[House Hearing, 113 Congress] [From the U.S. Government Publishing Office] STRENGTHENING THE MULTIEMPLOYER PENSION SYSTEM: HOW WILL PROPOSED REFORMS AFFECT EMPLOYERS, WORKERS, AND RETIREES? ======================================================================= HEARING before the SUBCOMMITTEE ON HEALTH, EMPLOYMENT, LABOR, AND PENSIONS COMMITTEE ON EDUCATION AND THE WORKFORCE U.S. House of Representatives ONE HUNDRED THIRTEENTH CONGRESS FIRST SESSION __________ HEARING HELD IN WASHINGTON, DC, OCTOBER 29, 2013 __________ Serial No. 113-35 __________ Printed for the use of the Committee on Education and the Workforce Available via the World Wide Web: www.gpo.gov/fdsys/browse/ committee.action?chamber=house&committee=education or Committee address: http://edworkforce.house.gov ______ U.S. GOVERNMENT PRINTING OFFICE 85-135 PDF WASHINGTON : 2014 ----------------------------------------------------------------------- For sale by the Superintendent of Documents, U.S. Government Printing Office Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; DC area (202) 512-1800 Fax: (202) 512-2104 Mail: Stop IDCC, Washington, DC 20402-0001 COMMITTEE ON EDUCATION AND THE WORKFORCE 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 ------ SUBCOMMITTEE ON HEALTH, EMPLOYMENT, LABOR, AND PENSIONS 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 ---------- Page Hearing held on October 29, 2013................................. 1 Statement of Members: Roe, Hon. David P., Chairman, Subcommittee on Health, Employment, Labor and Pensions............................. 1 Prepared statement of.................................... 3 Statement of Witnesses: Certner, David, Legislative Counsel and Legislative Policy Director, AARP Government Affairs.......................... 15 Prepared statement of.................................... 17 Duncan, Carol, Chief Executive Officer, General Sheet Metal.. 6 Prepared statement of.................................... 8 McGarver, Sean, President, North America's Trades Unions..... 30 Prepared statement of.................................... 32 Nyhan, Thomas, C., Executive Director and General Counsel, Central States Southeast Areas Pension Fund................ 42 Prepared statement of.................................... 44 Additional Submissions: Andrews, Hon. Robert, E., Ranking Member, Subcommittee on Health, Employment, Labor, and Pensions, submitted for the record: Prepared statement of The International Brotherhood of Boilermakers, Iron Ship Builders, Blacksmiths, Forgers & Helpers.............................................. 78 Prepared statement of The International Association of Machinists and Aerospace Workers....................... 59 Prepared statement of Paul Host, Teamsters for Democratic Unions................................................. 65 Scott, Hon. Robert C. ``Bobby'', a Representative in Congress from the State of Virginia submitted for the record: Prepared statement of The United Steel, Paper and Forestry, Rubber, Manufacturing, Energy, Allied Industrial and Service Workers International Union..... 95 Prepared statement of The United Steel, Paper and Forestry, Rubber, Manufacturing, Energy, Allied Industrial and Service Workers International Union..... 101 Appendix Andrews, Hon. Robert, E., Ranking Member, a Representative in Congress from the State of New Jersey, prepared statement of The Pension Rights Center............................... 112 Barletta, Hon. Lou, a Representative in Congress from the State of Pennsylvania, prepared statement of The National Electrical Contractors Association......................... 116 Scott, Hon. Robert C. ``Bobby'', a Representative in Congress from the State of Virginia, letter dated October 28, 2013 from General President James P. Hoffa, International Brotherhood of Teamsters................................... 123 STRENGTHENING THE MULTIEMPLOYER PENSION SYSTEM: HOW WILL PROPOSED REFORMS AFFECT EMPLOYERS, WORKERS, AND RETIREES? Tuesday, October 29, 2013 House of Representatives, Subcommittee on Health, Employment, Labor and Pensions Committee on Education and the Workforce, Washington, D.C. The subcommittee met, pursuant to call, at 10:02 a.m., in Room 2175, Rayburn House Office Building, Hon. David P. Roe [chairman of the subcommittee] presiding. Present: Representatives Roe, Wilson, Salmon, Guthrie, DesJarlais, Bucshon, Gowdy, Roby, Heck, Messer, Andrews, Holt, Loebsack, Scott, Hinojosa, Tierney, Courtney, and Wilson. Also present: Representatives Kline and Miller. Staff present: Andrew Banducci, Professional Staff Member; Janelle Belland, Coalitions and Members Services Coordinator; Owen Caine, Legislative Assistant; Molly Conway, Professional Staff Member; Ed Gilroy, Director of Workforce Policy; Benjamin Hoog, Senior Legislative Assistant; Nancy Locke, Chief Clerk; Brian Newell, Deputy Communications Director; Krisann Pearce, General Counsel; Jenny Prescott, Staff Assistant; Nicole Sizemore, Deputy Press Secretary; Alissa Strawcutter, Deputy Clerk; Juliane Sullivan, Staff Director; Alexa Turner, Staff Assistant; Aaron Albright, Minority Communications Director for Labor; Tylease Alli, Minority Clerk/Intern and Fellow Coordinator; Jody Calemine, Minority Staff Director; Daniel Foster, Minority Fellow, Labor; Melissa Greenberg, Minority Staff Assistant; Eunice Ikene, Minority Staff Assistant; Megan O'Reilly, Minority General Counsel; Michele Varnhagen, Minority Chief Policy Advisor/Labor Policy Director; and Mark Zuckerman, Minority Senior Economic Advisor. Chairman Roe. A quorum being present, the Subcommittee on Health, Employment, Labor and Pensions will come to order. Good morning, everyone. I would like to welcome our guests and thank our witnesses for being with us today. The topic of this hearing personally affects many in our audience--men and women who have spent a lifetime in the workplace and hope to enjoy retirement with the financial security they were promised. Unfortunately, that security is now in jeopardy for a number of different reasons. For example, the recent recession and the sluggish economy continue to threaten the multiemployer pension system and the retirement savings of many Americans. Flawed government policies have also had a hand in the current crisis we face, making it difficult for the trustees of these pension plans to prepare during the good times for the difficult times we are in now. I expect our witnesses will describe in greater detail the challenges facing the multiemployer pension system and how we have ended up with nearly 400 billion in unfunded benefit liabilities, a Pension Benefit Guaranty Corporation on the brink of insolvency, and employers stretched thin by current pension obligations, and both workers and retirees fearful they will lose what they worked so hard to achieve. For more than a year this subcommittee has been closely examining this difficult issue. During that time two things have become abundantly clear. First, the pain inflicted on workers and retirees will be far greater if we fail to act in the coming months. A number of multiemployer plans are regaining their financial health. We certainly welcome that progress and hope it continues; however, we cannot lose sight of the sizeable number of large plans that remain in financial distress. Pension plans that include hundreds of thousands of workers will become insolvent unless they receive the tools necessary to change course. If they don't, it is impossible to predict with any certainly how far the consequences will spread. We have discussed in previous hearings a domino effect that would undermine not just the strength of the individual pension plans but the pension system as a whole. PBGC will become overwhelmed and unable to provide the federal backstop it has delivered for nearly 40 years, which means some retirees will be left with nothing. We must also be mindful that employers will be harmed under this nightmare scenario as well. Improving the multiemployer pension system is not only about retirement security; it is about saving jobs and protecting the competitiveness of America's workplaces. As elected policymakers we have a responsibility to take action and help prevent the worst from happening. It has also become clear that there are no easy answers, despite what some may suggest. Our goal is to strengthen the multiemployer pensions. Part of that effort must include finding ways to encourage new employers to join the system. Raising contributions and premiums to punitive levels will undermine this important goal. In fact, I fear it will destroy jobs and drive even more employers out of the system, exacerbating the problems that already exist. We need to find a better way forward. While we face significant challenges, I am hopeful we can enact meaningful solutions before it is too late. Members of the labor and management communities have united behind a comprehensive proposal to reform the multiemployer pension system. Their work has been vital to this debate and encouraged members on both sides of the aisle. I have also had a number of positive conversations with the senior Democratic member of the subcommittee, Representative Rob Andrews. We share a commitment to working together and making the tough choices that are necessary. America's workers, employers, and retirees deserve no less. I know this is extremely difficult for every man and woman involved. Promises were made and lives were planned believing those promises would be kept. I cannot fathom the anxiety and frustration you must feel, but I hope you will work with us, not against us, as we try to preserve the multiemployer pensions you and millions of Americans rely upon. I will now recognize my colleague, Mr. Andrews, for his opening remarks? [The statement of Chairman Roe follows:] Prepared Statement of Hon. Phil Roe, Chairman, Subcommittee on Health, Employment, Labor, and Pensions Good morning, everyone. I'd like to welcome to our guests and thank our witnesses for being with us today. The topic of this hearing personally affects many in our audience, men and women who have spent a lifetime in the workplace and hope to enjoy retirement with the financial security they were promised. Unfortunately, that security is now in jeopardy for a number of different reasons. For example, the recent recession and a sluggish economy continue to threaten the multiemployer pension system and the retirement savings of many Americans. Flawed government policies have also had a hand in the current crisis we face, making it difficult for the trustees of these pension plans to prepare during the good times for the difficult times we are now in. I expect our witnesses will describe in greater detail the challenges facing the multiemployer pension system and how we have ended up with nearly 400 billion in unfunded benefit liabilities, a Pension Benefit Guaranty Corporation on the brink of insolvency, employers stretched thin by current pension obligations, and both workers and retirees fearful they will lose what they worked so hard to achieve. For more than a year the subcommittee has been closely examining this difficult issue. During that time two things have become abundantly clear. First, the pain inflicted on workers and retirees will be far greater if we fail to act in the coming months. A number of multiemployer plans are regaining their financial health. We certainly welcome that progress and hope it continues. However, we cannot lose sight of the sizeable number of large plans that remain in financial trouble. Pension plans that include hundreds of thousands of workers will become insolvent unless they receive the tools necessary to change course. If they don't, it is impossible to predict with any certainty how far the consequences will spread. We've discussed in previous hearings a domino effect that would undermine not just the strength of the individual pension plans, but the pension system as a whole. PBGC will become overwhelmed and unable to provide the federal backstop it has delivered for nearly 40 years, which means some retirees will be left with nothing. We must also be mindful that employers will be harmed under this nightmare scenario as well. Improving the multiemployer pension system is not only about retirement security; it's about saving jobs and protecting the competitiveness of America's workplaces. As elected policymakers, we have a responsibility to take action and help prevent the worst from happening. It has also become clear that there are no easy answers, despite what some may suggest. Our goal is to strengthen multiemployer pensions. Part of that effort must include finding ways to encourage new employers to join the system. Raising contributions and premiums to punitive levels will undermine this important goal. In fact, I fear it will destroy jobs and drive even more employers out of the system, exacerbating the problems that already exist. We need to find a better way forward. While we face significant challenges, I am hopeful we can enact meaningful solutions before it's too late. Members from the labor and management communities have united behind a comprehensive proposal to reform the multiemployer pension system. Their work has been vital to this debate and encouraged members on both sides of the aisle. I've also had a number of positive conversations with the senior Democratic member of the subcommittee, Representative Rob Andrews. We share a commitment to working together and making the tough choices that are necessary. America's workers, employers, and retirees deserve no less. I know this is extremely difficult for every man and woman involved. Promises were made and lives were planned believing those promises would be kept. I cannot fathom the anxiety and frustration you must feel, but I hope you will work with us_not against us_was we try to preserve the multiemployer pensions you and