[House Hearing, 114 Congress]
[From the U.S. Government Publishing Office]
DISCUSSION DRAFT TO MODERNIZE
MULTIEMPLOYER PENSIONS
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON HEALTH,
EMPLOYMENT, LABOR, AND PENSIONS
COMMITTEE ON EDUCATION
AND THE WORKFORCE
U.S. House of Representatives
ONE HUNDRED FOURTEENTH CONGRESS
SECOND SESSION
__________
HEARING HELD IN WASHINGTON, DC, SEPTEMBER 22, 2016
__________
Serial No. 114-54
__________
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COMMITTEE ON EDUCATION AND THE WORKFORCE
JOHN KLINE, Minnesota, Chairman
Joe Wilson, South Carolina Robert C. ``Bobby'' Scott,
Virginia Foxx, North Carolina Virginia
Duncan Hunter, California Ranking Member
David P. Roe, Tennessee Ruben Hinojosa, Texas
Glenn Thompson, Pennsylvania Susan A. Davis, California
Tim Walberg, Michigan Raul M. Grijalva, Arizona
Matt Salmon, Arizona Joe Courtney, Connecticut
Brett Guthrie, Kentucky Marcia L. Fudge, Ohio
Todd Rokita, Indiana Jared Polis, Colorado
Lou Barletta, Pennsylvania Gregorio Kilili Camacho Sablan,
Joseph J. Heck, Nevada Northern Mariana Islands
Luke Messer, Indiana Frederica S. Wilson, Florida
Bradley Byrne, Alabama Suzanne Bonamici, Oregon
David Brat, Virginia Mark Pocan, Wisconsin
Buddy Carter, Georgia Mark Takano, California
Michael D. Bishop, Michigan Hakeem S. Jeffries, New York
Glenn Grothman, Wisconsin Katherine M. Clark, Massachusetts
Steve Russell, Oklahoma Alma S. Adams, North Carolina
Carlos Curbelo, Florida Mark DeSaulnier, California
Elise Stefanik, New York
Rick Allen, Georgia
Juliane Sullivan, Staff Director
Denise Forte, Minority Staff Director
------
SUBCOMMITTEE ON HEALTH, EMPLOYMENT, LABOR, AND PENSIONS
DAVID P. ROE, Tennessee, Chairman
Joe Wilson, South Carolina Jared Polis, Colorado,
Virginia Foxx, North Carolina Ranking Member
Tim Walberg, Michigan Joe Courtney, Connecticut
Matt Salmon, Arizona Mark Pocan, Wisconsin
Brett Guthrie, Kentucky Ruben Hinojosa, Texas
Lou Barletta, Pennsylvania Gregorio Kilili Camacho Sablan,
Joseph J. Heck, Nevada Northern Mariana Islands
Luke Messer, Indiana Frederica S. Wilson, Florida
Bradley Byrne, Alabama Suzanne Bonamici, Oregon
Buddy Carter, Georgia Mark Takano, California
Glenn Grothman, Wisconsin Hakeem S. Jeffries, New York
Rick Allen, Georgia
C O N T E N T S
----------
Page
Hearing held on September 22, 2016............................... 1
Statement of Members:
Polis, Hon. Jared, Ranking Member, Subcommittee on Health,
Employment, Labor, and Pensions............................ 4
Prepared statement of.................................... 5
Roe, Hon. David P., Chairman, Subcommittee on Health,
Employment, Labor, and Pensions............................ 1
Prepared statement of.................................... 3
Statement of Witnesses:
DeFrehn, Mr. Randy, Executive Director, National Coordinating
Committee for Multiemployer Plans, Washington, D.C......... 30
Prepared statement of.................................... 33
Terven, Mr. Rick, Executive Vice President, United
Association of Journeymen and Apprentices of the Plumbing
NDA Pipe Fitting Industry, Annapolis, MD................... 41
Prepared statement of.................................... 44
Certner, Mr. David, Legislative Counsel and Legislative
Policy Director, AARP Government Affairs, Washington, D.C.. 47
Prepared statement of.................................... 49
Green, Mr. Jeff, Principal, Harris Davis Reber LLC, Bellevue,
NE......................................................... 55
Prepared statement of.................................... 57
Additional Submissions:
Bonamici, Hon. Suzanne, a Representative in Congress from the
State of Oregon:
Composite Plan Legislation Immediately Reduces Legacy
Plan Funding and Diverts that Money to the Composite
Plan................................................... 80
Prepared statement of the Western Conference of Teamsters
Pension Plan........................................... 102
Mr. DeFrehn:
Composite & Legacy Plan Comparative Stress Testing....... 68
Mr. Polis:
Prepared statement of the International Association of
Machinists and Aerospace Workers, the International
Brotherhood of Boilermakers, the International
Brotherhood of Teamsters, the National Retirees
Legislative Network, the Pension Rights Center, and
United Steelworkers Opposing Consideration of
``Composite'' Pension Legislation...................... 99
Chairman Roe:
Letter dated September 9, 2016, from Association of Union
Constructors........................................... 9
Letter dated September 9, 2016, from the Broadway League. 11
Letter dated September 9, 2016, from National Electrical
Contractors Association (NECA)......................... 16
Letter dated September 9, 2016, from Chamber of Commerce
of the United States of America........................ 26
Letter dated September 12, 2016, from Associated
Wholesale Grocers, Inc., Bimbo Bakeries USA, Dean
Foods, Penske Truck Leasing Co., L.P., Prairie Farms
Dairy, Spangler Candy Company, SUPERVALU, and the
Kroger Co.............................................. 13
Letter dated September 16, 2016, from United Brotherhood
of Carpenters and Joiners of America................... 25
Letter dated September 21, 2016, from International Union
of Operating Engineers................................. 14
Letter dated September 22, 2016, from Associated General
Contractors of America (AGC)........................... 8
Letter dated September 22, 2016, from National Electrical
Contractors Association (NECA)......................... 18
Letter dated September 22, 2016, from North America's
Building Trades Unions................................. 20
Letter dated September 22, 2016, from Sheet Metal and Air
Conditioning Contractors' National Association......... 22
Letter dated September 23, 2016, from International
Council of Employers (ICE)............................. 28
Prepared statement of from the United Association of
Journeymen and Apprentices of the Plumbing and
Pipefitting Industry (UA) and the Mechanical
Contractors Association of America (MCAA).............. 24
New Composite Retirement Plan Concept will Strengthen
Retirement Benefits for Workers by Making Multiemployer
Plans Sustainable...................................... 27
DISCUSSION DRAFT TO MODERNIZE MULTIEMPLOYER PENSIONS
----------
Thursday, September 22, 2016
U.S. 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 9:34 a.m., in
Room 2175, Rayburn House Office Building, Hon. David P. Roe
[chairman of the subcommittee] presiding.
Present: Representatives Roe, Foxx, Walberg, Guthrie, Heck,
Messer, Carter, Grothman, Allen, Polis, Courtney, Pocan,
Hinojosa, Wilson, Bonamici, Takano, and Jeffries.
Also Present: Representatives Kline and Scott.
Staff Present: Bethany Aronhalt, Press Secretary; Andrew
Banducci, Workforce Policy Counsel; Janelle Gardner, Coalitions
and Members Services Coordinator; Ed Gilroy, Director of
Workforce Policy; Jessica Goodman, Legislative Assistant;
Callie Harman, Legislative Assistant; Nancy Locke, Chief Clerk;
Dominique McKay, Deputy Press Secretary; Michelle Neblett,
Professional Staff Member; Brian Newell, Communications
Director; Krisann Pearce, General Counsel; Alissa Strawcutter,
Deputy Clerk; Juliane Sullivan, Staff Director; Olivia Voslow,
Staff Assistant; Joseph Wheeler, Professional Staff Member;
Tylease Alli, Minority Clerk/Intern and Fellow Coordinator;
Jamitress Bowden, Minority Press Assistant; Denise Forte,
Minority Staff Director; Nicole Fries, Minority Labor Policy
Associate; Christine Godinez, Minority Staff Assistant; Brian
Kennedy, Minority General Counsel; Kevin McDermott, Minority
Senior Labor Policy Advisor, Richard Miller, Minority Senior
Labor Policy Advisor; and Elizabeth Watson, Minority Director
of Labor Policy.
Chairman Roe. A quorum being present the Subcommittee on
Health, Employment, Labor, and Pensions will come to order.
Good morning. I'd like to begin by welcoming our guests and
witnesses, and thank you all for joining us.
We're here to discuss an issue that is vitally important to
Americans from all walks of life, retirement security. This is
a leading priority for millions of hardworking men and women,
and that's why it's a leading priority for Republicans and
Democrats alike. Strengthening retirement security has always
been a difficult challenge with no easy answers. It's one that
demands thoughtful dialogue, bipartisan cooperation, and
meaningful reforms. That's exactly what our committee has been
engaged in for several years now.
Since 2012, the committee has focused on examining and
advancing bipartisan reforms to the multiemployer pension
system. Over 10 million Americans rely on the multiemployer
pension plan. Unfortunately, many of the plans are severely
underfunded due to an aging population, a weak economy, and
fewer participating employers. To make matters worse, the
Federal agency ensuring those plans, the Pension Benefit
Guaranty Corporation, or PBGC, is also headed for insolvency;
as a result, workers, retirees, businesses, and taxpayers are
at risk.
Fortunately, Congress has already taken action to help
address this crisis. With the support of employers and labor
leaders, Congress passed and President Obama signed into law
important reforms to improve PBGC's long-term stability,
provide trustees with the tools they need to rescue failing
plans and prevent retirees from losing everything. These
reforms represent significant progress, and there's more work
to be done.
Our focus now turns toward modernizing the employer pension
system for today's workers and tomorrow's retirees. A lot has
changed since the multiemployer pensions were developed decades
ago. As union leaders, employers, and retired and taxpayer
advocates have expressed for years, it's long past time to
bring this system into the 21st century.
So what does a modern multiemployer pension system look
like? I hope we can dive deeper into this important question
today.
Before we begin, I'd like to explain a few guiding
principles. First and foremost, our goal is to strengthen
retirement security. America's workers deserve better than
retirement plans based on empty promises and designed for
yesterday's workforce. In the 21st century, workers should have
more retirement plan options to meet their needs. While we take
steps to modernize the system for the future, we must also
protect workers and retirees in traditional multiemployer
pension plans. We will continue to do everything possible to
ensure those who have spent their lifetimes working hard and
providing for their families can spend their retirement years
with security and peace of mind. That means employers, even
those who transition to modern retirement plans, should be
required to sufficiently fund existing multiemployer pension
commitments.
Second, a modern multiemployer pension system will improve
the competitiveness of America's businesses. In the 21st
century, employers shouldn't have to choose between growing
their businesses or offering their employees a secure and
stable benefit. More flexibility through alternative options
will empower employers to expand their businesses and create
good paying jobs, all the while contributing toward their
employees' retirement.
Finally, we need to deliver greater protection for
taxpayers. Unlike traditional defined benefit plans, these new
multiemployer pension plans should not be covered by the PBGC.
The last thing we need to do is to add more financial strain to
an agency projected to go bankrupt in less than 10 years. The
last thing taxpayers need is to foot the bill for a
multibillion-dollar bailout.
These are the overarching principles behind the discussion
draft Chairman Kline recently released. His proposal would
provide workers and employers a new retirement plan known as
composite plans, which combine the flexibility of 401(k)-style
defined contribution plans with the lifetime income provided by
defined benefit pension plans. The draft proposal reflects
input from employers, labor leaders, retirees, and taxpayer
advocates. Still, we need more feedback. And as its title
suggests, this is a draft meant to spur a conversation. So we
want to hear from all of you all and from the broader public.
How can we make this proposal best serve the interests of
workers and employers.
We also welcome your views and ideas on reforms to improve
the PBGC's fiscal health. Although we took steps to address
PBGC shortfalls in 2014, more work is desperately needed,
including further premium increases. The stakes couldn't be
higher. People's retirement benefits, their livelihoods, their
futures are in jeopardy, and kicking the can down the road will
only make the problem worse and unfairly threaten taxpayers
with a bill they can't afford.
We don't always agree on everything, but I appreciate the
bipartisan work this committee has done over the years to
strengthen retirement security and tackle the challenges facing
the multiemployer pension system. I hope we can continue what
we started by advancing further reforms and modernizing the
system for today's workers and future generations.
We have a lot of ground to cover, so with that I will yield
to the Ranking Member Polis for his opening remarks.
[The statement of Chairman Roe follows:]
Prepared Statement of Hon. David P. Roe, Chairman, Subcommittee on
Health, Employment, Labor, and Pensions
We are here to discuss an issue that is vitally important to
Americans from all walks of life: retirement security. This is a
leading priority for millions of hardworking men and women, and that is
why it's a leading priority for Republicans and Democrats alike.
Strengthening retirement security has always been a difficult
challenge with no easy answers. It's one that demands thoughtful
dialogue, bipartisan cooperation, and meaningful reforms. That's
exactly what our committee has been engaged in for several years now.
Since 2012, the committee has focused on examining and advancing
bipartisan reforms to the multiemployer pension system. Over 10 million
Americans rely on multiemployer pension plans. Unfortunately, many
plans are severely underfunded due to an aging population, a weak
economy, and fewer participating employers. To make matters worse, the
federal agency insuring those plans--the Pension Benefit Guaranty
Corporation or PBGC--is also headed for insolvency. As a result,
workers, retirees, businesses, and taxpayers are at risk.
Fortunately, Congress has already taken action to help address this
crisis. With the support of employers and labor leaders, Congress
passed and President Obama signed into law important reforms to improve
PBGC's long-term stability, provide trustees with the tools they need
to rescue failing plans, and prevent retirees from losing everything.
These reforms represent significant progress, but there's more work to
be done.
Our focus now turns toward modernizing the multiemployer pension
system for today's workers and tomorrow's retirees. A lot has changed
since multiemployer pensions were developed decades ago. As union
leaders, employers, and retiree and taxpayer advocates have expressed
for years--it's long past time to bring the system into the 21st
century.
