[House Hearing, 113 Congress]
[From the U.S. Government Publishing Office]

                      PENSION SYSTEM: WHAT REFORMS


                               BEFORE THE 

                        SUBCOMMITTEE ON HEALTH,

                         COMMITTEE ON EDUCATION
                           AND THE WORKFORCE

                     U.S. House of Representatives


                             FIRST SESSION


             HEARING HELD IN WASHINGTON, DC, JUNE 12, 2013


                           Serial No. 113-21


  Printed for the use of the Committee on Education and the Workforce


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                    JOHN KLINE, Minnesota, Chairman

Thomas E. Petri, Wisconsin           George Miller, California,
Howard P. ``Buck'' McKeon,             Senior Democratic Member
    California                       Robert E. Andrews, New Jersey
Joe Wilson, South Carolina           Robert C. ``Bobby'' Scott, 
Virginia Foxx, North Carolina            Virginia
Tom Price, Georgia                   Ruben Hinojosa, Texas
Kenny Marchant, Texas                Carolyn McCarthy, New York
Duncan Hunter, California            John F. Tierney, Massachusetts
David P. Roe, Tennessee              Rush Holt, New Jersey
Glenn Thompson, Pennsylvania         Susan A. Davis, California
Tim Walberg, Michigan                Raul M. Grijalva, Arizona
Matt Salmon, Arizona                 Timothy H. Bishop, New York
Brett Guthrie, Kentucky              David Loebsack, Iowa
Scott DesJarlais, Tennessee          Joe Courtney, Connecticut
Todd Rokita, Indiana                 Marcia L. Fudge, Ohio
Larry Bucshon, Indiana               Jared Polis, Colorado
Trey Gowdy, South Carolina           Gregorio Kilili Camacho Sablan,
Lou Barletta, Pennsylvania             Northern Mariana Islands
Martha Roby, Alabama                 John A. Yarmuth, Kentucky
Joseph J. Heck, Nevada               Frederica S. Wilson, Florida
Susan W. Brooks, Indiana             Suzanne Bonamici, Oregon
Richard Hudson, North Carolina
Luke Messer, Indiana

                    Juliane Sullivan, Staff Director
                 Jody Calemine, Minority Staff Director


                   DAVID P. ROE, Tennessee, Chairman

Joe Wilson, South Carolina           Robert E. Andrews, New Jersey,
Tom Price, Georgia                     Ranking Member
Kenny Marchant, Texas                Rush Holt, New Jersey
Matt Salmon, Arizona                 David Loebsack, Iowa
Brett Guthrie, Kentucky              Robert C. ``Bobby'' Scott, 
Scott DesJarlais, Tennessee              Virginia
Larry Bucshon, Indiana               Ruben Hinojosa, Texas
Trey Gowdy, South Carolina           John F. Tierney, Massachusetts
Lou Barletta, Pennsylvania           Raul M. Grijalva, Arizona
Martha Roby, Alabama                 Joe Courtney, Connecticut
Joseph J. Heck, Nevada               Jared Polis, Colorado
Susan W. Brooks, Indiana             John A. Yarmuth, Kentucky
Luke Messer, Indiana                 Frederica S. Wilson, Florida
                            C O N T E N T S


Hearing held on June 12, 2013....................................     1

Statement of Members:
    Andrews, Hon. Robert E., ranking member, Subcommittee on 
      Health, Employment, Labor, and Pensions....................     5
    Roe, Hon. David P., Chairman, Subcommittee on Health, 
      Employment, Labor, and Pensions............................     1
        Prepared statement of....................................     3

Statement of Witnesses:
    Dean, Eric, general secretary, International Association of 
      Bridge, Structural, Ornamental and Reinforcing Iron Workers    12
        Prepared statement of....................................    14
    DeFrehn, Randy G., executive director, National Coordinating 
      Committee for Multiemployer Plans (NCCMP)..................     6
        Prepared statement of....................................     8
    Ghilarducci, Teresa, Bernard and Irene L. Schwartz professor 
      of economics, the New School for Social Research...........    19
        Prepared statement of....................................    21
    Murphy, Michele, executive vice president, human resources 
      and corporate communications, SUPERVALU Inc................    24
        Prepared statement of....................................    26

Additional Submissions:
    Mr. Andrews:
        American Association of Retired Persons (AARP), prepared 
          statement of...........................................    47
        The Pension Rights Center (PRC), prepared statement of...    53




                        Wednesday, June 12, 2013

                     U.S. House of Representatives

        Subcommittee on Health, Employment, Labor, and Pensions

                Committee on Education and the Workforce

                             Washington, DC


    The subcommittee met, pursuant to call, at 10:06 a.m., in 
room 2175, Rayburn House Office Building, Hon. David P. Roe 
[chairman of the subcommittee] presiding.
    Present: Representatives Roe, Wilson, DesJarlais, Bucshon, 
Roby, Heck, Brooks, Andrews, Scott, Tierney, Courtney, Polis, 
and Wilson.
    Also present: Representatives Kline and Miller.
    Staff present: Andrew Banducci, Professional Staff Member; 
Katherine Bathgate, Deputy Press Secretary; Casey Buboltz, 
Coalitions and Member Services Coordinator; Owen Caine, 
Legislative Assistant; Ed Gilroy, Director of Workforce Policy; 
Benjamin Hoog, Senior Legislative Assistant; Nancy Locke, Chief 
Clerk; Brian Newell, Deputy Communications Director; Krisann 
Pearce, General Counsel; Todd Spangler, Senior Health Policy 
Advisor; Alissa Strawcutter, Deputy Clerk; Aaron Albright, 
Minority Communications Director for Labor; Tylease Alli, 
Minority Clerk/Intern and Fellow Coordinator; John D'Elia, 
Minority Labor Policy Associate; Daniel Foster, Minority 
Fellow, Labor; Eunice Ikene, Minority Staff Assistant; Brian 
Levin, Minority Deputy Press Secretary/New Media Coordinator; 
Michele Varnhagen, Minority Chief Policy Advisor/Labor Policy 
Director; and Michael Zola, Minority Deputy Staff Director.
    Chairman Roe. A quorum being present, the Subcommittee on 
Health, Employment, Labor, and Pensions will come to order.
    Good morning, everyone. As the title of the hearing 
suggests, today we will begin to review possible reforms to the 
nation's multiemployer pension system.
    In 2014 provisions of the Pension Protection Act affecting 
multiemployer pensions are set to expire. For more than a year 
the committee has looked closely at the challenges facing this 
pension system, which is relied upon by more than 10 million 
    Academics, employers, trustees, government officials, union 
representatives have helped us identify the strengths and 
weaknesses in the current federal policies. We have learned an 
aging workforce, fewer contributing employers, and a 
persistently weak economy have significant challenges plaguing 
the system.
    We have also learned that if these pensions are not placed 
on a more sound financial footing, workers, retirees, and 
taxpayers nationwide will be harmed. Two graphics illustrate 
this point.
    The first graphic shows the deficit the Pension Benefit 
Guaranty Corporation expects its multiemployer insurance 
program will accumulate in less than 10 years--a deficit that 
is projected to climb from $5.2 billion to more than $26 
billion. I don't believe anyone can look at this chart and deny 
a serious problem exists.
    While the PBGC is not funded by the U.S. Treasury, 
insolvency of this program would raise tremendous public 
pressure for a taxpayer bailout of the agency. We cannot allow 
this to happen.
    The second graphic illustrates the stakes in this debate. 
Nearly 5 million individuals participate in a multiemployer 
pension plan that, because of its funding condition, is in 
either yellow, orange, or red zone status.
    This means nearly half of all individuals in the 
multiemployer pension system are in a plan without a clean 
financial bill of health. The insecurity this creates for 
workers, retirees, and families and the risk posed to the 
entire system cannot be ignored.
    Broad, structural changes are needed to address this 
crisis, which leads us to today's hearing and the focus of our 
efforts. Congress and the administration have a responsibility 
to enact reforms that will benefit workers and retirees while 
protecting American taxpayers.
    Our witnesses today will help us begin that process by 
providing an overview of proposed reforms.
    We will also have an opportunity to discuss ideas recently 
released by the Retirement Security Review Commission of the 
National Coordinating Committee for Multiemployer Plans. We are 
fortunate to have the executive director of the NCCMP with us 
today to outline his organization's plan.
    I will leave the details to Mr. DeFrehn. However, I would 
like to offer two observations about the NCCMP's proposal.
    First, it is abundantly clear that solving this problem 
will require tough choices and sacrifice. Second, the NCCMP has 
demonstrated that common ground can be found when all sides 
work together in good faith and on behalf of the greater good.
    Congress has a window of opportunity to improve the 
multiemployer pension system. I know there will be differences, 
but I hope in the weeks and months ahead we can mirror the same 
spirit of cooperation demonstrated by this organization.
    I look forward to today's discussion and the vital work 
that lies ahead.
    I know Mr. Andrews is on his way, and I will sort of defer.
    I will go ahead and introduce you all, and then if Mr. 
Andrews arrives then we will let him make the opening 
    Pursuant to rule 7(c), all members will be permitted to 
submit written statements to be included in the permanent 
hearing record. And without objection, the hearing record will 
remain open for 14 days to allow such statements and other 
extraneous material referenced during the hearing to be 
submitted for the official hearing record.
    It is now my pleasure to introduce our distinguished panel 
of witnesses.
    As I have mentioned, Mr. Randy DeFrehn is the executive 
director of the National Coordinating Committee for 
Multiemployer Plans in Washington, D.C. He has served as a 
member of the U.S. Department of Labor's ERISA Advisory 
Council. He holds a master's degree in industrial relations 
from St. Francis College, where he also taught compensation, 
benefits, and administration.
    Mr. Eric Dean is the general secretary of the International 
Association of Bridge, Structural, Ornamental, and Reinforcing 
Iron Workers in Washington, D.C. In 2005 he was elected as 
president of Chicago District Council of Ironworkers and in 
2013 was appointed to serve as the national general secretary.
    Welcome, Mr. Dean.
    And Dr. Teresa--oh, this is going to hurt me here--
Ghilarducci--did I get that right? And I apologize for 
butchering your name--is the Bernard L. and Irene Schwartz 
chair of economic policy analysis at the New School of Social 
Research in New York, New York. She was twice appointed to the 
Pension Benefit Guaranty Corporation's advisory board and 
received her Ph.D. in economics from the University of 
California Berkeley.
    And welcome.
    Ms. Michele Murphy is the executive vice president of H.R. 
and corporate communications for SUPERVALU, Inc. in Eden 
Prairie, Minnesota. In this capacity she oversees all human 
resource functions for SUPERVALU's 35,000 employees. She holds 
a B.S. in economics from St. Vincent's College and a J.D. from 
University of Pittsburg, where she graduated summa cum laude.
    And before you begin your testimony I will now yield to Mr. 
    [The statement of Chairman Roe follows:]

           Prepared Statement of Hon. David P. Roe, Chairman,
         Subcommittee on Health, Employment, Labor and Pensions

    Good morning, everyone. As the title of the hearing suggests, today 
we will begin to review possible reforms to the nation's multiemployer 
pension system. In 2014 provisions in the Pension Protection Act 
affecting multiemployer pensions are set to expire. For more than a 
year the committee has looked closely at the challenges facing this 
pension system, which is relied upon by more than 10 million 
    Academics, employers, trustees, government officials, and union 
representatives have helped us identify the strengths and weaknesses in 
current federal policies. We have learned an aging workforce, fewer 
contributing employers, and a persistently weak economy are significant 
challenges plaguing the system. We have also learned that if these 
pensions are not placed on more sound financial footing, workers, 
retirees, and taxpayers nationwide will be harmed. Two graphics 
illustrate this point.
    The first graphic shows the deficit the Pension Benefit Guaranty 
Corporation expects its multiemployer insurance program will accumulate 
in less than 10 years--a deficit that is projected to climb from $5.2 
billion to more than $26 billion. I don't believe anyone can look at 
this chart and deny a serious problem exists. While PBGC is not funded 
by the U.S. Treasury, insolvency of this program would raise tremendous 
public pressure for a taxpayer bailout of the agency. We cannot allow 
this to happen.

    The second graphic illustrates the stakes in this debate. Nearly 
five million individuals participate in a multiemployer pension plan 
that, because of its funding condition, is in either yellow, orange, or 
red zone status. This means nearly half of all individuals in the 
multiemployer pension system are in a plan without a clean financial 
bill of health. The insecurity this creates for workers, retirees, and 
families and the risk posed to the entire system cannot be ignored.

    Broad, structural changes are needed to address this crisis, which 
leads us to today's hearing and the focus of our future efforts. 
Congress and the administration have a responsibility to enact reforms 
that will benefit workers and retirees, while protecting American 
taxpayers. Our witnesses today will help us begin that process by 
providing an overview of proposed reforms.
    We will also have an opportunity to discuss ideas recently released 
by the Retirement Security Review Commission of the National 
Coordinating Committee for Multiemployer Plans. We are fortunate to 
have the executive director of NCCMP with us today to outline his 
organization's reform plan. I will leave the details to Mr. DeFrehn, 
however, I'd like to offer two observations about NCCMP's proposal.
    First, it is abundantly clear that solving this problem will 
require tough choices and sacrifice. Second, NCCMP has demonstrated 
that common ground can be found when all sides work together in good 
faith and on behalf of the greater good. Congress has a window of 
opportunity to improve the multiemployer pension system. I know there 
will be differences, but I hope in the weeks and months ahead we can 
mirror the same spirit of cooperation demonstrated by this 
organization. I look forward to today's discussion and the vital work 
that lies ahead.
    I will now recognize the ranking member of the subcommittee, my 
colleague Representative Rob Andrews, for his opening remarks.
    Mr. Andrews. Well, I apologize for my tardiness this 
morning, Chairman, colleagues, and witnesses. Ijust want to 
compliment the chairman on the way he has conducted this 
    I think there is broad consensus that we want to protect 
pensioners so their pensions are sound, that we want to help 
small businesses compete fairly in the marketplace so they can 
prosper, and we want to protect taxpayers so we minimize the 
risk to taxpayers. I think that your leadership on this issue 
has been a pleasure and exemplary and I look forward to this 
morning's hearing and working with you as we solve this problem 
    Thank you.
    Chairman Roe. I thank the gentleman for yielding.
    Before I recognize you to provide your testimony let me 
briefly explain our lighting system. You have 5 minutes to 
present your testimony.
    When you begin, the light in front of you will turn green; 
when 1 minute is left the light will turn amber, at which time 
when your time is expired it will turn red. At that point I 
will ask you to wrap up your remarks as best you are able. 
After everyone has testified members will each have 5 minutes 
to ask questions.
    I would like to thank the witnesses this morning, and I 
will begin with Mr. DeFrehn?


    Mr. DeFrehn. Chairman Roe, Ranking Member Andrews, members 
of the committee, it is an honor to be here with you this 
morning to discuss this important topic. My name is Randy 
DeFrehn; I am the executive director of the National 
Coordinating Committee for Multiemployer Plans.
    Generally speaking, the majority of multiemployer plans 
have been slowly but surely recovering from the economic shocks 
that occurred in the last 10 years. More than 60 percent of 
those, as your graphic demonstrated, are back in the green 
    I last appeared before your committee at a hearing titled 
``Examining the Challenges of the PBGC and Defined Benefit 
Pension Plans'' on Groundhog Day, February 2, 2012. Seems that 
the reference to Groundhog Day is appropriate, given the number 
of times this issue has come up over the last decade.
    And we recall at that time your very explicit statements 
that no government bailout should be expected. Therefore, we 
have proceeded on that basis to craft very specific private 
sector solutions that, if enacted, will go far towards 
addressing those challenges.
    It is unnecessary to dwell on the specifics of those 
challenges other than to note that the passage of time has only 
sharpened the focus on the need for attention. As your PBGC 
slide demonstrated, the increase in their liabilities are 
threatening the long-term ability for that agency to provide 
its benefits, and the GAO further reported that if the 
multiemployer fund is exhausted, participants relying on the 
guarantee would receive only a small fraction of the benefit 
provided under that formula.
    These predictions only underscore the need for bold and 
decisive congressional action sooner rather than later. We 
commend the committee for having spent the necessary time to 
evaluate the need for prompt attention and strengthen the 
system and for focusing today's hearing on solutions to achieve 
that end.
    I previously reported to you on our creation of the 
Retirement Security Review Commission. It is comprised of 
representatives from over 40 labor and management groups from 
industries across the multiemployer community.
    Over a period of approximately 18 months the group 
evaluated their collective experience with current laws and 
regulations in the course of developing a comprehensive set of 
recommendations for reforms to strengthen the system. These 
recommendations fall into three broad categories--preservation, 
remediation, and innovation--which are described in a report 
titled, ``Solutions Not Bailouts: A Comprehensive Plan for 
Business and Labor to Safeguard Multiemployer Retirement 
Security, Protect Taxpayers, and Spur Economic Development.''
    They include recommendations for technical corrections to 
the Pension Protection Act to preserve and strengthen those 
plans that are recovering from the 2008 recession, 
recommendations for remedial measures to address the problems 
of the approximately 90 to 150 plans which are projected to 
become insolvent, and recommendations that encourage the 
creation of innovative alternative designs to eliminate many of 
the current incentives for employers to exit the system.
    In the limited time available I would like to comment 
briefly on the commission's process and then make a remark 
specifically on the deeply troubled plans, which appear to be 
somewhat misunderstood by some.
    With the sunset of the multiemployer provisions of the PPA 
at the end of 2014, the reemergence of significant unfunded 
liabilities as a result of the Great Recession, and expanded 
disclosures required by the financial services community, the 
time has come to revisit the labyrinth of existing rules which 
have evolved over the past 40 years in order to restore 
stability to the system. The commission served as a vehicle to 
facilitate the development of a consensus among stakeholders 
across the multiemployer community on elements of funding 
reform that are necessary to achieve that stability.
    Because multiemployer plans are the product of collective 
bargaining, any proposal for reform requires the active 
engagement of both labor and management. The composition of the 
commission reflected a broad cross-section of both 
constituencies, while the diversity of interests and 
perspectives ensured that the proposals for reform were 
representative of the wide variation among plans and 
participants. Despite their differences, the commission members 
remained focused throughout the process, conscientiously 
engaging in a cooperative spirit of problem solving that was 
both respectful and often vociferous as they worked towards a 
consensus on a wide range of issues.
    A comment on the remediation section of our proposal: Under 
current law, the anti-cutback rules require plans that are 
headed for insolvency--the deeply troubled plans--to pay 
accrued benefits at the current levels until their assets are 
depleted. At that time, the fiduciaries are required to reduce 
benefits to the statutory guarantee level, levels which, by the 
PBGC's own estimates, are unsustainable for the future and are 
likely to be subject to even more draconian reductions.
    Plans currently have no authority to intervene at an 
earlier point, even if the plan could remain solvent while 
preserving benefits above the statutory guarantee levels.
    If I might beg your indulgence for about another minute?
    As a result, many plans will needlessly cease to provide 
future accruals for active workers, employers will be assessed 
withdrawal liability, and the liability to the PBGC will go up, 
possibly exposing taxpayers to unanticipated liabilities.
    For many plans these unwelcome outcomes can and should be 
avoided by accelerating the timing of their existing 
obligations to permit intervention while the plan's solvency 
may still be preserved rather than waiting until the plan has 
depleted its assets. Provided that after adoption of such 
measures the plan is expected to remain solvent, benefits may 
be reduced only to the extent necessary to achieve continued 
solvency but in no event below 110 percent of the stated 
statutory guarantee levels under the current PBGC Multiemployer 
Guaranty Program.
    Plan fiduciaries are required to design any changes in an 
equitable manner across all participant classes. The PBGC 
certifies that the plan fiduciaries have exercised due 
diligence in making such determinations and designing the plan. 
And any subsequent benefit restorations include a partial 
restoration of benefit reductions on a dollar value equal to 
those provided to active participants.
    While some have incorrectly characterized this 
recommendation as a proposal to cut accrued benefits, in 
reality this is a proposal to preserve benefits above the 
levels provided under the current law and applies only to those 
plans which are otherwise required to make the more severe 
benefit reductions.
    In conclusion, the multiemployer community is unified 
behind this set of proposals. They represent a consensus of a 
diverse yet representative group of stakeholders from across 
the multiemployer community.
    As with any such endeavor, consensus does not imply 
unanimous support for every aspect of the proposal and there 
will be those who would prefer that some provisions were 
different. Some of those differences simply reflect views by 
groups whose parochial interests differ from the commission, 
which attempted to place the good of the multiemployer 
community first, recognizing that a strong retirement program 
will meet the needs of covered participants and facilitate 
retention of a skilled workforce.
    We appreciate this opportunity to share our comments with 
you on the recommendations of the commission and on the 
importance of taking prompt action to preserve this system 
which has served both participants and contributing employers 
so well. I welcome your questions.
    [The statement of Mr. DeFrehn follows:]

