    [House Hearing, 114 Congress]
    [From the U.S. Government Publishing Office]

                       EXAMINING REFORMS TO MODERNIZE THE
                          MULTIEMPLOYER PENSION SYSTEM

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

                                    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

                                 FIRST SESSION

                                   __________

                 HEARING HELD IN WASHINGTON, DC, April 29, 2015

                                   __________

                               Serial No. 114-12

                                   __________

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

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

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                                       or
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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 April 29, 2015...................................     1

    Statement of Members:
        Roe, Hon. David P., Chairman, Subcommittee on Health,
          Employment, Labor, and Pensions............................     1
            Prepared statement of....................................     3
        Polis, Hon. Jared, Ranking Member, Subcommittee on Health,
          Employment, Labor, and Pensions............................     3
            Prepared statement of....................................    13

    Statement of Witnesses:
        DeFrehn, Mr. Randy G., Executive Director, National
          Coordinating Committee for Multiemployer Plans, Washington,
          DC.........................................................    15
            Prepared statement of....................................    18
        McManus, Mr. Mark, General Secretary-Treasurer, United
          Association, Annapolis, MD.................................    29
            Prepared statement of....................................    32
        Sandherr, Mr. Steve, Chief Executive Officer, Associated
          General Contractors of America, Arlington, VA..............    35
            Prepared statement of....................................    37
        Scoggin, Mr. Andrew, Executive Vice President, Human
          Resources, Labor Relations, Public Relations and Government
          Affairs, Albertsons, LLC, Boise, ID........................    24
            Prepared statement of....................................    26

    Additional Submissions:
        Mr. Polis:
            Prepared statement of the National Electrical Contractors
              Association............................................     6
        Dr. Roe:
            Prepared statement of the U.S. Chamber of Commerce.......    50
            Prepared statement of the National Automobile Dealers of
              America................................................    54

                       EXAMINING REFORMS TO MODERNIZE THE

                          MULTIEMPLOYER PENSION SYSTEM

                                  ----------

                           Wednesday, April 29, 2015

                           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 2:34 p.m., in
    room 2175, Rayburn House Office Building, Hon. David P. Roe
    [chairman of the subcommittee] presiding.
        Present: Representatives Roe, Walberg, Carter, Grothman,
    Allen, Polis, Pocan, Wilson of Florida.
        Also present: Scott.
        Staff present: Andrew Banducci, Professional Staff Member;
    Janelle Belland, Coalitions and Members Services Coordinator;
    Ed Gilroy, Director of Workforce Policy; Callie Harman, Staff
    Assistant; Nancy Locke, Chief Clerk; Zachary McHenry,
    Legislative Assistant; Daniel Murner, Deputy Press Secretary;
    Michelle Neblett, Professional Staff Member; Brian Newell,
    Communications Director; Krisann Pearce, General Counsel;
    Lauren Reddington, Deputy Press Secretary; Alissa Strawcutter,
    Deputy Clerk; Juliane Sullivan, Staff Director; Loren Sweatt,
    Senior Policy Advisor; Alexa Turner, Legislative Assistant;
    Tylease Alli, Minority Clerk/Intern and Fellow Coordinator;
    Austin Barbera, Minority Staff Assistant; Denise Forte,
    Minority Staff Director; Carolyn Hughes, Minority Senior Labor
    Policy Advisor; Kendra Isaacson, Minority Labor Detailee; Brian
    Kennedy, Minority General Counsel; Veronique Pluviose, Minority
    Civil Rights Counsel.
        Chairman Roe. Quorum being present, the Subcommittee on
    Health, Employment, Labor, and Pensions will come to order.
        Good afternoon. I would like to begin by extending a warm
    welcome to our witnesses and guests who have joined us this
    afternoon.
        Today's hearing represents the next step in a long process
    to strengthen the retirement security of America's workers by
    reforming the multiemployer pension system. This effort began
    more than three years ago for a simple reason: a pension crisis
    threatened the well-being of countless workers, employers, and
    retirees as well as American taxpayers. Without congressional
    action, this crisis would have forced businesses to close their
    doors and lay off workers, retirees would have had their
    benefits cut, if not wiped out entirely, and taxpayers would
    have been on the hook for a multi-billion-dollar bailout of a
    bankrupt pension system. As a nation and, more specifically, as
    elected policymakers we had a responsibility to act.
        That is why this subcommittee convened numerous hearings
    and called more than a dozen witnesses--including employers,
    union leaders, administration officials and retiree advocates--
    in order to thoroughly examine the challenges facing this
    system and discuss possible solutions. As part of this effort,
    in the Spring of 2014, Chairman Kline discussed four key
    principles necessary for any serious, responsible reform of the
    system. Those principles included protecting taxpayers,
    encouraging greater employer participation, and providing
    trustees new tools to restore troubled plans back to financial
    health. At the time of the chairman's remarks, only one
    proposal embodied all four principles, and that was the
    proposal crafted by the National Coordinating Committee for
    Multiemployer Plans, or the NCCMP.
        A coalition of management and labor representatives
    organized by the NCCMP spent months crafting a consensus
    proposal that would give trustees the best shot they had to
    save dying pension plans without a taxpayer bailout. No one
    else came forward with a credible plan to responsibly reform
    the system. The NCCMP proposal became the framework for a
    bipartisan legislative solution the President signed into law
    last December. This new law extended funding rules put in place
    almost a decade ago, raised premiums to improve the financial
    outlook of the federal backstop for the multiemployer pension
    plans at the PBGC and allowed trustees to adjust benefits as a
    last resort to rescue a plan from insolvency.
        This was not an easy thing to do, but doing nothing would
    have been far worse. Regardless of whether we did or didn't
    act, retirees in badly failing plans were going to have their
    benefits cut. That is the harsh reality we were forced to
    confront, and the choice we faced was either to watch the
    federal government inflict maximum pain on the maximum number
    of individuals or provide flexibility to save these plans and
    ensure retirees are better off. George Miller, the former
    congressman from California and senior Democrat on our
    committee, described these bipartisan reforms this way, ``The
    approach we have put forward, which is backed by business and
    labor leaders, will secure the multiemployer pension system for
    millions of current and future retirees' inputs.''
        Congressman Miller urged his colleagues to, ``trust these
    workers enough to give them this opportunity and this
    responsibility to make these decisions about their own
    retirement.'' That is precisely what we did, and as difficult
    as it was, it was the right thing to do. Now it is time to
    complete this important effort. One principle I neglected to
    mention earlier in the subject of today's hearing--Modernizing
    the Multiemployer Pension System--through our continued
    oversight. It has become abundantly clear that workers need new
    options to help plan for their retirement.
        As part of its work, NCCMP devised a new ``composite
    pension plan design,'' combining aspects of both the defined
    benefit and defined contribution plans. The goal of the
    proposal is to deliver an annuitized lifetime income without
    the drawbacks associated with traditional multiemployer defined
    benefit plans.
        For example, many plans face unfunded liabilities that
    threaten the retirement security of other participants. The
    current rules discourage employers from agreeing to participate
    in this system, and pose a financial burden for those who do.
    Finally, despite improvements resulting from the new law, the
    federal backstop for these plans continues to face fiscal
    challenges in meeting its modest benefit guarantees.
        Our witnesses today will describe these and other
    shortcomings. They will also explain how the composite plan
    design could address these concerns, while providing robust,
    well-funded retirement benefits for America's working families.
    I look forward to our discussion and, more importantly, to
    finishing this important effort.
        It is easy to find the areas of disagreement in this
    subcommittee, especially when we address policies so central to
    the well-being of the American people. But I have always
    appreciated the bipartisan approach the committee has taken on
    this important issue, and I pledge to do my part to continue
    that tradition in the work that lies ahead of us.
        And with that, I will now yield to 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