So, what does a modern multiemployer pension system look like? I
hope we can dive deeper into this important question today. Before we
begin, I'd like to explain a few guiding principles.
First and foremost, our goal is to strengthen retirement security.
America's workers deserve better than retirement plans based on empty
promises and designed for yesterday's workforce. In the 21st century,
workers should have more retirement plan options that meet their needs.
While we take steps to modernize the system for the future, we must
also protect workers and retirees in traditional multiemployer pension
plans. We will continue to do everything possible to ensure those who
have spent their lifetimes working hard and providing for their
families can spend their retirement years with security and peace of
mind. That means employers--even those who transition to modern
retirement plans--should be required to sufficiently fund existing
multiemployer pension commitments.
Second, a modern multiemployer pension system will improve the
competitiveness of America's businesses. In the 21st century, employers
shouldn't have to choose between growing their businesses or offering
their employees secure and stable benefits. More flexibility through
alternative plan options will empower employers to expand their
businesses and create good-paying jobs--all while contributing toward
their employees' retirement.
Finally, we need to deliver greater protection for taxpayers.
Unlike traditional defined benefit plans, these new multiemployer
pension plans should not be covered by the PBGC. The last thing we need
to do is to add more financial strain on an agency projected to go
bankrupt in less than 10 years. And the last thing taxpayers need is to
foot the bill for a multi-billion dollar bailout.
These are the overarching principles behind the discussion draft
Chairman Kline recently released. His proposal would provide workers
and employers a new retirement plan option known as ``composite
plans,'' which combine the flexibility of 401(k)-style defined
contribution plans with the lifetime income provided by defined benefit
pension plans.
The draft proposal reflects input from employers, labor leaders,
and retiree and taxpayer advocates. Still, we need more feedback. As
its title suggests, this is a draft meant to spur a conversation. So,
we want to hear from all of you and the broader public. How can we make
this proposal best serve the interests of workers and employers?
We also welcome your views and ideas on reforms to improve PBGC's
fiscal health. Although we took steps to address PBGC's shortfalls in
2014, more work is desperately needed, including further premium
increases. The stakes couldn't be higher: people's retirement
benefits--their livelihoods, their futures--are in jeopardy, and
kicking the can down the road will only make the problem worse and
unfairly threaten taxpayers with a bill they can't afford.
We don't always agree on everything. But I appreciate the
bipartisan work this committee has done over the years to strengthen
retirement security and tackle the challenges facing the multiemployer
pension system. I hope we can continue what we started by advancing
further reforms and modernizing the system for today's workers and
future generations.
______
Mr. Polis. Good morning. I want to thank Chairman Roe for
arranging this hearing and for his and Chairman Kline's
continued efforts on behalf of multiemployer pensions and those
who've worked hard. I appreciate their willingness to work
through this hearing in a fair, open, and bipartisan way. And I
thank our witnesses for joining us today.
I hope we can all agree that everyone who works hard and
plays by the rules deserves to live out their golden years with
the dignity that they've earned. Retirement security affects
not only the retiring populations, but also younger generations
who are caring for their aging parents.
Last April, the Subcommittee held a hearing on
multiemployer pensions to explore new plan designs.
Specifically several innovative legislative concepts like
variable annuity plans and composite plans were discussed and
presented as options that could help strengthen the
multiemployer pension system and provide flexibility for
employers and maintain appropriate benefits and protections for
workers and retirees. Today's hearing is in many ways in that
same vein; it is a continuation of our committee's important
work in this area.
Chairman Kline put forward a discussion draft establishing
composite plans, and these plans resemble traditional defined
benefit pension plans in that assets will be pooled and
professionally managed and participants' benefits would be paid
out in the form of an annuity that they could not outlive.
These composite plans also blend aspects of a 401(k)-style
defined contribution plan, as employers would not incur the
risks, costs, and liabilities associated with the defined
benefit pension system.
So a diverse collection of groups, including
representatives of both business and organized labor, have
already come forward and expressed support for Chairman Kline's
discussion draft. It's rare to see the Chamber of Commerce and
the National Building Trades Union seeing eye-to-eye on the
same issue, but they do on this one; but, of course, that
agreement is certainly not unanimous. Several respected
organizations that represent beneficiaries and retirees and
administer plans have registered concern or opposition to
composite plans as well. They expressed their fears to me that
the composite plan concept could allow employers to transition
to a new plan and escape their obligation to appropriately fund
the existing, or legacy, plan. They also raised legitimate
questions about whether composite plans include sufficient
protections for workers and retirees.
So I know we'll be exploring a lot of those themes and
questions today that many of our members have. That's why a
fair and transparent process for considering this discussion
draft is so important. This subcommittee hearing gives members
the opportunity to learn more about composite plans and ask
questions about Chairman Kline's discussion draft. I know
Chairman Kline and his staff are also soliciting public and
stakeholder feedback on the draft as well and have already
incorporated at least two rounds of that into the current
draft.
This legislation would make major changes to our
multiemployer retirement system. That's why today's discussion
is so important. This sort of change requires careful
consideration and thoughtful debate among stakeholders and
policymakers. The process of adopting sweeping changes to
defined benefit retirement plans should be an open,
transparent, fair, and most of all, thorough process.
After today's hearing, I hope the Committee is able to
fully consider the witnesses' testimony and thoughtfully
consider their recommendations to improve the discussion draft.
Once the bill is introduced, I hope it can go through regular
order, which would allow our committee to engage in a markup,
where members on both sides of the aisle could offer amendments
to improve the final bill.
There are currently about 1,400 multiemployer pension plans
covering approximately 10 million Americans. Many of these
plans are facing dire financial circumstances. If we're going
to move forward on this composite plan discussion draft, it's
very important that we get it right, but, Mr. Chairman, we
shouldn't stop there. Another pensions-related priority demands
Congress's immediate attention. As you know, tens of thousands
of coal miners, including over 500 in my home State of
Colorado, are at risk of losing healthcare and pension
benefits. Unless Congress acts, about 20,000 retirees stand to
lose their promised health benefits by the end of this year,
hence the urgency.
Pension promises were made to these miners and their
families, and these promises need to be kept. I'm a cosponsor
of bipartisan legislation that would solve this problem and
avoid a catastrophic scenario for hardworking miners and their
families in my State and across the country, and I would
encourage Congress before this year ends to pass that bill.
Again, I want to thank Chairman Roe for convening this
hearing. I look forward to the witnesses' testimony. And I
yield back the balance of my time.
[The statement of Mr. Polis follows:]
Prepared Statement of Hon. Jared Polis, Subcommittee on Health,
Employment, Labor, and Pensions
Good morning. I want to thank Dr. Roe for arranging this hearing
and for his and Chairman Kline's continued interest in multiemployer
pension reform. I appreciate their willingness to work in a fair, open,
and bipartisan way on this critical issue.
We can all agree that everyone who works hard and plays by the
rules deserves to live out their golden years with dignity. Retirement
security affects not only the retiring population, but younger
generations who are caring for their aging parents.
Last April, the Subcommittee held a hearing on multiemployer
pensions to explore what we called ``new plan designs.'' Specifically,
several innovative legislative concepts - such as variable annuity
plans and composite plans - were discussed as options to strengthen the
multiemployer pension system, provide flexibility for employers, and
maintain appropriate benefits and protections for workers and retirees.
Today's hearing represents a continuation of this important work.
Chairman Kline put forward discussion draft legislation
establishing composite plans. These plans resemble a traditional
defined-benefit pension plan in that assets would be pooled and
professionally managed, and participants' benefits would be paid out in
the form of an annuity that they could not outlive. These composite
plans also blend aspects of a 401(k) style defined contribution plan,
as employers would not incur the risks, costs, and liabilities
associated with the defined-benefit pension system.
A diverse collection of groups - including those representing
business and organized labor - have already come forward and expressed
their support for Chairman Kline's discussion draft. And I truly mean
diverse. It's not often you see the U.S. Chamber of Commerce and the
National Building Trades Unions see eye to eye on the same issue, but
on this one they do.
But by no means is this unanimous.
Several respected organizations have registered concern or
opposition to composite plans. They fear that the composite plan
concept will allow employers to transition to a new plan and escape
their obligation to appropriately fund the existing - or legacy - plan.
They also raise legitimate questions about whether composite plans
include sufficient protections for workers and retirees. We have to
take this point of view seriously.
That's why we must have a fair and transparent process for
considering this discussion draft. This Subcommittee hearing gives
Members the opportunity to learn more about composite plans and ask
questions about Chairman Kline's discussion draft. I know that Chairman
Kline and his staff are also soliciting public and stakeholder feedback
on the draft as well - which is also incredibly important.
This legislation would make major changes to our multiemployer
retirement system. This sort of change requires careful consideration
and thoughtful debate among all stakeholders. The process of adopting
such sweeping changes to defined benefit retirement plans should be
open, transparent, fair, and most of all thorough. After today's
hearing, I hope that the Committee is able to fully consider the
witnesses' testimony and thoughtfully consider their recommendations to
improve the discussion draft. Once a bill is introduced, I hope that it
can go through regular order, which would include a full committee
mark-up where Members can offer amendments and improve the final bill.
There are currently about 1,400 multiemployer pension plans,
covering approximately 10 million Americans. Many of these plans are
facing dire financial circumstances. If we are going to move forward on
this composite plan discussion draft -then it's important we get it
right.
But, Mr. Chairman, we shouldn't stop here. Another pensions-related
priority demands Congress's immediate attention.
Tens of thousands of coal miners - including over 500 in Colorado -
are at risk of losing health care and pension benefits. Unless Congress
acts, about 20,000 retirees stand to lose their promised health
benefits by the end of this year. Pension promises were made to these
miners and their families, and these promises need to be kept.
I am a co-sponsor of bipartisan legislation that would solve this
problem and avoid a catastrophic scenario for hard-working miners and
their families in my state and across the country. Before Congress
adjourns this year, we must pass this bill.
Again, I want to thank Dr. Roe for convening this hearing and look
forward to the witnesses' testimony. I yield back the balance of my
time.
______
Chairman Roe. I thank the gentleman for yielding.
Pursuant to Committee Rule 7(c), all subcommittee 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
statements, questions for the record, and other extraneous
material referenced during the hearing to be submitted in the
official hearing record.
Before I recognize our witnesses, I would like to submit
for the record statements and letters from employers and labor
leaders who support the effort to provide a new option for
workers to save for retirement through the creation of
composite plans, including statements and letters from the
Associated General Contractors of America, The Association of
Union Constructors, the Broadway League, Dean Foods,
International Union of Operating Engineers, the Kroeger
Company, Mechanical Contractors Association of America, the
National Electrical Contractors Association, North America's
Building Trades Unions, Sheet Metal and Air Conditioning
Contractors National Association, Super Value, United
Association of Journeymen and Apprentices of the Plumbing and
Pipefitting Industry, United Brotherhood of Carpenters and
Joiners of America, and the U.S. Chamber of Commerce.
And I ask unanimous consent that these be submitted for the
record. And without objection, so ordered.
[The information follows:]
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Chairman Roe. I want to take a point of personal privilege.
I don't know whether we will have another subcommittee hearing
or a chance to do this, but I would like to thank my friend
Ruben Hinojosa. I've been here now four terms, and Mr. Hinojosa
from Texas and I have co-chaired the Adult Literacy Caucus
together and have a real passion for adult literacy. He has
been a true--a good friend and a true privilege to work with
you. And, Ruben, I wish you nothing but the best. And thank you
for the service, your service to our great country.
Mr. Hinojosa. Thanks.
Chairman Roe. It's now my pleasure to introduce our
distinguished panel of witnesses. Randy DeFrehn, well known
here, is the executive director of the National Coordinating
Committee for Multiemployer Pension Plans, NCCMP. Mr. DeFrehn
has extensive experience working with multiemployer plans as a
plan administrator, actuarial and benefits consultant, a
registered investment adviser, and now with the NCCMP. He has
served a 3-year term as a member of the Department of Labor's
ERISA Advisory Council from 2007 until 2009. Welcome, Randy.
Rick Terven is the executive vice-president of the United
Association of Journeymen and Apprentices of the Plumbing and
Pipefitting Industry, or UA. The UA represents approximately
340,000 plumbers, pipefitters, sprinkler fitters, service
technicians, and welders in local unions across America.
Welcome.
David Certner is the legislative counsel and director of
legislative policy with government affairs at AARP. He serves
as counsel for AARP's legislative, regulatory, litigation, and
policy efforts. Mr. Certner has also previously served as
chairman of the ERISA Advisory Council for the Department of
Labor. Welcome.
Jeff Green is a principal of Harris Davis Reber, LLP. Mr.
Green has experience as president and owner of several
midwestern structural steel precast erection, rebar placing,
and crane service companies. He serves as a trustee for several
multiemployer funds. And welcome.
Now I'll ask the witnesses to raise your right hand.
[Witnesses sworn.]
Chairman Roe. Let the record reflect the witnesses answered
in the affirmative. Thank you.
Before I recognize you to provide your testimony, let me
briefly explain the lighting system. You have five minutes to
present your testimony. When you begin, the light in front of
you will turn green; when one minute is left, the light will
turn yellow; when your time has expired, the light will turn
red. At that point, I will ask you to wrap up your remarks as
best as possible.
Members will each have five minutes. And I won't cut you
off in the middle of a sentence, but do try to wrap up when it
turns red.
Mr. DeFrehn, you're recognized for five minutes.
TESTIMONY OF RANDY DEFREHN, EXECUTIVE DIRECTOR, NATIONAL
COORDINATING COMMITTEE FOR MULTIEMPLOYER PLANS, WASHINGTON,
D.C.
Mr. DeFrehn. Thank you, Chairman Roe.
Chairman Roe, Ranking Member Polis, and members of the
committee, I want to thank you for the honor of being able to
appear before you again today on this important topic. My
written testimony is more extensive than what I'll be talking
to you about today, but I've selected some items that I think
need special emphasis and perhaps can just start the discussion
for the questions to follow.
The composite plan, as you heard, is neither a defined
benefit nor defined contribution plan under the current law, as
the variable nature of the benefits is neither definitely
determinable, nor is it based on an individual account; rather,
it is intended to bring together the best features of each.
