[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
__________
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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.]