[Senate Hearing 114-541]
[From the U.S. Government Publishing Office]





                                                        S. Hrg. 114-541

   THE MULTIEMPLOYER PENSION PLAN SYSTEM: RECENT REFORMS AND CURRENT 
                               CHALLENGES

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

                                HEARING

                               before the

                          COMMITTEE ON FINANCE
                          UNITED STATES SENATE

                    ONE HUNDRED FOURTEENTH CONGRESS

                             SECOND SESSION

                               __________

                             MARCH 1, 2016

                               __________

                                     



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                          COMMITTEE ON FINANCE

                     ORRIN G. HATCH, Utah, Chairman

CHUCK GRASSLEY, Iowa                 RON WYDEN, Oregon
MIKE CRAPO, Idaho                    CHARLES E. SCHUMER, New York
PAT ROBERTS, Kansas                  DEBBIE STABENOW, Michigan
MICHAEL B. ENZI, Wyoming             MARIA CANTWELL, Washington
JOHN CORNYN, Texas                   BILL NELSON, Florida
JOHN THUNE, South Dakota             ROBERT MENENDEZ, New Jersey
RICHARD BURR, North Carolina         THOMAS R. CARPER, Delaware
JOHNNY ISAKSON, Georgia              BENJAMIN L. CARDIN, Maryland
ROB PORTMAN, Ohio                    SHERROD BROWN, Ohio
PATRICK J. TOOMEY, Pennsylvania      MICHAEL F. BENNET, Colorado
DANIEL COATS, Indiana                ROBERT P. CASEY, Jr., Pennsylvania
DEAN HELLER, Nevada                  MARK R. WARNER, Virginia
TIM SCOTT, South Carolina

                     Chris Campbell, Staff Director

              Joshua Sheinkman, Democratic Staff Director

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                            C O N T E N T S

                              ----------                              

                           OPENING STATEMENTS

                                                                   Page
Hatch, Hon. Orrin G., a U.S. Senator from Utah, chairman, 
  Committee on Finance...........................................     1
Wyden, Hon. Ron, a U.S. Senator from Oregon......................     4
Portman, Hon. Rob, a U.S. Senator from Ohio......................     6
Brown, Hon. Sherrod, a U.S. Senator from Ohio....................     7

                         CONGRESSIONAL WITNESS

Manchin, Hon. Joe, III, a U.S. Senator from West Virginia........     7

                               WITNESSES

Gotbaum, Hon. Joshua, guest scholar, Economic Studies Program, 
  The Brookings Institution, Washington, DC......................    10
Lewis, Rita, beneficiary, Central States Pension Plan, West 
  Chester, OH....................................................    12
Roberts, Cecil E., Jr., international president, United Mine 
  Workers of America, Triangle, VA...............................    14
Biggs, Andrew G., Ph.D., resident scholar, American Enterprise 
  Institute, Washington, DC......................................    16

               ALPHABETICAL LISTING AND APPENDIX MATERIAL

Biggs, Andrew G., Ph.D.:
    Testimony....................................................    16
    Prepared statement...........................................    41
    Responses to questions from committee members................    47
Brown, Hon. Sherrod:
    Opening statement............................................     7
Gotbaum, Hon. Joshua:
    Testimony....................................................    10
    Prepared statement...........................................    49
    Response to a question from Senator Hatch....................    56
Hatch, Hon. Orrin G.:
    Opening statement............................................     1
    Prepared statement...........................................    56
Klobuchar, Amy:
    Prepared statement...........................................    58
Lewis, Rita:
    Testimony....................................................    12
    Prepared statement...........................................    60
Manchin, Hon. Joe, III:
    Testimony....................................................     7
    Brief Chronology of the UMWA Health and Retirement Funds and 
      the History of U.S. Government Involvement.................    63
Portman, Hon. Rob:
    Opening statement............................................     6
Roberts, Cecil E., Jr.:
    Testimony....................................................    14
    Prepared statement with attachments..........................    70
    Responses to questions from committee members................    79
Wyden, Hon. Ron:
    Opening statement............................................     4
    Prepared statement...........................................    81

                             Communications

Communications from organizations
    AARP.........................................................    83
    American Auto Dealers for Pension Reform.....................    85
    Buffalo, NY Committee to Protect Pensions....................    86
    Central States Pension Fund..................................    88
    Iowa/Nebraska Committee to Protect Pensions..................    93
    National Coordinating Committee for Multiemployer Plans 
      (NCCMP)....................................................    96
    Pension Rights Center........................................   100
    Sheet Metal and Air Conditioning Contractors' National 
      Association................................................   102
    United Association of Plumbers and Pipefitters International 
      Union (UA) and Mechanical Contractors Association of 
      America (MCAA).............................................   110

Communications from individuals
    The committee received hundreds of submissions from private 
      citizens--too many to include in the hearing record. These 
      communications may be viewed on the committee's website.
 
                     THE MULTIEMPLOYER PENSION PLAN
                         SYSTEM: RECENT REFORMS
                         AND CURRENT CHALLENGES

                              ----------                              


                         TUESDAY, MARCH 1, 2016

                                       U.S. Senate,
                                      Committee on Finance,
                                                    Washington, DC.
    The hearing was convened, pursuant to notice, at 10:35 
a.m., in room SD-215, Dirksen Senate Office Building, Hon. 
Orrin G. Hatch (chairman of the committee) presiding.
    Present: Senators Grassley, Crapo, Thune, Burr, Isakson, 
Portman, Heller, Scott, Wyden, Schumer, Stabenow, Cantwell, 
Cardin, Brown, Bennet, Casey, and Warner.
    Also present: Republican Staff: Sam Beaver, Professional 
Staff Member; Marc Ness, Detailee; Preston Rutledge, Tax 
Counsel; and Jeff Wrase, Chief Economist. Democratic Staff: 
Kara Getz, Senior Tax Counsel; Joshua Sheinkman, Staff 
Director; and Eric Slack, Detailee.

 OPENING STATEMENT OF HON. ORRIN G. HATCH, A U.S. SENATOR FROM 
              UTAH, CHAIRMAN, COMMITTEE ON FINANCE

    The Chairman. The Finance Committee will come to order.
    I understand that some people are here who have strong 
feelings about the subjects we are talking about here today. 
That is fine. The First Amendment guarantees your right to 
express your views. But we have to allow a civil discussion to 
occur in the context of this hearing.
    So for our friends who are protesting, I ask that you 
respect the rights of others, respect this committee, and 
remain quiet so that the hearing can continue.
    The committee will be in order. Comments from the audience 
are inappropriate and out of order. If there is any disruption, 
I am going to call it out and raise a little bit of a fuss 
here.
    So let us abide by the rules. We know there are some hard 
feelings and tough feelings in some of these areas. That is one 
reason we are holding the hearing. So we will just go from 
there.
    I would like to welcome everyone to this morning's hearing 
to examine the multiemployer pension plan system. As I said at 
a recent hearing, financial security for workers and their 
families, from their retirement policy in particular, has never 
been more important. While we have enjoyed a number of 
successes in this area, today we will be talking about an area 
of retirement policy that, for a number of reasons, has not 
delivered on the pension promises made to workers and retirees.
    A multiemployer pension plan is a collectively bargained 
pension plan set up by a union and two or more unrelated 
unionized employers. In this system, the employers make 
contributions to the plan and pay premiums to the Pension 
Benefit Guaranty Corporation, or PBGC, to insure the plan. 
Multiemployer plans are operated by a joint board of union and 
employer trustees that, among other things, sets the amount of 
the pensions. Or, in other words, these boards make the 
promises.
    Ten million Americans are covered by multiemployer pension 
plans, and currently more than one-third of those people are in 
plans that are critically underfunded. Many are in danger of 
default. In the case of a default, the PBGC would pay out 
pensions to retirees. Those payments are capped by law and 
would be no greater than $12,870 per year. In fact, in many 
cases, they would be far less. That would be a steep drop for a 
retiree who was promised an annual pension of $30,000 or 
$40,000 in a plan like the Central States Teamsters plan, one 
of the plans we will be talking about today.
    That sounds pretty bad, but the problems in the 
multiemployer pension system are even worse than what I just 
described. There are several plans, like the Central States and 
United Mine Workers plans, for example, that would bankrupt the 
PBGC if they were to default. The PBGC insurance program for 
multiemployer plans just cannot handle that load, and if the 
PBGC's insurance assets are ever exhausted, pension plan 
payment will drop to nearly zero.
    The response to this crisis by Congress and the President 
in 2014 was to enact the Multiemployer Pension Reform Act, or 
MPRA. At the request of multiemployer pension plan managers, 
employers who contribute to multiemployer pension plans, as 
well as many unions representing employees, the MPRA gave 
pension plan trustees the ability in extreme cases to petition 
the Treasury Department for approval to cut pensions in the 
near term in order to avoid insolvency and larger cuts down the 
road. Now, this law is, to say the least, controversial, and 
the committee will hear from both defenders and critics of the 
MPRA today.
    Now, this is a sobering moment for our country, the pension 
community, and, of course, the retirees. Beyond the hardship 
for retirees in multiemployer plans, this moment also 
highlights the challenge of delivering on the promise of 
pensions and defined benefit plans across the board, both 
public and private, and the stakes for retirees if these 
systems fail.
    Today we will hear testimony from a Central States 
beneficiary, a retiree whose husband recently passed away who 
is scheduled to receive a 40-percent cut in her survivor's 
pension if Treasury approves the application of the plan's 
trustees to implement the reductions. Her annual pension would 
be reduced from more than $30,000 to just under $18,000. Her 
case is the very definition of hardship in the context of the 
pension system.
    We will hear testimony today about the United Mine Workers 
Pension plan, another financially strapped pension plan that, 
even without additional cuts, provides a relatively modest 
pension, around $6,000 per year, on average, for its 
beneficiaries.
    In addition, we have witnesses who will address the hard 
truth that, without the MPRA, future pension cuts will be even 
worse. We will hear that the MPRA allows many plans that 
otherwise would fail entirely to keep their benefits from 
dropping all the way to PBGC levels, or perhaps to no pension 
at all.
    Now, we know that there are some who advocate a taxpayer 
bailout of the PBGC's multiemployer pension program. In my 
view, that will be very difficult to achieve if recent history 
is any guide. The idea of a PBGC bailout was proposed by 
unions, employers, and multiemployer plans back in 2010. Back 
then, the House, Senate, and White House were all controlled by 
Democrats, and the proposal got absolutely no traction 
whatsoever. I have a hard time seeing how such a proposal would 
move forward in the current environment. But for the sake of 
argument, let us imagine that there was another way outside of 
premiums to finance the PBGC.
    What then? The cuts would still be larger. Older retirees 
and disabled retirees who today cannot receive cuts at all 
under the MPRA would be cut all the way down to the PBGC level. 
Even the retirees whose pensions are eligible for cuts under 
the MPRA are at least assured of always receiving at least 10 
percent more than the PBGC level and perhaps much more.
    But without the MPRA, even that minimal level of protection 
would vanish. Ultimately, the critics of the MPRA have to 
recognize that, when dealing with this problem, there were 
really only three choices--bad, worse, and worst of all.
    In 2014, a bipartisan majority in Congress and the 
President went with bad. No one is happy with that choice. I 
suspect that it was the best option available to us at the 
time.
    The question we have to consider now is, how can we avoid 
these problems in the future? Today we will hear testimony 
about how the design and funding of multiemployer plans led us 
to this point. Not surprisingly, I suspect we will hear that it 
is easier to promise pensions than it is to fund them.
    We will hear that, because of lax rules in the current 
system, there is a great temptation for plant managers to make 
unrealistic actuarial assumptions and take on excessive 
investment risk. And we will learn about disturbing parallels 
between multiemployer pensions and the defined benefit pension 
plans run by many State and local governments.
    Finally, I want to say another word about the Mine Worker 
pension plan. I promised Ranking Member Wyden that I would work 
with him on this issue, and I have kept my promise. I have done 
my best to advance legislation introduced by Senators Capito 
and Manchin, which is--given the already low pension payments, 
the Obama administration's war on the coal industry, and the 
depressed state of the economy in most of coal country--in my 
view, the best option for us. I plan to continue that effort.
    Now, with that, let me just make it clear that if we are 
going to have people cause a ruckus in here--I do not want to 
see that happen, and I will not permit it to happen.
    So the committee is going to be in order, and the comments 
from the audience are inappropriate and out of order, and we do 
not want to have to call on the police to restore order.
    So let us hope we do not have anybody get out of order here 
in this hearing today. This is an important hearing. We ought 
to all be very interested in whatever we can gain from this 
particular hearing. We have been working on this for a long 
time.
    With that, I will turn to my ranking member, Senator Wyden, 
for his opening statement.
    [The prepared statement of Chairman Hatch appears in the 
appendix.]

             OPENING STATEMENT OF HON. RON WYDEN, 
                   A U.S. SENATOR FROM OREGON

    Senator Wyden. Thank you, Mr. Chairman. And you are right, 
we have been working together, and I look forward to getting 
this key legislation passed.
    This is an extraordinarily important time for our country, 
colleagues, because there is a longstanding principal of 
pension law that says you do not take away benefits that our 
workers have earned. But unless the Congress acts soon, that 
guarantee is about to be broken. There are more than 1,000 
multiemployer pension plans around America, and millions of 
Americans rely on them for economic security in retirement. 
Yet, many of those plans are now in dire financial straits.
    I want to begin this morning by focusing on one group of 
workers who are particularly at risk. Thousands of coal miners' 
pensions are hanging in the balance, and the clock is ticking 
down to disaster for retired coal miners in the coming months.
    Over decades of perilous, backbreaking work, fueling the 
American economy, our miners earned retiree health benefits and 
pensions. There is, however, a serious risk thousands of miners 
are going to lose their health benefits by December of this 
year. By December of 2017, miners' pension benefits could be at 
risk as well.
    Now, I come from a State that does not mine coal, but there 
are communities across my home State that have historically 
been 
resource-dependent, and a lot of those communities are 
experiencing the same kind of economic pain you see in mining 
towns in other parts of the Nation. You cannot turn your back 
on the workers and retirees in these communities when times get 
tough. When Mrs. Lewis speaks--she is from Ohio--members are 
going to get a real sense of the stress that families face when 
they are looking at losing their pension rights.
    If the worst happens, retired miners may have nowhere to 
turn, and the Pension Benefit Guaranty Corporation, which 
insures multiemployer pension plans, is under extraordinary 
pressure and is at risk of insolvency down the road.
    Colleagues, we are very pleased that Senator Manchin is 
here. Senator Manchin and Senator Capito, who represent West 
Virginia, have come together on a bipartisan basis and produced 
a Miners Protection Act. Senators Brown and Casey and Warner 
have talked to me again and again about the importance of this 
issue to their States. It is my view that this committee and 
the Congress should move on this bill as soon as possible.
    Now, of course, it is also critical that the Finance 
Committee take a wider view of the crisis unfolding in 
multiemployer pension plans around the country. Hundreds of 
them, accounting for the pensions of more than a million 
workers and retirees, were less than 40 percent funded as of 
2011.
    Unfortunately, a provision that added fuel to the fire was 
slipped into a must-pass government funding law in 2014, and it 
passed over my strong opposition. It gave a green light to 
slashing benefits in a lot of the hardest-hit multiemployer 
plans, and that is going to make life a lot tougher for a great 
many seniors across the country who are already struggling to 
get by.
    I will close by saying, Mr. Chairman, that today's hearing, 
in my view, ought to be just the beginning of a fresh look at 
our broken retirement system. We have a lot to do. We ought to 
be looking, for example, at what a number of the States, like 
my home State of Oregon, are doing, where we are on the cutting 
edge of retirement policy.
    We ought to look, for example, at reforming the common bond 
provision, which has been a vital part of retirement policy 
debates in the past. We also ought to be looking at making the 
Saver's Credit refundable, and a number of colleagues here on 
the Finance Committee have joined me on this issue.
    So what this is really about is making sure that Congress 
ensures that the promise that pension benefits are all about is 
protected, and it is an enormous challenge, and there is not 
any silver-bullet policy that is just going to fix everything 
right away.
    But we are talking here, colleagues, about the economic 
security of millions of Americans. So today we are going to 
look at a number of important issues. I know my colleague is 
going to talk about the miners question. I have mentioned other 
questions that we ought to be looking at, particularly the role 
of the States in reforming common bond, and making the Saver's 
Credit refundable.
    The Finance Committee is a place where Democrats and 
Republicans can come together to find solutions to the enormous 
retirement challenge in America. As you know, Mr. Chairman, the 
Finance Committee Democrats and I sent a letter to you 
outlining many of our concerns, and I think it would be fair to 
say, Mr. Chairman, that Democrats very much want to work with 
Republicans on a bipartisan basis to meet this challenge.
    Thank you.
    [The prepared statement of Senator Wyden appears in the 
appendix.]
    The Chairman. Thank you, Senator.
    I would like to take a few minutes to introduce today's 
witnesses. I will introduce the entire panel and then give each 
witness 5 minutes for opening remarks.
    We also have Senator Manchin here, who would like to 
introduce one of the witnesses. Senator Brown would like to 
also join in. We will do that before we turn to the witnesses 
themselves.
    Our first witness is Joshua Gotbaum. Mr. Gotbaum writes and 
advises on retirement finance and budget issues as a guest 
scholar in the Economic Studies Program at The Brooking 
Institution. From 2010 to 2014, Mr. Gotbaum served as the 
Director of the U.S. Pension Benefit Guaranty Corporation, or 
PBGC. That is a 2,300-person agency responsible for investment 
$80 billion of assets and insuring pensions for more than 40 
million Americans.
    Before heading the PBGC, Mr. Gotbaum ran and reorganized 
Hawaiian Airlines, served as CEO for the September 11th Fund, 
and was confirmed on a bipartisan basis to presidential 
appointments in the Treasury and Defense Departments and the 
Office of Management and Budget during the Clinton 
administration.
    Mr. Gotbaum is a fellow of both the National Academy of 
Public Administration and the National Academy of Social 
Insurance. He has degrees from Stanford, Harvard Law School, 
and the Kennedy School of Government.
    Our second witness is Mrs. Rita Lewis, a beneficiary of the 
Central States Pension Plan. Mrs. Lewis is the widow of the 
late Butch Lewis, who worked 40 years for USF Holland, an Ohio-
based trucking company.
    Mr. Lewis, who was a leader of the Southwest Retirees 
Pension Committee, was a participant of the Central States 
Pension Plan and, unfortunately, passed away last New Year's 
Eve from a massive stroke. Mr. Lewis became a truck driver 
after facing life-threatening injuries he suffered in the 
Special Forces Army Rangers while deployed in Vietnam.
    Mrs. Lewis currently works for the Police Department of 
West Chester, OH, where she also resides.
    We are very sorry for your loss, Mrs. Lewis, and appreciate 
your willingness to be here today.
    My understanding is that Senators Portman and Brown want to 
make a brief introduction of their constituent, Mrs. Lewis.
    So let us recognize you, Senator Portman, first, and then 
we will recognize Senator Brown.