When the bargaining parties voluntarily determine that such a
structure is preferable for a specific population, it would be
made available to jointly-managed multiemployer plans as a
successor to their current defined benefit plan. The model
includes very clear conditions for the parties to pay off the
liabilities of a legacy defined benefit plan as the first
priority for contributions.
The discussion draft, which is several generations from the
original proposal that was contained in the earliest draft of
MPRA has benefited from the opportunity to more closely examine
and stress test various proposals contained in this
legislation. It has also been strengthened by a thorough review
of concerns expressed by others, some of whom had participated
in the proposal's original draft, and some expressed by the
administration.
As the overall objective was to create innovative plan
designs, the input by others has been welcome and beneficial to
the overall end product. Such suggestions include proposals to
limit plans that can elect to become composite plans by placing
a statutory prohibition on critical status plans or those that
can elect critical status. It also strengthens the funding of
legacy plans by requiring that contributions to fund future
accruals be subject to a higher funding standard than are
required for the current defined benefit plans.
The discussion draft now requires contributions at the
greater of the plan's required funding levels under the Pension
Protection Act or something called the transition minimum
contribution. It also strengthens the legacy plans by reducing
the amortization period for existing liabilities over 25 years
rather than over 30. At that level, plans which are permitted
to adopt the composite components will still be able to offer
benefit accruals at levels sufficient to retain the support of
active workers, you'll hear some of those remarks by other
witnesses, but it's critical that active workers continue to
support these plans in order to allow them to fund all of their
obligations.
Many of the actives are currently paying multiples of the
contribution rates of the people who went before them, but
receive only a fraction of the benefit accruals that were in
effect for the earlier retirees.
Other changes to improve the discussion draft include
elimination of trustee discretion in determining the amount of
contributions payable to the legacy and composite plans, and
requiring new employers who contribute to the plan to also
contribute to legacy plans, which will help pay off these
liabilities faster. If the parties so desire, benefit plan
could mirror the current plan design for the defined benefit
plan. It could also continue some of the more favorable
features of those plans.
The new structure is clearly not a defined benefit plan,
however, as benefits are variable based on the value of
market--market value of assets, as currently happens with any
defined contribution plan. Again, these are a combination of
both features here. The amount one would receive would be
adjusted on an annual basis determined using a 15-year
projection at the plan's assumed rate of return to mitigate the
frequency and impact of market fluctuations. Contributions to
both plans would be determined by the plan's actuary. As the
investment--as the market risk for future service rests with
the participant, however, the minimum contribution requirement
to fund the cost of future accruals would be set at 120 percent
of the actuary's projected costs to provide a market--a buffer
against market volatility.
For plans that are making a complete conversion to the new
model, a fresh start may be elected, which would allow the plan
to amortize existing liabilities over a 25-year period. Stress
testing of this approach shows that in almost all cases, this
would be sufficient to retain the current benefit accrual under
the defined benefit plan as the target accrual funded at the
120 percent without increasing contributions. Such a fresh
start does not excuse full funding of any of the accrued
liabilities, but simply extends the period over which such
liabilities would be funded.
As this is not a defined benefit plan, service earned after
adoption would not be subject to the PBGC guarantee, nor would
employers be subject to withdrawal liability. As Chairman Roe
has indicated, although there have been suggestions that the
PBGC insure a portion of this benefit, these are not included
in the discussion draft, and we believe that was the correct
option. Chairman, may I--maybe for one extra minute.
The question of PBGC and their current deficit is something
that we have struggled with as a community for some time. We
have examined it, we looked at the administration's proposal,
and contrary to their proposal, the structure of their
proposal, we believe that it rather than strengthen PBGC, it
would do exactly the opposite by driving employers out of the
system. It's the view of the reconvened Retirement Security
Review Commission that came up with these original proposals
that the agency--the entire system for the PBGC should be
carefully reexamined and a variety of alternatives examined.
From the types of--the way the premiums are structured,
whether they be based on the benefits themselves that are
guaranteed or the wage rates of the people covered, whether or
not the guaranty itself should be adjusted upward or downward,
but lastly, we believe that there is--there are some--there are
some alternatives that would mitigate the current projected
deficit of the $52 billion, perhaps by half, by examining and
changing some of the rules that apply to single employer plans
and making them available to the PBGC for multiemployer plans.
With that, I'd close my comments, and I thank you for the
opportunity to be here, and welcome your questions.
[The statement of Mr. DeFrehn follows:]
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Chairman Roe. Thanks very much.
Mr. Terven, you're recognized for five minutes.
TESTIMONY OF RICK TERVEN, EXECUTIVE VICE PRESIDENT, UNITED
ASSOCIATION OF JOURNEYMEN AND APPRENTICES OF THE PLUMBING NDA
PIPE FITTING INDUSTRY, ANNAPOLIS, MARYLAND
Mr. Terven. Thank you, Chairman.
Chairman Roe, Ranking Member Polis, and members of the
committee, it is an honor to appear before you today. My name
is Rick Terven, and I am the executive vice-president of the
United Association of Plumbers and Pipefitters.
The UA strongly supports composite plans as proposed in the
discussion draft. We view composite plans not as an alternative
to defined benefit plans, but as an alternative to the
inadequate defined contribution plans that we see sometimes
replacing existing defined benefit plans. The UA also believes
that the provisions of the discussion draft that support the
funding of the legacy defined benefit plans will preserve some
of these plans that may otherwise fail due to an eroding
contribution base.
Multiemployer defined benefit plans exist in industries
characterized by frequent short-term employment. Our defined
benefit plans have enabled skilled workers to earn a pension
that provides lifetime income. These plans have provided
essential safeguards for the financial security of construction
workers, and have been the primary form of retirement benefit
in the construction industry.
While defined contribution plans have replaced defined
benefit plans in many industries, in construction, defined
contribution plans generally remain supplemental to defined
benefit plans. Many multiemployer defined benefit plans
suffered significant investment losses in economic downturns in
the last decade and suffered further losses from reduced
contribution strains, because work on which employer
contributions were required remained depressed for years
following the 2008 crash.
Employer bankruptcies, in which obligations to plans have
been discharged, have further attacked the funding of defined
benefit plans. Some plans that were once solidly funded found
themselves in critical or endangered status under the Pension
Protection Act. Unions and employers have worked together to
stabilize these plans, but even the plans that are recovering
financially are not as secure as they once were.
In 2010, the Financial Accounting Standards Board proposed
changes in corporate financial statements that have required an
employer to make disclosures about potential withdrawal
liability. Although disclosures were ultimately limited, the
publicity surrounding this proposal made lending institutions
aware that employers potentially faced withdrawal liability. As
a result, employers have advised they now find it very
difficult to obtain credit even if they have no intention of
withdrawing from a multiemployer defined benefit plan.
Employers cannot operate without access to credit. And
threatened with losing their companies, employers have used
various methods to leave plans. Employers will negotiate and
pay withdrawal liability once their plan becomes relatively
well funded rather than face the continued uncertainty. Even if
they make their required contribution, forces beyond their
control could result in substantial withdrawal liability.
New employers are advised they--have advised they will not
enter a defined benefit plan for fear of this withdrawal
liability. As employers leave a multiemployer defined benefit
plan and no new employers replace them, the contribution base
for the plan is severely undermined. Employers and employees
see little advantage to continuing in this plan. The UA
believes that it is essential to the retirement security of our
members to offer plans that provide lifetime income. In our
experience, this security cannot be achieved through current
defined contribution plans. The intermittent nature of our
work, the access to retirement funds and defined contribution
plans, self-directed investments, and the immediate impact of
market changes all limit the growth of account balances.
The proposed reforms in the discussion draft issued by
Chairman Kline offer this new composite plan design that we
feel will preserve the lifetime income feature of the defined
benefit plan but will not drive contributing employers out of
the system because of the very threat of withdrawal liability.
Eroding an employer's support is significantly harming defined
benefit plans and is certainly one of the reasons for plan
insolvency. And as long as the threat of withdrawal liability
exists, the pull of employers contributing to multiemployer
defined benefit plans will not increase sufficiently to support
the system. There will be a growing trend toward defined
contribution plans, which typically cannot ensure that desired
income security to workers in the mobile industries that rely
on multiemployer plans.
It is our goal to help formulate creative and realistic
solutions to the challenges facing our multiemployer defined
benefit plans that balance the interests of all the plan's
stakeholders, and we believe the composite plan proposed by
Chairman Kline is a critical piece of such a solution for
reasons that include the following: we believe the composite
plan proposed by Chairman Kline--exhibit me. Chairman Kline's
plan, composite plan will provide lifetime retirement income
based on pool longevity, similar to defined benefit plans. In
contrast, workers who must solely rely on defined contribution
plans face the real possibility of outliving their retirement
savings or losing their savings through poor investment
decisions. Composite plans are not intended to replace--
Mr. Chairman, could I get an extra minute to finish this?
Chairman Roe. Sure.
Mr. Terven. Thank you.
Composite plans are not intended to replace defined benefit
plans, but are intended to be an alternative to the 401(k)
defined contribution plan that are increasingly proposed when
an employer refuses to participate in a defined benefit plan.
Composite plans have features of both defined benefit and
defined contribution plans. Composite plans provide for the
accumulation of benefits and a lifetime benefit in a manner
similar to defined benefit plans. In times of economic
distress, composite plans benefits may be reduced like a
defined contribution plan, but the reduction is not immediate
and the advanced funding provisions are sufficient to protect
participants.
Furthermore, our Canadian members have plans subject to
similar provisions, and those plans have run very well over the
years, providing lifetime benefits to our Canadian members. The
proposal includes provisions to protect and support the
continued funding of the legacy defined benefit plan, and this
serves to protect the current provisions benefits by
participants and retirees. These composite plans do not
threaten the future of the funding of the PBGC, and by
preserving the funding of legacy defined benefit plans by
employers that would otherwise leave those plans, the composite
plan proposal helps to ensure that those legacy plans will
continue as long-term premium payers.
The composite plan discussion provides an additional option
to secure lifetime retirement income and our employees where
support for defined benefit plans continue to erode. If
composite plans are not made available, we believe that many
existing defined benefit plans will eventually be replaced with
defined contribution plans or no plan. The opportunity for
creative solutions to our retirement income challenge is within
our grasp. We strongly encourage Congress to expand available
plan offerings to enable labor and management to find solutions
which best meet their specific needs.
I once again thank you for your work to improve the
retirement security for our members and for the rest of the
10.4 million participants in multiemployer plans. Thank you,
sir.
[The statement of Mr. Terven follows:]
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Chairman Roe. Thank you, Mr. Terven.
Mr. Certner, you're recognized for five minutes.
TESTIMONY OF DAVID CERTNER, LEGISLATIVE COUNSEL AND LEGISLATIVE
POLICY DIRECTOR, AARP GOVERNMENT AFFAIRS, WASHINGTON, D.C.
Mr. Certner. Thank you, Mr. Chairman. My name is David
Certner, and I am legislative counsel and policy director for
AARP. And on behalf of our 38 million members, we thank you and
Chairman Polis for the opportunity to testify today.
The multiemployer pension system, covering about 10 million
workers and retirees, faces a number of complex challenges, and
we appreciate the efforts of many to address these issues.
AARP is particularly concerned with protecting those in or
near retirement. We therefore urge that any legislation focus
first and foremost on protecting the earned pensions that
millions of retirees and near retirees count on for their
retirement security. In addition, any legislation should
address the funding problems faced by both the plans and the
PBGC. And, finally, while AARP is open to new plan designs, any
new plan should be part of a comprehensive solution that
ensures existing promises are kept and new ones are fair and
adequate.
The multiemployer system has been important to our nation's
pension framework. However, withdrawals and dramatic decreases
in plan funding have escalated the threats to pensions and the
retirees who rely on them. Of the over 1,300 old employer
pension plans, nearly 500 are in critical to endangered funded
status.
We need the following steps. First, we need to adequately
fund the promises that already have been made. We need to make
sure that those who worked hard and played by the rules can
count on getting the benefits they have earned. In short, we
should not reduce funding for existing underfunded pension
plans, including in order to fund contributions for the newly
proposed composite plan. If you can't fully fund one plan
today, surely it will be more difficult to fund two plans
tomorrow; therefore, we urge the adoption of any new plan
design, including composite plans, not reduce the ability of
existing plans to fully meet their current funding obligations.
Reducing plan funding for a current endangered plan to fund a
second plan simply puts at risk the benefits earned under both
plans.
Before acting, we urge the committee to address the
following two key questions: are funding and transition
payments adequate to ensure earned benefits in legacy plans can
be fully paid; and two, can entities struggling to fund one
plan adequately fund two plans?
Second, we should help the plans that can be helped. A few
dozen unions that sponsor most of the 1,300 multiemployer
plans, the PBGC should have broader authority to advise plans
and help them merge as appropriate to reduce administrative
expenses and improve investment opportunities.
Third, we need to strengthen the PBGC safety net. The PBGC
is projected to run out of funds by 2025, and Congress must
take steps to ensure its financial viability. Regrettably, PBGC
premiums, now at $27, remained too low for too long, as low as
$2.60 as recently as 2005, and they must be significantly
increased. The CBO estimates that a premium of at least $127 a
year is needed to pay guarantied benefits. AARP would support
creative approaches, such as tax credits or even a partial
assessment against monthly retiree pensions to alleviate some
of the burden of the large needed premium increases.
Also, the premium--the multiemployer pension guaranty
remains low, only a maximum of $12,870 a year, a mere fraction
of that available in a single employer system, and that's for a
retiree with 30 years of service, and that premium guaranty--
that pension guaranty should be increased.
Fourth, any new plan design should be fair and affordable.
We are open to new pension models. However, Congress must
ensure that any new system is fair and includes protections
against the creation of minimally regulated plans with less
certainty and adequacy that put all benefits at risk.
Congress must ensure that participants in composite plans
are covered by the fundamental protections included in current
law. Notably, we urge the committee to add a specific
requirement for annual statements that explains to participants
their plan contributions, their accrued benefit, the plan
funding status, and how accrued benefits may be reduced if plan
assets fall below a certain level.