millions of Americans rely upon. I will now recognize my colleague Mr. Andrews for his opening remarks. ______ Mr. Andrews. I thank you, Mr. Chairman. I thank you for your continued courtesy and cooperation and thank the witnesses for giving us their time this morning. Almost everything we do around here every day is about politics. We spend an enormous amount of time, particularly the last 5 weeks, trying to say who is responsible for this problem and that problem and one side try to gain the advantage over the other. This is one of the few things we are doing around here that is not about politics. The easy political thing to do here is for the two sides to square off and accuse each other of wanting to cut the pensions of hardworking Americans. It is very tempting; it is very easy; it is very wrong. It is very wrong. The harder thing to do is to work together to try to fix this problem. What is this problem? Well, as I see it, this problem is about someone who worked very hard his or her whole life wiring up schools, or driving a truck, or cutting meat in a supermarket, or building houses, or working in a chemical plant; someone who has worked very hard for his or her whole life and they are counting on the fact that the pension they were promised will be there for the rest of their life, and if provided for, it will be there for their spouse and their survivors. That promise is in jeopardy today, not because anybody wants it to be; not because, in my opinion, because people have mismanaged. I think there have been some mismanaged funds but I think by and large this is not a problem of mismanagement. It is a problem of a horrendous economic situation that crested in 2008, about 5 years ago. People stopped building houses. They stopped building convenience stores and schools. They stopped buying goods that are trucked over the country's roads. And as those things happened jobs bled out of the economy, profits bled out of employers, and we got ourselves to a situation where the amount of money being paid into those pension funds in many cases was insufficient to cover the benefits that are being paid out and that will be paid out in the future. That is the problem. There is a harsh reality that if--if something is not done for some of those plans--some, not all--that we will reach a day when the plans will cease to exist and they will be turned over to the Pension Benefit Guaranty Corporation. What that generally means, not always, but what it generally means is a 60 percent benefit cut for people who are receiving pensions. Sixty percent. That is what we are here to avoid today. That is what we need to work together to accomplish. And I am pleased that we have four dedicated, sincere, able individuals here to talk to us this morning about their ideas. Later we will be putting some statements in the record from others who are not physically present to testify but who have things to say about this. And we will be working together to try to find ways to address this problem. If we want to do the politics of this it is pretty simple: We will take a position, the other side will take a position, and nothing will happen. Nothing. And it is my sense that if that happens a lot of innocent people who worked hard their whole lives will lose an enormous amount of their pensions. We are not going to let that happen. We are going to do the best we can to work together to find a fair, reasonable solution, and I hope this morning contributes to that. Thank you. Chairman Roe. I thank the gentleman for yielding. Pursuant to committee 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 materials referenced during the hearing to be submitted for the official hearing record. It is now my pleasure to introduce our distinguished panel of witnesses. First, Ms. Carol Duncan--thank you for coming all the way across the country--is the owner and president of General Sheet Metal Incorporated in Clackamas, Oregon. Ms. Duncan is also testifying on behalf of Sheet Metal and Air Conditioning Contractors' National Association. Welcome. Mr. David Certner is the legislative counsel and director of legislative policy for government affairs for AARP in Washington, D.C. He serves as counsel for the association's legislative, regulatory, litigation, and policy efforts. Welcome, Mr. Certner. Mr. Sean McGarvey is the president of the building and construction trades department of the AFL-CIO in Washington, D.C. He also serves as the chairman of the board of directors for the National Coordinating Committee for Multiemployer Plans. And welcome, Mr. McGarvey.
Mr. Tom Nyhan is the executive director and general counsel of the Central States Southeast and Southwest Areas Pension Funds, headquartered in Rosemont, Illinois. The pension covers more than 416,000 plan participants. 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 yellow; when you time is expired the light will turn red. At that point I will ask you to wrap up your testimony as best you can. After everyone has testified members will each have 5 minutes to ask questions. I will now begin with Ms. Duncan? STATEMENT OF MS. CAROL DUNCAN, PRESIDENT, GENERAL SHEET METAL WORKS, CLACKAMAS, OREGON Mr. Duncan. Thank you, Chairman Roe, and Ranking Member Andrews, and members of the subcommittee, for holding this hearing. I truly appreciate your bipartisan efforts. My name is Carol Duncan. I am the CEO and president of General Sheet Metal out of Clackamas, Oregon. We are a small business, employing between 60 and 100 craftspeople. We perform both public and private work in several divisions, including mechanical, architectural, and manufacturing. I am pleased to be here today representing SMACNA and my company. General Sheet Metal was founded in 1932 and purchased by my father and my uncle in 1972. I started with the company when I was 21 and recently purchased my father out, becoming the sole owner. I would also like to mention my brothers own a roofing company and contribute to two defined contribution plans, also. My husband worked 47 years in the construction industry and now draws his retirement from two construction industry plans. My daughter, who just finished college, worked for me during the summers and is interested in becoming a third general family business owner. However, unless something is done to address the unfunded pension liability, I am not sure that is the best advice a mother could give. My company pays into two defined pension benefit plans--a national plan in critical status and a local plan in green status but with $178 million unfunded vested benefits. That might be more than all the value of all the contributing contractors in the plan. My recent contributions totaled $1.5 million to our local plan and over 500,000 to our national plan. Yet, we are liable for contributions far beyond that. General Sheet Metal's contributions to the national plan in 2011 were 149,000, but my withdrawal liability for that year alone increased by 280,000--almost double my contributions. As withdrawal liability grows, it can outpace the value of a company, especially in small, family-owned businesses. Employers keep making higher contributions every year but the hole keeps getting deeper. It is important to know that the employees are doing their part, too. They have agreed to lower accrual rates. Some have taken new funding increases out of their paychecks to help the contractors stay more competitive. But this alone hasn't done it. I run a successful business, but unfunded pension liability results in an uncontrollable uncertainty that affects my major business decisions every day. For example, negotiating with my banker or my surety for increasing operating lines or bonding capacity requires me to educate them on this issue, and I can tell you firsthand that no matter how much I explain or educate them their discomfort with my company not being able to realize--their discomfort with the unfunded liability holds my company back from realizing its full potential. It would be hard if not impossible to sell my company because of the pension liabilities. And although I have key employees who expressed an interest in becoming part owners, even they may not be willing to invest, given the risk and uncertainty of the pension liabilities. In the 1990s, when the economy and the stock market were booming, our local plan exceeded 100 percent funding. Back then, tax law prevented the plans from building reserves, so benefits were increased. Congress addressed the overfunding issue, but those benefit improvements cannot be changed and now they are part of the plan's unfunded liabilities. As we look for solutions we must stop digging the hole; and we are focused on more stable models for the future. Oregon Business Magazine rated GSM as one of Oregon's top companies to work for in 2010 and 2012, and it gives me great satisfaction to provide our employees quality wages, health care for their families, and a secure retirement that many others don't. Therefore, I am interested in new plan designs that would offer the best characteristics of the defined-benefit plan but would not expose my business to additional pension liabilities. Employers can't continue to be the backup for stock market performance, nor can we be dependent on the volatility of other employers in the plan. I, along with SMACNA, support the Solutions Not Bailout proposal developed over 18 months with both labor and management working together. We are not asking for taxpayer bailout. It is a self-help plan for plans, and also relieving the stress on the PBGC. Let me finish by saying when a mother has second thoughts about turning over her business to her daughter and when unfunded pension liabilities overshadow the value of a company, something is wrong. Thank you, and I would be happy to answer any questions. [The statement of Ms. Duncan follows:] [GRAPHIC] [TIFF OMITTED] T5135.032 [GRAPHIC] [TIFF OMITTED] T5135.033 [GRAPHIC] [TIFF OMITTED] T5135.034 [GRAPHIC] [TIFF OMITTED] T5135.035 [GRAPHIC] [TIFF OMITTED] T5135.036 [GRAPHIC] [TIFF OMITTED] T5135.037 [GRAPHIC] [TIFF OMITTED] T5135.038 ------ Chairman Roe. Thank you, Ms. Duncan. Mr. Certner? STATEMENT OF MR. DAVID CERTNER, LEGISLATIVE COUNSEL AND LEGISLATIVE POLICY DIRECTOR, AARP GOVERNMENT AFFAIRS, WASHINGTON, D.C. Mr. Certner. Mr. Chairman, Mr. Andrews, and members of the committee, I am David Certner, legislative counsel for AARP. And thank you for inviting us to testify today. We appreciate the opportunity to share our views on steps to strengthen multiemployer pension plans. AARP recognizes the effort put forward by NCCMP in its Solutions Not Bailout report to address the potential insolvency of some deeply troubled plans. Under insolvency, participants would only receive a very low insurance amount from the PBGC. AARP agrees that doing nothing in the face of this problem is not a viable option. However, the centerpiece of the NCCMP plan is a proposal to give multiemployer plans the legal authority to drastically cut the pension benefits of current retirees to as little as 110 percent of the PBGC insurance levels. AARP has concerns with several aspects of the plan but we are most alarmed at the proposal to grant plan trustees broad discretion to cut accrued benefits for participants, including the unprecedented step of reducing the pension benefits of retirees already receiving and living on their pensions. Not surprisingly, AARP strongly objects to this proposal. This would mean an 80-year-old retiree with 1,000-a-month pension could lose more than one full month's worth of income every year. A retiree with a modest $24,000-a-year pension, or $2,000 a month, could see a whopping 41 percent cut, to about 1,180 a month. That is a recipe for drastically reducing the living standards of a median-income retiree to an income barely above the poverty level. The simple question is this: How exactly are these retirees expected to make up that lost income? The NCCMP report attempts to preserve defined-benefit retirement security, but security is illusory if your benefits can be cut after you have already retired. Far from boosting confidence in the plan, the broken promises to retirees would damage workers' trust they will collect their own pension when they retire. Proponents fear potential insolvency. However, this is not by itself a sufficient argument for cutting retiree benefits and upending ERISA protections. If ERISA stands for anything, it stands for the proposition that already-accrued benefits cannot be reduced. The anti- cutback rule is perhaps the most fundamental of ERISA's protections. Accordingly, we must explore alternatives and focus on strategies that increase the PBGC's capacity to assist plans and protect participants. We urge the committee to explore different approaches, spelled out in greater detail in our written statement, including the following: One, require steps plans can take now. The Pension Protection Act permits distressed plans to cut adjustable benefits but this has not always happened. Plans in critical status should be required to take all steps currently available before any other cuts to accrued benefits are every considered. Two, enhance the ability of the PBGC to assist troubled plans. If the PBGC had the authority and financial resources to step in sooner with more tools at its disposal it could help stave off insolvency, minimize participant losses, and mitigate its own liabilities. Our written statement suggests potential ways to use plan mergers, alliances, and partition to leverage support from healthy plans. Three, increase funds for the PBGC. Premiums are currently set at the low level of 12 per year per participant--inadequate to cover the PBGC's liabilities--and with insurance levels that are too low to provide retirement security. Improving the PBGC's capacity to handle its liabilities, intervene to assist