      Prepared Statement of Randy G. DeFrehn, Executive Director,
    National Coordinating Committee for Multiemployer Plans (NCCMP)

    Chairman Roe, Ranking Member Andrews and Members of the Committee, 
it is an honor to appear before you today on this important topic. 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 in 
1974 under Section 501(c)(4) of the Internal Revenue Code, and is the 
only such organization created for the exclusive purpose of 
representing the interests of multiemployer plans, their participants 
and sponsoring organizations.
    \1\ The NCCMP is the premier advocacy organization for 
multiemployer plans, representing their interests and explaining their 
issues to policy makers in Washington since enactment of ERISA in1974.
    For over 60 years, multiemployer plans have provided a mechanism 
for generations of employees of tens of thousands of predominantly 
small employers in industries with very fluid employment patterns to 
receive modest but regular and dependable retirement income.\2\ They 
are the product of collective bargaining between one or more unions and 
at least two unrelated employers that are obligated to contribute to a 
trust fund that is independent of either bargaining party and whose 
benefits are distributed to participants and beneficiaries pursuant to 
a written plan of benefits. While most often associated with the 
building and construction and trucking industries, multiemployer plans 
are pervasive throughout the economy including the agricultural; 
airline; automobile sales, service and distribution; building, office 
and professional services; chemical, paper and nuclear energy; 
entertainment; food production, distribution and retail sales; health 
care; hospitality; longshore; manufacturing; maritime; mining; retail, 
wholesale and department store; steel; and textile and apparel 
production industries. These plans provide coverage on a local, 
regional, multiple state, or national basis and can cover groups of 
several hundred to several hundred thousand participants. By law, these 
plans must be jointly and equally managed by both employers and 
employee representatives.
    \2\ The median benefit paid to participants of plans surveyed was 
$908--See DeFrehn, Randy G. and Shapiro, Joshua, ``The Road to 
Recovery: The 2010 Update to the NCCMP Survey of the Funded Position of 
Multiemployer Plans'', The National Coordinating Committee for 
Multiemployer Plans, 2011.
    According to the PBGC's 2012 Annual Report, approximately 10.37 
million people are covered by the approximately 1450 insured 
multiemployer defined benefit pension plans.\3\ Generally speaking, the 
majority of plans have been slowly, but surely recovering from the 
back-to-back economic shocks of the past ten years, despite the 
continuing sluggish economic recovery, with more than 60 percent of 
plans having once again attained ``green zone status.''
    \3\ Pension Benefit Guaranty Corporation FY 2012 Annual Report, p. 
    When I last appeared before the Committee on February 2, 2012, it 
was in the context of your hearing titled ``Examining the Challenges of 
the PBGC and Defined Benefit Pension Plans.'' We recall your very 
explicit statements that no government bailout should be expected and 
have proceeded on that basis to craft very specific private sector 
solutions that, if enacted, will go far towards addressing those 
    It is unnecessary to dwell on the specifics of those challenges. It 
is significant, however, to note that the passage of time has only 
sharpened the focus on the need for attention. Based on the information 
you gathered at that time and through subsequent hearings including the 
release earlier this year of the PBGC's own forecast in its 2012 
Exposure Report, the multiemployer guaranty fund's current economic 
trajectory forecasts a 91% probability of insolvency by 2032. 
Notwithstanding those sobering estimates, the stark reality appears 
even more dire as conveyed to you by GAO Director of Workforce, 
Education and Income Security Issues, Charles Jeszeck at your hearing 
on March 5, 2013. He reported that ``In the event that the 
multiemployer fund is exhausted, participants relying on the guarantee 
would receive a small fraction of their already reduced benefit.'' \4\ 
He went on to describe an example that showed even the modest benefit 
guaranty provided under the current statutory formula would likely be 
further reduced by 90% or more. Clearly, the prospects of such 
reductions are evidence that what the tens of millions of multiemployer 
plan participants are being told in their statutorily mandated annual 
funding notice about the guarantees to be provided by the PBGC in the 
event of plan insolvency is more illusory than reality.
    \4\ See Statement of Charles Jeszeck, March 5, 2013 to the 
Committee re: ``Private Pensions--Multiemployer Plans and PBGC Face 
Urgent Challenges,'' Page 17.
    For the small, but significant minority of plans and participants 
whose plans are facing ultimate insolvency, these predictions only 
underscore the need for bold and decisive Congressional action sooner, 
rather than later.
    We commend the Committee for having spent considerable time in 
evaluating the need for prompt attention to strengthen the system which 
provides approximately one in every four private sector defined benefit 
pensions. As the next step in that process we are pleased that you have 
chosen to focus today on solutions to achieving that end.
Retirement Security Review Commission
    In your February 2012 hearing I reported to you on the creation by 
the NCCMP of a group known as the ``Retirement Security Review 
Commission'' (or ``Commission'') comprised of representatives from over 
40 labor and management groups from the industries across the 
multiemployer community which rely on multiemployer plans to provide 
retirement security to their workers. Beginning in August 2011, the 
group deliberated over a period of approximately eighteen months 
evaluating their collective experience with current laws and 
regulations in the course of developing a comprehensive set of 
recommendations for reforms to strengthen the system.
    The recommendations which fall into three broad categories: 
preservation, remediation and innovation, are described in a report 
titled ``Solutions not Bailouts--A Comprehensive Plan from Business and 
Labor to Safeguard Multiemployer Retirement Security, Protect Taxpayers 
and Spur Economic Development.'' They include recommendations for 
technical corrections to the Pension Protection Act (PPA) designed to 
strengthen those plans that are recovering or have recovered from the 
2008 recession, largely by building on the tools provided in the PPA 
and subsequent legislation. These recommendations are described under 
the provisions for preservation. The report also includes 
recommendations for remediation measures to address the problems of, 
and provide solutions for, the limited number of plans which, despite 
having taken all reasonable measures, are projected to become insolvent 
within specified time parameters. Finally, the recommendations include 
provisions that encourage the creation of innovative alternative 
designs to eliminate many of the current incentives for employers to 
exit the system and reverse the trends which, unless addressed, will 
only exacerbate the current decline in the pool of continuing 
employers. These include alternatives that will permit the adoption of 
alternative plan designs to significantly reduce or eliminate the 
unpredictable and unacceptable residual costs associated with the 
current system of withdrawal liability.
    The following pages provide a brief description of the process 
under which the Commission conducted its deliberations and some of the 
specifics of the proposed reform measures.
    For decades, the multiemployer system provided modest yet secure 
retirement benefits for generations of workers without jeopardizing the 
ability of the contributing employers to remain financially viable. 
With the sunset of the multiemployer funding rules contained in the PPA 
approaching at the end of 2014, the re-emergence of significant 
unfunded liabilities following the market collapse of the Great 
Recession in 2008, and the expanded disclosures imposed by the 
financial services community which adversely affect the ability of many 
contributing employers to access the credit markets, the time has come 
to revisit the labyrinth of existing rules which have evolved over the 
past 40 years in order to restore stability to the system The 
Commission was created as a vehicle to facilitate the development of a 
consensus among stakeholders across the multiemployer community on 
elements of funding reform that are necessary to achieve that 
    Because multiemployer plans are the product of the collective 
bargaining process, any proposal for reform requires the active 
engagement of both labor and management. The composition of the 
Commission reflected a broad cross-section of both constituencies from 
the aerospace, bakery and confectionery, building and construction, 
entertainment, healthcare, mining, retail food, building services and 
trucking industries. The diversity of interests and perspectives 
ensured that the proposals for reform were representative of the wide 
variation among plans and participants. Despite their differences, 
Commission members remained focused throughout the process, 
conscientiously engaging in a cooperative spirit of problem solving 
that was both respectful and often vociferous as they worked toward 
consensus on a range of issues.
    As the majority of plans regain sound financial footing, the 
Commission recommends a number of technical amendments be made to the 
PPA that are designed to address a number of issues which have surfaced 
during the first years of its implementation. These include, but are 
not limited to:
     permitting elective ``critical status'' (red zone) 
certification by plans which are determined by the plan actuary to 
headed for such status within the next five years, allowing earlier 
action in order to reduce the magnitude of expected benefit adjustments 
and/or contribution increases required to meet their funding 
obligations under the Act;
     removing any contribution increases that are the direct 
result of the adoption of approved funding improvement or 
rehabilitation plans from the determination of what is to be taken into 
consideration when calculating an employer's withdrawal liability. 
Under the current rules, such additional contributions provide a strong 
incentive for many contributing employers to choose to abandon their 
current relationship with the fund rather than see the 20 year ``cap'' 
on withdrawal liability increase substantially;\5\ and
     harmonizing the protections available to employers who 
adopt an approved rehabilitation plan when a plan encounters a funding 
deficiency so that those who adopt an approved funding improvement plan 
when in endangered (yellow zone) status receive similar protections 
from additional contribution and excise tax requirements were the plan 
to experience a funding deficiency.
    \5\ Furthermore, such treatment is consistent with the provisions 
contained in the PPA that prevent an employer from benefiting from a 
plan's adoption of adjustable benefits in the determination of its 
withdrawal liability in order to encourage its continued participation 
in the plan.
    Under current law, the anti-cutback rules require plans that are 
heading for insolvency (referred to by the Commission as ``Deeply 
Troubled'' plans) to maintain accrued benefits and pay such benefits at 
current levels until the plan depletes the plans' assets to the point 
of insolvency. At that time the plan fiduciaries are required to reduce 
benefits to the statutory guarantee levels under the PBGC multiemployer 
guaranty fund. They currently have no authority to intervene at an 
earlier point even if the plan could remain solvent while preserving 
benefit levels above the statutory guaranty levels. The net result 
under current law is that the plan would then cease to provide future 
accruals to active workers, most likely result in having employers 
assessed withdrawal liability either because of their having elected to 
withdraw from the plan or due to the plan's experiencing a mass 
withdrawal, and increasing the liability to PBGC (thereby possibly 
exposing taxpayers to greater exposure in the event the agency itself 
becomes insolvent with liabilities owed to participants far in excess 
of any amounts which could reasonably be funded through the existing 
premium structures).
    For the estimated six to ten percent of all multiemployer plans 
that, despite having taken all reasonable measures, are projected to be 
unable to avoid insolvency, the Commission recommends that the plan 
fiduciaries' current authority be accelerated to permit intervention 
while the plan may still be preserved rather than waiting until the 
plan has depleted its assets to the point where it must cut benefits to 
levels which, by the PBGC's own estimates, are unsustainable for the 
future and would be subject to even more draconian reductions, provided 
     after the adoption of such measures, the plan is expected 
to remain solvent;
     benefits may be reduced only to the extent necessary to 
achieve continued solvency;
     benefits may not be reduced below 110 percent of the 
stated statutory guaranty levels under the current PBGC multiemployer 
guaranty program;\6\
    \6\ Due to the relatively low benefits provided by many plans, the 
110% level was chosen so as to provide access to the relief for many 
plans that would otherwise be effectively precluded from utilizing this 
valuable tool.
     plan fiduciaries are required to design any plan changes 
in an equitable manner;
     the PBGC certifies that plan fiduciaries have exercised 
due diligence in making such determinations and in designing the plan; 
     when the plan recovers sufficiently to permit benefit 
improvements, those whose benefits were reduced must participate in any 
such improvements through the restoration of such benefit reductions on 
an equal dollar value to those provided to active participants.
    While some have incorrectly characterized this recommendation as a 
proposal to cut accrued benefits, in reality this is a proposal to 
preserve benefits above the levels provided under current law and 
applies only to those plans which are otherwise required to make more 
severe benefit reductions.
    Recognizing that taking earlier action could also impact the 
benefits of pensioners who would not otherwise be affected because they 
may be of sufficiently advanced age that they may not live until the 
plan were to exhaust its assets, the plan fiduciaries are specifically 
authorized to take the interests of such vulnerable populations into 
consideration when designing their plan of intervention. It is expected 
that most would take advantage of this authority and exclude them from 
the reductions, especially since the costs associated with those 
expected to draw benefits for a limited period would have only a modest 
impact on the plan's long-term funded position. Only those plans which 
currently pay benefits that are marginally above the PBGC guaranty that 
might only qualify for the relief if such benefit reductions were 
necessary to meet the ongoing solvency requirement might be expected to 
apply these reductions across the board to allow the plan to survive.
    In its desire to make the system sustainable for the future, the 
Commission recommends that the current law be broadened to encourage 
greater creativity in designing plans to meet employees' ongoing income 
requirements while reducing the exposure of contributing employers to 
residual liabilities beyond their initial contribution. In doing so, 
the Commission recognizes that the shortcomings of both the current 
defined benefit and defined contribution systems need to be addressed. 
While some innovative designs are possible within the current statutory 
framework, there is a general recognition that the current structures 
are not sufficiently responsive to the evolving needs of workers and 
employers alike.
    The Commission report describes two specific types of innovative 
plan designs that are considered to be illustrative of the kinds of 
flexibility required for the future. One is a variable defined benefit 
plan which has recently been adopted by several groups and appears to 
be permissible under the current Code definition of a defined benefit 
plan. The other, a so-called ``target benefit'' plan, contains a 
benefit formula that appears similar to a defined benefit plan, but is 
designed to address many of the shortcomings of the current defined 
contribution system. The design elements include limiting an employer's 
liability to its negotiated contribution. It requires higher funding 
requirements than current defined benefit plans, imposes self-adjusting 
benefit features when those higher funding requirements fail to be met, 
addresses longevity risk by paying benefits only in an annuity form 
from a pooled account, and enhances benefits payable by reducing fees 
and providing greater asset diversification through professional 
management of plan assets. Creation of such a plan would require a 
change to the existing code as it is neither defined benefit nor 
defined contribution as currently defined.
    The multiemployer community is unified behind this set of 
proposals. They represent a consensus of a diverse yet representative 
group of stakeholders from across the multiemployer community. As with 
any such endeavor, consensus does not imply unanimous support for every 
aspect of the proposals and there will be those who would prefer that 
some provisions were different. Some of those differences simply 
reflect views by groups whose parochial interests differ from those of 
the Commission which attempted to place the good of the multiemployer 
community first, recognizing that a strong retirement program will both 
meet the needs of covered participants and facilitate retention of a 
skilled workforce.
    We appreciate this opportunity to share our comments with you on 
the recommendations of the Commission and on the importance of taking 
prompt action to preserve this system which has served both 
participants and contributing employers so well. We look forward to 
responding to your questions.
    Chairman Roe. Thank you, Mr. DeFrehn.
    Mr. Dean?

                          IRON WORKERS

    Mr. Dean. Thank you, Mr. Chairman and committee members. It 
is a pleasure to be here.
    In the interest of time, my assistant was a little 
overzealous in preparing my oral testimony, and I stand by what 
is in there but I am going to summarize to make adequate use of 
my time.
    I became a fourth generation ironworker in 1980. On and 
around 1989 I got elected by my peers to be a steward and a 
leader to represent them in their interest. I have served since 
1995 in some capacity or another as a trustee on all types of 
funds, from training funds, pension funds, welfare funds, and 
labor management. So it is something that I don't take lightly.
    When I came to Washington, D.C., I not only governed the 
area I was from but had the responsibility of taking care of 
North America and the United States and Canada. So the interest 
that I now have as--I have governance over all of the pension 
plans in the United States, both good and bad, and while the 
percentage of ironworker plans are small, we recognize that 
there are rules that restrict, so I am going to go into the 
part of my presentation that is prepared.
    On behalf of the International Association of Bridge, 
Structural, Ornamental, and Reinforcing Iron Workers and our 
industry, I am here on behalf of General President Wise, who 
could not make it today, representing our union as well as 
120,000 members to support the National Coordinating 
Committee's Multiemployer Plans' recommendations as we move 
forward towards solutions to our industries' current 
    The ironworkers are not alone in recognizing the need for 
comprehensive action to be taken to assure pension benefit 
promises are met and allowed to deliver a new set of pension 
laws which would allow for acting more expeditiously in 
remediating funding issues caused by the unprecedented twice-
in-a-decade collapse of markets resulting in erosion to assets 
held in our pension trusts.
    The current laws require a virtual drawdown of all assets 
prior to rehabilitation remedies being allowed to go into 
effect. We strongly support the proposal by NCCMP, which we and 
our employers participated in the commission, and as 
stakeholders in the construction industry need desperately. 
While there are provisions that can't cover every scenario, as 
in the saying ``no one size fits all,'' our proposal attempts 
to address several areas of importance that will result in 
meeting the challenges and offering benefit levels greater than 
the minimum level of protection currently offered.
    NCCMP's recommendations would be optional to bargaining 
parties. We are not seeking any taxpayer support.
    NCCMP's recommendations would implement efficiency to allow 
for harmonization with Social Security, which Congress saw as a 
prudent step long ago. Their recommendations would allow 
distressed sponsors the ability to provide greater benefits 
than the current levels PBGC offers or protects our members 
with. Their recommendations would also allow for innovation and 
new plan design not currently allowed in the traditional 
defined benefit and defined contribution plans.
    I have included as an outline for your review, which is my 
attempt not to monopolize your time so I can have more time for 
questions. In summary, the key elements of our plan are to 
include security for the participants while reducing financial 
risk for its plan and its sponsors.
    Members of Congress, the ironworking industry, and 
specifically our union, need you to understand the needs of our 
members and its employers as you consider the recommendations 
of the NCCMP which will ensure that multiemployer plan 
participants enjoy the dignity of retirement security and its 
plan sponsors the ability to operate, maintain, and improve 
pension systems they justly deserve.
    Data suggests that defined benefits are the best pathway 
for retirement security, and we understand and we recognize 
there is a trend towards 401(k)s. There has not been a society 
that has been able to live solely on a lump-sum retirement, and 
we believe the best benefit going forward would be stabilizing 
and preserving defined benefit plans.
    I am happy to entertain any questions.
    [The statement of Mr. Dean follows:]

    Chairman Roe. Thank you, Mr. Dean.
    Dr. Ghilarducci?


