[Senate Hearing 111-1140]
[From the U.S. Government Publishing Office]


                                                       S. Hrg. 111-1140
 
        BUILDING A SECURE FUTURE FOR MULTIEMPLOYER PENSION PLANS 

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

                                HEARING

                                 OF THE

                    COMMITTEE ON HEALTH, EDUCATION,
                          LABOR, AND PENSIONS

                          UNITED STATES SENATE

                     ONE HUNDRED ELEVENTH CONGRESS

                             SECOND SESSION

                                   ON

  EXAMINING BUILDING A SECURE FUTURE FOR MULTIEMPLOYER PENSION PLANS, 
  FOCUSING ON LONG-STANDING CHALLENGES THAT REMAIN FOR MULTIEMPLOYER 
                             PENSION PLANS

                               __________

                              MAY 27, 2010

                               __________

 Printed for the use of the Committee on Health, Education, Labor, and 
                                Pensions


      Available via the World Wide Web: http://www.gpo.gov/fdsys/


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          COMMITTEE ON HEALTH, EDUCATION, LABOR, AND PENSIONS

                       TOM HARKIN, Iowa, Chairman

CHRISTOPHER J. DODD, Connecticut           MICHAEL B. ENZI, Wyoming
BARBARA A. MIKULSKI, Maryland              JUDD GREGG, New Hampshire
JEFF BINGAMAN, New Mexico                  LAMAR ALEXANDER, Tennessee
PATTY MURRAY, Washington                   RICHARD BURR, North Carolina
JACK REED, Rhode Island                    JOHNNY ISAKSON, Georgia
BERNARD SANDERS (I), Vermont               JOHN McCAIN, Arizona
SHERROD BROWN, Ohio                        ORRIN G. HATCH, Utah
ROBERT P. CASEY, JR., Pennsylvania         LISA MURKOWSKI, Alaska
KAY R. HAGAN, North Carolina               TOM COBURN, M.D., Oklahoma
JEFF MERKLEY, Oregon                       PAT ROBERTS, Kansas
AL FRANKEN, Minnesota
MICHAEL F. BENNET, Colorado
                                       
                                       

                      Daniel Smith, Staff Director

                  Pamela Smith, Deputy Staff Director

     Frank Macchiarola, Republican Staff Director and Chief Counsel

                                  (ii)



                            C O N T E N T S

                               __________

                               STATEMENTS

                         THURSDAY, MAY 27, 2010

                                                                   Page
Harkin, Hon. Tom, Chairman, Committee on Health, Education, 
  Labor, and Pensions, opening statement.........................     1
Enzi, Hon. Michael B., a U.S. Senator from the State of Wyoming, 
  opening statement..............................................     3
    Prepared statement...........................................     5
Casey, Hon. Robert P., Jr., a U.S. Senator from the State of 
  Pennsylvania...................................................     6
    Prepared statement...........................................     9
Borzi, Phyllis C., Assistant Secretary of Labor, Employee 
  Benefits Security Administration, and Representative to the 
  Board of the Pension Benefit Guaranty Corporation, Washington, 
  DC.............................................................    11
    Prepared statement...........................................    13
Jeszeck, Charles A., Acting Director, Education, Workforce, and 
  Income Security, U.S. Government Accountability Office, 
  Washington, DC.................................................    15
    Prepared statement...........................................    19
Isakson, Hon. Johnny, a U.S. Senator from the State of Georgia...    28
Nyhan, Thomas C., Executive Director, Teamsters States Pension 
  Plan, Rosemont, IL.............................................    33
    Prepared statement...........................................    35
DeFrehn, Randy G., Executive Director, National Coordinating 
  Committee for Multiemployer Plans, Washington, DC..............    39
    Prepared statement...........................................    41
McGowan, John R., Professor of Accounting, St. Louis University, 
  St. Louis, MO..................................................    47
    Prepared statement...........................................    49
Stein, Norman P., Douglas Arant Professor of Law, University of 
  Alabama School of Law, Tuscaloosa, AL..........................    61
    Prepared statement...........................................    63

                          ADDITIONAL MATERIAL

John Ward, President, Standard Forwarding LLC, East Moline, IL       76
    .............................................................
    Response by Phyllis C. Borzi to questions of:
        Senator Enzi.............................................    78
        Senator Isakson..........................................    84
    Response to questions of Senator Enzi by:
        Charles A. Jeszeck.......................................    86
        Thomas C. Nyhan..........................................    89
        Randy G. DeFrehn.........................................    91
        John McGowan.............................................    94
        Norman P. Stein..........................................    95
    Letters:
        Associated Builders and Contractor (ABC), Inc............    97
        U.S. Chamber of Commerce.................................    98
        YRC Worldwide, Inc.......................................   100

                                 (iii)

  


        BUILDING A SECURE FUTURE FOR MULTIEMPLOYER PENSION PLANS

                              ----------                              


                         THURSDAY, MAY 27, 2010

                                       U.S. Senate,
       Committee on Health, Education, Labor, and Pensions,
                                                    Washington, DC.
    The committee met, pursuant to notice, at 2:03 p.m. in Room 
SD-430, Dirksen Senate Office Building, Hon. Tom Harkin, 
chairman of the committee, presiding.
    Present: Senators Harkin, Casey, Enzi, and Isakson.


                  Opening Statement of Senator Harkin

    The Chairman. The Committee on Health, Education, Labor, 
and Pensions will come to order.
    I want to welcome everyone to this hearing on an issue of 
critical importance to workers and business alike, and that's 
the security of our multiemployer pension plans.
    First of all, I want to thank our witnesses for being 
agreeable to stay over this afternoon. As you know, we had a 
whole series of votes this morning, so we had to postpone the 
hearing until this afternoon.
    I also want to thank my colleague Senator Enzi for also 
agreeing to work to help move this to the afternoon. We all 
have lots of schedules around here, and so, everybody's had to 
juggle a lot of things.
    This is an important hearing. I know some of you came a 
great distance to come here, so we wanted to get it done today.
    Well, there's no question that retirement security's been 
under siege in this country for years. This is my own opinion, 
but, to our national detriment, we have seen a gradual erosion 
of the traditional defined benefit pension system as companies 
opt to provide their workers 401(k) plans or, in many cases, 
nothing at all.
    This has left U.S. workers shouldering more and more 
retirement risk. Workers bear the risk that they could misjudge 
the amount they need to save. They bear the risk of outliving 
their savings. Workers bear the risk of investment losses in a 
volatile economy. And if recent economic events have taught us 
anything, it's that these risks are too great for any single 
individual, or single family, to bear.
    Jacob Hacker, in his book, talks about ``The Great Risk 
Shift.'' And so, while we had pools before in sharing these 
risks, a 401(k) plan says, ``You're on your own. You pay for 
it; you're on your own.''
    Well, as we've seen in the recent downturn, if you've got a 
lot of money and you've got a lot of backing and you're in good 
health, but woe to you, if you're not in that situation.
    That's why I think it's important we do everything in our 
power to ensure that every American has access to a safe and 
secure pension, a pension that rewards a lifetime of work with 
the opportunity to retire with dignity and financial 
independence.
    Fortunately, about 10 million people still have secure 
pensions, thanks to the multiemployer pension system. Since the 
1940s, multiemployer plans have made it possible for some of 
the hardest-working Americans--truckdrivers, machinists, 
miners, electrical workers, et cetera--to earn a pensions 
benefit for themselves and their families. Most of these 
workers would never have been able to do that otherwise.
    Multiemployer plans have also played an important role in 
supporting small businesses. Many small businesses want to do 
right by their workers. They want to provide good wages and 
quality benefits and reward their workers for a lifetime of 
service. Sharing the cost and responsibility of retirement 
benefits through a multiemployer plan is often the only way for 
a responsible small business to provide for a defined benefit 
pension. We need to make sure the system doesn't discourage 
them from continuing to do the right thing.
    Simply allowing these plans to fail would be catastrophic 
for working families across America. Although pensions are 
insured by the Pension Benefit Guaranty Corporation, the payout 
for insured benefits hasn't increased in years, so many 
retirees would see their benefits slashed. Plus, the collapse 
of any multiemployer pension plan places an incredible strain 
on an agency already beleaguered by fiscal woes. The failure of 
a large plan could doom the agency.
    Now, Congress has already taken some steps to provide 
targeted short-term relief to ease them through these tough 
economic times. Funding relief will surely help some of them 
remain afloat. But, for a handful of multiemployer plans, 
short-term funding is just not enough.
    Now, those are the plans we'd like to focus on today, the 
minority of plans that are truly in dire straits. They find 
themselves bearing costs dumped on them by defunct employers 
that failed to pay their fair share, while at the same time 
watching their contribution base shrink, as industries and 
demographics change over time. Those plans need long-term help 
and systemic reforms.
    The challenges faced by multiemployer plans are real, and 
we need to face them head-on, because, quite frankly, they're 
simply too big to ignore. We need to find solutions that will 
protect workers and preserve jobs, while at the same time 
ensuring that our resources are used responsibly. This hearing 
is an important first step towards those important goals.
    Retirement issues have always been an area where we've been 
able to reach across the aisle and work together in this 
committee. Senator Enzi and Senator Kennedy, before me, worked 
closely together on the Pension Protection Act and other recent 
pension legislation. I'm hopeful that we can continue that 
fruitful and bipartisan approach in developing solutions to the 
unique problems faced by multiemployer plans.
    I want to commend Senator Casey for helping to open the 
discussion by introducing a bill that would provide a path 
forward for some of our most troubled multiemployer plans.
    While I think this is an issue that needs a lot of thought, 
we should keep all options on the table. Senator Casey's 
legislation is an important first step. I look forward to 
hearing more about his proposal in today's hearing.
    The obstacles facing multiemployer plans are significant, 
but not insurmountable. By working together, we can find 
creative solutions that ensure that multiemployer plans 
continue to serve an essential part of our retirement system 
and provide safe and secure defined benefits to working 
Americans and their families.
    Once again, thank you all for being here to help us discuss 
this very important issue.
    I'll turn to Senator Enzi.

                   Opening Statement of Senator Enzi

    Senator Enzi. Thank you, Mr. Chairman.
    Today's hearing on our Nation's multiemployer pension 
system is very timely. Many of our Nation's workers, retirees, 
and their families have faced significant uncertainty with 
their financial matters over the past couple of years. They 
also should not be burdened with wondering whether their 
pensions are secure or not.
    I've been a strong supporter of our Nation's traditional 
defined benefit system, as it is one of the three legs, 
including 401(k) plans and Social Security, of our Nation's 
retirement system.
    With the passage of the Pension Protection Act in 2006, we 
strove to ensure that both single-employer pension plans and 
the multiemployer pension system were made stronger so that 
workers, retirees, and their families felt secure, and that the 
Pension Benefit Guaranty Corporation reduced its deficit. 
However, the market declines of the past 2 years have produced 
significant hurdles, and many multiemployer plans can no longer 
meet the qualifications of the yellow or the green zones 
established in 2006.
    Today, I'm ready to roll up my sleeves again so that we can 
move legislation that'll put the multiemployer plans on the 
road to recovery. Our workers and retirees are counting on us. 
However, before we can begin, we need to find out the magnitude 
of the task. During 2008 and 2009, nearly 400 letters were 
filed with the Department of Labor for multiemployer pension 
plans, indicating that they were endangered or critical.
    The PBGC, in its annual report for 2009, released just this 
last week, indicates that its liabilities for multiemployer 
pension plans have grown tenfold since 2008. In addition, the 
agency's statistical model predicts that the PBGC's underfunded 
liability could reach $4 billion by 2019. Last year, Moody's 
reviewed 126 of the largest plans, and estimated those plans 
could be underfunded by $165 billion. I think that's pretty 
sobering news.
    Even more sobering is that the Segal Group, an actuarial 
and service provider for multiemployer plans, found, in its 
spring 2010 survey, that data indicate that over the next few 
years, 30 percent of the plans that are certified as green for 
2010 could migrate into the yellow or red zones unless 
additional actions are taken.
    In addition to the financial status of some of these 
pension plans, I also am very concerned about the management 
and administration of the multiemployer pension plans. Back in 
2005, I held a hearing, in this very room, on the Capital 
Consultants fraud that was perpetrated on a number of 
multiemployer plans.
    Just this past December, a pension consultant was arrested 
in New York for embezzling $42 million over 7 years from the 
New York Local 147, the Sandhogs. I still don't understand how 
anyone could steal that much money without the plan 
administrator, the trustees, and/or the actuaries catching it.
    Also, this week, a class-action lawsuit was filed by the 
New York Carpenters Local 280 against its pension plan's 
trustees for being, ``heavily invested,'' in Bernie Madoff 's 
firm, in violation of the prudent investment standards of 
ERISA.
    In both of these instances, the trusted men and women who 
run the pension plans fell down on the job. Due to their 
negligence, it's the union workers and the union retirees who 
have lost. I'd like to know what the Department of Labor is 
doing to help prevent this type of fraud and to ensure that 
multiemployer plan administrators and trustees are equipped to 
do their jobs.
    With regard to the legislation before us, the Create Jobs 
and Save Benefits Act of 2010 would permit the partition of the 
Central States Southeast and the Southwest Pension Plan, would 
increase retroactively to almost double the insurance coverage 
PBGC has for the multiemployer pensions, would increase premium 
contributions, and grant the PBGC greater involvement in the 
multiemployer pension mergers and alliances.
    Since the PBGC already has the ability to partition pension 
plans and to facilitate mergers, I'm interested in hearing from 
the administration and GAO as to whether it's necessary to 
expand these authorities. I'm especially interested in hearing 
about why the PBGC has not partitioned the Central States Plan 
before.
    I also wish to express my concern for one provision of the 
bill that would allow the new Multiemployer Trust Fund at PBGC, 
in case it runs out of money, to tap into the other trust funds 
at the PBGC. This is extremely dangerous, and I strongly 
believe that if this provision passes, then it will be the 
taxpayer who will eventually be bailing out the PBGC. And a 
taxpayer bailout of the PBGC is not an option.
    Finally, based upon the earlier statistics that I cited, we 
need to determine whether we should be focusing solely on 
Central States and a couple of other small pension plans. On 
Tuesday, the PBGC funded two more multiemployer plans. In 
January, it provided 117 million in assistance to the southern 
California, Arizona, Colorado, and southern Nevada Glaziers 
Pension Plan. The press reported that that plan was less than 
10 percent funded.
    Mr. Chairman, we may need to look at the entire 
multiemployer system. I have significant concerns that just 
doing this piecemeal is not going to be enough. We need to 
ensure that the union workers, union retirees, and their 
families have a pension system they can trust and believe in. 
In addition, we have to ensure that the taxpayer is not on the 
hook.
    I do have a couple of letters I'd like to have put in the 
record.
    [The letters referred to may be found in Additional 
Material.]
    I'll apologize in advance; I will have to leave.
    I also want to welcome John McGowan. It's always nice to 
have an accountant doing some testifying. Sometimes it feels a 
little lonely.
    I want to thank all of you for testifying. I will have 
questions for all of you. Unfortunately, I'll have to ask most 
of them in writing.
    Thank you.
    [The prepared statement of Senator Enzi follows:]

                   Prepared Statement of Senator Enzi

    Mr. Chairman, today's hearing on our Nation's multiemployer 
pension system is very timely. Many of our Nation's workers, 
retirees and their families have faced significant uncertainty 
with their financial matters over the past couple of years. 
They also should not be burdened with wondering whether their 
pensions are secure or not.
    I have been a strong supporter of our Nation's traditional 
defined benefit system as it is one of the three legs, 
including 401(k) plans and Social Security, of our Nation's 
retirement system. With the passage of the Pension Protection 
Act in 2006, we strove to ensure that both single employer 
pension plans and multiemployer pension systems were made 
stronger so that workers, retirees and their families felt 
secure and that the Pension Benefit Guarantee Corporation 
reduced its deficit. However, the market declines of the past 2 
years have produced significant hurdles and many multiemployer 
plans can no longer meet the Yellow or Green funding zones 
established in 2006.
    Today, I'm ready to roll up my sleeves again so that we can 
move legislation that will put the multiemployer system on the 
road to recovery. Our workers and retirees are counting on us.
    However, before we can begin we need to find out the 
magnitude of the task. During 2008 and 2009, nearly 400 letters 
were filed with the Department of Labor by multiemployer 
pension plans indicating that they were in ``endangered'' or 
``critical'' status. The PBGC in its Annual Report for 2009, 
released just last week, indicates that it's liabilities for 
multiemployer pension plans have grown ten-fold since 2008. In 
addition, the agency's statistical model predicts that the PBGC 
underfunded liability could reach $4 billion by 2019. Last 
year, Moody's reviewed 126 of the largest plans and estimated 
that those plans could be underfunded by $165 billion. This is 
quite sobering news.
    But even more sobering is that the Segal Group, a actuarial 
and service provider for multiemployer plans, found in its 
Spring 2010 Survey that, ``data indicates, that over the next 
few years, 30 percent of the plans that are certified as green 
for 2010 could migrate into the yellow or red zones unless 
additional actions are taken.''
    In addition to the financial status of some of these 
pension plans, I also am very concerned about the management 
and administration of multiemployer pension plans. Back in 
2005, I held a hearing in this very room on the Capital 
Consultants fraud that was perpetrated on a number of 
multiemployer plans. Just this past December, a pension 
consultant was arrested in New York for embezzling $42 million 
over 7 years from the New York Local 147, the Sandhogs. I still 
don't understand how anyone could steal that much money without 
the plan administrator, trustees and actuaries catching it. 
Also, this week, a class action lawsuit was filed by New York 
Carpenters Local 280 against its pension plans' trustees for 
being ``heavily invested'' in Bernie Madoff 's firm in 
violation of the prudent investment standards of ERISA. In both 
of these instances, the trusted men and women who run the 
pension plans fell down on the job. Due to their negligence it 
is the union workers and union retirees who have lost. I would 
like to know what the Department of Labor is doing to help 
prevent this type of fraud and to ensure that multiemployer 
plan administrators and trustees are equipped to do their jobs.
    With regard to the legislation before us, the Create Jobs 
and Save Benefits Act of 2010 would permit the partition of the 
Central States Southeast and Southwest Pension Plan; would 
retroactively increase, to almost double, the insurance 
coverage PBGC has for multiemployer pensions; would increase 
premium contributions and grant the PBGC greater involvement in 
multiemployer pension mergers and alliances.
    Since the PBGC already has the ability to partition pension 
plans and to facilitate mergers, I am interested in hearing 
from the Administration and GAO as to whether it is necessary 
to expand those authorities. I am especially interested in 
hearing about why the PBGC has not partitioned the Central 
States plan before. I also wish to express my concern for one 
provision of the bill that would allow the new multiemployer 
trust fund at PBGC, in case it runs out of money, to tap into 
the other trust funds at the PBGC. This is extremely dangerous, 
and I strongly believe that if this provision passes then it 
will be the taxpayer who will have to eventually bail out the 
PBGC. And a taxpayer bailout of the PBGC is not an option.
    Finally, based upon the earlier statistics that I cited, we 
need to determine whether we should be focusing solely on 
Central States and a couple of other small pension plans. On 
Tuesday, the PBGC funded two more multiemployer plans and in 
January it provided $117 million in assistance to the Southern 
California, Arizona, Colorado and Southern Nevada Glaziers 
pension plan. The press reported that that plan was less than 
10 percent funded.
    Mr. Chairman, we may need to look at the entire 
multiemployer system. I have significant concerns that just 
doing this piecemeal is not going to be enough. We need to 
ensure that union workers, union retirees, and their families 
have a pension system that they can trust and believe in. In 
addition, we have to ensure that the taxpayer is not on the 
hook.

    The Chairman. Thank you very much, Senator Enzi.
    By mutual agreement, I'd like to recognize Senator Casey 
for a statement, and congratulate him, again, on introducing a 
bill that I think is, as I said in my statement, an important 
first step in solving this.
    Senator Casey.

                       Statement of Senator Casey

    Senator Casey. Thank you, Mr. Chairman.
    I want to thank you and the Ranking Member for calling this 
hearing and for gathering us together, after we had to postpone 
it earlier today.
    We want to thank, again, the witnesses who are here.
    Thank you Chairman Harkin and Ranking Member Enzi, also, 
for giving me the opportunity to make a brief opening 
statement, which doesn't always happen on this committee; we 
don't always have this opportunity. We're grateful to have that 
chance.
    I know we're going to be getting into the details of this 
challenge that we have, but also the details of the 
legislation. I'm proud to have introduced Senate bill 3157, the 
Create Jobs and Save Benefits Act, which I believe contains 
within it a strategy to deal with a very real problem and a 
very real threat to job creation and job preservation in the 
near future.
    I'll get into some of the statements that have been made 
over the last couple of days that--frankly, a lot of the 
statements made in the press are just not true. Some are, I 
hope, just negligent misstatements of fact; I hope they're not 
intentional. There have been television reports and print 
reports, as well, that have been way off. Again, I hope it's 
not intentional. We'll go through those in a moment.
    Basically, what we're trying to do here is to make sure 
that individuals who have worked very hard in their lives, and 
have earned a pension, are able to get that pension at the time 
that they have a right to expect it. Hundreds and hundreds of 
thousands, if not millions, of retirees' retirement security is 
at stake when it comes to these issues.
    First of all, in terms of the elements of the bill, there 
is a section on mergers and alliances--the language in the bill 
enables multiemployer funds to combine resources for purposes 
of reducing administrative costs. The section on partition, 
which is if a plan satisfies certain requirements, the plan 
will transfer to a separate account all benefit liabilities 
that are attributable to the so-called ``orphans,'' meaning the 
participants of employers who withdrew from the plan without 
paying their withdrawal liability--and also transfer assets 
equal to a maximum of 5 years of projected payment. The Pension 
Benefit Guaranty Corporation, which was enacted into law with 
no taxpayer dollars, will handle the initial application. For 
the first 5 years, the plan itself will be responsible for the 
payments.
    It's very straightforward. It's absolutely necessary that 
we pass this legislation. Currently, there are only a handful 
of plans that would be able to take advantage of it. But, those 
who are able to do so are in the greatest need.
    I just want to deal with a couple of things that have been 
said in the press in the last couple of days. They've used the 
word ``bailout''--that this bill will cause a bailout. That's 
not true; it's nowhere near true. I realize that ``bailout'' is 
a word that's been freighted with a lot of controversy. It's an 
incendiary word to use in the public press, but it just isn't 
the case.
    There's also been references, in the television and the 
print press, to use the word ``union.'' I understand that, that 
some like to use that as a way to denigrate and to cause 
conflict. I'm a Democratic U.S. Senator who has had a lot of 
support from unions, and I'm a strong supporter of theirs. Very 
few that I could point to are stronger supporters.
    Let me read to you, in pertinent part--and I'll submit 
these letters later--one or two sentences from a letter from 
the U.S. Chamber of Commerce. I don't know what my voting 
record is with the Chamber of Commerce, but it's not at the top 
of their scoring. In the second paragraph of this letter, 
released this morning, and I quote, ``Recent press stories have 
referred to the proposals as, `a union bailout,' to 
multiemployer plans as''-- and, I should say--``to 
multiemployer plans as `union plans'. However, this is not the 
case. In fact, contributions to these plans are funded entirely 
by employers, not unions.''
    I'd note, for the record, that one of the substantial plans 
that would be helped by this legislation, the Central States 
Fund--we'll hear more about this later--just imagine this--has 
423,000 participants, at last count. Three hundred and forty-
two thousand of those are retirees.
    So, I guess some of those people in the news are going to 
just say, ``Don't worry about them. Those plans will get along 
just fine. Those people won't get their retirement benefits, 
but they'll be okay.'' Pretty easy to say that, when you're 
sitting on a different perch, where your retirement is secure.
    Central States has 2,000 employers who contribute. This is 
about retirees, and it's about making sure that we protect 
these employers, as well.
    Of the 2,000 employers that contribute to the Central 
States Fund, 9 out of 10 of them are small businesses with 50 
employees or less.
    For those who want to say, ``This is going to benefit some 
small group of well-off individuals, or some labor organization 
that's already bargained and negotiated for these rights,'' 
they should think long and hard about that, because we're 
talking about small business people. We're talking about 
retirees here.
    If we're going to have a debate about this in the U.S. 
Congress, the least that our friends in the media could do, and 
the least that anyone else who comments about this should do 
is, read the bill, understand how it works before going on 
television and saying things that are not true.
    I will have a lot more to say, which I won't now; I'll 
leave it for another time. This hearing is a very instructive 
opportunity for us to be able to learn something about our 
retirement system, I should say--about multiemployer plans, 
about some of the challenges they have, and about solutions, 
instead of rhetoric and incendiary language, which might create 
conflict, but doesn't solve too many problems.
    The American people want us to do our best to solve 
problems. They really don't care about our political fights; 
they want us to solve problems. This legislation is one of the 
ways, one of the strategies, that we can solve a problem that's 
facing a lot of retirees who work pretty hard over their 
lifetimes to deserve these benefits.
    Thank you, Mr. Chairman.
    [The prepared statement of Senator Casey follows:]

                  Prepared Statement of Senator Casey

    Thank you to Chairman Harkin and Senator Enzi for providing 
me with the opportunity to speak at this important hearing. 
Also, thank you for organizing a hearing on multi-employer 
plans--the continued success of multi-employer plans is vital 
to millions of Americans across this great Nation--and I hope 
this hearing will provide us information on how to ensure the 
continued success of these plans.
    As a strong supporter of multi-employer plans, I believe 
there are several actions that Congress must take this year to 
ensure their survival. Specifically, I believe the Senate must 
pass S. 3157, the Create Jobs and Save Benefits Act of 2010. I 
introduced this bill in March and the bill is co-sponsored by 
Senators Brown, Franken, Stabenow and Burris.
    I won't go into the details because I believe several of 
the witnesses here today will discuss various aspects of the 
legislation; however, I do want to confront a few of the 
distortions that have been communicated about the bill over the 
past few days.

    Statement: S. 3157, the Create Jobs and Preserve Benefits 
Act of 2010, will cost $165 billion dollars.
    False: $165 billion is the purported total amount of 
underfunding of all multi-employer plans in the country. The 
partition aspect of this bill can only be utilized by a handful 
of the 1,500 multi-employer plans in the country. At the 
moment, we only know of 2 pension plans that will apply for 
partition. The estimated cost is approximately $8 billion over 
10 years, not $165 billion.

    Statement: The bill will be a union bailout.
    False: This bill will help companies stay in business, 
prevent job loss and protect pensions for hard-working 
Americans.

    Statement: Multi-employer plans have major problems.
    False: Actually, multi-employer plans are in excellent 
shape. Prior to the recession, according to the Segal Group, 
the average funding level of multi-employer plans was 97 
percent. Due to the economic recession, that average has 
dropped to 86 percent, which is an excellent average 
considering the current economic climate.

    Statement: According to an editorial yesterday in 
Investor's Business Daily: ``The bill's author, Democratic Sen. 
Bob Casey of Pennsylvania, wants the public to pay for the 
gold-plated union retirement benefits that the funds have 
mismanaged into oblivion.''
    False: With respect to the Central States Fund, which will 
benefit under my bill, the average annual benefit is just over 
$13,000. That figure is the same for the Western Pennsylvania 
Teamsters Fund. To put $13,000 into perspective, the Federal 
poverty line for a 2-person family is $14,570. A 3-person 
family, the figure is $18,310. Certain interest groups try to 
claim union members receive lavish benefits--they make these 
statements in order to convince the public that unions are bad 
for America--but, in fact, and the numbers don't lie, the 
benefits are not lavish--they are below the Federal poverty 
line.

    Statement: The bill is a union bailout.
    False: This is not a union bailout--in fact, it is not even 
a bailout. Private employers are the entities that contribute 
funds to the multi-employer plans--not unions. In fact, I have 
a letter from the U.S. Chamber of Commerce, specifically 
stating that this bill is not a union bailout.
    In addition to the lies and distorted statements, some news 
groups have attempted to claim the title of the bill is pure 
fluff. Well, this is blatantly false--and here is why--this 
bill is about jobs--maintaining jobs and creating jobs!
    I have with me today two letters--one from YRC Worldwide--
North America's largest trucking company--YRC employs 40,000 
people across the Nation--with over 1,000 in the Commonwealth 
of Pennsylvania. For YRC, this issue is about jobs--there is a 
risk that YRC could go bankrupt without the assistance that my 
bill provides. If YRC were to go bankrupt--along with 
bankruptcy is the risk of 40,000 people losing their jobs.
    In addition, I have a second letter of support from a group 
of 12 employers who support the bill. Combined, these companies 
employ over 650,000 people. Similar to YRC, these companies are 
urging passage of the bill to assist in reducing their cost--at 
stake are 650,000 jobs.
    Not only will this bill maintain jobs, it will create jobs! 
By lowering the cost of contributing to the plan for all 
employers involved, more capital is available to re-invest in 
their companies--which will create jobs.
    On top of the letters of support from YRC and a separate 
letter from an additional 12 employers--I have a letter from 
the U.S. Chamber of Commerce, representing several employers 
who contribute to multi-employer funds. This letter states 
support for measures to provide relief to multi-employer plans 
and pushes back on the notion that my bill is a union bailout. 
All three of these letters I would like to offer into the 
record.
    To maintain and continue to create jobs during this 
difficult time in our history, we must pass S. 3157. I 
encourage my colleagues to support this legislation. Chairman 
Harkin, Senator Enzi, thank you for this opportunity. I look 
forward to the testimony of all the witnesses.

    The Chairman. Thank you very much, Senator Casey.
    Again, I welcome our witnesses.
    All your statements will be made a part of the record in 
their entirety.
    We have two panels. Our first panel is Phyllis Borzi, 
Assistant Secretary for the Employee Benefits Security 
Administration at the Department of Labor, and a representative 
to the Board of PBGC. Assistant Secretary Borzi is accompanied 
by David Gustafson, director of the Policy, Research, and 
Analysis Department at the PBGC.
    Next is Charles Jeszeck, acting director of the Government 
Accountability Office. Mr. Jeszeck has spent almost 25 years 
leading research on retirement and labor policy issues and 
providing information to Members of Congress and their staff on 
these matters.
    We welcome you both. I'll ask you if you could just sum up 
your testimony in 5 minutes or so. Then we can open a 
discussion. I would certainly appreciate that.
    Ms. Borzi, we'll begin with you. Please proceed.

 STATEMENT OF PHYLLIS C. BORZI, ASSISTANT SECRETARY OF LABOR, 
 EMPLOYEE BENEFITS SECURITY ADMINISTRATION, AND REPRESENTATIVE 
   TO THE BOARD OF THE PENSION BENEFIT GUARANTY CORPORATION, 
WASHINGTON, DC; ACCOMPANIED BY DAVID GUSTAFSON, DIRECTOR OF THE 
        POLICY, RESEARCH AND ANALYSIS DEPARTMENT AT PBGC

    Ms. Borzi. Good afternoon, and thank you, Chairman Harkin, 
Ranking Member Enzi, Senator Casey, Senator Isakson.
    Thank you for inviting me to testify before the committee 
today on multiemployer defined benefit pension plans.
    I am Phyllis Borzi, the Assistant Secretary of Labor for 
the Employee Benefit Security Administration. One of my key 
responsibilities, as the Assistant Secretary of Labor for EBSA, 
is to serve as Secretary Solis's representative to the Pension 
Benefit Guaranty Corporation board of directors, which she 
chairs.
    The Department of Labor and the PBGC are committed to 
promoting policies that encourage retirement savings and 
protect workers' employer-sponsored benefits. Multiemployer 
defined benefit pension plans play a vital role in providing 
retirement security to millions of American workers and 
retirees. The PBGC protects the pension benefits of about 1,500 
multiemployer plans that cover more than 10.4 million workers 
and retirees.
    Now, while 5 percent of PBGC's insured defined benefit 
plans are multiemployer plans, the participants in these plans 
constitute over 24 percent of all the participants in PBGC-
covered defined benefit plans.
    Multiemployer plans, as you know, are collectively 
bargained plans that are jointly administered by boards of 
trustees with equal representation from labor and management. 
These plans are attractive in industries, such as construction 
and trucking, where workers switch employers frequently. These 
plans enable workers to continue to accrue pension credits when 
they change employers, as long as the employers continue to be 
contributing employers to the plan. This portability feature 
enables workers in these industries to accumulate meaningful 
pension benefits.
    Due to dramatic and permanent changes in the structure of 
some industries, however, compounded by recent economic 
downturn, today some multiemployer plans face new questions 
about their ability to continue to provide meaningful benefits 
in the future.
    The common problems these plans face are a sharp decline in 
the number of new employers that join the plans, and a dramatic 
drop in the ratio of active workers to retirees, as Chairman 
Harkin said at the beginning. A multiemployer plan depends on 
contributions from employers participating in the plan.
    When employers go bankrupt, or otherwise withdraw from the 
plan, and the plan is underfunded, it's the remaining employers 
who are responsible for contributing sufficient amounts to pay 
for the benefits of those participants who accrued benefits 
while working for an employer that is no longer contributing to 
the plan.
    These larger problems facing plans in troubled industries 
won't be solved by the kind of temporary, short-term funding 
relief that Congress is currently working on.
    The administration has been examining proposals to help 
multiemployer plans keep their commitments to workers and 
retirees while also ensuring that the PBGC is able to continue 
to protect the retirement security of the 44 million workers 
and retirees in the more than 29,000 private defined benefit 
plans that it insures.
    And, as he mentioned, earlier this year, Senator Casey 
introduced the Create Jobs and Save Benefits Act of 2010. We 
appreciate Senator Casey's leadership in calling attention to 
the situation facing some multiemployer plans. We recognize the 
financial hardship facing these workers and retirees who could 
experience lower pension benefits.
    At the same time, however, we believe that several elements 
of this particular proposal deserve further consideration. The 
legislation would amend the Employee Retirement Income Security 
Act of 1974, ERISA, to permit some multiemployer plans to elect 
a qualified partition. This proposed qualified partition would 
permit a multiemployer plan to spin off into a new partition 
plan the liabilities and certain assets attributable to 
employees of employers who file for bankruptcy or who have 
failed to pay their withdrawal liability when they leave the 
plan.
    Under current law, PBGC has the authority to order 
partition of a multiemployer plan. Partition is a statutory 
mechanism that permits healthy employers to retain a plan by 
carving out plan liabilities attributable to employees of 
employers who file for chapter 11 bankruptcy. The PBGC assumes 
liability for paying benefits to these participants of the 
newly carved-out terminated plan. Like all multiemployer plans, 
the new plan is subject to PBGC's multiemployer guaranteed 
benefit limits, and currently, the maximum guaranteed benefit 
limit is approximately $13,000 for participants with 30 years 
of service.
    Since 1980, when these partition rules came into effect, 
PBGC has partitioned only two plans. The rules are designed to 
be narrow, for PBGC to grant partition in narrow circumstances, 
and to give PBGC the flexibility in making a determination that 
the partition is necessary. The PBGC must find that a 
substantial reduction in the amount of aggregated contributions 
under the plan is a result of employer bankruptcies, and that 
the plan is likely to be insolvent. In addition, the PBGC must 
find that contributions will have to be increased to prevent 
insolvency, and that partition would significantly reduce the 
likelihood of insolvency.
    Unlike PBGC's current statutory framework, the proposed 
framework in the bill would leave PBGC without the power to 
make its own findings about the plan's financial condition or 
the need for partition.
    We're concerned about the impact of this proposal on 
workers and retirees in plans covered by PBGC's insurance 
programs. The proposal would transfer responsibility to the 
PBGC for payment of the full plan benefits of participants 
transferred to the partition plan. In many cases, the benefits 
participants would receive would be well above the amount 
guaranteed by PBGC, thus treating participants in the partition 
plan differently than participants, in other plans trusteed by 
the PBGC, who are subject to the benefit guarantee limits.
    Also, under the proposal, the partition plan would use 
other PBGC funds, such as the Single-Employer Fund, to pay 
benefits to participants in the partition plan.
    The proposal ultimately makes taxpayers liable for the 
benefits of the partition plan. Currently, no other benefit 
obligations assumed by PBGC are subject to the full faith and 
credit of the U.S. Government.
    Now, the administration is still reviewing these proposals. 
We need to take time to carefully examine them and look at 
other proposals that would expand the circumstances under which 
partition could be used; and, in particular, to look at the 
impact of proposals on participants in other multiemployer 
plans and single-employer plans insured by the PBGC.
    The administration is sympathetic to the financial problems 
facing multiemployer plans, and we hope to work with you to 
find balanced solutions. We need to make certain that any 
solutions protect the retirement security of workers and 
retirees, and secure the PBGC's ability to continue to pay 
guaranteed benefits for all of the workers and retirees whose 
defined benefits plans it's responsible for insuring.
    Thank you so much for the opportunity to testify and for 
your leadership in examining this issue. We look forward to 
working with the committee to solve these important issues. 
I'll be happy to answer any questions.
    [The prepared statement of Ms. Borzi follows:]
                 Prepared Statement of Phyllis C. Borzi
                          introductory remarks
    Good morning Chairman Harkin, Ranking Member Enzi, and members of 
the committee. Thank you for inviting me to testify before the 
committee today about multiemployer defined benefit pension plans. I am 
Phyllis C. Borzi, the Assistant Secretary of Labor for the Employee 
Benefits Security Administration (EBSA). EBSA's mission is to protect 
the security of retirement, health, and other employee benefits for 
America's workers, retirees and their families, and to support the 
growth of our private-sector employee benefits system.
    One of my key responsibilities as the Assistant Secretary of Labor 
for EBSA is to serve as Secretary Solis' representative to the Pension 
Benefit Guaranty Corporation's (PBGC) Board of Directors, which she 
chairs. The subject of today's hearing is relevant both to EBSA's 
mission and to the PBGC Board's oversight responsibilities. I am 
pleased that your committee is examining these issues and look forward 
to working with you to strengthen retirement security for working 
Americans.
    The Department of Labor is committed to promoting policies that 
encourage retirement savings and protect workers' employer-sponsored 
benefits. Multiemployer defined benefit pension plans play a vital role 
in providing retirement security to millions of American workers and 
retirees. However, due to dramatic and permanent changes in the 
structure of some industries, compounded by the recent economic 
downturn, today some multiemployer plans face new questions about their 
ability to continue to provide meaningful benefits in the future. The 
common problems these plans face are a declining number of active 
participants and a significant drop in the number of employers who 
contribute to the plan. These larger problems for plans in troubled 
industries are not temporary and will not be solved by short-term 
funding relief.
    Because the Department and the PBGC Board of Directors understand 
the valuable benefits that these plans provide to millions of workers 
and retirees, we are concerned about their long-term solvency. We are 
examining proposals to help multiemployer plans keep their commitments 
to workers and retirees, while also ensuring that the PBGC is able to 
continue to protect the retirement security of the 44 million workers 
and retirees in the more than 29,000 private defined benefit plans that 
it insures.
                               background
    The PBGC protects the pension benefits of about 1,500 multiemployer 
plans that cover more than 10.4 million workers and retirees.\1\ While 
5 percent of PBGC-insured defined benefit plans are multiemployer 
plans, multiemployer plan participants constitute over 24 percent of 
all participants in PBGC-covered defined benefit plans. Multiemployer 
plans are collectively bargained plans that are maintained by labor 
unions and more than one employer. Contributing employers are generally 
from the same or closely related industries, such as the construction, 
trucking, textiles, or mining industries. Federal labor law requires 
these plans to be jointly administered, with equal representation from 
labor and management.
---------------------------------------------------------------------------
    \1\ Pension Benefit Guaranty Corporation Annual Report 2009.
---------------------------------------------------------------------------
    The number of multiemployer pension plans PBGC insures has been 
declining since 1980, falling approximately 30 percent from 2,200 in 
1980 to 1,500 in 2009--primarily due to plan mergers.\2\ Over the same 
period, the total number of multiemployer pension plan participants has 
risen about 30 percent (from almost 8 million in 1980 to over 10 
million in 2009). However, the percentage of active workers 
participating in multiemployer plans has declined since 1980, while, in 
contrast, the percentage of participants who have retired or who are 
separated from employment and have not yet begun receiving a pension 
has risen. Active workers represented approximately 75 percent of 
multiemployer plan participants in 1980 but only 45 percent in 2007, 
while retired or separated participants represented approximately 25 
percent in 1980 but significantly increased to 55 percent by 2007. This 
demographic shift is at the heart of the funding challenges that 
multiemployer defined benefit plans face.
---------------------------------------------------------------------------
    \2\ Pension Benefit Guaranty Corporation Annual Report 2009 and 
Forthcoming Pension Insurance Data Book 2009.
---------------------------------------------------------------------------
      advantages and disadvantages of multiemployer pension plans
    Multiemployer plans, like single-employer defined benefit plans, 
can provide workers and their families with a steady and reliable 
stream of income at retirement. In many multiemployer plans, the 
participant's benefit is based on a flat dollar amount for each year of 
service. This is different from most single-employer plans where 
benefits are typically based on years of service and earnings.
    Multiemployer plans enable workers who switch employers frequently 
within the same industry to earn meaningful benefits under a defined 
benefit plan. Participants can continue to accrue credits toward their 
pension when they change employers, as long as the new employer is a 
contributing employer to the plan. This portability feature is what 
makes multiemployer plans attractive in industries such as construction 
where workers may switch employers frequently.
    However, the concentration of multiemployer plans in a particular 
industry also creates a disadvantage for plans if that industry is in 
decline. A multiemployer plan depends on contributions from employers 
participating in the plan. When employers go bankrupt or otherwise 
withdraw from the plan, and the plan is underfunded, the remaining 
employers are responsible for contributing sufficient amounts to pay 
for the benefits of those participants who accrued benefits while 
working for an employer that is no longer contributing to the plan.
    In 1980, Congress enacted the Multiemployer Pension Plan Amendments 
Act (MPPAA) to strengthen protections for multiemployer plans. Under 
MPPAA, employers who cease to contribute to a multiemployer plan are 
generally liable to the plan for their share of the plan's 
underfunding, known as withdrawal liability. Companies that go out of 
business, however, often fail to pay their withdrawal liability and 
leave the remaining employers responsible for larger contributions.
                 pbgc assistance to multiemployer plans
    The PBGC operates two insurance programs--one for multiemployer 
plans and one for single-employer plans. The PBGC multiemployer plan 
insurance program is, by law, operated and financed separately from the 
single-employer insurance program. The assets from one program cannot 
be used to support the other. The multiemployer program also has its 
own premium structure under which plans pay a flat rate of $9 per 
participant per year in 2010. This premium is indexed for wage 
inflation. In comparison, single-employer plans pay a flat rate of $35 
per participant per year in 2010. An underfunded single-employer plan 
may also be required to pay an additional variable premium of up to 0.9 
percent of the plan's unfunded vested benefits.
    Unlike similarly situated single-employer plans, multiemployer 
plans that become insolvent receive assistance from the PBGC in the 
form of loans. There are strong incentives for adequate funding of 
multiemployer plans and for plans to avoid PBGC assistance. In addition 
to employers being jointly liable for unfunded benefits, the guaranteed 
benefit for participants is small. Currently, the maximum PBGC 
guaranteed benefit is approximately $13,000 for 30 years of service, 
compared with about $54,000 for workers who retire at age 65 in single-
employer plans. In effect, workers in multiemployer plans bear more of 
the risk of plan underfunding than workers in single-employer plans.
    Multiemployer plans pose a smaller risk to the PBGC than single-
employer plans because the PBGC insurance program for multiemployer 
plans is the second ``backstop.'' Contributing employers are the first 
insurers of benefits. Instead of a plan terminating and being trusteed 
by the PBGC as under the single-employer program, PBGC multiemployer 
plan insurance is triggered by plan insolvency. When a multiemployer 
plan lacks assets to pay basic guaranteed benefits, PBGC provides 
financial assistance in the form of loans, but the plan, rather than 
PBGC, continues to pay guaranteed benefits.
    Since 1980, PBGC has provided $500 million in financial assistance, 
net of repayments, to 62 multiemployer plans. While plans have an 
obligation to repay the financial assistance if the plan recovers from 
insolvency, only one plan has repaid PBGC.
    The multiemployer program's deficit was $869 million for fiscal 
year 2009, with $1.5 billion in assets and $2.3 billion in liabilities. 
Most of the liabilities represent nonrecoverable future financial 
assistance to the 39 plans currently receiving financial assistance and 
to 65 other plans expected to receive assistance in the future. 
Exposure to additional future losses is a concern due to a number of 
long-term challenges that may affect the solvency of multiemployer 
plans.
                 challenges facing multiemployer plans
    Just like other defined benefit plans, recent investment losses 
across all asset classes and low interest rates have impacted the 
funding status of many multiemployer plans. The Pension Protection Act 
requires multiemployer plan trustees to review projections of their 
financial status annually and to classify the plan as being in the 
green, yellow, or red zone. Generally, plans are classified as being in 
the yellow zone if they are in ``endangered status'' with funding below 
80 percent, or the red zone if they are in ``critical status'' with 
funding below 65 percent. From 2008 to 2010, the percentage of 
calendar-year plans in green status has decreased and the percentage of 
plans in red status has increased. For 2008, 83 percent of calendar-
year plans were in green status, 10 percent in yellow status, and 7 
percent in red status. In contrast, for 2010, 54 percent of calendar-
year plans were in green status, 16 percent in yellow status, and 30 
percent in red status. Most recently, there has been an increase in the 
number of plans in green status. From 2009 to 2010, the percentage of 
calendar-year plans in green status increased from 39 percent to 54 
percent.\3\
---------------------------------------------------------------------------
    \3\ Segal Survey of Calendar-Year Plans' 2010 Zone Status (Spring 
2010).
---------------------------------------------------------------------------
    In response, many multiemployer plans have told us that they have 
already increased employer contributions or cut future benefit accruals 
to improve funding. In addition, the Administration is sympathetic to 
providing short-term funding relief for multiemployer plans impacted by 
the economic downturn by extending the amortization period to fund the 
plans.
    A small number of multiemployer plans, however, are facing severe 
long-term financial problems that short-term funding relief will not 
solve. A number of trends have made it unlikely that these plans will 
recover unless they receive dramatic funding relief or other changes to 
the pension insurance program are made. One such trend that is 
particularly challenging is that, due to restructuring of and decline 
in particular industries, there has been a sharp decline in the number 
of new employers that join these plans and a dramatic drop in the ratio 
of active workers to retirees.
The Central States Pension Fund
    The Central States Pension Fund, one of the Nation's largest 
multiemployer defined benefit plans, is facing some of the most 
difficult long-term challenges. According to information provided by 
the Fund, the plan covers over 433,000 participants and provides 
monthly benefits to over 200,000 retirees and beneficiaries; active 
participants who provide the plan's contribution base have now dropped 
to 61,000. A large number of business failures in the last 2 years have 
drastically reduced the number of employers and active workers to 
support the retirees in the plan, severely compounding a downward trend 
caused, in part, by trucking deregulation in the 1980s. The obligation 
to pay benefits to employees and retirees of these defunct companies 
remains with the Central States Pension Fund. Like many other plans, 
Central States also recently suffered investment losses, which has 
contributed to its financial problems. Reductions in benefits and 
substantial increases in employer contributions during the past few 
years have not been able to fill in the gaps caused by the rapidly 
shrinking contribution base.
                          partition proposals
    Representatives of the Central States Pension Fund have met with 
the Department and other members of the Administration about a proposal 
that would amend the Employee Retirement Income Security Act (ERISA) to 
permit some multiemployer plans to elect a ``qualified partition.'' 
Earlier this year, Senator Casey introduced the ``Create Jobs and Save 
Benefits Act of 2010'' (S. 3157). The bill provides for many of the 
partition provisions proposed by Central States. We appreciate Senator 
Casey's leadership in calling attention to the situation facing Central 
States.
Current PBGC Partition Authority
    PBGC has current authority to order the partition of a 
multiemployer plan. ERISA empowers the PBGC to order the partition of a 
multiemployer plan, either upon its own motion or upon application by 
the plan sponsor. Partition is a statutory mechanism that permits 
healthy employers to maintain a plan by carving out the plan 
liabilities attributable to employees of employers who have filed for 
Chapter 11 bankruptcy. Once partitioned, the PBGC assumes liability for 
paying benefits to the participants of this newly carved-out but 
terminated plan. Like all multiemployer plans, the new partitioned plan 
is subject to ERISA's multiemployer guaranteed benefit limits.
    In order to grant a partition under PBGC's current authority, the 
PBGC must find that a substantial reduction in the amount of aggregated 
contributions under the plan has resulted or will result from employer 
bankruptcies and that the plan is likely to become insolvent. In 
addition, PBGC must find that contributions will have to be increased 
significantly to prevent insolvency, and that the partition would 
significantly reduce the likelihood of insolvency.
    Since 1980, when the partition rules came into effect, PBGC has 
partitioned only two plans. In the case of Council 30 of the Retail, 
Wholesale and Department Stores Union, PBGC does not administer the 
partitioned plan, but rather provides funds to the trustees of the 
original plan who act as the paying agent for the partitioned plan. 
PBGC recently approved the partitioning of the Chicago Truck Drivers 
Union Pension Plan, which has more than nine retirees for each active 
worker.
Proposed ``Qualified Partition''
    The proposed ``qualified partition'' would permit a multiemployer 
plan to spin off into a new plan (``partitioned plan'') the liabilities 
and certain assets attributable to employees of employers who have 
filed for bankruptcy or who have failed to pay their withdrawal 
liability. The proposal would transfer responsibility to the PBGC for 
payment of the full plan benefits of participants transferred to the 
partitioned plan, which in many cases would be well above the amount 
guaranteed by the PBGC under current law. The multiemployer plan would 
transfer to the partitioned plan assets that the plan contends should 
be sufficient to pay the benefits of the transferred participants for 
up to 5 years. Under the legislative proposal, the plan actuary could 
determine that fewer assets should be transferred to protect the 
solvency of the remaining multiemployer plan. Once the transferred 
assets run out, the U.S. Government would become liable for obligations 
arising from the partitioned plan.
    We recognize the financial hardship facing workers and retirees who 
could experience lower pension benefits. At the same time, however, we 
believe that several elements of this particular proposal deserve 
further consideration. The proposal states that once a multiemployer 
plan elects a qualified partition, PBGC must order the partition. This 
framework leaves PBGC without power to make its own findings about the 
plan's financial condition or need for partition. Once the plan is 
partitioned, the multiemployer plan, not the PBGC, would continue to 
manage and invest the assets of the partitioned plan.
    The rationale for allowing participants in the partitioned plan to 
receive their full benefits, while participants in other multiemployer 
plans receiving assistance from the PBGC and single-employer plans 
trusteed by the PBGC are subject to benefit guarantee limits, is 
unclear.
    Also, under the proposal, the partitioned plan would use other PBGC 
funds, such as the single-employer plan fund, to pay benefits to 
participants in the partitioned plan. We are concerned about the impact 
of the proposal on participants in single-employer plans trusteed by 
the PBGC. As of the end of fiscal year 2009, the single-employer 
program insured about 33.6 million people covered by more than 27,600 
plans, and reported a net deficit of $21.1 billion. The proposal 
ultimately makes the taxpayers liable for paying the benefits of the 
partitioned plan. Currently, no other benefit obligations assumed by 
PBGC are subject to the full faith and credit of the U.S. government.
    We are examining these proposals and, in particular, the impact of 
the proposals on participants in other multiemployer plans and single-
employer plans insured by the PBGC. The Administration is sympathetic 
to financial problems facing multiemployer plans and we hope to find 
balanced solutions. We need to make certain that any solutions protect 
the retirement security of workers and retirees and secure the PBGC's 
ability to continue to pay guaranteed benefits to all of the workers 
and retirees whose defined benefit plans it is responsible for insuring 
in both the single-employer and multiemployer programs. Any solution to 
the multiemployer problem might require an infusion of additional 
funds, for instance through an increase in plan premiums, into the 
PBGC. We will continue to work with representatives of the Central 
States Pension Fund on their proposal and would be happy to work with 
the committee.
                               conclusion
    Thank you for the opportunity to testify before the committee today 
at this important hearing and for your leadership in examining the 
future of multiemployer plans. The Department remains committed to 
protecting the security and growth of retirement benefits for America's 
workers, retirees, and their families.

