[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
  
  
  
  
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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.]