    Ms. Ghilarducci. Thank you for inviting me. I am Teresa 
Ghilarducci. I am the chair of the economics department at The 
New School for Social Research and I am the author of the only 
academic book that I know of on multiemployer plans, ``Portable 
Pension Plans for Casual Labor Markets,'' Praeger Press.
    I am also a trustee of several retiree health plans--they 
are called VEBAs--for the United Auto Workers and for the 
steelworker retirees of the Detroit auto companies and of 
Goodyear Tire. That represents 900,000 what we call 
bellybuttons--900,000 retirees and their families.
    Relevant for this committee is that I was also a corporate 
director for YRCW, one of the largest sponsors of one of the 
largest plans at question here, the Central States Teamsters 
plans, and 38 other multiemployer plans. I was the corporate 
director because of my expertise in pension plans, and the 
other corporate directors were newly appointed from the hedge 
funds, the private equity firms, and some of the investment 
bankers, who seemed to have only learned in business school and 
law school that the only way you deal with pension liabilities 
is to go through bankruptcy.
    And so that company did not go through bankruptcy and is 
dealing with its liabilities. But the--it seems as though in 
our society the only way to deal with these troubled plans is 
to dump them.
    Multiemployer plans, as Randy has said and as Eric Dean has 
said, are really interesting. They complement health plans and 
apprenticeship plans; they help stabilize the employers in an 
industry by letting them have--these employers, who are often 
small--really have access to a skilled labor pool of people who 
are loyal to their craft and to the job who wouldn't be there 
if it wasn't for those employer plans.
    So I agree with the report of the National Coordinating 
Committee for Multiemployer Plans that these plans should be 
preserved and they actually should be expanded and 
    Preventing large red zone plans' insolvency will protect 
employers, workers, and retirees, and the PBGC. The proposal of 
the National Coordinating Committee is to solve these 
insolvency problems by, at the last resort, cutting retiree 
benefits in only very special circumstances. They proposed that 
when every possible design change has been done--revenue 
enhancements, benefit reductions for non-retirees--when those 
have taken then the cuts can happen, which they can't happen 
now, if those cuts will prevent insolvency, if those cuts will 
help participants maintain their long-term benefits, and if 
they reduce exposure to new employers who may otherwise come 
into the plan, and that is key to these long-term survival. And 
preventing the defaults also helps the PBGC.
    But cuts to retiree benefits are dangerous. Current 
employees and workers may just leave the plans. And delaying 
cuts is good policy. That is what we did at YRCW. Each delay in 
cuts helps the retiree live another year under current living 
    But insolvency hurts everybody, including retirees. They 
may have to go to the PBGC maximum, which is the poverty 
pension, or they may get nothing.
    So as a trustee of these auto and steelworker plans for 8 
years I have been involved in a process that is very well 
governed to gradually reduce retiree benefits, at the same time 
protecting very vulnerable retirees, and that is because the 
court told us to. I am a fiduciary with only the concern of the 
retirees, but the court has established a very strict 
governance structure so that the retirees are protected.
    So in considering the National Coordinating Committee's 
plan, you--Congress should very much consider the way retirees 
will be represented on these plans. The PBGC is a good place to 
house that representative, but in a different way that is 
conceived now. That representative should be involved in an 
ongoing basis, be well resourced in order to restructure the 
    And last, I don't think Congress should forestall any 
attempts to get more revenue into these plans. Many nonunion 
employers benefit from these plans. Nonunion carriers--big 
ones; ones you have heard of--were actually poaching truck 
drivers, who are quite, actually, in stark demand, because 
those truck drivers had the benefits from YRCW.
    So these nonunion plans were benefiting from these legacy 
costs, and so they may be actually asked on with the industry 
tax to maintain these legacy benefits. Congress did it before 
when you established the Railroad Retirement Fund, when 
nonunion employers were not paying these legacy costs. So you 
might want to think about doing that again.
    Thank you.
    [The statement of Dr. Ghilarducci follows:]

Prepared Statement of Teresa Ghilarducci, Bernard and Irene L. Schwartz 
       Professor of Economics, the New School for Social Research

    Thank you for inviting me to testify about options to strengthen 
multi employer pension plans. I am Teresa Ghilarducci, Bernard and 
Irene L. Schwartz Professor of Economics Policy Analysis, and Chair of 
the Economics Department, at The New School for Social Research, in New 
York City. I am the author of several books on retirement policy 
including the only academic book on multiemployer pension plans.
    Though I am a full-time academic I have practical experience 
representing retirees and managing postemployment benefits. I am a 
trustee of two retiree health plans for the United Auto Workers and 
Steelworkers retirees of the three American auto companies and Goodyear 
Tire--I am a trustee for nearly 900,000 retirees. I am also a former 
corporate director of YRCW--May 2010-May 2011--a key employer-sponsor 
of many multiemployer plans including the Central States Pension Fund 
for the Teamsters. In that role I had the legal responsibility to 
represent the sole interest of the corporations' shareholders.\i\
    \i\ I also taught economics at the University of Notre Dame for 25 
years which is in South Bend, Indiana the site of the Studebaker 
corporation whose abrogation of pension benefits in 1963 which 
generated support for ERISA. I lived in a community with many retirees 
benefiting from PBGC insurance and Studebaker retirees who did not. The 
peace of mind and increase in the material standard of living of 
elderly households with a modest, but secure, source of Social Security 
supplement is significant.
    I agree with the PBGC, General Accounting Office, and the findings 
and analysis of the National Coordinating Committee for Multiemployer 
Plans Commission report--Solutions Not Bailouts \1\--which conclude 
multi employer plans have economic benefit; they should and can be 
preserved and strengthened if action is taken quickly. Further, 
preventing large plan insolvency will protect the PBGC and many 
employers, workers, and retirees. The NCCMP proposal to prevent 
insolvency by allowing benefit cuts for current retirees in special 
circumstances is well informed and makes paramount preserving long term 
benefits for retirees. However, Congress should ensure that retiree 
protections are sufficiently protective. Insolvency hurts everyone 
especially retirees who risk taking a large cut in current benefits to 
the PBGC maximum or, worse, obtaining nothing if the PBGC depletes its 
assets. The NCCMP's statement of facts is consistent with the General 
Accounting Office and the PBGC's description of the financial situation 
of multiemployer plans.
    \1\ Defrehn, Randy. and Joshua Shapiro. National Coordinating 
Committee for Multiemployer Plans. 2013. Solutions not bailouts: a 
report on the proceedings, findings and recommendations of the 
Retirement Security Review Commission. Washington DC. February.; 
Gotbaum, Joshua. 2012 and 2013. Testimony before the Health, 
Employment, Labor and Pensions subcommittee house Committee on 
Education and the Workforce. On December 12, 2012, and March 5, 2013; 
Jeszeck, Charles. 2013. Testimony: Multiemployer Plans and PBGC Face 
Urgent Challenges
Economic Case for Strengthening Multiemployer Plans
    Multiemployer plans allow employers and workers to optimize labor 
contracts in situations when employers cannot or will not commit to 
long term contracts with employees, but still depend on skilled workers 
loyally attached to the industry and craft.
    What needs to be emphasized is that multiemployer pension plans, 
health plans, and importantly apprenticeships plans are complements. 
They create a framework enabling many types of workers--who otherwise 
would be without--obtain a decent wage, training, and employee 
benefits. In short, workers, who in other countries are at the bottom 
of the labor market, can be in the United States near middle-class 
construction laborers, janitor, coal miners, electricians, maids for 
luxury hotels, big rig truck drivers, etc.
    All employers gain from the training and industry loyalty; 
Multiemployer pension plans would be stable if all employers who 
benefit paid contributions. But only unionized employers pay. The PBGC, 
NCCMP, and GAO do not address future sources of revenue, yet they deem, 
as do I, that current employers cannot contribute more without losing 
competitive advantages. Premium increases may be tolerated however. 
Thinking bigger is to consider that Congress establishing the Railroad 
Retirement System (see appendix) set a precedent to collect from 
consumers, shareholders, and current workers to pay for pensions. 
Congress should not give up seeking more revenue sources for the PBGC 
multiemployer fund.
Ways to Strengthen the Plans
    I agree with the NCCMP that the next wave of PPA reform must find 
new revenue sources, reduce liabilities, and change plan design. What 
is on the table now is reducing liabilities in the form of cutting 
retiree benefits. The NCCMP and GAO acknowledges the necessity to do 
everything in terms of plan design, revenue enhancement, and benefit 
reductions for non-retirees before considering reductions for current 
    The GAO and NCCMP agree that the vast majority of multis survived 
the 2008 recession through shared sacrifice--by raising contributions 
and cutting allowable benefits, such as early retirement benefits.
    But the PBGC's multiemployer trust fund still faces probable 
insolvency because large critically underfunded plans, when failed, 
will likely petition for PBGC assistance over the next ten years and 
the PBGC will not have enough funds. There are several pension plans in 
the red zone that have done everything they can to survive and I agree 
some plans can't survive without reducing retiree benefits. But cutting 
retiree benefits is dangerous because current employees and workers may 
give up on the plan and employers. Delaying the cuts is good policy, 
every year longer is important for a retiree who have few options left 
to maintain living standards.
    Cutting benefits for current workers are justified only when 
benefits will keep the plan solvent and maintain lifetime benefits and 
other protections are in place.
    While the PBGC multiemployer plan still has assets, the GAO report 
shows retirees in insolvent plans would suffer, on average, a much 
reduced benefit up to the PBGC's guarantee. That maximum PBGC benefit 
of $1073 per month is about 50% of what the average long tenured 
retiree receives. When the PBGC runs out of money, the retiree could 
receive nothing.
    I was a critic of the Pension Protection Act of 2006; but I am 
pleased and surprised at the success of the Act, with the good faith of 
Congress, to help many multiemployer survive the recession no one 
    Now, that I have established multiemployer plans should continue, 
how can we strengthen them? Cutting benefits for current retirees is 
the last resort. Each plan will have unique circumstances and futures 
so is it is not possible to legislate how the benefit cuts should be 
implemented. The NCCMP proposal outlines key due diligence criteria: 
the cuts must prevent insolvency, the cuts must help participants 
maintain their benefits in the long run--the long run is emphasized; 
the cuts must reduce exposure of employers in order to attract new 
employers to the multiemployer plans; and to protect the PBGC's risk of 
    Further, the NCCMP acknowledges that the plans have to meet 
objective standards of insolvency and that no benefits will be improved 
until the cuts are restored.
Specific Ideas to Protect Retirees
    As a trustee of the Voluntary Employee Benefits Trust the Auto and 
Steelworker VEBAS for almost 8 years; I've been involved in an orderly 
and transparent process to reduce retiree benefits in their health 
plans in order to maintain and maximize their benefits. The retirees 
understand that increasing cost-sharing and restrictions on drug and 
medical benefits are necessary to keep their retiree health plans 
intact, and immediate restrictions keep the plan going for a lifetime 
so the cuts aren't permanent and drastic.
    What is the legal authority? The VEBAs were established by the 
courts, without a bankruptcy and not within bankruptcy codes, which 
designated independent trustees and, in the case of the Steelworkers, 
specific representatives of retirees. As an independent trustee I and 
my fellow public trustees represent the beneficiaries of the plan 
soley, and the court instructs us to distribute cuts to keep the very 
old and poor safe from cuts. The Autoworkers and Steelworkers plans 
each have unique structures that hue to the core principle of 
protecting retirees. In some of the cases, current workers and the 
employer have an obligation in the court agreement to continue to 
contribute to the retiree health obligations.
    When the courts established the VEBAs--the retiree health care 
plans--it constituted a transfer of employer liability to a trust fund 
for retiree health benefits, the court was very concerned about the 
governance structure of the plans and that retirees, who are most 
vulnerable and the state has an interest in protecting, were 
represented. In addition to having very specific language about how the 
cuts but the court agreements defined who vulnerable retirees are. In 
the case of the auto VEBA, retirees who had very low pension amounts 
were defined as vulnerable and in the Goodyear--Steelworker case 
vulnerable retirees include the very old retirees. Different rules and 
definitions of vulnerability are appropriate for different settings.
    In summay, I agree with the basic principles in the NCCMP 
Commission's report that the governance of an insolvent plan that cuts 
retiree benefits must include affirmative and specific protections for 
retirees. I support the analysis of the NCCMP Commission's report and 
the direction of the solutions. Based on my experience and research, 
Congress needs to provide a governance structure so that retirees are 
represented by an independent and well-resourced fiduciary.
    I agree that the PBGC is a good place to house a retiree advocate. 
However Congress should ensure that the retirees have an advocate 
actively responsible to ensure fair treatment of retirees. Effective 
retiree representatives have to help shape the cuts, assess the 
distribution and define, in terms particular to the plan and industry, 
who the most vulnerable retirees are. I have learned that different 
rules will have very different distributional effects under different 
    Congress should not give up on the idea that there could be new 
revenue sources to multiemployer plans besides from employers in 
critical status (who are already paying many more times the average 
contribution to the fund). Congress should give serious thought to an 
industry-wide assessment to help pay for these legacy cost. (See 
    Last, I am quite excited about the report's description of new 
benefit designs, including the target benefit--though discussion of new 
flexible and attractive design is for another day--they should be 
included in a PPA 2.0. Any solution to insolvency risks should include 
a design that mitigates future risks of insolvency.
                     appendix: more revenue sources
    The United States faced a similar situation with mature and 
insolvent employer pension plans in the early 1900s and an industry tax 
restored retiree benefits. The American Express company (a railway) 
established the first corporate pension plan in 1875. Recessions and 
competition from smaller new railroads caused the first plans to cut 
and stop paying benefits. If not for retiree protests, Congress would 
not have created the Railroad Retirement system in 1934 before Social 
Security. The Railroad Retirement system collects pension contributions 
from all employers in the industry to pay for the depreciation of long 
tenure employees. The underlying justification was that the young 
railroads enjoyed legacy benefits provided by railroads--the 
development of the industry--and they should share in paying for the 
legacy costs.
    In 2010, during my tenure as corporate director for YRCW, it was 
public knowledge that the trucking company had three problems: loss of 
revenue from the 2008 recession, a shortage of skilled truck drivers, 
and, more importantly, a large nonunion logistics company's setting 
prices below costs to gain permanent market share in key markets. Both 
firms would benefit from more people wanting to be truck drivers, but 
the newer nonunion company's strategy was early 20th century nonunion 
railroads' strategy--to slash prices and labor costs; making hard 
physical labor even less attractive.
    Chairman Roe. Thank you for your testimony.
    Ms. Murphy?


    Ms. Murphy. Good morning. Thank you, Chairman Roe, Ranking 
Member Andrews, and members of the subcommittee, for the 
opportunity to testify on this important topic.
    My name is Michele Murphy, and I am the executive vice 
president of human resources for SUPERVALU Inc. I have 
responsibility for SUPERVALU's pension plans, and I am a 
trustee on one of our multiemployer pension plans.
    You may have heard that SUPERVALU has divested many of its 
retail and distribution operations. Today's information is 
about the remaining SUPERVALU.
    We are a Fortune 500 company and one of the largest grocery 
wholesalers and retailers in the U.S., with approximately $17 
billion in sales. We are one of the founding members of the 
Association of Food and Drug Retailers, Wholesalers, and 
Manufacturers, a group of food employers concerned with the 
future of multiemployer pension plans.
    Today, SUPERVALU operates 572 supermarkets, 177 pharmacies, 
and 41 distribution centers in 34 states. Our distribution 
network also supplies over 3,000 independent grocers, 
franchisees, and licensees.
    SUPERVALU's net earnings margin is just over 1 percent in a 
highly competitive industry. We also support approximately 
2,100 charities, schools, and grassroots organizations and 
contributed food and funds equal to about 4.2 million meals in 
    We have about 35,000 employees, almost 15,000 of which are 
unionized in 52 different union contracts, making SUPERVALU one 
of the larger union employers in the U.S. We work primarily 
with two labor unions: the UFCW, which represents about 74 
percent of our unionized workforce; and the IBT, which 
represents another 24 percent.
    SUPERVALU contributes to 20 multiemployer defined benefit 
pension plans. In 11 of those we account for 5 percent or more 
of the plan's total contributions.
    In 2012 SUPERVALU contributed approximately $38 million to 
these plans. Currently, we have withdrawal liability in the 
majority of these plans estimated at over $500 million.
    As this subcommittee is well versed on the general rules 
applicable to multiemployer pension plans and how those current 
rules currently preclude new employers from joining the plans, 
I will focus my comments on SUPERVALU's specific situation. But 
one illustration highlights the problem with the current rules.
    As you know, Hostess filed for bankruptcy in 2011. Its 
bankruptcy increased the remaining employers' share of the 
unfunded liability of Central States by almost $600 million. 
Our share--SUPERVALU's share--of these unfunded liabilities is 
estimated to have increased by about $9 million even though 
none of those employees ever worked at SUPERVALU.
    While we participate in 20 multiemployer pension plans, a 
majority of our withdrawal liability is attributable to the 
Central States Pension Plan. Of the 20 plans that SUPERVALU 
participates in, two are projected to become insolvent in the 
next 10 to 20 years, mostly due to the orphan retirees, left 
unfunded by their employers, unable to pay their fair share.
    We have worked with our unions at the bargaining table, and 
our trustees have worked with union trustees and other 
employers to address the underfunding of these plans. This work 
has focused primarily on a combination of increased 
contributions as well as prospective benefit adjustments.
    Over the last several years, about 30 percent of all of our 
contract settlements have gone to increase contribution in the 
pension plans. While these increases are needed, they leave 
little money left over for wage increases.
    There are other anomalies and threatening conditions that 
we experience attributable to participation in plans. For 
example, we closed two Teamster facilities; we moved the work 
to other Teamster facilities participating in Central States, 
so no withdrawal liability. But if that work had moved to other 
union facilities, hundreds of millions of withdrawal liability 
could have been triggered.
    We have one small UFCW fund where contribution rates, while 
low, increased over 246 percent in a 2-year period. In a small 
Teamster fund, contribution rates will increase 19 percent each 
year of a 5-year contract.
    Our rating agencies are acutely aware of our withdrawal 
liability, essentially treating it as debt when we refinanced 
earlier this spring.
    I believe we are nearing a tipping point where good and 
successful employers could be brought down because of the 
unintended consequences of MPPAA. If this happens, plans will 
go insolvent. That harms retirees and ultimately costs the 
federal government.
    There are, however, solutions to the multiemployer plan 
dilemma that can help moderate or avoid the worst consequences, 
such as those solutions proposed by the NCCMP in its report. We 
have been represented in this work through the Food Association 
and we endorse the NCCMP report.
    In our opinion, salvaging troubled plans is the most 
important area for Congress to address. A ``wait and see'' 
approach could ruin employers, put employees out of jobs, 
reduce pension payments to retirees, and endanger the existence 
of the PBGC.
    The most important change is to allow a plan's board of 
trustees to suspend benefits even to retirees if absolutely 
necessary to prevent the plan from becoming insolvent. 
Naturally, safeguards would be needed to ensure that the 
reductions were done equitably.
    The second topic I want to touch on is technical 
corrections to the PPA. The PPA was an important piece of 
legislation that started down the right course for 
multiemployer plans and should not be allowed to sunset at the 
end of 2014.
    Some minor changes would enhance its effectiveness. These 
include allowing plans that are projected to enter the critical 
zone in the next 5 years to enter it in the current year, 
thereby moderating the actions that need to be taken to fix the 
plan. Second is to conform the rules for plans that are 
endangered, or yellow status, and those in critical and red 
status so that the ``critical'' rules apply to all, and to 
ensure that the contribution increases that are attributable to 
funding improvement and rehabilitation plans will be 
disregarded for purposes of calculating withdrawal liability.
    We also need to look at new types of plans that both 
provide retirement benefits that are reasonable and secure and 
protect contributing employers from the risk associated from 
other employers going bankrupt.
    In conclusion, I want to thank you again for the 
opportunity to testify. SUPERVALU applauds this subcommittee 
for its leadership in addressing the structural problems 
attributable to the multiemployer system, and we look forward 
to working with you on solutions that will ensure its continued 
    Thank you, and I am happy to answer any questions.
    [The statement of Ms. Murphy follows:]

    Prepared Statement of Michele Murphy, Executive Vice President,
      Human Resources and Corporate Communications, SUPERVALU Inc.