    The Chairman. Thank you very much, Ms. Borzi.
    Now we'll turn to Mr. Jeszeck.
    Mr. Jeszeck, please proceed.

 STATEMENT OF CHARLES A. JESZECK, ACTING DIRECTOR, EDUCATION, 
WORKFORCE, AND INCOME SECURITY, U.S. GOVERNMENT ACCOUNTABILITY 
                     OFFICE, WASHINGTON, DC

    Mr. Jeszeck. Chairman Harkin and members of the committee, 
thank you so much for inviting me here today to discuss 
employer pension plans and the challenges they face. Covering 
over 10 million workers and retirees, they are a key component 
of our Nation's private pension system. Because of the 
multiemployer system's key contribution to our country's 
retirement security, this hearing is extremely timely.
    As you know, we are conducting a study of multiemployer 
plans for another committee, and that study will be issued 
later this year. My comments today will focus on some of the 
features of multiemployer plans that distinguish them from 
single-employer plans. I will then briefly discuss the 
challenges facing multiemployer plans and the PBGC.
    First, some key features of multiemployer plans. 
Multiemployer plans are collectively bargained by unions and 
several employers and are administered jointly by labor and 
management. In comparison, many single-employer plans are not 
bargained and are administered by a single sponsoring employer. 
Further, employer contributions to multiemployer plans are 
determined through the bargaining process, often specified as a 
rate per hour worked. Such rates are typically fixed for the 
contract's duration. In contrast, single-plan sponsors may vary 
contributions annually, as long as they remain within the 
limits set by ERISA.
    Rules of employers seeking to end their sponsorship are 
less flexible for multies than for singles. Multiemployer plan 
sponsors who wish to withdraw from the plan must pay their 
share of the plan's unfunded vested benefits. This is called 
the ``withdrawal liability.'' Further, if an employer in such a 
plan goes bankrupt, the other sponsors must assume 
responsibility for paying any unfunded benefits. In contrast, a 
single-employer plan sponsor is liable only for the unfunded 
portion of his own plan.
    PBGC's role also varies between multi- and single-employer 
plans. PBGC premiums for multiemployers are significantly lower 
than those for single employers, and so are premium revenues. 
So, too, are PBGC benefit guarantees; up to 54,000 a year for 
participants in single-employer plans, compared to about 13,000 
for multies. Further, single-employer plans are insured at 
termination, and PBGC may assume responsibility for the plan 
and pay benefits directly to retirees. Although multiemployer 
plans are also insured, PBGC does not take over these plans, 
but instead provides financial assistance in the form of loans.
    The net effect is a different distribution of risk between 
the two models. For multiemployer plans, the risk of plan 
underfunding is first borne by the company sponsoring the plan, 
then by the participants, whose benefit guarantees are 
relatively low. Under the multi model, PBGC assistance is less 
likely and less costly to the agency, and ultimately the 
taxpayer, than the guaranteed benefits in the single-employer 
program.
    Let me now turn to the difficult challenges facing 
multiemployer plans. Right now, the latest funding data 
available from PBGC is for 2006, prior to the recent financial 
crisis. However, even then, the aggregate multiemployer system 
was funded at about an almost critical 66-percent level. PBGC's 
multiemployer program deficit, at $869 million in 2009, remains 
far smaller than the single-employer program's $21.1 billion 
accumulated deficit. However, it has increased significantly in 
recent years, and PBGC simulations suggest a high probability 
of rising future deficits.
    Like single-employer plans, the low interest rates and 
market declines of the last decade have contributed to the 
multies' funding difficulties. In addition, the currently high 
unemployment is likely magnifying the funding pressures for 
many multies. This is because contributions are typically a 
function of hours worked, and with reduced employment, 
contributions have declined, as well.
    These difficulties occur in a longer-term environment that 
is increasingly unfavorable to DB plans. As with single 
employers, the number of multiemployer plans continues to 
decline, and the number of active participants has stagnated in 
recent years. Although their shared governance and risk 
distribution creates strong incentives for stakeholders to work 
together to address problems, the multiemployers' financial 
health has been deteriorating.
    Many employers perceive multiemployer plans as financially 
risky and inflexible; hence, they're not likely to join them. 
Furthermore, collective bargaining itself, a necessary element 
of the multiemployer model, is in long-term decline, and will 
offer fewer opportunities for new plan formation. Taken 
together, these trends suggest a future of fewer and older 
multiemployer plans.
    Given these dynamics, PBGC, employers, workers, and unions 
will likely face increasing challenges in ensuring that 
multiemployer plans continue to be key contributors to American 
retirement security.
    That concludes my statement, Mr. Chairman. I'd be happy to 
answer any questions you or other members may have.
    [The prepared statement of Mr. Jeszeck follows:]
                Prepared Statement of Charles A. Jeszeck
                               background
    Multiemployer defined benefit pension plans are created by 
collective bargaining agreements covering more than one employer and 
generally operated under the joint trusteeship of labor and management. 
They cover over 10.4 million participants in the 1,500 multiemployer 
plans insured by PBGC. Reports of declines in plan funding have 
prompted questions about the financial health of these plans.
                              methodology
    GAO's testimony will provide information on (1) the unique 
characteristics of multiemployer plans and (2) the challenges that 
multiemployer plans face and how they may affect PBGC. To address these 
objectives, GAO relied primarily on its previously published reports on 
multiemployer plans (GAO-04-423 and GAO-04-542T), and data publicly 
available from PBGC. GAO is conducting a study of multiemployer plans 
for the House Education and Labor committee, which will be issued later 
this year. GAO is not going to make any new recommendations in its 
testimony.
                                summary
    In comparison to the single-employer plan framework, multiemployer 
plans have a unique structure that provides a certain level of plan 
stability through its pooling of risk among participating plan 
employers. A plan can continue to operate long after an individual 
employer, or sponsor, goes out of business because the multiemployer 
framework holds the remaining employers jointly liable for funding 
benefits for all vested participants. Multiemployer plans also 
facilitate benefit portability as they provide benefits to workers who 
change participating employers. In addition, the multiemployer model 
redistributes financial risk away from PBGC to participating employers 
and participants, compared to the single-employer system. Premium 
levels and benefit guarantees are far lower for multiemployer plans. In 
contrast to underfunded single-employer plans that are terminated and 
then trusteed by PBGC which pays all benefits, PBGC will provide loans 
to a plan that becomes insolvent and can no longer pay benefits at the 
level guaranteed by PBGC. Since the inception of the insurance program, 
PBGC has paid $500 million in financial assistance to 62 insolvent 
plans.
    Multiemployer plans face ongoing funding and demographic challenges 
that potentially can increase the financial burden on PBGC. According 
to PBGC, multiemployer plans have not been fully funded since 2000 and 
the most current data suggests that they were only 66 percent funded in 
2006, prior to the current recession. Further, PBGC simulations suggest 
that additional economic stress is likely in the future. Other 
challenges include the continuing declines in the number of plans, an 
aging participant base and the general decline in collective bargaining 
that leaves few opportunities for plan growth. As a result, the 
proportion of active participants paying into the fund to others who 
are no longer paying into the fund has decreased, increased plan 
liabilities. GAO will also provide available information on plan-funded 
status, participant levels, and PBGC funding and liabilities.
                                 ______
                                 
                         why gao did this study
    Multiemployer defined benefit pension plans, which are created by 
collective bargaining agreements covering more than one employer and 
generally operated under the joint trusteeship of labor and management, 
provide pension coverage to over 10.4 million participants in the 1,500 
multiemployer plans insured by the Pension Benefit Guaranty Corporation 
(PBGC). Changes to the structure of the multiemployer plan framework 
and to PBGC's role as insurer have sought to improve plan funding. 
Reports of declines in plan funding have prompted questions about the 
financial health of these plans.
    The committee asked GAO to provide information on (1) the unique 
characteristics of multiemployer plans and (2) the challenges that 
multiemployer plans face and how they may affect PBGC.
    GAO provided a draft of this testimony to PBGC for review and 
comment. PBGC provided technical comments, which were incorporated, as 
appropriate.
    To address these objectives, GAO relied primarily on its previously 
published reports on multiemployer plans (GAO-04-423 and GAO-04-542T), 
and data publicly available from PBGC. GAO is not making new 
recommendations in this testimony.
  Private Pensions--Long-Standing Challenges Remain for Multiemployer 
                             Pension Plans
                             what gao found
    While the Employee Retirement Income Security Act of 1974 funding 
rules apply to most private sector pension plans, the Nation's 
collectively bargained multiemployer plans have a unique structure 
intended to provide a certain level of plan stability and benefit 
portability while mitigating the risks to their insurer, PBGC. 
Multiemployer plans provide portable benefits to workers who change 
employers, distribute risk among participating employers and 
participants, and continue to operate long after an individual 
employer, or sponsor, goes out of business, because their framework 
makes remaining employers jointly liable for funding benefits for all 
vested participants. Multiemployer plans also pay a low insurance 
premium to PBGC because they typically do not require PBGC assistance. 
When needed, PBGC will provide loans to a plan that becomes insolvent 
and can no longer pay benefits at the level guaranteed by PBGC. Since 
the inception of the multiemployer insurance program in 1980, PBGC has 
paid $500 million in financial assistance to 62 insolvent plans.
    Multiemployer plans face ongoing funding and demographic challenges 
that potentially increase the financial burden on PBGC. According to 
PBGC, multiemployer plans have not been fully funded at the 100 percent 
or above level since 2000. Other challenges include continuing 
decreases in the number of these plans and an aging participant base. 
Further, a decline in collective bargaining in the United States has 
left few opportunities for plans to attract new employers and workers. 
As a result, the proportion of active participants paying into the fund 
to others who are no longer paying into the fund has decreased, thereby 
increasing plan liabilities and the likelihood that PBGC will have to 
provide financial assistance in the future.

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                                 ______
                                 
    Mr. Chairman and members of the committee, I am pleased to be here 
today to discuss the multiemployer pension system and the challenges it 
faces. Multiemployer pension plans constitute an important segment of 
the Nation's private employer pension system.\1\ Multiemployer plans 
are defined benefit (DB) plans established through collectively 
bargained pension agreements between labor unions and two or more 
employers.\2\ In 2009, there were about 1,500 multiemployer plans that 
cover more than 10.4 million workers and retirees--approximately 1 of 
every 4 workers and retirees in the United States covered by a private 
sector DB plan. As we reported in 2004, the financial stakes are high 
for workers, retirees, and employers participating in these plans, as 
well as for the plans' insurer, the Pension Benefit Guaranty 
Corporation (PBGC).\3\
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    \1\ 'Multiemployer plans are distinct from single-employer plans, 
which are established and maintained by one employer, and multiple-
employer plans, many of which maintain separate funding accounts for 
each employer.
    \2\ Collective bargaining has been the primary means by which 
workers can negotiate, through unions, the terms of their pension plan. 
In 1935, the National Labor Relations Act (NLRA) required employers to 
bargain with union representatives over wages and other conditions of 
employment, and subsequent court decisions established that employee 
benefit plans could be among those conditions. The Taft Hartley Act of 
1947 amended the NLRA to establish terms for negotiating such employee 
benefits and placed certain restrictions on the operation of any plan 
resulting from those negotiations. For example, employer contributions 
cannot be made to a union or its representative but must be made to a 
trust that has an equal balance of union and employer representation.
    \3\ GAO, Private Pensions: Multiemployer Plans Face Short- and 
Long-Term Challenges, GAO-04-423, (Washington, DC: Mar. 26, 2004). We 
designated PBGC's single-employer pension insurance program as high 
risk in 2003, including it on our list of major programs that need 
urgent attention and transformation. Both of PBGC's insurance programs 
remain high-risk concern because of an ongoing threat of losses from 
the terminations of underfunded plans.
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    Multiemployer plans cover unionized workers in many industries, 
including the trucking, retail food, construction, mining, and garment 
industries and, importantly, provide some portability of benefits. 
Workers can continue accruing pension benefits when they change jobs if 
their new employer is a contributing employer in the same plan. Such 
arrangements are particularly suited to workers in industries such as 
construction, in which job changes are frequent over the course of a 
career.
    Since 2000, many multiemployer plans have experienced significant 
reductions in their funded status. Several factors contributed to this 
underfunding, including stock market losses, which reduced the value of 
plans' holdings, and historically low interest rates, which increased 
plan liabilities. The economic downturn also affected employers' 
ability to contribute to these plans. Many companies experienced 
slowdowns or closed their doors. While recent reports point to a 
recovering economy, some industries in which multiemployer plans are 
common have experienced high unemployment, limiting the stream of 
contributions coming into the plans.
    In 2004, we reported that the multiemployer system, in comparison 
with private single-employer plans, operates under a framework that 
redistributes risk toward employers and participants and away from 
government and potentially the taxpayer.\4\ In addition, we noted that 
this framework can create important incentives for interested parties 
to resolve financial difficulties. However, we also found that weak 
economic conditions in the early 2000s and declines in interest rates 
and equities markets increased the financial stress on the overall 
multiemployer plan framework, and each of the key stakeholders. We also 
identified several challenges to the long-term health of these plans, 
including the lack of employer funding flexibility compared with 
single-employer plans and the overall decline of collective bargaining. 
Today, 6 years later, the economic climate within which multiemployer 
plans must operate is far worse. As you know, we are conducting a study 
of multiemployer plans for another committee and expect to publish a 
report on our work later this year. Today I will discuss (1) some of 
the unique characteristics of multiemployer plans that affect their 
stability and PBGC's risk, and (2) current challenges faced by 
multiemployer plans and by PBGC as their insurer.
---------------------------------------------------------------------------
    \4\ GAO-04-423 and GAO, Private Pensions: Multiemployer Pensions 
Face Key Challenges to Their Long-Term Prospects, GAO-04-542T, 
(Washington, DC: Mar. 18, 2004).
---------------------------------------------------------------------------
    Today's testimony draws on our work on PBGC, our 2004 report, and 
publicly available information. In developing our 2004 report, we 
examined how multiemployer DB pension plans differ from single-employer 
plans, and reviewed relevant laws and regulations, Form 5500 reports 
that plans file with the Department of Labor, and prior GAO reports and 
other pertinent literature. To identify recent and current trends and 
potential challenges in funding and worker participation rates for 
multiemployer plans, we reviewed PBGC reports and analyzed data from 
PBGC, conducting this performance audit in May 2010, in accordance with 
generally accepted government auditing standards. Those standards 
require that we plan and perform the audit to obtain sufficient, 
appropriate evidence to provide a reasonable basis for our findings and 
conclusions based on our audit objectives. We believe that the evidence 
obtained provides a reasonable basis for our findings and conclusions 
based on our audit objectives.
                               background
    In 1974, Congress passed the Employee Retirement Income Security 
Act (ERISA) to protect the interests of participants and beneficiaries 
covered by private sector employee benefit plans.\5\ Title IV of ERISA 
created PBGC as a U.S. Government corporation to provide plan 
termination insurance for certain DB pension plans that become unable 
to provide pension benefits. PBGC operates two distinct pension 
insurance programs, one for multiemployer plans and one for single-
employer plans. These plans have separate insurance funds, as well as 
different benefit guarantees, and insurance coverage rules. The 
multiemployer insurance program and PBGC's day-to-day operations are 
financed by annual premiums paid by the plans and by investment returns 
on PBGC's assets.\6\ For multiemployer plans, PBGC guarantees, within 
prescribed limits, those participant benefits that are not funded by 
plan assets when a covered plan is insolvent and unable to pay basic 
PBGC-guaranteed benefits when due for the plan year.
---------------------------------------------------------------------------
    \5\ U.S.C.  1001 nt.
    \6\ The single-employer insurance program receives additional 
financing from assets acquired from terminated single-employer plans 
and by recoveries from employers responsible for underfunded terminated 
single-employer plans. PBGC receives no funds from Federal tax 
revenues, but it is authorized under ERISA to borrow up to $100 million 
from the Federal treasury if it has inadequate resources to meet its 
responsibilities.
---------------------------------------------------------------------------
    In 1980, Congress sought to protect worker pensions in 
multiemployer plans by enacting the Multiemployer Pension Plan 
Amendments Act (MPPAA).\7\ Among other things, MPPAA (1) strengthened 
funding requirements to help ensure that plans accumulate enough assets 
to pay for promised benefits, and (2) made employers, unless relieved 
by special provisions, liable for their share of unfunded plan benefits 
when they withdrew from a multiemployer plan. The amount is based upon 
a proportional share of the plan's unfunded vested benefits.\8\ 
Liabilities that cannot be collected from a withdrawing employer, for 
example, one in bankruptcy, were to be ``rolled over'' and eventually 
had to be funded by the plan's remaining employers.\9\ The changes were 
to discourage withdrawals, which shift liabilities to PBGC's insurance 
program.
---------------------------------------------------------------------------
    \7\ 'Pub. L. No. 96-364.
    \8\ Vested benefits are benefits that are no longer subject to risk 
of forfeiture. Unfunded vested benefits are the difference between the 
present value of a plan's vested benefits and the value of plan assets 
as determined in accordance with Title IV of ERISA.
    \9\ These liabilities are frequently referred to as orphaned 
liabilities.
---------------------------------------------------------------------------
    The Pension Protection Act of 2006 (PPA) established new funding 
and disclosure requirements for multiemployer plans.\10\ Under PPA, a 
plan's actuary must certify to the Secretary of the Treasury the 
funding status of the plan within 90 days of the start of the plan 
year.\11\ For plans that certify that they are in endangered status 
(less than 80 percent funded) or critical status (less than 65 percent 
funded), PPA requires plan trustees to take specific actions to improve 
the plan's financial status, such as developing schedules to increase 
contributions or reduce benefits.\12\ Plans certified as endangered 
must adopt a funding improvement plan, and those certified as critical 
must adopt a rehabilitation plan.\13\ To assist plans in critical 
status, PPA amended ERISA to allow plans to reduce or eliminate some 
payment and early retirement options for plan participants who had not 
yet retired. In addition, PPA required trustees of plans in endangered 
or critical status to provide notice of that status to participants and 
beneficiaries, the bargaining parties, PBGC, and the Secretary of Labor 
within 30 days of certification.\14\ If a plan is in critical status, 
the notice must also inform employers of a possible contribution 
surcharge, and participants of a potential reduction in benefits.
---------------------------------------------------------------------------
    \10\ Pub. L. No. 109-280.
    \11\ 26 U.S.C.  432(b)(3).
    \12\ Under PPA, a plan is considered to be in endangered status if 
it is less than 80 percent funded or if the plan is projected to have a 
funding deficiency within 7 years. A plan that is less than 80 percent 
funded and is projected to have a funding deficiency within 7 years is 
considered to be seriously endangered. A multiemployer plan is 
considered to be in critical status if (1) it is less than 65 percent 
funded and has a projected funding deficiency within 5 years or will be 
unable to pay benefits within 7 years; (2) it has a projected funding 
deficiency within 4 years or will be unable to pay benefits within 5 
years (regardless of its funded percentage); or (3) its liabilities for 
inactive participants are greater than its liabilities for active 
participants, its contributions are less than carrying costs, and a 
funding deficiency is projected within 5 years.
    \13\ 26 U.S.C.  432(c).
    \14\ 26 U.S.C.  432(e)(1)(B) (for plans in endangered status) and 
26 U.S.C.  432(e)(8)(C) (for plans in critical status).
---------------------------------------------------------------------------
    The funding requirements of PPA took effect just as the Nation 
entered a severe economic recession in the fall of 2007. As a result, 
Congress enacted the Worker, Retiree, and Employer Recovery Act of 2008 
(WRERA) to provide multiemployer plans with temporary relief from PPA 
requirements by allowing plans to temporarily freeze their funded 
status at the previous year's level.\15\ The freeze allows plans to 
delay creation of or updates to an existing funding improvement plan, 
rehabilitation plan, or other steps required under PPA.\16\ WRERA also 
requires plans to send a notice to all participants and beneficiaries, 
bargaining parties, PBGC, and the Department of Labor indicating that 
the election to freeze the status of the plan does not mean that the 
funded status of the plan has improved. WRERA also provided for a 3-
year extension of a plan's funding improvement or rehabilitation 
period.
---------------------------------------------------------------------------
    \15\ Pub. L. No. 110-458.
    \16\ Section 204(b) of WRERA provides a special rule for 
multiemployer plans that would be in critical status for the election 
year if they had not elected to freeze the plan's funded status. In 
particular, if the plan has been certified by the plan actuary to be in 
critical status for the election year, then the plan is treated as 
being in critical status for that year for purposes of applying the 
excise tax exception under section 4971(g)(1)(A) of the Internal 
Revenue Code.
---------------------------------------------------------------------------
    key differences exist between multiemployer and single-employer 
                             pension plans
    While ERISA and PBGC funding rules apply to both single and 
multiemployer plans, there are several important differences that 
affect the structure and stability of each type of plan. They include 
the following:

     PBGC benefit guarantee levels: PBGC guarantees benefits 
for multiemployer beneficiaries at up to $12,870 per year, based on 30 
years of employment. PBGC's guarantee for single-employer beneficiaries 
is considerably higher--up to $54,000 per year for a retiree at age 65.
     PBGC premium structure: PBGC collects insurance premiums 
for each plan it insures, but premium rates differ significantly, 
commensurate with the benefit amounts being guaranteed. In 2010, 
multiemployer plans pay PBGC an annual flat rate premium of $9 per 
participant, while single-employer plans pay PBGC $35 per participant. 
In addition, underfunded single-employer plans generally pay PBGC an 
additional variable rate premium based on the plan's unfunded vested 
benefits, because of the increased risk to PBGC because there are no 
other sponsors to cover the unfunded liabilities. Multiemployer plans 
are not required to pay this additional variable rate premium.
     Insurable events: PBGC's ``insurable event'' for its 
multiemployer program--an event that triggers PBGC financial 
assistance--is plan insolvency. A multiemployer plan is insolvent and 
may apply for financial assistance when its available resources are not 
sufficient to pay benefits at PBGC's guaranteed level when due. In 
contrast, the insurable event for the single-employer program is 
generally termination of a plan, after which PBGC assumes 
responsibility and pays benefits directly to participants.
     Provision of financial assistance: PBGC provides loans to 
multiemployer plans when they become insolvent, and a multiemployer 
plan need not be terminated to qualify for financial assistance. 
Insolvent multiemployer plans also are required to reduce or suspend 
payment of any portion of benefits to beneficiaries that exceed PBGC's 
guarantee level. If a plan recovers from insolvency, it must begin 
repaying the PBGC loan. Since the inception of the multiemployer 
insurance program in 1980, PBGC has provided $500 million in financial 
assistance to 62 plans. In fiscal year 2009 alone, PBGC provided $86 
million in financial assistance to 43 insolvent plans. In 30 years, 
only 1 plan has paid back its loan. PBGC provides no comparable 
assistance to single-employer plans because PBGC takes over terminated 
unfunded plans.
     Fiduciary and settlor function: An employer's primary 
responsibility in a multiemployer plan is to pay contributions to the 
plan in the amount set in the collective bargaining agreement. 
Contribution requirements are generally a settlor rather than fiduciary 
function, for both sponsors of single-employer plans and participating 
sponsors in multiemployer plans. Individual employers in multiemployer 
plans do not assume a fiduciary role in plan management, which is 
instead handled by a board of trustees. Single-employer plans, on the 
other hand, are administered by one employer and may or may not be 
collectively bargained, so the employer generally assumes fiduciary 
duty for the pension plan.\17\
---------------------------------------------------------------------------
    \17\ In 2008, we identified a tension inherent in the single-
employer model for the plan sponsors, who must serve both as plan 
fiduciary and approve investment decisions. See GAO, Private Pensions: 
Fulfilling FY Fiduciary Obligations Can Present Challenges for 401(k) 
Plan Sponsors, GAO-08-774 (Washington, DC: July 16, 2008).
---------------------------------------------------------------------------
     Risk distribution: The pooling of risk that is inherent in 
multiemployer pension plans may buffer these plans from financial 
shocks because the economic performance of any one employer has less 
impact. Multiemployer pension plans typically continue to operate long 
after an individual employer, or sponsor, goes out of business, because 
the plan's remaining employers are jointly liable for funding benefits 
for all vested participants. Single-employer plans generally do not 
share the risk with other employers.
     Portability of benefits: Multiemployer plans provide 
participants some benefit portability because they allow workers to 
keep and continue to accrue pension benefits when they change jobs as 
long as their new employer also participates in the same plan. Because 
single-employer plans are established and maintained by only one 
employer, their benefits are not normally portable.
     Ability to adjust contribution and benefit levels: While 
minimum funding rules set out in ERISA and the Internal Revenue Code 
permit plan sponsors some flexibility in the timing of pension 
contributions, individual employers in multiemployer plans cannot 
individually adjust their plan contributions at will, and may be 
restricted in making changes until the collective bargaining agreement 
comes up for renegotiation, typically once every 2 or 3 years.\18\ 
Often, any changes in benefit levels must also be renegotiated by the 
bargaining parties. In contrast, sponsors of 
single-employer plans, depending on their employees' bargaining rights, 
may make adjustments to future contributions and benefits according to 
the company's fiscal condition provided that minimum funding 
requirements are met.
---------------------------------------------------------------------------
    \18\ Employer contributions to many multiemployer plans are 
typically made in a set dollar amount per hour of covered work, and 
thus reflect the number of active plan participants.
---------------------------------------------------------------------------
     Employer terminations: If an employer withdraws from a 
multiemployer plan, the accrued benefits for its workers stay in and 
are administered by the plan. The plan terminates by mass withdrawal if 
all contributing employers of a multiemployer plan leave. When the plan 
becomes insolvent, PBGC begins providing financial assistance to the 
existing trustees upon insolvency of the plan, after which those 
trustees continue to administer the plan until all benefits are paid 
out. With respect to single-employer plans, PBGC assumes trusteeship 
and administers payment of participant benefits when an underfunded 
single-employer plan terminates.
     Plan withdrawal: To protect the pensions of participants 
in multiemployer plans, MPPAA holds an employer seeking to withdraw 
from a plan liable to the plan for its share of the plan's unfunded 
liability. The law contains formulas for determining the amount, known 
as withdrawal liability, based on the employer's proportional share of 
the plan's unfunded vested benefits for all employees covered by the 
plan. In cases of bankruptcy, MPPAA requires the remaining employers in 
the plan to assume responsibility for funding benefits to the bankrupt 
employer's participants. This unfunded amount is often referred to as 
an orphaned liability. There is no comparable withdrawal liability for 
sponsors of single-employer plans, as the employer is liable for the 
unfunded benefits of the plan. According to PBGC, this greater 
financial risk on employers and lower guaranteed benefit level for 
participants in multiemployer plans, in practice, create incentives for 
employers, participants, and their collective bargaining 
representatives to avoid insolvency and to collaborate in trying to 
find solutions to the plan's financial difficulties.
multiemployer plans continue to face funding and demographic challenges 
                  that could significantly affect pbgc
    Multiemployer plans face ongoing funding and demographic challenges 
that have the potential to place an additional financial burden on 
PBGC. According to PBGC, multiemployer plans have not been fully funded 
at the 100 percent or above level since 2000 and their net funding has 
declined significantly since that time. The aggregate funded status--
the percentage of benefits covered by plan assets--in multiemployer 
plans insured by PBGC declined from 105 percent in 2000 to 66 percent 
in 2006, the last date for which PBGC data are available. (See Fig. 1.) 
The aggregate position of these plans has further diminished because of 
investment market declines and the recession beginning in 2007.

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    Multiemployer plans also face demographic challenges: reductions in 
the number of plans, an aging workforce, and few opportunities to 
attract new employers and workers into plans. The number of plans has 
decreased fairly steadily since the 1980s, likely reflecting plan 
mergers. (See Fig. 2.)

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    Meanwhile, although the number of total participants in 
multiemployer plans has slowly increased, the proportion of active 
participants to retirees and separated vested participants has 
decreased, largely because of an aging workforce.\19\ (See Fig. 3.) For 
example, multiemployer plans had 1.6 million fewer active participants 
in 2006 than in 1980, according to PBGC.
---------------------------------------------------------------------------
    \19\ A separated vested participant is one who has earned a non-
forfeitable pension benefit but is no longer accruing benefits under 
the plan and has not yet started receiving benefits.

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    The future growth of multiemployer plans is largely predicated on 
growth of collective bargaining. Yet collective bargaining has declined 
in the United States since the early 1950s. According to the Bureau of 
Labor Statistics, union membership--a proxy for collective bargaining 
coverage--accounted for 7.2 percent of the U.S. private sector labor 
force in 2009. In contrast, in 1990, union membership in the private 
sector accounted for about 12 percent, and in 1980, about 20 percent.
    Without a new stream of contributions, plans will increasingly have 
to tap into assets to meet benefit obligations and, everything else 
being equal, will generally lower the plans' funded status. The 
conditions that plans currently face increase the risk of insolvency 
and the likelihood PBGC will be forced to provide financial assistance. 
PBGC's ability to assist multiemployer plans is contingent upon its 
insurance program having sufficient funds to do so. PBGC's net position 
for its multiemployer pension insurance program has steadily declined 
since its highest point in 1998 as program liabilities outpaced asset 
growth. (See Fig. 4.) In fiscal year 2009, the multiemployer program 
reported an accumulated deficit of $869 million.

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    By promoting risk sharing among participating employers and 
workers, the framework for multiemployer plans under ERISA and MPPAA is 
intended to limit PBGC's exposure to future losses from underfunded 
plans. However, in fiscal year 2009, PBGC's estimates of exposure to 
future losses from underfunded multiemployer plans rose to $326 million 
(up from $30 million in 2008 and $73 million in 2007).\20\ PBGC 
reported that most plans considered at risk were in manufacturing, 
transportation, services, and wholesale and retail trade. PBGC's 
estimate of the exposure to future losses from underfunded 
multiemployer plans could reach $5.5 billion over the next 10 years.
---------------------------------------------------------------------------
    \20\ PBGC classifies the underfunding for vested benefits in other 
multiemployer plans as reasonably possible exposure. In the 
multiemployer program, a probable liability is generated when certain 
plan metrics are sufficiently problematic. Given a sufficiently 
problematic collection of plan metrics, and a cash-flow projection of 
insolvency, a plan is classified as probable, and is thus recognized as 
a PBGC liability.
---------------------------------------------------------------------------
                        concluding observations
    Multiemployer plans continue to provide an important source of 
retirement income for millions of American workers. These plans provide 
a useful means for these workers--workers who change jobs frequently 
within the same industry--to accrue retirement benefits over the course 
of their careers. Similar to their single-employer cousins, 
multiemployer plans are suffering some serious short-term financial 
stresses within the larger context of a longer-term structural decline. 
Congress has given PBGC tools to monitor the overall financial health 
of multiemployer plans and a means to provide financial assistance to 
help these plans weather difficult financial times. Given recent 
financial events, however, it will take more time to determine whether 
the PPA requirements will achieve their intended purpose.
    This concludes my prepared statement. I am happy to answer any 
questions that the committee may have.

