[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

                               __________

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


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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.]

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