    Thank you Chairman Roe, Ranking Member Andrews, and members of the 
Subcommittee for the opportunity to testify today. My name is Michele 
Murphy. I am the Executive Vice President of Human Resources and 
Corporate Communications for SUPERVALU Inc. (``SUPERVALU''). I have 
responsibility for SUPERVALU's pension plans, and I serve as a Trustee 
for one of the 20 multiemployer pension plans in which SUPERVALU 
    As a preliminary matter, you may have read or heard about 
SUPERVALU's recent divestiture of many of its retail stores and 
warehouse operations. The information I am providing you today is for 
the remaining SUPERVALU, meaning the going forward company.
    SUPERVALU is a Fortune 500 company (about #150) and one of the 
largest grocery wholesalers and retailers in the U.S., with annual 
approximately $17 billion in sales.
    SUPERVALU is also one of the founding members of the Association of 
Food and Dairy Retailers, Wholesalers and Manufacturers, a group of 
employers spread throughout the food industry that is concerned with 
the future of multiemployer pension plans (the ``Food Employers 
    Today, SUPERVALU operates 572 supermarkets , 177 pharmacies and 41 
distribution centers, located in 34 states. Our distribution centers 
supply not only the company-owned supermarkets I just mentioned but 
also almost 3,000 independent grocers, franchisees and licensees. 
SUPERVALU's net earnings margin is just over 1%, reflecting the highly 
competitive nature of the retail food industry.
    SUPERVALU also supports approximately 2,100 charities, schools and 
grassroots organizations in the communities we serve, and contributed 
food and funds equal to 4.2 million meals in 2012.
    SUPERVALU has approximately 35,000 employees. About 15,000 of these 
employees are covered by 52 collective bargaining agreements 
(``CBAs''), making SUPERVALU one of the larger unionized employers in 
the United States. SUPERVALU primarily works with two labor unions--the 
United Food and Commercial Workers International Union (``UFCW''), 
which represents almost 74% of our unionized workforce, and the 
International Brotherhood of Teamsters (``IBT'') which represents about 
24% of our unionized workforce. SUPERVALU's other unions include the 
Bakery, Confectionery, Tobacco Workers and Grain Millers International 
Union (``BCTW&GM''), the International Union of Operating Engineers 
(``IUOE''), the International Association of Machinists (``IAM''), the 
Automotive, Petroleum and Allied Industries Employees (``AP&AIE''), and 
the United Steelworkers (``USW'').
    SUPERVALU contributes to 20 multiemployer defined benefit pension 
plans. In 11 of these plans, we account for 5% or more of the plan's 
total contributions. In 2012, SUPERVALU contributed approximately $38 
million to these plans as required by our CBAs. However, as described 
in greater detail below, if the NCCMP multiemployer reform 
recommendations are not enacted into law, SUPERVALU could be required 
to contribute more than $500 million over the long term (in addition to 
the contributions currently required under its CBAs) to fund pension 
benefits previously accrued under these plans, as 19 of these plans 
have withdrawal liability. Much of this money would not go to cover the 
pension costs of SUPREVALU employees or retirees but rather to cover 
pension costs of retirees who never worked for SUPERVALU.
II. Multiemployer defined benefit pension plans
            A. Overview
    A multiemployer defined benefit pension plan is a retirement plan 
to which more than one employer contributes. These plans are managed by 
a board of trustees, half of which are appointed by contributing 
employers and half of which are appointed by participating unions. The 
plans are funded pursuant to CBAs. In most plans, the employer 
contribution levels are established in the CBA through collective 
bargaining between the respective employers and unions. The Board of 
Trustees establishes the pension benefits to be provided to 
participants, based on the Plan's funding levels and projected 
contributions. Many multiemployer plans were designed to serve as 
retirement vehicles for smaller employers and employers with a mobile 
workforce, where employment patterns prevented employees from accruing 
adequate retirement benefits under traditional, single employer pension 
plans. In other words, multiemployer plans were established so that 
workers' pensions could be portable as they moved from job-to-job 
within the same industry. They are most common in the retail, 
transportation and construction industries.
    Multiemployer plans are subject to the Labor Management Relations 
Act of 1947, otherwise known as the Taft-Hartley Act. These plans are 
also subject to the Employee Retirement Income Security Act of 1974 
(``ERISA'') and the relevant provisions of the Internal Revenue Code of 
1986. As I stated before, these plans are required to have equal 
employer and union representation on the board of trustees. Although 
the trustees are selected by management and labor, they are required by 
law to act solely in the interests of plan participants.
            B. Withdrawal Liability
    Before the enactment of ERISA and the Multiemployer Pension Plan 
Amendments Act of 1980 (``MPPAA''), an employer's obligation to a 
multiemployer plan was generally limited to the contribution it was 
required to make during the term of the CBA. Once it made the agreed-
upon contribution, the employer had no further liability. Thus, if an 
employer terminated participation in a multiemployer plan following the 
expiration of its CBA, it did not have any further liability to the 
    In 1980, Congress enacted MPPAA, which was designed to address 
perceived problems with the multiemployer pension plan rules, including 
the possibility that an employer could terminate participation in a 
plan without having fully funded its share of plan benefits. MPPAA, in 
turn, strengthened the manner in which pension benefits were protected 
by requiring contributing employers that terminated their participation 
in a plan to make payments to cover their share of any unfunded 
benefits. This is known as ``withdrawal liability.''
            C. ``Last-Man Standing'' Rule
    When a withdrawing employer fails to fully pay its withdrawal 
liability (which is common for employers that become bankrupt or simply 
go out of business) the responsibility for the unfunded liabilities of 
the bankrupt employer is shifted to the remaining contributing 
employers in the Plan. This is referred to as the ``last-man standing'' 
rule. In many ways, the last man standing rule is endangering 
successful employers and their employees because the successful 
employers are required to pay for the failure of unsuccessful companies 
in the Plan.
    Even in those cases where an employer exits a plan and fully pays 
its withdrawal liability, the remaining employers are still responsible 
for ensuring that there is adequate funding in the future to cover plan 
liabilities attributable to the exiting employer. Thus, if the plan has 
adverse investment experience, the remaining employers must ultimately 
pay additional contributions to fund the benefits of the workers and 
retirees of the withdrawn employer unless the plan experiences future 
``excess'' investment returns that make up the loss.
            D. Implications
    The ``last man standing'' rule saddles employers that remain in a 
multiemployer plan with potential liability for pension obligations of 
workers and retirees that never worked for the remaining employers. 
This includes not only those who worked for a competitor of the 
remaining employers, but also, in many cases, those who worked in a 
completely different industry than the remaining employers. Shifting 
risk to the remaining employers places an unfair burden on the 
remaining employers and, depending on the employer's financial 
condition, could threaten the continued viability of these companies, 
too. Essentially, it creates a domino effect within the multiemployer 
pension plans that ultimately damages otherwise successful employers, 
reduces pension benefits for retirees, and puts further strain on the 
Pension Benefit Guarantee Corporation.
    Given the impact of the ``last-man standing'' rule, it is not 
surprising that multiemployer pension plans are not attracting new 
employers. Employers do not want to join a multiemployer plan that 
could expose them to future withdrawal liability on benefits earned by 
employees of other employers, including benefits earned long before the 
employer joined the plan.
            E. Pension Benefit Guaranty Corporation
    The last-man standing rule also underscores the disparity in the 
way the government insures single employer pension plans versus 
multiemployer pension plans. If an employer in a multiemployer plan 
goes bankrupt and cannot pay the withdrawal liability, the first step 
is for other contributing employers to assume the unfunded liabilities 
of failed employers and essentially pay for these liabilities through 
higher contributions to the multiemployer pension plan. This makes the 
remaining employers more costly and less competitive in the 
marketplace. As more contributing employers fall by the wayside, the 
previously successful employers become less successful and they, too, 
become in danger of going out of business. This is the domino effect I 
mentioned earlier. Eventually, the funding burden becomes too severe 
for the multiemployer plan and its contributing employers.
    For example, the Hostess bankruptcy in 2011 increased the remaining 
employers' share of the unfunded liability of the Teamster's Central 
States, Southeast and Southwest Areas Pension Plan (``Central States 
Pension Fund'') by almost $600 million. SUPERVALU's share of these 
unfunded liabilities was about $9 million even though SUPERVALU 
comprises less than 2% of the Central States Pension Fund. This is 
worth repeating--SUPERVALU's contributions to Central States are 
funding about $9 million of unfunded liabilities attributable to 
Hostess employees and retirees--even though they never worked for 
SUPERVALU, and in fact, worked in a different industry.
    If a multiemployer plan becomes insolvent, the PBGC loans money to 
the plan to pay benefits, and the pension payments must be reduced to 
the extent they exceed the PBGC statutory maximum. Currently, the 
maximum PBGC multiemployer guarantee is $12,870 per year for a retiree 
with 30 years of service at age 65. This is far different from a 
failing single employer plan for two reasons. First, with the failed 
single employer plan, the PBGC steps in and assumes the plan's 
liabilities and assets and pays the pension benefits. Second, the 
benefits in a single employer plan are subject to a maximum guarantee 
of about $57,477 per year, much higher than the multiemployer plan 
guarantee level.
III. SUPERVALU's participation in multiemployer defined benefit plans
    Like many food employers, SUPERVALU began participating in 
multiemployer plans at least as far back as the 1960s--in an era during 
which its exposure to these plans was limited to the contribution it 
was required to make during the term of its CBAs. Thus, its decision to 
participate in these plans was made well before the rule changes made 
    As a result of its warehouse and transit operations, SUPERVALU, 
like a number of food employers, became a contributing employer to 
trucking industry multiemployer pension plans during the 1960s--at a 
time when trucking companies were federally regulated and, thus, 
dominated participation in these plans. Deregulation has resulted in a 
dramatic consolidation in the trucking industry since the 1980s. Thus, 
many unionized trucking industry employers have left the business (many 
through bankruptcy), and food and beverage employers--like SUPERVALU--
now represent the largest segment of contributing employers to many of 
these multiemployer plans.
    The impact of the market consolidation in the retail food and 
trucking industry was exacerbated by the 2001 tech bubble and the 2008 
stock market crash. Much of the current multiemployer plan underfunding 
is a direct result of these market events, as well as the structural 
problems inherent in ERISA and MPPAA. All of these factors have 
resulted in reduced plan funding levels and lower the contribution 
streams into the plans.
    As previously mentioned, SUPERVALU could be required to make 
additional future contributions of $500 million simply to fund 
previously accrued pension benefits, with most of this additional 
contribution going to fund the benefits of participants who never 
worked for SUPERVALU. In fact, this may be an optimistic estimate 
because it assumes a very conservative employer attrition rate.
    While SUPERVALU participates in 20 different multiemployer plans, 
approximately 60% of its exposure is attributable to the Central States 
Pension Fund. It is estimated that 40% of the current retirees in the 
Central States Pension Fund are ``orphans'' who worked for employers 
who have left the Fund and who did not work for any of the remaining 
contributing employers in the plan.
IV. SUPERVALU's multiemployer plans
    SUPERVALU has also been a long-time proponent of multiemployer 
funding reform, including increased transparency. In 2005, SUPERVALU's 
then CEO, Jeff Noddle, testified before Congress in support of the 
Pension Protection Act. Further, for the past several years, SUPERVALU 
has disclosed in its Annual Report its participation in multiemployer 
plans, including the theoretical estimate of its aggregated exposure to 
the underfunding in such multiemployer plans. These disclosures provide 
more detail than is required by federal accounting rules.
    SUPERVALU has also worked with unions at the bargaining table, and 
its trustees have worked with union trustees and other employers to 
address the funding of the 10 multiemployer plans on which SUPERVALU 
has a trustee. Given the current rules, this work has focused on a 
combination of contribution increases and prospective benefit 
adjustments. Over the last several years, when bargaining labor 
contracts with multiemployer plans, more than 30% of SUPERVALU's total 
package settlement dollars have gone to increased contributions to the 
multiemployer pension plans in order to try to improve the funding of 
these plans. While we believe these increases were needed, they 
unfortunately resulted in little money being left over to pay wage 
increases, especially in light of the continuing increases in health 
care costs.
    There are many other anomalies and threatening business conditions 
SV experiences attributable to its participation in multiemployer 
plans. For example:
     SV recently closed 2 Teamster facilities. The work was 
transferred to other facilities participating in Central States so 
withdrawal liability was not triggered. However, had the work been 
moved to other union facilities that did not participate in Central 
States, hundreds of millions of dollars in withdrawal liability would 
have been triggered.
     SV has one UFCW fund where contribution rates increased 
over 246% in a 2 year contract. In another Teamster fund, contribution 
rates will increase 19% each year of a 5 year contract.
     SV rating agencies are acutely aware of SV withdrawal 
liability, essentially treating it as debt when we refinanced debt this 
past spring.
    Notwithstanding these efforts, SUPERVALU still faces significant 
exposure from underfunded plans, as do hundreds of other employers. We 
are nearing a tipping point where many good and successful employers 
will be brought down because of the unintended consequences of MPPAA. 
If this happens, multiemployer plans will go insolvent, resulting in 
harm to retirees and, ultimately, costing the federal government 
billions of dollars. Now is the time for Congress to act to prevent 
such a crisis.
V. Suggested concepts Congress should consider
    The National Coordinating Committee for Multiemployer Plans 
(``NCCMP'') has worked diligently with many employers and unions over 
the past several years to prepare recommended legislative solutions to 
the multiemployer plan dilemma. SUPERVALU has been represented in this 
work through its membership in the Food Employer Association and 
supports the solutions set forth in the NCCMP report. The NCCMP report 
sets forth many ideas to improve the current law with respect to 
multiemployer plans. The following is a discussion of one of the 
measures that are particularly important to SUPERVALU as a contributing 
            A. Remediation: Measures to Assist Deeply Troubled Plans
    In our opinion, salvaging troubled plans is the most important area 
for Congress to address. A ``wait and see'' or a ``do nothing'' 
approach will simply not work. It would ruin employers, put employees 
out of work, reduce pension payments to retirees, and ultimately 
endanger the existence of the PBGC. Changes need to be made to 
multiemployer plan rules--and now is the time. The most important of 
these changes would be to allow a plan's Board of Trustees to implement 
a program that would suspend benefits, even to retirees, if doing so is 
necessary to prevent the plan from becoming insolvent and to preserve 
the plan for its participants. Naturally, certain safeguards would need 
to be enacted to make sure these reductions were done in the most 
equitable manner possible.
    The biggest example of this issue for SUPERVALU is the case of the 
Central States Pension Fund. As I said before, SUPERVALU's share of the 
unfunded liabilities continues to grow every year as other Central 
States employers fall by the wayside. The retirees from these failed 
companies would be much better off in the long run if pension benefits 
were reduced now instead of waiting until the Plan becomes insolvent, 
when these same retirees could have their pensions cut by as much as 
two-thirds (and possibly much more, unless the PBGC is provided the 
necessary funds to meets its obligation with respect to the 
multiemployer plan guarantee).
            B. Preservation: Proposals to Strengthen the Current System
    The second topic I want to discuss is technical corrections to the 
Pension Protection Act (``PPA''). The PPA was an important piece of 
legislation that started setting the right course for multiemployer 
plans. We strongly believe it should not be allowed to sunset at the 
end of 2014. That being said, there are many minor technical changes 
that we believe should be made which, when taken together, would 
greatly improve the ability of multiemployer plans to improve their 
funding levels. Some of these are:
     Allowing plans that are projected to enter the critical 
zone within the next five years to enter critical status in the current 
year. By allowing plans earlier access the additional tools afforded 
plans in critical status, the plan may be able to moderate the actions 
that must be taken to fix the plan.
     Conform the rules applicable to plans that are in 
endangered and critical status by providing that the same rules 
applicable to red zone plans will apply to yellow zone plans during the 
funding improvement adoption period and the funding improvement period. 
Currently different rules apply to plans in the yellow zone that are 
more onerous than those that exist for red zone plans. This illogical 
structure should be corrected by applying the red zone rules to yellow 
zone plans
     Provide that any contribution increases attributable to 
Funding Improvement Plans or
    Rehabilitation Plans will be disregarded for withdrawal liability 
purposes. The additional contributions required to improve plan funding 
under a funding improvement or rehabilitation plan are producing a 
perverse incentive for employers to withdraw in order to avoid having 
these additional contributions result in greater potential withdrawal 
liability. For example, three employers withdrew in the last year from 
a small UFCW pension plan in Wisconsin because the increased 
contributions required under the rehabilitation plan were dramatically 
increasing their withdrawal liability exposure. The employers felt it 
was better to exit now and basically pay double their current 
contribution rate--the multimillion dollar withdrawal liability 
assessment plus an amount equal to their current contributions into a 
defined contribution plan--instead of risking increased withdrawal 
liability exposure attributable to the increasing required 
contributions. If the additional money was not added to the 
contribution rate for calculating the withdrawal liability payments, 
these employers may have stayed in the multiemployer plan.
            C. Innovation: New Structures to Foster Innovative Plan 
    Finally, we need to look to new types of multiemployer retirement 
plans that both provide reasonable benefits to retirees and protect 
contributing employers from risks associated with other employers going 
bankrupt. One of these mechanisms would be the creation of a new form 
of multiemployer plan, that would provide protection to employers 
(because no withdrawal liability) and would protect the core benefits 
of retirees (unless adjustment is necessary to prevent plan 
VI. Conclusion
    Again, Chairman Roe, Ranking Member Andrews, and members of the 
Subcommittee, I thank you for the opportunity to testify to your 
Subcommittee on behalf of SUPERVALU and the Food Employers Association. 
SUPERVALU applauds this Subcommittee for its leadership on important 
job of addressing the structural problems facing the multiemployer 
system. We are grateful for the opportunity to tell our story, and we 
look forward to working with you and others on a solution that will 
ensure the continued viability of the multiemployer pension system.
    Chairman Roe. Well, I thank all the panel for an excellent 
presentation, laying out the problem, and now we are getting to 
the solution phase, which is not going to be easy.
    And I want to thank Ranking Member Andrews for his very 
hard work on this. I think both sides of the aisle are 
committed to finding solutions and getting it done. We have a 
perfect window when certain provisions of the PPA sunset in 
2014, so we have the time to do it and the need to do it.
    And, Mr. Dean, I want to start with what you were talking 
about a minute ago. It looked like the solutions to this 
problem are not easy but there are 4 or 5, and one is that we 
can increase premiums, and that has been done in the single 
employer plan. You can do that. That is one of the things you 
can do.
    And you also mentioned--I think several of you mentioned--
that we have--people have forgotten we had two recessions in 10 
years. We had the tech bubble in the early 2000 era, and then 
the most recent one, the housing collapse, which created other 
stresses on these defined benefit or any pension plan, for that 
    So we can increase premiums. I think that plans have to 
look at not looking at unrealistic returns. I mean, we have 
some of the plans looking at 7 to 8 percent returns ad 
infinitum, and I think that certainly is not feasible over the 
next 20 years.
    Reduced benefits, which, as has been mentioned, is not--
obviously we would like not to do it, but we may have to do it 
in some--to preserve benefits, and that is a hard sell when you 
have people retired out there who are depending on this income. 
And some of these incomes are not all that generous to begin 
with, so families are living on every dollar they have, and to 
cut that would really create a real issue for them. So I feel a 
responsibility to maintain as much of that income for them as 
we can.
    And then last of all we have talked about is, you know, a 
taxpayer bailout to private unions, which I think--to private 
plans, I mean, which I think no one wants.
    The concept of the multiemployer pension plan I like. It 
allows a person to go from here to there, he may work at a 