    The Chairman. Thank you very much, Mr. Jeszeck.
    We'll begin a series of 5-minute rounds, here.
    I want to start with Ms. Borzi. As you pointed out, and 
others have, there are more than 10 million workers covered by 
1,500 multiemployer pension plans. And, as you pointed out, and 
others, this is often the only way that small businesses can 
provide pensions to their workers. After the recent meltdown, 
plans are struggling. We know the future looks less and less 
secure, as Mr. Jeszeck just pointed out.
    I guess, just a generally broad question: What role do you 
think multiemployer plans can play in providing a secure 
retirement for American workers in the future? What additional 
steps can Congress take to keep existing multiemployer plans 
ongoing?
    Ms. Borzi. Well, that's a terrific question. Despite the 
trends towards 401(k), the administration does strongly support 
the continuation of defined benefit plans--and multiemployer 
plans, in particular--for the reasons that you identified: the 
ability of workers to move from job to job, employer to 
employer, and continue to accrue their pension credit.
    I think, honestly, the most important thing that Congress 
can do to help preserve these plans for the future is to work 
to deal with some of these structural problems that Senator 
Casey's bill identifies. I think we need to work together to 
figure out a way to make it easier for smaller employers to 
continue to make their contributions to these plans, and to 
strengthen their ability to work towards keeping financial 
stability. I think what they don't need is additional burdens 
and additional restrictions. I think we need to figure out ways 
to continue to encourage employers to stay with these plans.
    Part of the important structural problem is this problem of 
orphan employees. The multiemployer plans have played a very, 
very critical role, over the past several decades since ERISA 
was enacted, because they serve as the first backstop so that 
PBGC doesn't take over these plans. It's a burden that the 
contributing employers have tried to take. We need to figure 
out a way to reduce the burdens on these contributing 
employers, and yet encourage them to stay with these plans and 
not abandon the plans, either to have no plans whatsoever or to 
move to a 401(k) plan. Because, for workers and retirees, 
defined benefit plans provide the best type of retirement 
security.
    The Chairman. Mr. Jeszeck, in your report and your 
findings, you talked about the changing demographic structures. 
Take the Central States Plan, for example. There used to be a 
lot of trucking companies. Now there are few trucking 
companies. Well, I understand that. But, there are more trucks. 
There are more truck drivers. And they shift from employer to 
employer. It seems to me, we still have a basis for 
multiemployer plans. Is it simply because drivers are nonunion 
that they don't bargain for these? Is that the reason?
    Let me see if I can say it more succinctly. Yes, there's 
been a demographic change--fewer trucking companies. I 
understand that. But, we have more trucks on the road, and we 
have more truck drivers. Therefore, you'd think that 
multiemployer plans would proliferate. Instead, there are 
fewer. Why do we have this paradox?
    Mr. Jeszeck. Well, Senator, we haven't studied the trucking 
industry closely, but I can see some general trends. Certainly, 
the trucking industry, like many of the other key sectors of 
the economy, are less unionized today--fewer employees are 
covered by collective bargaining. Collective bargaining is 
clearly a central element in the multiemployer model.
    I think another trend that's relevant to the trucking 
industry has been the growth of independent operators or 
independent contractors. There have been a number of cases 
involving independent contractors around the country--
misclassification. They may be a contributor, as well. But, in 
all likelihood, I would think, given the knowledge that I have 
about the industry, is that it's been--the decline of 
bargaining would probably be the major contributor to the 
decline of multiemployer plans in the trucking industry.
    The Chairman. And beyond the trucking industry? Same 
reason, or different reasons? In other words, the decline in 
defined benefit plans outside the trucking industry--in the 
building trades, for example--why has that declined?
    Mr. Jeszeck. I think there are a number of different 
factors that people have identified. In general, the growth of 
defined contribution plans; there have been some surveys that 
employees seem to understand defined contribution plans more 
clearly. Certainly, collective bargaining is part of it. I 
would also say that, in the past, when we looked at these 
issues--in our 2004 healthcare report--providing pensions, any 
pensions at all, is becoming increasingly difficult for 
employers who will first provide healthcare before they provide 
pensions. I think there are a number of different factors that 
have contributed to the decline of DB plans.
    The Chairman. I'd like to get into that further, but my 5 
minutes is up.
    I will turn to Senator Isakson.

                      Statement of Senator Isakson

    Senator Isakson. Thank you very much, Mr. Chairman.
    I was noting, in Ms. Borzi's testimony, that--in reference 
to your questions that you just asked, Mr. Chairman--that, in 
1980, 75 percent of the participants in multiemployer plans 
were actually working and 25 percent were beneficiaries; and 
today, 45 percent are working and 55 percent are beneficiaries. 
That's an unsustainable track, I guess, under any circumstance. 
Is that not correct?
    Ms. Borzi. I think you're right. I mean, unfortunately, the 
demographics are working against these multiemployer plans--
working against plans generally, but certainly working against 
multiemployer plans. Although, I believe we've seen some up-
tick in the birth rate. That doesn't necessarily mean, for the 
reasons that Mr. Jeszeck was talking about, that we're going to 
see a lot more influx of contributing employers and 
participants in these plans.
    Senator Isakson. And the trend, with reference to Mr. 
Jeszeck's comments, which were right on target--the growth of 
independent contractors--for example, in trucking, where 
they're doing their own defined contribution plan, rather than 
part of a defined benefit plan, is another factor that's----
    Ms. Borzi. Yes.
    Senator Isakson [continuing]. Diminishing the number of 
people working to produce. Is that what you said, Mr. Jeszeck?
    Mr. Jeszeck. Yes, sir. Yes, Senator.
    Ms. Borzi. Well, actually, a lot of them don't have any 
plans at all.
    Mr. Jeszeck. No.
    Ms. Borzi. A lot of these independent contractors don't.
    Senator Isakson. Yes. In your testimony, under ``Current 
PBGC Partitioning Authority,'' is there anything that currently 
prohibits you from doing what Senator Casey is proposing?
    Ms. Borzi. As I understand it, the Central States Plan 
wouldn't meet all the criteria. I think the primary one that 
the PBGC has indicated that they wouldn't meet is the chapter 
11 bankruptcy test, they don't meet the insolvency part of the 
test. If you--excuse me for a minute.
    Is that right, Terry?
    We have Terry Deneen here, from the PBGC.
    Is that correct?
    [Pause.]
    Ms. Borzi. Terry advises me that it's a combination of the 
bankruptcy and the asset losses. So, the plan wouldn't meet the 
current partition test.
    Senator Isakson. This may not be the right way to put it, 
but does that mean it's not dire enough for you to exercise 
partition authority at this time?
    Ms. Borzi. I think that's probably true.
    I mean, that is a troubling statement for me to have to say 
that we can't help them, because they're not in bad enough 
straits. But, that is true, Senator.
    Senator Isakson. I understand why it's troubling, but I was 
trying to get to the point about what the requirements are for 
you to be able to exercise authority. And if they don't meet 
them, that's one of the unfortunate requirements. You're like a 
backstop at a baseball game; you're the last resort to stop the 
ball.
    Ms. Borzi. That is, in fact, what the PBGC is, the last 
resort. You're right.
    Senator Isakson. Now, yesterday, PBGC partitioned the 
Chicago Truck Drivers, Helpers, and Warehouse Workers Union 
Independent Pension Fund. Is that correct?
    Ms. Borzi. Yesterday, they actually announced, through a 
press release, that they had done it. I believe that the 
decision to partition the plan was made several weeks ago.
    Senator Isakson. OK. They had met the threshold, in terms 
of being----
    Ms. Borzi. That's right. They had.
    Senator Isakson [continuing]. Et cetera.
    Mr. Gustafson, I hate for you not to be recognized. Do you 
have anything to add to those comments, without jeopardizing 
your employment with----
    Mr. Gustafson. Not so----
    [Laughter.]
    I think that's the best answer I could give, too. Nothing 
to add, thanks.
    Senator Isakson. I thank you, Mr. Chairman.
    The Chairman. Thank you very much.
    Senator Casey.
    Senator Casey. Thank you, Mr. Chairman.
    Ms. Borzi, I want to, first of all, thank you for your 
testimony, for being here today.
    I want to make reference to part of the question that 
Senator Isakson raised about the announcement of the partition 
of a multiemployer plan in Chicago this week. Is it true--or 
isn't it true, I should say, that the PBGC has only conducted 
one other partition of a plan in its 30-year history? Is that 
correct?
    Ms. Borzi Yes. That's my understanding.
    Senator Casey. So, it's pretty rare. Could you add a little 
context to that, as to why there haven't been more partitions 
in those 30 years?
    Ms. Borzi. If you look at the statute, the statutory 
provision is pretty narrow. I have to confess that I was on the 
congressional staff in 1980 when these amendments to ERISA were 
adopted, so I was involved in the development of this. The 
feeling at the time was that this should be a fairly rare 
occurrence. Congress recognized, at the time, that there might 
be instances in which the very kind of thing that we were 
talking about in the two instances, and the Central States 
situation, where the contributing employers have basically 
disappeared. But, the plan is still responsible for paying the 
benefits of those individuals who've earned benefits under the 
plan. The thought was that Congress should give the PBGC some 
flexibility, in narrow circumstances, to decide to surgically 
remove that group of participants who were, in essence, the--I 
mean you might call them the ``legacy cost.'' They're sort of 
like what we see in the auto industry, because they are the 
legacy cost of that industry and that plan. The point of this--
giving PBGC this authority was to allow it to surgically remove 
the part that was dragging down the plan and allow the rest of 
the plan to continue to provide benefits in a solvent fashion, 
rather than have all the participants in the whole plan lose 
their benefits, have their benefits drop to the guaranteed 
level. So, it wasn't entirely designed to be a very rare 
occurrence.
    Senator Casey. In your testimony today--you probably 
weren't able to get to your entire written testimony--just one 
or two lines that you may have already testified to, but I just 
want to make sure, in terms of the record being clear.
    I'm looking at your written testimony, towards the end of 
the paragraph starting with, ``Unlike similarly situated 
single-employer plans''--that paragraph. I just wanted to quote 
the one or two sentences, at least. You say, ``Currently, the 
maximum PBGC guaranteed benefit is approximately $13,000'' 
``For 30 years' service, compared with $54,000 for workers who 
retire at age 65 in single employer plans.''
    That's a stunning statement, after some of the things we've 
been listening to this week, that somehow--I think there was 
one publication that referred to these as, ``gold-plated.'' 
That's actually below the poverty level for a family of two; a 
little more than $14,000. That statement, I wanted to 
highlight.
    The second statement I wanted to highlight was this, the 
bottom of the page--the beginning of the next full paragraph, 
``Multiemployer plans pose a smaller risk to the PBGC than 
single-employer plans, because the PBGC insurance program for 
multiemployer plans is the second, `backstop.' '' Then 
continuing on, ``Contributing employers are the first insurers 
of benefits,'' which I think is an important statement to have 
highlighted on the record, because, in this current climate in 
Washington--the debate--and based upon some of the things I 
heard this week, most people out there listening would think it 
was otherwise, that somehow there are a lot of multiemployer 
plans that need help right now--that's not true; very few--and 
that somehow there's going to be a takeover, that a lot of 
folks out there who are getting some of this information 
delivered to them erroneously, that somehow they're going to 
have to bear that responsibility. I don't know if you want to 
add to that, or not.
    Ms. Borzi. Well, I think you're absolutely right. That's 
what I was trying to say, in response to Chairman Harkin's 
question. The employers who participate in these multiemployer 
plans over the years have accepted a burden that other 
employers, even other employers who sponsor defined pension 
plans, don't have. That's the burden of being their brother's 
keeper. Because, as these companies go out of business, they 
have to bear the burden financially, not just of the benefits 
that their own workers are going to get, but the benefits that 
the workers who are part of their industry have earned, but 
there's no one there to pay for them. This is a tremendous 
burden. That's why I think what we need to do is work together, 
the Congress and the Administration and the people in the 
private sector who support these plans, to make sure there's a 
way to at least not add to the burden--continue to add to the 
burden of these employers, who make great sacrifices to 
continue to contribute to these plans.
    Senator Casey. Thank you, Mr. Chairman. I know I'm out of 
time, but I failed to do this before. If you don't mind, I just 
wanted to ask consent to have entered into the record three 
letters. One is the letter I referred to earlier, dated May 27, 
2010, to Members of the United States Congress from a number of 
representatives that--we should refer to this as the ``Chamber 
of Commerce.'' There is a long list of entities that have 
signed it. That's one.
    The second one is a letter to me, dated March 31 of this 
year, signed by 12 employers representing 650,000 employees, 
associates, and members throughout the United States.
    Then finally, a third letter, dated March 22, 2010, to me, 
a letter from Daniel Churay, from YRC Worldwide, Inc., which is 
located in Overland Park, KS.
    I'd ask consent that those three letters be made part of 
the record.
    The Chairman. Without objection.
    [The information referred to may be found in Additional 
Material.]
    The Chairman. Mr. Jeszeck, I want to ask you a question, 
sir. Can PBGC--or, Ms. Borzi, either one of you--can the PBGC 
tap into the larger single-employer program to pay financial 
assistance to multiemployer plans?
    Ms. Borzi. Not under current law, Mr. Chairman.
    The Chairman. No?
    Ms. Borzi. No.
    The Chairman. Oh.
    Ms. Borzi. The funds are absolutely distinct, because the 
two insurance programs are distinct.
    The Chairman. Well, I am asking because the multiemployer 
insurance program is a lot smaller than the single-employer 
program.
    Ms. Borzi. It is smaller. Statutorily, they're two distinct 
programs. They have different sets of rules, which is one of 
the reasons the guarantees are different.
    The Chairman. OK.
    Ms. Borzi. But, the law doesn't permit the funds to be 
commingled.
    The Chairman. OK. I just thought I'd ask.
    Do you have any final things, before I dismiss this panel, 
anything that you wanted to bring up that you didn't bring up, 
either Mr. Jeszeck or Ms. Borzi or Mr. Gustafson?
    Ms. Borzi. No.
    Mr. Jeszeck. No, Senator.
    The Chairman. Well, thank you, again, very much for being 
here and----
    Ms. Borzi. Thank you, Mr. Chairman.
    The Chairman [continuing]. Thank you for your testimony.
    We'll now move to our second panel.
    Thomas Nyhan is the executive director and general counsel 
of the Central States Health and Welfare and Pension Funds. Mr. 
Nyhan is responsible for the operational and strategic 
management of these funds, as principal legal advisor to the 
board of trustees.
    Randy DeFrehn is the executive director of the National 
Coordinating Committee for Multiemployer Plans. The NCCMP 
directly represents over 600 jointly-managed pension, health, 
training, and other trust funds, and their sponsoring 
organizations across the economy.
    John McGowan is a professor of accounting at St. Louis 
University, where he has taught in the areas of taxation and 
international accounting for over 15 years.
    And Norman Stein is a professor of employee benefits law at 
the University of Alabama School of Law. Professor Stein is 
testifying on behalf of the Pension Rights Center, the Nation's 
only consumer organization dedicated to protecting and 
promoting the retirement security of American workers, 
retirees, and their families.
    We welcome you all here today. Thank you, again, for 
staying around for this afternoon. I know you thought we were 
going to be at it this morning, but you know why we couldn't.
    Your statements will be made a part of the record in their 
entirety, as I said before.
    I'd like to ask you if, in 5 minutes or so, if you could 
just sum up your main points. I would certainly appreciate it.
    Mr. Nyhan. Thank you.
    The Chairman. We'll start with Mr. Nyhan, and go down the 
row.

  STATEMENT OF THOMAS C. NYHAN, EXECUTIVE DIRECTOR, TEAMSTERS 
               STATES PENSION PLAN, ROSEMONT, IL

    Mr. Nyhan. Thank you, Mr. Chairman, Senator Casey.
    My name is Tom Nyhan. I'm the executive director and 
general counsel of the Central States Pension Fund. I 
appreciate the opportunity to come here and testify before this 
committee.
    I'd like to start by telling you a little bit about Central 
States, how it got in its current condition, and why we think 
the partition proposal, as set forth in Senator Casey's bill, 
will preserve jobs, preserve retirement security, and protect 
the employers in our plan.
    As earlier indicated, Central States is a very large plan--
second largest multiemployer plan in the country. It has around 
423,000 participants and around 2,000 participating employers 
located primarily in the Midwest and in the South. Of those 
2,000, as Senator Casey pointed out earlier, over 90 percent of 
them are small employers with 50 or fewer employees.
    Since inception, Central States has provided close to $50 
billion in retirement benefits to its participants and 
beneficiaries. The current average benefit we pay to our 
participants is around $13,000--just a little lower than 
$13,000 a year. That, with the Social Security, are the primary 
sources of retirement income for our participants.
    Since the Motor Carrier Act of 1980, there's been 
substantial consolidation in the transportation industry. 
Central States has lost over 675 large employers to bankruptcy. 
Of the 50 largest employers that were in existence in Central--
contributing to Central States in 1980, four remain in business 
today. We've lost many thousands, and thousands of small 
employers, as well.
    As was pointed out earlier, when a corporation goes under 
and it has an underfunded corporate plan, PBGC assumes 
liability for the pension benefits, at the outset--up to the 
minimum guarantees. That is not the case in the multiemployer 
world.
    As these employers have gone out of business, the surviving 
employers have been responsible for paying the benefits for 
these orphaned employees. Literally speaking, Central States 
has stood in the shoes of the PBGC for the last 30 years, and 
the employers in the plan can no longer afford to do it.
    In 1980, we had 400,000 actives and 100,000 retirees. Last 
year, we had 80,000 actives and over 200,000 retirees. We paid 
$2.7 billion in benefits and collected $675 million in employer 
contributions. The spread, the delta there, is over $2 billion 
that needs to be made up with investment returns. Over 40 
percent of that amount, of the 2.7 billion, went to orphans of 
employers who did not pay their liability on their way out of 
the plan. That's a tax of over a billion dollars a year that 
this plan has been paying for some time now.
    I want the committee to understand that the plan has done a 
lot to try to correct these problems itself. After the first 
downturn, in 2000-2002, the plan cut benefits by 50 percent--
the pension benefits, the equivalents--by 50 percent and froze 
unreduced early retirement subsidies.
    There's a sister health and welfare plan that also had the 
benefits reduced, in order to allow the bargaining parties to 
reallocate money over to the pension plan.
    Additionally, contribution rates were increased for 
participating employers, and they went from about $160 a week, 
per employee, to over $300 a week, in the top plan.
    As a result of these measures, the plan increased its 
income by several hundred-millions of dollars a year, and 
reduced the liabilities as a result of the benefit reductions. 
As of January 1, 2008, the plan had nearly $26 billion in 
assets, and was 75 percent funded. We projected full funding by 
the year 2029, assuming normal returns.
    The year 2008 was not a normal return year; it was a 
devastating year, particularly to a plan as leveraged to their 
assets as with Central States. The plan lost $7 billion in 
investment returns and also paid out another $1.7 billion in 
benefits over contributions coming into the plan. As a result, 
many assets dropped. Currently, the actuaries project the plan 
will need to earn 11 percent a year, each and every year, in 
order to simply maintain its asset base at this juncture. That 
is not a reasonable investment return on a go-forward basis.
    Without assistance, the plan will face insolvency in 10 to 
15 years. That will be devastating to our participants, as they 
rely on this income. It's going to force more and more of our 
employers out of business as these contribution rates are 
increased.
    As a result, we think Senator Casey's proposal to update 
the PBGC's partition authority is a remedy for this plan that 
would preserve the plan's solvency on a go-forward basis, would 
preserve jobs, protect the contributing employers, and preserve 
the retirement-income security of our members. We greatly 
appreciate Senator Casey's efforts in this regard.
    Thank you.
    [The prepared statement of Mr. Nyhan follows:]
                 Prepared Statement of Thomas C. Nyhan
                                summary
    Overview of the Central States Fund. The Central States Pension 
Fund (the ``Fund'') is one of the largest multiemployer plans in the 
country, providing (as of December 31, 2009) coverage to nearly 433,000 
participants across the country, including 81,000 active employees and 
342,000 retirees, survivors and deferred vested participants. Although 
these employers are in a variety of industries, historically there has 
been a heavy concentration of employers in the trucking industry. 
Because of a confluence of forces, most notably the dramatic 
consolidation in the trucking industry and the most significant 
recession in decades, the Fund faces an unprecedented financial crisis. 
The single largest factor contributing to the Fund's problems relates 
to the pension benefits that are paid to retirees of employers no 
longer in business (and thus not contributing to the Fund). Over 40 
percent of the annual pension benefits are paid to such retirees--
commonly referred to as ``orphan retirees.''
    Qualified Partition. The Create Jobs and Save Benefits Act (S. 
3157) will address this orphan retiree problem by permitting qualifying 
multiemployer plans to elect a Qualified Partition and transfer to a 
separate plan backed by the Pension Benefit Guaranty Corporation 
(``PBGC'') the responsibility for the vested benefits of the orphan 
retirees. I urge Congress to pass the Qualified Partition proposal this 
year.
    Qualified Partition Would Strengthen the Fund and Protect 
Participants. With fewer unfunded liabilities after a Qualified 
Partition, the Central States Fund would be projected to remain solvent 
through the 30-year projection period and the pensions of the 
participants remaining in the Fund would be protected. Moreover, orphan 
employees would not be adversely affected since they will continue to 
receive their promised benefits, which will not be reduced due to the 
partition.
    Qualified Partition Would Protect Thousands of Employers and 
Preserve Tens of Thousands of Jobs. Without a Qualified Partition, 
contributing employers face escalating liabilities and cash 
contribution requirements as more employers fail. By stabilizing the 
Fund and enabling trustees to mitigate contribution requirements, 
partition would enable companies contributing to the Fund both to 
remain in the Fund and to remain financially viable, preserving tens of 
thousands of jobs.
    Qualified Partition Would Protect the PBGC. Without a Qualified 
Partition, the Fund will become insolvent and the PBGC will ultimately 
have to fund the guaranteed benefits of all participants in the Fund. 
By strengthening the Fund and preventing its insolvency, a Qualified 
Partition of the Fund would prevent the PBGC from eventually having to 
fund the liabilities of all participants in the Fund. This would save 
the PBGC billions of dollars with regard to the Central States Fund 
alone.
                                 ______
                                 
    Chairman Harkin, Senator Enzi and the other members of this 
committee, I would like to thank you for this opportunity to testify at 
this hearing on Building a Secure Future for Multiemployer Plans. My 
name is Tom Nyhan and I am the executive director and general counsel 
of the Central States, Southeast and Southwest Areas Pension Fund (the 
``Fund''). I will talk to you today about how the deregulation of the 
trucking industry and the recession that began in 2008 has affected the 
Fund. I will also address how the ``qualified partition'' provisions in 
the Create Jobs and Save Benefits Act of 2010 (S. 3157), introduced by 
Senators Casey, Brown, Stabenow and Burris, will provide essential 
relief to the Fund, thereby protecting the pensions of hundreds of 
thousands of participants in the Fund, as well as the tens of thousands 
of jobs of those Americans employed by businesses that contribute to 
the Fund.
    My message today is simple. I urge Congress to enact the 
``qualified partition'' proposal this year.
    Because of a confluence of forces, most notably the dramatic 
consolidation in the trucking industry and the most significant 
recession in decades, the Central States Fund faces an unprecedented 
financial crisis. If no action is taken, the Fund is projected to be 
insolvent in the next 10-15 years. Long before the date of insolvency, 
the remaining contributing employers will either be forced out of 
business (causing catastrophic job losses) or, fearful of the 
ramifications of insolvency, will adopt measures that would accelerate 
the insolvency date. Indeed, at present, many employers are already 
facing such financial distress. The ``qualified partition'' proposal 
will stabilize the Fund and prevent this crisis.
    While many factors have contributed to the Fund's problems, the 
single largest factor relates to the pension benefits that are paid to 
retirees of employers no longer in business (and thus not contributing 
to the Fund). Over 40 percent of the annual pension benefits are paid 
to such retirees--commonly referred to as ``orphan retirees.'' When an 
employer with an underfunded corporate plan goes out of business, the 
PBGC assumes the obligations. When a company in a multiemployer plan 
goes out of business without paying its share of the liabilities, it is 
the surviving employers in the multiemployer plan that assume the 
liabilities. But, they can't continue in this role, as the increased 
contributions are forcing more and more of these employers out of 
business.
    The law currently provides a mechanism to address such a situation 
by ``partitioning'' the plan into two separate plans. S. 3157 updates 
the existing partition rules by allowing certain qualifying funds to 
elect partition, but with a price--the electing fund must transfer 
sufficient assets to the PBGC such that the PBGC will not have to use 
any of its funds to pay the benefits of participants transferred in the 
partition for a period of 5 years from the date the partition was 
elected. Given the current budgetary situation, the transfer of assets 
strikes an appropriate balance of significantly reducing the financial 
exposure of the PBGC while simultaneously allowing the fund to retain 
sufficient assets to keep it solvent.
    The following provides more detail regarding the Fund, its status, 
and the partition proposal.
                  overview of the central states fund
    Multiemployer pension plans are collectively bargained, jointly 
administered pension plans funded by a number of contributing employers 
that are often in the same industry. The Fund is one of the largest 
multiemployer plans in the country, providing (as of December 31, 2009) 
coverage to nearly 423,000 participants across the country, including 
81,000 active employees and 342,000 retirees, survivors and deferred 
vested participants.\1\ The Fund is projected to pay approximately $2.9 
billion in benefits in 2011. Since it began, the Fund has paid nearly 
$48 billion in benefits to working families.\2\
---------------------------------------------------------------------------
    \1\ As of July 8, 2009 the IBT and YRCW, the Central States Funds 
largest remaining employer entered into a Memorandum of Understanding 
(``MOU'') whereby the company was allowed to terminate its 
participation in the Fund as of July 1, 2009, which further reduced the 
number of actives by approximately 24,000. The MOU is intended to 
relieve the company of the pension funding obligation in an effort to 
allow it to weather the recession. The MOU provides that the 
termination will be temporary and that YRCW intends to resume 
participation in the pension plan on January 1, 2011.
    \2\ Nearly 30 years ago, the management of the Central States Fund 
was reformed as a result of a consent decree entered into with the U.S. 
Department of Labor (``DOL''). Since then, the Central States Fund has 
operated under judicial and DOL oversight. The investments of the Fund 
are managed by major financial institutions initially screened by the 
DOL and approved by a Federal judge. These financial institutions have 
exclusive management and control of the Fund's investment function.
---------------------------------------------------------------------------
    I have attached a slide presentation to my testimony that outlines 
the financial issues that the Central States Fund currently faces and I 
ask that this presentation be entered into the record.
    Approximately 2,000 employers contribute to the Fund. Nine out of 
ten of these employers are small businesses, with fewer than 50 
employees. Although these employers are in a variety of industries, 
including trucking/freight; car haul; tank haul; warehouse; food 
processing distribution (including grocery, dairy, bakery, brewery and 
soft drinks) and building and construction, historically there has been 
a heavy concentration of employers in the trucking industry.
    Changes in the Fund since 1980. In 1980, there was one retiree/
inactive employee for every four active employees in the Fund. Today, 
that ratio has flipped--there are 4.2 retirees/inactive employees for 
each active employee. A major reason for this dramatic shift has been 
the increased competition and reduced margins in the trucking industry 
that followed on the heels of trucking deregulation in 1980. Of the 50 
largest employers that participated in the Central States Fund in 1980, 
only four remain in business today. More than 600 trucking companies 
that contributed to the Fund have gone bankrupt since 1980 and many 
thousands of others have gone out of business without filing formal 
bankruptcy. Also in 1980, Congress passed the Multiemployer Pension 
Plan Amendments Act of 1980, adding withdrawal liability obligations to 
employers that stop making contributions to an underfunded 
multiemployer pension plan. Because employers are fearful of incurring 
withdrawal liability, the Fund has not been able to attract new 
employers.
    As a result of these trends, over 40 cents of every dollar the Fund 
now pays in benefits goes to retirees who were employed by an employer 
that went out of business without paying its proportionate share of the 
Fund's unfunded pension liability (``orphan employees''). This means 
the Fund is acting as the primary insurer of the unfunded pensions of 
employers that have gone out of business. It also means that the 
remaining employers in the Fund are responsible for funding the 
pensions of their defunct competitors' employees--or the pensions of 
retirees from a completely different industry.
    The cost of funding these orphan benefits has grown to unaffordable 
levels. As an example, trucking industry employer contribution rates 
under the National Master Freight Agreement have doubled since 2003. 
The rates have increased from $140 per week in 2000 to $380 per week 
(nearly $9.50 per hour in a 40-hour week) per active participant at the 
end of the current collective bargaining agreement in 2013. 
Approximately $150 of that weekly contribution will be required to fund 
orphan participants benefits. Other contributing employers have been 
subjected to similar contribution increases.
    Because of the increasing number of retirees and decreasing number 
of active employees, the Central States Fund's benefit payments to 
retirees have exceeded employer contributions in every year since 1984. 
In 2009 the Central States Fund paid approximately $2.74 billion in 
benefits while receiving employer contributions of approximately $675 
million. This left an operating deficit of $2.1 billion that must be 
funded by investment returns.
    Prior to 2001, investment returns were sufficient to allow the 
Central States Fund's asset base to grow despite paying annual benefits 
to retirees that exceeded annual contributions. During 2001-2003, the 
Fund investments lost money, and asset values declined.
    The investment losses experienced during 2001-2003 were compounded 
by a significant decrease in covered employees due to employers going 
out of business. With the bankruptcy of Consolidated Freightways and 
Fleming Foods in 2003 and their failure to pay more than $403 million 
in withdrawal liability, the unfunded liabilities of the Fund 
increased.
    These bankruptcies illustrate the role the Fund has played as 
insurer of pensions owed to the employees of defunct employers. For 
example, at the time of its bankruptcy, Consolidated Freightways 
maintained a ``single-employer'' pension plan and was also a 
contributing employer to the Central States Fund. When it went out of 
business in 2002, the Pension Benefit Guaranty Corporation (the 
``PBGC'') assumed responsibility for Consolidated Freightways' single 
employer plan for salaried employees, which was underfunded by $276 
million. By contrast, the Central States Fund and its remaining 
employers assumed responsibility for $319 million in unfunded vested 
benefits owed to Consolidated Freightways' rank and file employees.
    The Central States Fund took aggressive action to deal with 
underfunding after asset values declined during 2001-2003--including 
freezing ``early out'' benefits and cutting the rate of future pension 
accruals in half. Moreover, the bargaining parties significantly 
increased contribution rates and reallocated money originally earmarked 
for other purposes to the Central States Fund.
    Effect of the 2008 Financial Crisis on the Pension Fund. The steep 
decline experienced by the financial markets in 2008 compounded the 
Fund's problems. Not only did the Fund experience an investment loss of 
$7.7 billion in 2008, but benefit payments exceeded contributions by 
$1.75 billion, leaving the Fund with assets of $17.4 billion and a 
funded ratio of 48.5 percent. Given its annual operating deficit 
($1.785 billion), the Fund would have to earn over 10 percent on its 
investments each and every year and maintain its employer base just to 
keep the asset base from deteriorating. Unless the Central States Fund 
reduces the liability associated with orphan participants, it will 
become insolvent within the next 10-15 years--the actual date of which 
will depend upon the Fund's investment experience and the rate at which 
contributing employers continue to go out of business.
                    partition of multiemployer plans
    Current Partition Authority. Congress anticipated the problem 
facing funds like the Central States Fund. Since 1980, the law has 
provided a way to address the funding problems that occur when there 
are an excessive number of orphan employees in a multiemployer plan. 
The PBGC may order the ``partition'' of a multiemployer plan, which in 
effect removes from the plan pension liabilities that were earned with 
failed employers that have gone through formal bankruptcy proceedings. 
The PBGC transfers plan benefits attributable to the orphan employees 
of the failed employers to a separate plan, and then guarantees the 
benefits of the orphan employees in that separate plan at the PBGC 
benefit guaranty level for multiemployer plans. The remaining portion 
of the plan covering employees of ongoing employers continues, but 
without the burden of the orphan liabilities. In effect, PBGC's 
partition authority enables the agency to surgically remove liabilities 
from a multiemployer plan to enable the plan to survive. Since 1980, 
only two multiemployer plan partitions have been allowed.
    Qualified Partition Proposal. Under S. 3157, the PBGC's current 
partition authority will be updated to provide that a ``Qualified 
Partition'' of a multiemployer pension plan could be elected by 
multiemployer plans that meet certain, strict requirements. The Central 
States Fund would be eligible to elect a Qualified Partition, as well 
as the Western Pennsylvania Teamsters Pension Fund and a limited number 
of other smaller multiemployer plans. A Qualified Partition would 
transfer to a separate plan backed by the PBGC the responsibility for 
the vested benefits of participants earned with employers that filed 
for bankruptcy or otherwise went out of business. Along with the 
transfer of liabilities, the multiemployer plan would transfer to the 
PBGC assets so that the PBGC will have no obligation to pay the 
benefits of participants transferred in the partition for a period of 5 
years from the date the partition was elected. The PBGC's benefit 
guaranty for participants whose benefits are transferred to the PBGC in 
a Qualified Partition would be increased to fully protect the benefits 
transferred. During that same 5-year period, the trustees of the 
multiemployer plan may stop further escalation of the contribution rate 
of contributing employers if the trustees determine that such action is 
necessary and appropriate to preserve covered employment under the 
plan.
    Qualified Partition Would Strengthen the Central States Fund and 
Protect the Participants and Beneficiaries of the Fund. Partition will 
prevent the Fund from becoming insolvent by removing liabilities for 
orphan employees. In the year after partition, the ratio of inactive to 
active participants in the Fund will improve from 4.2 to 1, to 2.2 to 
1. The Fund's annual benefit payments will decline from $2.9 billion to 
$1.8 billion, assuming YRC resumes contributions as planned. Also, the 
gap between annual benefit payments and annual contributions that must 
be filled by investment earnings will be cut from $2.0 billion today to 
$.9 billion. With fewer unfunded liabilities, the Central States Fund 
would be projected to remain solvent through the 30-year projection 
period. As a result, the pensions of the participants remaining in the 
Fund would be protected. Moreover, orphan employees will not be 
adversely affected if a Qualified Partition is elected. They will 
continue to receive their promised benefits, which will not be reduced 
due to the partition.
    Qualified Partition Would Protect Thousands of Employers--Most of 
Them Small Employers--and Preserve Tens of Thousands of Jobs. If the 
Fund's financial challenges are not addressed, contributing employers 
face escalating liabilities and cash contribution requirements as more 
employers fail. A contributing employer can stay in the plan, and risk 
being driven out of business. Or, if the contributing employer is 
unusually financially strong, it can withdraw as soon as possible and 
start paying off a portion of the plan's liabilities (which are capped 
in various ways) over 20 years as allowed by statute--leaving fewer 
employers to fund the plan and an even greater burden on the dwindling 
number of remaining employers. By stabilizing the Fund and enabling 
trustees to mitigate contribution requirements, partition would enable 
companies contributing to the Fund both to remain in the Fund and to 
remain financially viable, preserving thousands of jobs.
    Qualified Partition Would Protect Other Multiemployer Plans. 
Importantly, the benefits of providing for a Qualified Partition are 
not confined to the jobs and retirement benefits of Central States' own 
population of participating employees. Many, if not most, of the 
employers that currently contribute to Central States Fund also do 
business outside the geographic regions served by the Central States 
Fund. Many of these companies contribute to multiemployer pension plans 
other than the Central States Fund. For example, a significant number 
of the contributing employers to the Central States Fund also 
contribute to the Western Conference of Teamsters Pension Fund--a 
multiemployer plan that is even larger than Central States and that 
offers coverage for workers in most of California and the Pacific 
Northwest. Without a Qualified Partition, the projected insolvency of 
the Central States Fund would have had a serious impact on the ability 
of these contributing employers to maintain their contributions to the 
other multiemployer plans they contributed to, thereby endangering 
these other multiemployer plans.
    Qualified Partition Would Protect the PBGC. Because the Central 
States Fund will become insolvent, the PBGC will ultimately have to 
fund the benefits of participants in the Fund. By strengthening the 
Central States Fund and preventing its insolvency, a Qualified 
Partition of the Fund would prevent the PBGC from eventually having to 
assume the liabilities of the remaining participants in the Fund. This 
would save the PBGC billions of dollars with regard to the Central 
States Fund alone.
                               conclusion
    The partition proposal will stabilize the Fund and a limited number 
of other small multiemployer plans facing a similar financial crisis by 
allowing these multiemployer plans to elect to separate off the 
liabilities attributable to the orphan employees of bankrupt employers, 
together with a share of assets, from the liabilities and assets 
related to current contributing employers. It will greatly improve the 
actuarial soundness and long-term prospects of the plans covered by the 
proposal. Thus, the partition proposal will reverse the forces that are 
driving employers out of business and costing jobs with each passing 
day.
    Congress is deeply concerned about job losses in the country. The 
partition proposal will preserve tens of thousands of jobs that 
otherwise will be lost in the immediate future. With a financially 
sound multiemployer plan, contributing employers will be able to meet 
their obligations to the Central States Fund while competing 
successfully in the marketplace. We urge Congress to address this issue 
as soon as it can.
    Thank you for this opportunity to address the committee. I will be 
happy to answer any questions the committee may have.

    The Chairman. Thank you, Mr. Nyhan.
    Mr. DeFrehn.

  STATEMENT OF RANDY G. DeFREHN, EXECUTIVE DIRECTOR, NATIONAL 
 COORDINATING COMMITTEE FOR MULTIEMPLOYER PLANS, WASHINGTON, DC

    Mr. DeFrehn. Thank you, Chairman Harkin. I'd like to thank 
you and the members of the committee for the invitation to be 
here again today.
    My name is Randy DeFrehn. I am the executive director of 
the National Coordinating Committee for Multiemployer Plans. 
Our organization was established to represent the interest of 
multiemployer plans, and, over the past 35 years, we've done 
that.
    We'd certainly like to acknowledge and thank Senator Casey 
for his leadership in this issue, as well as Representatives 
Pomeroy and Tiberi on the House side, who have done a similar 
job in pointing out the weaknesses in a proposal for addressing 
those issues.
    Plans are facing some very difficult times, as is any other 
portion of the financial infrastructure of this country. We've 
all been hit--they've all been hit by the meltdown, in 2008, as 
they were just beginning to recover from what had happened from 
2000 to 2002.
    The financial straits that our plans find themselves in now 
are not the norm; that's not where they've always been. In 
fact, in the late 1990s, over 70 percent of these plans were 
approaching or exceeding the maximum deductible limits--the 
full funding limits. And, for tax reasons, to protect the 
contributions of the contributing employers, the benefits 
actually had to be increased in order to allow those 
contributions to continue to be deductible. That's an important 
factor here, as I go on to talk about some of the aspects of 
the other relief proposals.
    As the situation played out in 2008, it became apparent 
that the solutions that were put together in the Pension 
Protection Act, which had a good objective, which is to try to 
strengthen the funding level of multiemployer plans--but, they 
were not resilient enough to be able to deal with the kinds of 
dramatic drop that we saw in the markets. If you look at the 
Pomeroy bill in the House, and where the Senate has been, there 
have been a kind of continuum for relief for plans, and, more 
importantly, for the employers who support these plans. Because 
the key to this, the key to preserving any of these plans, is 
to allow those employers to continue to remain competitive. If 
the costs go up too quickly, the contributions that are 
driven--that come into these plans to fund them, will dry up, 
because the employers will no longer be competitive; they won't 
be able to get the work. And in the final analysis, people 
won't have pensions, but then they won't have jobs, either.
    There have been proposals that are along a continuum; first 
of all, to allow employers to have a longer period of time to 
meet these long-term obligations. The PPA pulled down the 
periods of time to pay off these obligations--to 15 years for 
multiemployer plans and 7 years for singles. If it's normal for 
a homeowner to have 30 years to pay off a long-term obligation, 
it seems a little excessive to do those in 15, for 
multiemployer plans. I'm glad to see that the House is 
prepared, and the Senate has taken some action, on the funding 
portion for those plans, and pointing out that those are the 
majority of the plans that will be able to survive, and once 
again thrive, when markets return to their normal situations, 
going forward.
    There are plans that are facing difficulties here. While we 
focused on Central States, and there is one other plan, which 
is the Mineworkers Plan, which is also having some 
difficulties, due to not just their own industry, but for some 
other government policies that have produced a reduction in the 
workforce in those areas--we are pleased to see the recognition 
of Senator Casey in allowing plans to survive--those that can--
by merger, with bringing some of the smaller or weaker plans 
into stronger plans, to have partitions available; and for 
those plans that aren't going to survive, to recognize the fact 
that the benefits being provided to multiemployer plan 
participants are woefully inadequate at this point.
    What we're pleased to see, in terms of the proposed 
solutions, are not new liabilities to be imposed upon the PBGC 
or the government. If you think about it, these are obligations 
that will arrive at the doorstep of the PBGC, when the plans 
get to the ultimate point where they can't survive. The 
question is, Can the agency act in time to save those other 
employers who can be saved and to do what works for all three 
of the major stakeholder portions of this community? The 
partition--the contributing employers first; secondly, the 
participants whose benefits would be reduced if they go to the 
PBGC or the plan becomes insolvent and fails; and the PBGC 
itself, because if they act in time to either facilitate a 
merger--which they've done on an ad hoc basis in the past, but 
have actually been reluctant, in recent years--to do so by 
putting some money from the Guaranty Fund on the table to make 
these mergers more appropriate, from a fiduciary standpoint, 
from the receiving plan fund. Those plans can actually--if you 
merge some plans in a timely way, you can protect all of those 
stakeholders.
    Same with partition. We're pleased to see that this is 
being talked about. I believe there's some misunderstanding of 
the intent of the way the third fund--or fifth fund, I guess it 
is--that's called in the law--is structured. I believe that the 
original intent was more as an administrative convenience to be 
able to move some monies from one fund to another, not to have 
one supplement or support the other one.
    Clearly, we believe that we're headed in the right 
direction, and we commend the committee and, again, Senator 
Casey for his leadership, and welcome any questions.
    Thank you, Senator.
    [The prepared statement of Mr. DeFrehn follows:]
                 Prepared Statement of Randy G. DeFrehn
                              introduction
    Chairman Harkin, Ranking Member Enzi and other distinguished 
members of the committee, my name is Randy DeFrehn. I am the executive 
director of the National Coordinating Committee for Multiemployer Plans 
(the ``NCCMP'').\1\ The NCCMP is a non-partisan, non-profit advocacy 
corporation created under Section 501(c)(4) of the Internal Revenue 
Code in 1974, and is the only organization created for the exclusive 
purpose of representing the interests of multiemployer plans, their 
participants and sponsoring organizations. It is an honor to be invited 
here once again to speak with you about issues of critical importance 
to the more than 10 millions of working Americans who depend upon 
multiemployer defined benefit plans for their retirement income 
security. I am testifying today on behalf of the NCCMP and the 
Multiemployer Pension Plans Coalition (``Coalition''),\2\ a broad group 
comprised of employers, employer associations, labor unions, 
multiemployer pension funds, trade and advocacy groups from across the 
country, representing the full spectrum of the multiemployer community.
---------------------------------------------------------------------------
    \1\ The NCCMP is the premier advocacy organization for 
multiemployer plans, representing their interests and explaining their 
issues to policymakers in Washington since enactment of ERISA in 1974. 
Its members include more than 200 affiliates which directly sponsor 
over 700 pension, health and welfare and training trust funds, as well 
as employers and labor unions whose workers and members participate in 
multiemployer plans.
    \2\ The Multiemployer Pension Plans Coalition, which is coordinated 
by the NCCMP, came together in response to the first ``once in a 
lifetime'' bear market early in this decade, to harness the efforts of 
all multiemployer-plan stakeholders toward the common goal of achieving 
benefit security for the active and retired American workers who rely 
on multiemployer defined benefit pension plans for their retirement 
income. Collectively, these stakeholders worked tirelessly to devise, 
evaluate and refine proposals from all corners of the multiemployer 
community for funding reform. Their efforts culminated in a proposal 
for fundamental reform of the funding rules contained in ERISA; rules 
that had never been ``stress-tested'' under the kind of negative 
investment markets which prevailed from 2000 through 2002; and rules 
that were largely adopted in the multiemployer provisions Pension 
Protection Act of 2006 (``PPA''). This group recognized that benefit 
security rests on rules that demand responsible funding, discipline in 
promising benefits and an underlying notion that even the best benefit 
plan is irrelevant if the businesses that support it are unable to 
remain competitive because of excessive, unanticipated or unpredictable 
costs. The Coalition was reconstituted following the second ``once in a 
lifetime'' market event in 2008 when it became clear that the 
provisions of the PPA were not sufficiently flexible to address the 
magnitude of the global catastrophic market contractions that affected 
every part of the financial services infrastructure of the United 
States.
---------------------------------------------------------------------------
    I will focus my remarks this morning on putting the effects of the 
2008 market contractions into perspective and on the proposal by the 
Coalition to address targeted relief for plans adversely affected by 
those markets.
                               background
    Multiemployer plans have provided retirement security to tens of 
millions of American workers for more than 60 years. They currently 
account for nearly one of every four participants covered by a defined 
benefit plan. This system has survived and thrived as a result of a 
joint commitment by labor and management (reinforced by the statutory 
and regulatory structure) to responsibly balance the needs of all of 
the stakeholders. Through the collective bargaining process, tens of 
thousands of small businesses have negotiated with employee 
representatives to provide good, middle class wages and excellent 
pension and health benefits while enabling employers to remain 
competitive. Multiemployer plans enable employees in mobile industries 
to receive reliable benefits through a system that enables portability 
of service among employers that contribute to the same plan and, 
through reciprocity agreements, to virtually all plans in many trades 
while providing employers with the benefits of economies of scale in 
the pooling of assets, administrative costs and liabilities. They are 
prevalent in virtually every area of the economy where employment 
patterns require frequent movement within an industry, including: 
construction; trucking; retail; communications; hospitality; aerospace; 
health care; longshore; maritime; entertainment; food production, sales 
and distribution; mining; manufacturing; textiles; and building 
services.
                           problem statement
    Since the passage of ERISA in 1974, the multiemployer pension plan 
system has had a history of secure funding and conservative management 
to systematically accumulate funds needed to meet long-term pension 
benefit obligations when they became due. This statutory framework was 
enhanced in 1980 with the passage of the Multiemployer Pension Plan 
Amendments Act (MPPAA) which imposed a framework within which departing 
employers would be assessed for their proportionate share of any 
unfunded vested benefits.\3\ Additionally, the fiduciary rules imposed 
a measured discipline on plan trustees to responsibly manage the plans' 
assets and plan design. This system was badly damaged by the recent 
collapse of the financial markets. It is important to understand the 
factors that influenced that damage in order to craft an appropriate 
resolution.
---------------------------------------------------------------------------
    \3\ MPPAA imposed the concept of ``withdrawal liability'' that 
required sponsoring employers who depart from plans pay their 
proportionate share (if any) of the plan's unfunded vested benefit 
obligations. These assessments were deemed necessary to prevent such 
obligations from being unfairly shifted either to the remaining 
employers, thereby providing a double competitive advantage to the 
departing employers (first, by no longer having any obligation to make 
contributions to the plan, and second, by imposing those costs on the 
remaining employers) or to the taxpayer.
---------------------------------------------------------------------------
    As the system evolved, plan trustees prudently adhered to guidance 
by the Department of Labor to place their assets in broadly diversified 
investment portfolios. They retained professional advisors who guided 
them to allocate plan assets in investment classes that were thought to 
be uncorrelated to minimize risk. While a minority of advisors began to 
suggest movement to ``immunized'' and ``risk-free'' portfolios, most 
advisors and plan fiduciaries rejected that advice as failing to 
adequately recognize the equity premium which was historically realized 
by long-term ``patient'' investors. Fueled by a favorable economy and 
strong investment markets of the 1980's and 1990's, plans were able to 
eliminate the majority of unfunded liabilities. Accepting, for the 
moment, that this represented the prevailing advice among the 
investment consultant community, the system would have remained 
vulnerable to the volatility of the markets. Unfortunately, when ``the 
bear'' arrived at the door, few asset classes were left unscathed, as 
investors around the world experienced and continue to suffer from, the 
profound and lingering effects of its two most recent visits. Had the 
system been permitted to operate within the narrow context of ERISA's 
funding goals, however, it might still have avoided or at least 
moderated the effects of market volatility.
    Unfortunately, plans are also exposed to a variety of other, 
perhaps more insidious, risks from an unexpected source--other 
government policies with only a tangential relationship to pension 
funding. These included restrictions placed on the tax-favored 
treatment of excess contributions to fully funded pension plans, which 
prevented plan sponsors from accumulating reserves that would protect 
plans from adverse markets; the deregulation of the trucking industry; 
the Clean Air Act; and, some may submit, the weakened enforcement of 
labor laws that depressed the historical pattern of replacement of 
organized firms in industries such as construction, resulting in a 
contracting contribution base. Each of these policies has had the 
unintended consequence of eroding the funding of some or all 
multiemployer defined-
benefit plans.
    By the end of 2007, the average funded level of multiemployer plans 
at the beginning of that year had returned to 90 percent,\4\ rebounding 
from the earlier collapse of the tech bubble from 2000 to 2002 and the 
ensuing crisis of confidence. By the end of 2008, however, 
multiemployer plans suffered the same kinds of losses that plagued the 
rest of the Nation's financial infrastructure with median investment 
returns reported at ^22.91 percent. This situation was compounded in 
2008 by the implementation of the new, more aggressive funding rules of 
the Pension Protection Act.
---------------------------------------------------------------------------
    \4\ See ``Multiemployer Pension Plans: Main Street's Invisible 
Victims of the Great Recession of 2008''; DeFrehn, Randy G. and 
Shapiro, Joshua; April 2010; PP 12-13.
---------------------------------------------------------------------------
    Therefore, it is entirely understandable, if not predictable, that 
the market contraction would have reduced the funding levels of pension 
plans as it has the fortunes of all investors. In fact, a similar 
correlation can be seen between funding levels and historical rates of 
returns on invested assets. (See Chart 1).