            OPENING STATEMENT OF HON. ROB PORTMAN, 
                    A U.S. SENATOR FROM OHIO

    Senator Portman. Thank you, Mr. Chairman.
    I want to welcome her to the committee today. As Rita 
knows, I got to know her late husband, Butch, last fall in 
working on these issues and was inspired by him. He had fierce 
determination.
    As you said, he was a Vietnam Veteran. He was a proud 
patriot. He must have been a very good soldier, because he was 
a straight-shooter and he understood, Mr. Chairman, some of the 
problems you are talking about with the system, but he also 
understood the unfairness of the process that has currently got 
Rita in a tough situation, and she will talk about that in a 
moment.
    But I thank her for being here. I thank her for being 
someone who is willing to work with us to try to find a 
solution. She has been terrific.
    I would also like to thank a couple other Ohioans who are 
here. Mike Walden, I see there. Whitlow and Barb Wyatt are 
here; Tom and Linda Krekeler. They have also worked hard with 
us on our legislation and on how to find ways to help protect 
these earned pensions.
    Then I would also like to acknowledge a couple other 
Ohioans. Dave Dilly from Fresno, OH is here and Norm Skinner of 
Dresden, OH. As Mr. Roberts knows, these are coal miners from 
Ohio who are here to talk about the coal miners pensions issue, 
and they are hardworking guys who deserve better than they are 
getting from their pensions, and I look forward to hearing from 
them about the legislation I am supporting that Senator Manchin 
will talk about today too.
    So thank you, Mr. Chairman, for giving me that privilege. 
We look forward to hearing your testimonies.
    The Chairman. Thank you, Senator Portman.
    We will now turn to Senator Brown.

           OPENING STATEMENT OF HON. SHERROD BROWN, 
                    A U.S. SENATOR FROM OHIO

    Senator Brown. Thank you, Mr. Chairman.
    I echo my colleague's kind words about Rita Lewis. Thank 
you so much for joining us and for speaking out. I know the 
grief and hurt are still so close to you, and I am so sorry and 
hope that this will help you some knowing that you are fighting 
for what Butch fought for his entire life.
    Rita lives in West Chester, OH. Her husband was a legend to 
Ohio Teamsters. He understood that a strong, vibrant union 
movement created the middle class in this country. He was 
always fighting for something bigger than he was: for his 
family, for your two children, for your grandchildren, and for 
our State. In an era of declining wages, he understood that 
pensions and health care and wages were all about the union 
movement, and I so thank you for that and Butch for that.
    He was drafted by the Pittsburgh Pirates to play baseball. 
Instead, he went to Vietnam. He was a Special Forces Army 
Ranger. He had life-threatening injuries in Vietnam. He came 
back and became a Teamster, and he was a leader of the 
Southwest Retirees Pension Committee.
    This morning, Rita said earlier that Butch said the cuts 
being forced on retirees amount to war against the middle class 
and the American dream, and that is what he devoted his life 
to. Rita is facing 40-percent cuts to her already-reduced 
widow's benefit. She says she is fighting not just for herself, 
but the 270,000 other retired truck drivers.
    That is what Butch did. That is what Rita does. For that we 
are grateful.
    This hearing, Mr. Chairman, is also about doing the right 
thing for the mine workers. I am glad to see someone is here to 
make that case and numbers of other mine workers, as Senator 
Portman said, from Ohio and around the country.
    So thanks to both of you. And, Rita, we really look forward 
to hearing you talk about Butch and his mission in life. Thank 
you so much.
    The Chairman. Thank you, Senator Brown.
    At this point, we will recognize our esteemed colleague 
from West Virginia to make his introduction, if he would like 
to.

              STATEMENT OF HON. JOE MANCHIN III, 
               A U.S. SENATOR FROM WEST VIRGINIA

    Senator Manchin. Mr. Chairman, let me thank you and Ranking 
Member Wyden and my friends for taking this up. This is an 
important piece of legislation to all of us.
    First of all, Mr. Chairman, I would like to ask that the 
handout that I have distributed be entered into the record.
    The Chairman. Without objection.
    Senator Manchin. All the members should have a copy. It is 
the Brief Chronology of the UMWA Health and Retirement Funds 
and the History of the U.S. Government's Involvement. So this 
is more than just the piece of legislation we are asking for. 
It is basically to honor the commitment through law that starts 
back in the 1930s.
    So I think we have a tremendous story to be told here.
    [The chronology appears in the appendix on p. 63.]
    Senator Manchin. The thing I want to say is, Mr. Chairman, 
first of all, you are a product, born and raised in the coal 
fields in southwestern Pennsylvania and close to West Virginia, 
as you know.
    The Chairman. And in Utah. We have a lot of coal.
    Senator Manchin. Absolutely, in Utah too. But there is not 
a more proud, patriotic group of people than the men and women 
who mine the coal.
    This is a resource that we have taken for granted. The 
history is not being told, and children today are not learning 
about the country they have and how they got it. It came at the 
sacrifice of the most plentiful resource we have had that 
fueled the Industrial Revolution, that defended this country, 
made the steel that built the guns and ships, defended this 
country, and won every war.
    It is so important to know the chronology of this law 
signed by Harry Truman, and it has moved up from the 1940s all 
the way into the present day.
    So I am here, and I have the honor of introducing my 
friend, but also a friend to every miner in America and the 
most committed person I know in this movement for the United 
Mine Workers, Mr. Cecil Roberts.
    He is a sixth-generation coal miner from Kanawha County, 
WV. He has been the president of the United Mine Workers of 
America since 1995. He was reelected to his fifth full term as 
the international president in 2014. In fact, he is the second 
longest standing president of the United Mine Workers of 
America, next to John L. Lewis.
    Mr. Roberts is here today on behalf of our Nation's coal 
miners, and we have them from all over the Nation, and we are 
so proud that they are here with us today. They have answered 
the call whenever that call came, not only in the mining field, 
but most of them are veterans and have fought in the wars. So 
they know the patriotic duty and responsibility they have.
    When our economy was stagnant, these miners fueled the 
growth and expansion. They kept their promise to us, and now it 
is time for us to honor ours, the promise that President Truman 
made to our country and to our miners. These miners are now 
facing multiple pressures on their health-care pension benefits 
as a result of financial crises and corporate bankruptcies. 
Despite being well-managed, the UMWA 1974 Pension Plan is now 
severely underfunded and on the road to insolvency, and the 
Miners Protection Act which we have before you will cure that.
    That is why I joined Senators Capito, Casey, Brown, Warner, 
Roberts, Kaine, and others. This is truly a bipartisan movement 
to the Miners Protection Act, and I want to thank all those who 
have joined as cosponsors.
    Mr. Roberts is going to speak on the importance of the bill 
and provide an overview of the history of the promises that the 
U.S. Government and coal operators have made to the miners of 
this country. The bill honors the promise of lifetime health 
care and pensions made by the U.S. Government and coal 
operators. It simply seeks to protect the pension and health 
benefits of retired miners and their dependents.
    This bill is particularly important to my home State of 
West Virginia, Mr. Chairman and Ranking Member Wyden, because 
West Virginia has more retired union miners than any other 
State. And I would like to say this: there is no State that has 
been hit harder economically than we have today with the 
transition that is going on. But the undue pressure by this 
administration has wreaked havoc on West Virginia families.
    Out of 90,594 retired UMW workers in the country in 2014, 
more than 27,000 of those people lived in West Virginia. I 
would also note that one of our West Virginia miners, Mr. Levi 
Allen, is with us. He has traveled to support this legislation. 
He is from the northern part, Marshall County, WV. It is a 
Murray Energy Marshall County mine, formerly known as the 
McElroy Mine. It was a CONSOL mine, the McElroy Mine.
    I want to applaud Mr. Allen and my friend, Mr. Cecil 
Roberts, for their tireless efforts. I want to thank you both 
for your commitment to moving this legislation forward. It 
truly is a commitment to the promise that we all made.
    This country depended on this energy, the most abundant 
energy. It is the only energy, next to nuclear, that gives you 
a base load. It runs 24/7. Nothing else does it in America.
    As this transition is going on, West Virginia is not 
fighting the transition. We know that coal is going to be a 
staple fuel. We want to make sure we do it better, cleaner, 
with more technology. We are accepting all of that. But do not 
put at risk the lives and futures of these miners who have 
given their life to the industry that we have today, to the 
energy that we have today, and to the country that we have 
today, sir, and that is all we are asking for.
    The Miners Protection Act is a fix. It is a fix that works 
not only the miners, but for America.
    So with that, I am excited to be here on behalf of my 
friend and to get a chance to introduce him, president of the 
United Mine Workers of America, Cecil Roberts.
    The Chairman. Thank you, Senator Manchin.
    I think it is high praise for you, Mr. Roberts, and Senator 
Portman's and Brown's comments here today are very important.
    I was raised in coal country, and I understand. A lot of my 
friends were coal miners as well. So it is a big problem to us, 
and I just want to express my gratitude that you would take 
time to show up and testify.
    Our final witness today is Dr. Andrew Biggs, a resident 
scholar at the American Enterprise Institute, or AEI. Dr. Biggs 
studies Social Security reform, State and local government 
pensions, and public-sector pay and benefits.
    Before joining AEI, Dr. Biggs was the Principal Deputy 
Commissioner of the Social Security Administration and 
Associate Director of the White House National Economic Council 
and served on President George W. Bush's Commission to 
Strengthen Social Security.
    Dr. Biggs holds a bachelor's degree from Queen's 
University-
Belfast in Northern Ireland, master's degrees from Cambridge 
University and the University of London, and a Ph.D. from the 
London School of Economics.
    I want to thank all of you for coming. We will hear witness 
testimonies in the order that they were introduced.
    Senator Manchin, you do not have to stay.
    Senator Manchin. I would surely love to, but I have another 
meeting. As we know, they double-park us every time, and I have 
to go. But I am just so proud of everybody here and everybody 
who made an effort to come here.
    So with that, thank you again, Mr. Chairman.
    The Chairman. We know that you are busy, and we also know 
that you have a lot of duties, and we appreciate you taking 
time to come and speak here today.
    So with that, we will turn to you, Mr. Gotbaum. Please 
proceed.

   STATEMENT OF HON. JOSHUA GOTBAUM, GUEST SCHOLAR, ECONOMIC 
   STUDIES PROGRAM, THE BROOKINGS INSTITUTION, WASHINGTON, DC

    Mr. Gotbaum. Mr. Chairman, Senator Wyden, members of the 
committee, thanks very much for the opportunity to talk about 
these plans, about the more than a million people whose lives 
will be affected by what you do to them, and what Congress can 
do to help. Since you all have my written testimony, I am going 
to summarize it. I am going to try to summarize it with four 
points.
    The first point, sadly, is that Mrs. Lewis is far from 
alone. More than a million people and their families could lose 
their pensions if this system goes down.
    Second, this is not a case of bad people or bad plans. This 
is mostly a case of bad luck.
    Third, the Multiemployer Pension Reform Act, controversial 
though it is, offers some plans the chance to preserve benefits 
by avoiding having everyone's pensions cut down to PBGC levels.
    Repealing MPRA would not make things better. It would make 
them worse. It would guarantee the collapse of the 
multiemployer system.
    So, rather than repealing MPRA, there are some other things 
that Congress can do that I hope you will consider. One is, you 
can enable the PBGC to do its job, which is preserving these 
plans, by letting it collect adequate premiums.
    Secondly, you can help plans survive by allowing new plan 
designs, but while making sure that the move to new plans does 
not doom the existing plans.
    Let me talk a little bit about this piece of legislation, 
MPRA, that none of us likes, but some of us think is necessary 
for the moment.
    Most multiemployer plans have a large group of employers. 
When one becomes underfunded, there are others who can make up 
the shortfall. But in some plans, the employer base has shrunk. 
It shrank because of trucking deregulation or because of 
consolidation in foods, hotels, or coal mining, and in those 
plans, many retirees earned their benefits working for 
companies that are no longer around.
    The term that is used, although it is a term that no one 
likes, is orphans. When these plans become underfunded, the 
companies and workers that are still active in the plans are 
being asked not only to pay for their underfunding, but to pay 
for the underfunding of orphans as well.
    Now, one thing that the committee should know is, very 
often they do. They reach into their pockets and they take 
money out of their pay to cover the shortfall for employees of 
other plans. But when there are more orphans than actives, at 
some point, the burden just becomes too great.
    The result is a death spiral. Employers that can withdraw, 
like UPS did, they do so. And then the burden on the remaining 
employers becomes intolerable. They withdraw too, and the plan 
runs out of money.
    When that happens, all benefits are cut down to PBGC 
levels. Hidden in my testimony on page 3 is a microscopic chart 
that gives you an idea of what it means to go down to PBGC 
levels. And in one example in that chart, that is a 50-percent 
cut. MPRA gives some plans a chance to avoid that 50-percent 
cut, to preserve benefits above PBGC levels.
    Central States, for example, has proposed an average cut of 
23 percent. That is a tragedy. Nobody thinks that that is a 
good thing. But it is better than 50 percent. But even getting 
50 percent from PBGC is optimistic, because PBGC is projected 
to run out of money in 8 years, and, once PBGC's own fund runs 
dry, it will only be able to pay a fraction of benefits, maybe 
10 percent. That is not a 50-percent cut, that is a 90-percent 
cut.
    So I hope you do not repeal MPRA, but what I hope you do is 
make sure that PBGC has the resources to do its job and 
preserve plans. No one likes to pay higher PBGC premiums, but 
without them, PBGC will not be able to do its job. Fortunately, 
multiemployer premiums are much lower than the premiums that 
90-plus percent of plans already pay. Multiemployer premiums 
are now $27 a year. The average plan outside of the 
multiemployer system pays $140 per person a year. So there is 
room for growth.
    The second thing you can do is to allow the new plan 
designs, but pay attention to the details. In pensions, these 
matter. Unfortunately, the proposals for new plan designs, the 
new idea for legacy plans, is to weaken them. It makes it 
easier for employers to withdraw from them. It puts them at 
greater risk of failing.
    So, while I very much hope that you will allow new plan 
designs, because they are necessary, I also hope that you will 
make sure to pay attention to the safety of the old plans in 
several ways.
    One is by making sure that the actuaries do not get too 
optimistic, because that is when plans fail, when actuaries get 
too optimistic; and in addition, making sure that the move to 
new plans does not eliminate the PBGC premium base so that they 
have to come back to you hat in hand again just to do their 
job.
    In closing, thanks very, very much for holding this hearing 
and for your interest. More than a million Americans are in 
your debt.
    If, as you proceed, I can help, I would be honored to do 
so.
    Thank you.
    [The prepared statement of Mr. Gotbaum appears in the 
appendix.]
    The Chairman. Thank you so much.
    Mrs. Lewis, we will take your testimony now.