journeyman job at various ones, but can also plan for their 
retirement. And I think the concept, I think, is good.
    Ms. Murphy, I was intrigued--got up early this morning and 
read your testimony again before we came here, and I want you 
to go back on what you--the last thing you said was some 
solutions about when plans are scheduled to enter the red zone, 
and the ultimate catch-22 that you find your very solid company 
caught in, where the longer you stay the more--and other plans 
either go bankrupt or just go out of business--that it puts 
more and more stress and more reason for you to try to get out 
of this plan instead of encouraging people to get in it. Could 
you go over that a little bit more?
    Ms. Murphy. I would be happy to. You have mentioned the 
last man standing rule, and the Central States plan is a good 
example of that, where hundreds and many more have left Central 
States without paying their unfunded liability. The employers 
that continue to stay in are really penalized for that because 
their withdrawal liability increases with the number of orphan 
retirees that remain in the plan.
    So every employer is looking at that downside of staying in 
the plan, and while they may want to do that, as a publicly 
traded company you certainly have to look at the financial risk 
of doing so.
    Chairman Roe. You know, and you mentioned a 1 percent 
margin. I was very familiar with that number in the grocery 
business. So you have got a pretty thin margin to start with.
    One suggestion, as I started my comments off, was just to 
continually raise the contribution limit. Would you speak to 
whether you can solve the problem by just doing that--in other 
words, going from $12 to $20, or pick a number?
    Ms. Murphy. Yes. Unfortunately, we don't think that is a 
viable solution. Contribution rates have increased pretty 
dramatically over the years, and even Central States has looked 
at employer contribution rates and has concluded that that is 
not a viable solution because there is an inverse proportion: 
as contribution rates go up, more and more employers will find 
it unaffordable, leave the plan, and ultimately the total 
contributions coming into the plan will not increase.
    Chairman Roe. So I see. You go out of business, you put a 
little more in, you have a net nothing increase.
    I know Mr. Andrews has a hard appointment at 11 o'clock. I 
will now yield to him?
    Mr. Andrews. Thank you very much. I appreciate your 
    I really appreciate the testimony of the witnesses.
    And, Mr. DeFrehn, let me compliment you and your coalition 
for the years of hard work you have done on this issue. And the 
process that you outlined I think was very fair, very open, 
very transparent in dealing with some very difficult issues. 
You have given us a report that I think is a very sound basis 
to solve this problem, and I appreciate it.
    I heard the chairman go through a list of solutions, and I 
embrace all of them. Looking at an increase in PBGC premiums is 
not easy but it is necessary.
    Certainly producing and facilitating more economic growth 
so the assets can be worth more in the plans is something we 
all embrace and certainly hope we can achieve. I agree that 
more careful and prudent and conservative estimates about 
returns are important so that the actuarial picture that we are 
looking at for these plans is based upon reality and not 
    And then finally, a fair and negotiated, collectively 
bargained approach to restructuring benefits is essential, and 
I want to emphasize the words ``fair'' and ``collectively 
bargained.'' We believe that representatives of the workforce 
and the employers should have the discretion and the authority 
to achieve the best result that they think they can achieve 
without our micromanagement or interference.
    There is a fifth option that I think we ought to think 
about, and the chairman made reference to it when we met in 
December to talk about the Hostess bankruptcy, and that was the 
effect of the bankruptcy laws on the machinations of these 
plans. I want to ask each of the four of you if there is a 
change that you would like to see in the bankruptcy law, which 
goes beyond our jurisdiction but I think is necessary to 
address this problem. What change would you like to see?
    Mr. DeFrehn, you want to start?
    Mr. DeFrehn. Sure. And thank you for those kind remarks.
    Bankruptcy has been an issue that the community has dealt 
with over the years in kind of a mixed way. Obviously from a 
plan standpoint, having an increase in the priority level would 
help protect the plan assets. The flip side of that, though, is 
if you do that then it further restricts the employers' ability 
to access the credit markets. So that has always been a tension 
between the two.
    We have had the Hostess situation, which everybody is 
familiar with, and even more recently, last week, the courts 
decided in the Patriot Coal Company to also dismiss vast 
amounts of liabilities, which will also create problems for 
that trust fund, which is already in trouble----
    Mr. Andrews. Which is already in horrific shape to begin 
with, right?
    Mr. DeFrehn. Yes. Yes. As a result, if I might add, of some 
unintended consequences of congressional action in the Clean 
Air Act. Sometimes things just don't work out the way we 
    But I would think that one thing that Congress could look 
at from the bankruptcy side of things is on the flip side, once 
a company emerges from bankruptcy. If there were an ability to 
go back and assess some of those liabilities once the company 
comes out of bankruptcy there may be some way----
    Mr. Andrews. Maybe a deferred liability----
    Mr. DeFrehn. A deferred liability of some sort, that is 
correct, rather than looking at it up front to create greater 
impediments to the credit market.
    Mr. Andrews. I want to give Dr. Ghilarducci a chance to 
respond, as well.
    Ms. Ghilarducci. [Off mike.] A change in the bankruptcy law 
would have helped my work--would have helped my work at the 
Yellow Freight--the YRCW deliberations as a corporate director 
because the bankruptcy laws had in place ways that did not 
presume that the way to solve pension liabilities was to go 
through bankruptcy, that would have given a chilling effect to 
the kinds of discussions we had about how to deal with this 
troubled but strong company. It might also change the way 
pension liabilities and pension obligations are taught in 
business school, where it is just not the bankruptcy would be 
the way out----
    Mr. Andrews. Now we are really going to get accused of 
micromanaging--business school curriculum.
    Ms. Ghilarducci. There are signals to the parties making 
these agreements about what is permissible.
    So if you actually made pension liabilities as important as 
tax liabilities, or responsibilities for the environment, or 
that you can't get away from criminal culpability by going 
through bankruptcy, then the pension liabilities may be treated 
in a different way at the very beginning.
    Mr. Andrews. Do either of the other witnesses care to 
comment on this?
    Ms. Murphy. All I would say--we don't advocate a change in 
bankruptcy law but I think it is incumbent upon employers and 
unions to work together as early as possible in these issues, 
and exiting the plans isn't the only solution either in 
bankruptcy. Some in our industry have figured out ways by 
working together to actually stay in the plan and continue 
    Mr. Andrews. Thank you, Mr. Chairman, very much.
    Chairman Roe. Thank the gentleman for yielding.
    Dr. Bucshon?
    Mr. Bucshon. Thank you very much, Mr. Chairman.
    First of all, just from a--my dad is a retired united 
mineworker, so I have--one thing I wanted to find out for my 
own edification, that the pre-1974--are there other people 
covered--retired workers in the mining industry--by plans that 
were pre-1974? Does anyone know the answer to that question?
    Mr. DeFrehn. Well, having started my career in that 
industry with the trust funds, there was a 1950 trust fund, 
which took care of everybody who retired prior to 1974. The 
1974 coal wage agreement then changed and there was a separate 
trust fund.
    I haven't followed it that closely to know whether that 
1950 fund is still around. I would imagine there are still some 
widows that would be receiving benefits; not too many miners, 
my guess would be. That is a long time for people who had that 
kind of a career and exposure to the occupational illnesses 
that are prevalent in that industry. But there--it may be that 
those liabilities were merged into the 1974 fund at this point.
    Mr. Bucshon. Could be. I just was talking to my dad over 
the weekend, and his impression is amongst his retired workers 
is that if they started in the coal industry before 1974 they 
were okay, and that doesn't sound like that is the case. It 
depends on when you retired.
    So they need to--I think the--it sounds like the UMWA needs 
to maybe message that to their retirees better about how 
critical this is that we work with them and with you all to 
make some changes that--because I think at least my dad has a 
false impression of that they are going to be okay regardless 
of what happens to this plan.
    With that, I want to extend the question and highlight, 
what will--and I will--any of the panelists--to again highlight 
what will happen if Central States or UMWA's 1974 plan actually 
goes insolvent, and again, highlight how bad that would be 
compared to finding some solutions.
    And we can start with whomever. Mr. DeFrehn?
    Mr. DeFrehn. The slides, the graphic that the chairman 
showed early is representative of what the PBGC trust would 
look like--their liabilities--if those two trust funds fail 
without any other types of intervention. I am aware that the 
coal industry and members here and in the Senate are evaluating 
whether or not there are some other sources of revenue from the 
Coal Act that might be available to take care of some of the 
problems in the coal industry and with that plan, which, as I 
mentioned, had been affected by the Clean Air Act. Much of the 
production was pushed to the far west and many of the jobs that 
were associated with that were lost over the last----
    Mr. Bucshon. I hate to interrupt, but in fact, that is----
    Mr. DeFrehn. Yes.
    Mr. Bucshon [continuing]. Exactly what happened to my dad's 
coal mine in central Illinois, 900 employees at one time, and 
now is idle with 30 years of coal sitting below the ground. But 
not only what will happen to the PBGC, but as an individual 
worker or an individual retiree, again, highlight the 
difference of what you currently get if the plan stays solvent 
but what you may get if it goes insolvent and how critical it 
is to these workers that Congress really do something to try to 
prevent that from happening.
    Mr. DeFrehn. A worker who is receiving $2,000 a month or 
$3,000 a month--if the plan were to fail, the guarantee under 
the current statute would provide a maximum of $12,870 to a 
worker who receives--who retired at age 65 with 30 years of 
service. If either of those are reduced--if you get less than 
30 years or if you retired before age 65--those guarantees are 
    The formula is quite simple. It is 100 percent of the first 
$11 of accrual, 75 percent of the next $33. That is what the 
statute provides.
    However, it has been made abundantly clear by the PBGC that 
their insolvency targets--that they are headed for insolvency 
with no changes. There is a 30 percent chance in their exposure 
draft that that will happen by 2022 and a 91 percent 
probability that they will be insolvent by 2032, which would 
mean they don't have any assets other than the current premiums 
that are being paid.
    GAO came in behind that study and did an estimate and they 
said that if you were paying benefits from current premiums the 
best you could do is 10 percent of that. So instead of $1,000 a 
month for that worker who was receiving $2,000 or $3,000 a 
month, he would be receiving $100 a month. That is not a 
guarantee. That is an illusion rather than a guarantee.
    Mr. Bucshon. I thank you for that, and I wanted just to 
highlight that, how critical it is for Congress to help prevent 
insolvency of these multiemployer pension funds.
    Thank you, Mr. Chairman. I yield back.
    Chairman Roe. I thank the gentleman for yielding.
    Mr. Tierney?
    Mr. Tierney. Thank you very much.
    I don't doubt that everybody agrees that preventing 
insolvency is a critical issue here, so let me ask a question: 
Is anybody contending that the trustees of these plans acted 
negligently or breached their fiduciary responsibility?
    Ms. Murphy. From the employer perspective, I think the 
answer to that is no. The trustees have worked with the 
governing laws and regulations as well as the terms of the 
plans and have done everything that they could within their 
power and the tools that have been available to them. I think 
the point of the NCCMP proposal is to say that new tools are 
    Mr. Tierney. Okay. So I think that is generally the 
    I see nodding heads across the board on that--maybe one 
dissention, Mr. Dean?
    Mr. Dean. Just--no. There is an economic shift to a 
    Mr. Tierney. So there were other factors, is what----
    Mr. Dean. Far greater.
    Mr. Tierney. One of the factors was some employers getting 
out of the plan and not covering their responsibilities going 
forward. What percentage of the problem is created in that 
    Mr. Dean. Well, in the construction economy I can speak to, 
the last man standing rule, technology and innovation in 
construction has resulted in less construction workers required 
to do the same task that they did in the past. Therefore, we 
have seen an erosion in employers, some labor laws----
    Mr. Tierney. Just trying to get to what portion of the 
problem is created by that----
    Mr. Dean. Well, it is built in the last man standing rule 
that anyone that remains active and participatory----
    Mr. Tierney. I don't want to----
    Mr. DeFrehn. Perhaps I could give you some clarity there. 
If you look at the large pension funds, the estimate is that 
they collect 10 cents on the dollar of withdrawal liability. 
Most of it is through bankruptcy. Sometimes they--because of 
the size of many of these employers they are too small to even 
bother to go through the bankruptcy process, so it is not 
proven--withdrawal liability is not proven to be the 
theoretical solution that it was intended to be.
    Mr. Tierney. Is there an idea or a set amount of capital, 
set amount of cash that is needed to resolve this problem? If 
there were such an injection of a certain amount would that 
resolve this problem and going forward things would repair with 
minor adjustments?
    Ms. Ghilarducci. It would help this gap, because the gap 
there is $5 billion. But my very detailed review of the 
Teamsters plans revealed two problems. One was there was too 
much faith that equities would actually provide a high rate of 
return, so the funds that actually had a lot of equities 
actually tend to be less better funded. The other big problem, 
though, is the withdrawal of new employees, so it is actually 
the shrinking of the union population in these areas.
    And then also, not a revival of a lot of part-time workers. 
So Western Conference versus the New England States is very 
much about the renewal of new entrants; it is probably 80 
percent of the problem.
    Mr. Tierney. You know, it would seem to me that the worst 
thing to happen here is that people will lose their pension 
funds or get them reduced on this basis. I mean, that is--they 
are already underfunded once they retired, and to say that they 
are going to pitch in and solve this problem and the answer is 
going to be they end up with a smaller pension, it just doesn't 
seem equitable or fair to me at all, so I am looking for a 
way--if there is an amount of money to be injected and this 
would do it, have people explored other ways of raising that 
capital that could be paid back later in some way that is less 
onerous that allows the plans to survive?
    Ms. Ghilarducci. Well, I have offered this blue sky idea, 
but I think it is fair, which is to look at the employers who 
are benefiting from these plans and make them pay. So an 
industry tax or some kind of levy on all the employers that are 
using these workforces, like the Railroad Retirement Act.
    Mr. Tierney. Ms. Murphy would object strenuously to that, I 
am sure.
    Ms. Murphy. Yes. I mean, we have looked at the private 
solution for those of us that participate in these 
multiemployer plans in partnership with the union that we 
believe will resolve it, and again, the benefit cuts are 
distasteful to everyone but they are only for those most 
troubled plans, like Central States, that simply there is no 
other way out that we have seen.
    Mr. Tierney. Does the taxpayer have any stake in this? You 
know, I mean, we bailed out a whole pile of banks, you know, to 
so-called ``keep them liquid.'' Does the taxpayer have any 
benefit to keeping liquid these retirees that are going to be 
so onerously affected? This a policy issue?
    Ms. Ghilarducci. Oh, I have been looking at the retirement 
crisis in general, and states and localities have a big benefit 
to make sure that these retirees don't go into poverty or to 
near-poor status. The fastest-growing group in homeless 
shelters in New York are the population over 55.
    So the federal government really doesn't have to bear 
directly those costs of those social services, but every 
governor, state legislator, and mayors are really interested in 
    Mr. Tierney. Why wasn't that reflected in the plan, Mr. 
DeFrehn? Why wasn't anything--an option involving all of those 
interests in resolving this problem presented in the plan as 
opposed to going right to the employees and retirees and 
whacking them?
    Mr. DeFrehn. Well, actually, what we referred to was trying 
to keep the existing system from taking too much of the benefit 
away, which is what the current law requires. Our solution was 
to try to mitigate the current law's requirements by having a 
earlier intervention by the trustees. We didn't get into----
    Mr. Tierney. We didn't give you enough license to be more 
creative. Is that what is----
    Mr. DeFrehn. Pardon me?
    Mr. Tierney. We didn't give you enough license to be more 
creative, but you might have been able to come up with some 
ideas had you been given that mission?
    Mr. DeFrehn. Yes. You know, under the current rules there 
is--we have seen one plan where--and let me just give a little 
background here----
    Chairman Roe. Gentleman's time is expired.
    Mr. DeFrehn. Oh, excuse me.
    Chairman Roe. Mr. Scott?
    Mr. DeFrehn. Perhaps we can have that discussion later----
    Mr. Tierney. Yes.
    Chairman Roe. Yes. Mr. Scott?
    Mr. Scott. Thank you, Mr. Chairman.
    Mr. Dean, you indicated that you have to represent the best 
interest of your members. Do your members notice that there 
are--looking at one of the unintended consequences of reducing 
benefits, if your members saw that benefits were actually being 
reduced on these defined benefit plans, why wouldn't they say, 
``Well, let's go for a 401(k) with a match rather than this 
illusory defined benefit that may or may not be there. At least 
we would own our 401(k)''?
    Mr. Dean. Many of our plans have a combination of both, but 
our members look for that stable, monthly pension----
    Mr. Scott. That may or may not be there.
    Mr. Dean. In most cases our pension plans in my industry 
and within my trade are in the green zone.
    We have had a distressed plan, say, in Buffalo, where the 
collapse of the steel industry created an upside-down active to 
retiree. The employers in the area had no construction to bid 
on; the workers had no work. And that plan is right now to date 
our only U.S. plan that has gone insolvent.
    Mr. Scott. But----
    Mr. Dean. But the issue is----
    Mr. Scott. But, I mean, if they concluded that they would 
be safer with a real live 401(k) rather than the better defined 
benefit plan, might that have people pulling out of plans and 
cause the cascade that we are kind of afraid of?
    Mr. Dean. The construction industry right now relies 
predominantly on defined benefit plans and it is supplemented 
with a defined contribution plan as a hedge against both. The 
defined benefit plans that we have offer great protections. 
Unfortunately, if a plan goes insolvent, goes to PBGC, they are 
destined for dramatically reduced benefits and these are our 
scenarios are for the distressed plans, which is a small 
    We want to be able to preserve and stabilize the existing 
ones we have and look for flexibility. We are not intending to 
cut benefits on all of our members' plans; we are looking to 
alter benefits on plans that are headed for insolvency, and it 
is a maybe 6 to 7 percent percentage of our entire workforce.
    The way the current rules----
    Mr. Scott. I am running out of time. I have a number of 
other questions I would like to ask.
    Mr. DeFrehn, when you answered the question whether or not 
there could be increased payments into the fund, was that an 
increase in pension plan--pension benefits or an increase in 
premiums that you were talking about?
    Mr. DeFrehn. I am sorry. I am not quite sure----
    Mr. Scott. You asked the question whether or not increased 
contributions would be a solution. Is that increased 
contributions to the pension plan or increased premiums--PBGC 
    Mr. DeFrehn. I think the question was directed to whether 
or not the--increasing contributions by employers to the fund 
would be a solution, and----
    Mr. Scott. Well, what about pension premiums?
    Mr. DeFrehn. To the PBGC?
    Mr. Scott. Right.
    Mr. DeFrehn. That is obviously going to have to be part of 
the package here. There are going to be plans even under the 
solution that the commission came up with that will not be able 
to benefit because they won't be able to project long-term 
solvency. That is a threshold requirement in order to access 
these new tools. So there will be some plans that continue to 
fall into that category and will ultimately become insolvent.
    To the extent that the agency already has $7 billion of 
recognized liabilities and only $1.8 billion in assets, there 
needs to be something to address that, and obviously some form 
of alternative premium structure is probably in order. We would 
recommend that--and we are trying to work right now with the 
agency to look at some alternatives as to how those premiums 
might be restructured in order to reflect the current 
    Mr. Scott. Thank you.
    Ms. Ghilarducci, can you say a--these contributions into 
the plan are all invested in stocks that can go up and down and 
are a corporate asset subject to bankruptcy. What would be the 
problem with requiring these plans to invest in annuities that 
would inure to the benefit of the employees and not--and would 
no longer be a corporate asset, that way the ups and downs of 
the market would be on the insurance companies, not on the 
companies and ultimately the employees?
    Ms. Ghilarducci. In some cases de-risking of annuities 
might makes some sense, and ERISA, kind of, you know, will 
allow that to happen. But in the two plans that you mentioned 
and the red zone plans, they just don't have enough money to 
buy from an insurance company that----
    Mr. Scott. This would be----
    Ms. Ghilarducci [continuing]. Hadn't lost its mind.
    Mr. Scott [continuing]. Prospective, not retroactive.
    Ms. Ghilarducci. No, I think that would be appropriate in 
some cases. But insurance companies also at risk of default, as 
well, as we have seen, so the PBGC backdrop is probably more 
important for retirees than an insurance company's backstop.
    Chairman Roe. Thank the gentleman for yielding.
    Mrs. Roby?