The discussion draft should also clarify the vesting and
benefit accrual rules for participants. If the composite plan
becomes underfunded, the draft allows benefits to be cut, but
it's not clear how such cuts would be implemented, the trustees
seem to have wide discretion in how retirees and older workers
would be protected against large benefit cuts.
Congress should also permit retirees to choose their own
representative and also add specific protections against
conflicts of interest, particularly conflicts between the
legacy plan and new composite plan, and there should be
adequate government oversight.
Finally, creation of a composite plan should not be an
excuse to reduce funding for legacy plans. Plans that are
already underfunded should not be put at further risk. Also,
plan trustees should not be given the significant discretion to
reduce benefits in composite plans. That's contrary to the
protections that are in place generally for accrued pension
benefits under all other pension laws.
In conclusion, the multiemployer system does present a
complex and challenging environment, and we urge the committee
to continue these open discussions on the best way to improve
the system, including stabilizing the PBGC. We are happy to be
part of any fair process to find a balanced solution, keeping
in mind that we need to protect retired workers and their
families.
And the retirement security of 10 million workers and
retirees generally are at stake, and we owe it them to have a
fair, open, and thoughtful process to adjust to these
challenges. Thank you.
[The statement of Mr. Certner follows:]
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Chairman Roe. Thank you, Mr. Certner.
Mr. Green, you're recognized for five minutes.
TESTIMONY OF JEFF GREEN, PRINCIPAL, HARRIS DAVIS REBER L.L.C.,
BELLEVUE, NEBRASKA
Mr. Green. Chairman, committee members and staff, I
appreciate the opportunity to provide an owner's perspective of
the current state of multiemployer defined benefit plans and
the need to provide plan trustees with additional options. My
name is Jeff Green, and I am and have been a part owner of
several construction companies employing building trade union
members. I'm a management trustee on several multiemployer plan
funds and have a strong personal interest in the continued
viability of organized retirement benefits for our employees
and union members.
The 2014 Multiemployer Pension Reform Act and the proposed
ERISA changes to incorporate composite plans are welcome tools
to assist trustees in providing secure retirement benefits.
Unions provide a reliable pool of safe, experienced,
trained, and productive workers to accommodate a contractor's
changing construction project demands. Through the pooling of
benefits and resources, the unions and employers provide
mutually-bargained wages and fringe benefits in line with the
value provided by the employees and members. These workers
value retirement security delivered through defined benefit and
defined contribution plans administered by both labor and
management trustees.
ERISA became law in 1974 in order to address significant
problems in retirement plan funding, administration, vesting,
reporting, and transparency. Subsequent amendments, laws, and
regulatory decisions were enacted with the intent to strengthen
individual retirement security. In the multiemployer community,
a consequence is to shift defined benefit plan financial
obligations generated over decades under current employers.
Construction employers do not have the financial resources to
supplement retirement plans, let alone guarantee a plan's
benefits. Requirements that a current employer assume the
unfunded liabilities for the entire plan, recognizing a given
year, are onerous to contractors. Construction contractors
assume risk in everything that they do, but are unwilling to
take an unlimited and unknown defined benefit plan risks.
I will provide some examples of the potential financial
obligations that participating in a defined benefit plan places
upon a contractor. We placed reenforcing steel in a parking
garage in a new market in Ohio and paid about $200,000 in
construction contributions due to a defined benefit plan over a
year-long project. Our project costs came in higher than
experienced and we had a negative margin. This happens a lot on
projects. We later received a letter from the plan stating that
the trustees desired to reorganize the plan and that our share
of the plan's unfunded liability would be close to $400,000
paid out over time. This would be an initial $400,000 that the
plan expected us to pay should the plan default, based on
working on only one job, and a job we lost money on.
In our home market, the plan has assets of over $260
million, and I believe it's very well managed and administered.
Recent years of below expected investment returns resulted in
the plan actuaries determined that the unfunded vested benefits
increased from $14 million to $30 million, a $16 million
liability increase. The actuaries recognized the long-term
nature of the plan and averaged short term results over many
years to provide annual accurate plan representation. Based on
the plan's 2 million man-hours worked and the $16 million
change in 2015, a local contractor employing 150 individuals
would be assessed about $2 million in unfunded vested benefits.
This assignment of unfunded benefits in 2015 exceeds the
contractor's net profit for that year.
Contractors are required to only note in their public
financial statements that they participate in multiemployer
retirement plans. There was an effort a few years ago by the
Financial Accounting Standards Board, or FASB, for companies to
state the unfunded vested benefits allocated to them. This
proposal was not adopted. The proposal would be a nightmare to
accurately report on and would show that almost all employers
participating in multiemployer plans have negative equity. The
plan's liabilities exceed the employer's assets.
Financial institutions are critical to our industry for
loans and bonding capacity. These institutions rely on the
public financial statements to make their business decisions.
Most financial institutions would have serious concerns if all
defined benefit liabilities were reflected on a contractor's
public financial statements.
A key element to the current plan's abilities to address
their funding shortfalls is to increase plan contributions,
preferably through more hours being contributed to plans. There
are practical limits to the hourly retirement contribution rate
and the subsidy amount paid by existing members. Growing a
plan's participation requires attracting contractors with the
capital and ability to take on additional work and employ more
members. The laws and regulations intended to protect
retirement security had the unintended consequence of
discouraging employer growth and participation.
Every retirement plan has unique circumstances and the
participating employers have their own market concerns.
Legislation that empowers the plan's trustees to utilize all
approaches to develop and implement the best solutions are
needed. Attracting employers and participants into existing and
new multiemployer plans are critical to providing the resources
and strength needed for a plan's long-term success.
Thank you.
[The statement of Mr. Green follows:]
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Chairman Roe. Thank you, Mr. Green.
I now recognize the chairman of the full committee, and he
is now recognized for five minutes.
Mr. Kline. Thank you, Mr. Chairman. I thank the witnesses
for being with us today. Excellent testimony, as we're trying
to solve the problem that some of us have been dealing with for
a long time.
And, Mr. DeFrehn, I think back years and some of the people
sitting behind you, in the office as we tried, that is Chris,
but, you know, we're trying to figure out how we can do
something to avoid the collapse and, frankly, the complete
destruction of these multiemployer plans.
And Mr. Green just testifying about the impact on employers
and how the withdrawal liability in some cases is so high, it's
worth more than the entire value of some companies, auto
dealerships, for example, and how do we grapple through this.
And so the first thing I want to do is thank you and the
members of the coordinating committee for working together so
long and so hard and pushing through this, and in your work in
helping us get MPRA without the composite plan piece through
and put into law. I think we did good work with MPRA. I think
it's a shame that the Secretary of the Treasury and his special
master made a disastrous decision in not accepting Central
State's carefully worked out plan to save that retirement plan.
It may haunt them and all of us for years to come. I thought it
was a complete irresponsible step.
So now, though, we're still trying to get that piece that
alluded us last time and get something that will allow and
encourage employers to stay in the system. That's kind of at
the core of what we've got here, excellent testimony from you,
but if you have a withdrawal liability that is so punitive that
it will put you out of business, why would you ever get into
this thing. So I very, very much appreciate that work that
you've done.
Mr. Certner, can you--I was interested in your testimony
about PBGC's looming insolvency. I'd like to ask you to take a
minute to talk about why that's so important, and then can you
describe in greater detail what it means when AARP says they
would support a, quote, partial direct assessment against
monthly retiree pensions? I found that to be pretty surprising
coming from AARP that you would be assessing a new fee on
retirees. Can you just take a minute or so here and talk about
that PBGC issue and the assessment on retirees?
Mr. Certner. Yes, Mr. Chairman, and thank you. We all know
that the PBGC is significantly underfunded and we think that
the PBGC insurance premium promise is key to protecting so many
of these plans that may be heading into insolvency, and
obviously want to make sure that if plans do go under, they
will have the promised backing of the Pension Benefit Guaranty
Corporation.
So you well know the dire straits that the Pension Benefit
Guaranty Corporation is in, and part of that has been a premium
that has been much too low over the years and too low now. You
know, the premium on the single employer side is scheduled to
be $69 a person next year, but the variable rate of premium can
go up as much as $500 a person. For the multiemployer system,
the premium right now is only at $27, dramatically too low for
the system. So we think we need a substantial increase in the
premium.
Now, we understand the problems that many have in trying to
accommodate a large premium increase and we've heard certainly
from several of our colleagues here about the potential impact
on some of the employers who may or may not want to be in the
system, and so we are happy to explore ways to try to get that
premium to a higher and more sufficient level with
contributions from not just employers. And so, for example, we
think that some of these plans, for example, should be eligible
for some tax credits to help for some of the premium payments.
We're also willing to look at having some of the retirees
pay essentially an insurance premium on their own benefits. I
can tell you, having spent a lot of time and heard from many of
the people who are experiencing potential cuts of 20, 30, 40,
50 percent in their benefits, that paying a little bit of the
insurance premium on their amounts that can potentially go and
help insure their benefits is a small price to pay to avoid
benefit cuts of 50 percent.
So we're willing to look at that as part of a larger
package to try to get those premium amounts essentially up to a
level that's acceptable and to keep the system more solvent.
Mr. Kline. Okay. Thank you very much.
Mr. Chairman, I see I'm down to seven seconds. And in my
usually fruitless efforts to encourage my colleagues, I'm going
to yield back.
Chairman Roe. I was looking forward to gaveling the
chairman down. I didn't get to.
Mr. Kline. Good work.
Chairman Roe. Mr. Pocan, you're recognized for five
minutes.
Mr. Pocan. Thank you, Mr. Chairman.
First let me just speak for myself only in--you know, I do
see us in a place of tough and tougher decisions in the sense
that when you look at what's caused a lot of this, one of the
initial reasons the 2001 and 2008 stock crashes, you know,
banks and auto companies got bailouts, CEOs got bonuses, and
retirees are left hurting in essential states, the mine workers
and others.
And, you know, I just--I find it an unfortunate set of
priorities sometimes that government has dealing with these
issues. I just want to put that out there as a personal
opinion.
Since this is only the second hearing really we've had in
about 16 months, it's the first chance we get to look at the
draft, I'm going to ask you in under a minute, because that's
what you're going to have, 45 seconds each, to take the exact
opposite role of what you just advocated for, because I want to
really know the pros and cons. So those of you who were
advocating for it, just talk about what some of the potential
problems are, and for those of you who argued against it, what
some of the pros are. I just think we're still trying to gather
information as we're having this conversation.
So if we could start just right down the line. Mr. DeFrehn?
Mr. DeFrehn. I was afraid you'd do that.
Mr. Pocan. Yeah.
Mr. DeFrehn. I hadn't thought about that very much, really,
to try to respond in the time you've allotted.
You know, it--we've spent so much time trying to address
the shortcomings, it's really hard for me to take the position
that we think that there are some other things that argue
against this, because, quite frankly, we don't really see much
option for the plans long-term other than to try to encourage
the existing employers to stay in, and bring new ones in, new
ones that can help fund through the existing legacy
liabilities. That's why this model was created. And we believe
that we collectively, both the ones that participated in it the
way this was designed originally, and the input that we
received from others, including the administration, has made
this a stronger proposal. So I think that what you've got here
is--
Mr. Pocan. I'm going to stop you just because of time, and
also I'm going I'm going to try the question again. I know it's
hard to take the opposite.
Mr. DeFrehn. Yeah, it is.
Mr. Pocan. But, honestly, I think everyone agrees that this
isn't a perfect solution for everybody. We are trying to find
the best solution out of a bad situation.
Mr. DeFrehn. It's certainly not the best solution for
everyone, and it was never intended to be. It was only for
those employers that are committed to leaving the system and go
to--
Mr. Pocan. Sure. I just want to make sure we've got time
for everyone. So as honestly as you can be taking the opposite
role, and I understand that it's a very tough question, Mr.
Terven.
Mr. Terven. I think it's an excuse me. Thank you. I
appreciate that.
You know, it is a very tough question. You know, I've been
around for quite a while now around here and I've sat in a lot
of meetings to try to figure out the pros and cons in this, and
I am a union official, who I don't see the benefit cut
situations in a lot of things that I do, but I also am
realistic to see that the members are not getting there to pay
the costs that we presently have. And like you so eloquently
said earlier, I don't see the bailout situation coming out
there to preserve these situations.
I think we are looking at ways to do things ourselves
together as a labor and management coalition, and I think that
structure has worked well and we've done put our minds together
and asked for different ideas, different solutions, and we come
right back to this solution here. So it's very hard for me to
figure that one out.
Mr. Pocan. Thank you. Mr. Certner.
Mr. Certner. Well, I guess from my perspective, then, the
answer would be that if the stock market never goes down and
continues to exceed 7 percent every year for the future, then
this actually could work.
Mr. Pocan. Okay. I think I'm failing at my question, but,
Mr. Green.
Mr. Green. I'm proposing that we allow the trustees
flexibility to do what makes sense for their plans, so the flip
side would be to stay with the current constraints and limit
the availability for people to do what they believe is right.
And to me, that it may provide false security to existing
retirees that they'll be fine, but in the long-term, it's going
to be a problem.
Mr. Pocan. So in the remaining minute I have, if anyone can
take this question, just walk me through with the composite
plan how it would respond to a recession. What's going to
happen to payees, to people paying in? Can someone walk me
through that real quickly, Mr. DeFrehn?
Mr. DeFrehn. Yes, actually. I kind of welcome that
question, because David's comment about if you get 7 and a half
percent, this could work, but, in fact, we've done stress
testing on this, replicating the market performance for the 10-
year period, including the 2008 period, and what we found is
that this new model outperforms what you might expect, and the
plan--we started out with a plan that wasn't very well funded
to begin with, a yellow zone plan, saw the first 10 years
getting the experience that was anticipated, the assumed rates
of return, and then the next 10 replicates the last 10.
And what we found was the yellow zone plan goes into red
for two years, allocation--reallocation of some--
Mr. Pocan. There's three seconds left. That didn't answer
the question. I apologize. I know--so what I'm going to do is
just realize I failed miserably at that and filling in for Mr.