 STATEMENT OF RITA LEWIS, BENEFICIARY, CENTRAL STATES PENSION 
                     PLAN, WEST CHESTER, OH

    Mrs. Lewis. Chairman Hatch, Ranking Member Wyden, and 
members of the committee, thank you so much for inviting me to 
speak, and I am honored to be part of this most distinguished 
panel.
    My name is Rita Lewis, and I live in West Chester, OH, and 
I am here representing my dearly beloved late husband, Butch 
Lewis, who worked 40 years for a Midwestern trucking company. 
Butch worked with thousands of retirees across the country 
until his last dying breath to stop the shameful and unfair 
cuts authorized under the Multiemployer Pension Reform Act, 
known as MPRA.
    I am here not just for myself, but to speak on behalf of 
270,000 retired truck drivers, widows, and spouses who will be 
devastated if the Central States Pension Plan is allowed to go 
through with these cuts. And this is not a partisan issue. We 
are Republicans, we are Democrats, and we are Independents. 
This is an issue of fundamental American values, of keeping 
earned promises to this Nation's retirees.
    I understand that if Central States can cut our benefits, 
there are another 100 to 200 underfunded plans that are just 
waiting to cut their own retirees' benefits, and I urge you 
today to find a solution to protect our pension benefits before 
this becomes a huge national crisis.
    Here is my story. My husband and I were married for 40 
years after being childhood sweethearts. After high school, 
Butch gave up a baseball career to volunteer in Vietnam, where 
he served in the Special Forces Army Rangers. He got hit in the 
knee by mortar shells and came home with life-threatening 
injuries. When Butch returned home, he got a good-paying job in 
the trucking industry. He joined the Teamsters Union. And we 
got married and started a family and had a good life.
    Over 40 years he went to work driving a tractor-trailer, 
which is hard, stressful work, and he did this even though he 
had 37 surgeries to fix the knee that he had injured in 
Vietnam. He worked hard so he could earn a good pension, and 
this pension was not a gift. He worked hard for every penny. He 
gave up wages and vacation pay and other benefits in exchange 
for a lifetime retirement income.
    Last October, Butch got the letter from Central States 
stating that his pension was being cut over 40 percent, from 
just over $3,000 a month to $1,998. Butch made it his mission 
to stop these cuts, but after fighting hard, he died of a 
massive stroke last New Year's Eve. This was the happiness that 
I had that I am never going to have again.
    Now, I am left without my husband, who was the love of my 
life, and facing cuts to my survivor benefits, also by 40 
percent, from $2,500 a month to $1,498. If my benefits are cut, 
I will have to sell the house that Butch and I had made our 
dream home, and I will have a harder time taking care of my 
dad, who has stage IV lung cancer, and I will not be able to 
help pay for my grandchildren's college, a promise that we made 
to them.
    But luckily, I am in better shape than many of my fellow 
retirees. Whitlow Wyatt of Ohio, he is going to lose 60 percent 
of his pension. His wife now has stage IV breast cancer, and 
they are not sure how they are going to make it.
    Ava Miller of Flint, MI, she is facing cuts of 58 percent, 
and she is probably going to have to sell her home.
    And Ron Daubenmeier of Iowa is facing cuts of 60 percent. 
He does not even know how he is going to make ends meet. And 
there are thousands of stories just like these.
    I know that Central States says that the average cuts are 
around 22.5 percent, but just about everyone that I and my 
husband have talked to, they are facing cuts of 40, 50, 60, 
even 70 percent. And I was pretty stunned to hear that, while 
proposing all of these cuts, the fund's director, Tom Nyhan, 
got a $32,000 raise and is making a total compensation of over 
$694,000 a year. That is why we are respectfully requesting a 
forensic audit.
    Senators, as you know, MPRA was negotiated behind closed 
doors without any input from the retirees and the widows who 
are going to be the most affected. And as I understand it, MPRA 
erases 40 years of Federal protection, which states that plans 
cannot cut back the benefits of retirees unless the plan 
completely runs out of money.
    But our benefits are being slashed right now, 10 to 15 
years before Central States is expected to run out of money. 
And some say it is better to get a haircut today than a 
beheading tomorrow, but this is a beheading for most of us. And 
those of us facing these pension cuts, we are in our 60s and 
our 70s and we do not have the time. And who is going to hire 
us to make up for that lost income? And let us face it, a lot 
of these retirees, like my husband, will be long gone before 
Central States runs out of money.
    MPRA blames all of us for the financial problems of the 
multiemployer pension plans, even though we did not cause any 
of this, and this is plain wrong. A promise is a promise is a 
promise.
    I just want to thank my own Senators from Ohio who are 
working to help us. Senator Sherrod Brown, from the bottom of 
my heart, thank you for supporting the Keep Our Pension 
Promises Act, which would solve the whole problem of 
underfunded multiemployer plans. My husband had great respect 
for you.
    I also want to thank Senator Rob Portman for sponsoring the 
Pensions Accountability Act, which will fix the broken voting 
process in MPRA.
    Gentlemen, time is running out. Please, please, I am 
begging you, do not let politics get in your way. We need a 
comprehensive bill that both parties can support, that truly 
fixes the problem for current and future retirees.
    My husband, Butch, was a hero who fought for this country 
and loved this country and the American values that we all hold 
so dear. And now I am asking you to be heroes too, by fixing 
this problem and saving our pensions. Thank you for taking the 
time to listen to me today, and I will be happy to answer any 
questions that you may want me to address. But I would also 
like to extend a thanks to the IBT and AARP for their support 
and, also, Senator Grassley. We will be forever indebted for 
all of your efforts and everything you have done to try to help 
us.
    Thank you very much.
    [The prepared statement of Mrs. Lewis appears in the 
appendix.]
    The Chairman. Thank you so much.
    Mr. Roberts, we will take your testimony.

 STATEMENT OF CECIL E. ROBERTS, JR., INTERNATIONAL PRESIDENT, 
          UNITED MINE WORKERS OF AMERICA, TRIANGLE, VA

    Mr. Roberts. Thank you very much. Chairman Hatch and 
Ranking Member Wyden, I want to thank you on behalf of 90,000 
UMWA retirees for having this hearing, but most of all I think 
I should express to everyone here that this has been a 
bipartisan effort on your part and Senator Wyden's part and 
many people on this committee. I am not going to start naming 
names, because I think I would have to call the names of most 
of the people on this committee who have worked in a bipartisan 
way to try to save the 1974 Pension Plan of the United Mine 
Workers of America.
    I think this is a plan that absolutely should be saved, and 
I would like to take a moment to express why. But if I could 
just have 5 seconds of my time to commend the courage of Mrs. 
Lewis for coming here today. I believe that your husband was a 
true American hero, and thank you for coming here today. You 
are an inspiration to all of us.
    This is obviously a problem of great magnitude across the 
United States of America as we come here today. As you might 
notice, I am kind of a little bit out of my element. This is a 
long ways from Cabin Creek, WV. Although I have been president 
for a long time, I get a little overwhelmed every time I come 
here.
    Both of my grandfathers died in the coal mines. I never met 
either one of them. My father was a coal miner, and Senator 
Manchin was so kind to say that I am a sixth-generation coal 
miner.
    I know many of these people we are talking about. I am not 
President Roberts to most of them. I am just Cecil when they 
see me. I have had the opportunity to eat dinner in their 
homes, and we go to rallies together, church together. So this 
is a very personal thing for those of us in the coal fields.
    They say everybody in West Virginia knows everybody else. 
There is a lot of truth to that. So when Sago exploded, you saw 
outreach across West Virginia, and the same thing at Upper Big 
Branch.
    Coal miners have made a tremendous sacrifice to this 
Nation, Mr. Chairman, members of this committee. As we come 
here today, there are 107,000 of us who have been killed in 
this Nation's coal mines trying to energize this Nation so 
everybody else could have a decent way of life and everybody 
else's economy could prosper. Another 107,000 of us died 
choking from pneumoconiosis, and as we are in here today, there 
is somebody dying right this minute from pneumoconiosis or from 
injuries they sustained in a coal mine.
    The U.S. Government has a long history here of being 
involved in the 1974 Pension Plan. At the end of World War II, 
the President of the United States seized the coal industry--a 
lot of people do not know this part of the story. The first 
pension plan was not negotiated with the coal industry. It was 
negotiated with the U.S. Government over at the White House, 
and it was the White House that said, if you coal miners will 
go back to work and let the Nation prosper after this war, then 
you will be rewarded with pensions and health care.
    That was not the first time that the government was 
involved in this pension plan. Throughout the 1970s and 
throughout the 1990s, the government has stood up for and been 
a part of this pension plan, promising these benefits to 
miners.
    I think the most important thing that I could say to you 
today, members of the committee, is it is my belief that there 
is broad support here to fix this. I want to applaud the two 
Senators from West Virginia for sponsoring this bill. This is a 
bipartisan bill not only in the U.S. Senate, it is a bipartisan 
bill in the House of Representatives. For one time, we have 
bipartisanship here, and it is a struggle to try to figure out 
how we cannot move from point A to point B when everybody says 
this is the solution.
    The one thing that I would ask you to look at is, if we do 
not do anything, sometimes reality hits us between the eyes 
here, and maybe we should talk about that before my time is up.
    If you go to page 6 of my written testimony, there you will 
see a graph depicting one of three things that is going to 
happen here. First of all, Congress can fail to act and we can 
do nothing, and then the 1974 Pension Plan is going to go 
insolvent. The cost to the taxpayers of this country of 
insolvency is $4.6 billion, and I do not think that is a good 
way to approach this problem. The second thing is to take 
advantage of MPRA, which has been discussed here today, and the 
cost of that is $3 billion. If you pass this legislation that 
has been proposed in a very bipartisan way, the cost to the 
U.S. Government is $2.2 billion, $1 billion cheaper than any 
other way to fix this problem.
    I must submit to the members of this committee that no 
matter where you come from on this issue, if you are very much 
concerned about the taxpayers' money, then you should pass this 
bill. If you are concerned about pensioners, you should pass 
this bill. If you are concerned about health care, you should 
pass this bill, because every other way that has been suggested 
here is pretty bad and is more costly than any other way to fix 
this.
    I must ask for consideration too of the fact that there are 
21,000 retired miners who are going to lose their health-care 
benefits by the end of this year if Congress does not act. From 
2020 to 2027, somewhere in that neighborhood, this plan is 
going to go insolvent, and 90,000 retirees are going to lose 
their benefits.
    One thing I must stress to you is, in addition to what I 
have just said, there is $1 billion a year that flows into the 
most depressed areas and hardest-hit areas of our economy in 
Appalachia from the health retirement funds. If these plans 
collapse, then we will lose another $1 billion. We have lost 
25,000 jobs in the coal mining industry in the last 3 or 4 
years. We have been dealing with bankruptcy after bankruptcy 
after bankruptcy. We have gotten fewer and fewer people paid 
into these plans and more and more people are at risk for 
losing their health care as we come here today.
    I urge this committee to start this process of fixing this 
problem and passing this legislation on to their colleagues in 
the United States Senate.
    This is a desperate time for coal miners. I think the coal 
miners in this country have been promised these benefits. These 
coal miners in this country have earned these benefits. These 
coal miners in this country have sacrificed greatly to this 
Nation so all of us can have a better way of life, and we urge 
consideration of this.
    Thank you, and I will be happy at the proper time to answer 
any questions that are posed to me.
    [The prepared statement of Mr. Roberts appears in the 
appendix.]
    The Chairman. Thank you, Mr. Roberts.
    Dr. Biggs, we will turn to you.

