approach the critical 
zone, there might be some different issues there.
    Ms. TUBBS JONES. Thank you. Mr. Chairman, I seek unanimous 
consent to ask just one more short question.
    Chairman CAMP. One brief question.
    Ms. TUBBS JONES. Thank you, Mr. Chairman. Ms. Mazo--and I 
do not know whether somebody asked this question before--what 
is your position about the 140-percent deduction of current 
pension liabilities? Did someone ask that question and I missed 
it? They did? Well, then if they asked, I will ask that----
    Chairman CAMP. You can respond briefly, if you would.
    Ms. MAZO. We would strongly support increasing the 
deduction limit so that plans are not forced to make benefit 
increases that they are afraid they will not be able to afford 
in the future.
    Ms. TUBBS JONES. Okay. So, you think it should be 150, 160?
    Ms. MAZO. Well, we would love to see it--for collectively 
bargained plans, we would like to see it repealed because the 
plans are not--no employer puts money into a collectively 
bargained plan as a tax shelter. But being realistic, we are 
perfectly willing to live with the 140 or whatever number is 
put in there.
    Ms. TUBBS JONES. Thank you, Mr. Chairman.
    Chairman CAMP. Thank you. The gentleman from Indiana, Mr. 
Chocola, may inquire.
    Mr. CHOCOLA. Thank you, Mr. Chairman. Thank you all for 
being here. I guess I am still trying to figure out how we got 
here. The numbers are astounding when you consider that I think 
it is 26 percent of all multiemployer funds have less than 70 
percent funding obligation met, only 11 percent are fully 
funded. I keep hearing, well, nobody broke the rules, employers 
are doing what they are supposed to do. I hear the stock market 
has gone down. Mr. Clark, I think you said the markets went 
wrong. But the markets have gone right over the last year or 
so. How did we get here, in your opinion? What rules are wrong 
that have resulted in this massive underfunding of these 
multiemployer pension plans?
    Mr. CLARK. Well, my personal experience with this indicates 
that in the 1990s our fund would have handled things 
differently had we had a higher deductibility option. Second, 
it is compounded by the collective bargaining agreements. The 
trustees are handed a bargaining result that says this year the 
contribution is going to be raised to $5 an hour. There is 
nothing we can do about it. We have got to take the $5, and all 
of a sudden that adds again to the overfunding. So, we do not 
have any solutions because we cannot cut the benefit. The ERISA 
will not let us do that. So, when we get underfunded, we cannot 
cut the benefits. So, we are in this little box that we have 
got to rattle around inside and keep trying to balance this 
very difficult process. I am not a stupid man, but this is a 
hard thing to balance and keep it within the law, pretty close 
to 100 percent, because that is where we all want to be. But if 
we go over it, we are penalized. The only thing--and we cannot 
cut benefits, and we cannot cut contributions. Our only tools 
are to cut accruals when we can--not particularly popular, not 
very popular. So, we really don't have enough tools in the 
toolbox to handle the situation.
    Mr. CHOCOLA. The solvency measurement, as I understand it, 
you measure solvency by the current year plus the next 3 years. 
Is that correct? Is that too short a time frame to plan or to 
reflect the true solvency of the plan?
    Mr. CLARK. Well, I think one of the three other panelists 
have more expertise in this regard than I do.
    Mr. LYNCH. On that point, one very large trucking industry 
plan reduced the accrual rate from 2 percent down to 1 percent. 
That was a very big move, and it is a large fund, so it 
potentially has a pretty dramatic impact. Unfortunately, that 
change gets amortized over 30 years, so the plan does not see 
an immediate benefit to the pain that was endured in that 
change. So, one of the things we suggested--and it is in the 
bill--is to--well, we had suggested that the amortization of 
that, both benefit increases as well as changes down, would be 
amortized over 10 years. The bill is 15. It is those kinds of 
things that--there is no one single--there is no one single 
answer. In Central States, like every other fund out there, I 
mean, they all face the same market downturn, but in Central 
States they faced two fairly large bankruptcies of top-ten 
contributing employers, virtually within 6 months of each 
other. So, we are having to grapple with that. None of the 
contributing employers can control whether Consolidated 
Freightways went out of business or did not go out of business, 
but there are 6,000 CF employees that contributions are no 
longer being made on their behalf to contribute into that fund. 