Polis. And I will yield back.
Chairman Roe. I thank the gentleman for yielding. I now
yield myself five minutes.
First of all, I want to applaud both labor and management
for coming up with this new approach. And I think a new
approach is needed in the 21st century. And, Mr. Terven, I want
you to--you mentioned the Canadian plan, your partners in
Canada. Could you inform us a little bit about what they've
done? They obviously have an experience, so--
Mr. Terven. Thank you, Mr. Chairman. As you said too is
if--we have a group that's close with us from Canada, and they
have reigned this model of the composite plan for a long time.
In the model referenced in the New Brunswick was put in place
for public sector employees that's proposed here has been a
better alternative to a defined contribution plan in which the
worker must be his own investment manager and also his own
actuary.
I think with the plan they have, and we've looked at it and
asked all of our leaders over in Canada, just what do you feel
about this, I have not heard one bad thing since they've moved
to this situation. So the composite plan they use has been very
effective.
Chairman Roe. Frankly, I'm very intrigued by it.
And here, Mr. Green, you mentioned, and I have several very
close friends in the construction business, the margins in that
business now are razor thin. I mean, you bid a job and you miss
it just a little bit, and your profit margin is like a grocery
store with 1 percent.
We have a demographic issue in the country where--I have
one large employer in my district that will have 2,000--25
percent of their workforce can retire in the next five years,
so we're going to have to replace those people. How do you
encourage somebody to go into a plan, like you as a contractor,
knowing that you had this huge--potential huge liability? How
does that work?
Mr. Green. Well, I think, yeah, the point there is to
attract young individuals. And it's hard for them to say, hey,
I want to pay--I want to have a secure retirement, but a lot of
money is going to go to pay for existing problems, and so
there's equity for the new employees to do that. And also, you
know, existing employees have the opportunity to go work for
other people as well. So our challenge is how do we keep our
existing employees and how do we attract new members?
Chairman Roe. I think you're right. And I think let me just
briefly go over this, so to simplify it for me. This plan
differs from a 401(k). A 401(k), as Mr. Terven said, is you're
your own actuary, you're your own manager of your plan. This
will allow you to pool these assets in a managed plan, but you
wouldn't have necessarily a defined amount of money each year
that you would--that could possibly change somewhat, but a
properly managed plan, you could rely on a fairly stable
income, as Mr. DeFrehn said, over a period of 10 years, I've
looked at it, and it would have no PBGC backup, it would have
no insurance, but there would be no PBGC premium either.
That money could go into the actual retirement. And I'm
trying to think what wouldn't be good about this plan other
than Mr. Certner is correct, it's allowing people to walk away
from a legacy plan that's already stressed. That's--I think we
have to address that.
But other than that, why wouldn't you do this? And, Mr.
DeFrehn, I'll leave that with you. I mean, you all brought the
idea up with Chairman Kline.
Mr. DeFrehn. Yes, Mr. Chairman. We--in trying to get this
thing--balance the interests of all the stakeholders here, I
think we've tried to address some of those concerns. We looked
at trying to require--keep the employers in the system, because
in the long-run if we don't have those employers, we won't be
able to survive. And so we put some incentives in there to both
require higher funding for the legacy plan, new employers
coming in also have to contribute to their legacy plan, which
will help the funding on that and faster fund those, but the
other thing it does is it takes away the incentive for
employers to leave the system, what Jeff was talking about
earlier.
When a plan gets fully funded, there is nothing that keeps
employers in, and the accounting standards now are providing an
incentive for them to leave the system. So we've created a
bridge that gets employers comfortable with the notion of
staying in the plan so that if there is a bad market, you can
reallocate some of those future contributions back to cover the
losses. If they've left the system, there's no one to cover
those losses and the legacy plan is harmed much more.
So, you know, I think we've gotten what we were trying to
work for. Obviously there'll be other things that people
identify that--where this discussion draft can be strengthened,
and we hope that happens, because we want the best model for
the workers here.
Chairman Roe. Yes. And I'll very quickly, in my little bit
of time remaining, is before what happened in a defined benefit
plan during an up year of the market, we cut the contributions.
And you're in a down market, Mr. Certner's right, we haven't
done away with the economic cycle. I like this where you can
over--you can up to 160 percent. I've never heard yet in the
eight years I've been here anybody come in here and complain
about having too much money in their pension fund.
Mr. Hinojosa, you're recognized for five minutes.
Mr. Hinojosa. Thank you, Chairman Roe and Interim Ranking
Member Pocan.
Today's hearing is a step in the right direction. We must
keep an open mind and focus on learning more about Chairman
Kline's discussion draft legislation. I appreciate his
thoughtfulness in looking for a good solution to preventing
insolvency. The working employees' pension plan is a critically
important issue that we're discussing here today. The economic
security of millions of workers and retirees is at stake, and
we in Congress must ensure the continued sustainability of
multiemployer pension plans without undermining the entire
system.
The funding problems facing plans require action on
Congress's part to provide plans to participating employers
with solutions that do not jeopardize the current benefits
earned by retirees. This includes our coal miners, who we must
also protect to avoid a national pension crisis.
In addition, we must not put the already underfunded
Pension Benefit Guaranty Corporation in greater risk of
insolvency.
Now I want to go to my first question. This is addressed to
David Certner. In your testimony, you indicated that AARP is
open to consideration of new types of retirement plans, such as
the composite plans. However, in your testimony, you gave,
several recommendations that must be included to improve
Chairman Kline's draft.
So which of these recommendations do you believe is the
most important, and why? And, secondly, do you believe that
AARP could eventually endorse Chairman Kline's proposal if some
of your recommendations are incorporated.
Mr. Certner. Thank you for that question. I think there's
two issues there. One is just the question about just funding
in general, so that if you are essentially reducing funding to
legacy plans because some of that money's being siphoned off
into composite plans, regardless of what the composite plan
looks like, can that possibly work? And we have strong doubts,
and we'd love to see some actuarial analysis done through the
PBGC about whether or not you could have any kind of plan
established like that that's siphoning money away from a legacy
plan that doesn't put the legacy plan at risk. So that's sort
of the first part about whether you could have any kind of two
plans at all.
On the second half, we do have hybrid plans currently that
are allowed under law, things like, for example, cash balance
plans that include features of both defined benefit and defined
contribution plans. I don't understand this new plan and what
an individual thinks they may be getting from it, because you
don't have an account balance so you can see what your account
is, and you don't even have a formula that you can count on,
because the trustees have wide discretion to change that
formula every year. So the uncertainty of that plan and
essentially the ability that's given to trustees to cut back
benefits you have earned is completely unheard of in pension
law. We just simply don't allow that. Once you earn a benefit,
generally speaking under pension law, that's your money and it
can't be taken away.
Here there seems to be almost an annual determination about
what your benefit would be, and so you can lose an accrued
benefit. And that's particularly true, you know, if you're
going to have some market volatility and there's going to be
down markets. So I think those are probably two of the key
issues.
Mr. Hinojosa. Thank you for responding. The next question
is to Mr. DeFrehn.
In the testimony by Mr. Certner, he made the case for why
increasing the PBGC premiums is necessary. I am especially
interested in your ideas to improve the long-term fiscal
sustainability of PBGC. And, as you know, it is the
multiemployer pension program which is projected to be
insolvent in less than 10 years. Do you agree with Mr. Certner
and, if yes, what do you think needs to be done in order to
prevent this from happening?
Mr. DeFrehn. There is no question the PBGC faces a problem.
The agency was created as a safety net, not as an insurance
company, and that is why Congress has always acted on the
premium levels rather than having them adjusted, as an
insurance company would.
Mr. Certner referenced the fact that the premiums were low
for many years and compared and contrasted that with the
single-employer system. The single-employer system is an
insurer, for lack of a better term here, of first resort. If a
corporation goes out of business, there is no one to backstop
the liabilities. In a multiemployer plan, the other employers
are the insurer of first resort and the PBGC is insurer of last
resort. That explains why we have such a differential on the
premiums and on the guarantee levels. As a matter of fact,
initially there was a lot of pushback towards having the PBGC
guarantee at all. It is a necessary safety net, though, for
plans that do fail, and we believe that it needs to be examined
very closely. Some of the things that the Commission had looked
at--
Chairman Roe. Mr. DeFrehn, if you could wrap that up.
Mr. DeFrehn. I am sorry.
Chairman Roe. The gentleman's time is expired.
Dr. Foxx, you are recognized for five minutes.
Ms. Foxx. Thank you, Mr. Chairman.
Actually, what Mr. DeFrehn was saying, let me join into a
comment I was going to make. When I first got on this committee
in 2005, we tackled issues related to the PBGC. Then-Chairman
Boehner said he wondered why nobody had tackled the PBGC and
pension issues for 30 years, and when we got into it we found
out why. It is hard; it is very hard. And I think that is what
we are seeing here again today.
I would like to ask you, Mr. DeFrehn, a question: You
touched on this issue before, but I would like you to expand on
your comments related to critics who have raised questions
about whether the proposal weakens current funding standards
for legacy multiemployer defined benefit pension plans; and
would you talk a little bit more about how the discussion draft
addresses these concerns, to ensure existing plans are
sufficiently funded.
And I know we have four minutes, but I would like you not
to take up the whole 4 minutes so I can ask one more question.
Mr. DeFrehn. Certainly. I think the short answer is that
the discussion draft, it eliminates some of the discretion in
terms of how the allocation of the contributions are handled.
It puts in a minimum that is higher, through the transition
minimum contribution and the current PPA levels, so that the
dollars flowing through will adequately fund the legacy plan
even if you take the 30-year extension--or, excuse me, the 25-
year extension for the fresh start.
As I started to mention earlier, we have done some stress
testing on that. And we have some results that I would like to
have entered into the record so you can see how that works.
Ms. Foxx. Thank you very much. Mr. Chairman, I would ask
for whatever he has to be entered in the record be entered into
the record, without objection.
Chairman Roe. Without objection, so ordered.
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Ms. Foxx. Thank you.
Mr. Green, my husband and I have been in the construction
business off and on all of our lives, and so I thank you very
much for coming here and explaining to people what very small
margins most people earn by being in the business. I think some
of our colleagues sometimes on the other side of the aisle
think that folks in private business are out there making lots
and lots of money and not being very fair to the people who
they employ. And I know most people in private industry try
very hard to make whatever they can to stay in business and
also treat their employees very, very fairly.
We have consistently heard over the years about the effect
of withdrawal liability and how it actually provides a
disincentive for employers to contribute to defined benefit
plans. And it is clear we need more employers in the system if
we want to provide a more stable system.
Can you explain how withdrawal liability impacted your
business and why it is so important that employers and workers
have an option for a new type of plan?
Mr. Green. Yes, ma'am. Most construction companies are held
by small companies. So my wife and I personally had to
guarantee all of our loans with the banks. And so it is a
personal business and it is personal with the employees.
And if you were required to show the liability on your
financial statements, the banks and sureties would not want to
work with you. As an example, it takes about 40 or 50 thousand
dollars per employee in working capital just to stay in
business. And it challenges--when you have a business and if
you wanted to sell the business, prospective buyers are very
concerned about what liabilities are hidden on the balance
sheet.
Ms. Foxx. Thank you very much, Mr. Chairman. I will yield
back.
Chairman Roe. I thank the gentlelady for yielding.
Ms. Bonamici, you are recognized for five minutes.
Ms. Bonamici. Thank you very much, Mr. Chairman. Thank you
for holding this hearing today, and I also want to thank
Chairman Kline for his work here today.
But I also want to emphasize that I am glad to hear that
this is a statement about a proposal, that it is recognized
even in the title of the hearing that this is a discussion
draft. As Representative Foxx just said, this is hard. And I am
glad we are having a discussion, because there is really a lot
at stake today.
One of the things that I think about when I am home in
Oregon and talking to people about retirement security, which
actually comes up quite a bit these days, it is important that
we protect the hard-earned and promised benefits of retirees.
It is important for the thousands of workers and retirees, for
example, in my state of Oregon who are participants in the
green zone Western Conference Pension Plan, for example, are
that they continue to be in a well-funded plan and are not
disadvantaged as a byproduct of any proposal or legislation
that we come up with here. We need to make sure that workers
who have played by the rules can count on getting the benefits
that they have earned.
And, Mr. Chairman, I would like to offer into the record a
statement from the co-chairs of the Western Conference of
Teamsters Pension Trust. The Western Conference, as you likely
know, is a large and very successful plan with about 585,000
vested participants, at least $36 billion in assets. And the
Western Conference has been well-managed and financially sound
since its inception about 60 years ago. Its co-chairs have
written to this committee to express their deep concern and, in
fact, opposition to the composite legislation as proposed
because quote ``it would severely weaken the funding status of
both composite and legacy retirement plans and cause damage to
healthy plans in the broader multiemployer pension system.''
So when one of the largest and best-managed green zone
pension plans in the country concludes that composite plan as
outlined in this proposal would harm workers/retirees in the
multiemployer pension system as a whole, we as the committee
should listen closely and work with them and others to develop
a plan that doesn't put so many people at risk.
Mr. Certner, can you talk about whether the enactment of
this legislation has the potential to reduce the likelihood of
retirees receiving their well-deserved benefits? Furthermore,
if this composite plan proposal were enacted as drafted, would
retirees have a vote on whether or not to accept benefit cuts
and would the U.S. Treasury have to approve benefit cuts?
Mr. Certner. As I stated in my testimony, essentially what
is happening here, of course, is that we are reducing funding
for the legacy plans, and that reduced funding is going to the
new composite plan. So, by definition, the legacy plan is going
to be worse off. It is going to be worse funded. And now the
plan is going to be responsible for--the employers are going to
be responsible for two different plans. Particularly if there
is some market volatility, there is going to be I think a lot
of difficulty in trying to meet the adequate funding for both
the new composite plan and the old legacy plan; and I think,
because of that, it will put the old legacy plan more at risk.
Ms. Bonamici. Would there be an opportunity for retirees to
vote on whether they need to accept a benefit cut?