STATEMENT OF ANDREW G. BIGGS, Ph.D., RESIDENT SCHOLAR, AMERICAN 
              ENTERPRISE INSTITUTE, WASHINGTON, DC

    Dr. Biggs. Thank you very much. Chairman Hatch, Ranking 
Member Wyden, and members of the committee, thank you for the 
opportunity to testify today regarding the challenge of making 
multiemployer pension plans effective and sustainable for the 
future. The story of how multiemployer pensions became so 
underfunded is a familiar one. Instead, let me paint a picture 
in alternate history which might point toward a better future 
of retirement security.
    Imagine if, instead of being covered by a multiemployer 
defined benefit pension plan, employees instead had 
participated in a state-of-the-art 401(k) plan. Employees would 
be automatically enrolled at reasonable contribution rates. 
They could take their savings with them from employer to 
employer within their industry as they could with a 
multiemployer pension plan. They could also carry it to a new 
field as jobs within their industry became scarcer.
    They could diversify against risks by not holding stocks 
within their own industry, a contrast to multiemployer plans in 
which industry risk is compounded. Those workers could be sure 
each year that their employer had made his contribution simply 
by looking at their account balance. With any defined benefit 
pension, by contrast, it is difficult to tell whether an 
employer has fully funded its obligations or if it is relying 
on accounting tricks, such as assuming a high rate of return on 
the plan's investments.
    I make these points not because we can rewrite history. We 
are where we are with multiemployer plans, and it is likely 
that everyone from retirees to plan sponsors to the Federal 
taxpayer will suffer. Policymakers need to approach these 
issues with soft hearts for those who have suffered through no 
fault of their own, but also with hard heads to avoid future 
errors.
    My point in discussing 401(k)s is to know how we got here, 
through poor plan design that failed to fully fund and failed 
to diversity against risks that were diversifiable, and, most 
important, to avoid choices that could lead us there again. 
That is why I am skeptical regarding ideas for hybrid or 
composite pension plans that have been proposed to take the 
place of defined benefit multiemployer pensions.
    These hybrid plans appear to offer the best of both worlds. 
Like a true defined contribution plan, the composite is aimed 
at providing a stable, affordable contribution level to 
employers, which defined benefit plans cannot do. On the other 
hand, these plans aim to stabilize retirement benefits against 
market risks by smoothing changes over generations.
    My concern, which is based on extensive work I have done 
modeling the finances of State and local pension plans, is that 
this magic simply cannot be done. So long as a plan is taking 
significant investment risk--and these composite plans would by 
investing mostly in stocks--then something is going to be 
volatile, be it contributions or benefits.
    State and local pensions operate under very forgiving 
accounting rules that allow them to smooth investment returns 
and take decades to pay off unfunded liabilities. And even with 
these rules, State and local pensions cannot get on top of 
their investment risk.
    There is no reason to believe that composite plans, which 
aim to restore full funding within 15 years after a market 
drop, could do any better. I just do not believe that these 
composite plans can deliver the benefit stability they 
promised. Worse, if plan trustees are given discretion to put 
off benefit cuts, it becomes more likely that future retirees 
remain even worse off, and then we could end up right back 
where we are today, figuring out who will bear the losses.
    Saving for retirement is not rocket science, but neither is 
it magic. There is no way to get the high returns from risky 
investments like stocks without bearing the risk.
    So, while I do not have an easy answer to the problem of 
how to deal with multiemployer plans or how to treat the 
participants in these plans, I do believe I have some valuable 
advice to prevent it from reoccurring. Do not believe in magic 
solutions. Believe in simple, responsible designs where 
everyone saves as they should, and the people who choose to 
take risk are the ones who bear that risk.
    That does not sound very magical, but the alternatives are 
often worse.
    Thank you again for the opportunity to speak today.
    [The prepared statement of Dr. Biggs appears in the 
appendix.]
    The Chairman. We are going to give 5 minutes to each 
Senator.
    Let me just ask you, Mr. Gotbaum--you say in your written 
testimony that the MPRA is the best alternative available for 
addressing the Teamster retiree pension crisis. Could you 
please explain why the MPRA is the best alternative for the 
retirees, even if the Federal Government decided to bail out 
the PBGC?
    Mr. Gotbaum. The main reason why I think that MPRA, 
miserable though it is, which it is, is the best alternative is 
because it gives plans a chance to keep benefits above the PBGC 
guarantee levels.
    And there are a lot of judgments in that, Mr. Chairman. One 
is that Congress won't and that the industry won't support 
raising PBGC guarantee levels to the level that we would like. 
But accepting that we are already having a heck of a time 
getting Congress to allow PBGC to charge what it needs to 
charge just at the current level of guarantee, the reason I say 
that MPRA is a better alternative from a dog's breakfast of 
alternatives is because it offers the chance that people will 
not get cut all the way down to PBGC levels, because PBGC 
levels are low.
    Let me take another instance from the mine workers. The 
PBGC benefit depends on how long you work. So if you work 30 
years, the PBGC benefit is good. But suppose you are a mine 
worker who goes out on disability after 5 years. Then because 
you have only worked for 5 years, under the PBGC rules, you 
only get one-sixth of the maximum benefit.
    So they are very low. There is no one who likes the idea of 
MPRA, no one at all, but I would rather have Mrs. Lewis talking 
about $2,000 a month than $1,000 a month, and that is the 
reason why I say we do not like it, we do not love it, but we 
hope you will not repeal it, because the difference in her case 
is probably the difference between $2,000 a month and $1,000 a 
month.
    The Chairman. Thank you, sir.
    Mrs. Lewis, my heart goes out to you. Your husband was a 
true hero. We will just have to see what we can do.
    Mr. Roberts, you mentioned recent increases in employer 
contribution rates have shored up the funding in the 1974 
Pension Plan, with rates climbing from $2 per hour as recently 
as 2007 to $6.05 today.
    Should it become necessary, what is the prospect of further 
increases in that hourly contribution rate by employers, and 
how many employers are still contributing to the mine workers 
plan?
    Mr. Roberts. The answer to that, Mr. Chairman, if I may, is 
I think additional increases in the contribution rate are out 
of the question. As you have just noted, they have gone up 100-
and-some percent since, I think, 2007 or thereabouts.
    What has happened is, we have had one company go into 
bankruptcy twice and then go out of business. We had another 
company in Alabama that went out of business, and another 
company has come in in their place, but they do not pay into 
the 1974 Pension Plan. They would not do that.
    We have probably the second or third largest company in the 
United States, Alpha Natural Resources, that has filed for 
bankruptcy, is in the middle of that process now, and they will 
cease paying into the 1974 Pension Plan. If you take those 
three bankruptcies together, it is a 40-some-percent reduction 
in contributions.
    The coal industry is seeing a horrific drop in the amount 
of paid coal that we use in this country. There are 200 million 
tons of over-capacity in the United States as we sit here 
today.
    The second thing is, we have seen a terrible drop in price. 
So those things working against each other have not caused a 
recession in the coal fields, but have caused a depression, as 
Senator Manchin just mentioned.
    So coal companies, if asked to pay more, will not, and if 
they did, they would be gone.
    The Chairman. Thank you, sir.
    My time is up, Senator Wyden?
    Senator Wyden. Thank you very much.
    Mrs. Lewis, first of all, thank you for the very powerful 
wakeup call that you have delivered to the committee this 
morning. It is so important that the committee move and move 
quickly, and I think you have really laid out how urgent this 
business is.
    As I understand it, the first that you heard about these 
very substantial cuts in your benefits, the very first time was 
after Congress passed this ill-advised law that I was so 
strongly opposed to.
    The reason I am asking the question--and my background is 
working with older people and pension issues--the rule always 
was that people had a chance to kind of plan for retirement. In 
other words, you were able to think about your choices and, 
just as you said, you and your late husband gave up that 
vacation and maybe a boat or whatever it was, because you knew 
you had a secure retirement.
    Mrs. Lewis. Absolutely.
    Senator Wyden. And the very first time--and I think it 
would be important to get this for the record--the first time 
you heard about anything was after Congress acted. Is that 
true?
    Mrs. Lewis. Yes, sir, it was.
    Senator Wyden. And so, for you and your husband, obviously, 
it must have been incredibly hard kind of swallowing the news.
    Mrs. Lewis. Yes, sir, it was.
    Senator Wyden. Part of what your husband was dealing with 
was the stress of trying to figure out how you all could put 
the pieces in your life back together again.
    Mrs. Lewis. Not so much us. He was worried about the 
hundreds and thousands of other retirees who were going to be 
affected. For instance, one of his friends whom he had known, 
by the time he paid the insurance, because he was not quite 65 
yet to be eligible for Medicare, he was going to have to take 
out insurance policies on both himself and his wife, and, by 
the time that he got that accomplished, with what was left of 
his pension check, he was down to $300 a month. And in this 
country, that is not the way it is supposed to work.
    We were always raised to believe that when you work hard, 
your reward is a good pay or a pension that was promised. There 
was never any doubt that our money was going to be there. 
Otherwise, we would have made other financial provisions. We 
would have taken out an IRA, or we would have invested in the 
stock market. But we were always, always told that.
    That is why so many of them stayed in the craft so long. 
When you figure what they did for a living--they had to keep 
their bosses happy, they had to handle the traffic on the 
street, they had to keep their customers happy, they had to 
stress--who would want to be out in weather where it is 50 
below zero or 120 degrees? And then they had to worry about 
their safety record. They took time away from their families 
because of what we were promised.
    There was never, ever any suggestion that that money was 
not going to be there, and we played by the rules and did 
everything that we were supposed to. If we had known any 
differently, I am sure we would have all come together like we 
have now, and we would have had some solutions.
    But it is like all of this was just dumped on us overnight 
like a tsunami.
    Senator Wyden. I admired you, Mrs. Lewis, even before I 
asked the question, and I admire you even more because I asked 
about the challenge for you and your husband and you began by 
talking about what it meant for everybody else.
    Mrs. Lewis. Yes.
    Senator Wyden. You laid out what this means for thousands 
and thousands of other retired people, and my hope is--and your 
Senators and others have been constantly bringing this up with 
the chairman--that the wakeup call that you have delivered this 
morning really results in a bipartisan solution, and fast.
    Mrs. Lewis. And if I could just say something else. We are 
going to be essentially the last generation that is going to 
have any money, and thank God for the union. People can say 
whatever they want about unions, but they provided us a nice 
lifestyle.
    My dad started in a union starting at $0.69 an hour, and 
all seven of his brothers were working in the union. But by the 
time my husband and I got married, we had a salary, we had nice 
health and welfare, and a nice pension.
    But that was promised to us. And when you turn your money 
over every week like you are supposed to, and they tell you 
that your promised pension is going to be there, you put your 
faith in those people. And the only thing, if we are guilty of 
anything, is we put too much faith in the people who were 
supposed to be looking out for us, and they let us down.
    We did not have any discussions when we were getting these 
letters that the pension was in critical status. We were not 
allowed to have any input, and we have a lot of intelligent 
people in this organization, and we all come together and we 
all find a solution of some kind.
    But, yes, that is what we were promised, and a promise is a 
promise is a promise.
    Senator Wyden. Mr. Chairman, my time is up. If we could 
have Mr. Roberts answer just very quickly--what is the drop-
dead date when Congress needs to act, Mr. Roberts?
    Mr. Roberts. Probably tomorrow sometime. [Laughter.]
    We all know that is not going to happen. But let me paint 
this picture, if I might.
    The health-care benefits of, as I said, 21,000 people will 
be lost, in my opinion, by the end of this year. That is number 
one. If we do not act soon, the benefits of this legislation 
are not going to be as great as they would be if this law 
passes this year.
    If this goes down a couple years, the amount of funding 
provided for in this legislation may have a difficult time 
funding the 1974 Plan. So we may not be able to avoid 
insolvency.
    Insolvency, by the way--the one thing that I did not say, 
if you want to hear something scary here--will collapse PBGC. 
If our 1974 Plan goes into insolvency and PBGC is required to 
pick up those benefits, even at the PBGC level, it is 
estimated--not by me, but by PBGC--that 2 to 3 years down the 
road, PBGC will collapse.
    So the question is not just fixing our plan here this 
morning. The question is, do we want to avoid the 1974 Pension 
Plan ending up in PBGC, which is going to make things worse for 
the entire United States?
    Senator Wyden. Thank you. Thank you, Mr. Chairman.
    The Chairman. Thank you, Senator.
    Senator Warner?
    Senator Warner. Thank you, Mr. Chairman. Thank you and the 
ranking member for your hard work in this area and the work 
that Senator Brown and Senator Casey and I and others have 
done.
    I think the testimony of you all has been extraordinarily 
powerful. I think sometimes we scratch our heads and we cannot 
fully explain everything that is taking place in the political 
process right now. Well, Mrs. Lewis's testimony probably 
explains better than anything why certain things in the 
national political process seem to be going so off the rails, 
because people wonder whether the government and those who are 
involved in trying to make sure promises are kept are actually 
going to keep those promises.
    Mrs. Lewis. Absolutely. Absolutely.
    Senator Warner. And I think a lot of us are kind of 
scratching our head to a degree. I would say my colleagues on 
the other side, but both political parties, seem to be going 
off the rails a little bit, and, boy, oh, boy, I cannot think 
of anything that would do more to restore some level of trust 
than to make sure that we honor these commitments.
    Mrs. Lewis. And not just that, but the commitments to our 
families.
    Senator Warner. Yes, ma'am.
    Mrs. Lewis. I mean, most of us, as grandparents, we 
contribute to either our children's, or our grandchildren's 
welfare in some way. And I have asked the retirees to ask their 
kids, if this comes into effect and they are cut the way we 
were cut, do the children have the financial resources to take 
care of them? And they do not, and it is a domino effect. And 
there are going to be more people dying, just like my husband 
died. One man committed suicide over this. Another man, John 
DeWitt, in the early part of February, he had a massive stroke, 
just like my husband did. And my husband was only 64 years old.
    We were planning on our retirement. I was going to retire 
in 2 years. Look at the rest of my life. The love of my life is 
gone. And then to have to live and--he fought a war in Vietnam, 
and then he had to fight this war, and I think that is totally 
unfair.
    Senator Warner. We also see--and this is why I think so 
many of us are working on this. We have a couple of other 
miners here from Virginia who also have had their lives and 
their families affected. I do think the Miners Protection Act, 
which is bipartisan, takes a step in solving this issue. I know 
there are other issues involved as well.
    I guess I would also just say, Dr. Biggs, you had some, I 
think, good comments prospectively, but the truth is, we have 
to honor a commitment to folks who have paid in year-in and 
year-out.
    Mr. Roberts, I want to thank you for always being 
articulate on this, but I guess I would like to drill down a 
little bit.
    Senators Casey and Brown and I raised this, along with 
Senator Wyden awhile back, and I cited a couple of Virginians 
who had enormous health-care issues and got the word today that 
one of those Virginians got a really horrific medical diagnosis 
even since a couple weeks back.
    I think at times--Cecil, if you would not mind taking a 
moment, we kind of sometimes lump together health and pension 
benefits. Can you speak to the fact that this is two separate 
funds, they cannot be commingled, and how critically important 
it is to maintain both of these sets of benefits?
    Mr. Roberts. It has been spoken to here primarily by Mrs. 
Lewis about people relying on these promises year-in and year-
out.
    I think it is important to note with respect to--this is 
not something that we consider a handout here. I think she 
articulated that so well. Miners could have very easily had 
higher wages, more time off, more vacations, maybe had their 
own money to help fend off some of this, but they relied on 
this promise of health care.
    And the thing to remember about coal miners is, they are 
sicker than the rest of us. As bad as you might think some 
other occupations are, you ought to try working underground for 
40 years in a very dangerous environment. Most miners suffer 
from pneumoconiosis, most miners have had injuries over their 
lifetime. Their medical bills are higher than the average 
person across this United States of America of ours.
    So they relied so heavily on this promise of health care. 
If you read my testimony, it suggests to folks that they knew 
upon retirement that they were going to need health care, and 
they also knew it would be hard to purchase. So they relied on 
the promise year-in, year-out, year-in, year-out, over a 30- or 
40-year career, that the one thing that was going to happen is, 
if they got sick and had a $500,000 health-care bill, that it 
would be paid.
    Senator Warner. I just want to close with maybe one last 
comment from you, Mr. Roberts.
    I believe strongly in making sure we deal with our balance 
sheet issues. But the notion is that we would, in effect, be 
taking a revenue stream, taking $1 billion out of some of the 
most economically distressed communities, and the ripple effect 
that would have and the reliance then upon other taxpayer-
supported programs--do you want to make one quick comment?
    Mr. Roberts. I think it is extremely important to speak to 
that. It is in my testimony. But if you go back and ask 
yourselves, well, why in the world did the government ever get 
involved in this process to start with, first of all, at that 
point in time, coal miners and their union were the most 
powerful organization in the United States of America, and if 
John L. Lewis had put coal miners on strike in those days, it 
would have shut down the economy of the country.
    But they being the most patriotic people in the world, 
coming back from World War II themselves, Lewis did not want to 
do that. Harry Truman did not want that to happen. The Congress 
did not want that to happen. So one thing that Lewis was asking 
for was a retirement plan and health care for these miners who 
never had it.
    So we took the money--I say we--our union took that money 
and invested it in the coal fields. How did they invest it in 
the coal fields? They brought doctors into the coal fields who 
had never been there before. They built 10 hospitals in the 
coal fields that had never been there before. They brought 
specialists in.
    They treated these miners who had lost their limbs and been 
walking around on stumps and without arms and without legs and 
sent them to places and had artificial arms and legs put on 
them. This has been a godsend to the most hard-hit areas of 
this country.
    Now, what we are suggesting doing here--let us go back to 
the way it was in 1944 and 1945.
    I am telling you, the domino effect here is going to be--
and I think you know this very well, Senator; you spend a lot 
of time down in southwest Virginia--you are going to have 
clinics and hospitals and doctors leave these areas, and people 
are going to have difficulty finding places to go.
    The one thing that has happened is, the State of West 
Virginia--just to report here this morning--has lost more 
citizens than any other State in the Union. Why is that? It is 
the collapse of the coal industry. Now, we are talking about 
taking away something the retirees who want to stay in these 
coal fields have. We are talking about taking their pensions 
away from them, talking about taking their health care away 
from them, and talking about taking away the places they go to 
get this treatment.
    I just do not--I am sorry. I get somewhat passionate about 
it, but I know you feel the same way that I do. You spend time 
down there talking to these people just like I do. This is a 
tragedy that is unfolding in this country, and there is 
something we can do about it here if we all act together.
    The Chairman. Senator Portman?
    Senator Portman. Mr. Chairman, thank you, and thank you to 
Senator Wyden for holding this hearing and for your interest in 
working with us on solutions.
    I cannot wait to talk to you, Rita, but let me just ask 
Cecil a quick question.
    One thing that has not been talked about, Cecil, is how the 
funding can be used from the abandoned mine land fund to help 
fund the Miners Pension Protection Act, which I am a cosponsor 
of--and thank you for your work with our coal miners throughout 
eastern Ohio. As you say, they are getting hit from all sides, 
let's face it.
    You can go to war on coal, you can go to battle on coal, I 
do not care what you call it, but we are losing coal miners 
every single day, and the retirees are getting hit now because 
of the pension.
    So $495 million is what I see currently in the mine land 
fund, and they have been spending less than half of that. Can 
you talk a little about that?
    Mr. Roberts. I think it would be good to lay just a little 
foundation here, because the premise of this legislation is to 
draw from what is already there.
    This is another role that the government has played in 
these plans over the years. In 1992, legislation was passed and 
signed by a Republican President, George Bush, that allowed for 
any miner who retired prior to October 1, 1994 to have their 
health care guaranteed by the U.S. Government off the interest 
money of the abandoned mine fund. This law was amended in 2006. 
It also established a permanent appropriation of $400-and-some 
million, and the theory behind that was that the coal industry 
was paying this amount of money in taxes on leasing.
    So there are two funding sources that have been available 
here since 1992 to fund the health care, and now we are 
proposing not to add anything else to that legislation other 
than to just give us a right to have access to the amount of 
money that was appropriated on a permanent basis in 2006.
    So we are not without a solution to this, and that is the 
only thing that this legislation is asking to be done. So there 
are two sources of funding here, but the interest money off of 
the abandoned mines fund, plus--you make a good point, Senator. 
There is additional money in the abandoned mines fund itself 