plans, and to provide greater insurance protection should be a shared responsibility among healthy plans, employers, participants, and Congress. And fourth, increase revenue for the plans. Congress has provided long-term loan assistance to some industries that have been decimated by the financial crisis. Similar federal financial assistance, such as low-interest loans, should be an option here as well. Permitting retiree benefit cuts is bad enough, but to propose standards for making the cuts are deeply flawed and, quite frankly, unfair. Our written statement contains a detailed critique, but in short, the due diligence standards are heavily biased towards cutting retirees with inherent conflicts of interest. Retirees have no meaningful voice throughout the process. The PBGC's scope of review is really more like a rubber stamp, and there are few details on how to protect retirees, mitigate the harshness of the cuts, or protect vulnerable populations. When the median multiemployer pension benefit received by retirees is only about $8,300 a year, AARP would contend that most retirees will qualify as ``vulnerable.'' And in closing, AARP simply rejects the premise that cutting retiree benefits is an imperative, and we advocate instead the adoption of alternative approaches. Again, thank you, and I would be happy to answer any questions you may have. [The statement of Mr. Certner follows:] [GRAPHIC] [TIFF OMITTED] T5135.039 [GRAPHIC] [TIFF OMITTED] T5135.040 [GRAPHIC] [TIFF OMITTED] T5135.041 [GRAPHIC] [TIFF OMITTED] T5135.042 [GRAPHIC] [TIFF OMITTED] T5135.043 [GRAPHIC] [TIFF OMITTED] T5135.044 [GRAPHIC] [TIFF OMITTED] T5135.045 [GRAPHIC] [TIFF OMITTED] T5135.046 [GRAPHIC] [TIFF OMITTED] T5135.047 [GRAPHIC] [TIFF OMITTED] T5135.048 [GRAPHIC] [TIFF OMITTED] T5135.049 [GRAPHIC] [TIFF OMITTED] T5135.050 [GRAPHIC] [TIFF OMITTED] T5135.051 ------ Chairman Roe. I thank you, Mr. Certner. Mr. McGarvey, you are recognized? STATEMENT OF MR. SEAN MCGARVEY, PRESIDENT, BUILDING AND CONSTRUCTION TRADES DEPARTMENT, AFL-CIO, WASHINGTON, D.C. Mr. McGarvey. Good morning, Mr. Chairman, Mr. Andrews, and members of the subcommittee. My name is Sean McGarvey, and I am the president of North America's Building Trades Unions. And I apologize--I am a little under the weather today--if I have to stop to blow my nose or something. We are an alliance of 13 national and international unions that collectively represent over 2 million skilled craft professionals in the United States and Canada. Due to the nature of the construction industry, whereby the vast majority of our members move from project to project and from employer to employer, our health and benefit plans are structured under what are known as multiemployer plans. Multiemployer plans have been providing retirement security to tens of millions of Americans for over 60 years. Traditionally such plans have been conservatively managed and well funded. In fact, over the 35-year history of the Pension Benefit Guaranty Corporation, over 74 multiemployer plans ever received financial assistance from the agency. As recently as 2007, over 75 percent of multiemployer funds were more than 80 percent funded. However, the investment losses incurred as a result of the 2008 global financial disaster now threaten the financial viability of a small but significant minority of multiemployer plans. In addition, the impending sunset of multiemployer funding provisions of the Pension Protection Act of 2006 presents an opportunity for more fundamental restructuring of some of the basic precepts of ERISA law in order to reduce or eliminate the drastic financial risks being incurred by contributing employers. This restructuring, including the elimination of withdrawal liability for future service, would remove many of the disincentives to retaining current contributing employers while providing an opportunity to attract new contributors, thereby strengthening the long-term financial health of such plans for both the current and future generations. The multiemployer world solutions to address unfunded liabilities, such as increased contributions, can also boost an employer's potential exposure to withdrawal liability because the higher a contribution rate results in a higher assessment rate for withdrawal liability. Another risk occurs when an employer goes bankrupt and the employer's liabilities cannot be collected. This adds to the cost of the remaining employers in the plan who become understandably nervous about their fellow employers' financial health. Withdrawal liability was designed to discourage employers from leaving the plans, but because of the more stringent funding rules imposed by the PPA, it is now having an opposite and perverse effect whereby some employers will be able to avoid even greater future exposure by paying their current withdrawal liability and leaving the plan rather than improving the funding of the plan by continuing their contributions. So in order to protect multiemployer retirement security and to avoid any semblance of taxpayer bailout, labor and management in the construction industry have worked hand in hand to formulate a reasonable and workable package of solutions. Through the offices of the National Coordinating Committee for Multiemployer Plans, we formed the Retirement Security Review Commission. This commission involved the participation of dozens of representatives of over 40 labor and employer associations, multiemployer plans, and large employers. The resulting set of recommendations is contained in the report titled ``Solutions Not Bailouts.'' The commission was driven by two primary objectives: one, that any recommendations for change to the existing system of multiemployer plans must still provide regular and reliable lifetime retirement income for multiemployer plans participants; and two, that any changes to the existing system be structured to reduce or eliminate the financial risks to contributing employers. We feel strongly that our recommendations satisfy both of these concerns and we clearly and fully acknowledge that these recommendations come with some measure of pain for the rank and file members and retirees that I represent as well as our contractor employers. What we seek from this committee and from this Congress is your willingness to help remove the obstacles that are currently preventing us from fixing our own plans without any infusion of taxpayer dollars. Having said that, though, I would also like to take this opportunity to suggest to this committee that this committee explore ways to immediately and effectively address the funding shortfalls currently being experienced by the PBGC. Absent such action, our plan participants and our contractor employers will be forced to endure additional and substantial financial burdens on top of those associated with our commission's recommendations. Taken together, the solutions that have been put forth by both labor and management in the construction industry will improve retirement security and enhance the ability of plans to retain contributing employers by limiting financial volatility. Further, our Solutions Not Bailouts plan will work to prevent the need for future taxpayer assistance by dramatically reducing the agency's expose to plan failures, thereby improving the financial outlook of the PBGC multiemployer insurance program. Thank you for the opportunity to express these views here today, and I will be happy to answer any questions the committee may have. [The statement of Mr. McGarvey follows:] [GRAPHIC] [TIFF OMITTED] T5135.052 [GRAPHIC] [TIFF OMITTED] T5135.053 [GRAPHIC] [TIFF OMITTED] T5135.054 [GRAPHIC] [TIFF OMITTED] T5135.055 [GRAPHIC] [TIFF OMITTED] T5135.056 [GRAPHIC] [TIFF OMITTED] T5135.057 [GRAPHIC] [TIFF OMITTED] T5135.058 [GRAPHIC] [TIFF OMITTED] T5135.059 [GRAPHIC] [TIFF OMITTED] T5135.060 [GRAPHIC] [TIFF OMITTED] T5135.061 ------ Chairman Roe. Thank you, Mr. McGarvey. Now, Mr. Nyhan, you are recognized? STATEMENT OF MR. THOMAS NYHAN, EXECUTIVE DIRECTOR, CENTRAL STATES SOUTHEAST AND SOUTHWEST AREAS PENSION FUND, ROSEMONT, ILLINOIS Mr. Nyhan. Thank you, Chairman Roe, Ranking Member Andrews, and other members of the subcommittee, for the opportunity to testify today. Central States is the second-largest multiemployer plan in the country with over 410,000 participants and 1,800 participating employers, 90 percent of which are small employers with 50 or fewer employees. For 30 years the fund's investments have been exclusively managed by major financial institutions, screened by the Labor Department, and approved by the federal court. Since its inception, the fund has paid out over $60 billion in pension benefits with an average current benefit of about $15,000 per year. Since the deregulation of the trucking industry, there has been a dramatic consolidation in the transportation industry. As a result, thousands of employers have gone out of business without meeting their funding obligations, leaving the pension fund and the surviving employers with the obligation for the unfunded liability. Central States continues to be the primary insurer of the unfunded pensions of retirees for employers who have simply failed. Literally speaking, the pension fund has stood in the shoes of the PBGC for 30 years. In 1980 there were four actives for each inactive participant. Today that is reversed, with nearly five inactives for every active participant. Last year we collected $700 million from employers and paid nearly $2.8 billion in benefits. The $2.1 billion annual shortfall must be made up with investment returns or the plan will spiral into insolvency. The fund has done a lot to try to correct these problems. After the first market meltdown the fund reduced future benefit accruals by 50 percent and froze unreduced early retirement subsidies. Additionally, contribution rates have been ratcheted up from $170 per week back in 2003 to over $340 a week, or $8.50 an hour. As a result of these measures, the fund increased its annual revenue and reduced its projected liability. As of January 1, 2008, the fund actuaries projected the fund would be fully funded in 2029, assuming normal investment returns. However, as we know, 2008 was not a normal investment year; it was devastating, particularly for a mature plan that is dependent on investment returns in order to pay benefits. The fund experienced an investment loss of nearly $7.6 billion and paid out 1.8 billion in benefits above contributions received from employers. Since 2008 the fund has earned positive investment returns but its current financial condition remains troubled. Unless the fund substantially reduces its liabilities or receives a large influx of assets, it is projected to become insolvent within 10 to 15 years. And at this point our options are very limited. The fund would need to earn at least 12 to 13 percent each and every year in order to avoid insolvency. That is not a realistic investment return assumption. The actuaries project that any additional cuts in benefits of the active employees or further contribution increases above those that have already been mandated will accelerate insolvency. Under the existing legal landscape we simply can't manage the problem. Additionally, the PBGC itself is in dire financial condition. For the last several years we have supported legislation to update the PBGC's partition authority and appropriate the necessary funding as a remedy that would preserve the fund's solvency. That legislative proposal, had that been enacted, the benefits of our participants would have been protected. But that legislation was not enacted and no similar legislation has been introduced in this Congress. As a result, in 2012 the PBGC multiemployer program had $1.8 billion in assets but booked more than $7 billion in liabilities. Moreover, the PBGC itself projects it will incur an additional $38 billion in new claims over the next 9 years. Not surprisingly, the PBGC and GAO recently released separate reports indicating there was a substantial risk that the PBGC's multiemployer program will itself be insolvent within 10 years, before the projected insolvency of Central States. If these projections are correct, the retirees covered by the fund face the stark and tragic reality that their pension checks could be eliminated in their entirety when the fund becomes insolvent. So today we are faced with the Hobson's choice of either supporting legislation that allows us to use our own assets to provide long-term retirement security at reduced levels or doing nothing and facing the substantial risk that the retirement checks will disappear completely upon insolvency. If we do nothing and the PBGC fails we will pay out $28 billion through date of insolvency. However, if we act our participants will receive over $72 billion over the next 50 years. I know others argue that benefit reductions should be avoided at all costs by appropriating new revenue through taxes or premium increases. I agree. Our preferred solution has always been one that would generate additional revenue to alleviate the funding shortfalls, as evidenced by our vigorous support of past legislative proposals. But the fact of the matter is these legislative proposals got little or no support from either house, from either party, or from the administration. Rest assured, if such legislation were ever enacted in the future we would take full advantage to restore the benefits of our participants. But the retirement security of our participants is too important to gamble on wishful thinking. Open-ended and vague theories as to how to resolve the funding problems need to give way to timely, concrete, and realistic proposals. The truth of the matter is there is no funding source anywhere on the horizon that deals with shortfalls of this magnitude, and time is running out to craft a solution. In light of that reality, we believe