        Good afternoon. I'd like to begin by extending a warm welcome to
    our witnesses and guests who have joined us this afternoon.
        Today's hearing represents the next step in a long process to
    strengthen the retirement security of America's workers by reforming
    the multiemployer pension system. This effort began more than three
    years ago for a simple reason: A pension crisis threatened the well-
    being of countless workers, employers, and retirees, as well as
    American taxpayers.
        Without congressional action, this crisis would have forced
    businesses to close their doors and lay off workers, retirees would
    have had their benefits cut, if not wiped out entirely, and taxpayers
    would have been on the hook for a multi-billion dollar bailout of a
    bankrupt pension system. As a nation, and more specifically, as elected
    policymakers, we had a responsibility to act.
        That is why this subcommittee convened numerous hearings and called
    more than a dozen witnesses - including employers, union leaders,
    administration officials, and retiree advocates - in order to
    thoroughly examine the challenges facing the system and discuss
    possible solutions.
        As part of this effort, in the spring of 2014, Chairman Kline
    discussed four key principles necessary for any serious, responsible
    reform of the system. Those principles included protecting taxpayers,
    encouraging greater employer participation, and providing trustees new
    tools to restore troubled plans back to financial health.
        At the time of the chairman's remarks, only one proposal embodied
    all four principles, and that was the proposal crafted by the National
    Coordinating Committee for Multiemployer Plans or NCCMP. A coalition of
    management and labor representatives organized by NCCMP spent months
    crafting a consensus proposal that would give trustees the best shot
    they had to save dying pension plans without a taxpayer bailout. No one
    else came forward with a credible plan to responsibly reform the
    system.
        The NCCMP proposal became the framework for a bipartisan
    legislative solution the president signed into law last December. This
    new law extended funding rules put in place almost a decade ago, raised
    premiums to improve the financial outlook of the federal backstop for
    multiemployer pension plans, and allowed trustees to adjust benefits as
    a last resort to rescue a plan from insolvency.
        This was not an easy thing to do, but doing nothing would have been
    far worse. Regardless of whether we did or didn't act, retirees in
    badly failing plans were going to have their benefits cut. That's the
    harsh reality we were forced to confront, and the choice we faced was
    to either watch the federal government inflict maximum pain on the
    maximum number of individuals, or provide more flexibility to save
    these plans and ensure retirees are better off.
        George Miller, former congressman from California and senior
    Democrat of our committee, described these bipartisan reforms this way:
    ``The approach we have put forward, which is backed by business and
    labor leaders, will secure the multiemployer pension systems for
    millions of current and future retirees.''
        Congressman Miller urged his colleagues to ``trust these workers
    enough to give them this opportunity and this responsibility to make
    these decisions about their retirement.'' That is precisely what we
    did, and as difficult as it was, it was the right thing to do.
        Now, it is time to complete this important effort. One principle I
    neglected to mention earlier in is the subject of today's hearing:
    Modernizing the multiemployer pension system. Through our continued
    oversight, it has become abundantly clear that workers need new options
    to help plan for their retirement.
        As part of its work, NCCMP devised a new ``composite'' pension plan
    design, combining aspects of both defined benefit and defined
    contribution plans. The goal of the proposal was to deliver annuitized,
    lifetime income without the drawbacks associated with traditional
    multiemployer defined benefit plans.
        For example, many plans face unfunded liabilities that threaten the
    retirement security of their participants. Current rules discourages
    employers from agreeing to participate in the system and poses a
    financial burden for those who do. Finally, despite improvements
    resulting from the new law, the federal backstop for these plans
    continues to face fiscal challenges in meeting its modest benefit
    guarantees.
        Our witnesses today will describe these and other shortcomings.
    They will also explain how the composite plan design could address
    these concerns while providing robust, well-funded retirement benefits
    for America's working families.
        I look forward to our discussion, and more importantly, to
    finishing this important effort. It is easy to find areas of
    disagreement on this subcommittee, especially as we address policies so
    central to the well-being of the American people. But I have always
    appreciated the bipartisan approach the committee has taken on this
    important issue, and I pledge to do my part to continue that tradition
    in the work that lies ahead.
                                     ______

        Mr. Polis. Thank you. And I want to thank Chairman Roe for
    his effort in working in a bipartisan way to arrange this
    hearing and begin the important discussions that our committee
    and our Congress need to undertake to address what some of us
    call phase two of multiemployer pension reform--new plan
    designs.
        I want to acknowledge that there were several individuals
    in the audience from the Colorado Association of Mechanical and
    Plumbing Contractors, who are in full support of the work we
    are doing. I think some of them might have had to leave to take
    a flight, but I did want to acknowledge that they came out here
    to watch the good bipartisan work of this committee.
        Last year, as the chairman acknowledged, some hard
    decisions were made to ensure the multiemployer pension system
    will exist for years to come. But our work isn't done because
    we have not fully fixed our system. And establishing a strong
    and sustainable pension system needs to be our goal as we
    figure out details here in phase two.
        I believe phase two must encourage innovative new plans
    that would allow for some flexibility for employees and
    employers, while also providing adequate protection for our
    workers. It needs to be our goal to ensure that hardworking
    Americans are able to retire with the dignity and respect that
    they deserve.
        Securing lifetime incomes for retirees is an important
    feature of each of the plan designs that we are going to be
    hearing about here today. As people live longer, they generally
    need more money than they might have expected, and one way to
    address the situation is through a lifetime income stream that
    would ensure that an individual does not outlive his or her
    assets.
        The sources of retirement income were once compared to a
    three-legged stool, with Social Security, your employer's
    retirement plan, and personal savings each establishing a leg
    of the stool. The strength of each leg of the stool may change,
    but it could be reinforced with one of the other two.
        We know that Americans on average are not saving enough, so
    retirees are relying more heavily on Social Security and their
    employer's retirement plans. While Social Security provides
    lifetime income, it is only designed to provide a minimum level
    of support.
        Today, we are looking at options to strengthen the third
    leg of the stool, employer's retirement plans. While we explore
    new options, we need to be sure that any existing plans, which
    we would call ``legacy plans,'' once a new plan is adopted, are
    preserved in such a way so that all workers and retirees
    covered under that plan are also protected. We also know that
    the current system isn't working for everybody, and doing
    nothing and allowing some of these plans to go bankrupt would
    only hurt our seniors and retirees and is simply unacceptable.
        We need to create a space where smart, innovative and
    flexible ideas can come to fruition. And the NCCMP's
    ``Solutions, Not Bailouts'' recommendations, are a great place
    to start. And for those of you who haven't had a chance to read
    it, I encourage you to do so. The recommendations were put
    together with input from a wide variety if organizations and
    stakeholders. And I would like to submit for the record a
    statement from one of those groups, the National Electrical
    Contractors Association.
        Chairman Roe. Without objection, so ordered.
        [The information follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        Mr. Polis. As I see it, we have several different ideas to
    discuss today, including variable annuity plans and target
    benefit plans and composite plans. Whatever route we decide to
    take must allow workers and employers to negotiate a plan and
    benefit so it would allow the economy to expand, keep companies
    competitive, allow employers to grow, while giving those that
    have worked their lives at a good job the ability to enjoy
    retirement with their loved ones without the threat of that
    security being taken away. Our seniors shouldn't have to choose
    between heating their homes or putting food on the table.
        As always, the devil will be in the details: the specifics
    of these plans. I am interesting in learning from our great
    panel of experts about the recommendations for alternative plan
    designs and their advice for avoiding pitfalls. This is a great
    bipartisan way to start the conversation and fact-finding
    mission. I believe we have the same goal. I look forward to
    finding a shared bipartisan path forward on legislation, just
    as we are in this hearing today.
        I yield back the balance of my time.
        [The statement of Mr. Polis follows:]