Consolidated Freightways was just one, but they were 
contributing to virtually every single plan in the country.
    Mr. CHOCOLA. I am running out of time, but just on that 
point, if a member company cannot meet their funding 
obligations, what are their options as part of the 
multiemployer plan? Can they opt out and pay something? What 
other options----
    Mr. LYNCH. They can opt out and pay what is referred to as 
withdrawal liability. They also have to bargain out as well. It 
is not like they just simply write the check and say, you know, 
we are gone.
    Mr. CHOCOLA. I see I have run out of time. Thank you, Mr. 
Chairman. I yield back.
    Chairman CAMP. Thank you. The gentleman from Connecticut, 
Mr. Larson, may inquire.
    Mr. LARSON. Thank you very much, Mr. Chairman. I want to 
thank all of our panelists and the chairman and ranking member 
for holding this hearing this morning. I would like just to ask 
a very simple question. I like to call it the Augie and Rays 
test. For you panelists who are not familiar with the culinary 
establishment of Augie and Rays in East Hartford, it is where 
the working class goes from breakfast, coffee, lunch, and so 
forth, and it is there that I face my constituents who ask 
pretty straightforward questions. Under the plan for 
reorganization, my question is, for someone who has been 
approaching age 55 and has worked for 30 years and is now 
looking at his retirement, what can he expect to get under your 
plan?
    Mr. LYNCH. Hopefully, if we do this right, they can expect 
exactly the same benefit that has been essentially promised to 
them. It is if we do not act and we allow the plans to 
deteriorate further that there is some risk there.
    Mr. LARSON. Would anyone else care to respond? Or are you 
pretty much in agreement? So, that basically I would say to 
them, look, there is not a problem here, the only thing that is 
required is that Congress act. However, if Congress does not 
act and they do not follow this plan, all hell is going to 
break loose.
    Ms. MAZO. Well, the one thing that I think you all are to 
be commended, as is the Education and the Work force Committee, 
for specifically looking at multiemployer plan situations. The 
one thing that you are trying to avoid by looking at that is 
not creating funding requirements that are going to take his 
job away before he reaches age 55 by having contribution 
imposed on his employer, on their employers that are too heavy 
for them to meet or that could force the employers to have to 
cut the health insurance because they have got to channel so 
much of whatever is available into the pension plan. We are 
talking about having it be fed in to build the plans in a 
digestible format, I think.
    Mr. LARSON. Yes, go ahead.
    Mr. CLARK. I would like to add that I think one of the 
things I would tell my constituents if I were a Congressman 
would be that enacting this plan probably does not change--may 
not change much for somebody that is 55 or 60, but certainly 
for their son or their daughter who is going to be covered by a 
pension plan. It is essential. I know in our industry looking 
20 years down the line, I think this is a very important, the 
single most important element of the legislation.
    Mr. LARSON. We know that there are provisions in the reform 
package being promoted by the Multiemployer Plan Coalition that 
are not currently included in H.R. 2830. But the coalition has 
made it clear that it is very important that these provisions 
be included in any final package in order to have meaningful 
reform for the plans that are most in need of reform. Many of 
these provisions would result in benefit cuts to older workers, 
and in some instances the cuts would be substantial. Do you 
agree with that?
    Mr. LYNCH. I would say in reiterating something that Judy 
said earlier, under the coalition's proposal an individual in 
pay status there would be no change there. Individuals who are 
working to normal retirement age, depending on how that is 
defined on an individual plan, also would not see any change 
there. You would probably see--and, frankly, right now under 
existing law there can be changes in the accrual rate that 
would have an impact on the dollar amount or year in which an 
employee might retire. This is admittedly taking it another 
step, but I would say that ultimately under the proposal, those 
decisions are also going to be made in the collective 
bargaining process. So, this is not just a unilateral decision 
to say we are cutting your benefit, but that we are involving 
as much as possible the parties, both the management and the 
union representatives, in the decisionmaking.