    Mrs. Roby. Thank you, Mr. Chairman.
    Thank you all for being here today.
    And, Mr. DeFrehn, I am going to start with you. Can you 
explain how plans have adjusted their assumptions and 
operations based on the financial downturn? In other words, 
what changes have those plans made since the 2008-2009 
financial downturn?
    Mr. DeFrehn. What we have seen so far is there has been 
very little change in the long-term assumed rates of return 
among multiemployer plans. They typically fall between 7 and 8 
percent. Our survey showed that about 85 percent of the plans 
are in that range, with more than half at 7.5 percent.
    The commission specifically looked at this, asking not just 
the actuarial community, who sets those assumptions, but 
economists and money managers--some of the largest firms, like 
BlackRock and PIMCO, as well as consultants, what that long-
term prospects for returns would be and how reasonable those 
current rates are.
    One of them said probably 7 percent would be the highest 
and all the rest of them said when you are looking at a 40-year 
time horizon, 7 to 9 percent is certainly reasonable. So they 
haven't made those changes.
    Mrs. Roby. Okay. Thank you.
    Ms. Murphy, we have heard complaints that some contributing 
employers sometimes have difficulty finding details regarding--
detailed information regarding the plan, so can you just 
explain, has that been your experience, and are there changes 
that we here in Congress can make to promote transparency?
    Ms. Murphy. I can. Yes, we have had some challenges and we 
fully support transparency. The funds are obligated to provide 
certain information under the PPA to employers. Employers have 
to request it in most cases.
    Many funds charge for it; the charges are not 
insubstantial. And some funds don't provide it when requested.
    So the change that we would ask is more standing on the 
behalf of employers to be able to get the information that has 
been requested.
    Mrs. Roby. Some people suggest that the funding crisis 
facing multiemployer plans is due to the sluggish economic 
recovery, and so again, Ms. Murphy, can you tell us what 
economic factors harm the plans you contribute to and maybe 
what are some other factors influencing their financial status?
    Ms. Murphy. Sure. Well, certainly the tech bubble of 2001 
and the market downturn in 2008 were significant factors that 
affected these funds, because for the most part they are highly 
leveraged and highly dependent on investment returns. Those 
market returns since then have helped improve some of the 
funding status of these plans. One of the biggest economic 
factors is, frankly, that new growth is not coming into these 
plans, particularly in some industries like retail, that there 
hasn't been a growth on the unionized side for retailers; and 
also, the reluctance of new employers to come into these plans.
    So we are having, you know, increased age of our 
participants and less use that is coming into the plan, so 
those are the primary economic factors.
    Mrs. Roby. Thank you very much.
    I yield back.
    Chairman Roe. Thank the gentlelady for yielding.
    Mr. Miller?
    Mr. Miller. Thank you, Mr. Chairman, and thank you very 
much for holding this hearing.
    And thank all of you for all the hours you have devoted to 
this subject, and I appreciate all the work you have done. I 
just want to touch base on a couple of issues and just sort of 
get some assessment of where we are.
    And one is, Teresa, in your testimony you raised a--about 
your service on the VEBAs and the question of what happens to 
vulnerable employees and who is defined as the vulnerable 
employee, and I just--I am not asking you for an answer on how 
that is going to be handled, but is that still a part of this 
discussion? Because obviously there are many organizations here 
and we have different views from them about how this is going 
to be done, and I just want to know, is that still a matter of 
consideration here so we try to make sure the----
    Ms. Ghilarducci. Okay, so if you are going to consider 
cutting retiree benefits--and I am very sympathetic that in 
some cases that is the only way these things are going to 
    Mr. Miller. Right. I think we all understand that----
    Ms. Ghilarducci [continuing]. Then the cursory language 
that says vulnerable retirees have to be protected is almost 
meaningless unless there is a very strong representation almost 
particular to every plan and every situation. Because in the 
steelworkers and auto workers cases, actually the vulnerability 
had a different standard. In the auto workers it was retirees 
that had less than $8,000--living on less than $8,000 a year; 
in the steelworkers, they defined their vulnerable retirees as 
very old. Now, there is an income-age correlation, but the 
particularities of the region and also the industry actually 
meant something different to vulnerable workers.
    Mr. Miller. Is that discussion being had as you consider 
reducing the----
    Ms. Ghilarducci. The most important thing I can bring from 
my experience there is all the time. We discuss benefit design 
every 6 weeks, and the distributional effects of every benefit 
design is what our poor actuary has to do.
    Mr. Miller. I am going to stop you there.
    The other question was--Randy, I think you referred to this 
business that should things turn out to be great and, in fact, 
the plan can gain solvency, how do you come back from that? How 
do you work your way back in terms of benefits? Is that being 
discussed or are avenues being developed?
    Mr. DeFrehn. Yes. That was an area that we discussed and it 
was clearly an area that people felt that there was some 
obligation as a plan recovered its financial health to also 
restore some of the benefits that were reduced, recognizing, 
though, that in some of these more mature plans the liabilities 
for retirees is maybe multiples of what the liabilities for the 
actives would be. The decision was that perhaps a dollar 
equivalency would make sense, rather than trying to restore on 
a percentage basis those benefits----
    Mr. Miller. But again, that----
    Mr. DeFrehn. It was a discussion. It was----
    Mr. Miller. That hasn't been thrown out yet. I mean, we 
    Mr. DeFrehn. Not at all. It is certainly part of the 
proposal, Mr. Miller, and there would--just to come back to the 
other point, as well, the notion of vulnerable populations, as 
Teresa says, it is best defined by those closest to it. The 
commission was very careful to recognize that people who were 
advanced ages had no ability to find other sources of income, 
and yet would be of the least cost to the plans going forward 
because their life expectancy is shorter.
    Those populations could reasonably be taken into 
consideration as the plans design their reconstruction model 
here. That would be something that the PBGC would take into 
consideration as they were satisfying themselves that due 
diligence had been exercised, as well.
    Mr. Miller. Okay.
    Finally, just on the question of new plan design, where are 
we in that discussion in terms of to the raises--the variable 
annuities and the target benefits? Is that under active 
discussion? Again, I recognize that in some cases that is a 
pipedream, but in others it may be--hold out some potential for 
some employers and some employee groups.
    Mr. DeFrehn. Yes. It is actually very much in play. All of 
the proposals--all aspects of the proposal are being advanced 
as a package. We believe that they are integrally and--tied to 
one another. Certainly the variable defined benefit plan has 
already been adopted by I think four different groups so far.
    The fact that it is a D.B. under the current structure is 
really only hampered by the question of whether or not the 
Treasury Department believes that the current structure is 
sufficient to issue a qualification letter. I don't believe any 
of those groups that have adopted it have received letters yet.
    Mr. Miller. Thank you. The reason I am asking these 
questions is that obviously members of Congress are starting to 
get, you know, taking meetings and getting hammered in some 
cases, or getting urged in other cases, whatever is going on. I 
just want to make sure that these particular issues are still 
open and under active discussion, that they are not starting to 
close these down.
    Because again, people are coming with--with very different 
situations and have a different vision about how big the 
catastrophe is or what the benefits will be, and I think while 
members are learning some of this for the first time beyond 
this committee, they have to know that this--one side or the 
other hasn't closed these options down.
    Mr. DeFrehn. If I might, Mr. Miller, just to respond to 
    Mr. Miller. It is up to the chairman at this point.
    Mr. DeFrehn. I am sorry.
    Mr. Chairman?
    I think at this point we are very close to having a formal 
proposal that would be something that could be turned into bill 
language that you could then--once that happens you will see 
that the support is still here--very strong support among the 
entire membership of the group that put this together. One or 
two slight defections along the way, but a group of 42 people, 
42 organizations, I think we have done a very good job in 
keeping that together, and you will see that support, both 
labor and management jointly, as soon as there is a bill for 
them to be talking about.
    Mr. Miller. Thank you. And thank you again for all of your 
work. Appreciate it.
    Chairman Roe. I thank the gentleman for yielding.
    Mrs. Brooks?
    Mrs. Brooks. Thank you, Mr. Chairman.
    To Mr. DeFrehn. The commission's proposal includes 
recommendations for alternative plan designs, one of which 
would change the discount rate used by plans for future 
accruals. What are the characteristics of those plans that you 
expect would move toward that model if doing so is voluntary?
    Mr. DeFrehn. Remember that there were two objectives of 
this commission. One was to make sure that any changes would 
result in a predictable, regular, guaranteed income for 
participants. And the second was to try to reduce the 
liabilities to employers.
    The two models were given as examples but not exclusive in 
the commission's proposal were a variable defined benefit plan, 
which would reduce but not eliminate withdrawal liability 
simply by using lower discount rates, and then having a 
variable portion, which would create a floor benefit using 
those rates, and then there would be a variable portion above 
that that would fluctuate based on the market returns.
    In the second model, which is known as the target benefit, 
that model eliminates withdrawal liability. It has higher than 
current funding standards with a requirement that the benefits 
be funded on a contribution basis of 120 percent of the current 
projected cost for the benefit, but because there is no 
withdrawal liability the contribution that is made would have 
to be managed by the fiduciaries of the plan and there would 
have to be some mechanism for adjustments in that benefit as it 
goes forward.
    So there are very specific recommendations that we have 
created along that line for a hierarchy of how those plans 
could be adjusted. But the notion is that the adjustments would 
be done timely and early so that there--the vulnerability of 
any pensioners whose benefits were being paid would be 
significantly limited.
    This model is not unusual. It has actively been used by the 
Canadians in--it is very similar to the Canadian defined 
benefit model, which also has no withdrawal liability with the 
exception of the province of Quebec.
    Mrs. Brooks. How is it working for Canada?
    Mr. DeFrehn. Pretty well, as a matter of fact. They have 
actually changed some of their rules on solvency because some 
of those were not as robust as they needed to be during the 
time of the market contractions.
    But it is quite similar to systems elsewhere in the world 
as well as the Dutch system, which we could get into in greater 
detail, but I think you can just see that we are one of the 
unique--our model is unique in having withdrawal liability, and 
what it is proven to do is create an impediment to the new 
employers coming into the system.
    If this system is to work, and if any defined benefit 
system--defined benefit program is to work it requires active 
engagement by the employers, and a continually shrinking pool 
of contributing employers is not a good future for any plan.
    Mrs. Brooks. Thank you. Thank you.
    Mr. Dean, you attributed the decline in assets in the 
pension fund to a twice-in-a-decade--in your testimony to a 
twice-in-a-decade financial downturn, and unfortunately, 
financial markets do sometimes suffer downturns at inopportune 
times. For that reason, some have questioned whether or not it 
is reasonable for the pension plans to automatically assume the 
7.5 or 8 percent returns every year.
    How can Congress provide unions and employers the funding 
flexibility they need while also ensuring that future promises 
and benefits are sufficiently funded even when there are 
financial downturns?
    Mr. Dean. Good question. Congress could look towards 
allowing us, in either the two solutions of the variable or the 
targeted or floor benefit going forward, which would assume a 
much lower rate of return, and then as it--as there is more 
income allowed you could apportion that money towards the 
participant not on a permanent basis but on whatever the market 
allows the portfolio to return.
    The way it is presently and the previous question, when you 
lower assumption rate you have to take a grundle of money to 
pay down that assumption rate and it doesn't do anything to pay 
for, and as the other panelists have talked about, whether it 
be, you know, the annual rate is determined on not only 
contributions but interest assumed, so it is not solely on 
interest assumption. So, and you know, that is one direction 
going forward where, if we had that leeway it would be 
something that we haven't done to date.
    But when we lock in the assumption rate and the benefit, 
that is a benefit promise in perpetuity.
    Mrs. Brooks. Thank you. I yield back.
    Chairman Roe. Thank the gentlelady for yielding.
    Mr. Polis?
    Mr. Polis. Thank you, Mr. Chair.
    My first question is for Mr. DeFrehn.
    I wanted to ask about in terms of the National Coordinating 
Committee, what kind of outreach have you been able to do to 
both--I think you talked a little bit about some of the 
national unions of workers who have, in particular, locals and 
ground-level workers and unions to get their input in the final 
    Mr. DeFrehn. The commission had both international union 
representation as well as some of the local and regional plans 
that were part of the discussions as we went forward. Since the 
commission's report has come out we have--I have personally 
spent an awful lot of time on the road briefing people about 
what the objective is, what the recommendations are. And 
generally speaking, I can tell you they have been well 
    Mr. Polis. But I was more interested in the input leading 
to the report as opposed to the outreach after it, but the 
input leading to the report also included locals and----
    Mr. DeFrehn. It did.
    Mr. Polis. Okay.
    And next question for Dr. Ghilarducci. You know, I think 
this concept of shared sacrifice is certainly understandable, 
but we also understand the importance of retirement security, 
and of course, we are committed to protecting beneficiaries 
whose--it is not their fault that their multiemployer pension 
plans are in the shape they are in. So what kind of limitations 
or protections should responsible pension reform have to ensure 
that we are not throwing beneficiaries under the bus?
    Ms. Ghilarducci. It is not their fault, and they also have 
less options. So the commission's report has the structure of a 
PBGC representative that would have to sign off on any 
reduction that had to happen in these desperate situations. The 
Central States may be a desperate situation.
    But that--I am really worried about that representative not 
actually having a more active role or being well resourced. And 
also, is that PBGC representative going to actually have the 
input from retirees and even on a local level for it to be 
effective? So I am concerned about the governance of that 
independent say.
    So the courts, in these situations that I am involved in, 
actually made sure I am one of the independent trustees and 
then the steelworkers actually have retiree representatives on 
that board, expanded that multiemployer union employer sponsor 
and included a retiree representative. It is kind of an active 
and fierce lawyers on these committees.
    Mr. Polis. So, I think the follow-up question is for 
anybody on the panel really. What happens if Congress doesn't 
take any action? Where are we in let's say 10 years, in 20 
years, so, I mean, 20 years, talking about people that are in 
their 40s today--10 years. What happens if there is no action 
whatsoever in the 10-and 20-year timeframe, whoever would like 
to address that?
    Mr. DeFrehn. I would be glad to start on that one.
    Mr. Polis. Okay.
    Mr. DeFrehn. If there is no action taken, some of the 
largest plans that we just mentioned--Central States and the 
Mine Workers plan--will collapse----
    Mr. Polis. But what does that mean for----
    Mr. DeFrehn. They will go to PBGC, the dire economic 
scenario that GAO has laid out will likely take place, or this 
body will be asked to appropriate large sums of money. But 
either way, the domino effect across these industries, because 
as you see from even the retail food industry, who contributes 
to funds in different trades, there is so much 
interconnectivity in the contributing employers among these 
trust funds, you will see a domino effect.
    Mr. Polis. And in your opinion, how soon does Congress need 
to act to avoid this?
    Mr. DeFrehn. As soon as humanly possible.
    Mr. Polis. What is our window? How many years?
    Mr. DeFrehn. I think if you get it done by next summer that 
is probably the end of the--where the window closes. Had we 
taken this action, or taken some action earlier to allow some 
of the earlier proposals, then the benefit reductions for plans 
that would be able to take advantage of these tools would not 
have had to be as severe as they are--by the day as these plans 
continue to spend down their assets, headed for insolvency.
    There will come a time when they pass that threshold where 
the test says you have to be able to demonstrate that you will 
be solvent going forward. When you get to that point and they 
can't meet that obligation any longer, we will have waited too 
    Mr. Dean. If the PBGC does become insolvent due to the 
collapse of the two plans, think of all the plans that are 
trying to maintain its solvency and in addition pay PBGC 
premiums for which they will be offered no protection. It is a 
scary thought.
    Mr. Polis. Do others agree we are only 12, 14, 16 months 
away from that, real quickly?
    Ms. Murphy?
    Ms. Murphy. Yes. Time is really of the essence, and this is 
the window to act now. We have been working on this for quite 
some time and talking about it, and the solutions that we 
propose now simply won't be effective if we wait any longer 
than that. Thank you.
    Mr. Polis. Thank you.
    I yield.
    Chairman Roe. I thank the gentleman for yielding.
    And I would also like to thank the witnesses for taking 
their time to testify today. You have done a great job.
    And I will now yield to Mr. Miller for his closing remarks?
    Mr. Miller. [Off mike.]
    Chairman Roe. That is a first. [Laughter.]
    That really caught me off guard.
    Secondly, I would like to thank the committee.
    And, Dr. Ghilarducci, I am an SEC fan. I know you were at 
Notre Dame for 25 years and I was just wondering if they are 
going to fill the football team next year.
    Ms. Ghilarducci [continuing]. For that. They are building 
their team.
    Chairman Roe. I think we both sides have a commitment to 
making sure or seeing that we can help solve this problem or 
get it into at least acceptable for everybody at the table. 
Certainly I have never seen a pension plan have a problem when 
they had too much money, and I think one of the things we need 
to look at in doing this is during the up years is allowing 
people to, quotes--``overfund'' these plans because you have 
not repealed the economic cycle. It is going to go up and down.
    And when you happen to retire--and just myself personally, 
I retired from my medical practice and guess what? The market 
went in the tank, and so you can't pick that time out. You are 
the age you retire when you retire, and I think that is--
smoothing out over time would be something we need to look at 
strongly, because, like the up during the 1990s, when it was--
the market was really on the ups, it would have been great to 
have stored some acorns away at that point to have to go back 
later to reserves to look at.
    So I would think we would look at that. I think bankruptcy, 
how that is dealt with, that Ranking Member mentioned a minute 
ago, I think we need to look at that.
    You all have clearly stated that increasing premiums alone 
does a couple things. It will help some. It will be part of the 
problem, but if you do too much it will discourage and hurt 
some companies and create a worse problem, so we have to be 
careful with that.
    I certainly think that looking at a small benefit reduction 
now with protections, as you all mentioned, will prevent a huge 
reduction in the future. And that is very difficult to go back 
and to tell people something you promised them that we may not 
be able to deliver 100 percent of that promise, but that is 
certainly better than none.
    And I think Mr. Polis brought out that educating the 
membership is--the people that are affected--and not let rumor 
mills get started is very important, and I think that is also 
much so. And I think changing--I think Mrs. Brooks brought this 
up, a very good question about how returns are calculated and 
if--boy, if I could be guaranteed a 9 percent return I might be 
looking at a new boat here pretty soon, so I think that is 
something we need to look at.
    And I think the new ideas--there is not any reason in the 
world why we have to stay with these two models we currently 
have. There is no reason for that and I am excited about the 
variable deferred--defined benefit plan I think is a great 
concept, and the targeted benefit also, where you can fund at a 
higher rate, understanding that you don't create, then, a 
barrier for people getting into a plan like that.
    I think that removes that last man standing rule and that 
is a huge deal when you look at UPS. It just wrote a $6 billion 
check a few years ago and got out, looking at their future 
    And I know, Ms. Murphy, you mentioned in your testimony--at 
least in your written testimony--about how the potential $500 
million liability you may have going forward is listed as a 
liability when you borrow money, people look forward, so that 
holds your company back from expanding or doing what they need 
to do.
    We don't know what the next sector will be, but we know 
during this--as Mr. Dean pointed out, technology in the mining 
and the transportation industry and construction industry has 
reduced the manpower that is needed to do the same job, so that 
has created fewer people paying into these plans. So a lot of 
problems, but I see solutions out here.
    I think we are committed to doing that and I am glad to 
hear, Mr. DeFrehn, you talking about we have got a window of 
about a year to get this legislation up and done.
    Well, that being said and no further comments, this meeting 
is adjourned.
    [Additional statements for the record from Mr. Andrews 