Mr. Certner. Well, certainly under MPRA, as established,
there are some minimal standards, including giving retirees the
right to vote and giving the government some authority to
approve it. Under the new composite plans, we don't even have
that limited standard. That really is all at the discretion of
the trustee. So there is I think even less protection.
And thirdly, I would add since you are moving a lot of
people out of the traditional system into these new composite
plans, you are undercutting the entire PBGC premium base,
because there are no premiums being paid for those new
composite plans. And so the well-funded plans are then going to
have to basically pick up the entire burden of the PBGC premium
base.
Ms. Bonamici. Thank you. And I want to follow up on that.
And I know Mr. DeFrehn talked about the need for some sort of
comprehensive PBGC reform, and I absolutely want to align
myself with the comments of Mr. Pocan and others about the need
to make sure that we are protecting workers.
I know, Mr. Green, the majority summary of the bill
asserted that by transitioning into composite plans, employers
will have more opportunity to expand their businesses and hire
new workers. But I am wondering, as far as you know, was there
an economic analysis undertaken that provides support for that
statement. And I know there was some talk about stress testing,
but it is my understanding that the stress testing that Mr.
DeFrehn mentioned and others, it was only done, an analysis on
composite plans, but did not consider what happens to legacy
plans at the same time.
So do you know was there some sort of economic analysis
taken? And maybe, Mr. Certner, you would weigh in on that as
well.
Chairman Roe. The gentlelady's time is expired.
Ms. Bonamici. Maybe for the record. Thank you, Mr.
Chairman.
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Chairman Roe. Thank you.
Ms. Bonamici. I yield back.
Chairman Roe. Mr. Allen, you are recognized for five
minutes.
Mr. Allen. Thank you, Mr. Chairman. And just a little
background, our company now is 40, just celebrated our 40th
year in the construction industry. And I remember back when I
was 25 years old and I started that company and began to, some
five years later, think about those folks retiring. And we
started a 401(k) program, and the reason we did that was
because I didn't think social security would be around for our
folks. And so I convinced people that from top to bottom that,
you know, they needed to provide for their own retirement,
because I wasn't sure that the government program would be
around.
And, of course, I did the same and, of course, you know, it
has been very successful. We have only had two people retire
from our company and they are both doing well, but you know,
our workers are getting older, which is one of the problems we
all have is that we have a graying workforce. And all of these
pension and profit-sharing programs and retirement programs are
in trouble. I mean, it is just folks paying in versus folks
taking out benefits.
Mr. DeFrehn, you know, as far as the--there have been
impediments under current law that prevent employers and unions
from adopting, you know, these plan designs. I guess two
questions is: One, you know, if you could go back 30 years,
would this be the type of plan that you would look at, or what
would our options be if we looked back and say, okay, we made
these mistakes, now what do we do?
Mr. DeFrehn. I think this would have been a good model. I
mean, when PBGC was--the multiemployer guaranty program was put
into place and they added withdrawal liability, theoretically,
it was a good idea. An exiting employer who is leaving a plan
with unfunded liabilities pays their proportionate share on the
way out the door. But in practice, there are a number of
exceptions that keep that from happening and the withdrawal
liability has, in fact, become an obstacle rather than a help
for those plans.
So, going back to those 30 years, I think we would have
reconsidered that had we known this kind of information.
Mr. Allen. Yes. Again, for whatever reason, we don't
consider, you know, the beginning with the end in mind, again,
with social security and some of the other programs.
Mr. Green, in your written testimony you discussed how plan
contributions are the key element for plans' ability to address
funding shortfalls, but that there are limits. How would this
new plan design help employers avoid the unpredictability of
increasing plan contributions that exist in traditional plans
today?
Mr. Green. The wages paid to the individual are important.
The individual needs to believe that what he is getting is of
value. The employer's concern is that if they pay the fringe
and they can understand that cost, will someone come back in
the future and say, hey, you owe additional money? And so the
concern is what liabilities are you stumbling into that you are
not aware of?
Mr. Allen. I see. As far as, Mr. Certner, your concerns
with this composite program, how can they be addressed?
Mr. Certner. As I think I said earlier, I think there are
two issues. One is just the funding, whether or not a plan,
particularly one that is not well-funded, can basically fund
two different plans and what that will mean particularly to the
legacy plans, and particularly when you have more volatile
markets. I would like to see some more numbers that show that
actually can occur, because we have some doubts about that.
Second of all, I think the benefit problem seems to be
extremely ephemeral in these plans. It is not at all clear to
an individual what they are going to be getting and how it
could change basically every year, depending on the ups and
downs of the market, and potentially deep benefit cuts that are
given at the discretion of the trustees to make. That is an
extremely unusual setup, and we don't have anything like that
in the pension world.
Normally, you know, you know what you are going to get if
you are in a defined benefit plan. And if you are in a 401(k)
fund, you have your account balance and you know what your
account balance is from year to year and it is not up to some
trustee to look at the environment and say, well, we need to
make some adjustments to benefits to not just meet this plan
but to some of the funding that has to go into the old plan. So
I think that is part of the problem.
Mr. Allen. Thank you very much for your testimony, and I
yield back.
Chairman Roe. I thank the gentleman for yielding.
Mr. Scott, you are recognized for five minutes.
Mr. Scott. Thank you.
Thank you, Mr. Chairman. Mr. Chairman, we have heard a lot
about whether you pool the assets or slice them up. Frankly, it
is like having a pizza. You don't have more pizza if you cut it
into slices; you still have the same amount of money. And
whether or not we are going to have enough money to pay out the
benefits really doesn't depend on whether you slice it into
separate accounts.
Mr. Certner, you know, when you have a defined benefit
plan, the employer takes all the risk of a downside in the
market. If there is an upside in the market, the employer
benefits, but the employee gets what he gets. If you have a
defined contribution plan, the employee takes the risk of a
downside in the market, but also gets the benefit if there is a
surprise upside.
Who takes the upside and downside risk with the composite
plan?
Mr. Certner. It seems to me most of the--I mean, it could
be either way here, because part of the answer could be that if
the market goes down, the employers would need to contribute
more, and that is normally what it would be in a defined
benefit plan.
But at least what I am hearing from my colleagues here is
that employers won't contribute more and then, therefore, the
risk is then really put back on the employees and the retirees
on the composite plan and the legacy plan, because I think what
I am hearing will happen is that you can only get so much more
out of the employers. The employers don't want to take on any
more of the risk and the liability and, therefore, when you hit
market volatility, there is going to be a dramatic level of
underfunding that since the employer is not making it up is
going to shift it right back onto the employees and the
retirees.
Mr. Scott. So the employees take the downside risk. What
about the upside, who enjoys the upside surprise? If there is
higher return than you would expect, who gets the benefit of
that?
Mr. Certner. I am probably not the best one to answer that,
because I am not sure what happens with that upside--
Mr. Scott. The employer would not have to contribute as
much, so he would get the benefit of the upside.
Mr. Certner. The employer would benefit from it. You know,
I guess, in theory, you could take some of that money and share
it with your employees, but in all likelihood, the employer I
think would use it to offset any contributions they need to
make.
Mr. Scott. You indicated the problem with dealing with the
legacy plan at the same time you are going to a new plan, you
put both at risk. Is there a separate calculation as to what
you--if you go into a new plan, is there a separate calculation
as to how much you have to put into the legacy plan, over and
above, what you need to fully fund the new plan, or do you have
the same calculation and just try to make up the best you can
what you owe on the legacy plan?
Mr. Certner. What I gather, what basically they are doing
is they are stretching out the contributions that are made to
the legacy plan. In other words, they are contributing less to
the legacy plan each year, because of it being stretched out
over a longer period of time. So that means there needs to be
an additional contribution from the composite plan as well. As
I think I sort of alluded to earlier, if the markets are doing
well and never go down, then that money will be there to
transfer and make those contributions. But should there be a
down market or some volatility, I am not sure where that money
comes from. I don't know how we keep those plans well-funded.
Mr. Scott. You have also mentioned the retirees. Does a
retiree pay into the PBGC?
Mr. Certner. There will be premiums paid on anybody who is
in the premium base, but all these composite plans would be out
of the base. There would be no premiums on them.
Mr. Scott. Is the retiree paying premiums?
Mr. Certner. The retirees are not paying anything today.
They are paying premiums on behalf of any of the participants,
the employers.
Mr. Scott. The employers pay a premium into the PBGC for
someone who is fully retired?
Mr. Certner. Right, for any of the participants in the
plan.
Mr. Scott. Mr. Green, you mentioned, in your testimony you
talked about the last man standing rule and all the bizarre
things that happen to employers who participate. What would be
the downside of just repealing the last man standing rule?
Mr. Green. I believe that the purpose of the last man
standing rule is to ensure that moneys are paid for the
retirees.
Mr. Scott. And then what happens if nobody wants to come in
and take those liabilities?
Mr. Green. If no one would take those liabilities, the
employers, it wouldn't be a concern for them, but then there is
really no guarantee of retirement benefits.
Mr. Scott. If you repeal the last man standing rule,
wouldn't it be more likely that new employers would come into
the plan?
Mr. Green. The last man standing rule applies when the plan
is basically being liquidated. The concern is, is for existing
benefit plans, what additional liabilities are there. My
testimony, the Omaha plan is very, very well-funded and well-
managed. However, in 2015, there was a $60 million shortfall
that would be reflected by the employees.
Mr. Scott. Thank you, Mr. Chairman.
Chairman Roe. I thank the gentleman for yielding.
Mr. Walberg, you are recognized for five minutes.
Mr. Walberg. Thank you, Mr. Chairman.
Thanks to the panel. Mr. Green, after your conversations
with labor and management representatives, do you believe that
the composite plan structure will be adopted within the
industry, and will it help the workers and employees, in your
mind?
Mr. Green. I believe providing the trustees additional
tools to meet their needs will be adopted where it makes sense.
We are not talking about requiring people to follow these
plans. It is another option for them.
Another point I would like to make, as Congressman Allen
knows, construction people are very--it is a personal business.
We are very, very protective of our employees. And so any--if
we--and trustees, if we do something, we want to do it for the
benefit of our employees.
Mr. Walberg. As employers and workers move to adopt the new
plan designs prospectively, underfunded legacy liabilities must
also be addressed.
Mr. Green, will employers continue to fund liabilities
attributable to legacy defined benefit plans as well as under
the rules prescribed by the draft legislation?
Mr. Green. I believe employers are willing to help pay for
underfunded legacy plans. Their concern is, if I pay money now,
will I owe money in the future? So if we say, hey, we are going
to pay money now and that is it, there is no problem there.
Mr. Walberg. Thank you.
Mr. Terven, your written testimony noted that your union's
members participated in more than 150 multiemployer defined
benefit plans. How many of those plans are facing financial
difficulty and underfunding?
Mr. Terven. Thank you. I don't have the specific numbers
regarding the number of plans facing the funding challenges,
but I do know that the construction industry tends to have
better funding experience than do many other industries.
Nevertheless, this new model is envisioned as an alternative
for some plans and an additional component of some of our
larger and regional or national plans.
And as so eloquently stated by quite a few people today,
the important thing for all of us to remember is, this is a
voluntary alternative which will provide adequate funding for
both models. And we are not suggesting a new form of a defined
benefit plan for industries where the existing model has
existed and is working well. The defined benefit plans will
still provide the gold standards.
However, for situations where the employers have determined
they can no longer accept the risk associated with the existing
defined benefit model and are determined to exit the system in
favor of the current 401(k) system or no system, the composite
plan provides a viable alternative that mitigates some of the
volatility of the benefit adjustments inherent in daily valued
benefit contribution plans and allows higher benefits to be
paid than would possibly be paid. By spending down the account
balance of a 401(k) or even using this as a balance to purchase
annuities.
Mr. Walberg. So you would expect that many employers will
end up leaving defined benefit plans?
Mr. Terven. Every meeting I go to that is a labor-
management meeting that I have been to in the last two years
has talked about everything on withdrawal liability. Everything
that they keep coming to us over and over again is that they
can't compete with withdrawal liability, because it is like an
invisible boogieman at the bank saying, you may be required to
pay certain amounts of money and we don't know what it is. But
these are family businesses that are very, very concerned about
that factor and this withdrawal liability around their necks.
And we can't survive without contractors, because our
contractors put us to work, and it also brings in the younger
people that we try so hard to bring into these systems. So we
are looking for viable alternatives, not in a locked-out system
like I heard earlier today.
We have to change and change with the times to make sure we
can make sure these are viable defined benefit plans and plans
for our retirees.
Mr. Walberg. I appreciate hearing that realistic perception
that there has to be that working relationship, contractor-
employee. It has to work for both of you.
One final question, Mr. Terven. One feature of the
composite plan structure is that it removes the threat of
withdrawal liability. Based on your discussions with employers,
do you believe that this new structure will attract employers
and how will it affect your industry?
Mr. Terven. The recession in the construction industry I
believe was really a depression, and we had devastating
unemployment. We are still trying to get out of it. And it has
these pre-recession losses, but they affected our plan funding
in such a way that subsequent investment gains have depressed
hours of contributions. It resulted in the re-emergences of
these unfunded liabilities that you are talking about that
serve as an impediment to the entry of new employers. When we
have been out trying to organize new employers, they keep
bringing up the fact of this withdrawal liability and that if
it wasn't in front of them, they would be glad to be a part of
the organizations that we try to do to take care of the
workers. Because they want something for their workers. They
like the plan that we have. They are just trying to figure out
how to get away from this unfunded liability.
And I think that the new plan design--I will say this. We
referred to the composite structures as defined contribution
plus rather than a defined benefit minus, by addressing the
shortcomings of each one of them. And I think this gives the
trustees, labor and management, equal representation to say,
does this best fit our plans and how do we proceed forward to
ensure the viability of lifetime benefits.
Mr. Walberg. Thank you. I yield back.
Chairman Roe. The gentleman's time is expired.
Ms. Wilson, you are recognized for five minutes.
Ms. Wilson of Florida. Thank you, Chairman Roe and Ranking
Member Polis for your leadership in holding today's extremely
important discussion on preserving retirement security for
America's working families. I applaud the bipartisan efforts of
my colleagues in working together on the issue of multiemployer
pensions.