    Prepared Statement of Hon. Jared Polis, Ranking Member, Subcommittee on
                    Health, Employment, Labor, and Pensions

        Thank you.
        I first want to thank Chairman Roe for his effort in working in a
    bipartisan way to arrange this hearing, and to begin the important
    discussion to address what we can call ``phase two'' of multiemployer
    pension reform- New Plan Designs.
        I also want to acknowledge several individuals in the audience from
    the Colorado Association of Mechanical and Plumbing Contractors who are
    in full support of the work we are doing.
        Last year some hard decisions were made to ensure the multiemployer
    pension system will exist for years to come. Our work is not done yet,
    because we have not fully fixed our shaky system, and establishing a
    strong and sustainable pension system must be our goal as we figure out
    the details for this phase two.
        I believe phase two must encourage innovative new plans that would
    allow for some flexibility for employers, while also providing adequate
    protection for our workers. It must be our goal to ensure hardworking
    Americans are able to retire with the dignity and respect they deserve.
        Securing lifetime income for retirees is an important feature of
    each of the plan designs we are discussing today. As people live
    longer, they generally need more money than they expect and one way to
    address this situation is through a lifetime income stream that would
    insure an individual does not outlive his or her assets.
        The sources of retirement income were once compared to a three-
    legged stool: with Social Security, your employer's retirement plan,
    and personal savings establishing each leg of the stool. The strength
    of each leg of the stool may change, but it could be reinforced with
    one of the other two. We know that Americans on average are not saving
    enough, so retirees are relying more heavily on Social Security and
    their employer's retirement plans. While Social Security provides
    lifetime income, it is only designed to provide a minimum level of
    support. Today, we are looking at options to strengthen that third leg
    of the stool - employer's retirement plans.
        While we explore new options, we must be sure that any existing
    plans (which would be called legacy plans once a new plan is adopted)
    are preserved in such a way so that all workers and retirees covered
    under that plan are protected. We also know that the current system is
    not working for everyone. And doing nothing, and allowing some of these
    plans to go bankrupt, which does nothing to help our seniors and
    retirees, is not acceptable. Instead we must create a space where
    smart, innovative and flexible ideas can come to fruition. This should
    be our goal.
        The NCCMP's Solutions, Not Bailouts recommendations are a great
    place to start, and for those of you who haven't read it, I encourage
    you to do so. These recommendations were made with input from all types
    of organizations and groups, and I would like to submit for the record
    a statement from one of those groups- the National Electrical
    Contractors Association. As I see it, we have several different ideas
    to discuss today, including variable annuity plans and target benefit
    plans/composite plans.
        Whatever route we decide to take must allow workers and employers
    to negotiate a plan and benefits that would allow the economy to expand
    and employers to remain competitive, while giving those that have
    worked their entire lives at a middle-class job the ability to enjoy
    retirement with their loved ones. Our seniors should not have to choose
    between heating their homes, putting food on their tables or filling a
    prescription.
        As always, the devil will be in the details around the specifics of
    these plans, so I am interested in learning from our great panel of
    experts about their recommendations for alternative plan designs, and
    their advice for pitfalls along the way.
        This is a great way to start the conversation- in a bipartisan,
    fact finding fashion. I believe we all have the same goal, and I look
    forward to finding a shared path forward.
        Because our time is short today, I will keep my comments brief, so
    that we can hear from our witnesses. I yield back the remainder of my
    time.
                                     ______

        Chairman Roe. I thank the gentleman for yielding. Thank
    you, Mr. Polis. And 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.
        It is now my pleasure to introduce our distinguished panel
    of witnesses today. First, Mr. Randy DeFrehn, is the executive
    director of the National Coordinating Committee for
    Multiemployer Plans, the NCCMP, based here in Washington, D.C.
    Mr. DeFrehn has extensive experience working with multiemployer
    plans. Additionally, he served a three-year term as a member of
    the Department of Labor's ERISA Advisory Council from 2007 to
    2009. Welcome.
        Mr. Andrew Scoggin is the executive vice president for
    human resources, labor relations, public relations, and
    government affairs of Albertsons, LLC of Boise, Idaho.
    Albertsons is the nation's second-largest supermarket chain,
    with over 2,300 stores and 250,000 employees. Over the years,
    Mr. Scoggin has served as an employer trustee for several large
    multiemployer pension funds. Welcome.
        Mr. Mark McManus of Annapolis, Maryland is the general
    secretary-treasurer of the United Association of Journeymen and
    Apprentices of the Plumbing, Pipefitting, and Sprinkler Fitting
    Industry of the United States and Canada. His career with the
    United Association began in March of 1983, when he was
    initiated into the Plumbers Local 24, and he has held several
    positions since then. Welcome, Mr. McManus.
        Mr. Steven Sandherr is the CEO of the Associated General
    Contractors of America of Arlington, Virginia. AGC represents
    27,000 construction and related member firms in 93 state and
    local chapters. Mr. Sandherr coordinates the association's
    advocacy work in support of the commercial construction
    industry and oversees the association's extensive educational
    safety and networking operations.
        And welcome, gentlemen. I will now ask our witnesses to
    stand and raise your right hand.
        [Witnesses sworn.]
        Chairman Roe. Let the record reflect the witnesses answered
    in the affirmative. You may be seated.
        Before I recognize you for your testimony--and many of you
    have been here before--let me briefly explain our 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 is
    expired the light will turn red. At that point, I will ask you
    to wrap up your remarks as best as possible, and each member
    will also have five minutes of questioning.
        I will now begin with Mr. DeFrehn. You are recognized for
    five minutes.