    Mr. LARSON. What would the effect of the reorganization of 
the plan within the Central States system for a participant who 
is a truckdriver who has worked for 29 years be?
    Mr. LYNCH. That worked for 29 years? I suspect they would 
probably have to work some additional period of time, but I do 
not think it--I mean, I am not an actuary, so I am probably the 
absolutely worst person to ask the question of. But it probably 
would mean they would work longer but not considerably longer 
to get the same benefit.
    Ms. MAZO. What we are trying to do is prevent that 
truckdriver and everybody else who is covered by Central States 
from seeing no future benefit accruals for their continued 
work. But a lot more money taken out of their wage package 
because their employers would have to come up with--or their 
employers go out of business to come up with the money to 
support the plan, to fund it up in a big hurry with the ongoing 
workers getting nothing. So, in a sense, it might be a certain 
amount of spreading the sacrifice.
    Mr. LARSON. With the chairman's indulgence, to what extent 
do you think the rank-and-file workforce is aware of that, 
those choices, those options?
    Ms. MAZO. In the Central States fund, they did, as Tim--and 
I don't work with them, so I can only tell you from public 
information. But they cut benefits in half last year, and it 
was a very--future benefits, and it was a very painful process, 
and every newspaper throughout the Midwest, and there were 
member meetings all over the place, and there still are. They 
are very aware of the options that are available now, and if 
there were additional options, you can be sure that the pain 
that was suffered by every party involved would involve very, 
very careful weighing of how further to do. The union trustees 
on these funds are typically appointed by--they either are 
union officers themselves, or they are appointed by them, and 
they run for office. Like you, the last thing they want to do 
is turn around to their constituents who give them their jobs 
and say, ``We just took something away from you.'' They will 
look at every opportunity they can to preserve it. The 
employers need workers who are productive and happy in their 
jobs or at least comfortable in their jobs and who trust their 
employers. The last thing the employers want to do is say, 
``Well, we just took something away from you.'' So, benefit 
cuts would be approached very, very gingerly and only used when 
necessary, and that would be made crystal clear to the workers 
because the one thing that anybody who has to do that would 
want to be sure to do is explain in as clear a way as possible 
to the people who are harmed why it would be happening to them.
    Mr. LARSON. I thank the panel, and I thank the chairman for 
his indulgence.
    Chairman CAMP. Thank you. I want to note that a member of 
the Full Committee, Mr. Pomeroy, has joined the Subcommittee 
and has had a long-standing interest in pension issues. Mr. 
Pomeroy, you may inquire for 5 minutes.
    Mr. POMEROY. Mr. Chairman, thank you for that 
consideration. I commend you for having this hearing. I really 
do believe it is important for Ways and Means to exercise its 
jurisdiction over pension matters, and this hearing is an 
extremely important launch, I think, of a greater effort out of 
Ways and Means. Because we have not had much of an effort to 
date, we are kind of playing catch-up with trying to get our 
hands around understanding the Ed/Labor proposal. Ms. Mazo, if 
I might, let me just try and put out how I am understanding 
this, and you can correct me. It seems as though the coalition 
representing a number of large and mid-sized, small-size 
multiemployer groups has advanced a proposal. The Food 
Marketing Institute has advanced another proposal. The Ed/Labor 
provision has followed the Labor Department's guidelines 
somewhat and veers perhaps more toward the FMI proposal than 
the coalition's proposal. Is this correct?
    Ms. MAZO. Yes, the Labor Department, the administration has 
not yet taken a position on multiemployer issues. The Ed/Labor 
proposal is a lot closer to the FMI proposal. In a number of--
--
    Mr. POMEROY. Can you help me then distinguish--I have 
looked at your testimony, but can you tee up the critical 
distinctions between FMI and the coalition and tell me why they 
are important?