  Prepared Statement of American Association of Retired Persons (AARP)

    On behalf of our more than 37 million members and all Americans age 
50 and older, AARP appreciates the opportunity to submit this statement 
for the record on the ``Solutions, Not Bailouts'' proposal by the 
Retirement Security Review Commission on Multiemployer Pension 
    AARP is a nonprofit, nonpartisan organization that strengthens 
communities and fights for the issues that matter most to families, 
including healthcare, equal employment opportunity, and retirement 
security. For decades, AARP has also worked to preserve and strengthen 
defined benefit pensions as well as ERISA's protections for pension 
participants and beneficiaries. Defined benefit pension plans have 
proven themselves to be reliable, efficient, and vital mechanisms for 
ensuring retirement income security. Unfortunately, such plans 
increasingly have been supplanted by defined contribution arrangements 
such as 401(k)s, which shift all of the investment and longevity risk 
to employees. AARP believes we should take needed steps to preserve 
those defined benefit plans still in operation, explore ways of 
incorporating some of their participant protections and efficiencies 
into the defined contribution system, and devise innovative, improved 
systems for ensuring retirement security for all.
    AARP appreciates the tremendous effort and thoughtful proposal put 
forward by the Retirement Security Review Commission of the National 
Coordinating Committee for Multiemployer Plans (NCCMP plan), which is 
the focus of this hearing. It must be recognized that some deeply 
troubled multiemployer plans face insolvency within the next two 
decades. If this happens, only the very low levels of insurance from 
the Pension Benefit Guaranty Corporation (PBGC) for multiemployer plans 
will be available--a maximum of $12,870 for a 30-year participant--and 
even that amount is not guaranteed because the PBGC's multiemployer 
insurance fund itself has far less than it needs to pay projected 
claims. In the event that the PBGC fund runs short, participants would 
receive less than the insured amount, or possibly even nothing at all. 
AARP agrees that ``doing nothing'' in the face of these threats is not 
a useful option.
    The NCCMP proposal lays out in detail the forces, risks, and 
liabilities weighing on both employers and employees in multiemployer 
plans. It seeks to keep troubled plans from becoming insolvent so as to 
ensure that working-age participants who are contributing to the plan 
and retirees who are already receiving their hard-earned pensions 
receive benefits that are above PBGC-insured levels. However, it 
accomplishes solvency chiefly by granting plan trustees virtually 
unbridled discretion, allowing them to cut accrued benefits for 
participants, including the unprecedented step of reducing benefits of 
retirees in pay status. The proposal also does not address the 
shortfall in the PBGC's multiemployer insurance fund. AARP is 
sympathetic to the very real challenges facing distressed multiemployer 
pension plans, and the NCCMP proposal offers a good start for 
discussing how best to address those challenges. However, AARP has 
several strong concerns that need to be addressed before any such 
proposal should be considered.
Alternatives to Cutting Accrued Benefits
    If ERISA stands for anything, it stands for the proposition that 
accrued benefits cannot be reduced. The law provides that future 
benefits can be pared or frozen, but not benefits that have already 
been earned and vested. The ``anti-cutback rule'' is perhaps the most 
fundamental of ERISA's participant protections. Moreover, in the event 
an employer terminates the plan, those benefits (up to a given amount) 
are insured by the PBGC.
    AARP understands that active employees have already shouldered 
reductions in the form of increased contributions and scaled-back 
benefits. According to NCCMP, employers have already increased their 
contributions to the point of making themselves noncompetitive in 
bidding for jobs. We are not advocating that active employees and 
employers take further ``hits'' if their participation is at the 
tipping point. But this does not mean that the next step should be 
asking retirees to accept benefit cuts. Other than the due diligence 
requirements, which are advisory in nature, the NCCMP proposal makes 
cutting retirees its first resort--it is the centerpiece of the 
proposal based on the assumption that plans have already done 
everything else they can possibly do, and that insolvency will result 
in benefit cuts for retirees that are even deeper than those proposed 
    What is missing from the NCCMP proposal is an explicit recognition 
of the considerations that argue against cutting benefits for retirees 
or near-retirees. Historically, there is a broad consensus that any 
plan modification that leads to benefit reductions should protect (hold 
harmless) retirees and near-retirees (e.g., those within 10 years of 
retirement age). For good reason: those in and near retirement are 
either already relying on that income, which is usually modest in 
amount, or have already made plans in reliance on that income. In the 
case of retirees, they do not have any meaningful opportunity to return 
to the workforce or somehow generate new sources of income; in the case 
of near-retirees, they are deemed too close to retirement to be able to 
effectuate any significant change in career or retirement plans. It is 
widely viewed as simply unfair to change the rules of the game people 
have relied upon throughout their working careers.
    Accordingly, other alternatives should be fully explored and 
deployed as an alternative to cutting anyone's accrued benefits. 
Moreover, because retirees generally cannot return to work and lack 
other options for generating lost income, cutting benefits for retirees 
in pay status should be the absolute last resort. AARP believes that 
alternative measures should be considered and pursued rather than 
considering abrogation of the anti-cutback rule, including (not in 
priority order):
     Mergers and Alliances--AARP agrees with NCCMP that mergers 
and alliances with healthy plans should be encouraged, and not only for 
small plans. Yet, the NCCMP report states that although many smaller 
troubled plans could benefit from mergers with healthier plans, funding 
rules under the Pension Protection Act of 2006 (PPA) and the PBGC's 
recently restrictive interpretation of its authority are barriers to 
allowing this to happen. To the extent that overly narrow 
interpretations of its authority are getting in the way of this 
potentially helpful strategy, AARP agrees that the PBGC's authority to 
facilitate mergers and alliances prior to insolvency should be 
    In addition, as an alternative to reducing accrued benefits, it 
would be worth exploring whether multiemployer or single employer plans 
with overlapping sponsors might be able to share participants or assets 
in a way to so as materially assist troubled plans and still protect 
participants. Normally, the exclusive benefit and fiduciary rules would 
and should prevent transfers of assets from one plan to another; 
however, under very narrow circumstances, limited transfers of assets 
between one employer's plans have been permitted with the goal of 
helping preserve benefits for retirees.\2\ Some employers and unions 
participate in more than one plan, some of which may be healthy and one 
of which may be distressed. To the extent that any given employer and/
or union participates in more than one multiemployer plan, and if it 
would actually be effective and make a difference, the possibility of 
transferring participants from one plan to another should be considered 
in order increase the base of contributing active participants or 
otherwise protect retirees. The same might apply for employers that 
sponsor a healthy single employer plan as well as participating in a 
distressed multiemployer plan.
    Certainly, healthy plans should not undertake steps that would put 
the better-funded plan at risk of underfunding. However, to the extent 
pooling assets and liabilities in this way might work to save a portion 
of at-risk participants from cuts in accrued benefits, this step should 
be considered.
     Partition--The PBGC has rarely used its authority to 
partition the benefit obligations of employers who failed to make 
contributions or went bankrupt.\3\ Assuming that the PBGC had the funds 
needed to partition off and cover participants whose employers no 
longer contribute, this step could improve the solvency of the plan for 
remaining participants. In the case of deeply troubled plans, though, 
it is unclear whether this remedy would be sufficient to restore 
solvency, because other factors have also contributed to the distress 
of these plans. Moreover, this strategy doesn't avoid benefit cuts, at 
least for those partitioned into the PBGC-assisted plan. However, 
partition might help staunch concerns about further withdrawals from 
the plan.
     Increased Funds for the Plans and for the PBGC--The NCCMP 
report is called Solutions, not Bailouts. Pension plans, and the PBGC, 
are set up to be self-financing, without the need for federal funds. 
And for the most part, they have been. Some of the same plans that are 
so troubled now were adequately funded at the beginning of 2008, when 
the financial meltdown decimated business and jobs for many of the 
industries such as construction that sponsor multiemployer plans. The 
meltdown also led to steep losses in plan asset values and returns, and 
it produced the need for an extended, stimulative, low-interest rate 
environment, which is placing inflated funding obligations on 
employers. Given the role played by large banks and investment houses 
in creating the financial meltdown, steps can be taken to require them 
to also help distressed multiemployer plans.
     Low-interest loans by the large banks and investment 
funds--Until jobs and higher interest rates return to a certain level 
that helps these plans regain their financial footing, the banks and 
investment houses that received TARP funds could be required to make 
long-term, low-interest loans to them at the same Federal Reserve 
discount rate they use to loan each other funds.
     Public guarantee of private loans--Normally, the PBGC's 
assistance to insolvent multiemployer plans consists of providing loans 
to the plan so that it can pay benefits, but at lower, PBGC-guaranteed 
levels. Then, when and if the plan becomes solvent again, it is 
required to repay the PBGC. Previous hearings have explored whether 
there might be a way to bring investment banks or hedge funds into this 
picture, to provide federally guaranteed loans to plans earlier so as 
to stave off insolvency due to cash flow issues, or even a federal 
credit facility that would infuse funds to help offset the 
contributions that employers are having to make for orphans and others 
in the plan for whom an employer is not contributing.\4\ The NCCMP 
proposal puts forward the idea of federally guaranteed bond offerings 
that companies could use to pay off their unfunded legacy costs. 
Options such as these should be fully considered before the hard-
working employees and retirees who rely on these plans should be asked 
to accept cuts in accrued benefits.
     Increased PBGC premiums--Aside from measures taken to 
shore up troubled plans, there also need to be measures to bring the 
PBGC's multiemployer plan insurance fund back into balance, capable of 
handling its projected liabilities. There is no getting around the fact 
that the PBGC needs additional funds. Premiums were recently increased 
in the MAP-21 legislation, but are set at the still-too-low level of 
$12/year per participant beginning in 2013--about what it costs to go 
to a movie. These premiums are inadequate to cover the PBGC's 
liabilities. They also yield insurance levels that are too low to 
provide retirement security to participants.
    According to the PBGC, raising premiums to $120/year per 
participant would reduce the probability of the PBGC's insolvency by 
2022 down to zero,\5\ at least for plans now on the PBGC's books. The 
NCCMP plan insinuates that employers cannot bear additional costs such 
as premium increases of this magnitude without triggering withdrawals 
and other severe consequences. However, faced with the threat of being 
forced to accept benefit cuts of one-third or worse under the NCCMP 
proposal, it is quite possible that retirees and other participants 
might find it less onerous to be required to pay those premiums. For 
example, if all of the more than 10 million participants in 
multiemployer plans were required to contribute $250 per year, it would 
raise more than $25 billion dollars over the next 10 years, thereby 
closing the PBGC's deficit and financing more adequate levels of 
insurance without imposing additional costs on employers. In the past, 
some retiree health plans have started to charge premiums or exact 
other forms of cost-sharing of retirees, even though the plans were 
earlier offered as requiring no contributions from retirees.\6\ As 
compared to the alternatives, participants might welcome the chance to 
better insure their pensions, especially if they would receive higher 
levels of insurance protections.
    The alternatives discussed above represent ``outside the box'' 
approaches to addressing the challenge of insolvent multiemployer 
plans. But, so is the NCCMP proposal. As long as such approaches are on 
the table, AARP urges that all due consideration, and priority, be 
given to those proposals that would prevent drastic benefit cuts for 
participants, particularly any cuts to those in pay status.
Cutting Accrued Benefits
    The NCCMP proposal attempts to balance many competing interests: to 
keep active workers willing to contribute in exchange for the promise 
of a decent benefit in retirement; to keep employers willing to 
continue (or new ones to begin) their participation, yet avoid raising 
their costs too high to maintain their competitiveness; and to preserve 
benefit payments above levels that would ensue if the plans became 
insolvent. However, in addition to its failure to require alternatives 
to cutting accrued benefits, the NCCMP proposal contains two other 
fatal flaws: it grants too much discretion to plan trustees, and it 
fails to provide adequate protections for participants, especially for 
retirees. Consequently, AARP believes that changes are needed before 
consideration of the NCCMP proposal.
Unbridled Discretion
    At the outset, the NCCMP proposal states that certain criteria 
would need to be met before a plan would be eligible to cut accrued 
benefits. It would need to be so distressed as to face a projection of 
insolvency in 20 years or less, the cuts in benefits must fix the 
problem and restore solvency, and the ``plan sponsors and trustees 
[must] have exercised due diligence in determining that suspensions are 
necessary, including having taken all reasonable measures to improve 
the plan's funded position.'' \7\
    What constitutes ``reasonable measures'' is not specified, but 
would seem to be encompassed within the list of ``illustrative'' 
indicators of ``due diligence,'' i.e., considering factors such as 
contribution levels, future accrual levels, the impact on ancillary 
benefits, etc. Yet, having granted that plans should be required to 
exercise due diligence to be eligible to take drastic actions, the 
proposal then provides that ``it is impractical to develop a precise 
and complete list of quantitative tests to measure the due diligence of 
the sponsors and trustees. * * *'' \8\ This same ``illustrative'' list 
of what constitutes due diligence is the basis for the limited 
parameters allowed for PBGC review and approval.
    The plan, as proposed, grants too much, virtually unbridled, 
discretion to plan trustees. Nothing is required. No priorities are 
established. AARP understands that plan designs and terms can vary 
widely and that plan trustees may need to have some flexibility to 
fashion the measures that will work best for their stakeholders and 
participants. However, pension plans are not so different from one 
another that ``all reasonable measures'' cannot be anticipated and 
required, or that steps that constitute and are relevant to a finding 
of ``due diligence'' cannot be specified.
    Moreover, the proposal does not appear to recognize that the 
trustees may have possible conflicts of interest between protecting the 
active employees, who are contributing to the plan, paying union dues, 
and voting for union leadership; the deferred vested employees, who no 
longer contribute, pay dues, or vote; and the retirees, who may no 
longer contribute or pay dues, and may not have a vote or 
representation among the plan trustees. In failing to differentiate 
among various groups of participants with competing interests, it also 
fails to provide any appropriate procedural and substantive protections 
against conflicts of interest.
    The inclusion of an ``approval process'' by the PBGC, as outlined, 
does not compensate for these problems, as that process is itself 
inadequate. First, the entire scheme fails to acknowledge that the PBGC 
is not a disinterested watchdog in this context. If plans become 
insolvent, the agency is on the hook to pay benefits, and at present, 
it has insufficient funds to do so. It is in the interest of the PBGC 
to do all it can to prevent the plan from becoming insolvent; it has no 
incentive not to approve the trustees' plan. Second, even if the PBGC 
were not so incentivized, its assigned scope of review is limited to 
whether the plan trustees exercised due diligence. Yet, as stated 
above, ``due diligence'' is simply a list of considerations, not a 
defined set of duties that provides a basis for any real measure of 
accountability. The plan also calls for PBGC approval of the 
distribution of suspensions, taking into account ``equitable'' 
distribution across populations and ``protections'' for ``vulnerable 
populations.'' \9\ However, these terms, too, are undefined. Third, the 
PBGC must defer to the plan's decisions ``absent clear and compelling 
evidence to contrary.'' It is difficult to imagine what evidence would 
be sufficient, given that plan trustees are not required to do anything 
or have their decisions comport with any substantive standards, other 
than to achieve eventual solvency. Finally, if the PBGC fails to 
approve the plan within six months, the plan is ``deemed approved'' and 
in accordance with fiduciary standards, possibly preempting challenges, 
or at least creating a presumption of compliance. The entire process 
amounts to little more than a rubberstamp of the trustees' decision.
    Several changes are needed to address these deficiencies. First and 
foremost, ``all reasonable measures'' and ``due diligence'' cannot be 
whatever the trustees say they are. To prevent reductions in accrued 
benefits, it would be entirely appropriate to require certain steps be 
taken first. In addition to the alternatives already discussed, AARP 
believes that the standard steps should be required, such as cutting 
``extras'' that are not part of accrued benefits (e.g., 13th checks to 
retirees), and paring future accruals. Moreover, the due diligence 
element needs to be strengthened by requiring trustees to follow 
certain specified standards and procedures. That is not to say there 
needs to be a one-size-fits-all list, every item of which is required. 
However, there should be a list of standards and priorities, based on 
longstanding principles of fairness and ERISA, which should apply. 
Adherence to that list of standards, considering the facts and 
circumstances in which the plan finds itself, should be considered the 
measure for determining whether the trustees did or did not exercise 
due diligence.
    There also needs to be a stronger, more independent approval 
process. First, the PBGC's scope of review of the trustees' plan should 
be broadened to all relevant factors weighing in favor and against 
adoption of the plan, including but not limited to strengthened 
standards of due diligence.
    This review should preferably be done with the required approval of 
someone with some independence, such as the newly created Participant 
and Plan Sponsor Advocate, who is charged with advocating for ``the 
full attainment of the rights of participants in plans trusteed by the 
corporation,'' \10\ or in this case, plans at risk of being trusteed by 
the corporation. AARP agrees with NCCMP that the agency should be given 
a time limit for acting; the PBGC will need to weigh in on the question 
of whether six months is reasonable and appropriate. However, we are 
uncomfortable with the notion of deemed approval by default, especially 
when people's benefits are at stake.
    AARP is open to other alternatives. Perhaps the plan could be given 
the right to seek a time-limited review by the Employee Benefits 
Security Administration, or an independent third party, in order to 
better ensure approval within a defined time limit.
Inadequate Protections for Participants, Especially Retirees
    AARP is also extremely concerned that the NCCMP proposal is 
substantially lacking in participant protections, especially for 
retirees. We start with the fact that consideration of retirees appears 
nowhere in the list of ``illustrative'' factors that would be used to 
determine due diligence! The plan's trustees, and then by design the 
PBGC, are not called upon by a single factor to weigh the impact of the 
solvency plan on retirees. Moreover, it seems to us that the due 
diligence factors that are listed appear to tilt toward cutting 
benefits for retirees. Clearly, the kind of substantive standards of 
fairness and ERISA that AARP believes should be required as part of any 
measure of due diligence would and should include the historic 
protections afforded to participants who are already retired and in pay 
    In addition to omitting any consideration of retirees, the plan 
makes no differentiation in treatment between different groups of 
participants and beneficiaries. This is also a fatal flaw. There is 
nothing to prevent the trustees' plan from treating retirees or near-
retirees more adversely than it treats newly vested participants, for 
example. The only allusion to differentiation in the proposal appears 
in the provision regarding the distribution of benefit suspensions. 
There, the proposal specifies that benefit cuts should be distributed 
``equitably'' across the participant population, and that undefined 
``vulnerable'' populations should receive unspecified protections.
    These objections regarding lack of regard for retirees and near-
retirees are not ones of the tail wagging the dog, or allowing concerns 
about the vulnerable to overwhelm the bigger proposal, as some have 
suggested. This is a huge problem with the bigger proposal. It is not 
very meaningful to cordon off a ``vulnerable'' group as if they are a 
small part of the population, when the median multiemployer pension 
benefit received by retirees is so modest: only about $8,300/year in 
2009.\11\ If, in fact, most of the participant and beneficiary 
population in multiemployer plans are receiving relatively small 
pensions of well under $10,000/year, AARP would contend that most 
retirees would qualify as ``vulnerable'' and unable to bear any benefit 
cuts whatsoever.
    AARP recognizes that retirees and near-retirees could be hurt the 
worst in the event plans become insolvent. However, the NCCMP proposal 
must be modified in several ways. First, consideration of the status of 
retirees must be an explicit factor that is part of any evaluation of 
due diligence and fairness. Second, the plan should differentiate among 
groups of participants. There needs to be an established order of 
priority in how any proposed benefit suspensions would be handled in 
order to protect retirees in pay status, as well as near-retirees. This 
ranking should be mandatory/statutory. Third, any benefit cuts should 
also be expressly limited, perhaps according to a formula based on age 
or income, or limited on a sliding scale based on the size of the 
pension, e.g. there can be no cuts to those with benefits of $10,000 or 
less, or limits on cuts for those of higher age. Certainly, benefit 
protections that are only 10% higher than the amount provided by the 
PBGC in the event of insolvency is not much protection, and should be 
much higher.
    AARP agrees that cuts in optional, adjustable, or ``ancillary'' 
benefits should come before consideration of cuts in core pension 
benefits. However, AARP disagrees that benefits for surviving spouses 
(the 50% qualified joint and survivor annuity), or former spouses/
surviving spouses who have received a court-ordered share of a 
participant's pension, are ``ancillary'' benefits. These benefits were 
part of deferred compensation, jointly earned and jointly owned by both 
partners in the couple. They are considered part of the core benefit, 
and respect for these beneficiaries' rights are a condition of the 
plan's tax-qualified status. The NCCMP proposal does not state exactly 
how it would affect the rights of beneficiaries, or how, for example, a 
qualified domestic relations order that orders payment of a particular 
dollar amount would be fulfilled. AARP would maintain that the benefits 
of beneficiaries should be handled in a way that is congruent with the 
benefits of the participant. For instance, if the participant's 
benefits are reduced by 15%, so should the benefits of the beneficiary; 
the cuts to the beneficiary should not be larger.
    AARP agrees with the proposal's provisions that any suspension of 
benefits ``must achieve, but not exceed,'' the amount needed to achieve 
solvency. However, should such a proposal be adopted, we would take 
issue with the framing of another stated limitation. The proposal 
specifies, presumably after the plan achieves solvency, that any future 
benefit improvements ``must be accompanied by equitable restoration of 
suspensions, where the liability value of the improvement for actives 
cannot exceed the value of the restoration for retirees.'' \12\ Should 
retirees' benefits be reduced, it is insufficient to specify that 
improvements or restorations of benefits for active participants cannot 
exceed the value of restoring benefits to retirees. Under such a plan, 
it should be an absolute requirement that once solvency is achieved, 
the benefits of retirees are restored first, before there is any 
improvement or restoration of benefits to active participants. Once all 
suspended accrued benefits have been restored in full to retirees, 
improvements to the benefits of active participants would be permitted.
    In summary, AARP believes we should not cut anyone's accrued 
benefits, especially those of retirees and near-retirees; other 
alternatives should first be explored and implemented. If Congress is 
committed to consideration of proposals to permit reductions, cuts to 
retirees and near-retirees should be the last resort, and severely 
limited in scope and amount. We do not countenance vague assertions of 
protections for vulnerable populations. Nor do we consider statutorily 
required benefits for surviving spouses and former spouses to be 
ancillary. Protections for these groups must be strong and explicit. 
Finally, before any future improvements in retirement benefits should 
be permitted, any benefit cuts for retirees should be required to be 
restored in full. In fact, periodic reviews of the implementation of 
any plan that includes accrued benefit reductions should be mandatory 
to determine whether solvency has been achieved and/or whether prior 
cuts could be partially restored.
    There can be no doubt that the current proposal is contrary to one 
of the most central and fundamental tenets of ERISA, and would be a bad 
precedent for pension law generally. AARP also has no doubts that such 
a precedent would encourage other efforts to cut back accrued benefits.
    To prevent any further erosion of pension law, any proposal that 
advances should make clear that the measures permitted are confined 
only to the unique and difficult circumstances currently faced by 
multiemployer plans. Moreover, Congress should consider restricting the 
plans eligible to propose these unprecedented measures. Plans that are 
operating at a deficit but have 15-20 years until they face insolvency 
might be able to obtain low-cost financing or take steps that would 
significantly ``bend the curve'' away from insolvency, thereby 
lessening the need for more draconian measures.
Other Issues in the Proposal
    The NCCMP proposal also proposes allowing plans to ``harmonize'' 
their normal retirement age with those of Social Security, as a way of 
strengthening the system.\13\ Private sector pensions are barred from 
raising their retirement age for full benefits past 65.\14\
    AARP would caution against this proposal for several reasons. 
First, the types of jobs held by participants in many multiemployer 
plans are physically demanding and/or are performed under difficult 
working conditions. Many of their participants will not be able to work 
until age 65, let alone later. It is for this very reason that many 
unions have been among the most ardent opponents of raising the early 
retirement age in Social Security above 62 and of raising the full 
retirement age beyond the levels already made in the 1983 changes.\15\ 
Second, most pension plans already provide for actuarially reduced 
benefits in the event of early retirement. Raising the full retirement 
age in pension plans would have the same effect as it has in Social 
Security: to further reduce the benefits the participant receives, for 
life. Third, there would be no way to limit this change to 
multiemployer plans on the brink of insolvency. Finally, especially for 
those with physical disabilities or illness that prevents them from 
working longer, being able to collect a full pension at 65 enables the 
pensioner to make it until 66 or 67 when they can collect their full 
Social Security, in order to maximize what may be a small retirement 
income. AARP believes that retroactively increasing the retirement age 
for pensions, as is proposed, would impose an undue hardship.
    AARP does believe that there needs to be better ways of handling 
bankruptcies by employers who sponsor or participate in pension plans. 
Currently, employers can use bankruptcy to discharge their pension 
liabilities and to foist payment responsibilities onto others. 
Employees and pension participants should stand first in line among 
creditors in a bankruptcy court. AARP does not have specific 
suggestions for addressing the problem of withdrawal liability facing 
multiemployer plans, however, we agree that action is needed to protect 
against excessive liability for orphans and other disincentives on 
remaining employers.
    Finally, the NCCMP report puts forward some proposals for the 
redesign of pension plans in the future. AARP has not analyzed nor do 
we take a position on those plans here. However, AARP applauds the 
efforts of NCCMP and many others who recognize the unique value of 
defined benefit plans for both employers and employees, and recognize 
the importance to retirement security of best maintaining them.
    AARP agrees the NCCMP proposal attempts to address real problems 
faced by multiemployer plans, and appreciates its attempt to ensure 
everyone comes out better than they would under insolvency. However, we 
are not convinced that alternatives to cutting accrued benefits--a 
fundamental protection under ERISA--have been adequately considered. We 
are convinced, however, that at the very least, more protections for 
participants and beneficiaries must be included to ensure the proposal 
is a preferable alternative to insolvency.
    \1\ R. DeFrehn & J. Shapiro, Solutions not Bailouts: A 
Comprehensive Plan from Business and Labor to Safeguard Multiemployer 
Retirement Security, Protect Taxpayers and Spur Economic Growth 
(National Coordinating Committee for Multiemployer Plans, Feb. 2013), 
available at http://www.solutionsnotbailouts.com/splash [hereinafter 
NCCMP Proposal].
    \2\ See e.g., I.R.C. Sec.  420.
    \3\ See, Challenges Facing Multiemployer Pension Plans: Evaluating 
PBGC's Insurance Program and Financial Outlook 8, (Testimony of Joshua 
Gotbaum, PBGC Director, before the Health, Employment, Labor and 
Pensions Subcommittee of the House Committee on Education and the 
Workforce (Dec. 19, 2012)), available at http://www.pbgc.gov/Documents/
    \4\ See e.g., Assessing The Challenges Facing Multiemployer Pension 
Plans 39-40, 51, Hearing before the Health, Employment, Labor and 
Pensions Subcommittee of the House Committee on Education and the 
Workforce. (Transcript) (June 20, 2012), available at http://
    \5\ PBGC Insurance of Multiemployer Pension Plans: Report to 
Congress required by the Employee Retirement Income Security Act of 
1974, as amended 6 (Jan. 22, 2013), available at http://www.pbgc.gov/
    \6\ See, Employee Benefits Security Administration, U.S. Dept. of 
Labor, Can the Retiree Health Benefits Provided By Your Employer Be 
Cut?, available at http://www.dol.gov/ebsa/publications/retiree--
    \7\ NCCMP Proposal, supra n. 1, at 24. AARP reads this last 
criterion as requiring plans to have already taken ``all reasonable 
measures'' before determining cuts are necessary; to the extent that it 
does not, it should be modified to do so. Every plan should consider 
other measures rather than consider cuts to accrued benefits.
    \8\ Id.
    \9\ Id.
    \10\ Moving Ahead for Progress in the 21st Century (MAP-21), Pub. 
L. No. 112-141, 126 Stat. 405, 856, Sec. 40232 (2012).
    \11\ See, GAO, Private Pensions: Timely Action Needed to Address 
Impending Multiemployer Plan Insolvencies 32 (March 5, 2013), available 
at http://gao.gov/assets/660/653383.pdf.
    \12\ NCCMP Proposal, supra n. 1, at 25.
    \13\ NCCMP Proposal, supra n. 1, at 23.
    \14\ 29 U.S.C Sec.  1056.
    \15\ See e.g., International Brotherhood of Teamsters Resolution on 
Social Security/Medicare (July 1, 2011), available at http://
www.teamster.org/content/social-securitymedicare; AFL-CIO, What Is 
Social Security? available at http://www.aflcio.org/Issues/Retirement-