    TESTIMONY OF MR. RANDY G. 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 subcommittee, my name is Randy
    DeFrehn and it is an honor to speak with you once again on the
    subject of multiemployer retirement security. I am the
    executive director of the National Coordinating Committee for
    Multiemployer Plans, which you have referenced a number of
    times this morning, and we appreciate the acknowledgment.
        It is also an honor to say thank you on behalf of the more
    than 10 million participants in multiemployer defined benefit
    plans, for the bipartisan leadership shown by this committee
    and subcommittee in the enactment of the Multiemployer Pension
    Reform Act, which was signed into law last December.
        That legislation addressed two of the three major
    categories of recommendations in the Retirement Security Review
    Commission report, which Chairman Roe had discussed a little
    bit earlier: Solutions, Not Bailouts. These categories included
    recommendations to preserve the financial health of more than
    two-thirds of the plans, which have already or will soon regain
    their financial stability following the back-to-back recessions
    since 2000, and recommendations designed to preserve plans
    headed for insolvency and pay benefits at a higher level than
    they otherwise would ultimately have received.
        The third category of the commission's recommendations,
    which remains to be adopted, concerns innovative new plan
    benefit structures designed to combine the best features of the
    current defined benefit and defined contribution plans. It is
    the need for this remaining set of reforms that I will address
    today.
        For a number of employers, recent past developments,
    including the reemergence of withdraw liability, which several
    of the other witnesses will elaborate in their remarks, have
    convinced them that the current DB structure presents an
    unsustainable and unacceptable risk, causing them to seek other
    forms of pension coverage for their employees.
        For these employers, the only other alternative is a
    defined contribution plan based on an individual account. As a
    primary form of retirement security versus a wealth
    accumulation vehicle, however, DC plans present certain
    inefficiencies which result in lower alternate benefits for
    average workers.
        To the commission, this presented yet another challenge:
    how to structure an alternative plan design for the future that
    would reduce or eliminate the risks of unfunded liabilities to
    the employers, yet enable workers to receive a regular monthly
    retirement income check and maximize the utility of employer
    contributions. The result of their analysis was a
    recommendation to encourage the development of innovative
    shared risk plan designs offering two different models: the
    variable defined benefit plan and the composite plan.
        As the variable defined benefit model has already been
    adopted by a number of plans, and in at least one situation has
    received a tax qualification letter, my comments will focus on
    the composite model.
        The composite plan is neither a defined benefit nor a
    defined contribution plan under current law. The variable
    nature of the benefit is neither definitely determinable nor is
    it based on an individual account. It would be made available
    to jointly managed multiemployer plans as a successor to their
    current DB plans. The model includes very clear criteria for
    the parties to pay off the liabilities of the legacy DB plans
    as their first priority for contributions.
        It also requires that the contributions to fund the future
    accruals be subject to a higher funding standard than is
    currently required for DB plans. The plan design could mirror
    the current DB plan, and it can include other current features
    of DB plans.
        From the participant's perspective, this new structure
    would provide higher monthly benefits than would be derived
    from simply purchasing an annuity from his or her DC account by
    pooling longevity risk and by limiting other features that
    result in plan leakage such as loans, hardship distributions,
    distributions before retirements and lump sums, as more
    benefits would remain in the retirement plan and benefits would
    have to be paid as annuities.
        This new structure is clearly not a DB plan, as benefits
    are variable based on the market value of assets, as currently
    happens with all defined contribution plans. Because it is not
    a DB plan, service earned after adoption would not be subject
    to the PBGC guarantee nor would employers be subject to
    withdrawal liability. However, both of these features would
    remain in place for remaining obligations under the legacy
    plan.
        Contributions to both plans would be determined by the
    plan's actuary. However as the market risk for future service
    rests with the participant, the minimum contribution
    requirements to fund the cost of future accruals would be set
    at 120 percent of the actuarial projected cost to provide a
    buffer against market volatility.
        The plan would conduct an annual actuarial valuation to
    determine whether assets are sufficient to meet that level of
    funding, projected over a 15-year period. Assuming the plan
    continues to meet that target, no action would be necessary.
    And if a sufficient margin were to develop, the plan trustees
    could consider benefit improvements provided they do not reduce
    the projected funding below the 120 percent target.
        If, however, the projections fall below that level,
    trustees would be required to take remedial action within 210
    days of the certification of the plan funding based on a
    clearly defined hierarchy which resembles actions currently
    available to DB plans under the PPA, Pension Protection Act, as
    amended.
        Because it provides the best of both worlds, many within
    our community see the composite plan as the next logical step
    in the evolution of multiemployer plans. Enacting this
    remaining element of comprehensive multiemployer pension reform
    will provide greater long-term retirement security for workers
    by creating a path for contributing employers to remain in, and
    for new employers to enter, the multiemployer system without
    assuming existential risks. Thank you for the opportunity to
    share these thoughts.
        I welcome any questions you may have.
        [The testimony of Mr. DeFrehn follows:]

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        Chairman Roe. Thank you.
        Mr. Scoggin, you are recognized for five minutes.

      TESTIMONY OF MR. ANDREW SCOGGIN, EXECUTIVE VICE PRESIDENT,
    HUMAN RESOURCES, LABOR RELATIONS, PUBLIC RELATIONS & GOVERNMENT
                 AFFAIRS, ALBERTSONS, LLC, BOISE, IDAHO

        Mr. Scoggin. Thank you very much. Chairman Roe, Ranking
    Member Polis, and members of the subcommittee thank you for
    inviting me to testify before your today on the incredibly
    important and timely matter of multiemployer pension reform.
    Being here reminds me, I had a pleasure of testifying before
    this committee almost 10 years ago. Thanks to the work and
    leadership of this committee, and the bipartisan cooperation
    that it has demonstrated, the Congress made significant
    progress since my last appearance in June of 2005 to strengthen
    the multiemployer pension system.
        And in many respects, my testimony today serves as an
    endorsement for a number of the proposals under consideration;
    none of which would be possible were it not for the work this
    committee has already accomplished.
        Thank you also to Randy DeFrehn and his colleagues at NCCMP
    for their thoughtfulness in presenting solutions to this
    serious problem. To provide a bit of context as I appear before
    you today, Albertsons, LLC's parent company, named AB
    Acquisition, LLC also operates New Albertsons Inc. and Safeway
    Inc., with more than 2,200 stores in 34 states and the District
    of Columbia. We operate under 18 banners, and you may have
    heard of some of these: Albertsons, Safeway, Vons, Jewel-Osco,
    Shaw's, Acme, Tom Thumb, Randall's United, and Carrs, to name a
    few.
        With approximately a quarter million employees, 68 percent
    of which are unionized--primarily with the UFCW, with whom I
    have had extensive discussions on these matters at the most
    senior levels of the UFCW including the international
    president, Marc Perrone--a key aspect of my responsibility is
    to provide a robust and competitive benefit package for our
    associates, for their retirees, for our retirees.
        Over the past two decades, I have personally served as a
    trustee on the boards of trustees of numerous multiemployer
    pension funds throughout the U.S. I have repeatedly seen the
    negative consequences that have resulted from regulatory
    restrictions, coupled with massive change in the unionized
    grocery industry, namely the exit of many unionized grocery
    chains. These have led to enormous obligations shouldered by
    the remaining contributing employers across the country.
        In order to solve the significant pension problems we now
    face, the bargaining parties must be given the types of tools
    that NCCMP has carefully crafted.
        Currently, our company actively participates in 31 major
    multiemployer pension plans. Albertsons Safeway represents 50
    percent or more of the contribution base of six of those plans
    plan. We contribute $350 million annually to our full
    complement of multiemployer plans. And most significantly, we
    face right now over $4.8 billion in nominal withdrawal
    liability under those plans.
        Today, over 10 million Americans are enrolled in
    multiemployer pension plans. It goes without saying that all of
    us--policymakers, legislators, regulators, employers,
    participants--are responsible for putting a framework in place
    that safeguards retirement security for this significant
    segment of the American workforce.
        Failure to act and to act expeditiously will have
    potentially catastrophic effects not only on the companies that
    provide these pensions but, just as importantly, on the
    employees and their families. Modernizing the regulatory
    framework for multiemployer pensions is not an easy task. We
    know that. The structural reforms that Randy has outlined this
    afternoon will require sacrifice all around and considerable
    cooperation from all parties, with input and support from
    industry, from unions, and from employers. I believe this is
    possible, I have seen this committee do it before.
        Over the last 10 years, Congress has worked to strengthen
    ERISA through the Pension Protection Act in 2006; more recently
    with the MPRA, last Congress, as a strong proponent of PPA.
        Coupled with MPRA, these pieces of legislation represent a
    significant improvement to retirement security. But from an
    employer's perspective, in spite of this progress there remains
    much to be done to address shortfalls that previous legislation
    has not yet been able to correct.
        The policy recommendations presented to you by NCCMP shaped
    much of the 2014 reform bill and provided a blueprint for what
    we would like to see happen as we move forward.
        Now, more than ever, employers are facing incentives to
    exit the multiemployer pension system and to avoid entering the
    system. As with most unionized employers, Albertsons continues
    to pay increasing contributions to troubled pension funds.
        And I point out that many of these are still suffering from
    2008. And, in increasing proportions, our contributions are
    going toward the pensions of employees whose employers have
    left the business. Money spent on these funds in keeping them
    afloat is money we would rather spend on hiring workers, on
    raising wages, on building new stores, on expanding our
    business.
        We need new tools in our toolbox to address the challenges,
    which were not contemplated when multiemployer pension rules
    were initially put into place. For example, under existing law
    neither the bargaining parties nor the trustees have the option
    of managing a plan that doesn't include the concept of
    withdrawal liability.
        New employers have a strong disincentive to participating
    in troubled plans. Strong operating companies who are potential
    industry consolidators are disinclined to purchase or to invest
    in companies with significant multiemployer plans. These are
    only a few of the many problems within the multiemployer
    pension system, which we would like to see legislation address.
        In conclusion, Congress needs to equip employers and
    employees with the regulatory flexibility necessary to make
    changes to benefits programs that don't run afoul of our
    beneficiaries, employers, or the system as a whole.
        Thank you.
        [The testimony Mr. Scoggin follows:]