that has not been used, but we have access as we gather here 
today to the interest money off of that, plus we have permanent 
appropriations established by the Congress of the United States 
in 2006 for health-care purposes.
    If we extended that to pension purposes, we could fix this 
problem. That is pretty much what this bill does.
    Senator Portman. Well, that is a really important point to 
make, and I thank you for letting us know that there is a 
solution out there that is, I think, very reasonable.
    Rita, thank you again for coming and for your testimony. 
You are here for everybody else, and I thank you for that. You 
have been terrific.
    I am just thinking, Mr. Chairman, if there were hundreds of 
thousands of Social Security beneficiaries getting their 
retirement benefits cut by as much as 70 percent, there would 
be a national outrage. Right?
    Mrs. Lewis. Absolutely.
    Senator Portman. And these Teamsters played by the rules, 
as was talked about today, did exactly what they were told to 
do, and worked long hours and many years with the expectation 
that this would be there, and yet that is exactly what is 
happening to them.
    Look, I get the math, and we talked about it earlier. This 
is tough. Central States' liabilities exceed their assets by 
tens of billions of dollars, according to Mr. Gotbaum. They are 
on a course toward bankruptcy. I get that. But MPRA is just not 
fair.
    It was not fair in the way it was done, without 
transparency, without hearings, without this committee ever 
taking a look at it. It was slipped into a bill in the dark of 
the night. I voted against it. Others voted for it. I am not 
here to point fingers on that at all, but I will say we now 
need to work together. We need to figure this out.
    It is not fair in terms of the result, and people say, 
``Well, you are just worried because it is Ohio.'' It is not 
just Ohio. I had my team do an analysis that you have seen that 
goes through every State and every congressional district in 
America to show what the impact is, and it affects everybody in 
this hearing room.
    I think the Pension Accountability Act that we put together 
helps, because it fixes a broken process. It says the difficult 
decisions have to be made, but everybody deserves a seat at the 
table, if that is the case. Again, it is about fairness. It is 
really about making it democratic.
    Workers and retirees are given a binding vote under our 
legislation on any pension cuts, not just a show vote, which is 
what it is now for any big plan. Treasury can overrule it. It 
also makes sure that there is a fair vote by counting the 
ballots that are actually returned rather than counting all 
unreturned ballots as a ``yes.'' To me, that is outrageous, and 
that is what occurs now. If you do not return your ballot, it 
is an automatic ``yes.'' That makes no sense.
    A bunch of us would not be elected here if that was the 
case in our democracy. So the purpose is not to stop the 
process of fixing it, but to ensure that everyone is at the 
table, and I am convinced we would get a better result if that 
was true.
    Mrs. Lewis. Absolutely, we would.
    Senator Portman. And that is why I think this legislation 
is an important step. It is only the first step. But to get a 
fair result for Rita and the hundreds of thousands of other 
people who are seeing these dramatic cuts to their pensions 
with no notice is just----
    Mrs. Lewis. It is not a democratic process, as far as we 
are concerned.
    Senator Portman. No, it is not.
    Mrs. Lewis. And this is supposed to be a democracy. And 
before I forget--this is my first time testifying--I would like 
to make a special thank you to the IBT, AARP, and the Pensions 
Right Organization.
    My husband wrote a wonderful speech, and he started out 
with the three most important words in the Constitution, which 
are ``We, the people.'' And a lot of people have read it, a lot 
of people have seen it. And having his three most important 
words, what I would like to add on to that is, we are 
guaranteed certain inalienable rights of life, liberty, and the 
pursuit of happiness.
    If the cuts come to fruition, we are not going to have a 
life. What kind of life will we have? Not what we thought the 
American dream was supposed to be, not what we thought when we 
were putting in all those hours, when our husbands and spouses 
were working.
    Our life, our quality of life, is going to be diminished. I 
am going to be living a substandard life, which I do not think 
is fair, just because my husband is gone.
    The liberty--we are not going to have the right to go and 
do whatever we want, because our financial resources are going 
to be stripped from us. And the pursuit of happiness--all of 
those ideas of happiness and the dreams that we believed in in 
this country and why so many people came to this country, and 
our forefathers signed into the Constitution, those are no 
longer going to exist.
    I just do not know how, in good conscience, people can go 
to bed at night and not see what is going to happen, the domino 
effect, the catastrophic effect that is going to happen in this 
country.
    There are going to be people dying, not just from the 
stress of this, but they are not going to be able to buy their 
medication, which is going to lead to stress, which is going to 
lead to death. There are going to be more people applying for 
public assistance. That is going to put a burden on the 
government.
    There has to be a bipartisan solution to this problem, and 
I know that you can all work together and come together and do 
it. I believe that. We have to. We have to save this 
generation. We are the last generation that is ever going to 
have money. Our kids are not going to have it. They are 
struggling now.
    So it is up to us to set the precedent and say, you know, 
we are going to be here, we are going to keep fighting until we 
get a solution that is fair to all of us who have given 
everything, especially--like I say, there was a gentleman who 
committed suicide when this first came out. Mr. John DeWitt had 
a massive stroke just like my husband did, and then my husband. 
There are going to be more and more people dying, and that is 
going to be blood on the hands of someone who will not step 
forward and help us.
    We worked hard. We built these economies. We contributed so 
much to the economy. When 87 percent of the economy is driven 
by the middle class, what is going to happen when we are gone? 
Has anyone thought that far ahead to see what is going to 
happen? The bottom line is not always the dollar. There is a 
human aspect and element to this as well, and I thought that 
that is what this country was founded on. And that is all I 
would like to say.
    The Chairman. We appreciate it.
    Senator Portman. Thank you. Let me just, if I could, Mr. 
Chairman, say you are speaking not just for yourself, but as 
Butch did in his life, you are speaking for hundreds of 
thousands of others, and I have met with hundreds of those 
pensioners of the Teamsters in Ohio, and you have given a voice 
to them today, and you are now the face of this battle.
    Mrs. Lewis. Please do not forget us, please. I am begging 
you. Please, do not forsake us.
    Senator Portman. And remember, on the House side, there is 
a companion bill that was also introduced after our bill over 
here, and it is bipartisan, and this does not mean that we do 
not continue to look for other sources of funding, including 
ways to replenish these funds that could be raised inside the 
multiemployer pension system, working with--you mentioned the 
Pension Right Center--working with them and others.
    Mrs. Lewis. Yes, they have been a great help.
    Senator Portman. I look forward to continuing to work with 
you.
    Mrs. Lewis. Thank you so much. Thank you, all of you.
    Senator Portman. Thank you. God bless you.
    The Chairman. Senator Heller?
    Senator Heller. Mr. Chairman, thank you and the ranking 
member also for your concern on this particular issue and for 
holding this important hearing.
    I want to thank those who are on the panel today for your 
expertise to help us better understand. Mrs. Lewis, thank you 
for being here, for being a public face and a public voice on 
this issue. It makes a big difference, and you have made a 
difference today.
    I am the chairman of the Social Security, Pensions, and 
Family Policy Subcommittee. I share Chairman Hatch's and 
Senator Wyden's concerns and their commitments to ensure that 
all seniors receive safe and stable retirements that they have 
earned and that they deserve.
    More than 14 percent of my home State's population is over 
the age of 65. I am from Nevada, by the way. And I hear on a 
daily basis the importance of retirement programs like Social 
Security and pensions. I appreciate members on our committee 
and other Senators who are working to try to fix this problem. 
Senator Portman talked about his Pension Accountability Act. 
Obviously, Senator Manchin was here earlier with the Miners 
Protection Act.
    I do not know if my statistics are equal to what Senator 
Portman had, but there are hundreds of participants, hundreds 
of participants in my State, who receive their pension through 
Central States. Worst case scenario, that is over $56 million 
that would be a total loss of retirement income to my 
constituents. So your concerns are my concerns, and I share 
those with you.
    For decades, it has become too common for Congress to use 
the Social Security Trust Fund as a piggybank for government 
programs. All the while, businesses have mismanaged their 
pension funds. So now, as the baby boomer generation retires, 
seniors are facing significant consequences and not receiving 
the retirement security that they had planned on. So we need to 
start taking a good look at these promises that we made to 
these retirees, and I think this hearing is a great start.
    So thank you very much for your help and support throughout 
this hearing.
    I do have a question for Dr. Biggs. I appreciate you being 
here. How familiar are you with the Nevada Public Employees 
Retirement System?
    Dr. Biggs. I have done some work on the Nevada plan several 
years ago.
    Senator Heller. The reason I ask is that you had a 
published report in 2014, and you found that Nevada's public 
pensions are one of the richest in the Nation: $64,000 a year 
or more than $1.3 million in lifetime benefits.
    I guess the question that I have and that I share with you 
and others who have contacted my office is, how sustainable is 
this as you compare it to others?
    Dr. Biggs. Well, State and local pensions like Nevada's 
share some characteristics with multiemployer plans in terms of 
the accounting standards that they work from. Both of them are 
allowed to, what is called discount their liabilities, using 
the expected return on a risky portfolio of assets, meaning 
mostly stocks.
    So they will value their liabilities using the expectation 
of getting between a 7- and 8-percent return. Literally, 98 
percent of economists think that is wrong, that it dramatically 
understates the liabilities of these plans.
    If you were to look at the multiemployer plans, I think 
probably a third of participants now are in these dangerously 
underfunded plans. If you used accurate accounting, it would be 
more than half of----
    Senator Heller. Let me stop you right there. Just because 
of the statistics, I know the public pension has over $10 
billion in unfunded liabilities, the Nevada pension plan. 
Basically, it has been somewhere between $6 billion to $10 
billion for the last 25 years.
    Dr. Biggs. They are underfunded even using very, very 
forgiving accounting standards. So the amount of financial risk 
they are facing is significant.
    The State and local plans pose the same issue as the 
multiemployer plans. They are too big to fail. If they go 
under, legally speaking, it is the retirees who are going to 
get hit, or the State governments will take the hit. The 
reality is, the Federal Reserve is called a lender of last 
resort. In reality, it is the Federal taxpayer who is going to 
be a lender of last resort, except they will not get repaid.
    So my point in this is, we really, really need to find a 
way to get on top of these issues. We are where we are. We have 
a lot of innocent people who did what they were asked to do.
    I am from an area of rural Oregon that was devastated 
economically by the loss of the logging industry. So I agree 
with Mr. Roberts on what will happen to West Virginia if these 
plans go under.
    But my point is, we cannot continue making the same 
mistakes over and over again.
    Senator Heller. Are you in a position, Dr. Biggs, to 
determine whether or not Nevada's pension system is healthy or 
not? How would you grade it?
    Dr. Biggs. If Nevada's Public Pension System had to use the 
same accounting standards as a private-sector plan did, which 
it should, and if it were graded using the same categories that 
are applied to private-sector plans, from green to red, it 
would probably be in the red zone, meaning not very well-funded 
at all.
    Senator Heller. Thank you. Mr. Chairman, thank you.
    The Chairman. Thank you, Senator.
    Senator Stabenow?
    Senator Stabenow. Thank you, Mr. Chairman. And thank you, 
to all of you.
    Obviously, Mrs. Lewis, thank you very much for being here 
and, President Roberts, for speaking for all of your members as 
well.
    This is an issue, when Treasury Secretary Lew came before 
us not long ago, that I raised with him as well, because it is 
absolutely unacceptable what is happening to pensions in our 
country. And whether it is the United Mine Workers, whether it 
is Central States, it is just not acceptable, period, and it 
needs to be fixed.
    We all say a promise is a promise, but a promise is a 
promise, and so it needs to be kept. Everything you said in 
terms of what is happening to people is devastating and 
unacceptable. We have to have a permanent fix to this.
    I also want to add another dimension to this that, as I 
have looked into it on behalf of retirees in Michigan and have 
heard more and more of their concerns, I find really adds 
insult to injury, and I would welcome your thoughts on this as 
well, because while retirees and those who are going to be 
retirees are going to be suffering as a result of these pension 
cuts, some people are not suffering as a result of this: the 
people who made the decisions.
    Mrs. Lewis. Right. That is true.
    Senator Stabenow. So in 2014, the Central States Pension 
Fund CEO was paid $694,786. There have been people getting 
bonuses while things have been cut. Other executives are 
getting hefty salary increases. In 2014 alone, before the 
Multiemployer Pension Reform Act passed, the Central States 
Pension Fund also spent $568,000 in pension plan assets to 
lobby Congress to pass that bill. I had no idea when folks were 
coming before us that that is what was happening.
    So while I strongly support the broader solutions that you 
are talking about, I also intend to introduce legislation, 
based on what I have heard from constituents in Michigan, to 
address what I view as abuses of the pension funds in the form 
of high executive salaries and raises and bonuses of the same 
people who are making these decisions.
    If pensions are going to be cut, then those people's 
salaries and benefits should be cut as well. And I also think 
that we should not see pension funds being used to lobby.
    So I know there is a great deal of frustration, Mr. 
Chairman and Mr. Ranking Member, about this particular issue, 
adding real, what I view as insult to injury here, and it needs 
to be addressed.
    Mrs. Lewis, would you want to speak to how you feel about 
that?
    Mrs. Lewis. Yes, because what Thomas Nyhan got in his 
raise, that is twice what I am going to be getting as a widow 
in survivor's benefits. And the thing was, there was never any 
transparency. There was never any input from us. It is like we 
handed over our money, but we did not get any feedback, and if 
you would try to contact them, there was no response.
    Even when we would get the letter saying it was in critical 
status, there was never any kind of communication about having 
us meet with them to talk to them. We had no part in the 
decision about financial advisors. It was like we were handing 
our money over to them, and they could do whatever they wanted 
with it.
    And even when you meet with a financial planner, you sit 
there one-on-one with him and you discuss your portfolio. We 
never had that option.
    Senator Stabenow. That is absolutely unacceptable, in my 
mind.
    Mrs. Lewis. It is. It is.
    Senator Stabenow. Mr. Chairman, I have one other issue I do 
want to raise, whether it is multiemployer pension plans or 
single-employer pension plans.
    Over the years, what we have seen happen to jeopardize and 
undermine pensions is also not acceptable. I remember reading 
the book ``The Retirement Heist.'' Author and investigative 
journalist Ellen Schultz highlighted a number of changes over 
the years, whether it was accounting changes or law changes, 
that have allowed employers to begin treating their pensions 
differently.
    I am very concerned more broadly that we are seeing 
employers cut or freeze pension plans even when they are doing 
well, selling pension assets in mergers, using the assets to 
finance downsizing, working aggressively to, quote, ``de-risk'' 
their pensions by shifting the responsibility for paying 
pension benefits to private insurance companies or switching to 
defined contributions.
    So, Mr. Chairman, as we go forward, we have immediate 
things to answer, but then if we want to reverse this for the 
future, I think there is a broader discussion that needs to 
happen here about the undermining of the middle class in this 
country by undermining the pension system.
    The Chairman. Thank you, Senator.
    I am going to have to leave, but I want you to know that I 
am going to do everything in my power to try to help here.
    Mrs. Lewis. Thank you.
    The Chairman. We appreciate all the testimony we have had 
today on this issue, and let us see what we can do.
    Mrs. Lewis. Thank you.
    The Chairman. Senator Scott, and then Senator Brown.
    Senator Scott. Thank you, Mr. Chairman.
    Thank you to the panel for being here today. And, Mrs. 
Lewis, certainly, our hearts go out to where you are and what 
you are facing and certainly to so many people who are here 
today and are faced with a similar situation. The numbers are 
going down when the promises are going up.
    There are a couple of realities here that we seem to be 
missing. One of the realities is too many union leaders, too 
many employers, and Central States specifically, have 
overpromised, and they will continue to under-deliver, and 
there is clear evidence to this fact.
    Part of the challenge that we see with our situation with 
these pensions is simply that just a few years ago, the payout 
on pensions was about $2.8 billion. The revenue coming in from 
people paying into their plan was around $750 million.
    I am not sure which actuary you can talk to to figure out 
how you get the type of returns necessary to support the 
system. It is basically impossible for us to get there. And 
then you put on top of that the administration's regulatory 
burden on specific industries where the employees are highly 
unionized, like the coal miners. Here is a classic example 
where the regulatory burden is running folks out of the 
business. So in other words, fewer employees to support the 
pensions that have been promised.
    This is frustrating, it is irritating, and it is illogical. 
We need a panoramic view of the situation, the crisis that 
exists for so many employees.
    I know that in South Carolina alone, some 3,000 to 4,000 
employees have created a lifestyle based on the promises made 
to them that they expect will be promises kept. Unfortunately, 
what we are hearing today, from you and so many others who have 
called into my office, is too consistently, the promises made 
are the promises broken.
    The reality of it is, if we think about that number of $2.8 
billion in benefits being paid out and only $750 million in the 
same year coming in, it is unrealistic for us to have a 
conversation about keeping the system solvent when, in fact, we 
know, based on basic math, we are looking down a very steep, 
steep road.
    I would hope that at some point we become realistic. So if 
these pensions go insolvent, we can guarantee that next the 
PBGC will also find itself in the same situation.
    So we should be looking for a new sales pitch to attract 
employees into the industry so that they are paying into the 
plan, because ultimately, if, in fact, we are going to continue 
to sell a defined benefit as a reality based on those numbers 
that I just quoted, we know that we will be having this 
conversation with more widows on more days in the future, and 
that is unfair and perhaps even immoral.
    Dr. Biggs, a quick question for you. If multiemployer 
pension plans had used the same interest rates and life 
expectancy assumptions as single-employer plans and 
contributions were calculated accordingly, how many of the 
multiemployer plans would be deemed critical today? Or maybe a 
simpler question is, would we be in a better position?
    Dr. Biggs. My guess is, I think about 25 percent or so of 
plans are critically underfunded now, about a third or so of 
participants, maybe a bit more than that.
    If multiemployer pensions were required to use the same 
accounting standards as single-employer plans, which are a more 
rational standard, I think the majority of plans and 
participants would be in that kind of dangerously underfunded 
zone.
    So as bad as things look for multiemployer plans on paper, 
it is an unrealistically optimistic view, because they get to 
use accounting standards that other pension plans do not use.
    Senator Scott. So it just ain't gonna work.
    Dr. Biggs. It ain't gonna work.
    Senator Scott. I want to keep it simple. Now, the composite 
plan that we have heard so much about, basically a hybrid 
between defined benefit and defined contribution, some are 
skeptical about how that works out.
    Having spent 25 years of my professional life in the 
insurance business and a smidgeon in the retirement benefit 
business as well, it seems to me that if you are looking for a 
composite plan to be the panacea, you are probably on the wrong 
track.
    Dr. Biggs. Well, if you were to structure a plan, say, for 
instance, Senator Hatch's proposal with the safe annuity plan, 
where State and local governments could purchase deferred 
annuities to provide a guaranteed benefit for retirees, that is 
something that can provide that kind of security.
    The composite plans are proposed as sort of the best of 
both worlds. They will have stable contributions for employers, 
and they will have stable-ish benefits for retirees.
    The problem is, between the employers' contribution and the 
retirees' benefits is a whole lot of stocks, and stocks are not 
stable. I have nothing against investing in stocks, but risk 
and return go together. I think there is an illusion with the 
composite plans that you can get the return without the risk. 
That is the same illusion that hurt multiemployer plans with 
their accounting. It is the exact same illusion that hurts 
State and local plans.
    We need to get over that illusion.
    Senator Wyden [presiding]. The Senator from Ohio.
    Senator Brown. Thank you, Ranking Member Wyden. Thank you 
to the panel for being here.
    A couple of hours ago, I met in my office--Cecil Roberts 
was there, but joined by two mine workers: Norman Skinner of 
Dresden, OH, and David Dilly from Coshocton County. Also, 
Whitlow Wyatt and Barbara, his wife, were there and their 
beautiful 11-year-old granddaughter, Isabelle, and she said I 
could call her Bella. So we are cool. [Laughter.]
    But I bring that up because of the comments that they made, 
echoing really what Mrs. Lewis said in her testimony. At one 
point, she said that her husband and the union gave up wages 
and vacation pay to get these pensions and long-term health 
care.
    I remember sitting in a committee room that looked like 
this--it was the Banking Committee--during the auto rescue, and 
I remember hearing people across the horseshoe from me critical 
of these auto workers who had all these legacy costs.
    Well, it just makes me think that a lot of people here do 
not understand the union movement, that legacy costs are about 
workers saying, ``Okay, I will take less today in wages, I will 
give up maybe 1 week's vacation or a couple of sick days in 
order to get pensions and health care,'' as if that is not good 
for our society.
    Mr. Gotbaum's father was a leader in understanding that and 