the only solution is one that permits us the remedy of remedying the shortfall ourselves. Thank you. [The statement of Mr. Nyhan follows:] [GRAPHIC] [TIFF OMITTED] T5135.062 [GRAPHIC] [TIFF OMITTED] T5135.063 [GRAPHIC] [TIFF OMITTED] T5135.064 [GRAPHIC] [TIFF OMITTED] T5135.065 [GRAPHIC] [TIFF OMITTED] T5135.066 [GRAPHIC] [TIFF OMITTED] T5135.067 [GRAPHIC] [TIFF OMITTED] T5135.068 [GRAPHIC] [TIFF OMITTED] T5135.069 [GRAPHIC] [TIFF OMITTED] T5135.070 ------ Chairman Roe. Thank you. A great job of the committee. I will now yield to the committee chair, Mr. Kline? Mr. Kline. Thank you, Mr. Chairman. I want to thank the witnesses for being here today. I want to identify myself with the remarks of Mr. Andrews concerning the bipartisan effort that we have here. Both sides recognize a problem that needs to be solved, and so I appreciate the work that Chairman Roe and Mr. Andrews have put into this and their determination to reach a solution. Great group of witnesses. Ms. Duncan, I thank you for pointing out the challenges facing employers who are doing everything within their power to run good companies and provide for their employees and yet facing withdrawal liabilities that are just staggering and, as you pointed out, perhaps more than the value of the company itself. And I am hearing that from employers back in Minnesota. And, Mr. McGarvey, I am really glad that you are here today, and your presence here speaks volumes about the recognition of employees to the dangers that are facing them. I am extremely impressed that a very diverse group of employers and employees and labor unions have come together here. This group, Mr. McGarvey, includes quite a variety of labor organizations. I am just reading them through here: Bakery and Confectionary Workers Union, the Iron Workers, the Mine Workers, the Electrical Workers, the Bricklayers, the Operating Engineers, the Carpenters, the United Food and Commercial Workers, the Machinists, the Teamsters, and others. And the vast majority of those organizations have been very vocally and powerfully supporting the efforts today to find a solution here. I am also aware that a couple of those organizations whose names are in this report, and some who I just named, have once again abandoned the group supporting reform. And despite the failure of previous legislation, they have apparently deluded themselves into thinking that self-help is unnecessary because the federal government will bail out these plans. And I don't see that as an option. We have seen the press reports, and I am afraid that sometimes the leadership is just not being honest with their members. Again, I commend you, Mr. McGarvey, for facing the hard truth that the ultimate solution to this problem--and it is a problem, very well articulated by Mr. Andrews--is not likely to come in the form of a government bailout. Do you have any insight as to why some have now stepped back from supporting what was a very solid effort? Mr. McGarvey. Congressman, I--you know, insight--I will just say that the labor movement is probably much like caucuses in the parties in Congress, that strong coalitions are built and then frayed at times, and decisions are made to withdraw support or give support to different proposals. We very rarely, believe it or not, in the labor movement have unanimity on any issue, and this---- Mr. Kline. Actually, I believe that, so---- [Laughter.] Mr. McGarvey.--this is no different. But there is a strong group of multiemployer unions out there that are fully supportive of this program and looking to you and this Congress to help us craft the solutions that are going to give viability and predictability in the long term to our existing retirees and to our future participants in the construction industry. Mr. Kline. Thank you. That is well put. You would have some potential here for this dais. Mr. Nyhan, boy, you have got your hands full. We don't ever talk about this problem without talking about Central States, so I very much appreciate your remarks and your weighing in on this to help us reach a solution--truly a bipartisan solution, as we try to hammer this out. So again, thanks to all of you for being here today, for your testimony. We appreciate your knowledge, your insights, and your being here to answer our questions. And, Mr. Chairman, I yield back. Chairman Roe. Thank the gentleman for yielding. Mr. Andrews, you are recognized? Mr. Andrews. Thank you, Mr. Chairman. I would like, again, to thank the witnesses for their contributions here this morning. And, Mr. Certner, I think you deserve credit for putting forward some alternatives and solutions. I think it is very important to add that to the dialogue, and we appreciate that. I wanted to walk through a couple of those with you so I could fully understand them. On page four of your testimony you say that we should require steps that plans can take now to be taken before they consider any benefit adjustments. Is that a fair statement of your position? Mr. Certner. Yes. Mr. Andrews. And you talk about the ability to cut back adjustable benefits as part of that package. What are adjustable benefits? Who receives them? And do you think we should require that adjustable benefits be reduced before anything else is done? Mr. Certner. Well, the adjustable benefits are already permitted in the law to be adjusted under the PPA. Now, I am not saying we are completely comfortable with removing any of these accrued benefits, but at least you have steps in the law that are permitted today. For example, early retirement subsidies are adjustable benefits. So we think certainly we should be looking at those benefits that in the law today can be adjusted before we look at cutting back accrued benefits---- Mr. Andrews. So is it your position that someone who has already received an adjustable benefit could have it reduced or that someone who has not yet received it could be deprived of it? Mr. Certner. Again, we are uncomfortable with eliminating any of these adjustable benefits, but these are certainly preferable to looking at these kinds of benefits prior to looking at the benefits of current retirees in paid status. Mr. Andrews. So although I--again, I understand that we would share your discomfort of having to do that. I want to be clear: Would you want the law to require that a fund reduce adjustable benefits before it would consider any other benefit cut? Mr. Certner. Absolutely. And let me just state, we recognize what a difficult problem this is and what difficult choices we are making here. Many of us don't like any of the choices that are on the table. But clearly when we have provisions in the law that allow you to reduce adjustable benefits already, those steps are far preferable to take before we go ahead and start reducing the accrued benefits of retirees. Mr. Andrews. What do you think, and this is not a rhetorical question, what do you think the difference is morally? I know what the difference is legally, but what do you think the difference is morally between an adjustable benefit and an unadjustable benefit, as those terms are used in the 2006 law? What is the moral difference? Mr. Certner. Well again, I am not sure there is necessarily a moral difference. Right now we certainly have a legal difference because one is permitted under the law, and---- Mr. Andrews. Right. Mr. Certner.--I think that it is important to understand that the anti-cutback rule is a fundamental provision in the law, and to go and say to retirees and workers that, ``Hey, you know, that promise that we have made to you, that guarantee we have made to you that when you earn a benefit you are going to get it? Well, you know, that may not be as solid as we have said it was and, you know, we are going to allow people to go ahead and take away your benefits when you retire,'' is really a step too far. Mr. Andrews. You recommend, and I think it is an interesting recommendation, about encouraging mergers between relatively healthy plans and relatively unhealthy ones, and you talk about us clarifying or increasing the tools of the PBGC to do that. What kind of tools would you like to see us give the PBGC to facilitate more mergers between healthy and unhealthy plans? Mr. Certner. We certainly don't know the whole range of plans that are out there and what exists and how much help these can be. In fact, these are some of the things that we want to recommend the committee look at. And there may be some, for example, fiduciary rules right now that may prevent some of the combinations of plans or mergers and alliances that could possibly be helpful. But again, if we are looking at a series of difficult choices then we want to make sure that we are looking at choices that are at least better than cutting accrued benefits. I am going to keep coming back to that refrain here. Mr. Andrews. Speaking as a layperson here on this--I don't have the experience you do, but my instinct tells me that healthy plans are really not likely to merge with unhealthy plans because they don't want to catch the virus the unhealthy plans have. I mean, even if we gave the PBGC those tools do you think it is very likely that many people would take advantage of it? Mr. Certner. Well, in some instances here I think we have overlapping employers who have both these healthy and unhealthy plans, and I think that is the first place we would want to look. But again, I think these are difficult issues, and I am sure--and we don't want to see healthy plans really put in a situation where they also become unhealthy because---- Mr. Andrews. One other thing I was--you mentioned increases in PBGC premiums, and I think we should clearly consider those. But it is true, isn't it, that even if the PBGC has more income that would simply reduce the deficit numbers, it wouldn't increase the benefit that a pensioner receives if his or her pension is dumped into the PBGC, is that right? Mr. Certner. Well, depending on how much we raise the premiums, yes. Mr. Andrews. But it would--you would have to raise the premiums by a factor of 10 just to take care of the existing deficit to protect existing benefits. Isn't that right? Mr. Certner. Under the PBGC's numbers, yes, I think that is true. Mr. Andrews. So we would have a 10-fold increase that would just put us where we are right now, which is a huge benefit cut for people thrown into the fund, right? Mr. Certner. Again, we are not talking about easy choices here. Mr. Andrews. We sure aren't. Mr. Certner. When we are talking about, you know, people potentially seeing their benefits cut by 40 percent---- Mr. Andrews. Right. Mr. Certner.--and losing thousands of dollars a year and you are telling me that, you know, maybe a premium increase could go from $10 a person to even 100 a person, that to me still seems like a better choice than cutting somebody's benefits and pay stubs. Mr. Andrews. We appreciate the positive alternatives you have put forward today. Thank you. Chairman Roe. I thank the gentleman for yielding. Dr. DesJarlais, you are recognized? Mr. DesJarlais. Thank you, Mr. Chairman. And appreciate you all being here today. I would like to start with Mr. Nyhan. Without changes to the law, when will the Central States plan become insolvent? Mr. Nyhan. We are projecting insolvency in 10 to 15 years. I think the current deterministic projection is in 2024 or 2025. Mr. DesJarlais. Okay. What tools are available to plans to prolong their ability to pay benefits? Mr. Nyhan. The tools we currently have available is to raise contributions or to reduce benefits to the extent legally possible. It is a complicated question, however, when you take a look at reducing, for example, ancillary benefits, as the gentleman from AARP suggested, because many times that dissuades active members from continued participation in the plan. When that happens you lose your actives. A great portion of the contribution earned by the active going into the plan is used to subsidize the benefit of the retiree. So as you lose actives you actually accelerate your spiral towards insolvency. Our professionals have looked at it and determined we have cut benefits, for example, that we can, and any further reductions in the benefits will incent people to leave the plan and accelerate insolvency. Mr. DesJarlais. Thank you. And thank you, Mr. Nyhan. Ms. Duncan, that kind of leads into a question I had for you. As Mr. Nyhan suggested, one suggestion for ensuring plan solvency is to continually raise contributions. Can you explain whether we can solve plan funding issues simply by requiring larger contributions? Mr. Duncan. By increasing the contributions it would effectively make companies like mine noncompetitive with those that aren't even paying into a pension plan. And right now you have an issue where the premiums that we are paying in that were 30 or 40 percent less than they were 10 years ago and the pensioners that have retired, the apprentices are getting far less money in their pension going forward and they are--if they, you know, realizing that, there is no reason for them to stay in the industry if they don't think that they are going to get the benefit that the guys that have already retired are going to get. So by increasing the benefit, the benefit isn't really going to the employee; it is going to more the retiree and to the unfunded liabilities. Mr. DesJarlais. So how do you stay competitive? Mr. Duncan. That is a good question. It is something I deal with every day, and it is just trying to think of, you know, new ways to be better and trying to keep the guys going. Mr. DesJarlais. Thank you. Mr. McGarvey, as you know, the commission has recommended creating different types of new pension plans. Some of these designs include lower guaranteed benefits with an opportunity to benefit from market appreciation, as in the traditional defined contribution plan; others might feature