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        Chairman Roe. Thank you, Mr. Scoggin.
        Mr. McManus, you are recognized for five minutes.

      TESTIMONY OF MR. MARK MCMANUS, GENERAL SECRETARY-TREASURER,
                UNITED ASSOCIATION, ANNAPOLIS, MARYLAND

        Mr. McManus. Good afternoon. Chairman Roe, Ranking Member
    Polis, and the members of the subcommittee it is an honor to
    appear before you today on this important topic affecting
    millions of working men and women. My name is Mark McManus, and
    I am the general secretary-treasurer of the United Association
    of Journeymen and Apprentices of the Plumbing, Pipefitting and
    Sprinklerfitting Industry of the United States and Canada.
        The UA and its affiliated locals cosponsor, with the
    collective bargaining partners, more than 150 multiemployer
    defined benefit plans. The UA welcomes the opportunity to
    present testimony in this subcommittee in support of this
    legislation that would modernize the multiemployer pension
    system by making additional options available to the boards of
    trustees and collective bargaining parties to continue to
    provide lifetime retirement income to the employees in the
    multiemployer plans.
        Multiemployer plans developed and exist in industries, such
    as construction, trucking, and entertainment, characterized by
    frequent short-term employment. In a typical single-employer
    context, such frequent changes in employment would make it
    unlikely for employees in such industries to vest in a
    retirement plan, or if vested to accumulate sufficient benefits
    to insure adequate retirement.
        I will speak primarily on the knowledge of the construction
    industry, but many of the issues and concerns affect other
    industries, as well. Multiemployer defined benefit plans have
    enabled skilled workers to earn and retain a pension that
    provides lifetime income. They provided essential safeguards
    for financial security of the construction workers and have
    been the primary form of benefit delivery in the construction
    industry.
        While defined contribution plans have replaced defined
    benefit plans in many industries, in construction they remain
    as a supplement to defined benefit plans. Many multiemployer
    defined benefit plans suffered significantly from the
    investment losses of two economic downturns within a decade.
        Defined benefit plans in many industries, including
    construction, sustained further losses from reduced
    contributions when work on which employer contributions were
    required remained depressed three years following 2008. Plans
    that have been solidly funded found themselves in endangered or
    critical status under the Pension Protection Act.
        In most cases, unions and employers have worked together to
    stabilize these plans, but even those plans are recovering
    financially and are not as secure as they once were due to
    changes that threatened the continued existence of
    multiemployer defined benefit plans and the financial security
    of covered employees.
        In 2010, financial accounting standards boards proposed
    changes in corporate financial statements that would have
    required burdensome and complicated disclosures about potential
    withdrawal liability to which an employer might be subject if
    he withdrew from a multiemployer plan. Although this proposal
    was ultimately modified to limit disclosure, the publicity
    surrounding this proposal made lending institutions aware that
    employers potentially faced withdrawal liability.
        But few are sufficiently familiar with the issues to have
    even a rudimental understanding that withdrawal liability is
    only assessed if, and when, the employer ceases to have an
    obligation to pay into the pension fund. Nevertheless,
    employers have advised that they now find it difficult to
    obtain credit. Employers cannot operate with access to credit.
    And given a choice between the company or withdrawing from a
    multiemployer defined benefit plan, employers have used various
    methods to leave these plans.
        In some cases, an employer will simply negotiate and pay
    withdrawal liability rather than face continuing uncertainty
    that even if they make the required contributions, forces
    beyond their control could cause such liabilities to reemerge.
        Perhaps more importantly, new employers will not enter the
    defined benefit plan for fear of withdrawal liability. As
    employers leave a multiemployer defined benefit plan, no new
    employers replace them. The contribution base of the plan is
    severely undermined. Employers and employees may see little
    advantage to continuing the plan.
        The NCCMP Retirement Security Review Commission recognized,
    in Solutions, Not Bailouts, that plans have to be sustainable
    long-term for the benefit of both workers and plan participants
    and their families and contributing employers. Both goals have
    to be achieved at the same time or neither will be achieved.
        The United Association believes that it is essential to the
    retirement security of our members to offer a plan that will
    provide lifetime income. The proposed reforms which remain
    unaddressed in the last Congress offer a new composite plan
    design that will preserve the life of the income feature of the
    defined benefit plan, but will not drive contributing employers
    out of the system because of the threat of withdrawal
    liability.
        The eroding employer support is causing significant harm to
    traditional defined benefit plans and is currently one of the
    reasons for the plan's insolvency. PBGC premiums for
    multiemployer plans projected to become insolvent are adding an
    extra burden.
        As long as there is a threat of withdrawal liability, the
    pool of employers contributing to the multiemployer plans will
    not increase significantly to support the system.
        There is a growing trend towards defined contribution
    plans, which also presents challenges to ensuring the desire
    for income security to the people and the mobile industries
    that rely on multiemployer plans. We believe the innovative
    plan structure provides with composite plans are necessary as
    an additional option to provide adequate lifetime retirement
    security to the UA members, amongst others. Composite plans are
    not permitted under law as proposed by features of defined
    benefit and defined contribution plans.
        Mr. Chairman, if I may have another minute?
        Chairman Roe. You can go on ahead, Mr. McManus.
        Mr. McManus. Thank you, sir. From the perspective of the
    UA, the most important feature is that these plans provide the
    accumulation of benefits and provide a lifetime benefit in a
    manner similar to traditional defined benefit plans. We
    understand that in times of economic distress benefits may be
    reduced. We believe, however, that the advanced funding
    provisions are sufficient to protect participants.
        During the preparation of the Solutions, Not Bailouts
    report, the NCCMP Retirement Security Review Commission
    actuarially stress-tested the composite plan. It performed well
    through an economic downturn similar to 2008.
        Subsequent stress testing of 106 multiemployer defined
    plans examined to determine the impact of the employer
    contributions the fund's similar benefit structure demonstrated
    that the majority of the plans tested can replicate the benefit
    provided at a lower contribution rate than required for the
    current members defined in the plan. Furthermore, our Canadian
    members have plans subject to these provisions.
        While the debate among proponents of either defined benefit
    or defined contribution plans continues, we believe it is more
    constructive to move beyond the rhetoric and focus on the
    common objective of providing adequate retirement income to men
    and women who spend their career working for our country.
        The Multiemployer Pension Reform Act of 2014 gave some new
    tools to the trustees and the government agencies to save
    failing defined benefit plans. This helps. But the legislation
    to provide new tools to the bargaining parties through
    innovative plans like the composite model is still needed for
    the future.
        The proposed composite plan design provides additional
    options to secure lifetime benefits to the employers. The
    opportunity for creative solutions for our retirement income
    dilemma is within our grasp. We strongly encourage Congress to
    take advantage of it, expand availability offerings, and enable
    labor and management to find solutions which best meet their
    specific goals.
        In closing, I once again like to thank you for your work to
    improve the retirement security for our members and the rest of
    the 10.4 million participants.
        Thank you.
        [The testimony of Mr. McManus follows:]

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        Chairman Roe. Thank you, Mr. McManus.
        Mr. Sandherr, you are recognized for five minutes.