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

                              the response
    The response to the market contraction by the multiemployer 
community was, once again, a concerted, carefully conceived proposal to 
comprehensively and constructively address the current situation. For 
the vast majority of the more than 1,500 multiemployer defined benefit 
plans that suffered significant losses, but are expected to remain 
solvent for the long-run, the objective is to provide additional time 
to fund these long-term obligations through measures along the lines of 
those contained in the tax extenders package, some of which have 
already been passed by the Senate.
    For a very few other plans that have more serious problems, the 
Coalition proposed more direct intervention designed to provide a 
continuum of relief at appropriate levels to protect the interests of 
all of the stakeholders--participants, plan sponsors and the PBGC. 
These measures include making it easier for stronger, 
better-funded plans to merge, or form alliances with, weaker plans in 
the same industry. For those few plans that are projected to become 
insolvent, the proposal includes two additional features: partition, 
which could preserve the benefits of a portion of the participants of 
the failing plan and reduce the ultimate exposure of the PBGC; and an 
increase in the amount of plan benefits guaranteed by the PBGC from 
$12,870 for participants with 30 or more years of service (which is 
$1,700 below the Federal poverty level for a family of two) to an 
annual maximum of $20,070. It was proposed that the increase would be 
funded by an increase in the annual premium paid by plans. Each of 
these proposals are contained in S. 3157, the ``Create Jobs and Save 
Benefits Act of 2010.'' We commend Senator Casey for his leadership in 
this matter and his co-sponsors for their support.
                         mergers and alliances
    Mergers have been a traditional mechanism for consolidating plans 
within an industry, usually involving a weaker, perhaps struggling plan 
and a larger, stronger plan, often national in scope. Typically mergers 
leverage contributions and investment income to the advantage of 
incoming plan participants by maximizing the economies of scale. They 
may be self-initiating among the groups, or they may be encouraged by 
plan sponsors as part of a broader consolidation within an industry. In 
a limited number of occasions, the PBGC has facilitated mergers where 
the likelihood of plan failure of the weaker plan was great, by 
providing funding from the guaranty fund. By doing so, it reduced the 
exposure to the agency, while protecting the benefits of the 
participants and reducing the exposure of contributing employers to 
withdrawal liability. Unfortunately, the agency has not incorporated 
this approach as an option for troubled plans. Furthermore, with the 
implementation of the Pension Protection Act zone system, additional 
fiduciary concerns have complicated the voluntary merger activity at a 
time when mergers could be used to the advantage of all stakeholders. 
For these reasons, the Coalition proposal, reflected in S. 3157, 
includes the formal codification of the PBGC's prior practice.
                               partition
    Partition is not a new concept. It acknowledges that even a system 
with the stability of a multitude of contributing employers could be at 
risk if the entire industry declines, making the burden of funding for 
liabilities associated with departed employers unsustainable for those 
that remain. While it has been available for decades, it has rarely 
been used by the PBGC and it is anticipated that its use going forward 
would be equally rare. Furthermore, while the instances in which it has 
been used in the past involved plans that are much smaller or localized 
than those currently at risk, the underlying principle remains the 
same.
                         ``at risk'' industries
    While one of the major advantages of a multiemployer plan is its 
design as an ongoing entity disconnected from the fortunes of any one 
employer, the evolution of our economy and the law of unintended 
consequences have prevented that objective from being fulfilled. Just 
as the average household in the 1950's and 1960's took for granted the 
early morning delivery of milk, which is now only a distant memory for 
most of us, often what we assume to be a regular part of American life 
can take an unexpected turn. Two similar situations are at work that 
have contributed to the current problems in the trucking and mining 
industries.
    In 1980 the trucking industry was deregulated. While the objective 
of this government policy was to expand the opportunities for open 
competition among trucking firms, one of the unforeseen consequences 
was that many of the new firms which entered the industry found that 
one way to undercut the industry pricing standards was to eliminate the 
strong benefits protections provided to their employees by the major 
carriers. Rather than expanding the opportunities for good paying jobs 
with pension and health care benefits that characterized this industry 
and contributed to the expansion of the Nation's middle class, the 
number of firms who were able to continue to do so declined to the 
point of near extinction; leaving the responsibility for funding the 
accrued benefits to a continually contracting remaining few and leaving 
only ABF as the lone freight hauler out of a universe of approximately 
70 major employers at the time of deregulation. Although this situation 
existed throughout the trucking industry, its effect on the myriad of 
plans differed as a result of numerous factors including differences in 
the other industries served and the strength of the economy in 
different geographic areas.
    Nevertheless, as a result of a cautious approach to asset 
management and plan design, even the plans that were most heavily 
dependent on the traditional freight industry were able to grow and 
prosper and throughout the 1980's and 1990's made substantial progress 
towards the objective of full funding. For example, Central States was 
approximately 97 percent funded going into the first of the two ``once-
in-a-lifetime'' market contractions of this past decade, despite 
carrying the additional burden of a substantial cash-flow deficiency 
largely attributable to the ``orphan'' retiree population. Even after 
suffering significant losses between 2000 and 2002, the fund had 
constructed a plan that eventually would enable it to reach full 
funding. The second ``once-in-a-lifetime' market was much more 
devastating, however, and, coupled with a continuing cash flow deficit, 
has placed the prospects of long-term plan solvency under normal 
operations out of reach.
    Though not precisely the same, the story of the decline in the 
fortunes of the mining industry has some striking similarities. The 
UMWA and bituminous coal industry have a long and significant history 
as having created the most influential of all multiemployer plans in 
the Nation's history. Their health plans brought the residents of 
Appalachia out of the worst conditions in the country and into the 20th 
century as a result of their construction of the Appalachian regional 
hospital system. Similarly, the pension plans sponsored by the coal 
industry brought dignity to millions of those whose sacrifice brought 
this Nation our primary source of energy since it issued the first 
pension check to Horace Ainscough of Rock Springs, WY on September 9, 
1948. These funds had also benefited from the structure of ERISA's 
funding rules and despite experiencing fluctuating fortunes in the 
1970's, ultimately achieved full funding during the 1990's. However, 
the employment base that enabled the coal industry to accumulate was 
also adversely affected by government policy. The Clean Air Act 
virtually eliminated the production of high sulfur coal East of the 
Mississippi (especially in the State of Illinois) and with it the jobs 
that generated the contributions to the fund. Instead the production 
has been moved to the largely non-union coal fields of the Powder River 
Basin where fully one-third of the country's entire production is now 
mined. Rather than tens of thousands of active miners on whose hours 
contributions were made to the plans in the 1980's, there are now 
approximately 11,000. The assets of the plan that were invested in a 
diversified portfolio adopted pursuant to the Department of Labor's 
guidance were also severely eroded as a result of the 2008 market 
performance.
    Coupled with a severe cash flow shortfall, this mature plan is also 
facing insolvency without direct intervention.
                           proposed solution
    By definition under either the existing or proposed legislation, 
partition is only available to plans that are projected to be 
insolvent; plans that, in the absence of intervention, represent 
certain and unavoidable liabilities for the PBGC at the point such 
insolvency is reached. To place this topic in its proper context, we 
are not discussing a proposal that would impose additional liabilities 
on the PBGC; rather partition is a tool that, if managed properly, will 
actually reduce the risk of substantial loss to all stakeholders, 
including PBGC.
    While the proposal contained in the Create Jobs and Save Benefits 
Act contains provisions to limit the acceleration of cuts that have 
been a characteristic of prior partitions, to date participants whose 
plans have been partitioned have suffered immediate reductions to the 
PBGC guaranty levels. Without partition, it is a virtual certainty that 
all of the participants in such plans will suffer significant, if not 
catastrophic reductions in benefits. Similarly, contributing employers 
will face potentially enormous withdrawal liabilities, ironically, 
imposing (at best) crippling financial burdens upon the same employers 
that have provided a financial safety net for thousands, if not tens of 
thousands of workers in an industry who may never have worked for them; 
the same safety net that, in the single employer universe is provided 
by the PBGC. Truly, this is a classic example of the old adage that 
``no good deed goes unpunished.''
    Let there be no misunderstanding, the notion of arbitrarily 
allowing the value of a participant's service to be reduced by plan 
sponsors after the fact strikes at the very heart of the multiemployer 
system and must be avoided wherever possible. The concept has been 
abundantly clear since the enactment of ERISA. A participant in a 
defined benefit plan must have a definitely determinable benefit. For 
the multiemployer system to work, participants whose work patterns 
require regular movement from one employer to another must have the 
assurance that the credits they earn throughout their careers will be 
protected. Although the Pension Protection Act enables critical status 
plans to reduce certain ``adjustable'' benefits in certain narrowly 
defined circumstances, the labor and employer representatives who 
worked cooperatively through that process to address the issues 
confronting the survival of their businesses and plans were united from 
the beginning in endorsing the principle that normal retirement 
benefits at normal retirement age must remain fully protected. For plan 
sponsors to have discretionary authority to reduce the value of such 
benefits of participants--including pensioners already in payment 
status, whose service was earned working with employers who no longer 
exist or are no longer required to contribute--would destroy the 
multiemployer system and is unacceptable as a general notion--with one 
exception. That exception arises when a plan has passed the ``point of 
no return'' and would otherwise become ``Wards of the State'' through 
the PBGC. In that instance, partition becomes a vehicle to preserve the 
portion of the plans that can continue to be self-sustaining. It has 
been described as analogous to a medically necessary amputation of a 
limb that is required to save the life of the patient. While there will 
be plans that cannot be salvaged, for a limited number of others, 
partition can reduce the ultimate cost to the PBGC, protect the 
benefits of a portion of the participants, and enable the remaining 
contributing employers to continue to meet their funding obligations to 
the remaining participants.
    In addition to the direct benefits to the stakeholders, partition 
would present indirect benefits to the countless other plans to which 
these same contributing employers contribute. Many of these employers 
contribute to dozens and in some examples, hundreds of other plans in 
the retail food and construction industries, among others. If faced 
with massive additional contribution requirements, the other plans to 
which these employers contribute may find them unable to make their 
required contributions, further disrupting those plans as well.
                       increasing pbgc guarantees
    The PBGC guarantee program serves a different function for 
multiemployer plans than for single employer plans. For single employer 
plans, the agency is the insurer of first resort. In the event a single 
employer is unable to meet its funding obligations, the PBGC must step 
in and take over the plan liabilities and administer the plan. For 
multiemployer plans, however, the pool of contributing employers 
assumes that role and the agency acts as insurer of last resort, 
becoming involved in the funding of a plan only when it becomes 
insolvent.\5\ Further, the PBGC never assumes the administration of 
multiemployer plans, but delegates the administration to the fund 
trustees.
---------------------------------------------------------------------------
    \5\ The multiemployer community was divided over the need for a 
guarantee fund at all, with some arguing that maintaining this fund 
would amount to a tax on plans for no benefit, as multiemployer plans 
would never fail.
---------------------------------------------------------------------------
    This system has worked reasonably well, given the limited number of 
plan terminations of multiemployer plans in comparison to their single 
employer counterparts, however, the recent market upheaval has 
increased the likelihood of a small number of plan failures. The number 
of such plans is uncertain and could be favorably influenced by both of 
the interventions described above.
    The level of benefit guarantees under the PBGC multiemployer 
guaranty program were set at $5,850 per year for participants with 30 
or more years of service in 1981. The corresponding premium for that 
coverage was $1.40 per participant per year and was raised several 
times from then through 1989 when it was set at $2.60. It remained at 
that level until 2006 when it was raised to the current level of $9.00 
and was indexed to inflation going forward. These premiums were more 
than adequate for most of the history of the guaranty program, emerging 
from a deficit to a surplus position in 1982 and remaining there until 
falling to a deficit in 2002. The benefit was raised only once in its 
30-year history, going to $12,870 in 2001. Putting this into 
perspective, the Federal poverty level for a family of two is $1,700 
higher than the maximum guaranteed amount for workers with 30 or more 
years of service. Also unlike the single employer program, the benefit 
is not indexed. Furthermore, the benefit guarantee formula was designed 
to combat the ``moral hazard'' of encouraging plan sponsors from simply 
abandoning plans to the PBGC by imposing a formula that guarantees 100 
percent of only the first $11 of benefit accrual, falling to 75 percent 
of the next $33, with no level of guarantee for benefits paid above 
that amount.
    Charts 2 and 3 show the relationships between the current benefit 
and premium levels when compared with the 1981 levels, adjusted for 
inflation at the national average wage rates. They clearly demonstrate 
that, had these simply been indexed for the modest adjustments in wages 
over the 30-year period, maximum benefits would have been nearly 
$20,000 and premiums would have been less than $5.00.

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    Furthermore, over time the fixed benefit provided by this formula 
has become less adequate with greater and greater portions of the 
participant's benefit becoming ``at-risk'' as accruals were increased 
through the 1990's. While it is true that very few plans have had to 
avail themselves of the PBGC guaranty program, for those plans that 
face insolvency, the current benefit level is unacceptably low. As 
shown in the following Chart 4, over one-half of all new pensions 
awarded in 2008 exceeded the maximum level at which benefits are 
protected, before adjusting for years of service.

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    In response, the Coalition proposed adding one more layer to the 
existing formula in a manner consistent with the current formula to 
avoid the question of moral hazard. Under the proposal, the benefit 
levels would be increased by 50 percent of the next $40 of accrual. The 
total annual benefit guarantee level for a participant with 30 years of 
service would be $20,070. The protection against sponsors irresponsibly 
dumping plans to the PBGC is the extent to which benefits would be 
reduced. For example, the same participant with 30 years of service, 
and an accrual rate of $74 per month per year of service would forfeit 
approximately one-third of his benefit. Persons with higher accrual 
rates, or fewer years of service would suffer greater reductions, but a 
maximum benefit of $20,070 is considerably better than $12,870.
    S. 3157 proposes paying for the benefit increase with an increase 
in the annual premium level from the current $9 per employee, to $16. 
We support the proposal and urge passage of S. 3157 as introduced.
                               conclusion
    We appreciate the opportunity to provide you with this testimony 
and to separate the facts from much of the rhetoric regarding 
multiemployer pension plan funding. As representatives of a Coalition 
of stakeholders that include groups as diverse as the member unions of 
the AFL-CIO and Change to Win and their employer association 
counterparts in the diverse industries that sponsor multiemployer 
plans; the U.S. Chamber of Commerce; UPS; Bechtel; and the Washington 
Group, to name a few, we believe it is critical to understand the need 
for comprehensive funding relief for multiemployer defined benefit 
plans as a means of preserving the financial viability of tens of 
thousands of small, medium-sized and large employers and the jobs they 
provide. The continuation of this system and the protection of all of 
the stakeholders is in the balance.
    We look forward to speaking with the members of the committee at 
the upcoming hearing and welcome any questions you may have.

    The Chairman. Thank you, Mr. DeFrehn.
    Now, Mr. McGowan. Please proceed.

  STATEMENT OF JOHN R. McGOWAN, PROFESSOR OF ACCOUNTING, ST. 
                LOUIS UNIVERSITY, ST. LOUIS, MO

    Mr. McGowan. Thank you, Senator Harkin. It's an honor to be 
here. I appreciate the chance to speak to the committee.
    I know I have 5 minutes, so if I have to speak like the guy 
from Jimmy John's here, bear with me.
    My remarks are divided into three parts: first, speaks to 
the role of defined benefit plans in the United States and 
around the world, the 21st century; second, a few specific 
questions about the bill, which Ms. Borzi, already addressed--
I'll very quickly reiterate them; and third, some policymakers 
are beginning to talk about--the ratio of national debt to GDP 
in the United States is potentially untenable. I'll talk a 
little about those three areas.
    To begin with, the discussion has centered around how 
important and beneficial defined benefit plans are and how they 
should be preserved by the government. Companies in the United 
States have been freezing and replacing their defined benefit 
plans with defined contribution plans faster than a bunch of 
kids riding down a world-class roller coaster. A number of 
factors have already been talked about; how, a risky 
proposition is potentially a thing of the past.
    A one-time trickle of employers freezing their defined 
benefit pension plans turned into a flood in 2009. Nearly one-
third of Fortune 1000 companies with defined benefit plans have 
frozen at least one of those plans, up from 7 percent 5 years 
ago. Among the Nation's biggest companies, defined benefit 
plans declined by an even greater--only 45 percent of Fortune 
100 companies still offer defined benefit plans to new salaried 
employers.
    Increasingly this year, employers froze their defined 
benefit plans and did not sweeten their 401(k) plans. Some 
companies, due to severe financial pressures, went even further 
and froze their defined benefit plans and suspended their 
401(k) plan match.
    I looked at, internationally, how defined benefit plans are 
faring in other countries, because we do operate in a global 
economy and we have to compete with businesses around the 
world. And so, that context is important. Also, the four 
countries with the greatest defined benefit plans are Japan, 
Finland, Germany, and Sweden. All these countries have a strong 
tradition of defined benefit plans. They, themselves, have also 
been freezing and cutting back defined benefit plans, and 
mixing them with a combination of defined contribution and 
defined benefit.
    Just a couple questions--not to be redundant--about the 
bill that Ms. Borzi talked about. The fifth fund was 
essentially going to raid the funds of the single employer 
plan. I mean, that's just a concern that's been addressed. And 
second, the full faith and credit backing of the fifth fund was 
a concern. Will the taxpayers end up being on the hook as a 
result of the bill? Ms. Borzi very eloquently addressed those 
concerns. I don't need to really reiterate those.
    Central States, Mr. Nyhan talked about paying $2.3 billion 
in benefits and getting some $700 million in employer 
contributions, which really does illustrate the nature of the 
problem. Over a billion of those benefits are for, as he 
mentioned, orphan retirees. That really is a problem that needs 
to be addressed.
    In terms of how bad it is, though, for the current state of 
multiemployer plans, I think that's illustrated with UPS paying 
$6 billion to get out of Central States. That might illustrate 
how bad things are currently, that UPS is willing to pay $6 
billion to sort of extricate themselves from that liability.
    And last, just in terms of the government's role in this, 
Is there a tipping point for too much U.S. debt? This is what 
Robert Samuelson, a very esteemed economist says. Some of us 
may have studied his textbooks, going through school. You might 
think that Europe's economic turmoil would inject a note of 
urgency into America's budget debate. After all, high 
government deficits and debt are the roots of Europe's 
problems, and these same problems afflict the United States. 
Most Americans dismiss what's happening in Europe as a 
continental drama with little relevance to them. He just talks 
about the current problems of Greece and Europe. The ratio of 
debt to GDP in Greece is about 101 percent. Their debt is 
slightly greater than GDP. Right now, our national debt to GDP 
is about 88 percent; but in 5, 6, 7 years, it's scheduled to be 
100 percent. We'll have the same ratio of debt to GDP that 
Greece now has. Robert Samuelson has said, what before was 
thought to be unthinkable, that policymakers are beginning to 
talk about a little bit--the fact, that the United States could 
default on its national debt. So, I appreciate Senator Casey's 
assurance that taxpayer funds are not going to be used to 
address this very important problem.
    I'll finish my remarks in time.
    Thank you, again, very much for the invitation.
    [The prepared statement of Mr. McGowan follows:]
                 Prepared Statement of John R. McGowan
    1. Pension Benefit Guarantee Corporation (PBGC) is experiencing a 
significant increase in financial liabilities for failed pension plans. 
PBGC's combined financial condition declined by $10.80 billion, 
increasing the corporation's deficit to $21.95 billion, increasing the 
corporation's deficit to $21.95 billion as of September 30, 2009, from 
$11.15 billion as of September 30, 2008. The single-employer program's 
net position declined by $10.40 billion and increased the program's 
deficit to $21.08 billion.
    2. Multiemployer pension plans also contribute to the financial 
overload being experienced by the PBGC. PBGC currently insures about 
1,500 multiemployer (sometimes referred to as union) plans. These plans 
provide or promise benefits to roughly 10 million participants or their 
beneficiaries.
    3. One avenue for multiemployer pension plans to improve solvency 
is to cut benefits for future retirees. For example, on March 27, 2008 
the Teamsters for a Democratic Union announced that the third largest 
pension fund in the Teamsters Union is reportedly planning new benefit 
cuts.
    4. Another avenue for multiemployer pension plans to improve 
solvency is to increase employer contributions, including large 
``withdrawal'' payments for employers who want to get out of a union 
pension plan. The Central States Pension Fund demanded a one-time $6 
billion withdrawal payment from UPS in order to allow UPS to leave the 
Central States Pension Fund and start a different pension plan.
    5. Multiemployer (union) pension funds are facing serious financial 
solvency issues. Under the Federal law, funds that fall in the Yellow 
Zone (less than 80 percent funded) or the Red Zone (less than 65 
percent funded, as well as a poor credit balance) have to develop a 
rehabilitation plan to get above 80 percent funding. Funds can raise 
their funding level by increasing employer contributions or by cutting 
members' benefits. In extreme cases, funds in the Red Zone can even cut 
benefits that members (but not retirees) have already earned--money 
trustees could not touch before the new law.
    6. The Senate has recently introduced a bill entitled: Save Jobs 
and Protect Benefits Act of 2010. A more accurate title for this bill 
is: ``The Government Sponsored Bailout of Union Defined Benefit Pension 
Plans Which No Longer Make Economic Sense.'' While it is true that 
multiemployer pensions and the PBGC are having major financial problems 
with defined benefit pension plans, it is also true that the solution 
may not be another massive infusion of U.S. debt and red ink. Union 
pension officials should consider following the examples of so many 
companies in the private sector. Given global business pressures, 
companies are being forced to offer either defined contribution or no 
pension plans at all.
                                 ______
                                 
                             study findings
    1. Pension Benefit Guarantee Corporation (PBGC) is experiencing a 
significant increase in financial liabilities for failed pension plans. 
PBGC's combined financial condition declined by $10.80 billion, 
increasing the corporation's deficit to $21.95 billion, increasing the 
corporation's deficit to $21.95 billion as of September 30, 2009, from 
$11.15 billion as of September 30, 2008. The single-employer program's 
net position declined by $10.40 billion and increased the program's 
deficit to $21.08 billion. The multiemployer program's net position 
declined by $396 million and increased that program's deficit to $869 
million. PBGC's assumption of corporate pensions is resulting in a 
sharply widening deficit. The PBGC will assume responsibility of $3.2 
billion in pension obligations over the next 5 years. The Congressional 
Budget Office estimates that the shortfall will widen to $86.7 billion 
by 2015.
---------------------------------------------------------------------------
    \1\ The views of this study are the author's and do not necessarily 
reflect those of Saint Louis University.
---------------------------------------------------------------------------
    2. Multiemployer pension plans also contribute to the financial 
overload being experienced by the PBGC. PBGC currently insures about 
1,500 multiemployer (sometimes referred to as union) plans. These plans 
provide or promise benefits to roughly 10 million participants or their 
beneficiaries. As of September 30, 2007, the multiemployer insurance 
program reported a deficit of over $900 million. PBGC's multiemployer 
(union) program deficit was $955 million dollars at the end of fiscal 
year 2007. This was a $216 million increase in the deficit compared to 
the previous year, when there was a $739 million deficit.
    3. One avenue for multiemployer pension plans to improve solvency 
is to cut benefits for future retirees. For example, on March 27, 2008 
the Teamsters for a Democratic Union announced that the third largest 
pension fund in the Teamsters Union is reportedly planning new benefit 
cuts. A second example was announced that same day. Teamsters in New 
Jersey Local 641 were hit with major pension and health and welfare 
cuts on March 10--just 9 days after the Local 641 pension fund 
announced it was in critical status (the ``Red Zone''). In November 
2008, the Boilermaker--Blacksmith National Pension Trust announced 
that, despite benefit reductions announced in August 2008, the pension 
``is now facing serious financial challenges.''
    4. Another avenue for multiemployer pension plans to improve 
solvency is to increase employer contributions, including large 
``withdrawal'' payments for employers who want to get out of a union 
pension plan. The Central States Pension Fund demanded a one-time $6 
billion withdrawal payment from UPS in order to allow UPS to leave the 
Central States Pension Fund and start a different pension plan.
    5. Multiemployer (union) pension funds are facing serious financial 
solvency issues. Under the Federal law, funds that fall in the Yellow 
Zone (less than 80 percent funded) or the Red Zone (less than 65 
percent funded, as well as a poor credit balance) have to develop a 
rehabilitation plan to get above 80 percent funding. Funds can raise 
their funding level by increasing employer contributions or by cutting 
members' benefits. In extreme cases, funds in the Red Zone can even cut 
benefits that members (but not retirees) have already earned--money 
trustees could not touch before the new law. When financial solvency is 
calculated relative to assets maintained in the stock market and the 
market's recent performance, all five of the union pension plans 
examined are in the red zone.
    6. The Senate has recently introduced a bill entitled: Save Jobs 
and Protect Benefits Act of 2010. A more accurate title for this bill 
is: ``The Government-Sponsored Bailout of Union Defined Benefit Pension 
Plans Which No Longer Make Economic Sense.'' While it is true that 
multiemployer pensions and the PBGC are having major financial problems 
with defined benefit pension plans, it is also true that the solution 
may not be another massive infusion of U.S. debt and red ink. Union 
pension officials should consider following the examples of so many 
companies in the private sector. Given global business pressures, 
companies are being forced to offer either defined contribution or no 
pension plans at all.
    7. Employees should consider the financial shortcomings of 
multiemployer (union) pension plans when employment changes are 
considered, and employers must consider the potential financial 
obligations (withdrawal payments) that can be levied by pension 
programs when an employer wants to leave a particular pension plan.
                              introduction
    News stories about companies' pension problems abound in 2010. 
Generally speaking there are two types of pension plans. The first is a 
defined contribution plan. These plans normally consist of 
contributions from both the employer and the employee. The amount 
available for retirement is simply a function of the amounts 
contributed and their performance in the market. The second type is a 
defined benefit plan. As the name suggests, defined benefit pension 
plans provide specified levels of benefits for retirees. Companies have 
the responsibility for funding these plans until they grow and provide 
promised benefits to retirees. A number of factors are now making 
defined benefit plans a risky proposition, and potentially even a thing 
of the past. In some cases, companies (cities) promised more generous 
benefits than they could realistically afford. Beyond that, the 
combination of a weak economy and declining stock market has also 
provided a one-two punch that has knocked many companies defined 
benefit pension plans down for the count.
    According to Geisel (2009), the one-time trickle of employers 
freezing their defined benefit pension plans turned into a flood in 
2009. Nearly, one-third of Fortune 1000 companies with defined benefit 
plans have frozen at least one of those plans, up from 7 percent 5 
years ago, according to a Watson Wyatt Worldwide analysis. Among the 
Nation's biggest companies, defined benefit plans' decline has been 
even greater. Only 45 percent of Fortune 100 companies still offer a 
defined benefit plan to new, salaried employees, Watson Wyatt found. 
While the decline of defined benefit plans has been going on for some 
time, this year has been different.
    In prior years, some employers remained in the defined benefit plan 
system and simply converted traditional final pay plans to cash balance 
plans, which they believed were a better fit for a more mobile 
workforce. Other employers, concerned about the cost of and volatility 
of required contributions and increased life expectancies, froze their 
pension plans and beefed up their 401(k) or other defined contribution 
plans.
    Increasingly this year, employers froze their defined benefit plans 
and did not sweeten their 401(k) plans, such as San Francisco-based 
banking giant Wells Fargo & Co. and Denver-based phone and Internet 
service provider Qwest Communications International Inc. Some 
companies, due to severe financial pressures, went even further and 
froze their defined benefit plans and suspended their 401(k) plan 
match, such as Sacramento, CA-based newspaper publisher McClatchy Co., 
whose advertising revenues have declined sharply.
    However, as many workers have become painfully aware, companies 
with defined benefit plans can go bankrupt. Consider such companies as 
Worldcom, Enron, Global Crossing, Kmart, and Delphi. The fate of 
employees' pension plans depends on what type of bankruptcy the firm 
takes: chapter 7 or chapter 11 (USA Today, 2002). The more common form 
is Chapter 11, where the business continues to operate and reorganizes 
financially. However, the employer may and often does reduce or 
eliminate matching contributions. Filing Chapter 7 bankruptcy is far 
more serious. Here, the firm shuts down and any company-sponsored 
retirement plans are terminated. Another possible action is for the 
pension plan to ``freeze'' the assets. The term ``freeze'' can mean 
closing the plan to new entrants or ceasing accruals for some or all 
plan participants.
                            study objective
    The first goal of this article is to review the current trends 
among companies' defined benefit pension plans. The number of companies 
going bankrupt is shooting upward and out of control. The Pension 
Benefit Guarantee Corporation (PBGC) is taking over the pension 
obligations for many of these failed companies. Evidence is presented 
to show the PBGC is becoming overwhelmed with failed single-employer 
pensions. In addition, there is a cap on the amount of benefits, which 
can be paid from PBGC.
    The second objective of this article is to examine the financial 
health of multiemployer pension plans in general. Unlike single 
employer plans, the PBGC makes loans to these pensions when they 
experience funding problems. However, with the passage of the Pension 
Protection Act of 2006 (applicable to plan years after 2007), there is 
substantial pressure on multiemployer pension plans to either raise 
premiums or lower benefits in an effort to achieve minimum solvency 
ratios. In an effort to examine the solvency of a sample of 
multiemployer plans, a sample of trade unions is studied next. This 
analysis is based on data obtained from an IRS Form 5500 Web site 
called freeERISA.com. Form 5500 discloses important information about 
the solvency of the pension plan. The goal of this analysis is to 
provide a glimpse of the current financial condition of these 
particular pension plans. An examination of Form 5500 can provide 
employees information that will help them analyze the financial health 
of their companies' pension plan. Next, the recently proposed Save Jobs 
and Benefits Act of 2010 is discussed. In light of these major 
financial challenges, the final section presents some questions and 
facts about pension alternatives for employees' consideration as they 
evaluate new employment opportunities.
         trends among companies' defined benefit pension plans
    The number of private-sector defined benefit plans reached a peak 
in the mid-1980s. At that time, about one-third of American workers 
were covered by defined benefit plans. From 1986 to 2004, 101,000 
single-employer plans with about 7.5 million participants were 
terminated. In about 99,000 of these terminations, the plans had enough 
assets to purchase annuities in the private sector to cover all 
benefits earned by workers and retirees (a ``standard termination''). 
In the remaining 2,000 cases, companies with underfunded plans shifted 
their pension liabilities to the PBGC. By the end of 2005, the number 
of plans supported by the PBGC was at about 30,000 (PGBC 2005). In 
recent years, many employers have chosen not to adopt defined benefit 
plans, and others have chosen to terminate their existing plans.
             declining peformance of defined benefit plans
    A 2007 survey by the Employee Benefit Research Institute (EBRI) 
suggests that U.S. workers are slow to see or adapt to a changing U.S. 
retirement system. In addition, those who are aware of these changes 
may not be adapting to them in ways that are likely to secure them a 
comfortable retirement. The Retail Confidence Survey finds pension-plan 
changes by employers have left nearly half of workers less confident 
about the benefits they will receive from a traditional pension plan. 
There is reason for their lack of confidence.
          pbgc pension obligations growing at an alarming rate
    On top of the shooting numbers of companies dumping their pension 
plans on the PBGC, in 2008, it experienced a loss of $4.8 billion in 
equity investments. With a newly adopted investment strategy that 
includes more equity, George Miller, a California Democrat who heads 
the congressional committee that oversees the PBGC brings up the 
question of whether it is wise to invest our Nation's pension backstop 
in volatile equities considering the current market turmoil. However, 
the PBGC downplays the risks. ``It gives us a better chance--three 
times better--to eliminate the deficit without taxpayer bailout,'' PBGC 
Director Charles Millard said.
    ``Retirees who depend on us should not be concerned. PBGC's 
assumption of corporate pensions is resulting in a sharply widening 
deficit. The deficit could swell substantially if the Chapter 11 
filings of Delta, Northwest and Delphi lead them to offload unfunded 
pension liabilities on the agency. In addition, United Airlines, which 
is operating in bankruptcy protection, received court permission to 
terminate its four employee pension plans, setting off the largest 
pension default in the three decades that the government has guaranteed 
pensions. The PBGC will assume responsibility of the $3.2 billion in 
pension obligations over the next 5 years. Analysts have predicted that 
if United wins its case, there could be a domino effect for other 
airlines to cut their pension obligations as well. If this domino 
effect takes place, the PBGC might find itself seeking Congress' help 
for a bailout since it is already facing more than a $9 billion 
shortfall. The Congressional Budget Office estimates that the shortfall 
will widen to $86.7 billion by 2015.''
    The trend for escalating pension burdens for the PBGC is likely to 
continue. In fact, the PBGC has become an increasingly popular option 
for private-capital funds and other investors who are seeking to spin 
investments in near-bankrupt industrial companies into gold. Shifting 
the heavy pension liability from the balance sheet to the pension 
corporation does this. Thomas Conway, VP of the United Steel Workers of 
America has said, ``It's become a kind of system to bail out 
companies.'' Robert S. Miller has been known to take this approach in 
turning around companies such as Bethlehem Steel, Federal-Mogul and now 
Delphi. Many other executives at airlines and other troubled companies 
have also copied this approach. Although these companies are turning 
around, and the people relying on Miller are becoming rich, this 
approach may be creating a multibillion-dollar mess for taxpayers.
    Many cities are heading toward bankruptcy due to ridiculous pension 
plan benefits. Recently, Vallejo, CA became the largest city in the 
State's history to declare bankruptcy. ``Thanks to retroactive benefit 
enhancements approved by the city council in 2000, police officers and 
firefighters can now retire at age 50 and receive an annual pension 
equal to 90 percent of their final pay (assuming 30 years on the job), 
an amount that gets increased every year to help keep pace with 
inflation.'' More cities are likely to follow due to similar 
overextensions of their pension plan obligations. As government pension 
plans are protected by constitutional and legal guarantees, the only 
way out is for the city to declare bankruptcy. Once again the pension 
plan goes off to the PBGC.
    The PBGC is already facing a large long-term funding gap before all 
these major companies unload their defined benefit pension plans. As a 
result, the funding burden will shoot higher for companies with 
existing plans. For example, the first inflation-triggered increase of 
multiemployer premiums becomes effective in 2008. Accordingly, the 
premium rate will increase from $8 to $9 per participant as required by 
the Deficit Reduction Act of 2006. Furthermore, on May 22, 2010 the 
Pension Benefit Guaranty Corp., which insures pensions for 44 million 
retirees, reported a $33.5 billion deficit for the first half of fiscal 
2009, up from $11 billion in fiscal 2008. That shortfall, the largest 
in the agency's 35-year history, could increase dramatically if the 
agency is forced to take over pension obligations for General Motors 
and Chrysler.
                  pbgc and multiemployer pension plans
    PBGC currently insures about 1,500 multiemployer (sometimes 
referred to as union) plans. These plans provide or promise benefits to 
roughly 10 million participants or their beneficiaries. Activity in 
PBGC's multiemployer insurance program has increased substantially over 
the last few years. PBGC has also seen significant increases in 
requests for financial assistance. To put matters in perspective, 
consider the following evolution of requests for financial assistance.
    In the first 17 years since the inception of MPPAA,\2\ PBGC had 
provided financial assistance to only 19 plans in the approximate 
amount of $35 million. In 1997, PBGC recorded liability for future 
financial assistance in the amount of $361 million to 45 troubled 
plans. Moreover, PBGC was paying only 14 of those plans $4 million 
annually in financial assistance. By the end of 2007, the multiemployer 
program recorded liability for 94 plans with a present value of future 
financial assistance of $2.1 billion. In fiscal year 2007, PBGC paid 
nearly $71 million to 34 plans. This represented an eighteenfold 
increase in payments to more than double the number of plans. Finally, 
by the end of fiscal year 2008, PBGC expects to pay financial 
assistance to 44 plans; and by the end of 2009, 50 plans.
---------------------------------------------------------------------------
    \2\ Multiemployer Pension Plan Amendments Act of 1980.
---------------------------------------------------------------------------
    Moreover, PBGC's combined financial condition declined by $10.80 
billion, increasing the Corporation's deficit to $21.95 billion as of 
September 30, 2009, from $11.15 billion as of September 30, 2008. The 
single-employer program's net position declined by $10.40 billion and 
increased the program's deficit to $21.08 billion. The multiemployer 
program's net position declined by $396 million, and decreased that 
program's deficit to $869 million. During fiscal year 2009, 144 
underfunded single-employer plans were terminated. Because of PBGC's 
previous efforts to evaluate its exposure to probable terminations, 
$3.08 billion of the net claims for these plans were already reflected 
in PBGC's 2008 results. The 144 plans had an average-funded ratio of 
approximately 63 percent. Their terminations resulted in an aggregate 
net loss to PBGC of $5.83 billion.
    In summary, PBGC's multiemployer program deficit was $955 million 
at the end of fiscal year 2007. This deficit grew to over 32 billion by 
the end of 2009. The increased deficit is due primarily to PBGC's 
booking of additional liabilities arising from expected future 
financial assistance to troubled plans--most of these increased 
liabilities were attributable to plans that terminated in 2007.
           specific problems with multiemployer pension plans
    The following case illustrates what is happening to multiemployer 
pension plans. Consider the example of a historically strong and over-
funded multiemployer plan with over 1,500 participants.\3\ During the 
late 1990's, the plan was over 100 percent funded. Based on its funding 
status, the ERISA required plan contributions were less than the plan's 
negotiated contributions. Trustees continued to grow the plan and often 
were required to increase benefits for participants to ensure that 
their contributions were tax deductible, resulting in increased overall 
liabilities of the plan.
---------------------------------------------------------------------------
    \3\ See J. Sparling, ``The Fallout of Reform: How Multiemployer 
Plans Can Better Manage Credit Balances & Funding Levels.'' See http://
www.seic.com/institutions/documents/Fallout
_Reform_ME_Plans_FINAL.pdf.
---------------------------------------------------------------------------
    Between 2001 and 2004, poor financial markets resulted in a 
significant decrease in the plan's assets. The decrease in assets, 
coupled with the higher liabilities, created a funding gap that began 
to raise the plan's minimum contribution. The plan's credit balance was 
used to offset the growing gap between the minimum contributions and 
negotiated contributions. However, the gap was understated due to 
favorable actuarial smoothing rules, which allowed the use of asset 
values based on averages from the bull market 5 years earlier. As a 
result of the perceived smaller funding gap, minimum contributions 
remained low and the credit balance was not significantly drawn down. 
In addition, trustees actually increased benefits in 2003 because their 
current model for management did not forecast the potential problems 
they were yet to experience.
    Today, the plan is in significant trouble. As market volatility 
persisted, the benefits of smoothing decreased and funding levels 
dropped significantly and the plan's credit balance has eroded. In 
retrospect, the plan management model failed to alert trustees because 
it did not budget for market volatility. Last year, trustees were 
forced to cut benefits by 85 percent because of market volatility that 
caused a significant decrease in assets. This benefit reduction then 
caused a strain on recruiting new members. To make matters worse, the 
plan's actuary assumed the plan would meet the assumption rate for 2006 
and instructed trustees to increase benefits to about half of what they 
had previously been. Although typical practice is to use this standard 
assumption, the investment management strategy was not changed to align 
with this goal. Recently, when the actuary revisited this case and 
realized the plan might not meet the return assumption, he recommended 
that the trustees retract their promise to plan participants to 
increase benefits.
    To further illustrate what is going on in the area of multiemployer 
pension plans, consider the following comments from the Multiemployer 
Pension Fund Coalition (MPFC) regarding their position on the PPA of 
2006. The MPFC was predicting what would happen if a poor economy and 
stock market negatively impacted multiemployer Pension Plans. They were 
concerned that plans in critical status could bankrupt the plans and 
lead to their transfer to the PGBC. Contributing employers to a 
multiemployer plan in critical status that has adopted and is complying 
with a rehabilitation plan must be protected from potentially 
devastating, extra-contractual contribution requirements and excise 
taxes that could trigger bankruptcies and, eventually, plan failures, 
the transfer of liabilities to the PBGC, and drastic reductions in 
participant benefits.
    There are also specific examples in 2008 where multiemployer plans 
are admitting to the need to cut benefits. For example, on March 27, 
2008 the Teamsters for a Democratic Union announced that the third 
largest pension fund in the Teamsters Union is reportedly planning new 
benefit cuts. However, as also noted, teamster members in New England 
have not yet been informed of these developments by the fund or its 
union trustees.\4\ A second example was announced that same day. 
Teamsters in New Jersey Local 641 were hit with major pension and 
health and welfare cuts on March 10--just 9 days after the Local 641 
pension fund announced it was in critical status (the ``Red Zone'').
---------------------------------------------------------------------------
    \4\ See http://www.tdu.org/node/1900.
---------------------------------------------------------------------------
    UPS, the world's largest package-delivery service, wants Congress 
to allow employers to cut pension benefits already promised to some 
workers in plans funded by multiple companies. Atlanta-based UPS says 
the plans can no longer afford to pay full benefits because so many 
companies that used to pay into the pool have gone out of business. UPS 
is currently trying to withdraw from its pension obligations and set up 
a new independent pension plan. The following excerpt typifies the 
challenge:

          ``Even retirees, whose pension benefits are guaranteed, could 
        be at risk. If the funding woes at Central States continue, the 
        plan could, in the worst-case scenario, end up in the hands of 
        the PBGC. But the PBGC limits benefits in multi-employer plans 
        to about $13,000 a year per retiree, compared with roughly 
        $52,000 for single-employer plans. That would be a big cut for 
        Frank Bryant, a 67-year-old former UPS driver who retired in 
        2003 and now collects a $37,000 annual pension from Central 
        States. `It looks like a downward spiral right now,' says the 
        Greensboro (NC) resident. Central States says it has no plans 
        to alter benefits or employer contributions.''
      form 5500 analyses for defined benefit plans in trade unions
    Defined benefit pension plans are featured as an important benefit 
for trade unions. For purposes of this study we analyzed the financial 
health of a number of defined pension benefit plans for a small sample 
of the trade unions. While the sample was not large enough to provide 
statistical significance, the local chapters selected appear to be a 
fair representation of the financial health of the defined benefit 
pension plans for the trade unions. The data for this analysis is 
available at www.freeERISA.com at no charge. This Web site provides 
free access to pension and benefit data. Specifically, pension data is 
available for IRS Form 5500. Schedule B of Form 5500 provides specific 
data that enables interested parties to analyze the financial health of 
their pension plans.
         funding standards from pension protection act of 2006
    Federal law has a number of special rules that apply to financially 
troubled multiemployer plans. Under so called ``plan reorganization 
rules,'' a plan with adverse financial experience may need to increase 
required contributions and my reduce benefits that are not eligible for 
the PBGC's guarantee (generally, benefits that have been in effect for 
less than 60 months). If a plan is in reorganization status, it must 
provide notification that the plan is in reorganization status and 
that, if contributions are not increased, accrued benefits under the 
plan may be reduced or an excise tax may be imposed (or both). The law 
requires the plan to furnish this notification to each contributing 
employer and the labor organization.
    The main goal of the Pension Protection Act was to raise each 
pension's funding level. The funding level is determined by comparing 
the amount of money they have on hand with the amount of benefits they 
expect to pay out. The goal of better funding was taken advantage of 
and stringent new restrictions were placed on funds. In addition, it 
became easier to cut members' benefits.
    Under the law, funds that fall in the Yellow Zone (less than 80 
percent funded) or the Red Zone (less than 65 percent funded, as well 
as a poor credit balance) have to develop a rehabilitation plan to get 
above 80 percent funding. Funds can raise their funding level by 
increasing employer contributions or by cutting members' benefits. In 
extreme cases, funds in the Red Zone can even cut benefits that members 
(but not retirees) have already earned--money trustees could not touch 
before the new law. Even when funds are healthy, the new law makes it 
less likely that they will improve benefits. Raising benefits lowers 
the funding level--something fund trustees are less likely to do with 
the threat of slipping into the Red Zone.
              limitation on pension benefits paid by pbgc
    The law mandates the maximum benefit guaranteed by the PBGC. 
Moreover, only vested benefits are guaranteed.\5\ Specifically, the 
PBGC guarantees a monthly benefit payment equal to 100 percent of the 
first $11 of the Plan's monthly benefit accrual rate, plus 75 percent 
of the next $33 of the accrual rate, times each year of credited 
service. The PBGC's maximum guarantee, therefore, is $35.75 per month 
times a participant's years of credited service.
---------------------------------------------------------------------------
    \5\ See Boilermaker Blacksmith National Pension Trust Annual 
Report, November 2008.

     Example 1: If a participant with 10 years of credited 
service has an accrued monthly benefit of $500, the accrual rate for 
purposes of determining the PBGC guarantee would be determined by 
dividing the monthly benefit by the participant's years of service 
($500/10), which equals $50. The guaranteed amount for a $50 monthly 
accrual rate is equal to the sum of $11 plus $24.75 (.75 * $33), or 
$35.75. Thus, the participant's guaranteed monthly benefit is $357.50 
($35.75 * 10).
     Example 2: If the participant in Example 1 has an accrued 
monthly benefit of $200, the accrual rate for purposes of determining 
the guarantee would be $20 (or $200/10). The guaranteed amount for a 
$20 monthly accrual rate is equal to the sum of $11 plus $6.75 (.75 x 
$9), or $117.75. Thus, the participant's guaranteed monthly benefit 
would be $177.50 ($17.75 x 10).

    In calculating a person's monthly payment, the PBGC will disregard 
any benefit increases that were made under the Plan within 60 months 
before the earlier of the plan's termination or insolvency. Similarly, 
the PBGC does not guarantee:

     Pre-retirement death benefits to a spouse or beneficiary 
if the participant dies after the plan terminates;
     Benefits above the normal retirement benefit;
     Disability benefits not in pay status, or;
     Non-pension benefits such as health insurance, life 
insurance, death benefits, vacation pay or severance pay.

    Accordingly, the maximum monthly benefit is $357.50.
                             data analysis
    The funding level is determined by dividing current assets by total 
liabilities. This ratio is used as a proxy for the financial health of 
the plan. The Form 5500 available at freeERISA.com provides this data. 
The results of analyzing these trade union pension plans are revealing. 
All the plans examined are in the yellow zone and two in the red zone. 
The trade union with the largest assets in the sample is the Carpenters 
Trust Fund. Current assets are almost $1.2 billion. Total liabilities 
however are just over $2 billion. The resulting funding percentage is 
70 percent. The next largest pension plan is Construction Laborers Fund 
of Greater St. Louis with assets of just under $400 million. Total 
liabilities are $519 million. This plan, while still in the yellow 
zone, had the strongest funding level in the sample at 75 percent. The 
third sample of plans came from a number of local chapters of IBEW. The 
average assets in these pension plans are $158 million and liabilities 
are $244 million. The resulting funding level was in the red zone at 
just under 65 percent. A number of local chapters of Plumbers and pipe 
fitters Union were examined. Average current assets were $79 million 
and total liabilities were $118 million. The average funding level for 
these plans was 67 percent. Finally, the National Sheetmetal Workers 
pension fund revealed assets of $129 million compared with over $201 
million in liabilities, a funding level of 64 percent.


----------------------------------------------------------------------------------------------------------------
                      Pension Fund                           Current Assets     Total Liabilities    Percentage
----------------------------------------------------------------------------------------------------------------
Carpenters Pension Trust Fund of St. Louis..............       $1,435,159,165       $2,031,453,937         70.65
Construction Laborers Fund of Greater St. Louis *.......         $391,340,770         $519,434,403         75.34
International Brotherhood of Electrical Workers.........         $158,832,878         $244,512,913         64.96
Plumbers and pipe fitters Misc. Local Chapters..........          $79,631,277         $118,332,486         67.29
Sheet Metal Workers Local 194...........................         $129,274,465         $201,574,482         64.13
----------------------------------------------------------------------------------------------------------------
Serves Laborers' International Union of North America Locals #42, #53, and #110.

    The funding level analysis for these plans is based on tax return 
data available for fiscal years ranging from December 31, 2006 through 
May 31, 2007. Therefore, the pension asset values were updated to 
reflect the estimated change in value through December 2008. The 
calculation is based on the assumption that two-thirds of the assets 
are invested in the stock market.\6\ The change in the value of the Dow 
Jones Index was used to restate the value of the assets in the plans. 
By December 2008, the Dow Jones plunged to 8,500. The liabilities were 
estimated to increase by 3 percent. Accordingly, a recalculation of 
funding ratios for the union pensions places them all in the red zone.
---------------------------------------------------------------------------
    \6\ An experienced actuary supplied this data.


----------------------------------------------------------------------------------------------------------------
                      Pension Fund                           Current Assets     Total Liabilities    Percentage
----------------------------------------------------------------------------------------------------------------
Carpenters Trust Fund...................................       $1,118,796,591       $2,092,397,555            53
Construction Laborers...................................         $305,074,678         $535,017,435            57
IBEW....................................................         $121,596,183         $251,848,300            48
Plumbers and pipe fitters...............................          $63,001,560         $121,882,461            52
Sheet Metal Workers.....................................         $102,131,615         $207,621,716            49
----------------------------------------------------------------------------------------------------------------

    Clearly, all the multiemployer-sponsored pension plans in the 
sample would be in trouble if the standards and requirements of the 
Pension Protection Act of 2006 applied to the financial statements 
examined. In fact, they would all be in the red or ``critical'' zone 
with solvency ratios well below 60 percent.
         bill to bailout multiemployer pension plans introduced
    A bill to reform the Nation's multi-employer pension program was 
introduced in the U.S. Senate in late March 2010. The Create Jobs and 
Save Benefits Act of 2010 (CJSBA) is designed to provide relief for 
unionized truckers by easing pension obligations. The bill would 
``ensure the solvency'' of multiemployer plans for the 10 million 
workers and retirees covered under multi-employer plans. One of the 
most striking provisions in this bill enables the transfer of all 
pension liabilities of ``orphan'' retirees to the Pension Benefit 
Guaranty Corp. (PGBC). Orphan retirees are those who have worked at 
now-defunct trucking firms whose pensions are being funded by the 
surviving truckers. If passed, this bill would be a windfall to YRC 
Worldwide, Inc. and the ABF Freight System, which employs about 45,000 
unionized workers represented by the Teamsters.
      cjsba: mpp solution or a vain attempt to keep chickens from 
                          coming home to roost
    The heart of the solution to the multi-employer pension problem in 
the Casey Bill involves a massive government bailout. The first source 
of funds is a contribution from the multiemployer plan, which would 
``earmark'' enough assets to pay benefits for the first 5 years. Next, 
once these assets run out, the PBGC would be responsible for paying 
full benefits under a partitioned plan. The bill essentially creates a 
new ``PBGC Fifth Fund'' that would pay the benefits. The problem is the 
new fund is not capitalized with any income or assets. The fifth fund 
would raid the funds that are currently earmarked for single-employer 
pension funds. If and when the PBGC single-employer premium fund runs 
out of money, the ``full faith and credit'' of the United States is 
pledged to cover the partitioned benefits.
    The Proposal also prohibits any increase in multiemployer premiums 
to cover PBGC's obligations to a partitioned plan. Currently the rate 
is $9 per participant. In addition, the proposal requires PBGC to 
guarantee 100 percent of all plan benefits in the partitioned plan, no 
matter how large. On top of that, the proposal almost doubles the 
maximum benefit from $12,870 to $20,070 for non-partitioned plan. The 
higher guarantee would apply retroactively to include about 40 plans 
that have previously terminated by mass withdrawal but not yet begun to 
receive financial assistance. The liability for these plans would have 
to be increased and reflected on PBGC financial statements. This would 
further balloon the current PBGC deficits.
How Many MEPPs Will Be Eligible for the Bailout?
    Under the Proposal, a multiemployer plan can elect to partition if 
the plan: (a) is in critical status; (b) had a substantial reduction in 
contributions due to employer bankruptcies; (c) is likely to become 
insolvent unless contributions are increased significantly; (d) had at 
least a 2 to 1 ratio of inactive to active participants, and benefit 
payments to contributions; and (e) partition would significantly reduce 
the likelihood of insolvency.
    These entry criteria are quite expansive. The proposal was 
initially marketed as a means of helping Central States, who has a 
ratio of 6.2 inactive participants for every active worker. The 
Proposal sets a threshold ratio of 2 to 1. Most MPPs should have little 
trouble meeting this condition. Similarly, there were about 500 
multiemployer plans in critical status in 2009 (without a WRERA 
election), which included some of the largest plans covering tens of 
thousands of participants. Every Teamster related pension plan 
experienced numerous employer bankruptcies after trucking deregulation 
occurred in 1980.
How Much Does Central States Cost?
    A careful examination of 2008 Schedule MB for Central States 
reveals some interesting facts. For example, the RPA 94 liability 
section indicates that the total current liability is over $47 billion 
for a total of 439,955 employees. The current value of assets in this 
section is $28.5 billion. The resulting funding percentage is listed as 
56.97 percent. This percentage is under 65 percent and therefore in the 
critical zone according to the PPA 2006.\7\ The number of current 
retirees for Central States is often cited as near 209,000. However, 
Schedule MB shows that these retirees represent just 48 percent of the 
total. Another 124,196 retirees are in the terminated vested 
participant category. This group represents 28 percent of the total. At 
just over 106,000, the third and smallest group is the total active 
participants.
---------------------------------------------------------------------------
    \7\ While it is true that pension actuaries perform the official 
calculations under PPA '06 to determine funding status. The simple 
ratio of current assets to future liabilities provides a good indicator 
of fund solvency status. Schedule MB also shows the interest rate used 
for RPA 94 calculations as 5.06 percent. It should also be noted that 
page 1 of Schedule MB provides another measure of liabilities using the 
larger discount rate of 7.5 percent and the unit credit cost method. 
Using this rate reduces the value of liabilities to $35.6 billion. The 
effect of the discount rate is huge. The present value of liabilities 
is reduced by over $12 billion with the higher discount rate. Using 
this method yields the funding ratio of 73.2 percent and would place 
Central States in the Yellow Zone category under PPA '06. However, 
Exhibit IV of Section 4 entitled Certificate of Actuarial Valuation for 
the Central States, Southeast and Southwest Areas Pension Plans uses 
the $47 billion value for liabilities and resulting funding ratio of 
56.97 percent.
---------------------------------------------------------------------------
    The proposal states that Central States would transfer $5.2 billion 
to the partitioned plan to pay benefits for the first 5 years and PBGC 
would pay benefits equal to $5.5 billion over the succeeding 5 years. 
First, it is not clear that the $5 billion estimate for benefit 
payments over a 5-year period is realistic. In 2008, Central States 
paid out $2.7 billion in benefits. Adding this up over 5 years far 
exceeds $5 billion. Second, the effect of the stock market for 2008 is 
illustrated by the fact that the fund lost over $9 billion on the 
income statement and in net assets. In other words, net assets declined 
by over 35 percent from $26.8 to $17.3 billion in 1 year. Moreover, 
employer contributions were only $849 million. That means even without 
the effect of investment losses, Central States is collecting less than 
one-third of the cost of current benefit payments to retirees. Third, 
the length of the stream of payments for current retirees is uncertain. 
Many retirees will be receiving benefits well after the initial 10-year 
period of the partitioned plan. Fourth, current figures do not include 
the additional retirees in the deferred or terminated vested category. 
Since the proposal caps employer contributions at current limits and 
greatly enhances the number of retirees who will be eligible for 
support from PBGC, the likely outflow of red ink from this government 
agency, along with the other record national debt, makes the current 
oil spill in the Gulf of Mexico look like a small trickle. It should be 
noted this scenario also does not include the myriad of other 
multiemployer plans that will be included in the fifth fund described 
in the proposal.
Where Does the Money Come From?
    The proposal does not identify a funding source for the fifth fund 
nor is there any provision for this fund in Federal appropriations. It 
is not clear where PBGC would get funds to make payments. As of 
September 30, 2009, PBGC had a net deficit of $869 million. In 2010, 
PBGC will pay over $100 million to participants in 50 insolvent 
multiemployer plans. The number of insolvent multiemployer plans would 
grow significantly under the conditions enumerated in the proposal. 
After a number of years the good faith and credit of the United States 
would back the PBGC. However, at some point the United States cannot 
keep adding unlimited amounts of debt.
Is There a Tipping Point for Too Much U.S. Debt?
    According to a recent report by the IMF, the U.S. national debt 
will soon reach 100 percent of GDP. The sharp rise in national debt 
started in 2006 and by 2015 the IMF suggests it could exceed GDP. At 
the end of the first quarter of 2010, national debt was already 87.3 
percent of GDP. Concerning the effect of soaring debt as a percentage 
of GDP, a recent paper by Carmen Reinhart and Ken Rogoff, the authors 
of This Time Its Different found that when government debt-to-GDP rise 
above 90 percent, it lowers the future potential GDP of that country by 
more than 1 percent. It also locks in a slow-growth, high-unemployment 
economy. The authors point to history that shows that public debt tends 
to soar after a financial crisis, rising by an average of 86 percent in 
real terms. Defaults by sovereign entities often follow.
    The current problems of Greece and Europe offer a current example 
of the problems a country faces when their debt gets out of control. 
When Greece joined the union, it misled the other members about its 
finances. After joining, the government continued to spend beyond its 
means. The current Greek debt is now 254 billion and their GDP is 
250.9 billion. The Greek debt to GDP ratio is 101.2 percent, greater 
than Reinhart and Rogoff 's threshold. According to various reports, 
Greece needs to finance another 64 billion this year, 30 billion of 
it in the next few months. The potential that Greece could fail is 
looming, as they are unlikely to be able to borrow all of this money.
    Respected economists such as Paul Samuelson are also beginning to 
question whether the United States will ultimately collapse from the 
weight of ever expanding levels of debt. In a recent article, he 
suggested that the unthinkable had become thinkable: some advanced 
society--say, the United States, Spain, Italy, Japan, or Great 
Britain--might someday default on its government debt. It wouldn't pay 
its creditors all they were owed or wouldn't pay them on time. Just a 
few days later, and completely coincidentally, the International 
Monetary Fund (IMF) issued a report that, without saying so, added 
credence to this unsettling hypothesis. The report, done by IMF staff 
economists, comes with the forbidding title ``The State of Public 
Finances Cross-Country Fiscal Monitor: November 2009.'' It isn't much 
fun to read, because it's full of tables, charts, and various ratios. 
The central conclusions, buttressed strongly by all the statistics, are 
simple enough: the economic and financial crisis has dramatically 
increased the deficits and debt of most countries, and many wealthy 
countries are in worse shape than major developing nations.
Fairness and a Government Issued Blank Check to MPPs
    By bailing out the plans, Congress would be compromising the 
remedial provisions of the Pension Protection Act of 2006. The act 
requires under-funded pension plans to put their houses in order by 
raising retirement ages; increasing contributions by employers, 
workers, or both; and lowering benefits. A bailout would remove any 
incentive for multiemployer pension plans to reorganize their plans 
responsibly. A very important point in this debate is the fairness of 
one politically favored constituency, union workers and their pension 
plans, getting a tax-payer funded windfall while the rest of the 
workers in the U.S. economy have to make do with either defined 
contribution, 401(k) plans or no pension at all.
            questions and facts for employees consideration
    In view of the shaky financial conditions of many companies' 
defined benefit plans, employees should be asking specific questions 
about their companies' plan:

    1. What type of pension plan is there? Is it a traditional defined 
benefit pension, a cash balance plan, a defined contribution plan, or a 
retirement savings plan?
    2. Is the pension in question underfunded? By how much is it 
underfunded? What does it mean to me if my pension is underfunded?
    3. How are plan benefits calculated?
    4. When and in what form are benefits paid. What types of options 
are available?
    5. What are the financial consequences of retiring early? When can 
you start participating in the plan?
    6. When do pension benefits become vested? \8\
---------------------------------------------------------------------------
    \8\ According to one Union Pension Booklet, vesting required 5 
credits. A credit was earned by working 1,000 hours in a year. Workers 
who worked less than 1,000 hours in a year would not receive a credit 
(even though sizeable pension payments may have been made). This may be 
particularly significant in the construction trades where seasonal 
restraints may combine with gaps between construction projects to 
reduce total hours worked to less than 1,000. It may take many more 
than 5 years to become vested. Moreover, if a worker started mid-year 
he or she might not receive a credit for that year. A second surprise 
from this booklet was the stipulation that a union member might forfeit 
his benefits if he (she) ever worked for a non-union company in that 
trade at any time in the future. This would include working for himself 
or herself in a non-union capacity. This could be severely limiting if 
the number of union companies in that trade in that geographical area 
was small, or if the worker happened to move to a community where there 
were few or no union companies in that trade.
---------------------------------------------------------------------------
    7. What is the vesting period? Usually it is a certain number of 
years you must work before you are eligible to receive benefits 
(usually 1-5 years).
    8. How do you file for pension benefits?

    The answers to these questions should be carefully considered 
before workers accept new employment opportunities.
                                summary
    News stories about companies' pension problems abound in 2010. The 
combination of a weak economy and declining stock market has had a 
profoundly negative effect on companies' defined benefit pension plans. 
The Pension Protection Act of 2006 was passed to ensure minimum funding 
levels in pension plans. If funding levels fall below minimum levels, 
the plan must either increase funding or reduce benefits. Many 
companies have passed their failed or failing pension plan benefit 
liabilities to the Pension Benefit Guarantee Corporation. The 
unprecedented and ever increasing size of these failed pension 
obligations is raising serious concerns that benefits will have to be 
reduced further to avoid a collapse of this government-sponsored 
program.
    A form 5500 database sponsored by freeERISA.com was examined to 
determine the financial health of a number of trade union defined 
benefit pension plans. Evidence was provided that virtually all of 
these plans (as adjusted for current market conditions) are in the red 
or critical zone, which may lead to significant cuts in benefits for 
retirees. As further evidence of the dire nature of companies' defined 
benefit pension plans, a large number of companies recently made an 
impassioned plea to Congress for financial assistance for their pension 
plans.\9\
---------------------------------------------------------------------------
    \9\ The AICPA and more than 300 other businesses and non-profit 
organizations sent letters to four House and Senate committees warning 
that the ``drop in the value of pension plan assets coupled with the 
current credit crunch has placed defined benefit plan sponsors in an 
untenable position.'' The identical letters to the House Ways and Means 
Committee, Senate Finance Committee, House Education and Labor 
Committee and Senate Health, Education, Labor, and Pensions Committee 
urged lawmakers to modify pension plan funding rules to avoid increased 
unemployment and a slower economic recovery.
---------------------------------------------------------------------------
    Certain policymakers in Washington have recently proposed the 
Protect Jobs and Save Pension Act of 2010. The stated objective of the 
bill is to rescue multiemployer pensions. Under this proposal, assets 
would be set aside by multiemployer plans to finance pension benefits 
for 5 years. For the following 5 years, the PBGC would fund these 
pensions placed in their custody. After that, the full faith and credit 
of the United States would back the pensions. Besides the fact that the 
United States is approaching post-world war 2 high levels of debt to 
GDP, it does not make sense to rescue the defined benefit pension plans 
promised by union employers. Businesses are dropping defined benefit 
pension plans fast.
    The number of companies offering traditional defined benefit 
pension plans was shrinking even before the recession, but the downturn 
has accelerated the decline. Since the beginning of the year, at least 
20 companies have frozen their defined pension plans, exceeding the 
number of plan freezes for all of 2008. A recent survey by Watson Wyatt 
found that, for the first time, the majority of Fortune 100 companies 
are offering new salaried employees only one type of retirement plan: a 
401(k) or similar ``defined contribution'' plan. Many other companies 
are no longer offering any pension benefits to their employees given 
competitive pressure. A very important point in this debate is the 
fairness of one politically favored constituency, union workers and 
their pension plans, getting a tax-payer funded windfall while the rest 
of workers in the U.S. economy have to make do with either defined 
contribution, 401(k) plans or no pension at all. Unions should consider 
following the example of most every business competing in the modern 
global economy. Defined benefit pension plans should be phased out in 
place of defined contribution plans. It seems clear that the economics 
of defined benefit plans are no longer sustainable. Therefore, for the 
U.S. government to step and use taxpayer funds to keep them going 
cannot be supported on any grounds of fairness or appropriate 
government policy.
    When workers consider new employment opportunities they should ask 
a number of important questions about their pension plans. What type of 
pension plan is there? Is it a traditional defined benefit pension, a 
retirement savings plan, or a defined contribution plan? When are 
pension benefits vested?
    Due to the increasing troubles for defined benefit plans, there is 
a move toward defined contribution plans in the United States 
(DeGennaro and Murphy, 2004). Defined contribution plans frequently 
provide greater control and more flexibility for participants. For 
example, funds may be transferred from equities to bonds or even money 
markets when market conditions decline.
    In today's volatile stock market, having the ability to transfer 
investments between different types of funds can provide an enormous 
amount of protection for workers. Furthermore, there is no chance that 
benefits will be cut due to weak funding levels in the plan.
                               References
DeGennaro, R.P., and D. Murphy, ``The Expanding Role of Defined 
    Contribution Plans in the USA: Benefits, Restrictions, and Risks,'' 
    Pensions, Volt. 9, No. 4, PP. 308-316, June 2004.
Geisel, J. ``Employee Benefits No. 5: Defined Benefit Plans on 
    Decline,'' Business Insurance, December 14, 2009.
Revell, J., ``The Best Way to Take a Pension,'' Money. New York: July 
    2008. Volt. 37, Iss. 7, p. 40.
Samuelson, R., ``Economist and U.S. Unsustainable Debt,'' Newsweek Web 
    Exclusive, November 6, 2009.
USA Today, ``What Happens If Your Employer Goes Bankrupt?'' Retirement 
    Plans
USA Today (Society for the Advancement of Education), December 2002.
``Uncle Sam Stocks Up,'' Wall Street Journal, New York, NY: March 26, 
    2008. p. A.14
``An Analysis of Frozen Defined Benefit Plans,'' Pension Benefit 
    Guaranty Corporation (PBGC), December 21, 2005.

    The Chairman. Thank you, Mr. McGowan.
    And we'll finish up.
    Mr. Stein.

 STATEMENT OF NORMAN P. STEIN, DOUGLAS ARANT PROFESSOR OF LAW, 
      UNIVERSITY OF ALABAMA SCHOOL OF LAW, TUSCALOOSA, AL

    Mr. Stein. Yes, I want to start just by noting that I've 
taught at Alabama for 25 years, but June 1st I'm moving to 
Drexler University, and Senator Casey will by my Senator.
    [Laughter.]
    Mr. Chairman and members of the committee, I thank you for 
inviting me here to speak to you on the critically important 
subject of multiemployer pension plans, which have provided 
millions of American workers with the opportunity to enjoy an 
adequate income in retirement.
    As I will explain, the subject should be of interest, not 
only to the hardworking men and women who continue to rely on 
these plans for their retirement, but also to policymakers, who 
believe that, as a society, we should, can, and must do better 
to help Americans prepare for retirement than to give each of 
them an empty savings account and tell them that they are on 
their own.
    For such a do-it-yourself system to work, workers have to 
combine Spartan discipline, a Harvard business degree, and a 
Cassandra-like ability to predict not only the direction of 
different investment markets, but also the precise date of 
their own demise. Such a system would not work well in an ideal 
world. The world that most of us inhabit is far from ideal. As 
I said, we should, can, and must do better. One important step 
in doing better is to build a secure future for multiemployer 
pension plans.
    I want to begin by discussing why defined benefit plans are 
worth preserving. From a worker's perspective, defined benefit 
plans are the best type of retirement vehicle. They do not 
require workers to figure out how much to contribute to a plan 
and how to invest their contributions. They do not require 
workers to monitor investment performance, to periodically re-
balance their portfolio, or pay high fees to mutual fund 
companies. They do not tempt workers to dip into their 
retirement savings before retirement, and they do not require 
retired workers to devise strategies to make their retirement 
savings last until they die.
    In addition, defined benefit plans save workers time and 
anxiety, something we often overlook. They are a true automatic 
pilot mechanism for employees to prepare for retirement. They 
worked well for our parents and they can work well for our 
grandchildren.
    Some commentators, however, have claimed that our 
employment markets have spoken, and that the verdict is clear, 
employers and employees no longer want defined benefit plans. 
But, that is simply not the case. It is true that many 
employers have frozen or terminated their plans because of 
concerns about funding volatility, but it is also true that 
some of the Nation's most prominent corporations continue to 
sponsor defined benefit plans, because they know they have 
tremendous value. More importantly, working people value 
defined benefit plans greatly in those segments of the economy 
where they still exist. This is especially true today, when 
investment markets and high fees have devastated so many 401(k) 
accounts. In short, workers know that defined benefit plans 
work.
    But, are they too expensive? In fact, they're less 
expensive, in many ways, than defined contribution plans. 
Investment and administrative fees are lower and rates of 
return are higher in defined benefit plans. Economists, such as 
Jeff Brown, have demonstrated that annuitization of retirement 
wealth, which defined benefit plans provide automatically, is 
generally welfare-maximizing.
    My written testimony includes several observations about 
multiemployer plans, and I had planned to stress one of them, 
but when you gave us license to go a minute or 2 over, I think 
I'll mention a few of them.
    The first is that multiemployer pension plans, as Secretary 
Borzi told us, cover approximately 25 percent of all Americans 
participating in PBGC-covered pension plans. Multiemployer 
plans comprise less than 3 percent of the PBGC's current 
deficit. Less than 3 percent. The real problem for PBGC isn't 
multiemployer plans, it's single employer plans. That's where, 
if there's going to be a bailout from taxpayers, we're going to 
feel pain.
    I want to speak briefly now about the partition proposal in 
S. 3157. Firms and employees in multiemployer plans are 
responsible to provide benefits for employees of firms that 
have gone out of business and have not contributed their share 
of funding for their former employees. This is an ordinary 
structural feature of multiemployer plans. Plans are ordinarily 
protected from severe financial loss by ERISA's withdrawal 
liability provisions.
    In a few troubled industries, too many firms become 
insolvent, while in contribution arrears and without paying 
their withdrawal liability. The remaining employers and 
employees are now paying liabilities left over from these 
defunct firms. Compounding the problem is that these industries 
have low ratios of active workers to retirees, and are thus 
unable to contribute their way to plan solvency. If we do 
nothing, these plans, and perhaps the employers who are now 
forced to cover liabilities of their former competitors, will 
ultimately fail, and responsibility for the plan's benefit 
liabilities will be shifted to the PBGC.
    The legislation proposed by Senator Casey would deal with 
this legacy cost problem in a few vital but financially 
stressed industries by allowing, under very limited 
circumstances, a plan to partition off liabilities attributable 
to bankrupt firms and other firms that went out of business 
without paying withdrawal liability. The plan would transfer 
the liability for these benefits and certain assets to the 
PBGC.
    Senator Casey's proposal is, in my view, a classic stitch-
in-time-saves-nine approach, for it will make probable that the 
surviving plan, itself, will be financially viable for the long 
term. By taking on some liability now, the PBGC will avoid 
taking on much larger liabilities later, and will improve the 
future viability of troubled but critically important 
industries, such as trucking and mining.
    I would, however, suggest a change to the legislative 
proposal. Partition retirees should be treated identically to 
the participants in the parent plan after partition. This 
should mean that the benefits for which partitioned retirees 
are eligible immediately after partition are determined under 
the parent plan's then-current provisions, and that if the plan 
ultimately fails, their benefits will be subject to the same 
guarantees and limits that are applicable to the participants 
in the parent plan. In other words, the participants in the 
partition portion of the plan should fare no better, but 
certainly no worse, than the participants in the parent plan. 
This is not only a matter of fair treatment of all participants 
in the pre-partition plan, but also provides important 
protection for the PBGC.
    I also want to note, although it hasn't really been 
commented on that much at the hearing--I think you, Senator 
Harkin, mentioned it--that PBGC guarantees for multiemployer 
plans have not been raised in 10 years. Unlike the guarantees 
for single employer plans, they are not indexed with inflation, 
even though premiums, from now on, will be indexed to inflation 
for multiemployer plans. I think that's something that we may 
want to think about; if not today, sometime in the not-too-
distant future.
    Thank you.
    [The prepared statement of Mr. Stein follows:]
                 Prepared Statement of Norman P. Stein
    Mr. Chairman and members of the committee, I am Norman Stein, and I 
teach tax and employee benefits law at the University of Alabama School 
of Law. Starting next week, I will be teaching at the Earle Mack School 
at Drexel University in Philadelphia. I am testifying today on behalf 
of the Pension Rights Center. The Center is a nonprofit consumer 
organization that has been working since 1976 to promote and protect 
the retirement security of American workers and their families. It is 
the only consumer organization devoted exclusively to this purpose.
    Thank you for inviting me here to speak to you this morning on the 
critically important subject of multiemployer pension plans, which have 
provided millions of American working people with the opportunity to 
enjoy an adequate income in retirement. As I will explain, the subject 
should be of interest not only to the hardworking men and women who 
continue to rely on these plans for their retirement, but also to 
policymakers who believe that as a society we should, can, and must do 
better to help Americans prepare for retirement than give each of them 
a savings account and tell them you are on your own. For such a do-it-
yourself system to work, workers must combine Spartan discipline, a 
Harvard investment degree, and a Cassandra-like ability to predict not 
only the direction of different investment markets but also the precise 
date of their own death.
    Such a system would not work well in an ideal world, and the world 
that most of us inhabit is far from ideal. As I said, we should, can, 
and must do better. An important step in doing better is to build a 
secure future for multiemployer pension plans.
    I will divide my testimony into four parts.
    The first part will explain why defined benefit plans are worth 
preserving, not only to provide a secure retirement for American 
workers, but also because such plans are the most fiscally responsible 
means of preparing Americans for retirement.
    The second part will provide some observations on multiemployer 
pension plans that are germane to today's topic. Here I will show that 
the problems of such plans are not quite as severe as some claim and 
that those problems that do exist are not the fault of participants or 
mismanagement, but of structural changes in the economy and the 
financial meltdown caused by Wall Street.
    The third part will explain why the legislation proposed by Senator 
Casey on partition--especially if it were modestly amended--is both 
equitable and economically responsible.
    The fourth part will detail some other legal changes for 
multiemployer plans that we believe will contribute positively to 
retirement policy.
             i. defined benefit plans are worth preserving
    Almost all pension experts agree that from a worker's perspective, 
defined benefit pension plans are the best type of retirement vehicle. 
They do not require workers to figure out how much to contribute to a 
plan or how to invest their contributions. They do not require workers 
to monitor investment performance, to periodically re-balance, or to 
pay high fees. They do not tempt workers to dip into their retirement 
savings before retirement. They do not require retired workers to 
devise strategies to make their retirement savings last until they die. 
In addition, defined benefit plans save workers time and anxiety--they 
are a true automatic pilot mechanism for employees to prepare for 
retirement. They worked well for our parents and they can work well for 
our grandchildren.
    Some commentators, however, have claimed that our employment 
markets have spoken and that the verdict is clear: employers and 
employees no longer want defined benefit plans. That is simply not the 
case. It is true that some employers have frozen or terminated their 
plans because of concerns about funding volatility. It is also true 
that some of the Nation's most prominent corporations continue to 
sponsor them because they know they have tremendous value. More 
importantly, working people value defined benefit plans greatly in 
segments of the economy where they still exist. Unions continue to 
bargain for them and public-sector workers advocate for their 
continuation. This is especially true today, when investment markets 
and high fees have devastated so many 401(k) accounts. In short, 
workers know that defined benefit plans work.
    But are they too expensive? In fact, they are in many ways less 
expensive than defined contribution plans. Investment and 
administrative fees are lower and rates of return are higher in defined 
benefit plans, and economists such as Jeff Brown have demonstrated that 
annuitization of retirement wealth--which defined benefit plans 
provide--is generally welfare maximizing.
    Moreover, defined contribution plans also have a potentially steep 
future economic cost to society. It was hardly costless when the market 
meltdowns of the last decade destroyed hundreds of billions of dollars 
in 401(k) accounts. Many millions of older workers will have to delay 
retirement if they are physically able to keep working, depriving 
younger workers of jobs and job advancement opportunities. When workers 
do retire with lower savings than needed, there will be costs as 
government is called upon to widen the safety net for older Americans 
and as younger generations are asked to take up the slack. Moreover, 
defined benefit plans tend to provide a more patient source of capital 
than do 401(k) plans, which is good for the economy generally.
    Sound retirement policy requires that we determine ways to preserve 
the defined benefit plans we have and expand them if possible. Multi-
employer plans figure prominently in the current defined benefit plan 
universe. Many believe that multiemployer plans can furnish a template 
for new defined benefit vehicles outside the collective bargaining 
arena. For these reasons, I applaud this committee's concern with 
preserving multiemployer plans.
             ii. some observations on multi-employer plans
    (i) Approximately 10 million Americans, who live in every State, 
rely on multi-employer plans. The continuation of these plans is vital 
to their retirement security and the spending power the plans provide 
to retirees is vital to our economy.
    (ii) The PBGC's estimated multiemployer plan liability is 
considerably smaller than that of the single-employer plan program. 
Multiemployer pension plans cover approximately 25 percent of all 
Americans participating in PBGC-covered pension plans, but 
multiemployer plans comprise less than 3 percent of the PBGC's current 
deficit. This is true despite multiemployer plans being almost alone 
among private-
sector pension plans in occasionally providing post-retirement cost-of-
living adjustments to benefits.
    (iii) The funding problems currently being experienced by 
multiemployer plans are attributable primarily to two causes: the Wall 
Street-created financial meltdown and structural changes in the 
economy, which have devastated certain industries. The problems are not 
attributable to so-called overreaching unions or poor management by 
plan trustees. Indeed, at the start of this decade, most multiemployer 
plans were overfunded. And unlike businesses sponsoring single employer 
plans, which sometimes enter bankruptcy to strategically shift unfunded 
liabilities to the PBGC, employers who contribute to multiemployer 
plans must pay steep withdrawal liability if they leave a plan.
    (iv) The heavy legacy costs that have resulted from structural 
changes in certain industries--such as the trucking and coal extraction 
industries--are being paid for by today's surviving businesses and 
their workers. Employees in the Central States Pension Fund currently 
have $16,000 of their wages contributed to the Fund each year. The 
resulting financial stress of such contribution obligations on 
surviving firms in these troubled industries--industries that are 
critical to our Nation's economy and security--threaten their economic 
viability.
    (v) Some observers incorrectly claim that multiemployer plans 
imprudently increased benefits during the 1990s. This claim misses two 
key points. First, tax laws virtually dictated that overfunded 
multiemployer plans use surplus assets to provide improved benefits. 
Second, unlike most single employer plans which are based on final pay 
and thus automatically adjust to reflect inflation, benefits in 
multiemployer plans are typically stated in nominal terms. Often, 
benefit improvements in multiemployer plans do nothing more than adjust 
benefit formulas to reflect inflation, which as I just noted occurs 
without amendment in most single employer plans.
    (vi) Unlike the PBGC guarantees for benefits in single employer 
plans, the guarantees for benefits in multiemployer plans are not 
adjusted to reflect inflation. The multiemployer guarantees are today 
approximately \1/5\ of the guarantees for single employer plans.
                        iii. partition proposals
    Firms and employees in multiemployer plans are responsible to 
provide benefits for employees of firms that have gone out of business 
and have not contributed their share of funding for their former 
employees. This is an ordinary structural feature of multiemployer 
plans and plans are ordinarily protected from severe financial loss by 
the ERISA's withdrawal liability provisions. In a few troubled 
industries, too many firms became insolvent while in contribution 
arrears and without paying their withdrawal liability. The remaining 
employers and employees are now paying the liabilities left over from 
these dead firms. Compounding the problem is that these industries have 
low ratios of active workers to retirees and are thus unable to 
contribute their way to plan solvency. If we do nothing, these plans--
and perhaps the employers who are now forced to cover liabilities of 
their former competitors--will ultimately fail and responsibility for 
the plans' benefit liabilities will be shifted to the PBGC.
    The legislation proposed by Senator Casey would deal with this 
legacy-cost problem in a few vital but financially stressed industries 
by allowing--under very limited conditions--a plan to partition off 
liabilities attributable to bankrupt firms (and other firms that went 
out of business without paying withdrawal liability). The plan would 
transfer the liability for these benefits--and certain assets paid to 
the plan by those defunct firms--to the PBGC.
    Senator Casey's proposal is a classic ``stitch in time saves nine'' 
approach, for it will make it probable that the plan itself will be 
financially viable for the long term. By taking on some liability now, 
the PBGC will avoid taking on much larger liabilities later and will 
improve the future viability of troubled but critically important 
industries, such as trucking and mining.
    I would, however, suggest a change to the legislative proposal: 
partitioned retirees should be treated identically to the participants 
in the parent plan--both before and after partition. This should mean 
that the benefits for which partitioned retirees are eligible 
immediately after partition are determined under the parent plan's 
then-current provisions, and that if the parent plan ultimately fails, 
their benefits will be subject to the same guarantees that are 
applicable to the participants in the parent plan. In other words, the 
participants in the partitioned portion of the plan should fare no 
worse or better than the participants in the parent plan.
    This is not only a matter of fair treatment of all participants in 
the pre-partitioned plan, but also provides important protections for 
the PBGC.
                    iv. other multiemployer changes
    (i) PBGC guarantees for multiemployer plans should be improved and 
in the future automatically increased to reflect increases in the cost 
of living.
    (ii) The red zone provisions that allow plans to reduce already 
earned benefits are harsh and penalize employees and retirees, who 
played by the rules. These cutbacks in benefits should be automatically 
restored when a plan becomes adequately funded.
    (iii) The PPA changes to the funding rules should be revisited for 
ongoing plans, to allow for greater actuarial smoothing and longer 
amortization periods for experience gain and loss. Indeed, we think 
similar changes are desirable for non-frozen single employer plans.