more conservative funding requirements. Would you recommend that the bargaining parties agree to a contract that included one of the NCCMP's alternate plan designs? Mr. McGarvey. First and foremost, you know, the situation is that the vast majority of multiemployer plans are well funded and won't need a lot of the tools that are provided in the commission's report. Those that will, if legislation is enacted, I would certainly encourage to look at using all the tools, including new plan design, going forward. Because our goal, particularly in the building trades goal, is to make sure that we have sustainable, predictable retirement security for the members who come through our industry and the contributions that are made on their behalf by their employers. That is our goal in this whole thing. We are not looking to cut anybody's benefits; we are looking to maintain what we have got and grow it for the participants that are in our plans. Mr. DesJarlais. Thank you. That is all I have, Mr. Chairman. I yield back. Chairman Roe. Thank the gentleman for yielding. I now will recognize Mr. Andrews? Mr. Andrews. Yes, just for a couple of housekeeping opportunities. I did want to acknowledge the presence of a mentor and friend and very powerful, thoughtful labor leader. Tom Buffenbarger of the International Association of Machinists is with us. We appreciate his presence. I would ask unanimous consent that testimony that Mr. President is submitting for himself and his members be admitted to the record? [The information follows:] [GRAPHIC] [TIFF OMITTED] T5135.071 [GRAPHIC] [TIFF OMITTED] T5135.072 [GRAPHIC] [TIFF OMITTED] T5135.073 [GRAPHIC] [TIFF OMITTED] T5135.074 [GRAPHIC] [TIFF OMITTED] T5135.075 ------ Chairman Roe. Without objection, so ordered. Mr. Andrews. And we also have testimony from the International Brotherhood of Teamsters. Would I ask the same request? [The information follows:] [GRAPHIC] [TIFF OMITTED] T5135.076 [GRAPHIC] [TIFF OMITTED] T5135.077 [GRAPHIC] [TIFF OMITTED] T5135.078 [GRAPHIC] [TIFF OMITTED] T5135.079 [GRAPHIC] [TIFF OMITTED] T5135.080 [GRAPHIC] [TIFF OMITTED] T5135.081 [GRAPHIC] [TIFF OMITTED] T5135.082 [GRAPHIC] [TIFF OMITTED] T5135.083 [GRAPHIC] [TIFF OMITTED] T5135.084 [GRAPHIC] [TIFF OMITTED] T5135.085 [GRAPHIC] [TIFF OMITTED] T5135.086 [GRAPHIC] [TIFF OMITTED] T5135.087 ------ Chairman Roe. Without objection. Mr. Andrews. And from the Boilermakers, the same request to be put on the record? [The information follows:] [GRAPHIC] [TIFF OMITTED] T5135.088 [GRAPHIC] [TIFF OMITTED] T5135.089 [GRAPHIC] [TIFF OMITTED] T5135.090 [GRAPHIC] [TIFF OMITTED] T5135.091 [GRAPHIC] [TIFF OMITTED] T5135.092 [GRAPHIC] [TIFF OMITTED] T5135.093 ------ Chairman Roe. Without objection. Mr. Andrews. Tom, we are happy to have you with us. Chairman Roe. Welcome. I will now recognize, I think, Dr. Loebsack? Mr. Loebsack. Thank you, Dr. Roe. Well, I do want to thank all of you for being here today to discuss this issue that I think we can all agree is extremely critical for the hardworking middle class across the country, middle class families, and I think we--all of us here can agree that something really has to be done. I think we are at that point. Something has got to be done to shore up the multiemployer pension plans that are at risk of failing. And certainly in these difficult economic times it is more important than ever that those--I believe, at least--those who have worked hard their entire lives and have contributed to their pensions receive the benefits that they have come to expect, and I would argue that they, in fact, deserve. I think it is particularly important for those who are near retirement and have made important financial decisions at age 60, 62, whatever, based on an expected pension. I think it is really, really critical for those folks in particular. I think we need to think about the ability of these individuals to adapt to any kind of fundamental changes that might come to multiemployer pensions. I also believe that this really, at its core, is a fairness issue. How do we determine what size of a cut is fair for which workers, and how do we justify taking away earned benefits from a worker whose plan has gone under through no fault of their own? I think that is a really critical question. I think we need to think very carefully--and I appreciate what you folks have had to offer today--think very carefully moving forward so I want to be sure that we fully understand what this proposal would mean for workers. So, Mr. McGarvey, if you can, and if you can't today, I will take a response in writing, but if you can, walk us through how these cuts would specifically affect a retiree who has worked 30 years, 15 years, and 5 years at a participating employer. And I would like to know, if you can give us the number today, how much their average benefit is now and how much they would see cut if their plan went under--those different levels: 30, 15, and 5 years. You may not have that off the top of your head, and I will take it in writing if you don't, but if you could address that question. Mr. McGarvey. Well, some of it I do not have off the top of my head, but basic premise is, I mean, it is a situation I have in my own family. My father is a pensioner for one of these troubled plans. The potential that he is going to wind up in PBGC or, with enacted legislation, give the trustees the tools--and I think that is the key here: We are not asking Congress to make the decisions, and nobody is asking us on this panel to make the decision. The decisions will be made by the board of trustees in that local area that runs that local pension. They will determine, based on the advice of the professionals, where the proper changes and adjustments to make to the plan to keep the plan's solvency and mitigate any damage to the existing participants of the plans and the existing retirees. That is not going to be a decision made in Washington, D.C.; that is going to be a decision that is made in some communities. And again, going back to my earlier statement, the vast majority of our plans don't need that tool. There are lots of tools in this proposal besides that tool that you describe there. In those situations where they have it will be boards of trustees made up of union representatives and contractor representatives on the advice of professionals which will determine, certainly with the input of the membership and the existing retirees in that pension fund, on the changes that they have to make and what is most palatable and what mitigates the most damage to the existing and future participants in the plan. Mr. Loebsack. I think that up here, though, you know, we are going to have to make a decision. We are going to have to vote for or against whatever legislation may be presented to us and we are going to have to have as much information as we possibly can have from those folks who are crafting whatever legislative proposal we are talking about, so that is why I asked for specific examples, if I can get that down the road. I understand that there are going to be folks at the local level that are going to be making these decisions, but we are going to have to have as much information about how those decisions may get made, as well. So can you give us some idea of what kind of factors those folks at the local level would be taking into account to make the kinds of decisions and be able to answer the question that I asked at the outset? Mr. McGarvey. Well, I don't have the data but we will provide all that data to you as soon as we can get it up to you. Mr. Loebsack. Can any other member here want--does any other member of the panel want to weigh in on that, what kinds of factors that might be taken into account? Mr. Nyhan. Well, if I might, I think the NCCM proposal is illustrative of some things that we need to take into account, but it is not prescriptive. And we would, of course, encourage the Congress to be a little bit more prescriptive in some of the things you should consider. Clearly, and while our trustees haven't weighed in on this yet, we would consider age, whether somebody is disabled, whether somebody is a surviving spouse, whether the time that they spent with the plan is very minimal. So they have an accrued benefit, they spent 5 years on the plan and went out and earned a law degree and they are not really depending on the benefit would be a different category than somebody who had spent 35 years in the industry. I think you would have to take into--we also, in our particular industry we have what we call reciprocity, so many members earn a small benefit in our plan and they earn a larger benefit in a different plan. You might want to treat those people a little differently than people who are in our plan and have their entire benefit in our plan. Mr. Loebsack. Thank you. Mr. Nyhan. So there are quite a few items I think we would think about in terms of coming to a conclusion as to how to do this. Mr. Loebsack. Thanks to all of you. And thank you, Dr. Roe, for indulging---- Chairman Roe. I thank the gentleman for yielding. I will now yield to Mr. Salmon, 5 minutes? Mr. Salmon. Thank you. Mr. Certner, AARP opposes the reform proposal which would allow distressed plans to reduce accrued benefits. I understand that. But for plans that have taken all responsible measures but are still facing impending insolvency, do you have another proposed alternative other than beefing up or increasing funding for PBGC? Mr. Certner. Our written statement suggests some potential alternatives to look at that I have described before--looking at ancillary benefits, looking at mergers and partitions and alliance, looking at perhaps low-interest loans from the government or from the private sector to help bridge this gap. Again, we are talking about something that is very difficult. There are very difficult choices being made. But fundamental rules like the anti-cutback rule, which say if you have earned a benefit it can't be cut back--these rules were intended to apply not when things are easy but when they are hard, to make sure that people do get their benefits. And we have just heard a description here about how, you know, under projections of insolvency maybe 15, 20 years from now for these plans, you know, the alternatives of cutting people's benefits now who are living on relatively meager benefits versus working on options and alternatives over time help extend the lives of these funds seems to us very much falls down on the side of protecting current accrued benefits. Mr. Salmon. On the proposals that you have put forward, has anybody at AARP crunched the numbers to determine whether these approaches are viable or realistic? And has anybody else vetted these same proposals? Mr. Certner. I don't think that--we certainly haven't had time to crunch numbers on these. We have tried to put forward alternatives, and we have looked around and talked to people to see what is possible, what is out there, what might work, what could help the situation. Again, we don't know the different scenarios that all these plans face. It is very difficult to actually even get solid information as to exactly what the financial status is of some of these plans. But we think going forward that this committee, and perhaps with the help of the Pension Benefit Guaranty Corporation, needs to look at these options. And certainly I think there are other creative options that are out there. Mr. Salmon. I understand that the funding provisions in the Pension Protection Act for multiemployer plans is going to expire at the end of 2014. Would you be supportive of Congress extending those provisions or do you think we should revert to pre-PPA law? Mr. Certner. Again, if it is going--we are happy to look at any options that may help forestall cuts to current accrued benefits for people. Mr. Salmon. Okay. Mr. Nyhan, would raising employer contribution rates work towards solving Central States funding problems? Mr. Nyhan. No. We have modeled--our actuaries have modeled this and determined if we increased employer contributions at 8 percent a year for each and every year in perpetuity that would move our insolvency date by 60 days at the end of the 10-or 12- year period. The problem is that there are so fewer participating--I mean, 1,800 sounds like a lot, but compared to the size of the fund that had 10,000 participating employers, the size of the retiree group is so much bigger than the active group, raising contributions or cutting benefits on a very small group of actives or participating employers just does not move the needle. It doesn't move the needle. Mr. Salmon. Tell us more about the withdrawal liability. Is this a feasible option for most employers? Mr. Nyhan. Withdrawal liability is getting incredibly difficult for many of these employers. The numbers are very, very large, particularly with the downturn in 2008, and you combine that with the rehabilitation plans or funding improvement plans that were mandated by the Pension Protection Act has increased the contribution requirements by contributing employers, and that combined has raised the present value of the withdrawal liability astronomically, all things being equal. So it is a very difficult thing. It is hard for employers to go out and get credit. It is hard for employers to actually transact business with the size of the contingent liabilities associated with the plan. Mr. Salmon. Thank you. I yield back the balance of my time. Chairman Roe. I thank the gentleman for yielding. I will now recognize Dr. Holt for 5 minutes? Mr. Holt. Thank you, Chairman Roe. Part of what we are talking about today, of course, is a proposal that is out there that maybe as we speak is falling apart, but it is worth discussing because it is what is on the table in front of us. There seem to be some assumptions that are widespread out there, and that is that, well, families