       TESTIMONY OF MR. STEVE SANDHERR, CHIEF EXECUTIVE OFFICER,
     ASSOCIATED GENERAL CONTRACTORS OF AMERICA, ARLINGTON, VIRGINIA

        Mr. Sandherr. Thank you, Mr. Chairman, Ranking Member
    Polis, and members of the subcommittee for the opportunity to
    testify today on behalf of the Associated General Contractors.
    My name is Steven Sandherr, and I am the CEO of AGC, the
    leading association for the construction industry. AGC
    represents more than 27,000 firms consisting of both union and
    open shop contractors engaged in building our nation's
    infrastructure.
        The vast majority of our member firms are small and
    closely-held family businesses. I should point out that I have
    represented the construction industry for the last 30 years,
    and I recognize how unusual it is for me to walk into this
    particular room and be on the same side with the Building
    Trades Unions offering a solution to a problem.
        The Building Trades deserve credit for their advocacy in
    the last Congress in support of the reform measures that we are
    discussing today. And, of course, we thank the committee and
    Congress for passage of the Multiemployer Pension Reform Act of
    2014. This series of long-overdue and necessary reforms track
    closely with the joint labor-management reform proposal AGC
    participated in with the NCCMP in 2013: Solutions, Not
    Bailouts.
        Looking forward, AGC encourages Congress to act promptly on
    an important component of the Solutions, Not Bailouts proposal
    that was not included in last year's law: changing the law to
    recognize a new composite plan design. This would give
    collective bargaining parties or plan trustees the option to
    decide whether to adopt a composite plan model, which more
    equally distribute some of the risk associated with retirement
    plans so employers don't have to shoulder the entire burden.
        The new plan design is essential to the shared goal of
    protecting both those who earn benefits and those employers
    that contribute retirement benefits to those plans. Under the
    current defined benefit system, the creation of contingent
    withdrawal liability makes the employer liable for the ups and
    downs of investment returns and the size of the asset base.
    This model creates a system that imposes crippling withdrawal
    liability and little remedies for employers to account for
    their exposure.
        In most cases, under the current rules an employer will
    never be able to pay down its liabilities. Let me briefly
    highlight the potential benefits for both employers and
    employees if a composite plan were adopted. For employees, they
    would get increased fund stability; secondly, retain a
    guaranteed benefit; and third, it provides for the potential of
    higher wages because the pension share of the overall
    compensation package will be reduced. For employers, it
    eliminates the potential for withdrawal liability, which can be
    crippling to contributing employers and is a major barrier to
    new employer participants.
        Withdrawal liability can also affect a company's bonding
    ability and their ability to sell or pass down a company to the
    next generation. The composite plan structure is innovative,
    but not untested. It is similar to the model that is in
    practice throughout much of Canada and has been successful
    there. It mimics the U.S. plan design prior to the enactment of
    ERISA.
        Let me point out that the adoption of a composite plan
    design would not eliminate legacy liabilities under existing
    defined benefit plans. The employers will continue to make
    contributions to the pension trust, where a portion of the
    contribution would then pay down legacy costs and a portion
    would go towards the new plan.
        Acting quickly to allow composite plan designs is important
    because the industry has finally begun to expand again, giving
    employers and employees their best chance to add new plan
    participants in over a decade.
        With the vast majority of construction industry plans
    returning to the green zone, this is a perfect opportunity to
    adopt these changes and provide limited disruption of benefits
    for participants. Transitioning to the new plan design will
    also eliminate unfunded liabilities and, in turn, future PBGC
    liabilities.
        Regarding the PBGC, they reported potential insolvency and
    the need for additional funding. I would encourage Congress to
    allow the recent premium increase to take effect and allow
    plans to take advantage of last year's tools before any
    additional increases are levied on plans.
        In conclusion, the Multiemployer Pension Reform Act was a
    step in the right direction. It provides many needed reforms to
    the multiemployer system. But Congress should also enact
    additional reforms to the system that allow multiemployer plans
    to modernize by choosing from additional retirement plan
    models, including the composite plan concept. Thank you for
    this opportunity to testify.
        I would be pleased to answer any questions that the members
    of the subcommittee may have.
        [The testimony Mr. Sandherr follows:]