We work on this issue because we understand how important
it is for workers to have the peace of mind of knowing that the
pensions that they have come to rely on are solvent and will
carry them through their later years. Every person who works
hard to earn his or her pension deserves to have that entire
pension.
I am a strong supporter of defined benefit pension plans
that provide guaranteed lifetime income to retirement. So as we
examine these plans today, let us be sure that the plans are
fair to both participants and employers, these new plans, and
protect the hard-earned retirement benefits of American workers
and retirees.
We must make sure that these alternative plan designs
mitigate risk to employers, but we also must make sure that
these new alternatives do not shift an excessive amount of risk
onto workers. We must also be sure that the plans continue to
pay out reasonable benefits and that safeguards are in place to
prevent plans from going underfunded, jeopardizing workers'
retirement.
This proposal does not go far enough to ensure the
retirement security of American workers and other participants
in multiemployer pension plans. I am also concerned that it
could permit unprecedented cuts to retiree benefits and is not
protected by the Pension Benefit Guaranty Corporation.
I am currently reviewing and reserving judgment on the
draft while approaching the process with an open mind. I
believe all sides must be heard and have their views taken into
consideration. If the committee and Congress as a whole decides
to act on this important issue, we must make sure that it is
manageable for all concerned, especially retirees. The last
thing we need is for us to fail in our efforts to get this
right.
And as we consider improving and ensuring the solvency of
pensions, just as a strong reminder, we must keep in mind our
coal miners, whose pensions and health benefits are in dire
jeopardy. If Congress does not act on the Coal Healthcare and
Pensions Protection Act, over 20,000 retirees stand to lose
their health benefits by the end of the year.
Mr. Certner, would the enactment of this legislation reduce
the likelihood of retirees receiving their well-deserved
benefits?
Mr. Certner. I think that is the ultimate concern here, is
that if you are moving retirees into legacy plans and you are
essentially having to fund another plan, there simply won't be
enough money to fund both plans. And we know from the start you
are reducing the amount of money going into those legacy plans.
At the same time, you are moving all of these companies or
these plans out of basically the premium system, the PBGC
premium base, because the composite plans don't pay premiums.
So there is no insurance premium even going into the backstop.
So these legacy plans are going to be left with less
funding and then having to compete with funding with the new
plan that has some, you know, limits and caps on money going
back and forth. So we think it puts those legacy plans much
more at risk than they are today. And, of course, we know today
we have nearly 40 percent of the plans that are in some kind of
endangered funding status.
So we think it is just going to make those plans even more
at risk; therefore, putting the retirees more at risk and
putting the PBGC losing its premium base more at risk.
Ms. Wilson of Florida. At risk of what?
Mr. Certner. Well, risk of plans going under, there not
being enough funding, and the PBGC not having enough money even
to provide the guaranteed backstop.
Ms. Wilson of Florida. Well, Mr. Green testified that this
plan would attract employers and expand the funding base of
pension plans. Do you agree with that?
Mr. Certner. I think that is somewhat speculative, but even
if they do come in, if we hit a market downturn then I think
this is going to be very difficult for them to deal with,
because you hear them all saying that the employers don't want
to have increased liability. They don't want to--you have to
contribute more. They don't want to pay additional PBGC
premiums.
So they want to go into the system, but they don't really
want to have to expand their liabilities, and that is exactly
what would happen in a market downturn. So if the market goes
down, as it will ultimately do, it is going to I think leave
some of these plans, both the composite plan and the legacy
plans, I think in a very difficult situation.
Ms. Wilson of Florida. Thank you very much.
Chairman Roe. The gentlelady's time is expired.
Mr. Guthrie is recognized for five minutes.
Mr. Guthrie. Thank you, Mr. Chairman.
I appreciate the opportunity to be here for us to try to
get our hands around how we can help people preserve their
hard-earned retirement benefits in a way that is sustainable.
So that is the intent of everybody here.
So, Mr. Green and Mr. DeFrehn, I have a question. Under
current law--so as employers consider adopting new plan
designs, are there options under current law that they could
consider and how do these compare to the draft? Could they
already do this now? I have had some discussions where people
say there is not necessarily this but other options. And, if
so, what could they do and what is different from the draft?
Mr. DeFrehn. There are a number of different options that
employers can adopt. Cash balance plans can be adopted. They
have not been popular. They have their drawbacks as well.
Once again, I think there is a fundamental misunderstanding
of what is trying to be accomplished here. We are not talking
about reinventing a defined benefit system, and that is why
there is no PBGC premium. It is not a defined benefit plan, and
the PBGC was created to protect defined benefit plans.
Instead, what we have is something that is viewed as a
shared risk or defined ambition plans elsewhere in the world,
where they have been in place for some time. Recognizing that
the markets are not as dependable and more volatile than they
have ever been, what we are doing is we are making sure that
the workers, rather than being handed a savings account at the
end of their career, will receive a regular monthly pension
benefit.
The volatility here, we should be not comparing this with
the current defined benefit system; we should be looking at a
401(k). Every day the market changes; your benefits go up and
your benefits go down. This model allows a more modified,
moderated approach, where the adjustments are made annually,
based on the market performance for the plan for that year. It
is according to a hierarchy that spells out, first, you
negotiate additional contributions or adjust further accruals.
If the plan is sufficiently harmed by a bad market, then you do
what you can do under the DB system in a red zone plan, reduce
subsidized early retirement benefits. And it is not until there
is a catastrophic event that you would be--and all of those
other options are exhausted that you would invade anybody's
benefit that would be in pay status or the core benefit that
could be paid.
So I think this model is one that should not be viewed as a
defined benefit plan and things like a vote on what changes are
made to the accruals. But the last discussion draft deals with
the kind of discretion that would otherwise be up to the
trustees by specifying that you have to go through these
hierarchies before you can adjust the benefits and pay status.
So, in effect, what we are doing is we are protecting the
pensioners far beyond what they are protected in a current
401(k), and that is really the model we should be looking at as
the comparison.
Mr. Guthrie. Mr. Green, anything to add to that?
Mr. Green. Two points. The first point is, as a trustee, it
would be hard to come up with your own plan. I mean, there is a
lot of overhead to getting that done. So having good guidelines
that have been reviewed by Congress and approved and a
regulatory agency would be a huge plus.
And the second point I would like to make is the assumption
that the amount of money coming in and contributions will stay
the same is not valid. I mean, I believe that adopting
different plans will bring more money in and more
contributions, which will help us; but I am certain that the
current regulations are hurting that and it is pushing money
out, and so we need money coming in.
Mr. Guthrie. Thanks. I have a pretty long question so I
will try to get to it quickly and give you time to answer, Mr.
DeFrehn.
I have an employer in my district who said his withdrawal
liability is worth more than his business right now and in that
situation. So I know you all touched on it already, but I want
to ask this question, Mr. DeFrehn: One of the biggest problems
facing employers in the multiemployer pension system is
withdrawal liability, the exit fee that the employer is
supposed to pay upon leaving the plan. The prospect of this
liability can be a significant detriment to employers
contributing to a plan and a deterrent to attracting new
employers. However, the purpose was to require that employers
actually pay for the benefit liabilities attributed to their
employees. The composite plan proposal does not include
withdrawal liability.
How can a plan ensure that the benefit promises are
adequately funded if employers are not required to pay a fee if
they leave the plan?
Mr. DeFrehn. Similar to a 401(k), the contributions are
coming into the plan, and you take that contribution, you
project it forward for 15 years at the assumed rates of return
and you see whether you are meeting your funding targets. You
have to be 120 percent before you can make any changes to
improve benefits; and below that, if you are not at the 120,
you have to adjust to make sure that the plan is adequately
funded.
Mr. Guthrie. Thank you. My time is up.
Chairman Roe. I thank the gentleman for yielding.
Mr. Jeffries, you are recognized for five minutes.
Mr. Jeffries. Thank you, Mr. Chairman, for this hearing,
for your leadership on this issue. I also want to thank the
ranking member.
This is a very important issue in the context of what
constitutes the American Dream as we know it. The American
Dream I think can be broken down into the notion that if you
work hard, earn a living wage, you will have an opportunity to
provide for your family, to purchase a home, to send your
children to college so hopefully they can have a better life
than the one that you had, and then to retire with dignity and
security.
And we know if you look at the different elements there,
though the economy has recovered significantly over the last
eight years, because of structural changes that we have
experienced for more than 40 years: We have an underemployment
phenomenon that exists in this country; we have skyrocketing
costs related to higher education that have increasingly made
it difficult for middle class families, working class families
to send their children to college; and then, of course,
challenges as it relates to retirement security. And so while
we have to deal with the underemployment issue, we have to deal
with home ownership and higher education access, certainly
retirement security is a critical component of the American
Dream.
In that regard, a few questions. I will start with Mr.
Certner. Composite plans are exempt from paying PBGC premiums.
Is that correct?
Mr. Certner. Yes.
Mr. Jeffries. And so I guess as a result, is the
expectation that PBGC premiums will drop significantly under a
composite plan if it is adopted?
Mr. Certner. I would have to think so, because there would
be more people in the composite plan than left in the legacy
plan. So, for that employer, the PBGC premiums would drop.
Mr. Jeffries. And am I correct that PBGC is currently
projected to deplete its funding in about a 6-year period?
Mr. Certner. 2025 I believe is the latest projection.
Mr. Jeffries. And so if that depletion takes place under
current projections and if a composite plan was adopted, which
presumably would accelerate it, how does that leave, you know,
retirees in the context of the volatility that you have spoken
about in terms of the market?
Mr. Certner. I think that is part of our concern. We
obviously have a number of problems in the system, but one of
the problems is to stabilize the PBGC. And what this proposal
seems to be doing is moving more plans out of the PBGC
framework, so there won't be any premium payments on those
plans; plus, actually, over time I think it is going to make it
easier to withdraw from the system as well. So that will drive
even more companies out of the PBGC framework.
So initially you are going to have some taken out of the
framework. Over time, you are going to have even more that can
get out, because withdrawal liability will be reduced. So if
you start having a run to the door of companies leaving, the
PBGC is already on the verge of collapse. We need to do some
tough things to shore it up. I don't know how we can do that if
everybody is running out the door.
Mr. Jeffries. I yield now the balance of my time to
Representative Bobby Scott.
Mr. Scott. Thank you.
Mr. DeFrehn, I had asked previously about the fact that if
there is a downside market, the employee can suffer from the
downside market, and you seemed to disagree when I said that
they did not enjoy the upside. If there is a surprisingly good
market, how would the employee benefit?
Mr. DeFrehn. Well, Mr. Scott, remember that these are
contributions that go into a trust fund. And the gains that are
realized by the assets that are invested in the trust fund
remain in that trust fund for the benefit of the participants.
The level of benefits and when benefit improvements are made,
there are some restrictions on being able to spend a windfall
profit too quickly; but basically, the collective bargaining
process is one where the benefit would be improved once you get
above that 120 percent. So they would share in those gains.
Mr. Scott. Is that mandated or discretionary?
Mr. DeFrehn. It is discretionary until you get to the point
where the maximum deductible is hit, and that is currently at
140 percent of the funding level. Beyond that, then the
benefits would have to be spent or the employers contributing
to the plan would no longer be able to deduct these
contributions under current--
Mr. Scott. Would the contributions continue to be required?
Mr. DeFrehn. Yes. In our system, although in a single-
employer environment, employers often, when they hit their
funding target or they meet even their minimum funding
requirement, that is all they put in. Here, the contributions
are negotiated. And so those contributions are coming in
anyway. And--
Mr. Scott. So the contributions would continue to have to
come in, and any upside from that would accrue to the benefit
of the employee?
Mr. DeFrehn. That is correct. There is no way to have these
assets depleted by the contributing employers. Once they are in
the trust, they stay in the trust.
Mr. Scott. Thank you, Mr. Chairman.
Chairman Roe. Thank you, Mr. Scott.
Mr. Grothman, you are recognized for five minutes.
Mr. Grothman. Mr. Terven, do I have that right? A feature
of the composite plan design is a more flexible benefit
structure that is just based on assets and the funds. Are you
comfortable with that structure? And, when coupled with the
conservative funding requirements, are you satisfied that this
will provide adequate income security for your members even if
the benefits go up and down? Would you be satisfied with that?
Mr. Terven. Yes, sir. But I would also like to remember, we
are not suggesting a new form of defined benefit. As I said
earlier, where a defined benefit is in place and it is strong
and it is structured, it is the gold standard, it will stay
there, all right? But I do feel that this alternative benefit
will help increase more hours for people to have in their
system to be able to afford their benefits and bring in new
contractors and new employees.
Mr. Grothman. Okay. A question for Mr. Green. You are a
trustee. You know that defined benefit plan trustees make
decisions affecting active workers, retirees and employers. The
draft legislation would empower trustees to manage all aspects
of the plan, including the benefits. Could you comment on that
or how seriously you think the trustees will take their
responsibilities?
Mr. Green. Trustees take their responsibility very, very
personally. I mean, we have labor and management, both
representatives there. Most of our retirees and participants
are known on a first-name basis. In Omaha, we have about 4,000
actives in the plan. And so we take it very seriously. And then
also, the labor side talks to their members and they are very
well-represented.
Mr. Grothman. Okay. I will yield the remainder of my time
to the chair.
Chairman Roe. Thank you, Mr. Grothman.
I think what we are hearing today--and I am really glad we
are having this hearing--is that we have opened up I think an
option that business has to have. Let me just say this: Why
would any new company go into a plan and accept a huge
withdrawal liability that may exceed the value of their
company? I can tell you I wouldn't do it with mine. I can
flatly tell--Mr. Terven, I can flatly tell you that. I wouldn't
put my company and my employees at that risk, because I might
bankrupt and they may lose their jobs. Why would I do that? So
I think offering this new option, and what Mr. Terven said, we
have an example already in Canada where he has not heard
anybody complain about that system, about that plan.
And, Mr. Certner, I agree. Look, we have underfunded plans.