    The Chairman. Thank you, Mr. Stein.
    Thank you all very much. It's a great panel.
    Let me first start with Mr. Nyhan. Of course, Central 
States' problems have come to the attention of this committee 
on more than one occasion. Obviously, we are concerned about 
what could possibly happen. Is it your opinion that you have 
exhausted every option at your disposal to expand the 
contribution base?
    Mr. Nyhan. Yes, sir. There was a question earlier about, 
Why aren't multiemployer plans bringing in more employers? I 
think the answer to that question is, new employers are 
unwilling to subject themselves to the contingent withdrawal 
liability of these plans, much of which is due to this orphan 
liability that has been absorbed over time. Additionally, the 
plans are not stable. In the case of Central States, it's not 
stable. No new employers are willing to join the plan. In fact, 
as was pointed out by a witness on this panel, some employers 
are now leaving the plan because of their concern about the 
instability of it, UPS being a prime example. There is nothing 
else we can do to expand our employer base at this juncture.
    The Chairman. Are you doing everything in your power to 
ensure that PBGC gets all of the information it needs? Have 
PBGC actuaries been working with the Central States actuaries?
    Mr. Nyhan. Yes, we're in the process of doing that right 
now. We have been asked by the administration to share 
information with the PBGC and to try to reach some 
understanding on numbers. It's an ongoing process that we're 
working through as we speak. We have made our actuaries 
available to the PBGC for consultation at any time, though.
    The Chairman. Mr. DeFrehn, you highlighted some of the 
systemic issues faced by multiemployer plans and have a 
proposal to correct some of them. One idea was to allow weaker 
plans to merge with stronger plans. Well, right away, that 
raised the question, Wouldn't that put the stronger plans at 
risk? How could trustees, who are bound by an obligation to act 
solely in the interest of the participants and their plan, 
enter into one of these mergers without undermining their 
fiduciary obligations?
    Mr. DeFrehn. That's an excellent question. A comment was 
made earlier, that the number of multiemployer plans has shrunk 
considerably since the 1980s. In fact, that's true; they have. 
But, they haven't failed. As you know, PBGC's only taken over 
61 plans since this program started. They've merged. And 
they've continued to merge over the years. That's how the 
consolidation of the system has worked.
    As we've gotten into the PPA, we've created a structure, 
with these zone systems, that has raised the fiduciary issue 
even more so, though, to the trustees of plans. They've looked 
at it and said, ``Well, if we bring this other plan in, what's 
that going to do to our zone status?'' Which they should do. 
The comment I made earlier, about the kinds of activities that 
PBGC engaged in on an ad hoc basis in the past, where they 
recognized that if they put some of the money that they would 
normally be spending if they received a plan--if it failed--
into the merger, to close the gap between the liabilities and 
the assets of the weaker plan, to bring it into the stronger 
plan--you eliminate the problem for the receiving-plan trustees 
of having a fiduciary breach in not representing the interest 
of their own plan. It's a way for both the agency and the 
participants and contributing employers of the weaker plan, in 
particular, to benefit.
    Actually, when you expand the size of the plan through the 
merger, you would have a larger contribution base there, 
because there would be more employers coming into the system.
    The Chairman. Mr. Stein, what do you think of that 
proposal? Because I've thought about that--letting the weaker 
ones go in with the stronger ones. But, I still have a problem 
with that. It sounds good, but I'm not certain that we wouldn't 
run into some problems.
    Can you define it, Mr. DeFrehn?
    Mr. DeFrehn. If I might just expand one second, Senator.
    The Chairman. Yes.
    Mr. DeFrehn. This has happened in the past--and I've spent 
a number of years in the actuarial consulting side of this 
business--when it's happened in the past, bringing the weaker 
plan into a stronger plan usually accompanies--you're not 
allowed to reduce the benefits of the plan that's brought in, 
after the merger.
    The Chairman. Yes.
    Mr. DeFrehn. But, you don't have to increase them, either. 
Sometimes they come in at a substandard level. They're not 
receiving the same benefits as the stronger plan, because 
there's essentially, another benefit category set up.
    The Chairman. You have different levels.
    Mr. DeFrehn. You can have different levels of benefits. So, 
you're not necessarily paying greater benefits out. You are 
able to allow the weaker plan to take advantage of the 
economies of scale; they don't have to pay all those 
professionals.
    The Chairman. If you said that in your first answer, I 
didn't get it.
    Mr. DeFrehn. I didn't say it. Sorry.
    The Chairman. OK, now I understand a little bit better. OK. 
I just didn't know if anybody had any observations on that.
    Mr. Stein.
    Mr. Stein. Yes, I think one of the things you said is 
really important on--and I think there are tremendous economies 
of scale that can be realized, and that these alliances and 
mergers can make a lot of sense. When you mentioned the 
fiduciary standards--if you were a trustee of a healthy plan, 
and you were looking at a merger with a less healthy plan, you 
have personal liability if you go ahead and do that. I think 
those trustees are going to make darn sure that this is going 
to be good for both plans. That is, you'll have two sets of 
trustees making independent decisions that this will benefit 
their plan. If they can't make that determination, I don't 
think these mergers and alliances are going to happen.
    The Chairman. Right. Can we do that under present law? 
Could a stronger and a weaker plan join like that and keep 
different levels of benefits?
    Mr. DeFrehn. Yes. And they have. The problem is--again, 
I've mentioned this as an ad hoc approach to what the PBGC has 
done. When we've approached them about doing these kind of 
things in recent years, they've been very reluctant to do this. 
The proposal that our coalition had come up with, originally, 
which is reflected in both the House version and was something 
that was talked about in early discussions with Senator Casey, 
was an attempt to give the PBGC explicit authority to do this, 
so they didn't feel like they were stepping outside of their 
bounds in order to do it. I believe they--I know they have done 
it. They've just been reluctant to do it.
    The Chairman. I want to examine, as it pertains to Central 
States, after I yield to Senator Casey.
    Go ahead.
    Senator Casey. The Chairman could have taken more time, but 
he's trying to stick to the rules.
    I'm tempted to say to Mr. Stein that since you're going to 
be at Drexel, you get more time, but I can't do that.
    [Laughter.]
    I want to start with Mr. Nyhan, and thank you for the 
testimony and the work that you've done to help us understand 
this better over time.
    I want to make sure--as we go back and forth here over both 
panels, I want to get something clarified. We have a situation 
where you've got a very small number of multiemployer plans 
that need the help of this legislation--maybe two, at present. 
There was also a discussion about dire--I think it might have 
been in the first panel--about dire consequences, dire need. I 
just want you to outline for us, so the record is clear, just 
answering a basic question. Is Central States in dire need of 
PBGC assistance at this time?
    Mr. Nyhan. It is. We have been facing a situation where 
employers are unwilling to continue to participate in the plan 
unless it's stabilized. We've been advised that. We've seen 
employers leave the plan--as we alluded to earlier, with UPS. 
We really have tens of thousands of participants who are facing 
not only the possibility of a loss of retirement security, but 
their jobs, as well, because many of the small employers, which 
make up the vast majority of our contribution base, can't 
withdraw--can't afford to withdraw, and the contributions are 
pushing them out of business. And we really believe that your 
proposal will both preserve jobs, preserve retirement security, 
protect those employers, and, in our view, be less expensive, 
in the long run, to the PBGC, than if we wait for ultimate 
insolvency.
    Senator Casey. I was noting, earlier, about the number of 
employers in your plan--2,000--9 out of 10 of them, small 
businesses with fewer than 50 employees--but, I thought it is 
interesting, for the record--it's in your written testimony--
but, just to give people a sense--who may not be familiar with 
the component parts of those 2,000 employers. I mean, your 
testimony, regarding the variety of industries here--trucking 
and freight, car-haul, tank-haul, warehouse, food processing 
distribution. You give some examples of that--grocery, dairy, 
bakery, brewery, soft drinks. Finally, of course, a big 
category being building and construction. This is a pretty 
diverse set of industries and businesses and a diverse 
workforce. I guess right now you've got--included within your 
423,000 participants are 342,000 retirees.
    Mr. Nyhan. Retirees and terminated. Yes, sir.
    Senator Casey. Right. That gives some background on the 
nature of what's in the plan.
    Mr. DeFrehn, I wanted to raise an issue with you about the 
advantages of the multiemployer system over the single 
employer, known sometimes as ``corporate plans.'' Can you 
elaborate on that?
    Mr. DeFrehn. Yes. I mean, I think that was something that 
Phyllis had mentioned in her remarks, as well.
    In a typical corporation, if they fail, there's no other 
place for the participant to receive his benefits than to go to 
the Pension Benefit Guaranty Corporation. And if you move from 
one employer to another, you have to start over with your 
eligibility and investing periods and your service is not 
portable.
    In the multiemployer system, one of its strengths is its 
portability, and particularly in the industries where you 
require a mobile workforce. You can look at a variety of 
industries, in addition to construction and trucking; the 
entertainment industry, the longshore industry. There are a 
number of different industries where people move quite 
frequently. As long as those participants stay in that 
industry, generally speaking, if they stay in one local area or 
region, and the plan happens to be a regional plan, most of the 
contributing employers would be sending their contributions to 
that plan and people would continue to earn credits during 
their entire career.
    Many industries, like construction, have reciprocity 
agreements, where, even if the economy in your area is bad and 
you have to travel several States away, there's an arrangement 
where those dollars that are earned are sent back to your home 
fund, and you continue to earn credit in that plan.
    If you look at the stability of the systems over the years, 
I think there's nothing clearer than to just simply say, ``How 
many plans have been at risk? How many plans have gone to the 
PBGC for assistance?'' The numbers as of 2008, were somewhere 
like 3,860 plans on the single employer side had failed. The 
dollars to the agency were $39.4 billion. For multiemployer 
plans, the numbers were 57 plans had failed, at a cost of $417 
million. I think there's no question as to which system 
actually is more stable and can provide better benefits in the 
long run.
    Senator Casey. Thank you.
    The Chairman. I still want to kind of orbit around this 
idea of merging smaller and larger firms. Mr. Stein, picking up 
on what Senator Casey said about your describing the businesses 
that are still involved in your fund--a lot of them small, very 
small businesses. But, you say, the majority in the trucking 
industry.
    I'm just reading from your statement. You said,

          ``Of the 50 largest employers that participated in 
        the Central States fund in 1980, only four remain in 
        business today. More than 600 trucking companies that 
        contributed to the fund have gone bankrupt since 1980. 
        Many thousands of others have gone out of business. As 
        a result of these trends, over 40 cents of every dollar 
        the fund now pays in benefits goes to retirees who were 
        employed by an employer that went out of business 
        without paying its proportionate share of the fund's 
        unfunded pension liability.''

    Mr. Nyhan. Yes, sir.
    The Chairman. The orphans, right?
    Mr. Nyhan. Yes, sir.
    The Chairman. Well, instruct me here, now. Again, there's 
no legal liability for these people, when they go out, to pay a 
proportionate share?
    Mr. Nyhan. There is a requirement that they pay withdrawal 
liability. That's seldom collected in full. In most cases of 
bankruptcy, the plan's collection rate is under 10 cents on the 
dollar.
    The Chairman. Right.
    Mr. Nyhan. In cases now, given where the liability of the 
plan is, there are certain caps in withdrawal liability. When 
companies pull out of the plan, they don't pay their full 
withdrawal liability; it's capped on 20 years of payments. In 
many instances, they don't even chip in to the principal. They 
pay the interest on it, and they're gone. When they go--there 
is legal liability, but the withdrawal liability provisions 
don't fully compensate the plan for the liabilities associated 
with that employer.
    The Chairman. I've been reading all this, and there's fewer 
trucking companies than there were in 1980, as you point out, 
but there are a lot more trucks and there are more truck 
drivers. Why not examine the possibility of bringing in some of 
these small trucking companies who may only have four or five 
employees.
    Now, again, one of the problems they would have is, they 
can't then absorb the liability for all the rest under the law. 
If they were exempted from that and if you could build in 
different benefit levels it would seem to me--those 
independents are probably not unionized, but it would seem to 
me that they would have a better shake and a better retirement 
program coming into a Central States fund, if they didn't have 
their liability problem and if they could accept the lower 
level of benefits than others--somebody else that's been in for 
30 years, for example. Then they would contribute to the plan. 
Wouldn't that help Central States Plan?
    Mr. Nyhan. Yes, I think that would help, in terms of 
bringing in small employers. I don't think it would be enough 
to right the ship. It would begin to--if these companies could 
be assured that they would not have any responsibility for the 
legacy cost associated with the plan, and that would be 
responsibility for the costs associated with their employees.
    The Chairman. Right.
    Mr. Nyhan. Yes, I think you would be able to attract some 
new participants into the plan.
    The Chairman. Well, I would think so. I mean, they would 
get the benefit of a larger risk pool.
    Mr. Nyhan. Right.
    The Chairman. I would think that their defined benefit 
plan, then, would be better than what they might be 
contributing to whatever single plan they have out there right 
now.
    Mr. Nyhan. Correct. I would agree with that.
    The Chairman. Well, has this been examined? Have you 
suggested that we might change the law to allow this to happen?
    Mr. Nyhan. We'll get to work on it.
    The Chairman. OK.
    [Laughter.]
    Well, I don't know. Maybe I'm way off base. But, I'm just 
trying to think about how you get these plans expanded out.
    Mr. Nyhan. Yes, sir.
    The Chairman. I'd like to pursue that, if at all possible.
    Mr. McGowan, this is sort of tacked on to what I just said 
here. While personal savings, through 401(k) plans, is an 
important part of what I always call the three-legged stool of 
retirement security, the value of a defined benefit pension 
plan shouldn't be disregarded. Shouldn't Congress be taking 
steps to try to figure out some way to keep these defined 
benefit plans going, as part of that three-legged stool, rather 
than having everybody out of that and into 401(k)s?
    Mr. McGowan.
    Mr. McGowan. Yes, definitely. I think, going back to the 
first panel, Secretary Borzi's suggestion and, I think, Senator 
Enzi's suggestion, reforming the entire system might be a 
better way to go. It just sounds like the contributions that 
the employers are making are not sufficient to cover all the 
benefits that are out there. That basic math doesn't seem like 
it's going to change. I think this most recent idea that you 
and Mr. Nyhan discussed is more systemic. I think that makes 
more sense than little piecemeal legislative proposals. Yes, I 
think they're worth supporting, but it's a systemwide problem I 
think, more than a piecemeal solution, while it's a good idea 
to take care of these orphan retirees--but, there's a bigger 
problem out there with the basic math of the contributions from 
the employers not being sufficient to fund the defined benefit 
pension benefits.
    The Chairman. I was told, the other day, on 401(k) plans, 
for example, that there's about $140 billion in liabilities. 
This is people who have borrowed against their 401(k)s. Quite 
frankly, I don't know if they can pay it back. I don't know how 
accurate that number is, but somewhere in that figure. Don't we 
have a looming problem with 401(k)s now, because people put 
into them, they've borrowed the money out for whatever, because 
of the economic downturn, and now they're in a situation where 
they may not be able to pay that back? Isn't that also a 
problem on the horizon that we have to look at?
    Mr. McGowan. Yes.
    The Chairman. You're aware of this. Right?
    Mr. McGowan. Yes, yes. At the university, it's called a 
``403(b),'' and they won't let you borrow anything. That's 
probably good, because it keeps our hands out of the pot, 
there.
    The Chairman. Well, you can't borrow against defined 
benefit, either.
    Mr. McGowan. Right, right, right.
    The Chairman. OK. Is that what you're referring to? No.
    Mr. McGowan. Well, you asked me if--
    The Chairman. What's a 403(b)?
    Mr. McGowan. 403(b) is that same thing as 401(k), but for 
universities.
    The Chairman. Oh.
    Mr. McGowan. It's a defined contribution plan.
    The Chairman. Oh. I'm sorry. I don't even know what that 
is.
    Mr. McGowan. Right.
    The Chairman. OK.
    Mr. McGowan. Sorry. I'm throwing these terms around. I'm a 
tax professor; I assume everyone knows these terms.
    The Chairman. Do you have that at the University of 
Alabama, Mr. Stein?
    Mr. Stein. We actually have the best of both worlds at 
Alabama. We have a defined benefit plan and then we have what's 
called a 403(b) annuity--TIAA-CREF, you probably heard of it. 
That's the large 403(b) annuity provider to universities.
    The Chairman. Oh.
    Mr. Stein. I can tell you that I'm very glad I have the 
defined benefit plan. In my testimony, one of the things which 
I left out was, one of the reasons I think multiemployer plans 
are so important and worth saving is--there have been a number 
of very thoughtful people, including Mike Warden, who often is 
credited as being the engineer behind ERISA, or the architect 
of ERISA--have said, multiemployer plans can be a template for 
defined benefit plans outside the collective bargaining sector, 
that you can use the structure to help lots of small employers 
create defined benefit plans for their employees in a cost-
efficient way that they couldn't do alone. That's one thing 
that I think is--I mean, why I feel so passionately about 
multiemployer plans; it's not only important that people are in 
them, but there's this really powerful idea behind them that 
could be used, I think, to bring more defined benefit plans to 
more Americans.
    The Chairman. Well, because this is what I wrestle with. 
Sure the economy's changed in the last 20, 30 years. Twenty, 
thirty years ago, you might graduate from college or high 
school, and you get a job, and you stay with that company for 
20, 30 years. Now, people change jobs. What's the average, now? 
Five or seven times in the first 10 years. People are shifting 
jobs all the time.
    Mr. Stein. I do it every 25 years.
    The Chairman. What?
    Mr. Stein. I do it every 25 years.
    [Laughter.]
    The Chairman. Well, every 25--well, I think it's more like 
5 years now, or 7, or something like that.
    It seems to me that some kind of a multiemployer template 
that would cover people who are going from job to job might be 
in the best interest of the employers and the employees. And 
then have a separate 401(k), if people want to add on to that.
    Mr. Stein. Yes.
    The Chairman.  If you want to have a little bit more 
security, put something in, against which they could borrow, 
later on, for contingencies. What would be wrong with that kind 
of a template?
    Mr. Stein. That would be perfect.
    The Chairman. Well, all right. Let's do it.
    [Laughter.]
    Senator Casey.
    Senator Casey. Thanks, Mr. Chairman.
    I want to raise a question about one letter that I received 
that I entered into the record, from YRC Worldwide, 
Incorporated. I was struck by this part of the second 
paragraph. It says that--and I'm quoting from this March 22d 
letter that we received--``YRCW now faces three interrelated 
problems in meeting our pension obligations.'' And then they 
list them. ``We have been funding the benefits of hundreds of 
thousands of workers who have never worked for YRCW.'' Others 
have made that point today, but it's important to put it in the 
context of one company. Then the letter continues, ``The second 
problem, the multiemployer plans to which we have been 
contributing have suffered significant investment losses.'' 
That's problem No. 2. Problem No. 3, ``We face a worsening 
demographic challenge, as fewer workers support the pension 
obligations of more and more retirees.''
    I was going to ask Mr. Nyhan about YRC, in particular, what 
you can tell us about it, in terms of this question: At this 
point in time, why isn't YRC a contributing employer to the 
plan?
    Mr. Nyhan. They reached the point where they were unable to 
continue to stay afloat and make the pension contributions into 
our plan and other plans. They are one of the companies whose 
contribution rates at the $300-per-person-per-week rate. And 
continuing paying that would have bankrupt the company, 
literally. We entered into an agreement with the company, where 
they terminated participation, on a temporary basis. They have 
an agreement, with the International Brotherhood of Teamsters, 
to resume participation in the various pension plans, beginning 
January 1, 2011. We're now striving to find out what, if 
anything, the plans can do in order to allow this company to 
survive, because we have nearly 40,000 jobs at stake with that 
one company alone.
    Senator Casey. That's a good example of what we're talking 
about.
    Mr. Stein, I wanted to make sure that--since you're going 
to Drexel, I want to make sure you get some more time, here.
    [Laughter.]
    I know that you've made the point, in your testimony, about 
the benefits of a defined benefit plan, as opposed to defined 
contribution. I don't know if there's some other aspect of 
that, that you didn't get a chance to cover, if you wanted to 
add to that.
    Mr. Stein. Well, there are a couple of things that I talk 
about in my written testimony, that really is germane in 
thinking about multiemployer plans. One of them, nobody 
really--I mean, there's been talk about this in the abstract--
but, there are really heavy legacy costs that have resulted 
from, basically, structural changes in the industry. We have to 
remember that, at the turn of the century, these plans were 
fully funded, for the most part. Right?
    Teamsters, now, are paying approximately $16,000 apiece for 
contributions into these plans. That's an enormous contribution 
per employee, much more than any single, or most single 
employer plans don't touch that--$16,000 a year. These are 
middle-class workers. It's a very substantial portion of their 
payroll which is going into these plans.
    Another thing which--I think Mr. DeFrehn mentioned this--
there's been some discussion about multiemployer plans having 
improvidently increased benefits during the last 8 or 9 years. 
What Randy said was, ``if you have an overfunded plan''--and 
these plans were overfunded--``the employees not only couldn't 
deduct contributions to the plan, but they would be hit by 
penalty taxes for contributing to an overfunded plan.'' So, 
there was tremendous pressure to increase benefits.
    The other thing that I think is often overlooked--in most 
single employer plans, the benefits are based on final pay, and 
they're adjusted automatically; you don't need to amend the 
plan to keep up with inflation. Most multiemployer plans are 
not set up that way. The benefits are stated in nominal terms. 
If you don't periodically amend the plan to increase benefits, 
inflation erodes them away.
    And the last thing is, there's been some discussion--I know 
Senator Enzi alluded to this--that part of the problems are 
overreaching unions and incompetent managers, trustees. I don't 
think that's really the case at all. A lot of single employer 
plans also invested in Madoff. Unlike single employer plans--in 
the single employer plan situation, employers can strategically 
use bankruptcy to dump liabilities on PBGC. Lots of companies 
have done that. Supposedly, they can't do it; but if they go 
into bankruptcy, they can. They can come out of bankruptcy 
restructured, relatively healthy. One reason they're relatively 
healthy is, they've dumped their liabilities on the PBGC, using 
bankruptcy strategically. That option does not exist in 
multiemployer plans.
    Senator Casey. Well, I think the numbers back this up. In 
terms of the difference between the PBGC deficit that's 
associated with single employer plans, I'm told that number is 
just a little bit above $21 billion, which is virtually all of 
the PBGC deficit associated with single employer plans.
    Last year, in terms of the numbers that PBGC took over--
single employer plans, PBGC took over 144; multiemployer plans 
taken over by PBGC: 0. I think we've made the point, by way of 
two or three different examples.
    I think that's all we have time for, Mr. Chairman, thank 
you.
    The Chairman. You can have more time.
    Senator Casey. I think I'm all set. I'm all set.
    Mr. Stein. Can I make one point.
    We do need a new ERISA. There are a number of 
organizations--AFL-CIO, SEIU, Change to Win, Pension Rights 
Center--that have been, in the last 2 years, creating or 
working to create a template for a new retirement system--
Retirement USA. I hope we'll be hearing more from that.
    The Chairman. Anybody else? New ERISA?
    Mr. DeFrehn. I don't know about a new ERISA. I think it is 
time to revisit what we've got, because there are clearly some 
changes that have occurred over the years.
    There's one point that I wanted to make with respect to the 
question of partition versus what the entire universe of 
multiemployer plans look like. As I mentioned, most plans are 
not in trouble. But, for those plans that are, to have them 
fail--to have any of them fail--the repercussions that will 
just jar through the rest of the industry can't be overstated.
    Senator Casey went through some of the different industries 
that are involved in Central States. The next largest group 
besides trucking was the food industry. They also contribute to 
pension plans sponsored by the UFCW, United Food and Commercial 
Workers. I recently spoke with a number of large construction 
employers--the largest construction employers in the country, 
probably a group of about 60 of them and over half of them 
contribute to Central States.
    This is not a limited situation here, even if it deals with 
one or two plans, because these contributing employers, if they 
get hit very hard with liabilities for a plan like Central 
States, they're unable to make their obligations to the other 
plans. And trustees or employers will be loathe to sign an 
agreement that required contributions to these plans if that 
kind of thing were to happen.
    We strongly advise and urge the committee to think about 
what we heard the PBGC say--that, right now, Central States 
couldn't qualify under the current partition rules, which is 
why they need to be amended. Quite simply, if you wait too 
long, you will lose the opportunity to preserve the remainder 
of that plan and other plans like it.
    So, with that, I thank you for the opportunity to be here.
    The Chairman. Anybody else?
    Mr. McGowan. Can I just add one thing?
    The Chairman. Yes, sir, Mr. McGowan.
    Mr. McGowan. Thank you.
    I think the idea of systemwide reform is good. Maybe a mix 
of defined contribution and defined benefit plans, may make 
sense in the modern era.
    The only other concern is using taxpayer funds, because the 
State and local government pensions--there's a $2-trillion 
deficit there, and they're going to be here if they see that 
Federal funds are available for multiemployer pensions. They're 
going to probably be lining up next. It's just a little concern 
there.
    I wish all you policymakers great luck in solving this 
important problem.
    The Chairman. Thanks a lot.
    [Laughter.]
    Well, if there's nothing else.
    Did you have anything, Mr. Nyhan?
    Mr. Nyhan. I would have one point, if I might, Mr. 
Chairman.
    The Chairman. Yes, sir.
    Mr. Nyhan. Senator Casey alluded, earlier today, about a 
lot of discussion with respect to costs and what have you. In 
my view, some of it's been irresponsible. I think some of the 
dialogue has been a little off-base. It seems to me, the 
question is--given the fact that the PBGC has exposure, upon 
insolvency--the question presented is whether or not the 
partition proposal enlarges or reduces that exposure. In our 
view, it reduces that exposure by encouraging employers to 
remain in the plan, to continue to fund down those liabilities 
that would otherwise go to the PBGC, in the case of insolvency.
    The Chairman. Right. I agree.
    Well, thank you all very much. It was a great panel. I 
appreciate it.
    The record will remain open for 10 days for other questions 
from other Senators.
    With that, the committee will be adjourned.
    [Additional material follows.]

                          ADDITIONAL MATERIAL

 Prepared Statement of John Ward, President, Standard Forwarding LLC, 
                            East Moline, IL
                           Executive Summary
    Chairman Harkin, Senator Enzi and members of the committee, I thank 
you for the opportunity to provide this statement concerning 
multiemployer pension plans. My name is John Ward and I am the 
President of Standard Forwarding LLC, a small union trucking company 
located in East Moline, IL. Standard Forwarding is a wonderful company 
with 475 employees, including 385 members of the Teamsters Union. The 
business has operated for 76 years and has been fighting for survival 
in recent years. Since the 1950's, Standard has contributed to the 
Central States Teamsters Pension Plan.
    Unless significant reform is enacted, the Central States Plan will 
inevitably become insolvent and, even before that, the contributions 
required to fund the Plan will place an unfair and intolerable burden 
on the remaining contributing employers and their employees. The 
employers did not cause the problem, and they cannot solve it.
                Key Facts Regarding Standard Forwarding
                      background about the company
    Standard Forwarding LLC is a Midwest-based regional less-than-
truckload (LTL) trucking company, headquartered in East Moline, IL. We 
provide exceptional overnight service between points in Illinois, 
Indiana, Iowa, Minnesota and Wisconsin as well as Omaha, NE and St. 
Louis, MO.\1\
---------------------------------------------------------------------------
    \1\ Standard is the only six-time winner of ``Carrier of the Year'' 
for Schneider Logistics and the only carrier to win John Deere's 
Logistics Supplier of the year. We are also a two-time winner of 
``Carrier of the Year'' for Xerox Corp and won CNH's inaugural carrier 
of the year selection. Most notable, however, is the significant 
industry recognition Standard has earned as the two-time recipient of 
Carrier of the Year honors in Mastio & Company's annual LTL Value and 
Loyalty Benchmarking Study. Mastio's survey, the most comprehensive 
study on LTL industry quality, includes interviews with key decision 
makers of over 2,400 shippers rating 260 LTL carriers.
---------------------------------------------------------------------------
    In business since 1934, Standard Forwarding employs 475 people 
(including 385 represented by the Teamsters Union) and has annual 
revenues of approximately $60 million. Having begun operations as a 
dedicated contract carrier for John Deere, we now serve several 
thousand loyal customers while continuing our proud tradition as John 
Deere's oldest continuous supplier.
    Standard Forwarding has been a union firm for the majority of our 
76 years. As demand for our services has grown, we have expanded our 
workforce with union employees.
                                 ______
                                 
                         standard's bankruptcy
    In November 2009, despite significant initiatives to reduce labor 
and other costs, Standard Forwarding Co., Inc. (the predecessor to 
Standard Forwarding LLC) was forced into bankruptcy, wiping out all 
shareholder value. The main driver of the bankruptcy was the Company's 
multiemployer pension contribution obligation.
    The rate of pension contribution increases had significantly 
outpaced revenue growth and reached a point where the contributions 
were unsustainable. Contribution rates to the Central States Pension 
Fund for Standard Forwarding and other trucking employers under the 
National Freight Agreement had doubled in cost in nine (9) years, 
increasing from a rate of $154 per union employee per week in 2001 to 
$312 per week last year. By the end of the collective bargaining 
agreement in 2012, the pension contribution rate per union employee 
would have been $380.00 per week, or $9.48 per hour.
    From 2004 to 2009 alone, our operating profit margin eroded 4.6 
points as a direct result of increases in pension contribution rates. 
Compared to non-union companies in our industry that may (or may not) 
offer a 401(k) plan (and may or may not provide an employer match), the 
cost differential between our pension contribution costs and the non-
union companies amounted to approximately 10 operating margin points. 
Standard was spending 625 percent more on pension contributions for a 
bargaining employee than it did on a non-bargaining employee (covered 
by a 401(k) plan).\2\
---------------------------------------------------------------------------
    \2\ Central States has estimated that more than half of the 
company's contributions were used to fund pensions of so-called orphan 
participants whose employers were no longer in business. Therefore, 
Standard Forwarding's employees benefited from these large 
contributions only to a limited extent. The increased amounts were 
mandated by the Central States rehabilitation plan which, in turn, was 
mandated by the Pension Protection Act of 2006. If the Company had 
attempted to exit the plan, it would have triggered a withdrawal 
liability under ERISA of over $80 million. The company had no practical 
alternative to the large increases in pension contributions than to 
file for bankruptcy.
---------------------------------------------------------------------------
    Significant efforts were made to sell the company, both before and 
after filing the bankruptcy petition. An investment bank was retained 
and marketed it. As you would expect, because of the unsustainable 
contribution costs and contingent liabilities tied to orphan retirees, 
it was impossible to sell the company to a buyer willing to continue 
contributing to the Central States Pension Fund. The only option for a 
continuation of this business was to sell its assets to a management 
group composed of four senior officers, who formed Standard Forwarding 
LLC. Even this option required a restructuring of the company's pension 
obligations.
    During the bankruptcy, extensive and difficult negotiations with 
the Teamsters led to a new collective bargaining agreement which, among 
other things, reduced the company's weekly pension contribution rate 
from $312 to $112.50. The employees' pension benefits are being reduced 
accordingly, subject to a transitional period for people close to 
retirement. Under the Pension Protection Act, it would have been 
illegal for the parties to agree to this reduction, absent a bankruptcy 
and the resulting sale of the business.
    On March 4, 2010, the Bankruptcy Court approved the sale under 
section 363 of the Bankruptcy Code. It has been suggested that Standard 
Forwarding may be the first LTL carrier to ever emerge from bankruptcy 
proceedings. This was made possible only because we have an exceptional 
company, with the highest quality employees and a loyal customer and 
supplier base that stood with us despite the months of uncertainty 
surrounding the bankruptcy process.
                 the future of standard forwarding llc
    I believe that the future of our company is bright at this time, 
but as is the case with many of the 2,000+ employers that participate 
in it, the Central States Pension Fund continues to be the dark cloud 
that threatens our ability to survive and grow.
    Without major legislative relief in the near future, the exodus of 
employers from the plan will continue; pension contribution rates will 
continue to escalate, even though they already are at unsustainable, 
uncompetitive levels for many employers; and, despite yeoman efforts to 
shore up the plan's funding, the unfunded benefit liabilities of the 
Plan will continue to increase. Although our bankruptcy proceedings 
provided an opportunity to bargain to a lower cost plan within the 
Central States Fund, because of the death spiral caused by the burden 
of funding orphan retirees, Standard Forwarding LLC will again be 
saddled with future increases to contribution rates that outpace our 
normal product pricing curve. In other words, history will repeat 
itself, and there is nothing we can do to avoid this unless Congress 
intervenes.
    These problems cannot be solved by the Central States Board of 
Trustees, the Teamsters Union and the contributing employers. In the 
end, without relief from Congress, this Plan will be insolvent and the 
enormous sacrifices made by employees and employers will accomplish 
little or nothing.
Key Facts Regarding Central States
    Other witnesses provided detailed facts and figures regarding the 
evolution and depth of the Central States Pension Fund's financial 
crisis. I will not attempt to duplicate that effort except to offer the 
following key observations:

    1. Benefits for all active Central States participants have been 
reduced significantly by the Central States Board and contributions 
have been increased very significantly, as discussed in detail above. 
Further contribution increases cannot solve the problem, but rather, 
will only exacerbate it (as it will drive more employers out of 
business).
    2. We are now contributing to a plan that has more than six retired 
and deferred vested participants for every active employee. Annual 
benefit payments exceed contribution income by over $2 billion.
    3. The majority of every contribution dollar is being used to fund 
the benefits of people whose employers are no longer in business and 
who defaulted on their obligations.
    4. Thousands of contributing employers have left the Fund in the 
past 30 years, most of them in an insolvent condition. Almost all of 
the 100 largest employers as of 1980 are no longer in business.
    5. The dismal performance of the capital markets over the past 10 
years has affected almost every pension plan. I do not perceive that 
Central States was at fault in any way regarding the manner in which 
the assets have been invested over the past 10 years.

    Based on these facts, I conclude that the crisis could not have 
been avoided by the responsible parties.
Why Should Congress Intervene?
    I believe defined benefit plans are worth saving and that American 
workers are not likely to do as well under a 401(k) regime.\3\ I am not 
so much concerned with the future of defined benefit plans. I am 
concerned with the present consequences of a retirement system that has 
been in place since World War II. I feel very strongly that the issue 
facing Congress is not just pensions. The more important and pressing 
issue is preserving jobs and allowing the U.S. economy to recover.
---------------------------------------------------------------------------
    \3\ My father, Bob Ward, is a perfect example. He currently draws 
less than $500 per month from a painting and drywall pension plan and 
although the sum is small, it is crucial to my parents' retirement 
income. My dad consciously accepted a lower laborer's wage rather than 
choosing a more lucrative self-employed contractor's path because of 
the pension that came with employment at a firm that contributed to a 
defined benefit pension. He readily admits that he would not have had 
the discipline to save and invest the money which he might have earned 
in lieu of a pension plan.
---------------------------------------------------------------------------
    Congress should repair the flaws in the current multiemployer 
system, in which companies are being driven out of business by 
uncompetitive pension contributions which are at unsustainable levels 
in order to fund the retirement obligations of other out-of-business 
employers (often leaving their pension liabilities to be funded by the 
remaining companies, leading to a death spiral for a plan's 
contributing employers). It is unreasonable and unfair to expect these 
companies to fund the pensions of people whose employers have gone out 
of business and failed to pay their pension obligations. It damages the 
U.S. economy for all of us. Business owners are losing the value of 
their companies and workers are losing jobs.
    In the absence of strong and swift congressional action, the 
financial condition of the Central States Pension Plan is beyond 
repair. Even as the remaining companies are ruined by increasing 
contribution rates or withdrawal liability that exceeds their net 
worth, the Plan will still become insolvent and the workers will 
receive only a portion of their promised pensions. These workers may be 
losing both their jobs and a good chunk of their pensions while the 
PBGC inherits billions of dollars in new obligations.
    In testimony to the Senate HELP Subcommittee on Retirement and 
Aging in June 2005, I warned that uncontrolled increases in pension 
contributions could bankrupt small privately-held companies like mine. 
I requested that Congress limit the amount by which pension 
contributions could be increased to remedy the funding deficiencies 
which arose from circumstances completely beyond our control. I also 
asked that the law be restored to the condition that it was in prior to 
the enactment of MPPAA in 1980, when a company's withdrawal liability 
was limited to 30 percent of its net worth. Quite obviously, Congress 
did not act on my requests and the owners of the family-owned company 
which I led paid the price. While I am thankful that the business was 
able to emerge from bankruptcy with new ownership, absent congressional 
action, other companies will not be so fortunate and even our new 
company remains in jeopardy.
    It is imperative that Congress amend the partition rules so that 
the Central States orphan liabilities can be transferred to the PBGC 
where they belong. Failure to act on this will most certainly lead to 
the insolvency of the Fund. The Fund's termination will in turn lead to 
the failure of numerous contributing employers, the loss of thousands 
of good jobs and an even greater burden inherited by the PBGC. I cannot 
think of a single reason why it would be better for this country to let 
events take their course and to allow these inevitable results to 
occur.
       response to questions of senator enzi and senator isakson 
                          by phyllis c. borzi
                              senator enzi
    Question 1. Besides the Central States pension plans, which 
multiemployer pension plans would be able to qualify for the partition 
relief contained in S. 3157?
    Answer 1. Under the bill, a significant criterion for partition is 
that the plan be in critical status (``red zone'') or endangered status 
(``yellow zone'').\1\ Such plans must also: (i) have suffered a 
substantial reduction in contributions due to employer bankruptcies and 
other inability to collect the full amount of withdrawal liability; 
(ii) have at least a 2-to-1 ratio of inactive (retired and separated 
vested) to active participants (10-to-1 ratio for endangered status 
plans), and at least a 2-to-1 ratio of benefit payments to 
contributions; and (iii) be likely to become insolvent absent partition 
or significant contribution increases--an actuarial determination not 
subject to any prescribed assumptions.
---------------------------------------------------------------------------
    \1\ Plans are classified as being in the yellow zone if they are in 
``endangered status'' (funding below 80 percent and funding deficiency 
farther out), or the red zone if they are in ``critical status'' 
(funding below 65 percent and a funding deficiency on the horizon, 
usually within 5-7 years).
---------------------------------------------------------------------------
    In addition to Central States, representatives of Central States 
informed the Department that the United Mine Workers 1974 Pension Plan 
(``UMW Plan'') may qualify for partition under S. 3157. We are unable 
to determine the plans that may qualify for the partition relief 
contained under S. 3157 taking into consideration all of the criteria 
for partition without additional data from plans.

    Question 2. In 2009, the PBGC took over the administration of 
pension benefits for 201,000 workers and retirees. It is estimated that 
plans electing partition relief in S. 3157 would place over 200,000 
``orphaned'' participants in just the multiemployer pension system 
alone. How many staff does PBGC have devoted to administering the 
multiemployer system? Does PBGC have enough staff and resources to 
handle that large number of multiemployer pension claims? Where do the 
monies come from to pay for the administrative costs for the oversight 
of the multiemployer system?
    Answer 2. The PBGC's Multiemployer Program Division currently has 6 
full-time employees and even if there are no changes to the partition 
rules, the program needs substantial additional staff to manage the 
growing workload under current law. Efforts are underway to address 
multiemployer staffing deficiencies by reallocating and retraining 
existing agency staff.
    Although multiemployer plans themselves would continue to 
administer the partitioned plans under the bill, depending on how many 
plans were to seek partition under the new standards, PBGC's existing 
multiemployer program resources could be overwhelmed in reviewing 
partition applications, auditing requested outlays to ensure that the 
transfer to the partition plan includes only the orphan liabilities, 
and otherwise verifying that the correct amount of administrative costs 
are transferred. During fiscal year 2009, PBGC paid $86 million in 
financial assistance into 43 insolvent plans. Over the next 5 years, 
PBGC expects approximately 50 additional multiemployer plans will 
become insolvent and require financial assistance.
    Apart from staffing issues, PBGC would remain obligated to pay 
millions of dollars in administrative costs each year to the 
partitioned plans. These expenses are paid from PBGC's multiemployer 
plan revolving trust fund, the assets of which come from multiemployer 
plan premiums. As an illustration of the magnitude of just the 
administrative costs, through only the first quarter of 2010, the 
Central States plan reported expending almost $8.49 million in 
administrative costs. In the event of partition, the portion of these 
administrative costs attributable to the partitioned plan would be paid 
by PBGC through financial assistance.