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        Chairman Roe. Thank you, Mr. Sandherr.
        I will now recognize myself for five minutes. I think the
    title of the bill that we began last year, we had three titles,
    we left the third title off, which maybe that was a good thing.
    We will have a chance to rehash it and hear why it needs to be
    done.
        But it sounds to me like--just in summary--what I heard was
    with the withdrawal liability that is out there now for
    employers: it discourages them going in. Number two, it reduces
    the ability for them to borrow money to expand their business.
    Because when the bank looks--or their loaning institution
    looks--at their liability, their balance sheet, they see this,
    in Albertsons' case, a $4 billion liability. That would make
    you pause.
        And we have had no new tools in decades to meet these
    needs. So, what I heard you all say really almost uniformly
    was, this is very much needed for the economy, for the worker.
    And the new composite plan would provide a stable guarantee, or
    a relatively guaranteed income so someone would know what they
    are going to get at the end of the day. The current legacy
    plans, the current plans as they are, would continue. Is that
    correct? The question I have then is, how, what--should we get
    this done? How quickly should we get it? In other words, how
    important is it to do now and not put this off?
        Are the plans in need of this now? Not two years from now
    or next administration or whatever, but now? And anyone can
    take that question.
        Mr. Scoggin. I would be glad to speak from the employers'
    standpoint to say that we feel like we are at a precipice. We
    have got a bus that is headed over a cliff and we really need
    to turn the bus quickly. And waiting a year or two years, many
    of the challenges that already have snowballed are going to
    continue to grow.
        And all this does is give collective bargaining parties,
    which is both the unions and the employers, the ability to meet
    together to address these problems. So quicker is not only
    better, but probably essential.
        Chairman Roe. Thank you.
        Mr. DeFrehn, would you explain to me just how pooling
    longevity risk, how that works to lower the--
        Mr. DeFrehn. Certainly. If you think about a current
    defined contribution plan, a 401(k) plan, you have accumulated
    an amount of money in an account. And when it comes time to
    retire, even if you consider yourself the average guy in an
    average industry--say you are a plumber--the average life
    expectancy in the plumbing industry may be age 72, as
    demonstrated in the defined benefit plans.
        So you think, well, you know, I am the average guy, I will
    just use this money. I will draw it down, and I probably won't
    live past 72. You didn't really take into account the fact that
    both of your parents lived into their late 80s. So by the time
    you get to your late 80s, since you are in a risk pool of one,
    you will have wished that you would have died at 72.
        Unfortunately, what the risk pool in a current defined
    contribution does is, it does not allow you to maximize the
    contributions. If, in this model, we could take those
    contributions--we can pool the risk of longevity, the longevity
    risk--we can allow then the benefit structure to be designed
    around that mortality, the average mortality of the group,
    which allows the person who would have to set aside those
    dollars for his advanced years, into his 80s, to be able to
    draw down the full benefit as though he were age 72.
        It takes those people who won't live as long and allows the
    savings from those people to pay the benefits for the people
    who live longer.
        Chairman Roe. Well, I think we mentioned this yesterday in
    a meeting you and I both attended_that when the Atlanta airport
    opened that life expectancy in America was 57. The year I was
    born it was 62. Social Security worked great then. But we know
    people are living longer and longer and longer, and that is not
    about to reverse any time soon. It is going to get longer.
        So I think this new plan gives us a tool, gives you all the
    tools--and unions and the employees, employers I mean--an
    opportunity to provide a benefit throughout that lifetime that
    is fairly predictable as opposed to the train wreck that we
    were facing last year.
        I will now yield to Mr. Scott. I will yield to you five
    minutes.
        Mr. Scott. Thank you, Mr. Chairman. And thank you, as you
    mentioned, this is an issue that we are trying to work on from
    a bipartisan perspective. And one of the challenges is that we
    are constrained by fundamental principles of arithmetic; if the
    money isn't there, you can't wish it there. You got to come up
    with some solutions. And working together, I hope we can get
    there.
        Mr. DeFrehn, one of the problems we have is that every 20
    years or so the stock market collapses. So all these funds that
    are invested in equities, all of a sudden about once every 20
    years becomes essentially insolvent.
        What is the problem with requiring the funds to purchase
    insurance products like annuities so that the ups and downs of
    the market will be the problem of the insurance company, not
    the beneficiary, not the employer, and certainly not the last
    man standing?
        Mr. DeFrehn. Well, thanks for that question, Mr. Scott.
    Well, you know, the idea of purchasing an annuity is not a new
    one. And in earlier times during my career I have seen funds
    use that mechanism to offload some the liabilities when the
    interest rates are higher.
        Currently, the interest rates for an annuity are below 3
    percent, looking at a purchased annuity. If you were to fund
    that kind of a benefit through the current structure, the DB
    system, for a $1,000 benefit--if you were to go out into the
    annuity market right now and purchase it--you would get--the
    equivalent of that would be about $657.
        If you were to try to then increase and say, well, what
    would be the additional contribution required to provide an
    equivalent benefit as the one paid through the trust funds, you
    would have to increase contributions by about 52 percent. It is
    all a function of interest rates.
        Now, I remember back in the late 1970s--many of us around
    here remember the mid-1970s--when the interest rates were very
    high. I remember having a mortgage rate of 14 percent. And
    there were guaranteed investment contracts being paid by the
    insurance industry at that time at 20, at 18 percent. Mutual
    Benefit Life, Pilot Life, Executive Life were all guaranteeing
    those kinds of returns.
        You might notice that none of those plans, those companies,
    are still around. And although the trust funds who had
    purchased some of those guaranteed instruments were able to
    regain most of the money that they had thought they were going
    to get. Again, there are still no guarantees. There is never--
        Mr. Scott. Well, part of the problem is you say you can't
    get a rate of return. Well, it is a phantom rate of return
    because you could get, for 19 constructive years a nice fat
    rate of return and in the 20th year it collapses. What the
    insurance company does is kind of smoothed it out so that you
    get a real rate of return every year without the collapse.
        And so what if you are trying to maximize the rate of
    return, it's looking great for 19 out of 20 years. But when it
    collapses, here we are. Let me ask another question. And that
    is, is there a problem--instead of a pooled fund, is there a
    problem--what is the problem with having everyone with their
    individual account?
        That is, as a worker goes from place to place the employer
    would contribute to his fund; insurance products or whatever
    else you are buying. That way, there would be essentially no
    long-time liability. Once you have made your payment, bought
    your insurance product, you are done. There is no last man
    standing problem. And the fund would be free from bankruptcy of
    the company, it would be free from future liabilities and free
    from last man standing problems.
        Mr. DeFrehn. I think you have described what we are
    envisioning in the new composite model. Remember, multiemployer
    plans are the one part of the economy where the--one of the
    promises of ERISA that has actually come to bear. And that is
    allowing portability from moving from one employer to another.
        And so what we are suggesting is something not unlike what
    you are saying. And there are a number of multiemployer defined
    contribution plans out there who do what you are suggesting.
    They have an individual account, and that moves with the
    individual.
        Mr. Scott. My time is almost up. Is your proposal totally
    prospective? What does it do for the mess we are presently in?
        Mr. DeFrehn. Pardon me? I didn't--
        Mr. Scott. What does it do for the mess that we are already
    in? Is it prospective totally, or does it help get us out of
    the mess we are in?
        Mr. DeFrehn. Well, for the plans that choose to go this
    direction there would be the ability to do a one-time fresh
    start of their current liabilities. So, in essence, they are
    remortgaging a 15-year mortgage over 30 years; lowering those
    costs, allowing the plan to then be able to pay the additional
    costs of having a higher funding requirement for the new
    service under the new plan. We are suggesting a 20 percent
    buffer be built in to effectively provide a buffer against
    market volatility there.
        But the 20-year--or excuse me, the 30-year--reamortization
    would be for the legacy plan, and the contributions coming into
    the plan would have to pay off that legacy before any dollars
    flow through to the new accruals. So we are paying off those
    old liabilities over a 30-year time frame. That is the target.
        Chairman Roe. Okay, thank you, Mr. Scott.
        Mr. Walberg, you are recognized.
        Mr. Walberg. Thank you, Mr. Chairman, and thanks to the
    panel.
        Mr. Sandherr, I want to ask you the question about since
    the passage of the Multiemployer Pension Reform Act in
    December, whether the overall situation for employers and
    employees who participate in the multiemployer pension plans is
    better today than it was before.
        But before you go into that, if you would expand a bit on
    your testimony, you mentioned in your testimony that legacy
    costs from the accrued liability of unfunded vested benefits