That is a problem, there is no question about it. And we can't
allow those plans to get worse, because we have got 10 million
people and those retirees depending on that. But as we gray and
age, as Mr. Allen was saying, in this country, we have got to
figure a way to get younger new workers in plans that work for
them and work for the business that employed them.
So, Mr. Terven, I am going to open up for you. You said it
once and I want you to say it again. I think this is essential
for the survival of the multiemployer pension system.
Mr. Terven. Thank you, Mr. Chairman. I cannot say it
enough. I have watched this business for a long time move
around and I have watched, and I have watched a large employer
be told to me that they could write a billion dollar check to
walk away from unfunded liability. We cannot afford in these
industries to lose these contractors that are supporting our
members and the workers in this country to walk away with a
billion dollar check and have no benefit structure for the
future that we have going here.
And if our contractors cannot compete or do not know what
that percentage of unfunded liability situation will continue
to be--and one of the things that was touched on that I would
like to, if I could, was the legacy plan.
It is my understanding on this one, because the people are
talking about starving out the legacy plan, but it is my
understanding that those involved--and I have been around with
these guys for a long time in some of these meetings. The key
component of those meetings shared the understanding that the
promises and obligations made to those in the existing defined
benefits would be honored in their entirety. The discussion
draft I believe moves that ball forward on the objective by
clarifying that legacy plans have first call on the
contribution provided on a specific funding regimen in which
the funding of the legacy plan is the greater of the
requirements. So I don't see how that is going to be
detrimental to our legacy plans.
So I think it is a great option and I think it is the one
we have to have if we are going to sustain future benefits for
our people. One of the areas--
Chairman Roe. It puts another tool in the toolbox.
Mr. Terven. Exactly. Here's a good thing.
Chairman Roe. I am going to have to interrupt you, Mr.
Terven. My time has expired for the second time.
And thank you, Mr. Grothman.
Mr. Courtney, you are recognized for five minutes.
Mr. Courtney. Thank you, Mr. Chairman.
I want to thank all the witnesses here. I mean, this is
obviously a very serious group of individuals who are sincere
and thoughtful in terms of the hard work that you have done. I
am very concerned about the way this process is evolving,
though. We saw this movie two years ago and, as Chairman Kline,
who is a serious, thoughtful guy and was deeply involved in the
pension language that was put into the CRomnibus, tested that,
you know, the way it has evolved with the Department of
Treasury's interpretation, it is the law of unintended
consequences in terms of just what has happened here.
And, again, it is obvious we are not going to have a
markup. You know, the chairman had his kind remarks for Mr.
Hinojosa which were well-deserved, but, frankly, that kind of
sends the signal. This subcommittee is not going to do a
markup. We are not going to have a full committee markup. We
are days away from recessing until lame duck. And the only
opportunity to enact this is going to be as part of probably
some kind of omnibus bill.
And I just think that, you know, we are going to have the
same kind of comments that Mr. Kline made earlier today about
the fact that, well, you know, it really didn't evolve the way
it was supposed to.
I mean, Mr. DeFrehn, you have mentioned a number of times
the fact that the administration has weighed in with comments
and suggestions, but, for the record, have they endorsed the
draft recommendation?
Mr. DeFrehn. I haven't spoken with anybody about the draft
proposal since--
Mr. Courtney. You are not aware then that the Department of
Labor or the Pension Benefit Guaranty Corporation has publicly
endorsed this package. Isn't that correct?
Mr. DeFrehn. I believe that they are in the process of
evaluating it. At least--
Mr. Courtney. And that is fine. That is fine. But the
bottom line is here, we are talking about doing something that
affects millions of people and, you know, it is handle with
care for all the reasons that you have all said from both sides
of the issue here. And, you know, there clearly is opposition,
as we see here this morning. And, you know, some of the
comments that Mr. Certner has made about ways to improve this
approach are not going to get incorporated. I mean, let us face
it. You know, you guys have sort of come together with a
package here, I understand that, but the fact of the matter is
this process is over, in terms of really what the language is
going to look like. I mean, look at the calendar; it is just
common sense.
And, you know, I guess the only thought that, you know, I
was going to propose is that, you know, clearly we have a
division here. We have got the trades who, you know, support
this approach. We have got industrial unions which oppose this
approach. We have folks who are representing seniors that are,
again, negative in terms of this.
You know, why can't we sort of move a little slower in
terms of a phase-in, with some type of pilot approach for those
sectors that feel that this is existential in terms of the
future? And, Mr. Certner, maybe you can just sort of comment on
that. Why do we have to sort of force this into the entire
spectrum of pension plans, given the fact that the process is
not proceeding with regular order and that we have still got
kinks that we have to work out?
Mr. Certner. I agree. I mean, obviously, the discussion
draft just came out recently and these folks may have been
spending a lot of time with it. But if you are talking about a
discussion between union and management, you know, I think you
know unions, by law, don't represent retirees. And that is the
problem and one of the reasons we are here today is because,
you know, we think in many cases they are getting the short end
of the stick here.
And we understand that there are a lot of concerns about
making sure this continues in an ongoing fashion, but we want
to make sure we take the right processes to protect retirees.
Our pension laws have been very clear over time that when you
have an accrued benefit, it is earned, it can't be taken away.
And we are playing with a fundamental rule of pension law.
And I know there are huge problems here, but we have given
over incredible discretion to trustees under these new
composite plans to make changes to benefits on an annual basis.
I don't know how you could even tell a participant what their
plan benefit is. I don't even know how you would describe it,
because the trustees can change it every year. That is not the
way pension laws worked for 40 years, and to just do something
like that as part of an omnibus would be a pretty dramatic
change without, I think, a lot of due consideration.
Mr. Courtney. Thank you. And I would just say, you know,
for the trades, you know, one of their mottos is measure twice,
cut once. We are not measuring twice here. That is not the way
this is moving forward.
And, again, George Miller was my hero, you know, as a
member on this committee. He worked very hard in that package 2
years ago and, frankly, it just has not evolved the way I think
the proponents, as Mr. Kline said, envisioned. And just it is a
cautionary tale for all of us in terms of just, you know, using
the lame duck session as a vehicle to make a change that is
just that widespread in terms of impact on retirees.
I yield back.
Chairman Roe. I thank the gentleman for yielding.
Mr. Polis, you are recognized.
Mr. Polis. Thank you. My first question is to Mr. DeFrehn.
There is a continued concern, as we heard expressed, that
legacy plans will be underfunded. Of course, we don't want
legacy plans to descend into distress. AARP has raised several
concerns regarding funding of legacy plans, including the
requirement that 25 percent of the contributions go to the
composite plans.
Mr. Certner testified moments ago that the provisions in
the discussion draft that permit existing plans to divert
current plan contributions to a composite plan will likely lead
to harmful outcomes for those left behind in legacy plans, end
quote. You got to hear that.
Do you agree that this could lead to harmful outcomes? If
not, why not? And can you explain why it is important to set
the 25 percent requirement mentioned in the statute?
Mr. DeFrehn. Yes. And thank you for your question. The
stress testing that I referred to earlier was just done, was
completed based on the discussion draft, which shows clearly
that the requirements under the law to have the greater of the
transition minimum or the current PPA requirements will
continue to allow those legacy plans to be fully funded in a
reasonable period of time.
And even testing it against the 22 percent loss that was
incurred in 2008, these plans, a yellow zone plan would fall
into red for 2 years before it returns by simply reallocating
contributions by the bargaining parties, not by the trustees.
So I believe that is certainly a clear option here.
Mr. Polis. Do you agree with Mr. Certner's testimony that
permitting existing plans to divert current plan contributions
to a composite plan will likely lead to harmful outcomes for
those who remain in legacy plans?
Mr. DeFrehn. Not at all. You have to remember that a
defined benefit plan is comprised of two portions: One is
paying off the existing accrued liabilities; and the second is
the normal cost or what you are putting in for future service
and current service. What we are doing here is we are simply
splitting off that second piece that would normally have to be
funded out of the same plan. It is now being funded in a plan
that has no risk, and it has some different features to it.
Mr. Polis. I have a couple more questions to get in. But,
as you know, some groups who represent workers have taken issue
with the fact that the draft allows for an employer to amortize
his existing legacy plan liability over a quarter century. They
prefer a shorter period, like 15 years that is in the pension-
protection-act.
Your testimony got into that a little bit, but could you
briefly elaborate on why you think 25 years is appropriate
instead of 15 years?
Mr. DeFrehn. Certainly. And this comes back to your earlier
question as well. It has to do with the new employees and the
current active employees. We have to make sure that the active
employees remain as supportive as the employers, because when
you get to the bargaining table, it is just as easy for the
union to say, we are going to bargain out of the existing plan
and go to a 401(k), as it is for the employer to do that.
We have examples. For example, there is a construction
industry plan in the Midwest where the contribution rate is
over $19 an hour. If you are working 2,000 hours a year, that
is $38,000 a year you are putting in. The active employee is
getting 90 cents of that $19 for his own retirement. We have to
make sure they have a benefit, and that is where the extended
amortization is required.
Mr. Polis. Mr. Terven, and while today's hearing is about a
specific issue relating to pensions that are very important, we
also need to think about this in the larger context of
protection and benefits for employees.
I recently introduced a labor package that would enhance
labor laws, so we can provide workers a fair shot at obtaining
and maintaining good jobs with livable wages, setting higher
standards for employers. When I talk with workers in my
district, they often bring up their concerns around not being
paid the overtime they deserve. And for some, that they aren't
getting the wages they should have earned. They have been
victims of wage theft.
Unfortunately, the current rules and the Fair Labor
Standards Act are often either ignored or not taken seriously.
For too many Americans, wage theft and ignoring workers' rights
to overtime is, sadly, part of their experience.
Can you speak to the importance of beefing up penalties for
violating FLSA and how workers could benefit from tougher
penalties on bad actors?
Mr. Terven. Thank you. I think a fair wage or a livable
wage discussion cannot be limited to just payment per hour,
week, month, or the year. A fair wage must also include a
pension that will provide for workers when they retire. And we
have to make sure that the pension will be there when the
employee retires and that it will sustain them over their
retirement years. And this is why this hearing is so important.
And for many workers and the members of our union and other
unions, the question of the sustainability of their pensions
under the current economic conditions and past practices is a
very serious matter. It is very serious to the members of our
union, to the employees of our employers, and the employers
themselves, as it affects the sustainability of a talented
workforce in a competitive company.
So when you raise the issue of the fair wage or livable
wage to support a family, for education of their children, for
the purchase of a home, to provide for their health care, yes,
it must also include the adequacy and sustainability of their
pensions. And I commend you for raising these issues, and I
look forward to working with you and the other members of this
committee, hopefully in a bipartisan manner to make sure that
America's skilled workforce can continue to earn the wages that
support their families and have those protections and provide
for the retirement. There is a lot of work to be done in
America today and on behalf of the employees and the employers
to try and make this a reality for all men and women in
America's remarkable skilled and talented workforce. These
issues cannot be separated.
Mr. Polis. Thank you, and I yield back.
Chairman Roe. I thank the gentleman for yielding.
And, again, I would like to thank our witnesses for taking
the time--it has been an excellent committee--to testify before
our subcommittee today. And before we adjourn, I will ask Mr.
Polls if he has any closing remarks.
Mr. Polis. Mr. Chair, I have an additional letter to submit
to the record, without objection.
Chairman Roe. Without objection, so ordered.
[The information follows:]
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Mr. Polis. And I just want to thank Dr. Roe for holding
this important hearing. I want to thank Chairman Kline for
putting forward a discussion draft. Retirement security is
incredibly important for our workers and, of course, for
companies as well. We need to take the time to fully discuss
how to ensure that employees' benefits are protected and
companies can remain competitive.
I want to thank the witnesses for being here today. This is
the start of a process of stakeholder input, and I greatly
appreciate the time that all of you have taken to share your
thoughts with us today on this topic.
And I yield back.
Chairman Roe. I thank Mr. Polis for yielding.
And I again thank the panel for being here.
And let me just close out by saying, in this country 29
percent of people over 55 have no retirement savings. That is a
national tragedy when you think about it. I mean, none. I know
when I began my small business over 35 years ago now, we had
just 12 employees. We now have 450 employees, which we have a
401(k). We have had a retirement plan from day one. As Mr.
Green said, people have stayed with me for 40 years in our
business. And actually, one outlasted me; she has still there
working and will have a very substantial retirement benefit
package when she leaves. And I am happy for that. I am glad
about that.
As Mr. Allen was saying, I started thinking about retiring
when I started working, about how we provide for people who get
up every day when they have a bad cold and they are feeling bad
or whatever and come to work for me. They deserve a decent
retirement. Mr. Chairman, you said that and I agree with you
100 percent.
We have various options out there available to us. We have
personal savings, we have a 401(k), IRAs, defined benefit
plans. We have now this new hybrid plan called a composite
plan, which is to me very intriguing. And when I was the mayor
of Johnson City, Tennessee, I watched a defined benefit plan.
When I began there in 2003, 11 percent of the total wages were
used to make the accruals that we needed. Six years later, it
was 19 percent. It was totally unsustainable for the taxpayers
in that small community. We couldn't continue to do that; there
had to be other options available.
And, as Mr. Green brought out, we are not going to attract
companies to go into a defined benefit to sign onto a potential
liability that exceeds the value of their business. I know I
would never do that. You wouldn't be a good business owner if
you did.
So I think you all have brought up, and I think what Mr.
Courtney brought up is not altogether factual. I think the
NCCMP's initial shot at this 3 years ago was changed a lot by
this. And I think the same thing, this is a hearing to begin
the process, not the endpoint today. And we have heard a lot of
good ideas. And certainly, I think Mr. Polis brought up harmful
outcomes, and I think the harmful outcome is doing nothing. I
think you will end up with a bad outcome if we do nothing. And
I think this subcommittee and this committee and you as
stakeholders out there won't have done your job if we do
nothing.
So I want to thank you again for the beginning of this
process and I look forward to doing this. I am very intrigued
by this and, with no further comments, this meeting is
adjourned.
[Additional submission by Ms. Bonamici follows:]
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
[Whereupon, at 11:34 a.m., the Subcommittee was adjourned.]
[all]