will just have to swallow hard and take cuts, that defined-benefit plans are a thing of the past, that multiemployer plans are always mismanaged, and that bailouts are off the table. I guess I would ask why that, for each one of those points, why that idea is out there. I think that, well, there is question about those assumptions in each case. I think it is part of a larger crisis. Bailouts are off the table except when they apply to other sectors. You know, we are talking about 10 million, I think it is, employees who are affected by these. And it is, as I say, part of a larger crisis in retirement plans. Let me ask a couple of things. First of all, let me ask Mr. Certner. What do you think would be the implication for other defined-benefit plans-- single-employer plans and individual plans--if the proposed changes were made? Are there implications for those plans? Would insurers want to get off the hook in those other plans? Mr. Certner. Well, I think what is important here is we are talking about a very fundamental principle of ERISA, that an earned benefit, an accrued benefit, can never be taken away. And to violate that basic piece of ERISA for this area and in this circumstance really, I think, sets a precedent and opens a door that we certainly don't want to see opened. I think it has been very clear over the years in the pension law that if you earn a benefit, you have an accrued benefit, that benefit cannot be cut back, cannot be taken away. And I think it is a fundamental mistake if we changed that rule in this circumstance because it would open the door to other circumstances, as well. Mr. Holt. Mr. Nyhan and Mr. McGarvey, what will be the advantages of the various administrative savings that have been proposed? Mr. Andrews asked the question of whether mergers are likely or attractive, but I guess I would like to know what might be the benefit of mergers if they were to take place on a large scale? Let me start with Mr. Nyhan. Mr. Nyhan. In our case there is no viable merger partner whatsoever. I think Ranking Member Andrews had it correct. Healthy plans don't want to dilute their assets and merge with plans that are in trouble. So I don't, you know, it---- Mr. Holt. Let's put aside the motivation there of whether they would sign up. If they did, do you see administrative savings, and therefore benefit? Mr. Nyhan. If two plans merge you will have administrative savings, yes. Mr. Holt. Give me a sense of the scale. Is it enough to affect the overall---- Mr. Nyhan. Well, our total GNA, for example, all of our salaries, all of our buildings, all of our computers, et cetera, et cetera is, what, $25 million a year, you know, over 10 years towards insolvency. That is $250. And we have an unfunded liability of $17 billion. So it really, it doesn't impact. Mr. Holt. Mr. McGarvey? Mr. McGarvey. I have actually, in a former life, worked on consolidation in a lot of cases of trust funds, particularly health care funds and pension funds, when those things were described made sense, and we did lots of them. So if you had, you know, five small pension funds and you could merge them together into a sixth bigger pension fund, the net result of that on administrative costs is you get rid of five attorneys, five actuaries, five accounting firms, and you can negotiate better cost for investment services for the fund. You can consolidate staff; you can consolidate computer systems; you can do a a lot of different things to cut down your administrative expense. And that has been done and continues to be done today out there. There is no prohibition against merging of pension funds that exists out there today. But to really deal with the amount of unfunding in some funds, those administrative reductions in cost wouldn't move the needle, as my colleague said. Mr. Holt. Thank you. Well, my time is expired. I hope you will find a way to address, either today or in writing to the committee, what could be done, other than cutting benefits, with regard to loans at low interest and bond guarantees--government- guaranteed bonds, and other such proposals. Thank you. Chairman Roe. I thank the gentleman for yielding. Mr. Guthrie? Mr. Guthrie. Thank you, Mr. Chairman, for having this. This is an important hearing. And thank you guys for coming. I appreciate it. My dad worked at a defined-benefit plan. He worked for a plant that closed. And unfortunately for him, he moved--he worked himself into the management side so he has actually seen his pension erode some, but the guys that coached me in little league, the people I grew up with, fathers of the people I grew up with--mostly fathers--are, you know, worried. I mean, they retire, they leave a place that they work with a defined benefit. And I always remember talking to my father one time and I said, does anybody ever--did you ever tie to it, or people didn't really tie to it, but the ongoing economic viability of the enterprise secures the pension going forward. And that when you leave work on the last day when you have earned your benefit and, you know, what happens in your business going backwards is important to what you have going forward. But people have organized their lives around these pensions. And so whether or not their business is as successful after they left or not is a concern, but they have organized their lives around so the things that I know Mr. McGarvey has talked about being able to do so that people can continue the benefit that they have. And you said, when you were talking, you said we weren't looking for a bailout but for us to remove obstacles. Are there a couple of obstacles--I know in your written testimony you talk about some, but just to highlight that we could do that would make it easier for you now that is not, you know, taking taxpayer money into it but just obstacles to make you--where the commission can do what needs to be done? Mr. McGarvey. Well again, in the proposal it gives--makes changes in ERISA that gives trustees more authority to make tough decisions in some cases that it would make. Right now they are prohibited. The ancillary benefits that were spoken about a lot and in testimony, the answer to that question is, just about in every case in just about every multiemployer pension across the country that has a pressing liability issue, those changes have been made. Those decisions have been made. The early retirement provisions that were in there and other things, they have been taken away. Increased contributions, okay, to help fund those pension funds, particularly in the construction industry--in most cases that has been done, okay? My colleague over here, Ms. Duncan, described increased contributions and what that means to remain competitive in a very competitive marketplace. Mr. Guthrie. Right. Mr. McGarvey. We are in some places past the point for some funds for the contributing employers to remain competitive, okay? They are, in some cases, contributing $15, $16, $17 an hour into a pension fund where the participant who is having that money contributed on his or her behalf is only accruing 4 worth of benefits. You know, we are hitting that ceiling in some cases. And I want to reiterate that the vast majority of multiemployer pension systems are on sound footing, even with what we have been through over the investment downturns in the late 1990s, early 2000s and 2008. I think that speaks volumes on the work that the professionals and the trustees on these plans have done to deal with those two catastrophic situations in a 10-year period and still keep viable pension plans where the overwhelming majority are in pretty good financial shape. There are some that, you know, that, you know, really need some tool for trustees to be able to use to help them bridge the next gap. Mr. Guthrie. Well, thank you for that. And in Kentucky--I am from Kentucky--the coal industry has seen the problems that you are having with the last man standing kind of problem. Who is going to be the last coal business standing is going to be responsible for all the retirees, and it just continues to add to the downward spiral that is happening--you know, I won't get into what is happening here to the coal industry in other committees that I am on--an Energy Committee--so it is very serious stuff. And I have actually, Ms. Duncan, had a friend of mine in Owensboro, that I met serving into his plant and he is concerned about passing down his business to his children. And the biggest liability he has is the pension liability that his children may not be able to run their business. And I know--you are a family business, I believe, right? Are there people in your area that have concerns about the ability to multigenerational because of the liability going forward? Mr. Duncan. Absolutely. Absolutely. It is part of your estate planning and there are exit strategies going on every day, and you--it is a last man standing situation. You don't want to be the last man standing but you--to have the uncertainty of what that--you know, the pension liability is going to be for my daughter is something that is just unfathomable when it even exceeds the value of your company. And you look at those figures over a year, well I only contribute to two plans. Some contractors contribute to 10 or 12. So I can look at my calculations and just in the last 2 years it has risen by millions. Mr. Guthrie. Yes. And that is what hopefully I--thanks for having this, Mr. Chairman. I know that you have got two things. One, that people on your side that are funding this and the last man standing is a real issue because you just can't afford to do so. And you have people who showed up for work every day doing what they were expected to do with a benefit that was promised and now-- or, because we are living longer, too, it is doing that with a lot of the systems that we have here in the--so being serious about it and something that I take to heart because I have seen it happen to people. And I hope we can come to some solutions and help you solve the problems. Mr. Duncan. No one on either side could have anticipated the economic situation that we ended up in. Mr. Guthrie. Exactly. Thank you, Mr. Chairman. I yield back. Chairman Roe. Thank the gentleman for yielding. I will now recognize Mr. Scott for 5 minutes? Mr. Scott. Thank you, Mr. Chairman. Ms. Duncan, one of the things that you have kind of alluded to is the fact that he last man standing rule and that creates a disincentive for companies to join these plans. Is that right? Mr. Duncan. Absolutely. No new employer will join a plan where there is unfunded liability that you are going to sign up for straight up. And with the new provisions that we are putting forth there would be no liability going forward, or less liability going forward. So you would be able to attract new employers into these plans, which would help--as we can build hours and build the employees it is going to make all the plans healthier if we can increase the membership. Mr. Scott. Thank you. Ms. Duncan, do you say what--how much difference a premium of $120 would make? Because that is what PBGC has said that would reduce to less than 1 percent the chance of insolvency of the PBGC in 10 years. Mr. Duncan. I can't specifically address the ounce that the premium paid to the PBGC is paid through the health trust trustees. I am not a pension trustee; I am a health trustee. But I do know that the premiums have been low and that---- Mr. Scott. Well, I mean, would that--just as a matter--just multiplying by the number of employees you had, would that create a significant hardship to your company? Mr. Duncan. No, I don't believe so. Mr. Scott. Thank you. Mr. Nyhan, one of the things that I had looked at as a possibility of a different premium based on whether you are in the green, yellow, or red zone, is that something that would help? Mr. Nyhan. Absolutely not. We have paid premiums now for many, many years--$60 million over the last 30 years--and we have no coverage whatsoever. And the more the premiums go up as it relates to my plan, all I am doing is taking assets out that are otherwise payable for benefits and putting it into the PBGC to pay other benefits. We won't see any benefit out of the thing. And the 120 number, by the way, deals with the projected insolvency over 10 years not including Central States. So that doesn't include the $17 billion if Central States went insolvent. So that $120 only gets you out 10 years. Mr. Scott. And one of the things you mentioned was a significant loss in assets during the stock crash. Mr. Nyhan. Right. Mr. Scott. Would that have been prevented if you had been limited in your investment portfolio to insurance options and annuities where the risk of a stock market collapse, which is going to happen every 10, 20, or 30 years, would accrue--that that risk would go to the insurance company, not to the pension plan? Mr. Nyhan. As I indicated, the assets are managed by independent asset managers--independent fiduciaries appointed by the court. The board itself had no control over how assets are managed. But the asset allocation portfolio of Central States was not too different than any other major single-employer plan out there. I mean, most plans---- Mr. Scott. All of them are at risk to a stock market collapse that would put the plan in jeopardy? Mr. Nyhan. All plans assume a degree of risk with their investments, whether in the fixed-income or whether they are in the equity markets. You know, right now one might argue that having a lot of money in the fixed-income market is a big risk right now because if interest rates start moving up the market value of the fixed income goes down. So you are going to have to--you can't hide from risk. Mr. Scott. Yes, but you can insure the risk by buying products where the insurance company or the investors take the risk, not the pension plan, where they guarantee an