    Question 3. What are the ramifications to the Central States plan 
and the PBGC, the companies contributing to the plan and to the workers 
and retirees if this legislation is not enacted?
    Answer 3. The Central States Pension Fund is one of the Nation's 
largest multiemployer defined benefit plans. According to information 
provided by the Fund, the plan covers over 433,000 participants and 
provides monthly benefits to over 200,000 retirees and beneficiaries; 
active participants who provide the plan's contribution base have now 
dropped to 61,000.
    Over the last two decades, the number of employers and active 
workers supporting the retirees in the plan has declined substantially, 
compounding a long-term trend caused, in part, by trucking deregulation 
in the 1980s. The obligation to pay benefits to employees and retirees 
of defunct companies remains with the Central States Pension Fund. Like 
many other plans, Central States also recently suffered investment 
losses, which have contributed to its financial problems. Reductions in 
benefits and substantial increases in employer contributions during the 
past few years have not been able to fill in the gaps caused by the 
rapidly shrinking contribution base.
    Based on Central States' December 2009 financial statements, the 
fund pays approximately $2.7 billion in benefits per year and receives 
only $643 million in contributions, resulting in a $2.1 billion annual 
operating deficit. As of January 1, 2009, the fund had assets of $17 
billion (after a negative 30 percent return for 2008), liabilities of 
$36 billion, and a funded ratio of 48 percent. As of September 30, 
2009, the fund had assets of $19 billion (after a 21.9 percent return 
through September), liabilities of $36 billion, and a funded ratio of 
53 percent.
    Representatives from Central States have told the Department that, 
due to the large drop in active participants and 2008 investment 
losses, Central States is unlikely to recover without major structural 
reforms, some of which require legislative amendments.
    It is impossible for us to gauge the effect of not enacting the 
specific legislation before the committee, but we are concerned about 
the circumstances faced by plans like Central States. We want to work 
with the committee to determine the best solution to address the needs 
of multiemployer plans.

    Question 4. The Segal Group in its Winter 2010 survey found, ``data 
indicates, that over the next few years, 30 percent of the plans that 
are certified as green for 2010 could migrate into the yellow or red 
zones unless additional actions are taken.'' In light of this, please 
provide to the committee based upon 2008 data the number of 
multiemployer plans that have funding percentages below 10 percent, 20 
percent, 30 percent, 40 percent, 50 percent, 60 percent, 70 percent, 80 
percent, 90 percent and 100 percent.
    Answer 4. A complete set of 2008 Form 5500 data for all 
multiemployer plans is not yet available. Therefore, the following 
information is based on 2007 Form 5500 data.\2\
---------------------------------------------------------------------------
    \2\ 2008 was the last year of EFAST 1 and the first year for which 
schedule SB and MB were required. The IRS, EBSA, and PBGC weighed 
options for handling those data, taking into consideration funding 
constraints, and chose to limit the processing of those data to 
scanning to create images (pictorial data). Data from those schedules 
were not captured in the form required to enter them into the data base 
to support calculations.
---------------------------------------------------------------------------
     funding ratios of multiemployer defined benefit pension plans
Department of Labor Tabulations of Form 5500 Data for 2007
    Funding ratios were calculated using assets measured at market 
value.\3\
---------------------------------------------------------------------------
    \3\ The liability measure is taken from 2b(4) column (3). The asset 
measure used for the numerator of the funding ratio is taken from 
Schedule B, line 1b(1). Although the form 5500 data provide other 
assets measures, this is the only one that is required to be measured 
on the same valuation date used for liabilities.

     25 multiemployer plans, or 1.8 percent, are less than 40 
percent funded.
     80 multiemployer plans, or 5.9 percent, are less than 50 
percent funded.
     223 multiemployer plans, or 16.3 percent, are less than 60 
percent funded.
     528 multiemployer plans, or 38.7 percent, are less than 70 
percent funded.
     891 multiemployer plans, or 65.2 percent, are less than 80 
percent funded.
     1,127 multiemployer plans, or 82.5 percent, are less than 
90 percent funded.
     1,249 multiemployer plans, or 91.4 percent, are less than 
100 percent funded.
     117 multiemployer plans, or 8.6 percent, are more than 100 
percent funded.
     There are 1,366 multiemployer plans included in these 
calculations. Those represent all the multiemployer plans for which a 
funding ratio could be calculated.
     Another 98 multiemployer plans filed a form 5500 for 2007, 
but a funding ratio could not be calculated for them, usually because 
there was no Schedule B.
PBGC Tabulations of Form 5500 Data for 2007
    The PBGC conducts a similar analysis. Unlike the Department of 
Labor information presented above, the PBGC adjusts liabilities using 
its own interest factor and mortality assumptions. Additionally, the 
PBGC tabulations only include plans insured by the PBGC.

     38 multiemployer plans, or 2.5 percent, are less than 40 
percent funded. These plans contain approximately 211,000 participants, 
or 2.1 percent.
     99 multiemployer plans, or 6.5 percent, are less than 50 
percent funded. These plans contain approximately 986,000 participants, 
or 9.8 percent.
     288 multiemployer plans, or 18.9 percent, are less than 60 
percent funded. These plans contain approximately 1,799,000 
participants, or 17.9 percent.
     651 multiemployer plans, or 42.8 percent, are less than 70 
percent funded. These plans contain approximately 4,383,000 
participants, or 43.7 percent.
     1,079 multiemployer plans, or 70.9 percent, are less than 
80 percent funded. These plans contain approximately 6,915,000 
participants, or 68.9 percent.
     1,289 multiemployer plans, or 84.7 percent, are less than 
90 percent funded. These plans contain approximately 8,918,000 
participants, or 88.9 percent.
     1,405 multiemployer plans, or 92.3 percent, are less than 
100 percent funded. These plans contain approximately 9,727,000 
participants, or 97.0 percent.
     117 multiemployer plans, or 7.7 percent, are more than 100 
percent funded. These plans contain approximately 305,000 participants, 
or 3.0 percent.
     There are 1,522 multiemployer plans with approximately 
10,032,000 participants included in these calculations.

Source: Pension Benefit Guaranty Corporation, Pension Insurance Data 
Book 2009, forthcoming in the summer of 2010, Table M-13.

    Question 5. If the PBGC has calculated that its unfunded liability 
exposure may be as high as $4 billion by 2019, are the premium 
increases contained in S. 3157 sufficient to cover this anticipated 
potential liability for PBGC?
    Answer 5. In attempting to clarify the projected financial position 
of the multiemployer program, PBGC develops a range of possible 
scenarios. The 2009 Annual Report states that ``The median net-position 
outcome is a $2.4 billion deficit in 2019 (in present-value terms). 
This means that half of the simulations show either a smaller deficit 
than $2.4 billion or a surplus, and half of the simulations show a 
larger deficit. The mean outcome is a $4.0 billion deficit in 2019 (in 
present value terms).'' Page 16 of the 2009 Annual Report also includes 
a distribution of the potential 2019 financial position for the 
multiemployer program. This distribution shows a wide range of possible 
outcomes. For example, 5 percent of the simulations show a deficit of 
at least $14.5 billion. At the other extreme, 5 percent of the 
simulations show a surplus of at least $0.3 billion.
    The premium increase proposed in S. 3157 is designed to cover the 
cost of the increase in the maximum guarantee level in the legislation, 
not to cover the underlying deficit in the PBGC's multiemployer 
program.

    Question 6. Should any legislation to help the multiemployer 
pension system allow the PBGC to use monies from other trust funds 
overseen by the PBGC, for example using money from the single-
employer's trust fund?
    Answer 6. No. The single employer and multiemployer programs are 
separate programs by law. If Congress were to change that, we would be 
concerned about the impact on participants in single employer plans 
trusteed by the PBGC. Using monies from PBGC's single employer program 
only shifts the problem within PBGC while failing to improve workers 
retirement security.
    We need to make certain that any solutions protect the retirement 
security of workers and retirees and secure the PBGC's ability to 
continue to pay guaranteed benefits to all of the workers and retirees 
whose defined benefit plans it is responsible for insuring in both the 
single employer and multiemployer programs.

    Question 7. PBGC appears to already have authority to partition 
multiemployer pension plans. As of this date, it appears that no 
decision to partition the Central States plan has been made by PBGC or 
even broached with PBGC staff. If PBGC already has this authority under 
Section 4233 of ERISA, then should this forced partition contained in 
S. 3157 be necessary? What would happen if the language in S. 3157 were 
changed to allow all multiemployer plans to place their orphan plans 
with the PBGC?
    Answer 7. Current law (29 U.S.C. 1413) authorizes PBGC to grant a 
multiemployer plan partition relief if the plan satisfies four 
objective financial and actuarial tests. The Central States Plan has 
not asked PBGC to consider a current law partition because the Plan 
probably does not satisfy some or all of the tests in current law.
    Under current law, a multiemployer plan must show:

    1. Contributions have substantially fallen due to employer 
bankruptcies;
    2. The plan is likely to become insolvent--that is, the assets of 
the plan will fall to the point where the plan is unable to pay 
benefits guaranteed by PBGC (about $12,800 per year);
    3. The plan is or will be in reorganization, requiring significant 
increases in contributions to meet contribution requirements and 
prevent insolvency; and
    4. Partitioning the benefits of retirees and workers of the 
bankrupt companies would ``significantly reduce the likelihood'' that 
the remaining plan will become insolvent.

    If partition occurs, the transferred retirees and workers may not 
be paid their full promised plan benefits. The law specifies that they 
can receive no more than the PBGC-guaranteed benefit of $12,870 per 
year for 30 years of service.
    A current-law partition would result in benefits being limited to 
the PBGC-guarantee level rather than S. 3157's full plan benefits 
level, and we assume that is one reason the Plan is seeking legislative 
change.
    If S. 3157 were enacted in its current form to allow all 
multiemployer plans to partition and transfer orphan liabilities 
without any impact on participants' benefits amounts or employers' 
obligations, then we would expect that most plans would seek partition. 
Without new funding, the PBGC would not be able to absorb these 
liabilities.

    Question 8. The Pension Protection Act requires that multiemployer 
pension plans that enter the critical or endangered status [file a 
notice with the Department of Labor containing certain information 
about their financial condition.] The Department of Labor publishes 
these notices on its Web site. However, in discussions with actuaries 
it appears that letters from firms that entered the critical or 
endangered status are not posted on the Web site. Exactly how many 
letters has the Department received regarding critical or endangered 
status for 2008, 2009 and 2010?
    Answer 8. The Pension Protection Act of 2006 requires an Annual 
Actuarial Certification be made by the plan actuary to the Secretary of 
the Treasury and to the plan sponsor whether or not the plan is in 
endangered status (funding below 80 percent and funding deficiency 
farther out) or critical status (funding below 65 percent and a funding 
deficiency on the horizon, usually within 5-7 years) for the plan year. 
This must be completed no later than 90 days after the end of the plan 
year. If a plan is certified to be in endangered or critical status, 
notification of the endangered or critical status must be provided 
within 30 days after the date of certification to the participants and 
beneficiaries, the bargaining parties, the PBGC and the Secretary of 
Labor. WRERA permits a multiemployer plan sponsor to elect to 
temporarily freeze the plan at the prior year's status. The plan 
sponsor must provide notice of the election to the Department of Labor. 
Below is a chart that summarizes responses to the question.


------------------------------------------------------------------------
                                            2008           2009    2010
------------------------------------------------------------------------
Critical Status notices...........  102.................     140      27
Endangered Status notices.........  133.................     102      16
WRERA notices.....................  Not applicable......     320       3
------------------------------------------------------------------------

    The table summarizes the notices that had been received by the 
Department of Labor and posted on its Web site as of June 29, 2010. 
During this time of the year, however, many notices are arriving at the 
Department and being processed. There are approximately 200 additional 
notices currently in process that will be posted to the Web site in the 
near future.

    Question 9. Despite the EFAST system being implemented at the 
Department of Labor, there is a significant lag time from the end of a 
plan year to the filing of Form 5500's by plans with the Department. 
Should the PBGC be given authority to obtain financial information from 
a multiemployer plan, similar to the information PBGC can collect under 
ERISA Section 4010 for single employer plans, if it knows or suspects 
that a multiemployer plan is in endangered or critically underfunded 
status?
    Answer 9. Yes, PBGC should be given authority to obtain financial 
and pension-related information from multiemployer plans. In addition, 
Congress should re-instate the pre-Pension Protection Act section 4010 
reporting requirements for single employer plans.
    Under statutory provisions in Title I of ERISA, plan administrators 
have until 7 months after the end of the plan year to file the plan's 
Form 5500 annual report. An extension of up to 2\1/2\ months to file is 
also available by filing IRS Form 5558.
    While neither the Department nor the Administration have reached 
conclusions about specific reporting requirements, PBGC suggests that 
PBGC's ability to assess risk would be enhanced if multiemployer plans 
in critical and endangered status were required to provide the 
following information to PBGC within a reasonable time (perhaps 90 
days) after the end of the plan year:

    1. The asset and liability levels of the plan as of the end of the 
plan year;
    2. Any investment gains or losses experienced by the plan during 
the plan year;
    3. Total benefits paid during the plan year;
    4. Total contributions paid and required to be paid during the plan 
year; and
    5. A list of employers that ceased contributing to the plan, and 
for each such employer, the contributions made, and contribution base 
units for each of the prior 5-plan years.

    Plans should also be required to respond to PBGC requests for any 
additional information needed to assess the financial condition of the 
plan.

    Question 10. Back in 2005, I held a hearing on a fraud scheme 
perpetrated by Capital Consultants of Oregon on several multiemployer 
pension plans. Recently, the New York Local 147, the Sandhogs, was a 
victim of a $42 million fraud. Both of these frauds were done by 
insiders or close consultants to the multiemployer pension plans. In 
addition, the Department of Labor Inspector General's Office has 
highlighted many similar type frauds in recent years. What is the 
Department doing to ensure that multiemployer pension plans do not fall 
victim to insider-type fraud or fraud from consultants?
    Answer 10. Enforcement.--EBSA's Strategic Enforcement Plan (StEP) 
identifies and describes EBSA's national enforcement priorities and 
assists EBSA in leveraging its enforcement resources by emphasizing 
targeting, the protection of at-risk populations, and deterrence. The 
priorities identified in the StEP allow EBSA to focus its enforcement 
resources on issues and individuals where the most serious potential 
for ERISA violations exists and on situations that present the greatest 
potential for harm. EBSA emphasizes the protection of at-risk 
populations by seeking to identify situations and apply enforcement 
resources where there is the greatest danger of harm to security and 
livelihood of participant and beneficiaries as a result of violations 
of the law. Deterrence is obtained through the continuing effectiveness 
of EBSA's enforcement program; EBSA's criminal enforcement program is a 
key component of deterring violations.
    The StEP includes several national investigative priorities. One of 
these focuses on plan service providers. The term ``plan service 
provider'' refers to the range of businesses that provide services to 
employee benefit plans, such as third party administrators, 
accountants, attorneys, and actuaries. Plan service providers can also 
include financial institutions, such as banks, trust companies, 
investment management companies, and insurance companies. By 
concentrating on plan service providers, EBSA can obtain correction of 
ERISA violations that may involve many plans. Below we describe some 
recent major EBSA criminal investigations of consultants and other 
service providers who committed fraud against multiemployer pension 
plans. These examples not only display EBSA's determined pursuit of 
fraud against pension plans, but they also pose powerful deterrents to 
potential corrupt investment consultants and plan officials.
    EBSA conducts its investigations of both civil violations of Title 
I of ERISA and related criminal laws through its 15 regional and 
district offices around the country. EBSA's Office of Enforcement, 
located in the national office, provides policy leadership and 
coordinates the agency's enforcement program.
    EBSA's Regional Criminal Coordinators oversee the conduct of 
criminal investigations in every EBSA regional office. EBSA Criminal 
Coordinators and investigators consult with local U.S. Attorneys as 
early as possible in criminal investigations to determine whether there 
is interest by the U.S. Attorneys in the case and to receive any 
specific directions as may be necessary.
    In February 2010, John Orecchio, a co-owner and president of AA 
Capital Partners, Inc., pleaded guilty to embezzlement and wire fraud 
for his participation in a scheme that defrauded approximately $24 
million from six large ERISA-covered Taft-Hartley pension plans. On 
June 17, 2010, John Orecchio was sentenced to 112 months in prison 
followed by 3 years of supervised release. Orecchio was also ordered to 
pay restitution in the amount of $26,411,414 and a special assessment 
of $200.
    Orecchio had provided kickbacks to persuade the executive 
secretary-treasurer of the Michigan Regional Council of the Carpenters' 
Union, who was also the chairman of the Board of Directors of both the 
Detroit and Vicinity Carpenters Pension and Annuity funds, to hire AA 
Capital Partners. Among Orecchio's co-conspirators in the defrauding of 
the multiemployer pension funds was ``Roxy'' Jewett, the president of a 
company purporting to provide consulting services for the casino 
industry. Jewett has also pleaded guilty. EBSA worked together with the 
SEC, the Federal Bureau of Investigation and the Department of Labor's 
OIG to uncover the fraud and to prepare the criminal case against 
Orecchio and his cohorts.
    EBSA worked jointly with the Department's OIG in two other recent 
criminal cases out of Illinois that involved private consultants who 
defrauded multiemployer pension plans. Both cases, United States v. 
Michael G. Linder, et al. and United States v. Michael J. Brdecka, et 
al. resulted in successful, and widely-reported, prosecutions. In the 
first example, Michael Linder was the president of Joseph/Anthony and 
Associates, Inc., a third-party administrator for multiemployer pension 
plans. In June 2006, Linder pleaded guilty in Federal court to 
defrauding 11 local pension funds of $5 million and embezzling over 
$1.9 million from five local multiemployer pension and health and 
welfare plans. Earlier, in December 2004, Linder entered a guilty plea 
in which he admitted providing graft in the form of two Harley-Davidson 
motorcycles, worth over $19,000 apiece. He gave one motorcycle to a 
former business agent of Ironworkers 498 in Rockford and plan 
administrator for its pension funds, and the second to the former 
president of Machinery Movers Local 136, who served as a trustee of its 
benefit plans.
    Michael J. Brdecka, a Registered Investment Representative for 
Intersecurities, Inc. was sentenced in November 2006 to 3 years' 
probation, 6 months' home confinement with electronic monitoring, 200 
hours of community service, and a $15,000 fine, for his role in Michael 
Linder's kickback scheme involving several employee benefit plans. He 
had stated in his plea agreement that he paid kickbacks worth $9,700 to 
Linder because of Linder's relationships with two local multiemployer 
pension plans in Illinois, the Ironworkers Locals 136 and 498.
    Regulatory.--We believe that EBSA's current initiative to amend the 
ERISA regulatory definition of ``fiduciary'' will assist in protecting 
plans and enhancing EBSA's enforcement efforts in this area. The 
current regulatory definition of ``fiduciary'' was adopted in 1975, and 
has not been updated despite significant changes in plan practices, 
service arrangements, and the financial marketplace. Based on its 
experience, EBSA believes that this regulation may not adequately 
encompass service providers who exert significant influence over plan 
investment decisions, particularly with respect to 401(k) plans which 
did not even exist when the regulation was promulgated. EBSA intends to 
propose amendments to the regulation to re-define the types of advisory 
relationships that give rise to fiduciary duties on the part of those 
providing advisory services. Conferring fiduciary status on such 
persons will subject them to ERISA's strict fiduciary responsibility 
rules, and will enhance the ability of plans and EBSA to seek 
meaningful remedies for fiduciary violations.

    Question 11. The Employee Free Choice Act of 2009, S. 560, would 
allow for the use of an arbitration board if a collective bargaining 
agreement has not been reached within a certain period of time. Should 
an arbitration board be allowed to mandate that companies join 
multiemployer pension plans as part of a collective bargaining 
agreement?
    Answer 11. The Obama administration supports the Employee Free 
Choice Act. As we understand it, S. 560 does not amend ERISA and EBSA 
does not have an opinion on these provisions.

    Question 12. Do you believe that it is ethically correct for 
companies and their unionized employees be mandated to participate in 
``critically'' underfunded pension plans that have no hope of ever 
becoming fully funded?
    Answer 12. I support the right of employers and employee 
representatives to negotiate in good faith the terms of their 
collective bargaining agreement, consistent with labor law, including 
negotiating the contribution amounts for pension plans. Once the 
collective bargaining parties have reached an agreement, all parties 
have an obligation to follow the terms of the agreement.
    The underlying issue that we need to address is providing 
assistance and finding solutions to help underfunded pension plans. The 
Administration is sympathetic to providing short-term funding relief 
for multiemployer plans impacted by the economic downturn by extending 
the amortization period to fund the plans.\4\ As I discussed in my 
testimony, a small number of multiemployer plans, however, are facing 
severe long-term financial problems that short-term funding relief will 
not solve. The Department is examining proposals to help multiemployer 
plans keep their commitments to workers and retirees and address long-
term solvency issues.
---------------------------------------------------------------------------
    \4\ The ``Preservation of Access to Care for Medicare Beneficiaries 
and Pension Relief Act of 2010'' (P.L. 111-192), signed into law on 
June 25, contains short-term funding relief for multiemployer plans.
---------------------------------------------------------------------------
                            senator isakson
    Question 1. Under your understanding of S. 3157, is Central States 
the only multiemployer plan that could elect the partitioning option? 
If not, how many other plans could make such an election?
    Answer 1. Under the bill, a significant criterion for partition is 
that the plan be in critical status (``red zone'') or endangered status 
(``yellow zone''). Such plans must also: (i) have suffered a 
substantial reduction in contributions due to employer bankruptcies and 
other inability to collect the full amount of withdrawal liability; 
(ii) have at least a 2-to-1 ratio of inactive (retired and separated 
vested) to active participants (10-to-1 ratio for endangered status 
plans), and at least a 2-to-1 ratio of benefit payments to 
contributions; and (iii) be likely to become insolvent absent partition 
or significant contribution increases--an actuarial determination not 
subject to any prescribed assumptions.
    In addition to Central States, representatives of Central States 
informed the Department that the United Mine Workers 1974 Pension Plan 
(``UMW Plan'') may qualify for partition under S. 3157. We are unable 
to determine the plans that may qualify for the partition relief 
contained under S. 3157 taking into consideration all of the criteria 
for partition without additional data from plans.

    Question 2. Why has the Central States plan not been partitioned 
under current law?
    Answer 2. Current law (29 U.S.C. 1413) authorizes PBGC to grant a 
multiemployer plan partition relief if the plan satisfies four 
objective financial and actuarial tests. The Central States Plan has 
not asked PBGC to consider a current law partition because the Plan 
probably does not satisfy some or all of the tests in current law.
    Under current law, a multiemployer plan must show:

    1. Contributions have substantially fallen due to employer 
bankruptcies;
    2. The plan is likely to become insolvent--that is, the assets of 
the plan will fall to the point where the plan is unable to pay 
benefits guaranteed by PBGC (about $12,800 per year);
    3. The plan is or will be in reorganization, requiring significant 
increases in contributions to meet contribution requirements and 
prevent insolvency; and
    4. Partitioning the benefits of retirees and workers of the 
bankrupt companies would ``significantly reduce the likelihood'' that 
the remaining plan will become insolvent.

    If partition occurs, the transferred retirees and workers may not 
be paid their full promised plan benefits. The law specifies that they 
can receive no more than the PBGC-guaranteed benefit of $12,870 per 
year for 30 years of service.
    A current-law partition would result in benefits being limited to 
the PBGC-guarantee level rather than S. 3157's full plan benefits 
level, and we assume that is one reason the Plan is seeking legislative 
change.

    Question 3. What would the effect on the PBGC be if benefits 
payable to multiemployer pension plans participants taken over by the 
PBGC were increased as imagined in S. 3157?
    Answer 3. For non-partitioned plans, S. 3157 would increase the 
current maximum guarantee of $12,870 per year to $20,070 per year for a 
participant with 30 years of service. To finance this increase, the 
bill would increase the per participant annual premium rate from $9 in 
2010 (indexed for wage inflation), to $16 in 2011 (not indexed). PBGC's 
projections indicate that this premium increase would not cover the 
cost of the guarantee increase; the projections suggest that the 
premium should increase to approximately $18-20 (indexed for wage 
inflation) to cover the cost.
    For partitioned plans, S. 3157 would pay benefits at the full plan 
benefits level rather than the PBGC-guarantee level, adding to PBGC's 
multiemployer plan program deficit. Partition under S. 3157 would 
further impact PBGC's program. Although multiemployer plans themselves 
would continue to administer the partitioned plans under the bill, 
depending on how many plans were to seek partition under the new 
standards, PBGC's existing multiemployer program resources could be 
overwhelmed in reviewing partition applications, auditing requested 
outlays to ensure that the transfer to the partition plan includes only 
the orphan liabilities, and otherwise verifying that the correct amount 
of administrative costs are transferred. The PBGC's Multiemployer 
Program Division currently has six full-time employees and even if 
there are no changes to the partition rules, the program needs 
substantial additional staff to manage the growing workload under 
current law. Efforts are underway to address multiemployer staffing 
deficiencies by reallocating and retraining existing agency staff. 
During fiscal year 2009, PBGC paid $86 million in financial assistance 
into 43 insolvent plans. Over the next 5 years, PBGC expects 
approximately 50 additional multiemployer plans will become insolvent 
and require financial assistance.
    Apart from staffing issues, PBGC would remain obligated to pay 
millions of dollars in administrative costs each year to the 
partitioned plans. These expenses are paid from PBGC's multiemployer 
plan revolving trust fund, the assets of which come from multiemployer 
plan premiums. As an illustration of the magnitude of administrative 
costs, through only the first quarter of 2010, the Central States Plan 
reported expending almost $8.49 million in administrative costs. In the 
event of partition, the portion of these administrative costs 
attributable to the partitioned plan would be paid by PBGC through 
financial assistance.

    Question 4. As you understand S. 3157, would the act result in the 
``tearing down of the wall'' between PBGC funds and the general 
Treasury?
    Answer 4. As we read S. 3157, the bill would make the U.S. 
Government liable for PBGC's obligations arising from the partitioned 
plan, in contrast to all other single employer or multiemployer 
benefits guaranteed by PBGC. The bill would establish a ``Fifth Fund'' 
on the books of the U.S. Treasury to finance PBGC's obligations for 
partitioned multiemployer plans. The Fund would be credited with 
``funds made available to the corporation [PBGC] that are designated 
for special matters and the earnings thereon, including any amounts 
received in connection with a qualified partition. . . .'' The proposal 
permits this Fund to engage in transactions with other PBGC funds if 
needed to meet liquidity demands and to maximize PBGC's ability to 
accomplish its mission without increasing premiums. Other than this, 
the bill does not identify a funding source for the Fifth Fund and 
there is no explicit provision for Federal appropriations. However, the 
bill would pledge the full faith and credit of the United States, and 
therefore, it is not clear at the moment how the Fifth Fund would 
operate.
    The bill also prohibits PBGC from taking partitioned benefits into 
account when recommending premium increases for multiemployer plans to 
Congress.
    The provisions discussed above are of great concern to the 
Administration, and we would like to work with the committee to address 
these concerns in a practical and balanced manner.

    Question 5. Section 221(a) of the Pension Protection Act requires a 
study by the Department of Labor, the IRS, and the PBGC on the effect 
of PPA on small employers. It seems to me that this is a very important 
aspect with regard to the future of these plans--how the small employer 
is going to survive. Do you know the status of this study?
    Answer 5. Section 221(a) of the Pension Protection Act (PPA) 
requires the Department of Labor, the Department of the Treasury, and 
the PBGC to conduct a study of the effect of the PPA changes on the 
operation and funding status of multiemployer plans. A report of the 
results of the study, including any recommendations for legislation, is 
due to Congress not later than December 31, 2011. The matters required 
to be included in the study, among other issues, include the effect on 
small businesses participating in multiemployer plans of funding 
difficulties, funding rules in effect before the date of enactment of 
the PPA, and changes made by the PPA to the multiemployer plan funding 
rules. The Department agrees that this study will help inform the 
impact of the funding rules on multiemployer plans and small employers.
    The multiemployer plan funding rules under the PPA are generally 
effective for plan years beginning after 2007. While some of the data 
is available to conduct the study, information for plan year 2008 is 
not yet completed. Moreover, information for later plan years will be 
needed to provide a fuller picture of the impact of the PPA funding 
rules. The agencies are collaborating and will conduct the study and 
prepare the required report once the data is available.
   Response to Questions of Senator Enzi by Charles A. Jeszeck (GAO)
             U.S. Government Accountability Office,
                                      Washington, DC 20548,
                                                     June 28, 2012.
Hon. Michael Enzi, Ranking Member,
Committee on Health, Education, Labor, and Pensions,
U.S. Senate,
Washington, DC 20510.

    Dear Mr. Enzi: The enclosed information responds to the post-
hearing questions in your letter of June 11, 2010, concerning our May 
27, 2010, testimony before your committee on the status of 
multiemployer pension plans. If you have any questions or would like to 
discuss this information, please contact me at (202) 512-7215.
            Sincerely,
                           Charles Jeszcek, Acting Direcor,
                  Education, Workforce, and Income Security Issues.
                                 ______
                                 
    Question 1. What are the ramifications to the Central States plan, 
the companies contributing to the plan and to the workers and retirees 
if nothing is done?
    Answer 1. As noted in the hearing, the Central States plan does not 
currently qualify for partition from PBGC. If the Central States plan 
were to become insolvent, PBGC would provide loans to the plan so that 
it would be able to pay benefits to each eligible participant up to the 
guarantee limit of $12,870 for 30 years of service. In instances where 
participants' accrued benefits exceed the PBGC guaranteed benefit 
level, the plan would likely pay them a benefit lower than what they 
had accrued. In instances where the accrued benefit is less than the 
PBGC guarantee, participants would likely receive full benefits. 
Companies contributing to the plan would continue making contributions 
and retain their proportion of the withdrawal liability that they had 
accrued.

    Question 2. Since both PBGC trust funds are running deficits, why 
should the American taxpayer be on the hook for benefit costs of these 
retirees as envisioned by S. 3157?
    Answer 2. We have not analyzed S. 3157 and therefore cannot comment 
as to its effect on participants, including retirees, of PBGC insured 
defined benefit plans receiving the benefits promised to them by 
employers. Currently, in instances where PBGC lacks sufficient 
resources to provide financial assistance, the agency is authorized to 
receive up to $100 million in additional funds from the U.S. Treasury. 
As noted in my testimony, the multiemployer program poses less 
liability to the government and potentially the taxpayer, than the 
framework of the single employer program. However, long-term economic 
and other trends are generating fiscal pressures that will likely make 
it increasingly difficult for PBGC, which now faces an $869 million 
deficit in its multiemployer insurance program, to continue to provide 
the level of insurance protection currently promised to participants.

    Question 3a. In your testimony, you cite that since 2002 the number 
of retired and separately vested plan participants outnumbered active 
participants and that ratio will continue to get worse in the future. 
In other words, we now have an upside down system where the number of 
people contributing to the pool is smaller but the number of people 
receiving retirement benefits is growing. In the tax bills before the 
House and the Senate, there are provisions to grant funding relief for 
multiemployer pension plans that include upwards of 15 years to get 
back into the Green Zone funding status, provide up to 30 years to 
amortize losses and to grant up to 10 years to smooth those losses.
    Does this extremely long-term approach make any sense in light of 
the system being upside down?
    Answer 3a. We have not analyzed the legislative provisions referred 
to in the question. We have also not conducted any recent work 
examining the effects of alternative amortization schedules or the 
``smoothing'' of investment losses for multiemployer plans. Pensions 
are long-term arrangements that operate over many years, even decades. 
It is possible that there are situations where, properly structured, 
short-term funding relief may be warranted to help a plan recover from 
adverse economic conditions. However, some relief efforts could also 
result in discouraging employers from making contributions sufficient 
to improve a plan's funding status. This could increase a plan's 
unfunded liabilities, creating greater long-term funding pressures on 
the plan and on PBGC and heightening the risk that participants may not 
receive their full promised benefits. Ultimately, it is up to Congress 
to decide on policy that balances the risks to PBGC with the 
preservation of participant benefits.

    Question 3b. Would you recommend similar time periods for single 
employer plans?
    Answer 3b. Single-employer pension plans share many of the same 
challenges as their multiemployer counterparts. The same potential 
tradeoff between the possible need to provide short-term relief to help 
employers recover from adverse economic conditions versus the potential 
creation of incentives for employers to chronically underfund their 
plans over the longer term would be relevant. As stated above, it is up 
to Congress to decide on policy that balances the risks to PBGC with 
the preservation of participant benefits. Again, however, we have not 
conducted any recent work examining the effects of alternative 
amortization schedules or the ``smoothing'' of investment losses for 
multiemployer plans.

    Question 4. The Segal Group in its Winter 2010 survey found, ``data 
indicates, that over the next few years, 30 percent of the plans that 
are certified as green for 2010 could migrate into the yellow or red 
zones unless additional actions are taken.'' In light of this, please 
provide to the committee based upon 2008 data the number of 
multiemployer plans that have funding percentages below: 10 percent, 20 
percent, 30 percent, 40 percent, 50 percent, 60 percent, 70 percent, 80 
percent, 90 percent and 100 percent.
    Answer 4. We are conducting ongoing work on the funded status of 
multiemployer plans for another committee and we plan to report on the 
funded status of multiemployer pension plans later this year.

    Question 5. PBGC appears to already have authority to partition 
multiemployer pension plans. As of this date, it appears that no 
decision to partition the Central States plan has been made by PBGC or 
even broached with PBGC staff. If PBGC already has this authority under 
Section 4233 of ERISA, then should this forced partition contained in 
S. 3157 be necessary? What would happen if the language in S. 3157 were 
changed to allow all multiemployer plans to place their orphan plans 
with the PBGC?
    Answer 5. As was noted in the committee hearing on May 27, 2010, 
PBGC currently has partition authority. However, PBGC officials have 
determined that the Central States plan did not meet the agency's 
criteria for partition. Partitioning is one of the tools PBGC may rely 
on in working with the stakeholders of weakened multiemployer plans to 
protect the benefits promised to participants. We have not studied the 
consequences of revising PBGC's partitioning authority and are, 
therefore, unable to comment on the possible effects. We do note, 
however, that a historical strength of the multiemployer framework has 
been the continuation of the pension plan after some contributing 
employers have ceased operations or withdrawn from the plan, at 
comparatively little cost to PBGC and the taxpayer.

    Question 6. The Employee Free Choice Act of 2009, S. 560, would 
allow for the use of an arbitration board if a collective bargaining 
agreement has not been reached within a certain period of time. Should 
an arbitration board be allowed to mandate that companies join 
multiemployer pension plans as part of a collective bargaining 
agreement?
    Answer 6. We have not evaluated the use of arbitration boards and 
are therefore unable to comment on this issue.

    Question 7. Do you believe that it is ethically correct for 
companies and their unionized employees be mandated to participate in 
``critically'' underfunded pension plans that have no hope of ever 
becoming fully funded?
    Answer 7. We have not studied the consequences of requiring 
employers to participate in critically underfunded multiemployer 
pension plans and are, therefore, unable to comment on the possible 
effects of such a mandate.

    Question 8. Last year, Moody's, Barclay's, Standard and Poor's and 
Goldman Sachs all issued reports citing significant concerns with the 
multiemployer system. Moody's took the extra step and reviewed the Form 
5500's of 126 larger plans to find out the extent of the underfunding 
situation. In addition, just last month the Financial Accounting 
Standards Board authorized a new project to increase footnote 
disclosure for companies that participate in the multiemployer system. 
Has GAO undertaken a similar effort to find out the extent of the 
underfunding?
    Answer 8. As you know, we are conducting ongoing work on the funded 
status of multiemployer plans for another committee and plans to report 
on the funded status of multiemployer pension plans later this year.

    Question 9. Despite the EFAST system being implemented at the 
Department of Labor, there is a significant lag time from the end of a 
plan year to the filing of Form 5500's by plans with the Department. 
Should the PBGC be given authority to obtain financial information from 
a multiemployer plan, similar to the information PBGC can collect under 
ERISA Section 4010 for single employer plans, if it knows or suspects 
that a multiemployer plan is in endangered or critically underfunded 
status?
    Answer 9. We have commented on the timeliness and content of Form 
5500 data in previous reports and have been longstanding advocates of 
increased transparency and timely, understandable information regarding 
pensions.\1\ Under current rules, multiemployer plans must notify PBGC 
when they are in critical status (equal to or less than 80 percent 
funded) or endangered status (less than 65 percent funded). We plan to 
address data availability and timeliness in the ongoing work we are 
conducting for another committee.
---------------------------------------------------------------------------
    \1\ See GAO, Private Pensions: Additional Changes Could Improve 
Employee Benefit Plan Financial Reporting GAO-10-54 (Washington, DC: 
Nov. 5, 2009); Private Pensions: Government Actions Could Improve the 
Timeliness and Content of Form 5500 Pension Information GAO-05-491 
(Washington, DC: June 3, 2005); Private Pensions: Timely and Accurate 
Information Is Needed to Identify and Track Frozen Defined Benefit 
Plans GAO-04-200R (Washington, DC: Dec. 17, 2003); and Employee Benefit 
Plans: Efforts to Streamline Reporting Requirements and Improve 
Processing of Annual Plan Data GAO/HEHS-98-45R (Washington, DC: Nov. 
14, 1997).

    Question 10. Back in 2005, I held a hearing on a fraud scheme 
perpetrated by Capital Consultants of Oregon on several multiemployer 
pension plans. Recently, the New York Local 147, the Sandhogs, was a 
victim of a $42 million fraud. Both of these frauds were done by 
insiders or close consultants to the multiemployer pension plans. In 
addition, the Department of Labor's Inspector General's Office has 
highlighted many similar type frauds in recent years. Has the GAO 
undertaken any review of frauds perpetrated on multiemployer pension 
plans?
    Answer 10. We have not undertaken any review of frauds perpetrated 
on multiemployer plans. We currently have no plans to undertake such a 
review. However, at your request, and at the request of the committee, 
in 2007, we issued a comprehensive review of the Employee Benefit 
Security Administration's (EBSA) enforcement program.\2\ In that 
review, we found that EBSA had made improvements to its enforcement 
program, but additional actions were needed to enhance its oversight 
efforts. Specifically, we recommended that EBSA evaluate opportunities 
to conduct a more targeted, risk-based approach to enforcement, 
identify areas where its enforcement efforts are hampered by a lack of 
access to timely data, coordinate more formally with the Securities and 
Exchange Commission, and evaluate factors that may be affecting its 
ability to attract and retain qualified enforcement staff.
---------------------------------------------------------------------------
    \2\ See GAO, Employee Benefit Security Administration: Enforcement 
Improvements Made but Additional Actions Could Further Enhance Pension 
Plan Oversight GAO-07-22 (Washington, DC: Jan. 18, 2007).

    Question 11. With respect to the New York Local 147, the fraud took 
place over a 7-year period of time. The current plan administrator was 
the administrator for almost as long as the fraud took place. In 
addition, New York Carpenters Local 280 filed a suit against its 
trustees for being too heavily invested in one hedge fund in violation 
of the prudent investment standards of ERISA. Has the GAO undertaken 
any review of the knowledge and qualifications of administrators and 
trustees of multiemployer pension plans?
    Answer 11. We have not undertaken any review of the experience and 
qualifications of administrators and trustees of multiemployer plans.
        Response to Questions of Senator Enzi by Thomas C. Nyhan
    Question 1. What are the ramifications to the Central States plan, 
the companies contributing to the plan and to the workers and retirees 
if nothing is done?
    Answer 1. Required contribution rates for trucking employers in the 
Central States Pension Fund have doubled since 2003 and are set to 
reach $380 per week, or almost $9.50 per hour, for each active employee 
by the end of the current collective bargaining agreement. In addition, 
benefit accrual rates were cut in half, and various benefits were 
frozen, in 2004. Nonetheless, the Pension Fund is projected to be 
insolvent in the next 10 to 15 years. When that occurs, the PBGC will 
be required to provide financial assistance to the Fund to pay for the 
benefits of all participants up to the PBGC guaranty level.
    For both retirees and active workers, the insolvency of the Pension 
Fund will mean that retirement benefits that they depended on will be 
reduced even further. Under the current guarantee rules, a participant 
with 30 years of covered service will begin to lose benefits if his or 
her pension exceeds $3,960 per year, and the maximum guaranteed benefit 
is $12,870 per year. Active workers also will continue to see their 
jobs imperiled as their employers react to increases in required 
contributions to the Pension Fund.
    Faced with escalating contribution rates and substantial benefit 
losses, financially strong employers have a powerful incentive to 
withdraw from the Plan as soon as possible, and their active workers 
have an incentive to agree to their withdrawal. Thus, the pension 
plan's long-term problems result in employer withdrawals now that seal 
the pension plan's fate forever.
    This is not mere theory. Seventy major employers in the Pension 
Fund have bargained out of the Fund or gone bankrupt in the last 24 
months. YRC Worldwide, which was the largest employer in the Pension 
Fund until July 9, 2009, has temporarily suspended contributions under 
all of its multiemployer plans, costing the Pension Fund nearly one-
third of its ongoing contributions. YRC is due to resume contributions 
to its multiemployer plans on January 1, 2011. If, instead, YRC fails, 
the effect on the multiemployer plans to which it contributed, and on 
the financial viability of the remaining employers in those plans, will 
be devastating. At YRC alone, approximately 36,000 jobs hang in the 
balance in 2010, and at many of the remaining employers, tens of 
thousands of jobs are immediately at risk, as well. Many of the 
multiemployer plans to which YRC contributed will face insolvency, 
jeopardizing hundreds of thousands of retirees' pensions.
    Those employers that cannot afford to withdraw or otherwise 
continue to contribute to the Pension Fund will find that they are at a 
severe competitive disadvantage against those companies that do not 
have to contribute to the Pension Fund or a similar plan. In many 
instances, these contributing employers will be forced out of business, 
causing catastrophic job losses. These employer failures, combined with 
employer withdrawals, would accelerate the insolvency date of the 
Pension Fund.