         Prepared Statement of the Pension Rights Center (PRC)

    The Pension Rights Center is a nonprofit consumer organization that 
has been working since 1976 to romote and protect the retirement 
security of American workers and their families. We commend the 
Subcommittee for holding this hearing. Multiemployer pension plans 
provide an essential source of retirement income to millions of 
Americans. The benefits paid by these plans, combined with Social 
Security benefits, have allowed hard-working Americans to enter 
retirement with the confidence that they will be able to maintain a 
reasonable standard of living for the remainder of their lives.
    Despite the success of the multiemployer system for so many people, 
there are now a small but significant number of multiemployer plans 
that face substantial financial issues that must be addressed. Some of 
these plans were adequately funded not long ago and some of them may 
find themselves in improved financial shape at some point in the future 
simply because of changes in the economic climate. But the issue today 
is how to shore up these plans to minimize the calamitous economic 
consequences of plan insolvency to current and future retirees.
    The National Coordinating Committee on Multiemployer Plans (NCCMP) 
has produced a document that has started a valuable dialogue on this 
important subject. Their report, Solutions not Bailouts, includes many 
innovative ideas relating to the future of multiemployer plans, 
including the idea for alliances and clarifying PBGC's authority to 
facilitate mergers; the possibility of discontinuing a 13th check in 
certain industries; a proposal to help certain widows unfairly denied 
survivor's protections; and recommendations to foster innovative plan 
    But we are deeply troubled by the document's suggestions for 
deeply-troubled plans, which endorse the unprecedented and dangerous 
step of allowing plans to slash the benefits of men and women already 
in retirement and who have no opportunity to replace lost benefits. 
This proposal would surprise the 1974 Congress that wrote ERISA and 
thought that in doing so had put a permanent end to broken promises and 
disappointed expectations for retirees.
    The NCCMP contends that its proposal will result in shared 
sacrifice, but we are concerned that most of the true sacrifice will be 
borne by those who have already retired. Multiemployer plans should not 
balance their books on the backs of their retirees.
    The rationale underlying the NCCMP proposal for deeply-troubled 
plans is that cutting some retiree benefits now will prevent the 
necessity of larger reductions later should the plan fail.\1\ This is 
not, however, necessarily true for all retirees. Under current law, the 
plan would pay every dollar of promised benefits to those retirees who 
die before plan insolvency, which might not occur for 15 or 20 years, 
or more.\2\ Retirees who are 80 or 85 years old will simply not be able 
to pay for utilities, medical expenses, and other daily necessities if 
their benefits are cut.
    \1\ The NCCMP proposal would allow the trustees of a plan, subject 
to minimal review, to cut benefits to 110% of PBGC guarantee levels. 
The maximum guarantee for a retiree with 30 years of service is $12,870 
a year. As a recent Wall Street Journal article noted, a retired truck 
driver now receiving a pension of $36,268 a year, would have his 
benefit reduced to $13,200, a loss of $23,028 a year. Kris Maher, 
``Union-Employer Proposal Would Hit Some Retirees,'' April 12, 2013.
    \2\ Under current law, benefits are not cut to PBGC guarantee 
limits until plan insolvency.
    For such retirees, the NCCMP proposal is all pain and no gain.
    Pension policy and pension law has long recognized that retirees 
deserve the strongest protection. Such individuals typically cannot go 
back into the job market to make up lost pension income. Benefit 
reductions would force many retirees into impoverishment. And the law 
reflects this. Under Title IV of ERISA, plan assets are effectively 
paid first to those who have already retired (or could have retired), 
both in single and multiemployer plans. Moreover, long before ERISA, 
orthodox plan design generally allocated the assets of insolvent plans 
first to the benefits of people in pay status, recognizing their 
particularly vulnerable status. The NCCMP proposal abandons this key 
principal of pension policy.
    The proposal refers to vulnerable populations, but does not 
adequately protect retirees. It leaves the decision to cut benefits to 
the discretion of the trustees, who often will have their primary 
allegiance to active workers, contributing employers, and the long-term 
continuation of the plan. Moreover, although the factors the trustees 
are directed to consider include ``compensation level of active 
participants relative to the industry, competitive factors facing 
sponsoring employers, and the impact of benefit levels on retaining 
active participants and bargaining groups,'' these standards say 
nothing directly about protecting retirees.
    Even worse, the proposal provides that the trustees' decision will 
be final unless the PBGC affirmatively rejects the decision within a 
180-day period, and that the PBGC can only reject the decision if the 
trustees have failed to use ``due diligence.'' In judging whether the 
trustees have used ``due diligence,'' the PBGC must grant deference to 
the trustee's decision to reduce benefits ``in the absence of clear and 
compelling evidence to the contrary.'' This is an unacceptably 
inadequate standard of review. There is the further fact that the PBGC 
itself has an institutional interest in approving benefit reductions to 
lessen the likelihood that it will be required to provide financial 
assistance to the plan.
    There is no question that a number of multiemployer plans are in 
serious financial trouble, and we very much appreciate the hard work of 
NCCMP's Commission members in developing their recommendations to 
address this issue. However, we also believe that there should be 
exploration of alternatives to the severe retiree benefit cuts that 
would be allowed under the Commission's proposal. We are currently 
working with our Retired Fellows (who include former top PBGC 
officials), our board of directors, and advisors to develop new ideas 
that would protect retirees--as well as their multiemployer plans, and 
the long-term health of the PBGC. Once we have completed our 
deliberations, we will be pleased to share our ideas with the 
    [Whereupon, at 11:29 a.m., the subcommittee was adjourned.]