how important that is. So I just want to put that on the table. 
At least the three of you, if not all four of you on this 
panel, understand that. I just think it is important to lay 
out.
    Let me kind of synopsize something. The crises of both the 
UMWA and Central States pension plans are happening on 
different time tables, and they have different remedies. I want 
to lay that out so everybody understands that, folks watching 
this and on the committee.
    For Central States, the most immediate remedy is with the 
Treasury Department, as we know, which has the power to reject 
these cuts for justifiable reasons. For the mine workers, 
responsibility falls with us in this committee first. I am so 
pleased that Senator Hatch is supporting the effort and that 
Senator Wyden has spoken out repeatedly, as has Senator Casey 
and Senator Warner and others, and Senator Manchin, saying that 
this committee should do nothing until it fixes this. It should 
be the first priority in this committee to fix the mine 
workers' pension. We can do it; we know how to do it. It does 
not cost taxpayers a lot. It will not end up undercutting PBGC, 
which would be a travesty no matter what State you are from.
    I also know from what Mrs. Lewis said, if Wall Street 
executives were about to lose their Christmas bonuses, they 
would be marching on Washington. So why aren't we?
    So my question--I have one question for President Roberts, 
and then one for Mrs. Lewis.
    A number of us have been focused on this issue because of 
the impact it has on thousands of workers. Walk through what 
will happen, Mr. President, to PBGC if the leadership in this 
Congress fails to act. What happens to PBGC?
    Mr. Roberts. It has been suggested that we use the math 
here, so let me use some math. I never was too good at that, 
but let me give it a try.
    This came up a little bit earlier, but we have access to a 
letter that was written to Congressman McKinley--I do not know 
if that has been provided to the committee or not--where PBGC 
answered a question from Congressman McKinley about this issue, 
and PBGC said to a Representative of the U.S. Congress, 
Congressman McKinley, that this would collapse PBGC in 2 to 3 
years if, indeed, our fund went insolvent.
    So the question really in some ways here is whether or not 
the U.S. Congress wants PBGC to go insolvent along with our 
pension plan. I think the answer to that, in a bipartisan way, 
is ``no,'' mainly because it costs more money, using simple 
math here, to fix this problem unless we just decide as a 
government that we will just completely get out of the pension 
business, and that is not going to happen, in my opinion. 
People across the United States will not allow that to happen.
    There are, as Mrs. Lewis pointed out, a lot of people out 
there who sometimes get upset about certain things, and when 
you start talking about no one having a pension, I think folks 
in this country are going to get very upset.
    Senator Brown. Thank you.
    Mrs. Lewis, first of all, your testimony was one of the 
highlights I have seen in this committee in a number of years. 
Thank you for the passion and the information and just the 
detail and the understanding of this pretty complicated issue. 
But you put a face on it, and that was so important.
    After cutting 270,000 pensions, Central States managers 
claim if all the proposed cuts are enacted, the pension will 
have, they say, a 50.4-percent chance of remaining solvent. So 
we do these cuts and still have only a 50.4-percent chance.
    Put another way, after cutting the pension that your 
husband and a quarter-million other working people earned over 
a lifetime of sweat and toil, there is still about a 50-percent 
chance the pension will fail.
    My question is, do you think these cuts are worth it for 
what amounts to a coin flip?
    Mrs. Lewis. No. I can only speak for myself, but I do not 
think we should have the cuts. And like I said, I cannot speak 
for the retirees, but all I know is, they did their part and 
they did everything right. They gave up wages and vacations.
    No, I do not think that it is really going to do any good, 
because to be honest with you, even when the economy was doing 
well, from 2008 to 2015 or 2014, we had a 300-percent increase 
in the stock market, but we were still losing money. We just 
lost billions of dollars in the last quarter.
    If you are doing that poorly and you are managing the 
fund--and I am sure, Senator Brown, if the manager of our 
retirement was doing that poorly, you would be calling him in 
and you would say, ``Hey, what is going on here? Why are we 
consistently losing all this money?'' And you would fire him as 
a fund manager.
    Well, we have the same person who has been running our fund 
for years, and he keeps losing money and we do not have a 
voice. There is no transparency. There is nothing. It is like 
we are just throwing our money out the window.
    But as far as I am concerned, no, I do not think it will 
make a difference.
    Senator Wyden. Senator Brown, we are going to have to go to 
Senator Thune.
    Senator Brown. Thank you.
    Senator Wyden. Senator Thune?
    Senator Thune. Thank you, Mr. Chairman. And I want to thank 
you and Chairman Hatch for having this important hearing. This 
is a very timely opportunity for us to discuss multiemployer 
pension plans, which are a very important element of financial 
planning and stability for millions of Americans.
    I especially want to thank the witnesses for providing 
their expertise and insights on the state of multiemployer 
plans at-large, as well as the very real-world negative impacts 
that the condition of these plans could have on American 
retirees and their families.
    I particularly want to recognize and acknowledge, Mrs. 
Lewis, you being here and thank you for putting a personal face 
on these issues and for articulating in a very real way these 
impacts, and our deepest condolences to you for your loss and 
for what you have been through this last year----
    Mrs. Lewis. Thank you.
    Senator Thune [continuing]. All the trials and hardships.
    Pensions are such an important part, a central part, of our 
retirement planning. You have workers who have foregone other 
savings or investments, trusting that their pension would be 
there at the end of their career. Unfortunately, certain of 
these multiemployer plans, and even the PBGC itself, are at 
risk for insolvency.
    So before us are several reform proposals, as well as the 
pressing and sensitive topic of the Central States Pension Fund 
and what to do about that. The Central States plan has been 
left severely underfunded by the recessions and so-called 
orphan retirees whose companies are no longer contributing to 
the plan. It is now in the difficult position of either 
reducing participant benefits or likely becoming insolvent or 
unable to pay any benefits starting in as soon as a decade.
    Insolvency in my State of South Dakota would not only harm 
the more than 1,300 South Dakota participants who are in this 
plan, but it obviously would pose a significant risk to the 
PBGC, which we have mentioned earlier.
    So, given the gravity of the topic and the impact that 
these benefit reductions would have on retirees, I want to 
thank the witnesses for your time today. I also want to express 
my interest and support for working together to find equitable 
solutions to the very real hardships that are facing these 
participants in South Dakota and across the country.
    In that light, I would like to direct this question to Dr. 
Biggs or to Mr. Gotbaum. It kind of comes back to the Treasury 
plan, which, in consultation with the Department of Labor, they 
have, I think, until May 7th to review the rescue plan that has 
been submitted by Central States.
    The question is, considering the current outlook for the 
fund, could you speak to what could happen to participant 
benefits if the administration were to deny its application or 
if participants and beneficiaries were to reject it?
    Mr. Gotbaum. Why don't I speak to that? Under the law, the 
Treasury, in consultation with the Pension Benefit Guaranty 
Corporation and the Department of Labor, has to satisfy itself 
that the conditions of the law are being met, and there are a 
bunch of them.
    One is, it has to be true that the cuts are absolutely 
necessary to avoid the plan running out of money. Another one 
is that the cuts cannot be more than is necessary to avoid the 
plan running out of money.
    So they are now--and I am not an insider on this, I just 
know the law and some of the folks, et cetera. So what they are 
doing now is checking the facts, checking the situation, et 
cetera. They then have to form a judgment as to whether or not 
the conditions for this admittedly miserable law are met.
    If they decide that they are met, they will say so. At that 
point, there will be a vote. And as Senator Wyden and Senator 
Portman pointed out, if a majority of the people who are in the 
plan in total vote against it, then they go back to Treasury, 
and Treasury has to decide whether or not they are willing to 
override the vote, and the judgment that they make then is 
whether or not the plan is so big that its failure would 
bankrupt the PBGC and bankrupt the system.
    That is the process they are following, even though, I 
mean, there is nobody on this side of the table who likes the 
law or likes the process. Part of the reason why I think the 
law is necessary is because I do not see another way to keep 
the plan from running out of money entirely. That is really----
    Senator Thune. Would there be time to rework and resubmit a 
new plan, a rescue plan, if any of that happened, if it was 
either turned down or if the Treasury denied it?
    Mr. Gotbaum. I am not the right person to ask. I do not 
have enough inside information to answer that. What I know that 
they have said is that the work involved in developing a plan, 
reviewing a plan, getting it reviewed by Treasury, and voting 
again, would probably take another year.
    And as Senator Scott pointed out, each year that they put 
out a lot more money than they take in, the room they have to 
keep the plan from going to PBGC goes away. So I cannot tell 
you that. They can.
    Senator Wyden. Senator Casey?
    Senator Casey. Thank you very much. I first want to say 
that we appreciate the testimony of the witnesses and your 
presence here, Mrs. Lewis. Whenever a witness can bring a 
personal story, that makes a substantial impression on everyone 
here, and I want you to know how much we appreciate you 
bringing your own family story to this hearing.
    In the interest of time, I will direct my question to the 
United Mine Workers and President Roberts. I was thinking today 
not just of the numbers here, 90,000 Americans, just a little 
bit less than 13,000 in Pennsylvania, but also thinking about 
some of our history.
    Cecil Roberts knows this history well. There was a great 
novelist by the name of Stephen Crane. Everyone knows him for 
``The Red Badge of Courage,'' but he wrote a wonderful essay in 
the 1890s about a coal mine near Scranton, my hometown, and 
described in haunting detail all the ways that a miner could be 
hurt or killed in that mine. He talked about it being a place 
of ``inscrutable darkness, a soundless place of tangible 
loneliness,'' and he goes on to describe how difficult it was 
then.
    Now, I realize that the coal mines of even the 1950s, and 
certainly the coal mines of today, may not have those same 
dangers, but there are plenty of dangers and plenty of aches 
and pains that come from years of work.
    I just was able to meet two of our Pennsylvanians here 
today, Tony Bernsack and Dave Van Sickle, both from Fayette 
County, and we are grateful that you are here with us. Fayette 
County has more than 2,000 of that 13,000. But Tony and Dave 
have about 80 years between them in the mines, and we are 
grateful that they are here as witnesses.
    We have much to do, but not a lot of time. We are at a 
crossroads.
    President Roberts, as you know, we have a bill that started 
with Senator Manchin and Senator Capito, but also with the 
ranking member, Senator Wyden, and Senator Warner and Senator 
Brown and I. So we have a good team on this, but we have got to 
act, and one of the best ways to convey why we have to act is 
what this means to these miners and to their families.
    The benefits are rather modest. They average about $530 a 
month.
    President Roberts, my one and only question, in the 
interest of time, is just tell us what this means to those 
miners and their families. How will it affect them if we do not 
act?
    Mr. Roberts. Well, the most immediate effect on these 
miners will be at the end of this year for the 21,000-plus who 
will lose their health care completely and would have to rely 
solely on Medicare, if they are eligible for Medicare.
    Remember, they would have to take money out of that $500-
and-some we are talking about here to pay for Medicare, on top 
of everything else. And we are going to have a reduction 
immediately to those 21,000-plus people for Medicare.
    In addition to that, Medicare does not pay for everything, 
we know that. So that pension you are talking about, for many 
of these miners, will be gone completely to pay for health care 
that they were promised during their working lives as a miner.
    In addition to that, there are 90,000 people whom we talked 
about, one of whom I have never mentioned, but happens to be my 
96-year-old mother, who is a widow and still receives a widow's 
pension from the United Mine Workers fund.
    I know literally thousands of these people across this 
country who are depending on these pensions every month. They 
go to the mailbox or they go to the Post Office, and that helps 
them survive. So the effects of losing these pensions would be 
dramatic.
    Now, one thing I think I should say here is, some have 
implied that these promises were too much, too great. That is 
not the case here, absolutely not.
    In 2007, the coal industry and the union negotiated a 
contract, and at that time, 93 percent of the benefits in the 
1974 Plan were funded, and the actuaries said that we were well 
on the way to being 100-percent funded. Then something occurred 
that we could not control and no one in Congress could control, 
and that was the recession.
    The people who made those decisions had nothing to do with 
coal miners, had nothing to do with the 1974 Pension Plan, had 
nothing to do with any of the people we are talking about here 
today, but they had to pay the price.
    I do not want to get too far out here, but we did bail 
those folks out, and the folks who had nothing to do with this 
are paying the consequences for this.
    Senator Casey. Thank you very much.
    Senator Wyden. Thank you, Senator.
    Senator Cantwell?
    Senator Cantwell. Thank you, Mr. Chairman, and thank you 
for having this hearing.
    I too want to commend Mrs. Lewis for being here, and thank 
you for putting a human face to this story.
    I wonder if you could talk a little bit about what exactly 
this loss has meant to you, seeing a 40-percent cut. Obviously, 
people are talking about something even bigger, but what has 
that meant to you?
    The reason why I bring that up is, people want to know why 
there is frustration in America now. I can tell you why, 
because when the recession hit and people basically--you know, 
we bailed out the big banks and they got money, and everybody's 
401(k) and pension took it on the chin. And basically, what did 
we get? Did anybody bail them out?
    So now people are left with a long-term retirement 
instability, and yet we gave billions to those guys, and now 
they are making billions.
    People want to know what we are going to do to make sure 
that Americans who lost their retirement security are secured 
for the future. So if you could, talk about what exactly seeing 
a 40-percent income loss has meant to you on a daily basis.
    Mrs. Lewis. It is pretty drastic. I am going to have to 
sell my house. I have crunched the numbers. I am taking his 
insurance policy from when he died, and I am buying a condo.
    I will be living a lower standard lifestyle than I did when 
he was alive. That is not the American dream. I am going to 
work for the rest of my life, where I had planned to retire 
with my husband, to spend that time with him, in 2 more years, 
when I am 65.
    I only make $17 an hour, and I work for a police 
department. There is no overtime, there are no benefits 
involved. I am going to have to be self-sufficient for the rest 
of my life, and the life that we had planned for, that was 
guaranteed us through our pension, it is like that is a dream 
and someone snatched it away from us. And that is not the way 
the American dream is.
    We were taught to believe that you work for something, and 
if someone promises you something, that promise is supposed to 
be there and it is always supposed to be there for you.
    So the home that we had for 40 years, I now have to go 
through that and all the memories that were there--we had it 
before we had our two children; we brought them into the house. 
I had my dad's baptism there. All those memories I have to 
forego now because of this, and now I have to move into a 
three-room condo, and that is where I am going to have to live 
for the rest of my life.
    And it is bad enough I lost my husband through all of this 
stress, and now I am taking another loss financially and 
emotionally.
    It is tragic. It never should have happened. And if these 
cuts come to fruition, there are going to be hundreds and 
thousands of people who are going to be dying, and I cannot 
believe that this government cannot find a solution, and that 
is what we are looking to all of you for, to help us.
    We trusted the people who were supposed to handle our 
money. They did not handle that money in our benefit. There has 
to be some accountability there, and that is why we are asking 
for a forensic audit to shake it out, and whoever is guilty, if 
the funds were mishandled, those people should be prosecuted.
    There has to come a time when we stand and say, this is 
enough, because we are the guinea pigs, and if we do not get a 
system in place to say that we are going to be protected, it is 
going to be a domino effect, and it is going to be other 
pensions that are going to be in trouble.
    And the economy that you count on the middle class to 
drive, to keep this country going, it is going to be 
nonexistent. And then what is going to happen to this country? 
This will not be America anymore. You will have so many people 
living in poverty.
    But the bottom line is, we trusted these people. We did 
everything right, and then at the last minute, this is thrown 
in our face. My husband could not have gone back to work. There 
are a lot of these retirees who cannot go back to work.
    And let us face it, my husband was president of his local. 
There is no way he is going to get a job anywhere else where he 
is going to make that kind of money. And they want you to go be 
a greeter at Walmart or Meier's for $5 an hour to supplement.
    That is not what we worked for. That is not what we were 
promised, and that is what we are here for. And we are looking 
to you experts to find a solution for us, and if our country 
has enough money to give to everyone else who looks for 
humanitarian help, because there is a humanitarian crisis, for 
God's sake, they have to look and see that we are the ones who 
are in crisis right now. And if you have enough money to give 
to foreign countries, you have to have enough money to protect 
us and the mine workers and everybody else.
    Senator Cantwell. Well, I thank you. My time, or our time, 
has expired. But no one could have articulated that better, and 
I thank you for that.
    I would just add, though, the program for Teamsters was on 
its way to solvency in 2007, and I would say that the banking 
crisis took a big chunk out of this. And yet we bailed them 
out--I see everybody nodding--so juxtapose that to how much 
money we spend on foreign aid, and I guarantee you that--the 
Dallas Fed has estimated that this will cost us trillions of 
dollars in loss to our economy, and now we are somehow supposed 
to put together here out of this panel the justification for 
why we should do something to help this pension.
    I do not need a justification. You just made the 
justification why we owe it to retirees to correct this and not 
just leave Wall Street with all the cash.
    Thank you, Mr. Chairman.
    Senator Wyden. Senator Cardin?
    Senator Cardin. Thank you, Mr. Chairman, and thank you for 
convening this hearing, Senator Hatch.
    I want to thank all the witnesses for being here. You are 
all very distinguished individuals and great leaders.
    But, Mrs. Lewis, I particularly want to thank you, because 
we hear numbers all the time, and it is maybe the case that we 
are getting immune to them, but when you recognize that every 
one of those numbers is a person with a family, that makes a 
big difference. So I particularly want to thank you for having 
the courage to be here today to tell your story so that we 
understand how this affects ordinary families in our community 
and the dignity of ordinary families in our community.
    Obviously, we need to do something about this. Senator 
Portman and I have been working on pension retirement issues 
for a long time, because we recognize that we are in a changing 
economy and that when we developed the pension security system, 
when we had a lot more people in the workforce relative to 
those who are retired, the pressures on Social Security were 
not what they are today.
    When we were in a defined benefit world that was based upon 
actuary tables that were relevant to its time, that was a 
different world than today, when there are very few defined 
benefit plans being created and most people are in defined 
contribution plans and you have mobility in the employment 
areas that were not relevant to the pension plans we designed 
when ERISA was created.
    The multiemployer plans, we need to reform them. I think we 
all agree. But, Mr. Chairman, we have to deal with the problems 
that exist today before we look at how we are going to deal 
with multiemployer plans moving forward. We know that the PBGC 
does not have the resources to deal with the liabilities that 
are out there, and it is our responsibility to figure out how 
we can realistically deal with the risk factors that are there.
    With the miners, it deals not only with their retirement 
income, but also their health benefits, and it is pretty 
urgent. As I understand it, the health benefits are scheduled 
to be radically changed by the end of this year.
    Time is moving forward. We need to act on this as a Nation. 
I recognized years ago, with Senator Portman, when we were both 
in the House, that we do not do enough for retirement security 
in America. When we are looking at today's economy, whether you 
are a retired miner or whether you are just entering the 
workforce and now are an Uber driver, it is a different world 
than it was when we designed the plans decades ago, and it is 
our responsibility to help configure a plan that will take care 
of the Mrs. Lewises of the world and provide for younger people 
today the retirement security when they retire.
    We are a wealthy enough Nation to be able to figure out how 
to do both. It is that type of balance that I hope the Finance 
Committee will be able to come forward with.
    Again, I want to thank all the witnesses for being here. I 
have listened to the testimony. I do not have any questions, 
but I just really wanted to thank you all for your testimony.
    Senator Wyden. I thank my colleague. I understand that the 
Ohio Senators do not have any additional questions at this 
time. But I think it is just representative of what kind of 
morning this has been, that we have 13 Senators here. A number 
of Senators had hectic schedules and just kept coming back, as 
the two Ohio Senators did, and I think it is because of the 
extraordinarily powerful statements that we have heard this 
morning from our witnesses.
    I will just end, Mrs. Lewis, by paraphrasing you. To me, in 
our country, you just do not snatch away pension rights from 
Americans who never did anything but the right thing. And I 
just so appreciate what the four of you have contributed this 
morning.
    This is going to be urgent business here in the Senate 
Finance Committee. You heard that from both sides of the aisle 
this morning.
    We thank you for a morning that really is pretty much 
unique in this room. I thank all four of you.
    With that, the Finance Committee is adjourned.
    [Whereupon, at 12:43 p.m., the hearing was concluded.]