    Ms. MAZO. I think the principal distinction, the core issue 
is what the bill calls plans in the endangered zone, and it has 
been colloquially referred to as the yellow zone. The primary 
difference is that the FMI proposal would set what are called 
hard benchmarks or hard targets of funding improvements that 
the plans would have to come up with a program to achieve 
within a very specified time frame, and the philosophy being 
that we want to catch every potential problem before it matures 
into a crisis. We share the philosophy. Our concern is that the 
benchmarks and the hard targets are too stiff, are too rigid 
for many plans to achieve, and could have the perverse result 
of actually precipitating a crisis by----
    Mr. POMEROY. In the regular pension world, not the 
multiemployer, we note that the downside danger of too 
stringent a regulatory framework is that you basically force 
the freezing of plans and you drive people out of the defined 
benefit business. While that is a loss for the participants, I 
believe a significant public policy detriment is resulted by 
that sort of response. On the other hand, with multiemployer 
too stringent a response can drive the weakest into bankruptcy 
and thereby imperil the insolvency. So, unlike the single 
pension, in a multiemployer circumstance where you are all, for 
better or worse, tied together, it seems like if you overshoot 
on the requirements, you might actually damage the financial 
standing of the multiemployer plan that ostensibly you were 
trying to help at the beginning. Is that correct?
    Ms. MAZO. That is precisely what our concern is. I don't 
think you were here, but Dr. Holtz-Eakin pointed out that a 
major difference between multiemployer plans and single-
employer plays from the PBGC point of view is that in a multi, 
all the employers together underwrite the financing of the 
plan. So, if you press them to come up quickly with additional 
contributions, you are really pressing too hard on that net of 
employers that holds the plan up.
    Mr. POMEROY. Mr. Morgan, what led the FMI to another 
conclusion on this matter?
    Mr. MORGAN. Well, we have had experience in various trust 
funds and negotiations where we have evolved what we think is a 
good process. But also, our actuarial studies to date have not 
shown the same thing that Ms. Mazo is referring to. I suspect 
that as you approach the red zone, a plan approaches the red 
zone, or the most severe situation, there need to be some 
transition rules, there need to be some adjustments made to 
make sure you do not have the consequence that she is talking 
about. But we think for the vast number of plans, it is a 
workable set of benchmarks, and we just think there have to be 
some specific benchmarks.
    Mr. POMEROY. Mr. Lynch, do you believe, is there something 
unique about the food industry or is this just a professional 
disagreement between the actuarial support of your association 
versus FMI? What is accounting for this difference?
    Mr. LYNCH. Obviously I cannot speak for FMI. I think there 
is a sense that it is an honest disagreement over the degree to 
which these plans can meet those benchmarks. I would suggest 
respectfully that because of the breadth of the coalition 
membership who have looked at the broadest array of these plans 
have come to one conclusion. I think there is probably--well, I 
believe there is some merit to that argument.
    Mr. POMEROY. I know my time is up, Mr. Chairman, but just 
to sum up then, of the waterfront of views here, most would be 
reflected in the coalition's view and the minority view being 
reflected in the FMI/Ed/Labor bill view? Mr. Lynch?
    Mr. LYNCH. Yes.
    Mr. POMEROY. Mr. Mazo?
    Ms. MAZO. Ms. Mazo.
    Mr. POMEROY. I am sorry.
    [Laughter.]
    Ms. MAZO. That is right, and one thing that is important 
about the coalition proposal and about the numbers that we are 
talking about is we are talking about a large number of plans 
that, unlike the food industry, are supported by quite a number 
of very small employers. The construction industry plans that 
Mr. Clark is representing often are small privately held, even 
sole proprietorship kinds of employers for whom these increases 
are not just a significant increase in one part of their 
business. It is their life. So, that is where some of our 
numbers come from that have not been present perhaps in what 
the food industry employers have looked at.
    Mr. POMEROY. Thank you, and I thank the chairman.
    Chairman CAMP. Thank you. Just one last question before we 
conclude. I understand that the bill as written is something 
Mr. Morgan supports, but my question is: Are there more 
definitive changes or definitive tools, Mr. Lynch or Mr. Clark 
or Ms. Mazo, that you would support, more defined tools that 
still could be used to make sure that we do not get to the 
worst case, which I think Ms. Hart was talking about, where 
benefits have to be frozen or reduced because other employers 
have had financial difficulty and, therefore, you have got a 
situation where another firm is still left standing and making 
larger contributions and yet the employees are not receiving 
any benefit from that? What more defined tools could you tell 
the Committee at this time that might satisfy you in terms of 
this legislation that is before Education and the Work force?