annuity, for example, and the risk of the market going up and down is on the insurance company, not on the pension plan. Mr. Nyhan. I am not aware of that being done on the scale we are talking about with a plan the size of Central States where the plan would go out and buy annuities. That is a very expensive way of going about it, though, because what the insurance company is going to do is the same thing the plan does but then layer a premium on top of it. And you just need a pretty big insurance company that will make sure they can make good on their word. Mr. Scott. An insurance company would have reinsurance so you would have kind of backing up, then you would have the PBGC behind that. What would you do with a low-interest loan? Mr. Nyhan. I can't pay a loan back. Who is going to make a low-interest loan to us? I mean, I think that is our problem. I mean, I would be happy to take a low-interest loan. I would turn it over to my main fiduciaries and have them invest it as they see fit. But the problem is I really don't have an ability to pay it back. If I am looking at insolvency there is no lender in his right mind that is going to lend us money. That is the problem. Mr. Scott. Thank you, Mr. Chairman. Chairman Roe. Thank the gentleman for yielding. I now will yield to Mrs. Roby for 5 minutes? Mrs. Roby. Thank you all for being here today. Ms. Duncan, your testimony noted that your husband is retired and he is drawing his retirement from a multiemployer pension plan, so can you explain to us just, you know, in your own words your frustration and uncertainty that your family feels regarding the benefits? And what would you like to see done to preserve them? Mr. Duncan. Any type of benefit cut would be tough. You know, we are like anybody else. We have planned our pensions and we have planned our living on this set amount of income that we thought was going to be coming in. But unfortunately, I guess, in my experience, I understand--and I think very few people do--the alternative, as if the plans do fail his pension would be cut even more severely. And from him going from maybe a $60,000-a-year pension to a $13,000-a-year pension if it failed and went to the PBGC--if the PBGC was still here, if it was not, you know-- hadn't gone insolvent. I would rather see the benefits taking the small actions going forward and planning ahead of time rather than waiting until it was too late to make those decisions. And I would also just like to state that, you know, we talk about the pensions, the benefits being taken away, but we have to realize that there was a point where if our plans were 100 percent funded we had to increase those benefits. We had to give them a higher accrual rating; we had to promise more benefits to keep our plans tax deductible. And those benefits, once given, can never be taken back. Mrs. Roby. Thank you. Mr. McGarvey, your testimony makes reference to a rise in intergenerational resentment. Can you explain what that means and what reforms could be made to alleviate that issue? Mr. McGarvey. Yes, ma'am. You know, the fact of the matter is that our unions are participatory unions. The craft unions historically is a mentorship operation, where skill sets are transferred from an older generation to the new generation over time, where there are sometimes two and three and four generations, five generations of families and family-owned businesses in a particular craft in a particular city. So as the younger generation gets more and more agitated over the increased cost to provide the benefits for the older generation, which has always been part of our system; you know, we are all in it together and the young take care of the old and we all look out for each other, cradle to grave type of trade unionism is what we have. But as these costs increase and they are not accruing benefits and you know, everybody thinks that they are, you know, they watch CNBC, they think they are a sophisticated market investor that they are seeing these dollars being put into a pension fund that they are not really accruing benefits and they start to look at the opportunities if they had those dollars in their pockets to invest in the marketplace, and they start to resent that they are paying these outsized obligations because of, you know, quite honestly, like I said, two horrific market meltdowns in a 10-year period or a 9-year period, and on top of that, the worst--in the construction industry we didn't go through a recession in 2008, we went through a depression and we are not out of it yet. So not only are they paying increased contributions to make up these shortfalls in these funds when they have the opportunity to work, in a lot of cases over the last 5 years they haven't even had work. So it is causing stress within the organizations at the local level. And there is a lot of intertwined family in a lot of these organizations so it gets ugly from time to time as we try to work our way through these things. Mrs. Roby. And should the goal of reform be to make sure that the PBGC is funded or to prevent plans from becoming insolvent in the first place? Do you--yes, sir? Mr. McGarvey. I believe both of those are very important goals. Mrs. Roby. And do you agree with those that say that the system can be saved by charging a $250 fee per plan participant? Mr. McGarvey. I do not believe that. Mrs. Roby. I have maybe 30 seconds, but Mr. Nyhan, just to confirm your testimony, what annual return on investments would Central States need to receive in perpetuity in order to remain solvent? Mr. Nyhan. 12 to 13 percent each and every year. Mrs. Roby. And is that reasonable in relation to historic returns? Mr. Nyhan. Not according to our professionals, no. Mrs. Roby. Okay. Thank you. I yield back. Chairman Roe. I thank the gentlelady for yielding. Mr. Hinojosa, you are recognized for 5 minutes? Mr. Hinojosa. Thank you, Mr. Chairman. I want to yield a minute to Congressman Scott? Mr. Scott. Thank you. Mr. Chairman, I ask unanimous consent that a statement from the United Steel Workers be entered into the record for the hearing? [The information follows:] [GRAPHIC] [TIFF OMITTED] T5135.094 [GRAPHIC] [TIFF OMITTED] T5135.095 [GRAPHIC] [TIFF OMITTED] T5135.096 [GRAPHIC] [TIFF OMITTED] T5135.097 ------ Chairman Roe. Without objection, so ordered. Mr. Hinojosa. I reclaim my time. Mr. Certner, in your testimony you explained that AARP is adamantly opposed to giving plan trustees the broad discretion to cut accrued benefits for participants to achieve solvency. Will any of the alternative proposals you described in your testimony be sufficient to preserve the multiemployer pension system or does more need to be done? Mr. Certner. Mr. Chairman, I think we have tried to put forward a number of suggestions and alternatives. I don't think by any means that we have exhausted the potential alternatives that are out there. And our view certainly is that before we begin to look at any cuts to retirees, any cuts to accrued benefits, we should look at the alternatives I put forward and that the other alternatives that are out there, and some other creative thinkers I am sure can come up with additional suggestions, as well. We just think this rule is so very important that we shouldn't be starting with a plan that puts retirees right at the top of the list, that we ought to look at everything else possible before we even consider looking at retirees' benefits. Mr. Hinojosa. Well, let's see. Let me ask Sean McGarvey, president of the AFL-CIO Washington, D.C. office, why is the preservation and protection of multiemployer pension plans important to your union's members? Mr. McGarvey. They are important to our unions and our members and generations of our members that have come before. They have provided secure retirement benefits for our membership and their families for decades upon decades. And with the stress and strain on the retirement security safety net in this country, we want to continue to be in the business of providing predictable, secure, fair retirement benefits for people that work 30, 40, some cases 50 years--not that many because the construction industry is, as you well know, Congressman, is a very difficult racket that is hard on a body over a 30-year period in the cold and the heat with the stresses that we take to make sure that we have got a good retirement security program for our membership. And our contractors, who are our partners, want to provide that, too. They are long-term employees of the companies who have helped to make those companies successful and they want to make sure that they get what they earn and they enjoy that retirement in a fair way that we all strive for in this country. So we are wholly committed to the continuation of these kinds of benefit plans for our membership and future generations in the industry that are going to come later on. Mr. Hinojosa. I am concerned in what I saw from 2008 when the deep recession kicked off and it is probably the worst in 50 years for our country and so many businesses went out of business and many pension plans were lost. So this hearing today is something of great interest to us here in this committee. To what extent did the process of drafting the National Coordinating Committee for Multiemployer Plans' recommendations incorporate the views of both unions and employers? To you, Mr. McGarvey. Mr. McGarvey. Are you asking me the question is that happening? Mr. Hinojosa. Yes. Mr. McGarvey. I believe it is. Mr. Hinojosa. Say that again? Mr. McGarvey. I believe that is happening, that proposals are being drafted into legislative language. Mr. Hinojosa. And are you comfortable enough that is going to protect the participants of those employees? Mr. McGarvey. Well, I don't believe that you could ever create a piece of legislation that would be failsafe. There are lots of issues that this Congress will have to deal with as they work their way through it. But we are comfortable that the proposal that we put together through our commission, with all the private sector experts from across this country and all the people that are participating and managing multiemployer pension funds, that there is a good base of ideas on how we can attack some of the problems and, again, insure the future of multiemployer pension funds. Mr. Hinojosa. I yield back, Mr. Chairman. Chairman Roe. I thank the gentleman for yielding. I now recognize Ms. Wilson for 5 minutes? Ms. Wilson of Florida. Thank you, Mr. Chair. This is a very difficult issue that we are discussing today, but we must find a solution, and so we have to research and brainstorm until we can all come together and reach a solution. But as we begin addressing this very difficult issue, let's not forget one simple fact: We would not be in this position were it not for the dangerous risk-taking behavior that led to the 2008 financial crisis. And we as a society, we have an obligation to ensure that elders who have worked hard their entire lives are not forced to bear the burden of Wall Street's recklessness. In my district of Miami-Dade County, Florida there are thousands of retirees on fixed incomes who literally cannot afford changes of the kind we are contemplating today. With America's seniors living off of a median household income of less than 35,000, few could handle even minor reductions without sacrificing food, medicine, or housing. While it may seem unfeasible in today's political environment, I believe we must consider the options of, number one, Congress stepping in to rescue the seniors with the least means. I would like to associate myself with Mr. Scott and ask that we submit to the record testimony from the United Steel, Paper and Forestry, Rubber, Manufacturing, Energy, Allied- Industrial and Service Workers International Union that suggests this is an important option. [The information follows:] [GRAPHIC] [TIFF OMITTED] T5135.094 [GRAPHIC] [TIFF OMITTED] T5135.095 [GRAPHIC] [TIFF OMITTED] T5135.096 [GRAPHIC] [TIFF OMITTED] T5135.097 ------ Ms. Wilson of Florida. Mr. Certner, could you speak to the possible options for Congress to step in to rescue the most vulnerable retirees if the political will were there? Mr. Certner. I think what you have outlined does set up the problem correctly, which is that people who have worked hard and earned a pension were in an industry and under circumstances, both with the economy and with the stock markets that were, you know, quite frankly, historic and have put people in a very difficult situation. And there are options out there for the federal government, should they choose to weigh them too, right? I mean, there are potential loans; there are potential additional funds that could be applied here to help some of these what I understand are to be a small number of troubled funds in an entire industry. There are, I think, additional tools you could give the PBGC to allow them to step in to enable and help some of these plans. And we can foresee some of these options for the plans for the federal government, and one of the things that we are having a lot of difficulty, though, is seeing options for a 75- year-old. I mean, what are they going to do? They are not going to be able to, you know, go back to work or continue to work longer. They are not going to be able to save more. They don't have options. And so that is why we think that there are--it is just impossible for us to think that there are not other options out there between what Congress can do, what the plans can do, what current participants can do, what the employers can do that can protect the accrued benefits of retirees. Ms. Wilson of Florida. Thank you. This is a question for everyone. Can you describe how due diligence must be exercised in deciding when and how to cut benefits? What is your opinion of due diligence? Mr. Certner. Let me just take it from one perspective, which is---- Ms. Wilson of Florida. Okay. Mr. Certner.