    Question 2. The Segal Group in its Winter 2010 survey found ``data 
indicates, that over the next few years, 30 percent of the plans that 
are certified as green for 2010 could migrate into the yellow or red 
zones unless additional actions are taken.'' Do you believe that it is 
ethically correct for companies and their unionized employees be 
mandated to participate in ``critically'' underfunded pension plans 
that have no hope of ever becoming fully funded?
    Answer 2. For most multiemployer plans, being in the red or yellow 
zone is not a permanent status. The Pension Protection Act, which 
instituted this zone status concept, gives most of these plans the 
tools to eventually become fully funded.
    For a very small number of plans like the Pension Fund, however, 
the tools provided by the PPA do not alone provide a way to financial 
stability. These are funds where a substantial number of employers have 
gone out of business without paying their share of the plan's unfunded 
benefits. To the extent that the Pension Fund cannot collect the full 
amount of withdrawal liability from an employer that went out of 
business, the remaining employers assume responsibility for funding the 
unpaid amount. In effect, the remaining employers have to fund the 
benefits of employees that never worked for them (and, in many cases, 
actually worked for a competitor). For these funds, the partition 
proposal is the only way to financial health, because it removes from 
the plan liability for pensions of participants whose employers left 
the fund without fully funding their share of liability.
    Without the ability to have these liabilities partitioned, a 
contributing employer is faced with a Hobson's choice: continue to make 
unaffordable contributions to the plan to pay for the benefits of 
individuals that never worked for the employer (and probably worked for 
a competitor), or withdraw from the plan and trigger unafford-
able withdrawal liability. Partition provides a third choice where, 
after the partition of a multiemployer plan, the employer can remain in 
the plan and make more affordable contributions to the plan that will 
fund the retirement benefits of its employees.
    There is no mandate that an employer participate in a multiemployer 
pension plan--participation in a multiemployer plan is the result of 
the collective bargaining process between the companies and a union. 
That said, many employers joined plans like the Pension Fund before 
Congress deregulated the trucking industry in 1980 and before Congress 
imposed employer withdrawal liability, also in 1980. Since 1980, over 
600 trucking companies in the Pension Fund have filed for bankruptcy 
and thousands of others have simply gone out of business without filing 
for bankruptcy or paying for their share of the Fund's vested benefits. 
The remaining approximately 2,000 employers, 9 out of 10 of whom have 
fewer than 50 employees, do not believe it is ethically correct to 
require them to continue to sacrifice their businesses and their 
employees' jobs to pay for the pensions of their defunct competitors' 
employees. They feel this is especially inappropriate in view of the 
fact that the PBGC has for over 35 years assumed the cost of guaranteed 
benefits when a corporation can no longer afford to maintain a single-
employer defined benefit plan.

    Question 3. Despite the EFAST system being implemented at the 
Department of Labor, there is a significant lag time from the end of a 
plan year to the filing of Form 5500's by plans with the Department. 
Should the PBGC be given authority to obtain financial information from 
a multiemployer plan, similar to the information PBGC can collect under 
ERISA Section 4010 for single employer plans, if it knows or suspects 
that a multiemployer plan is in endangered or critically underfunded 
status?
    Answer 3. Under the PPA, a multiemployer plan must notify the PBGC, 
as well as plan participants and beneficiaries and bargaining parties, 
when it will be in critical or endangered status for a plan year. This 
notice is given not later than 30 days after the date of the annual 
certification of the plan's status by the plan's actuary, which, in 
turn, must be made no later than the 90th day of each plan year. 
Consequently, the PBGC will know whether a multiemployer plan is in 
critical status within the first 120 days of the plan year in 
question--a point in time far earlier than the ERISA  4010 reporting 
date for single employer plans. PBGC can then review the Form 5500 when 
it is filed after the end of the plan year, or ask the plan to provide 
information relevant to its situation. We note in this regard that the 
Pension Fund has provided PBGC volumes of information in response to 
PBGC requests, and has volunteered additional information. In the 
unlikely event a multiemployer plan refuses to provide the PBGC 
information it needs, the PBGC has subpoena power under section 4003 of 
ERISA.
    In its single-employer plan program, the PBGC sometimes initiates 
an involuntary termination of a plan to prevent an increase in 
potential losses for the agency. PBGC needs information quickly for 
this purpose, because the sooner that the PBGC receives information 
about the financial status of the plan, the sooner the PBGC can act to 
protect itself. The PBGC does not initiate involuntary terminations of 
multiemployer plans, so the earlier submission of information by a 
multiemployer plan will not provide the PBGC with any additional tools 
to mitigate additional liabilities.
    We believe that, under current law, the PBGC receives information 
about the financial status of multiemployer plans in a timely fashion 
and that additional information similar to that required by the PBGC of 
single employer plans is not necessary. Requiring multiemployer plans 
to make Section 4010 filings would impose a substantial additional cost 
on multiemployer plans without conferring a substantial additional 
benefit on the PBGC (just as would be the case if single employer plans 
were required to make the filings multiemployer plans must make under 
the PPA). While it is important that the PBGC be informed about the 
funding status of the multiemployer plans, the costs of requiring 
additional financial information must be weighed against what the PBGC 
can do with that additional information.

    Question 4. Currently, S. 3157 contains provisions that allow for 
the partition to happen but only supplies monies to cover the first 5 
years. In year 6 and on into the future, the PBGC is expected to take 
over the costs from its Multiemployer Trust Fund and if that runs out 
of money then from PBGC's other trust fund and eventually the costs are 
backed by the Federal Government. Since both PBGC trust funds are 
running deficits, why should the American taxpayer be on the hook for 
benefit costs of these retirees as envisioned by S. 3157?
    Answer 4. The PBGC already is legally obligated to provide 
financial assistance to multiemployer plans when they become insolvent. 
That financial assistance results in plan participants' retirement 
benefits being guaranteed up to the PBGC's multiemployer guaranty 
amount. While the PBGC's guaranty is not a general obligation of the 
Federal Government, Congress has never allowed an agency of the Federal 
Government to default, and to do so here would cost hundreds of 
thousands of retired U.S. citizens' retirement income upon which they 
depend.
    The partition proposal envisioned by S. 3157 would reduce, not 
increase, the PBGC's ultimate liability for these multiemployer plans. 
Without the partition, the Pension Fund will become insolvent in 10 to 
15 years and the PBGC will have to step in and provide financial 
assistance to fund the guaranteed pensions of all of the participants 
in the Pension Fund. With the partition, the PBGC will be obligated 
only to fund the partitioned portion of the plan and--relieved of the 
cost of providing pensions to the former employees of defunct 
employers--the remaining Pension Fund is projected to remain solvent 
throughout the 30-year projection period. Thus, with partition, the 
PBGC will not have to provide financial assistance to all of the 
participants in the plan. We believe that the U.S. taxpayer is better 
served by having financially healthy multiemployer plans and lower 
claims on the PBGC.\1\
---------------------------------------------------------------------------
    \1\ We do not believe that S. 3157 was intended to back PBGC's 
multiemployer guarantee with assets in PBGC's single-employer trust 
fund and, in any event, we do not believe that would be appropriate.
---------------------------------------------------------------------------
       Response to Questions of Senator Enzi by Randy G. DeFrehn
    Question 1. What are the ramifications to the Central States plan, 
the companies contributing to the plan and to the workers and retirees 
if nothing is done?
    Answer 1. Failure to act in a timely way will have significant 
negative implications for all of the plan's stakeholders and the PBGC. 
The first group to be immediately affected will be the contributing 
employers, whose increased contributions to meet the terms of the 
plan's rehabilitation plan would render them non-competitive. Because 
contributions to the plan are a function of hours worked, when 
employers are unsuccessful in bidding for work, a decline in 
contributions that fund the plan would further exacerbate the decline 
in invested assets. The largest and most visible such company is YRCW. 
Assuming that it returns to the fund as a contributor in January, its 
financial status is reportedly so tenuous that the expected 
contribution increase could be sufficient to drive it into bankruptcy, 
costing over 40,000 employees not only their benefit security, but 
their jobs as well.
    Furthermore, were YRCW and other similarly situated employers to 
exit the plan without sufficient assets to pay their withdrawal 
liability (as would likely be the case in bankruptcy) the unfunded 
liabilities would be redistributed among the remaining employers. As 
the second largest multiemployer plan in the Nation, inaction would 
have implications that reach far beyond that plan alone. The thousands 
of employers that contribute to the Central States plan cover a broad 
array of industries in addition to trucking including (among others) 
retail food, agriculture and dairy, and construction, many of which 
have historically thin profit margins. Many also contribute to other 
plans in their primary industries, more than a few of which also will 
require contribution increases to meet their own funding targets. In 
combination, these additional costs will further threaten the 
competitiveness of such common employers, if not their financial 
viability. Under existing law, to the extent the remaining employers 
are unable to fund these obligations these liabilities will become the 
responsibility of the PBGC once the plan becomes insolvent.
    Were the Casey bill to be promptly enacted, it would protect the 
participants and employers of that portion of the plan that would be 
partitioned by enabling them to continue to participate in a viable 
plan, receive benefits as earned and keep the remaining employers from 
paying presumably massive withdrawal liability payments. Moreover, 
because these are liabilities that otherwise must be paid by the PBGC, 
it would reduce the agency's liabilities accordingly. As noted above, 
however, in order for these objectives to be met action will need to be 
taken promptly, before the remaining employers decide to exit the plan 
through individual withdrawals or through a mass withdrawal.

    Question 2. The Segal Group in its' Winter 2010 survey found, 
``data indicates, that over the next few years, 30 percent of the plans 
that are certified as green for 2010 could migrate into the yellow or 
red zones unless additional actions are taken.'' Do you believe that it 
is ethically correct for companies and their unionized employees be 
mandated to participate in ``critically'' underfunded pension plans 
that have no hope of ever becoming fully funded?
    Answer 2. While the findings of the Segal Company indicate a 
continued decline in the funded status of plans ``unless additional 
actions are taken'' the purpose of the Pension Protection Act (PPA) was 
precisely to ensure that plans do take action and that they use the 
tools with which they can successfully emerge from either endangered or 
critical status. For the past 60 years multiemployer plans have 
provided secure retirement benefits to tens of millions of working 
Americans and have experienced fluctuating funding levels. As these 
plans are funded pursuant to contributions negotiated in collective 
bargaining through contracts that span from 3 to 5 years, the parties 
have traditionally allocated additional contributions to shore up the 
funded positions of plans as economic conditions required. This 
practice is further evidenced by their behavior following the market 
contraction or, as it is often described the bursting of the ``tech 
bubble'' in the early part of this decade. However, in an overly 
aggressive response to the collapse of the steel industry, airline 
deregulation and bankruptcy rules that made it far too easy for 
companies to off-load their pension obligations to the PBGC, all of 
which caused a number of large single employer plans to default to the 
PBGC, the PPA set overly aggressive short-term funding targets for the 
long-term obligations of funding future benefits.
    Despite suffering losses ranging from 15 percent to 25 percent, 
plan fiduciaries and bargaining parties rolled back benefits and 
increased funding sufficiently that the average funded position of 
multiemployer defined benefit pension plans leading into the 2008 
economic crisis was greater than 90 percent.
    In fact, looking back to the passage of ERISA's pre-funding 
requirements in 1974, most plans had been operated on a pay-as-you-go 
basis with few assets set aside to fund future benefits. Many had 
forecast at the time that the combination of the pre-funding 
requirements and the subsequent imposition of withdrawal liability 
would spell the end of defined benefit plans generally and 
multiemployer plans, specifically. Nevertheless, through careful 
attention to benefit and administrative expense management and prudent 
investment policies, unfunded liabilities became a distant memory for 
nearly all plans by the end of the 1980's and by the mid-1990's over 70 
percent of all multiemployer plans were overfunded and had to increase 
benefits to protect the current deductibility of employer contributions 
that were otherwise required by collective bargaining agreements.
    With rare exceptions, nearly all of which can be traced to 
influences beyond the structure of multiemployer plans, these plans are 
in no danger of failing to meet their ongoing obligations to pensioners 
and beneficiaries, and they will be able to meet their obligations to 
active employees, many of which will not become payable for decades, if 
they are given additional time along the lines of the funding relief 
signed into law last week by the President. In fact, it is only 
reasonable to expect the parties to take all reasonable actions to 
return these plans to a firm financial footing.
    Finally, with respect to whether it is ethical to require employers 
and employees to continue to participate in critical status plans with 
no hopes of becoming fully funded, the PPA sets forth specific 
procedures for plans that are not capable of emerging from critical 
status that would defer the date of insolvency and ERISA provides 
mechanisms for the withdrawal of any employer from a multiemployer plan 
which balances the need to fund promised benefits with an employer's 
ability to pay.

    Question 3. Since both PBGC trust funds are running deficits, why 
should the American taxpayer be on the hook for benefit costs of these 
retirees as envisioned by S. 3157?
    Answer 3. The point is that the PBGC already has responsibility to 
assume liabilities of insolvent plans that are unable to meet their 
obligations to plan participants. Inasmuch as S. 3157 provides for the 
partition of plans that by definition are projected to be insolvent, it 
does exactly the opposite, by enabling portions of the plan that, 
through partition, can remain solvent to remain the responsibility of 
the remaining contributing employers, thereby reducing the exposure of 
the PBGC.

    Question 4. Despite the EFAST system being implemented at the 
Department of Labor, there is a significant lag time from the end of a 
plan year to the filing of Form 5500's by plans with the Department. 
Should the PBGC be given authority to obtain financial information from 
a multiemployer plan, similar to the information PBGC can collect under 
ERISA Section 4010 for single employer plans, if it knows or suspects 
that a multiemployer plan is in endangered or critically underfunded 
status?
    Answer 4. Actually, the information regarding zone certifications 
(due within 90 days of the beginning of the plan year) from each plan 
determined to be in either endangered or critical status pursuant to 
the PPA is required to be shared with the PBGC. This information is 
based on the most current information and is prepared even before the 
plan audit can be completed. The potential for inconsistencies between 
zone certification data and audited numbers to be reported on the Form 
5500 were raised during the development of the PPA, but the quest for 
current information was deemed more important than its accuracy. No 
more current information is available, therefore, any additional 
reporting requirements would be unlikely to produce any more reliable 
information.

    Question 5. In your testimony you came out strongly in favor of S. 
3157 even though the partition relief would only apply to 2 or 3 
pension plans. Over the past couple of years, nearly 400 letters have 
been filed by plans with the Department of Labor indicating that the 
plans are in endangered or critical status. Will we see more plans 
seeking partition relief in the future? How much say should the PBGC 
have in the approval of mergers and alliances as contemplated by S. 
3157? Should the PBGC have the authority to veto any merger or alliance 
that is not beneficial?
    Answer 5. While there may be a few smaller plans that ultimately 
seek partition, it is unlikely this will be a direction chosen by many 
plans. The criteria have been intentionally designed quite narrowly and 
access is only available to plans that are projected to be insolvent. 
While plans have fallen into the endangered and critical status, they 
have done so as a direct result of the decline in the investment 
markets (see: ``Multiemployer Pension Plans: Main Street's Invisible 
Victims of the Great Recession of 2008'' by Randy DeFrehn and Joshua 
Shapiro, April 2010). Because of their statutory joint management 
structure, both employers and the union representatives in these plans 
have a vested interest in their long-term viability and success. As 
noted above, plans are likely to regain their financial footing as the 
economy improves and both interest rates and investment returns begin 
to return to more normal historical rates.
    With respect to mergers and alliances, plans considering mergers 
must be careful to comply with their fiduciary obligations (including 
the personal liabilities which fiduciaries assume as part of their 
responsibilities) and are unlikely to propose such an arrangement if it 
could be construed as detrimental to either of the pre-merger plans. 
Additionally, the PBGC currently has the ability to review proposed 
mergers and raise concerns if they determine the merger to be 
potentially problematic. For the types of mergers or alliances 
envisioned in S. 3157 which could directly involve having the agency 
provide financial assistance in order to make the merger of a plan that 
would, but for the merger, become insolvent and therefore a plan for 
which the PBGC will ultimately assume full responsibility for any 
unfunded liabilities, the agency should have both input and the 
authority to facilitate such a merger when it is determined to be in 
the best interests of the participants and the PBGC.

    Question 6. The Employee Free Choice Act of 2009, S. 560, would 
allow for the use of an arbitration board if a collative bargaining 
agreement has not been reached within a certain period of time. Should 
an arbitration board be allowed to mandate that companies join 
multiemployer pension plans as part of a collective bargaining 
agreement?
    Answer 6. While I am not directly familiar with nor do I have any 
position regarding The Employee Free Choice Act of 2009 as proposed, if 
such a provision were to survive the legislative process, presumably 
the arbitrator would have to make his/her decision based on the facts 
and circumstances presented by the bargaining parties and the specifics 
of the plan in question. Whereas the ``free-look'' provisions provided 
under ERISA and offered by many plans could enable a new employer to 
make contributions to the plan on behalf of covered participants for a 
period of up to 5 years without assuming any broader, long-term 
liabilities, it may be conceivable that an arbitrator could require 
contributions for shorter periods without exposing the employer to 
unnecessary risk. The intent of ERISA's free-look provisions is 
precisely to enable employers to gain experience with multiemployer 
plans without assuming that additional risk.
    For other plans, especially construction industry plans for which 
the adoption of ``free-look'' is optional, it is difficult to envision 
a situation wherein a competent arbitrator would order an employer to 
assume unreasonable liabilities as part of an initial collective 
bargaining agreement; however, it seems reasonable that as the statute 
moves through the legislative process, safeguards could be included to 
require arbitrators to take such factors into consideration.
      Response to Questions of Senator Enzi by John McGowan (PBGC)
    Question 1. What statistical analysis has the PBGC conducted on S. 
3157 regarding the proposed Central States partition, and if no 
analysis has been done, then why?
    Answer 1. We have done extensive actuarial analysis of the Central 
States proposal, including building a special model to help us 
understand the financial impact of the proposal. PBGC's current 
multiemployer deficit is less than $1 billion. As proposed, S. 3157 
could increase this deficit very substantially.
    In light of the potential impacts, we are conducting extensive, in-
depth analysis that will permit us to test the assumptions and the 
estimates that Central States and others have provided to:

     Reproduce their results;
     Appraise the reasonableness of their analysis; and
     Use our model to generate additional results if there are 
areas where we have differences of opinions about their assumptions or 
methods.

    Question 2. At the hearing, Mr. Nyhan for Central States stated 
that they were in the process of supplying all of the information 
requested by the PBGC to help the agency undertake its analysis of 
partition proposal and to make Central States' actuary available to 
answer PBGC staff questions. Does the PBGC have any outstanding data/
information requests with Central States? Has the PBGC talked with 
Central States' actuary?
    Answer 2. Yes. We initially met with Central States, its outside 
counsel, and its consulting actuaries at the end of April to discuss 
their analysis. We subsequently made several information requests to 
Central States which they responded to. In early June, we requested an 
opportunity to meet with the plan's consulting actuaries, The Segal 
Company. Several PBGC actuaries and the Segal actuaries responsible for 
the analysis met on June 24 in New York in order to better understand 
the data, assumptions, and methods that they had used. Some progress 
was made and additional information was requested relative to: (a) the 
sensitivity of the results to certain key assumptions, (b) the plan's 
projected cash flows and their key components, and (c) a consolidated 
seriatim data-base of participants in the on-going plan and the 
partitioned plan. We have recently received item (c) and expect to have 
items (a) and (b) in the near future. We will then schedule another 
meeting of the actuaries later this month.

    Question 3. Has the PBGC conducted an analysis of the effects of 
nearly doubling, retroactively, the benefits insurance coverage for 
multiemployer pension plans participants taken over by the PBGC?
    Answer 3. For non-partitioned plans, S. 3157 would increase the 
current maximum guarantee of $12,870 per year to $20,070 per year for a 
participant with 30 years of service. To finance this increase, the 
bill would raise the per participant annual premium rate from $9 in 
2010 (indexed), to $16 in 2011 (not indexed). PBGC's projections 
indicate that this premium increase would not cover the cost of the 
guarantee increase; the projections suggest that the premium should 
increase to approximately $18-20 (indexed) to cover the cost.
    PBGC's projections do not take into account the possibility that 
increasing benefit guarantees may lower the incentives for plans to 
remain in the multiemployer program, particularly those plans that 
provide benefits between the current and proposed higher guarantee 
levels. In such cases, it would be more costly to the bargaining 
parties to negotiate higher contributions than to terminate the plan 
knowing that all or most of the participants' benefits will be 
guaranteed.

    Question 4. Recently, the PBGC released its Annual Report stating 
that the agency's possible liability exposure to multiemployer plan 
underfunded could run as high as $4 billion by 2019. Will the premium 
increases in the bill be enough money to cover these possible 
anticipated losses?
    Answer 4. In attempting to clarify the projected financial position 
of the multiemployer program, PBGC develops a range of possible 
scenarios. The 2009 Annual Report states that ``The median net-position 
outcome is a $2.4 billion deficit in 2019 (in present-value terms). 
This means that half of the simulations show either a smaller deficit 
than $2.4 billion or a surplus, and half of the simulations show a 
larger deficit. The mean outcome is a $4.0 billion deficit in 2019 (in 
present value terms).'' Page 16 of the 2009 Annual Report also includes 
a distribution of the potential 2019 financial position for the 
multiemployer program. This distribution shows a wide range of possible 
outcomes. For example, 5 percent of the simulations show a deficit of 
at least $14.5 billion. At the other extreme, 5 percent of the 
simulations show a surplus of at least $0.3 billion.
    The premium increase proposed in S. 3157 is designed to cover the 
cost of the increase in the maximum guarantee level in the legislation, 
not to cover the underlying deficit in the PBGC's multiemployer 
program.
        Response to Questions of Senator Enzi by Norman P. Stein
    Question 1. What are the ramifications to the Central States plan, 
the companies contributing to the plan and to the workers and retirees 
if nothing is done?
    Answer 1. The answer to this is of course complex and depends in 
part on future events. The worst case problem would be that the 
remaining employers will shoulder an increasing financial burden to 
support the plan, placing enormous stress on them and perhaps 
bankrupting firms whose business would otherwise be profitable; a 
failure of the plan, with severe benefit reductions for participants; 
and a weakening of the PBGC's financial strength.

    Question 2. The Segal Group in its' Winter 2010 survey found, 
``data indicates, that over the next few years, 30 percent of the plans 
that are certified as green for 2010 could migrate into the yellow or 
red zones unless additional actions are taken.'' Do you believe that it 
is ethically correct for companies and their unionized employees be 
mandated to participate in ``critically'' underfunded pension plans 
that have no hope of ever becoming fully funded?
    Answer 2. This question raises interesting issues about the 
relationship between firms and organized labor; the obligations of 
firms and organized labor to older workers and retirees and to what 
extent those obligations terminate at the end of employment (and 
whether there is an implied debtor/creditor relationship because of the 
unfunded plan between the employer and retirees); the relationship 
between different age cohorts of workers to each other; and whether 
there was an implicit undertaking for some employers to take on 
industry-wide rather than firm-specific burdens. Also in the mix is the 
responsibility of current participating employers to other former 
contributing firms (some of which are now bankrupt).
    Depending on how one resolves these issues, one could plausibly 
consider it ethically questionable for existing firms and current 
employees to continue to participate in the funds. The way I view these 
issues, I do not believe it is unethical. Let me explain at least part 
of my view: current workers presumably can leave employment if they 
believe that their individual wage packages are inadequate, whether 
because of their employer's funding obligations or other factors. If 
the employees can do better, I assume they will change jobs, unless 
perhaps they value the knowledge that their bargaining representative 
does not abandon individuals after they approach retirement age or 
after they retire. I believe it is ethical for employers to keep their 
implicit bargain to their former employees, even when they are legally 
free to breach that bargain. The more significant issue may be more 
economic rather than ethical: whether certain employers can survive if 
their financial obligations to the plan become too steep to afford 
wages (immediate and fringe) to current employees and legacy 
obligations to their plan. Of course tied into this is the PBGC's own 
status--there will be consequences to the PBGC if firms are not 
required to participate.

    Question 3. Since both PBGC trust funds are running deficits, why 
should the American taxpayer be on the hook for benefit costs of these 
retirees as envisioned by S. 3157?
    Answer 3. There are two responses to this question, one of which 
may require a comparison of different estimated costs and others may 
require some speculation about our national economy and the role played 
by industries that would receive assistance under the legislation. I 
also want to note that there were aspects of the legislation that I do 
not support--especially the notion that benefits of ``orphaned'' 
participants would remain fully guaranteed if the remaining 
participants in the remaining plan later have their benefits reduced 
under Title IV of ERISA.
    The first response is whether the legislation (particularly if 
adjusted in the way suggested by the previous paragraph) will cost the 
PBGC more than if the plan becomes insolvent. If the legislation 
rescues the parent plan and the costs of the plan for the ``orphaned'' 
participants are lower than the costs of the overall plan failing, it 
will be a net cost saving.
    The second response is that the costs might help preserve critical 
sectors of the economy--such as the transportation and mineral 
extraction--or at least spare the country substantial economic 
disruptions in these industries to the extent that future contribution 
obligations will result in a wave of corporate failures.

    Question 4. Despite the EFAST system being implemented at the 
Department of Labor, there is a significant lag time from the end of a 
plan year to the filing of Form 5500's by plans with the Department. 
Should the PBGC be given authority to obtain financial information from 
a multiemployer plan, similar to the information PBGC can collect under 
ERISA Section 4010 for single employer plans, if it knows or suspects 
that a multiemployer plan is in endangered or critically underfunded 
status?
    Answer 4. My initial thought is that this would be worthwhile, 
assuming that the PBGC would benefit from earlier information and that 
the informational benefit to the PBGC does not outweigh the additional 
administrative burden on the plans. I realize that this answer somewhat 
sidesteps the question, but the empirical information needed to give a 
more definitive answer is outside my areas of experience. My answer is 
a resounding, but highly qualified, yes.

    Question 5. Just last month, you authored an article regarding 
pension funding relief for single employer plans. In that article you 
state,

          ``A pension relief bill is the proverbial `Dutch boy' 
        plugging holes in the dike. It is a short-term solution for one 
        small part of the long-term problem of the retirement 
        insecurity that this Nation faces.''

    In your statement, you urge the repeal of the Pension Protection 
Act provision that stops benefit accruals for multiemployer pension 
plans that are critically underfunded, in the Red Zone. Generally, when 
I'm in a hole I stop digging when the hole is about to collapse on top 
of me. Why should benefits be allowed to accrue when there is no money 
to pay for them? And, as we heard previously that there are more 
retirees in the system than workers, who is going to pay for them?
    Answer 5. I have three responses:

     First, the parties to the plan do have authority to stop 
accruals, but there are other ways to deal with plan underfunding. The 
government should not mandate cessation of accruals, but should leave 
the issue of how to deal with underfunded plans with the responsible 
parties. Sometimes the only option is to stop digging, but that only 
takes a plan amendment, not a government mandate.
     Second, and related, the law could be amended to provide 
that new accruals under a seriously underfunded plan will be permitted 
but not be guaranteed by the PBGC until such future time as the plan 
achieves a satisfactory funding level. This would allow employees to 
share the risks of plan underfunding without creating potential 
liability to the PBGC. It would also facilitate the employer and 
employees jointly assuming both the risk and reward of the firm's 
future performance, which in theory, at least, might enhance worker 
productivity and strongly align the interests of shareholders and 
workers. (Such an approach would have to be combined with a funding 
regime that assures that contributions are dedicated to amortize past 
liabilities until they reach a comfortable level of funding.)
    I have previously spoken in favor of this approach, which protects 
the PBGC while allowing maximum bargaining flexibility to the firm and 
its workers. And of course, even if the law were so amended, the 
parties would still be free to amend a plan to eliminate future 
accruals if they wished. I have given some thought to how such 
legislation might be shaped and would be delighted to discuss these 
ideas with Senator Enzi or the committee,
     Third, parity suggests that if a cutback of accruals is 
automatic, then the benefits should automatically be restored in the 
future if the plan and firm's financial health sufficiently improve.

    Question 6. Currently, S. 3157 contains provisions that allow for 
the partition to happen but only supplies monies to cover the first 5 
years. In year 6 and on into the future, the PBGC is expected to take 
over the costs from its Multiemployer Trust Fund and if that runs out 
of money then from PBGC's other trust fund and eventually the costs are 
backed by the Federal Government. Since both PBGC trust funds are 
running deficits, why should the American taxpayer be on the hook for 
benefit costs of these retirees?
    Answer 6. The PBGC is already on the hook for plan deficits if the 
plan fails. I have suggested in my answer to question 3 that partition 
might save the PBGC money in the long term, but this is an issue that 
can be financially modeled. And there may be ways of altering the 
partition proposal to mitigate the risk of future liabilities to the 
PBGC and Federal Government.

    Question 7. The Employee Free Choice Act of 2009, S. 560, would 
allow for the use of an arbitration board if a collative bargaining 
agreement has not been reached within a certain period of time. Should 
an arbitration board be allowed to mandate that companies join 
multiemployer pension plans as part of a collective bargaining 
agreement?
    Answer 7. I do not have a well-informed opinion on this question at 
this time. As a matter of labor law, though, the subject of pensions is 
a mandatory subject of bargaining and it might be inconsistent with the 
ideas behind the proposed mandatory arbitration and our existing laws 
on collective bargaining to carve from the arbitrator's jurisdiction 
what would otherwise be a mandatory subject for bargaining. It might 
also result in a firm deliberating delaying serious negotiation if it 
was important to the firm to avoid participating in a multiemployer 
plan, which could have an adverse overall effect on the collective 
bargaining process.
                                 ______
                                 
                    For the Record from Senator Enzi
    Mr. Chairman, last night we received a letter from the Associated 
Builders and Contractors voicing their concerns with S. 3157. In 
addition, we received a letter this morning signed by 34 trade 
associations and representatives of employers speaking in support of 
finding a solution to the multiemployer situation. I would request 
unanimous consent to add both letters to the hearing record.
                                 ______
                                 
          Associated Builders and Contractor, Inc.,
                                       Arlington, VA 22203,
                                                      May 26, 2010.
Chairman Harkin,
Health, Education, Labor, and Pensions Committee,
U.S. Senate,
Washington, DC 20510.

Ranking Member Enzi,
Health, Education, Labor, and Pensions Committee,
U.S. Senate,
Washington, DC 20510.

    Dear Chairman Harkin and Ranking Member Enzi: On behalf of 
Associated Builders and Contractors (ABC), a national association with 
77 chapters representing 25,000 merit shop construction and 
construction-related firms with 2 million employees, we are writing to 
express our concerns with the ``Create Jobs and Save Benefits Act of 
2010'' (S. 3157) scheduled for a hearing on May 27th in the Senate 
Health, Education, Labor, and Pensions Committee. If this bill is 
brought to the Senate floor in its current form, ABC will consider the 
vote a ``KEY VOTE'' for our congressional scorecard.
    S. 3157, while aimed at strengthening the current funding status of 
underfunded multi-employer pension plans, is a taxpayer bailout of 
deliberately underfunded rank and file union pension plans. Under this 
bill, the Pension Benefit Guaranty Corporation (PBGC) would have the 
authority to take over the pension obligations of employers who have 
withdrawn from the plans and pay the benefits out of taxpayer dollars.
    While we realize how severely underfunded these pension funds are, 
we feel this problem was foreseeable and that the American taxpayer 
should not be forced to shoulder this economic burden. While the 
economic downturn has surely weakened these plans, multi-employer union 
plans have always been more commonly underfunded than non-union plans. 
According to a study done by the Hudson Institute, ``Union Sponsored 
and Private Pension Plans: How Safe Are Workers' Retirements?'' in 
2006, even before the market crash, 6 percent of multiemployer pensions 
were fully funded, compared with 31 percent of single employer 
pensions. With the unemployment rate at 10.2 percent and the Federal 
deficit at an all-time high, forcing the taxpayer to clean up the mess 
of these pension funds is beyond the realm of fair.
    ABC feels this is a free enterprise issue and one in which we 
should not turn to the government for help. We have already seen 
massive government bail outs for banks, insurance giant AIG, and 
automakers General Motors and Chrysler. All of whom were declared ``too 
big to fail.'' Where does it end?
    We feel that there are some potential alternatives to this bill 
instead of subjecting the American taxpayers to this additional 
economic burden. The following are some of those:

     Immediately freezing the troubled multi-employer pension 
plan to new entrants, followed by paying out the remaining assets 
amongst those already enrolled based on the length of time people have 
been invested in them.
     Amend the existing Employee Retirement Income Security Act 
(ERISA Secs. 4041, 4219 and 4281) provisions that allow termination of 
a multiemployer plan if all contributing employers of a plan withdraw 
(a mass withdrawal).

          Employers who withdraw during the 3 years prior to 
        the mass withdrawal are presumed to be part of the arrangement 
        or agreement and are treated as if they had withdrawn in a mass 
        withdrawal.
          Allow an option of mass withdrawal to terminate a 
        multiemployer plan with a demographic deficiency.

     If a multiemployer plan is in critical status and does not 
adopt a rehabilitation plan to provide funding levels and benefit cuts 
that will bring the plan out of critical status by the end of a 10-year 
period, which starts with the next collective bargaining agreement, 
then all parties to the collective bargaining agreement will be liable 
for funding related to excise taxes and penalties.
     Require yearly written notices to be issued to all 
participants and beneficiaries when the ratio of the number of 
retirees, beneficiaries of deceased participants, and terminated vested 
participants in a multiemployer plan to the number of the active 
participants in the plan for each such year is 3:1 or less.

    Due to our concerns we will consider this a KEY VOTE for the 111th 
Congress if this bill comes to the floor for a vote in its current 
form. Thank you for considering our concerns with this legislation and 
we look forward to working with you on alternative options to S. 3157, 
the ``Create Jobs and Save Benefits Act of 2010.''
            Sincerely,
                                             Geoffrey Burr,
                                   Vice President, Federal Affairs.
                                 ______
                                 
                                  U.S. Chamber of Commerce,
                                                      May 27, 2010.

    To the Members of the United States Congress: As employer 
organizations representing companies who participate in both single and 
multiemployer-defined benefit plans, we are writing to express our 
concern about misinformation that has been circulating regarding H.R. 
3936, the Preserve Benefits and Jobs Act of 2009, and S. 3157, the 
Create Jobs and Save Benefits Act of 2010.
    Recent press stories have referred to the proposals as a ``union 
bailout'' and to multiemployer plans as ``union plans.'' However, this 
is not the case. In fact, contributions to these plans are funded 
entirely by employers, not unions.
    As you may be aware, defined benefit plans have been negatively 
impacted by the recent financial crisis. Certain multiemployer plans, 
however, have been particularly hard hit as the current financial 
crisis exacerbates long-term funding problems resulting from shifting 
demographic trends and financial problems within certain industries. 
Admittedly, this is a difficult problem that will require difficult 
solutions.
    The provisions of H.R. 3936 and S. 3157 aim to correct problems 
associated with joint and several liability rules that govern these 
plans. Because of the nature of multiemployer plans, when one employer 
goes bankrupt, the remaining employers in the plan become responsible 
for paying the accrued benefits of all the workers--this is often 
referred to as ``the last man standing.'' As the number of employer 
participants dwindles, employers remaining in the plan see their 
liabilities increase exponentially--forcing them to cover retirees that 
never worked for them. H.R. 3936 and S. 3157 aim to address this 
inadequacy in the law, making these plans more stable for both 
employers and employees.
    We appreciate the work done by Representative Pomeroy, 
Representative Tiberi, and Senator Casey to bring this issue to the 
forefront and urge you to continue to work with them to find 
appropriate solutions.
    In addition, we thank the Senate Health, Education, Labor, and 
Pensions Committee for holding a hearing on May 27th, entitled 
``Building a Secure Future for Multiemployer Pension Plans,'' which 
will allow for further discussion and debate on this issue.
    Without a real resolution to this problem, more employers will be 
forced into bankruptcy and more workers will be left without a secure 
retirement. We stand ready to work with Congress and all interested 
parties to resolve these issues as soon as possible.

            Sincerely,

American Bakers Association; American Society of Association 
    Executives; American Trucking Associations; Building Contractors 
    Association of Westchester and Mid-Hudson, Inc.; Construction 
    Industry Council of Westchester and Hudson Valley, Inc.; Eastern 
    Contractors Association, Inc.; Edison Electric Institute; 
    Engineering & Utility Contractors Association (EUCA); Food 
    Marketing Institute; Mechanical Contractors Association of America 
    (MCAA); Mechanical Contractors Association of Eastern PA Greater 
    Delaware Valley; National Association of Manufacturers; National 
    Association of Waterfront Employers; National Association of 
    Wholesaler-Distributors; National Council of Farmer Cooperatives; 
    National Electrical Contractors Association National Retail 
    Federation; Newspaper Association of America; Printing Industries 
    of America; Quality Construction Alliance; Service Contractors 
    Association of Eastern PA Greater Delaware Valley; Society for 
    Human Resource Management; The Associated General Contractors of 
    America; The Association of Food and Dairy Retailers, Wholesalers 
    and Manufacturers; The Association of Union Constructors (TAUC); 
    The Bituminous Coal Operators' Association, Inc.; The Business 
    Council of NYS; The Financial Services Roundtable; The Finishing 
    Contractors Association; The Great South-Western Illinois 
    Association of Plumbing-Heating-Cooling & Mechanical Contractors; 
    The International Council of Employers of Bricklayers and Allied 
    Craftworkers (ICE-BAC); The Sheet Metal and Air Conditioning 
    Contractors' National Association; U.S. Chamber of Commerce.
                                 ______
                                 
                                                    March 31, 2010.
Hon. Robert Casey,
U.S. Senate,
Washington, DC 20510-3804.

    Dear Senator Casey: On behalf of our more than 650,000 employees, 
associates, and members throughout the United States, we are writing to 
express our appreciation for your leadership in introducing the Create 
Jobs & Save Benefits Act of 2010 (S. 3157). More broadly, we are very 
grateful for your commitment in seeking a solution to the funding 
problems that confront a number of multiemployer pension funds.
    Due to a combination of business, regulatory and demographic 
factors, some multiemployer pension funds have a large number of 
participants whose employers have gone out of business, leaving the 
remaining employers with the obligation to fund the benefits of 
participants (commonly referred to as ``orphans'') that never worked 
for these employers. For plans with large numbers of orphans, benefits 
payments greatly exceed contributions by the remaining employers and 
the annual amount of retirement benefits paid to orphan retirees 
significantly exceeds the annual amount paid to retirees of the 
contributing employers. The problems facing multiemployer plans with 
large numbers of orphans were exacerbated by the steep stock market 
decline in 2008 and the current economic crisis. Because of the 
investment losses suffered in 2008, these plans are in crisis and will 
never recover, jeopardizing the pensions of many Americans.
    For the better part of the past 30 years, higher investment returns 
and increased employer contributions funded the benefits of these 
orphans and kept these plans solvent. The market crash of 2008 
destroyed any hopes of permanent solvency for these funds. Today's 
status quo is unsustainable. Employers are being required to divert 
funds that could be invested in creating jobs and growing their 
businesses because of rising multiemployer pension obligations 
attributable to orphan retirees who never worked for them. Most of 
these employers contribute to several multiemployer plans, and the 
financial strain on an employer due to the failure of even one 
multiemployer plan could have a catastrophic domino effect on other 
pension plans.
    Your legislation will allow a multiemployer plan to ``partition'' a 
plan and transfer to the PBGC the responsibility for the vested 
benefits of orphan retirees of employers that have either become 
bankrupt or otherwise gone out of business without paying its full 
share of withdrawal liability. To benefit from this proposal, the plan 
must transfer to the PBGC assets sufficient to pay the retirement 
benefits transferred in the partition for a period of 5 years. The 
PBGC's benefit guaranty for orphan retirees whose benefits are 
transferred to the PBGC would be increased to fully protect the hard-
earned pensions of plan participants.
    Your legislation will create and save jobs. It will provide 
retirement security to the 10.4 million participants of the 1,500 
multiemployer pension plans in the United States. It is supported by 
both businesses and labor unions. Your legislation is needed now.
    Again, we appreciate your leadership on S. 3157 and look forward to 
working with you to advance this legislation.

            Respectfully submitted,

Associated Wholesale Grocers, Inc.; Conagra Foods, Inc.; Dairy Farmers 
    of America; Dean Foods; HP Hood LLC; Kellogg Company; Land O'Lakes, 
    Inc.; Prairie Farms Dairy; Sara Lee Corporation; Schnuck Markets, 
    Inc.; Supervalu; The Kroger Co.
                                 ______
                                 
                                YRC Worldwide Inc.,
                                   Overland Park, KS 66211,
                                                    March 22, 2010.
Hon. Robert P. Casey, Jr.,
SR-393, Russell Senate Office Building,
Washington, DC 20510.

    Dear Senator Casey: On behalf of our approximately 40,000 
employees, I write to thank you for introducing the Create Jobs and 
Save Benefits Act of 2010. Enactment of your legislation is vital to 
preserving good-paying jobs for hundreds of thousands of workers, 
maintaining pension benefits for hundreds of thousands of retirees, and 
helping our company and other companies in the trucking, grocery, and 
warehousing industries meet our pension obligations to our employees, 
the majority of whom are members of the International Brotherhood of 
Teamsters. We are grateful for your support and endorse your 
legislation without reservation.
    Why is this legislation so important? Prior to the start of the 
recession, our company had delivered record earnings and operating 
margins. Since the freight recession began in the second half of 2006, 
however, we have gone from producing strong earnings to significant 
losses. In this exceptionally difficult business environment, YRCW now 
faces three inter-related problems in meeting our pension obligations: 
We have been funding the benefits of hundreds of thousands of workers 
who never have worked for YRCW; the multiemployer plans to which we 
have been contributing have suffered significant investment losses; and 
we face a worsening demographic challenge as fewer workers support the 
pension obligations of more and more retirees. Given our significant 
pension obligations, the downturn in business volume in the current 
economic environment has had especially adverse consequences for the 
company. In short, our contribution burden has now grown to an 
unsustainable level as our business continues to suffer from the global 
economic meltdown.
    By establishing a mechanism by which certain of the plans to which 
we contribute can address the ongoing funding obligations for non-
sponsored retirees, your bill addresses the central challenge facing 
these plans. By requiring qualifying plans to contribute sufficient 
assets to fund the liabilities of these individuals for the first 5 
years, your bill will ensure that help can be provided at no cost to 
American taxpayers during this period. By addressing the funding 
obligations sponsoring companies face, you have given us a basis to 
move forward to rebuild our business to put more people to work.
    We want to especially commend Will Hansen and Richard Spiegelman of 
your staff, who have worked with our company and other affected parties 
to make sure the legislation would address our core needs. In short, 
they have produced legislation that will create jobs and save benefits 
for individuals in Pennsylvania and throughout the country.
    We look forward to working with you to secure enactment of the bill 
this year.
            Sincerely yours,
                                          Daniel J. Churay,
                                          Executive Vice President,
                                     General Counsel and Secretary.

    [Whereupon, at 3:58 p.m., the hearing was adjourned.]

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