                            A P P E N D I X

              Additional Material Submitted for the Record

                              ----------                              


    Prepared Statement of Andrew G. Biggs, Ph.D., Resident Scholar, 
                     American Enterprise Institute

The views expressed in this testimony are those of the author alone and 
     do not necessarily represent those of the American Enterprise 
                               Institute.

    A multiemployer defined benefit (DB) pension plan provides 
retirement benefits to individuals working for multiple employers, 
usually in the same industry. A number of large multiemployer plans are 
significantly underfunded and face insolvency. While these plans are 
insured by the Pension Benefit Guaranty Corporation, the PBGC does not 
have the resources to fully cover them. While the U.S. taxpayer is not 
in any way legally obliged to financially backstop the PBGC, it is hard 
to imagine that the federal government would not do so if large numbers 
of pensioners' incomes were put at risk. Policymakers face a difficult 
situation without any easy answers. At a bare minimum, we should think 
hard about how we got where we are and how to avoid going there again 
in the future.
             recent history of multiemployer pension plans
    The terms of multiemployer pension plans are negotiated between 
employers and unions representing employees. Currently, there are 
roughly 1,400 multiemployer pension plans covering over 10 million 
workers and retirees. Importantly, employers are jointly liable for the 
liabilities incurred under a multiemployer plan. If one employer 
becomes bankrupt or otherwise drops out of the plan, the liabilities 
are transferred to other plan sponsors.

    A substantial number of multiemployer pensions are very poorly 
funded. This poor funding places the sponsoring employers, their 
employees and the U.S. taxpayer at risk. Once plans have reached this 
state, there is no clear-cut answer to this problem. Sponsors or 
underfunded plans should raise contributions wherever possible, but 
some cannot afford to do so without putting their own financial 
viability at stake. The Pension Benefit Guaranty Corporation exists to 
protect participants in plans that become insolvent, but the PBGC 
itself lacks the resources to protect all underfunded pensions.\1\
---------------------------------------------------------------------------
    \1\ On this subject, see Brown, Jeffrey R. and Andrew G. Biggs. 
``Reforming the Pension Benefit Guaranty Corporation.'' In Brown, 
Jeffrey R., ed. ``Public Insurance and Private Markets.'' American 
Enterprise Institute, 2010.

    The Pension Protection Act of 2006 (PPA) established ``zones'' to 
categorize the funding health of corporate plans and, where necessary, 
mandate action to address funding shortfalls. Plans in the green zone 
are deemed to be sufficiently funded that no immediate action is 
mandated, while plans in the yellow (``endangered''), orange 
(``seriously endangered'') and red (``critical'') zones are 
increasingly underfunded and must take action to address those 
---------------------------------------------------------------------------
shortfalls.

    Plans in the yellow and orange zones must reduce underfunding by 
specific amounts over stated periods of time, and are prohibited from 
taking steps that would increase funding shortfalls. Red zone plans, 
however, are mandated only to take ``reasonable measures'' to address 
funding. While red zone plans are authorized to reduce certain 
ancillary benefits, they also are exempted from excise taxes on funding 
deficiencies and thus effectively exempted from funding rules.

    As of 2008, 80 percent of multiemployer plans were in the green 
funding zone and only 9 percent in the red zone. As of 2013, the share 
of green zone plans has dropped to 59 percent while the number of red 
zone plans has tripled to 27 percent.

    While plans in the yellow and orange zones have significantly 
increased contributions to address funding shortfalls, red zone plans 
have contributed substantially less than sponsors of plans in the 
green, yellow and orange zones. Thus, the most financially endangered 
are doing less than others to catch up. Even as a group, contributions 
to multiemployer plans are equal to only about 60 percent of annual 
benefit payments.

    More recently, the Multiemployer Pension Reform Act of 2014 created 
a new ``deep red'' zone, for plans deemed ``critical and declining,'' 
meaning that the plan's fund was expected to be exhausted within 15 
years. The MPRA allowed these severely underfunded plans to reduce 
benefits for younger, non-disabled retirees as a way to restore plans 
to funding health and reduce potential liabilities to the Pension 
Benefit Guaranty Corporation. However, benefit cuts may be implemented 
only if they could be expected to return the plan to solvency. The MPRA 
also doubled PBGC premiums for multiemployer plans to $26 per 
participant and indexed premiums to inflation going forward.

    Such benefit reductions could have an important impact on the 
PBGC's funding status. If benefits are not reduced or premiums 
increased, the PBGC multiemployer fund would run out of money in 2024, 
according to CBO projections, and require $1 to $2 billion in 
additional cash each year thereafter to pay benefits as guaranteed 
under law. If multiemployer benefits were cut to the extent allowed 
under the MPRA, the PBGC's long-term deficit would be cut roughly in 
half, though premiums would still need to rise substantially. This is 
important, as it seems near-certain that, should the PBGC run out of 
money, Congress would step in to avoid precipitous benefit reductions.
                 funding health of multiemployer plans
    As a group, multiemployer plans report having assets equal to 
roughly 75 percent of plan liabilities. However, these figures are 
calculated by ``discounting'' guaranteed benefit liabilities using the 
expected rate of return on a risky portfolio of investments, usually 7 
to 8 percent. Economists almost universally believe that such an 
approach is incorrect. Indeed, in a 2014 survey of professional 
economists conducted by the University of Chicago Business School, 98 
percent agreed that such an approach understates pension liabilities 
and the broader cost of providing pension benefits.\2\
---------------------------------------------------------------------------
    \2\ ``U.S. State Budgets (revisited).'' Chicago Booth IGM Forum. 
August 26, 2014. http://www.igmchicago.org/igm-economic-experts-panel/
poll-results?SurveyID=SV_7ajlg33Q5PfJ0Z7.

    If a pension promises to deliver a guaranteed benefit, it should 
discount its liabilities using a low interest rate to reflect that 
guarantee. When multiemployer liabilities are discounted using the 
yield on U.S. Treasury securities, which most economists would argue 
better reflect the costs of providing such benefits, funding ratios 
average about 45 percent and unfunded liabilities approach half a 
trillion dollars.\3\
---------------------------------------------------------------------------
    \3\ Munnell, Alicia H., and Jean-Pierre Aubry. ``The Financial 
Status of Private Sector Multiemployer Pension Plans.'' Center for 
Retirement Research, 2014.

    Moreover, these averages reflect a distribution in which a number 
of multiemployer plans remain reasonably well-funded while others are 
far worse. Among plans deemed to be in the red zone, funding ratios on 
a market-consistent basis are about 37 percent, indicating an extremely 
poor level of funding. Even a ``green zone'' multiemployer plan is not 
nearly as healthy as a single employer plan in the green zone, as the 
single employer plan must value its liabilities using a corporate bond 
---------------------------------------------------------------------------
yield.

    The argument for looser multiemployer funding rules was that, if 
one plan sponsor went bankrupt, other sponsoring companies would take 
on the liabilities. The problem with this theory, however, is that the 
financial prospects of companies in the same industry will be 
correlated. If the industry as a whole declines, the liabilities of a 
bankrupt company will be shifted to other companies whose own financial 
health has likely declined as well. As it happened, this is what has 
occurred in many cases.
                       future financial viability
    It is sometimes argued that while multiemployer plan funding 
suffered during the recent financial and economic downturn, most plans 
have recovered and are financially sustainable for the future. My own 
modeling work on state and local pensions--which operate under very 
similar funding rules and hold similar investment portfolios--shows 
this is unlikely to be the case. Though both types of plans use 
actuarial methods to smooth contributions from year to year, the 
underlying risk of their investments inevitably leaks through and can 
require contributions that vary significantly over time. In good times, 
a plan sponsor may not need to make any contributions and may be 
tempted to increase benefits. Both multiemployer plans and state and 
local plans succumbed to that temptation during the late 1990s.

    However, the sponsor of a multiemployer plan that holds a risky 
investment portfolio must also be willing and able to shoulder 
contributions that in some years will be far above the expected level. 
Experience in the state and local pension universe shows clearly that 
it is in these very high-cost years that sponsors are unable to make 
full contributions, which causes them either to skip contributions or 
to utilize actuarial methods to reduce costs. In either case, future 
funding health of the plan suffers.

    A general lesson that policymakers should take from this experience 
is that a financial theory whose effect is to allow pension sponsors to 
promise more benefits at lower cost while taking more investment risk 
is likely to be an incorrect theory, and one with significant potential 
downsides for both plan participants and the taxpayer. In simple terms: 
a guaranteed retirement benefit is expensive and a cheap benefit is 
risky. It is better for government, employers and plan participants to 
digest these trade-offs rather than to pretend they do not exist.
                              plan design
    Companies that became involved with multiemployer plans faced a 
problem. These companies generally offered traditional defined benefit 
pensions, in which a participant's benefit is calculated based upon his 
final earnings and his years of service to the company. Defined benefit 
pensions are ``backloaded,'' which means that the benefit formula 
rewards full-career employees but penalizes those who work short or 
mid-length careers. Under a traditional defined benefit pension, for 
instance, an employee who worked for two companies for 20 years each 
would receive a substantially lower benefit than an employee who worked 
for a single company for 40 years. If employees switched jobs more 
frequently--note that the average employee today has job tenure of 
under 5 years, according to the Bureau of Labor Statistics--a 
traditional defined benefit plan, even if offered by every employer, 
would not provide a decent retirement income.

    The lack of portability in DB pension was a problem when employees 
shifted between different companies within the same industry. Even if 
they worked in the same field their entire careers, switching between 
employers could cost them dearly. So employees needed a retirement plan 
that was portable. Multiemployer pension plans provided this 
portability.