--one of the pieces in this plan that troubles us is that this proposal talks about cutting retiree benefits, and yet there are very little protections in place in that decision-making process. So the trustees of the plans are being given extremely broad discretion to cut benefits. So we are talking about benefits that have been earned over a lifetime under a very heavily statutory regulated ERISA regime, and suddenly we are just giving over to trustees broad discretion to make cuts with what I think are fairly few parameters. It is not clear to us what kind of a voice retirees have. Are they part of these discussions? Are they represented? Do they have information? Are they able to make the case for themselves? We don't see any of those protections for retirees. We don't see any distinction between retirees and other participants. We don't see differences in perhaps class of retirees. None of this is spelled out at all. So even if you were going to go that direction, which again, we think is the wrong direction, to do with such a vague and broad grant of authority to trustees to us seems to, again, fly in the face of ERISA's statutory protections. Mr. Nyhan. May I speak to that issue? You know, I agree with my colleague over here that one of the fundamental rules of ERISA was the anti-cutback rule. But that is another fundamental rule that is going to trump that and that is called arithmetic. It is not a question of if there are going to be benefit cuts. There are going to be benefit cuts. The question is when and how they are going to happen. And the question we need to determine, is there a way to provide a measure of retirement security--maybe not at the level that people thought they were going to get, but a meaningful measure of retirement security going on into the future? That is what we are dealing with here. I have been trying to protect pensions my entire life. I am all in favor of a massive bailout. If Congress were to enact it I would be the first person in line for it. But we tried for several years and we really didn't garner any support from either party, from either house, or the administration. So at this point I think we need to deal with reality, and the reality is that there are going to be some very substantial cuts to people to the point that they may have no pension whatsoever unless we do something. And that is what we are focused on. Ms. Wilson of Florida. Thank you. I yield back the balance of my time. Chairman Roe. Thank the gentlelady for yielding. I will now yield myself 5 minutes. And I want to start off by saying that I am 100 percent committed to trying to work this out to where we work the best solution for retirees that are out there. I have told you all and I have said this in the committee before that my father worked in a factory, was a union member, and before ERISA his job went away after World War II, almost 30 years in the plant, he got almost nothing in his retirement. I have been down that road. I was a young Army officer overseas at the time, and I didn't realize the struggle that my parents had. They were 50 years old. They didn't have a lot of time to recover. So I understand that. When I started my medical practice I made sure that we put the best pension plan we possibly could--and we have it 37 years later--for the people that have worked for me. I have people who have worked for me for 37 years and we have provided them pension benefits, health benefits, dental, and so on, because that is the way you attract good workers. Here is the reality in the world we live in--and I remember when this--2008 I was the mayor of Johnson City, Tennessee and we were undergoing a big building boom. We had some--at our schools--we added about $50 million to $60 million in construction in schools. We had looked at the square footage cost of a new elementary school and we calculated it would be an $18 million school. That school was actually bid out for 13.5 million when it actually came to bid because people needed the work. That is how desperate the construction industry was in. So just to keep their people working they probably bid this at a loss. And so what the multiemployer plans have found themselves in is the ultimate Catch-22 and it probably is industry- specific. If you look at Mr. Nyhan and the trucking industry, back in 1980 the trucking industry was doing very well and the construction industry, and what you said, Mr. McGarvey, it wasn't a recession; 25 percent unemployment. That is a depression in that industry and it hasn't recovered yet, and our economy, I don't think, will totally recover until construction recovers. So right now Mr. Nyhan has a situation where he has 410,000 people he is providing benefits for but only 70,000 paying in-- half of those are orphaned--companies that went out of business that are providing no benefit for him. So he has done an amazing Houdini job to keep it where it is, I think. And I think the other ultimate Catch-22 was when times were roaring during the 1990s. By law you had to--you couldn't-- because I remember that if you had a defined-benefit plan you couldn't put more money or you were overfunded. That has subsequently been changed, and therefore you had to pay more benefits out, which you couldn't then because of the anti- cutback rule. That was the ultimate Catch-22. The other Catch-22 you find yourself in is that, Ms. Duncan, in your business where you are providing, you have been great. You have paid for retirement benefits and you are paying for someone else's sins, and the more you pay the more it costs you to get out. So why would anybody get in if you have that sort of a scenario? So we have really created a perfect storm for these to downward spiral, and I think, Mr. McGarvey, I heard several things--and from Mr. Nyhan, too--that made a lot of sense to me, is to let--you are the one the closest to your retirees. You know them better than anybody. And I think to be able to save what benefits you have and to make them at the highest level, you will do that. I trust you to do that. You know more about what is going on in your plans than we will ever know. And I think, Mr. Nyhan, you brought out several great ideas that I would be willing to listen to. For instance, maybe means testing. Maybe somebody worked in a trade--drove a truck for 5 years and now they are a successful attorney, or whatever. And that makes sense to me. Age, disability, sole survivors, length of time working--all of those are pieces of the puzzle that you can use, I think, to be able to solve this. This is our fifth hearing. Again, I have learned a lot at every hearing. I have learned we have got a difficult problem ahead of us and there are solutions out there if we turn you all loose to make them. I am going to finish, because I have talked all my time up, to make any comments that you all have about what I have just said. I think I have summarized the problem. Any comments? Mr. Nyhan? Mr. Nyhan. Well, I would just end by saying that the last thing we want to do as a pension fund is to cut anybody's benefits. That is not what we do and I don't believe there is anybody on either side in either party that wants to see that happen. The question is, how can we preserve what we have in light of today's reality, and this is what we see--this is the path that we see that we can preserve some measure. And it is not a matter of cutting, as people suggest, to PBGC minimums or 110 percent. It is to get the highest benefit we possibly can and maintain solvency, which is above that number. But I might add, the longer we wait the deeper the cuts have to be. Chairman Roe. Well, just to finish out, to show on bidding for a contract, for instance, the cost--and this is Mr. Nyhan's comments in his testimony: The cost of funding these orphan benefits has grown to unaffordable levels. In an example, trucking industry employer contribution rates under the National Master Freight Agreement have increased from $170 a week in 2003 to over $340 per week--nearly $8.50 an hour for a 40-hour week. That is about $16,000 a year per---- Mr. Nyhan. Yes. And it is putting our employers at a very competitive disadvantage. Chairman Roe. And they can't get the contract and, like you said, and they can't contribute, and---- Mr. Nyhan. Exactly right. Chairman Roe. I see the problem, and I absolutely understand it well. I will now yield to Mr. Andrews for any closing comments? And first of all, before I do, thank the panel. You all have done a terrific job. You have stayed under your time limit better than I have, and thank you for that. Mr. Andrews. Well, I would like to join in thanking each of the four of you for your preparation and eloquence today. I would like to thank those that submitted statements for the record, which will be reviewed in all respects. I want to thank Josh Gotbaum for being with us today, who has to deal with this problem every day as leader of the PBGC. His interest is appreciated and his partnership is appreciated. We have heard many diverse views today but I think we have heard some unifying ideas. Number one is that this is a real problem. It is not being exaggerated or trumped up; it is a real problem for a lot of people and has to be addressed. Number two, I think there is a shared goal to eliminate or minimize the reduction of any benefit for any retiree under any circumstances. No one here wants to do that. Number three, there are a lot of tools that could be considered to achieve that objective. Some are in the plan, some aren't in the plan, as it has been drafted thus far. And I think it is up to us to consider all those tools to try to achieve the best result. Number four, there is a taxpayer interest here. The PBGC is not very healthy right now, and if we don't do something to fix its health, the nature of our approach to this issue over the years is that somehow or another taxpayers are going to wind up on the hook for this. This country is not going to let 10 million or 12 million people go without a pension check and it is going to reach into the federal treasury some way or another to fix that. I would rather do it smarter and earlier than later and worse, and I think that is one thing we ought to be considering. And finally--this is to the chairman's credit--that the five hearings we have had on this have been hearings that are designed to learn about the problem and try to fix it, not hearings that are designed to score political points on either side. The witnesses have been very much in that spirit today, and I appreciate that very, very much. And I am hopeful that we can go forward and listen to each other, listen to all voices in this and achieve the objectives that I have laid out here this morning. You know, I was on a call 5 years ago--when you were mayor of Johnson City I was here--and it was a small group, 12 or 15 members, on a conference call with Chairman Bernanke from the Fed and with Secretary of Treasury Paulson at that time. And on this call the two of them said literally they thought we would have a global depression if the Congress did not act quickly to prop up the U.S. banking system. And we did. And although that was a very controversial vote, I think I cast the right vote by supporting it. Not one person lost $1 from an FDIC-insured account in this country because that decision was made. This is a smaller problem but it is equally important to 10 million or 11 million people across this country in its intensity, and they deserve our intensity. And I know that with your leadership we will work together and achieve that. Chairman Roe. I thank the gentleman. I associate myself with your comments. And just in closing, I want to thank the, again, the panel and all the panelists that have been here to sort of define this issue and problem. And the objective, as Mr. Nyhan clearly pointed out, is to maintain--and Mr. McGarvey--the highest benefit level that can possibly be done. And I think that can be done. I believe it can be. I think we have a commitment from both sides of the aisle to do that. I think both the chairman and ranking member of the full committee agree with that, and we are here to do that. And look, and I certainly understand with a 91-year-old mother at my house now that she can't go out and be the greeter at Walmart. I got that. I understand that. And we need to look at that, I certainly--and think our folks that have created this great country we have, we owe them an obligation--10.5 million people--to do the very best job we can. And I want to ask you all, too, to help educate our colleagues. Because there are a few of us in here that are very well versed on this, but probably most of the Congress are not. So when you go around and speak to them that would be very helpful to us. I think the solutions we have heard, they are painful, they are not what any of us want, but I want to thank this committee today. I think you all, and certainly Ms. Duncan, coming all the way from Oregon to Washington to testify, I appreciate that, and certainly the AARP years. And then, Mr. McGarvey, I know you have chaired a very difficult committee, and thank you for all the hours and work you have put in on this issue and will continue to do so. And, Mr. Nyhan, you have had a very difficult situation with the $17 billion or so liability. I thank you for being here. I thank you. We will continue to listen. And we have a sort of a deadline. We know the PPA, some of the provisions run out at the end of 2014, which in Congress time is a short time--just a little over a year. So we don't have a lot of time to get this done and I look forward to working with a solution. With no further, this meeting is adjourned. ------ [Whereupon, at 11:42 a.m., the subcommittee was adjourned.] APPENDIX ---------- Material Submitted for the Hearing Record [GRAPHIC] [TIFF OMITTED]