    may continue to be a problem for employees. Expand on that a
    bit, and then tell me what is the outcome of the Act.
        Mr. Sandherr. To the second part of your question, the
    legacy costs are expanding because of a number of factors. You
    know, up until recently we have had the downturn in the
    industry so you have less hours worked. You have retirees
    living longer; you have fewer contributions into the plans. So
    that is the challenge on the legacy costs.
        And then the first part of your question with regards to
    whether we are seeing improvements based upon what was enacted
    in December. I would say that, one, we are aware of plans that
    have already gone to the Department of Treasury to seek the
    relief that is offered under the Act that was enacted in
    December.
        The day that the bill was signed into law, I am told there
    were people banging on Treasury's door looking for guidance on
    how they can incorporate the reforms that were enacted.
        Secondly, I think it gives plans, multiemployer plans, in
    our industry some additional breathing room, that they know
    that there are tools that they can go to, the threat of
    insolvency is not as great or as high as it was prior to the
    enactment of that. But the missing component in all of this is
    the composite plan; the ability to be able to reform the
    existing plans to ensure that there is an ongoing guaranteed
    benefit to the retirees; and, also reducing the liability for
    the employers.
        I can tell you, in my travels to our chapters it is not the
    guys that are my age that are asking the questions about this
    issue. It is the sons and daughters of the fathers of the
    companies that are in their 30s and early 40s that are
    wondering if there is going to be a company for them to take
    over when their father retires. And they are well aware of this
    composite plan option and they are eager for its enactment.
        Mr. Walberg. Anything with composite plan that we miss?
        Mr. Sandherr. Anything that you have missed?
        Mr. Walberg. That we miss in dealing with some of these
    concerns, say, for the younger generation, for the employees
    themselves.
        Mr. Sandherr. Well, I mean, we don't have the legislative
    approval yet for the composite plans.
        Mr. Walberg. Right.
        Mr. Sandherr. So, you know, if you start drafting that
    language, I know Randy is here to help you, to make it right so
    that we don't miss anything. And I think what we have offered
    in Solutions, Not Bailouts is a general design for how you
    attack that.
        Mr. Walberg. Okay, okay.
        Mr. Scoggin, Albertsons participates in a number of
    multiemployer plans, as you have indicated. Can you discuss
    some of the challenges facing those plans and how they have
    affected your company in a little broader detail? And then in
    particular how have concerns about underfunded legacy
    liabilities that we mentioned here affected the company's
    transactions and growth?
        Mr. Scoggin. The questions are excellent. They are
    questions that we deal with extensively as an entity. With
    respect to how underfunded pension plans impact us, I would say
    they impact us in a number of ways that both deal with us
    internally as a company and also at the bargaining tables as we
    deal with the unions that represent employees of ours across
    the table.
        We are not able to generally, you know, direct the monies
    we might like to other areas for those employees, such as wage
    increases that those who aren't burdened by these legacy
    problems and future accruing problems have to deal with.
        Because we see with rehabilitation plans and with just the
    trajectory that these plans are going in that more and more
    money is being focused on plans that are in trouble. They are
    going to have a very difficult problem coming out of that
    trouble without having something along the lines of these
    composite type options, as the tools in our toolbox, to bring
    them out.
        So now money is not going to health care, money is not
    going to wages, money is not going to build more stores. We
    look at companies that we think would be a nice fit with our
    company and those that are for sale, basically, that are, you
    know, struggling with a number of operational issues. That
    would be a great fit for us, and we think we could, you know,
    help them, help the economy they are in, and also help our
    company.
        But we look at these companies and say that company now has
    half a billion dollars worth of withdrawal liability. Do we
    want to take that on, even if every other piece of that
    company's a great fit for us--and we know other strong players
    within the industry look at these things the same--and
    therefore I think it slows down economic decisions, and
    certainly it hurts us as we try to expand workforces, try to
    add hours, and try to add employees.
        So right now, I would say with respect to all of the areas
    that we look at--wages, health and welfare, pensions, training,
    development, hiring--pension right now is under that big
    glaring--
        Mr. Walberg. Blockage.
        Mr. Scoggin. Yes, just a big concern that--
        Chairman Roe. Mr. Scoggin, I am going to ask you to wrap
    up. We have votes going on so we will need to--
        Mr. Walberg. Thank you, Mr. Chairman.
        I yield back.
        Chairman Roe. Mr. Polis, you are recognized.
        Mr. Polis. Thank you. And we will have other members who
    will likely submit their comments, written, to you. And we do
    have votes again so I will be brief. But I did want to go to
    Mr. Scoggin. I understand that variable annuity plans are a
    form of defined benefit plans under existing law. What are the
    barriers to adoption, and why do you think employers and plan
    trustees are hesitant to adopt these kinds of plans where they
    are currently available?
        Mr. Scoggin. Variable annuity plans in particular?
        Mr. Polis. Yes, what stands in the way of broader adoption
    under the current rules?
        Mr. Scoggin. I would probably begin with the fact that, you
    know, we have--this isn't simply an employer issue. So I don't
    know, I can't speak specifically for the unions. But we have
    almost never--in fact, I can say never--in, you know, almost 30
    years of bargaining with UFCW, with Teamsters, with others had
    them be willing to consider variable annuity plans, as well. So
    I can't really address the details of them.
        What I can say is that what we have run into, and Mr.
    DeFrehn spoke of this with respect to annuities as they exist
    today, is that when you want them they are too expensive and
    when you don't need them then you are not going to buy them.
        Mr. Polis. Let me go to Mr. McManus and Mr. Sandherr, for
    either one or both of you, regarding composite plan designs. My
    understanding is that one idea is that plans could voluntarily
    transition from defined benefit to a new composite plan. Does
    the concept of composite plan design appeal to both labor and
    management is my question, and that is briefly my question for
    McManus and Sandherr.
        Mr. Sandherr. Yes.
        Mr. DeFrehn. Absolutely, yes.
        Mr. Polis. Okay. And finally, Mr. DeFrehn, I wanted to ask
    what current plans--are there a lot of current plans that are
    likely to use the new option, and would it be for deeply
    troubled or declining number status plans or critical status
    plans or even green plans?
        Mr. DeFrehn. I think there is great interest in this, as
    you heard, from the labor and employer side of the table.
    Particularly on the employer side they, as you have heard,
    there is extreme interest.
        There are some industries that have said, well, you know,
    it sounds like an interesting concept, but we are--we are happy
    with the defined benefit plan. And I think that will be an
    industry-specific question. As far as the second--the second
    part of your question--would you repeat that again, sir?
        Mr. Polis. I was just going to--where was I? I was asking
    do you see this as something mostly for deeply troubled or
    plans that are declining in status?
        Mr. DeFrehn. If the plan is too far gone it would be
    difficult to be able to negotiate the payoff of the plan over
    the 30-year period on the legacy cost. So chances are this will
    be for plans that are recovering and that are green zone plans
    or yellow zone plans headed to the green. Eventually, you will
    get to the point where that will be something that, most of
    those plans, will want to consider anyways.
        Mr. Polis. Thank you.
        And I yield back the balance of my time.
        Chairman Roe. I thank the gentleman for yielding. Do you
    have any closing remarks?
        Mr. Polis. Yes. Briefly, Mr. Chair, I feel we have learned
    a lot from this terrific panel, a panel that has members that
    are often on opposite sides of other issues. But on this
    specific issue there does seem to be a lot of agreement.
        Our entire panel knows that we need to take action. Doing
    nothing to preserve the multiemployer pension system is simply
    not a viable alternative, whether you are a Republican or a
    Democrat. And I look forward to working with Dr. Roe and many
    on both sides of the aisle to continue gathering the facts and
    create a proposal that protects retirees and allows flexible
    plans that will not bankrupt the system.
        I want to thank you all for your time, and I yield back the
    balance of my time.
        Chairman Roe. I thank the gentleman for yielding. And as I
    said before we started we weren't going to have votes, but we
    are having votes. That is the way this place works.
        You all have very clearly laid out the problem, as you did
    last year--and the previous three years--about the problems
    that multiemployer pension plans face. And now you need another
    tool in your toolbox, and that is what you are at Congress
    asking for. It is a very reasonable ask. I think that we are
    going to work to make that happen, to come to fruition. I think
    we can see that.
        It probably won't be the last time. It won't cure every
    ill. We will be here again for some other changes. But this is
    just another tool that the plan administrators and employers
    and union members have to secure a future retirement. So I
    appreciate very much, again, the expert panel that we have.
        And with no further remarks, our meeting is adjourned.
        [Additional submissions by Dr. Roe follow:]

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        [Whereupon, at 3:32 p.m., the subcommittee was adjourned.]