    Mr. LYNCH. Clearly, if my organization had written this 
proposal in a vacuum all by ourselves, there are certainly 
other tools that we would have suggested. But the fact of the 
matter is we understand that if we are going to get something 
done on this, we have to get all of the stakeholders in 
agreement. I am sure the same holds for the union 
representatives. They would have written it vastly different 
than I would have written it. So, I cannot honestly say that 
there is anything else that we would suggest other than what we 
have already talked about in the yellow zone and the red zone, 
because our ultimate goal is to get something passed to address 
the issue.
    Chairman CAMP. All right. Thank you. Thank you all very 
much. Thank you for your testimony, and without objection, the 
Subcommittee on Select Revenue Measures is hereby adjourned.
    [Whereupon, at 11:52 a.m., the hearing was adjourned.]
    [Submission for the record follows:]

                                      Valley Stream, New York 11581
                                                      June 23, 2005
Dear Sir or Madam:

    I worked for JPMorgan Chase for 32\1/2\ years. After a 2001 layoff, 
I received a small pension sum for the years of service I was there. A 
Cash Balance Plan conversion that took place in 1988 from a Traditional 
Pension Plan, formerly known as Chemical Bank, was responsible. I also 
worked on staff for them again part time in April 2003. I know that in 
your heart and moral fiber if the government took away your pension or 
made it smaller than was originally promised, you would be furious and 
would use all your influence to fix it. This is clearly and 
unmistakably age discrimination. Please do not let broken promises 
loose our right and fairness to claim the Traditional Pension Plan. 
Thank you.
            Sincerely,
                                          Joanne Pignatelli-O'Neill

                               ----------

    Please review the following letter:
    On July 31, 2003, a federal court ruled that IBM's cash balance 
pension plan violates federal anti-age discrimination law. This ruling 
was a welcome outcome for the 130,000 IBM employees who were 
represented in the case--and for the millions of other Americans whose 
employers have already converted to one of these age discriminatory 
plans or might in the future.
    Late last year, the Treasury Department issued proposed regulations 
that would green-light cash balance plans. However, the decision of the 
federal district court in the Southern District of Illinois raises 
serious questions about the legality of those proposed regulations. As 
you are well aware, an administrative agency cannot change statutory 
requirements through regulations. Only Congress has that authority.
    Given this, we are renewing our request that your Administration 
immediately withdraw the proposed Treasury Department regulations 
regarding cash balance pension plans. (Federal Register December 11, 
2002, Internal Revenue Service, 26 CFR Part 1, REG-209500-86, REG-
164464-02, RIN 1545-BA10,1545-BB79).
    In January, we sent you a letter--signed by a total of 217 Members 
of the U.S. House and Senate--urging the withdrawal of these same 
proposed Treasury regulations governing cash balance plans. We have 
included a copy of that letter for your further review.
    As we stated in that latter we believe the regulations ``would 
create an incentive for thousands of companies to convert to cash 
balance plans by providing legal protection against claims of age bias 
by older employees. The regulations would result in millions of older 
employees losing a significant portion of the annual pension they had 
been promised by their employer and had come to rely upon as part of 
their retirement planning. . . . Re-opening the floodgates for cash 
balance conversions will destroy what is left of our private pension 
retirement system. This is a devastating step that your Administration 
need not and should not allow.''
    We believe that the policy arguments set forth in our January 
letter alone justify the withdrawal of the Treasury regulations at 
issue. However, the likely illegality of the regulations removes any 
question of whether they should go forward. They should not.
    We deeply appreciate your attention to this matter. We trust that 
you will heed the concerns of the millions of Americans potentially 
benefited by this ruling and that you will see to it that the Treasury 
Department does not proceed with regulations in violation of federal 
law. We look forward to working with you to protect the pension 
security of America's workers.

                                 
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