    But this one advantage was countered by a number of significant 
disadvantages.

    For instance, employees and employers want a plan that isn't highly 
susceptible to stock market downturns. Anyone who watches the stock 
market throughout American history knows that bull and bear markets 
aren't merely a 21st century phenomenon. Multiemployer pensions hold 
about 70 percent of their portfolios in risky assets such as stocks, 
real estate, private equity and hedge funds. This is just too much risk 
to take for plans that offer guaranteed benefits and whose participants 
are mostly retirees or separated workers. Standard financial practice 
would point toward a much more conservative investment portfolio, but 
underfunded pensions cannot afford not to take investment risk. 
Moreover, federal accounting standards, which allow multiemployer plans 
to ``discount''--or value--their guaranteed benefit liabilities using 
the expected return on a portfolio of risky investments encourages 
these plans to excessive investment risk.

    Were employees instead offered defined contribution 401(k) plans, 
they could make their own judgments regarding how much investment risk 
to take. And it is very unlikely that individuals making their own 
judgments would take nearly as much investment risk as their pension 
plans are taking on their behalf.

    Likewise, employees and employers want a plan that isn't overly 
susceptible to a downturn in their particular industry. We know from 
American economic history that industries rise and decline: the horse-
and-buggy makers gave way to auto manufactures; IBM gave way to 
Microsoft which gave way to Google. The joint liability provision of 
multiemployer pensions is similar to when Enron's employees foolishly 
invested their 401(k)s in Enron's own stock: it increases their risk 
because employees' sources of labor income and investment income aren't 
diversified. The joint liability provision of multiemployer plans is 
very similar to a company investing its pension in its own stock. If 
some change affects an entire industry--be it trucking regulations in 
the 1980s or environmental regulations in the 2000s--the pension 
sponsors are themselves in a weaker financial position, plus they bear 
the liabilities of companies that went bankrupt or otherwise left the 
pension plan.

    Were employees offered a 401(k) plan, they could protect against 
industry risk by holding a diversified portfolio that did not include 
stocks from companies in their own industry. Again, this is an example 
of how multiemployer pension design worked contrary to principles of 
financial risk management.

    Finally, employers and employees would like a plan whose finances 
are not adversely affected by changing demographics. If employees 
participate in 401(k)s, it makes no difference whether the average 
participant is young or old. So long as participants and employers make 
their contributions, demographics essentially don't matter. It should 
be the same for defined benefit plans: plan sponsors should fully fund 
benefit liabilities as they accrue and not use money allocated for 
current workers to pay for current benefits. The fact that many 
multiemployer plans are worried about their ratios of workers to 
retirees indicates that they did not fully fund. In essence, they are 
beginning to look more like Social Security, a pay-as-you-go transfer 
program, and less like a pre-funded pension plan.

    I raise these points not because we can go back and rewrite 
history. Multiemployer plan sponsors made the choices they made and 
they are where they are. Plan sponsors, plan participants and 
ultimately the federal government will have to decide how to allocate 
the pain, bearing in mind moral considerations toward retirees, the 
economic importance of the plan sponsors' continuing in business, and 
the need not to set a precedent that encourages others companies to 
come to the federal government for assistance.

    Rather, I make these points as a way to move toward the next 
subject, which is where multiemployer plans should go in the future so 
as to serve their participants and protect employers and taxpayers from 
financial risk.
                          hybrid pension plans
    Employers and unions currently involved with multiemployer plans 
have discussed replacing certain underfunded plans with new retirement 
programs. One option currently being discussed is a hybrid between 
defined benefit and defined contribution plans. These hybrids are often 
referred to as ``collective defined contribution plans,'' ``composite 
plans,'' ``shared risk,'' or other terms. While the details vary from 
proposal to proposal, these plans aim to combine the stable lifelong 
benefits of DB plans with the fixed employer contributions of DC 
pensions.

    A second option is that sponsors of multiemployer plans should 
transition employees to state-of-the-art defined contribution plans 
that build on the experience and research of recent years. Such a plan 
might be similar to the Thrift Savings Plan offered to federal 
government employees and could offer simple investment choices, low 
costs and the option to turn account balances into a lifelong annuity 
at retirement. Such a plan design would not pretend to have any magic 
formula for high, guaranteed retirement benefits at low costs to 
employers and employees. But since such a magic formula does not exist, 
a state-of-the-art DC plan is less likely to disappoint participants or 
endanger plan sponsors and taxpayers.

    To summarize my own view, so long as plans invest heavily in 
equities or other risky assets in order to keep contributions low, it 
will be difficult or impossible to provide a stable benefit for 
retirees. All investors, be they individuals, corporations or 
governments, face the same trade-offs between risk and return and there 
is no actuarial magic that can make those trade-offs go away. If 
traditional defined benefit plans produced contribution volatility that 
was unacceptably high for employers, it is not clear why benefit 
volatility would not be similarly unacceptable for participants in a 
hybrid pension plan.

    A hybrid plan generally pays retirement benefits as a monthly 
annuity, rather than as a lump sum in the typical 401(k). The hybrid 
plan targets a given benefit level, but can adjust either benefits 
being paid or the rate at which future benefits are earned as a means 
to stabilize funding. In some cases, these composite plans would pay a 
base benefit coupled with an additional benefit that could be adjusted 
before retirement, but remains fixed once the employee had retired. In 
other cases, all benefits could be adjusted as needed at the discretion 
of the plan's trustees. While numerous options have been discussed, 
these two basic approaches are discussed in a 2013 proposal from the 
Retirement Security Review Commission of the National Coordinating 
Committee for Multiemployer Plans.

    Certain varieties of hybrid plans are already authorized under law, 
but others would require new legislation. Hybrid plans have a number of 
attractive features, such as centralized investment to lower costs and 
automatic annuitization, which offers protection against outliving your 
assets.

    But it is not clear if the advantages of collective DC plans 
outweigh their downsides. I have done a great deal of work modeling the 
finances of state and local government pension plans.\4\ These plans 
aim to offer a stable benefit for retirees while reducing contribution 
volatility for employers. This goal is not greatly different from 
hybrid plans' goal of offering a stable contribution to employers while 
reducing benefit volatility for retirees. What my modeling work on 
state and local pensions indicates that the investment risk taken by a 
plan inevitably produces volatile employer contribution requirements, 
with contributions often being so high that even state and local 
governments cannot meet them. State and local pensions use a variety of 
long-term smoothing and amortization techniques to reduce their 
contribution volatility but still they cannot do so. The fact that 
state and local plans cannot significantly reduce the volatility of 
required employer contributions, despite smoothing investment returns 
over 5 years and amortizing unfunded liabilities over 30 years, gives 
me very little confidence that a composite retirement plan could return 
to ``full funding'' over a slated 15-year period without disruptive 
reductions in employee benefits. When a pension plan invests 
principally in risky assets such as stocks, private equity or hedge 
funds, something--either contributions or benefits--is going to end up 
being highly volatile.
---------------------------------------------------------------------------
    \4\ Biggs, Andrew G. ``The Public Pension Quadrilemma: The 
Intersection of Investment Risk and Contribution Risk.'' The Journal of 
Retirement 2.1 (2014): 115-127.

    A recent analysis of a stylized composite plan by the actuarial 
firm Segal validates my intuitions.\5\ Segal tested a composite plan's 
ability to return to full funding within 15 years after being hit with 
either a small (-5%) or large (-22%) single-year investment loss, 
coupled with a loss of employment to the industry. Even using these 
single-year events, changes to employee contributions and benefits were 
significant. Had Segal Conducted a full ``Monte Carlo'' analysis of 
investment returns, which mimics the real world's ability to produce 
strings of high or low returns over time, I suspect that in a number of 
outcomes the composite plan's financing and benefit structure would 
prove untenable.
---------------------------------------------------------------------------
    \5\ Segal Consulting. `` `Composite Plan' Stress Testing.'' January 
2016.

    So I am not confident that composite plans can produce what they 
promise. The reality is that if you want a stable, safe benefit in 
retirement you have to invest in stable, safe assets while you are 
working. For instance, Senator Hatch's proposal to allow state and 
local governments to purchase deferred annuities for their employees 
would provide those employees with a true guaranteed retirement benefit 
along with portability between jobs. Some might claim that these 
private annuities are ``expensive.'' The reality is that their cost in 
financial markets reflects the security they provide. Proposals that 
``cost'' less do so by providing less income security. There is no 
---------------------------------------------------------------------------
magic formula.

    Moreover, I am personally not sure that the annuitized benefits 
offered by hybrid plans are of great value to the employees who would 
participate in such plans. Annuities offer valuable protection against 
outliving your assets in retirement, but at the cost of lost liquidity, 
of not having cash when you might need it. The low- and middle-income 
employees who currently participate in multiemployer plans already 
receive much of their retirement income as an annuity, though Social 
Security benefits. The value of additional annuitization will be far 
smaller than the first dollar of annuitized benefits. While it is not 
clear to researchers precisely why so few individuals wish to purchase 
annuities, the fact that individuals spurn annuities is undisputed. It 
is easy to argue for overriding individual preferences based upon the 
notion that individuals are short-sighted and financially illiterate. 
But defined benefit pension funding, either in the corporate sector or 
the public sector, did not get where it is by not being short-sighted 
and financially illiterate. I don't accept the view that top-down 
control produces better retirement funding outcomes than letting 
individuals make more of their own decisions. One look at the funding 
of Social Security or state and local government pension plans should 
disabuse an observer of that notion.

    If employers wish to provide a solid plan to supplement their 
employees' Social Security benefits, they can take advantage of recent 
enhancements to defined contribution retirement plans. Fifty-nine 
percent of workplace pensions today automatically enroll employees, 
versus only 14 percent in 2001.\6\ Automatic enrollment can 
significantly increase participation in retirement plans. Likewise, 41 
percent of today's employees invest their 401(k) plans in target-date 
funds that automatically reallocate their portfolios to reduce risk as 
they approach retirement, versus just 19 percent of participants in 
2006.\7\ And a recent study from Vanguard showed that, for the 5-year 
period ending in 2012, individual investors holding target date funds 
earned the same return as state and local pension plans, which 
supposedly are much more sophisticated investors.\8\ Administrative 
costs also are being addressed. More than 80 percent of today's 401(k) 
plans offer low-cost stock index funds, which helped reduce fees by 20 
percent in recent years.\9\ According to the Center for Retirement 
Research at Boston College, state and local pensions have an average 
administrative cost of 0.43% of assets, or 43 ``basis points.'' \10\ 
According to a recent study by the Investment Company Institute based 
on federal regulatory data, large 401(k) plans have an average 
administrative cost of just 28 basis points.\11\ There is no reason a 
defined contribution plan cannot compete on costs. Likewise, the 
Department of the Treasury recently enacted regulations making it 
easier for 401(k) plans to incorporate annuities, which convert lump 
sums into to a guaranteed income that lasts for life.\12\
---------------------------------------------------------------------------
    \6\ Chris Arnold, ``How Do Companies Boost 401(k) Enrollment? Make 
It Automatic,'' National Public Radio, April 21, 2014, www.npr.org/
2014/04/21/303683792/how-do-companies-boost-401-k-enrollment-make-it-
automatic.
    \7\ Investment Company Institute, ``Target Date Funds Expand in 
401(k) Plans,'' December 23, 2013, www.ici.org/pressroom/news/
13_news_ebri_ici_target.
    \8\ Vanguard Research. ``Professionally managed allocations and the 
dispersion of participant portfolios.'' August 2013.
    \9\ Chris Gay, ``Can Index Funds Fix Your 401(k) Fee Problem?'', 
U.S. News and World Report, August 15, 2012, http://money.usnews.com/
money/personal-finance/mutual-funds/articles/2012/08/15/can-index-
funds-fix-your-401k-fee-problem.
    \10\ Munnell, A.H., Aubry, J.P., Hurwitz, J., and Quinby, L. 
(2011). A Role for Defined Contribution Plans in the Public Sector. 
Center for Retirement Research.
    \11\  Robert Steyer, ``401(k) Plan Costs Decrease as Indexing 
Becomes More Popular,'' Pensions and Investments, December 8, 2014, 
www.pionline.com/article/20141208/ONLINE/141209894/401k-plan-costs-
decrease-as-indexing-becomes-more-popular-8212-report.
    \12\ Jeffrey Brown, ``New Treasury Guidance Will Encourage 
Annuities in 401(k) Plans,'' Forbes, October 24, 2014, www.forbes.com/
fdc/welcome_mjx.shtml.

    Perhaps the most important advantages of true DC pensions are 
transparency and responsibility. In a 401(k)-type plan, it is clear to 
employer and employee alike what the employer has promised to 
contribute in a given year. Employees know whether the contribution has 
been made and they will protest if it is not. Likewise, in a DC plan 
the party that chooses to take investment risk is the party that bears 
the consequences of that investment risk, which is the best enforcement 
---------------------------------------------------------------------------
mechanism against excessive risk-taking.

    Defined benefit plans have neither of these advantages. In a DB 
plan there are many ways for plan sponsors to put off making 
contributions, be it through assumptions regarding investment rates of 
return, labor force growth or mortality. Indeed, we recently have seen 
sponsors of single-employer pensions lobby Congress successfully to 
increase the discount rate used to value their liabilities and thus 
reduce plan sponsors' pension contributions. Likewise, with a DB 
pension it is very difficult for anyone other than the plan sponsor or 
their actuaries to know what is going on. Financial manipulation of 
plan assumptions is common among state and local pension plans. Members 
of Congress should be aware of this, should the day come when state and 
local plans come knocking on Congress's door.

    My fear with composite plans is that these incentives to put off 
difficult decisions could lead them to become similarly underfunded 
down the road. Under some of these plans, Trustees are given discretion 
to alter benefit accruals or payouts. But the need to make such 
adjustments depends upon assumptions regarding investment returns, the 
growth of employee payroll or the life expectancies of retirees--in 
other words, precisely the assumptions that state and local pensions 
game in order to reduce their current costs.

    For instance, I could easily see the trustees of a hybrid plan 
taking additional investment risk as a way to forestall the need for 
contribution increases or benefit reductions. But, as we have witnessed 
with state and local government pensions, such a choice could lead to 
disastrous outcomes down the road. If a hybrid plan took additional 
investment risk and lost, future benefit reductions could be even 
larger. Who will those employees look to if their congressionally-
sanctioned and regulated hybrid plan runs short of money in the future?
                              conclusions
    The difficult truth with regard to pension funding, whether the 
plan sponsor is a corporation or a government, is that it is easy to 
promise benefits but harder to fund them. Complexity of pension plan 
design allows many avenues for the plan sponsor to avoid paying what it 
has promised. Complexity of pension design is the enemy of full 
funding. Across sectors, across time and across countries, there is too 
long a track record of pension underfunding for me personally to feel 
comfortable with another design that appears to promise more benefits 
at lower cost.

    What employees need are well-designed, well-run defined 
contribution plans that offer automatic enrollment at responsible 
contribution rates coupled with simple and low-cost investment options 
such as target date funds. The other bells and whistles, which seem to 
offer something for nothing, pose the risk of delivering the opposite.

                                 ______
                                 
      Questions Submitted for the Record to Andrew G. Biggs, Ph.D.
               Questions Submitted by Hon. Orrin G. Hatch
    Question. Dr. Biggs, the retirees in the hearing room today are 
truck drivers and coal miners who worked for many years under difficult 
conditions. They worked hard. They paid income taxes. And today they 
are facing cuts in their pensions. Yet we read in the New York Times 
last week that the administration is saying that in Puerto Rico, where 
the government has managed itself into a massive financial mess, no 
pensioner should have their pension unduly impaired, even though 
retirees who don't get pensions from the Puerto Rico Government but 
have part of their nest egg in Puerto Rico bonds would have their 
claims impaired. It seems to me that there is a basic inconsistency of 
treatment among different groups of retirees in the path we are on, and 
it makes me uneasy. What do you think?

    Answer. Politically speaking, it is almost impossible to default on 
public employee pension benefits, particularly if there is any other 
lender whose obligations can be defaulted upon. This was the pattern 
seen in Detroit, where public employees received only small reductions 
to their benefits while bondholders received much larger cuts, as well 
as in the bankrupt California cities of Stockton and San Bernardino. We 
can expect that Puerto Rico will be no different, whatever Puerto 
Rico's law may say. The same may end up holding with private sector 
pensions, should the PBGC's reserves be exhausted.

    There is no good solution to these problems. Ideally, government 
regulation could ensure that pension sponsors fully fund the benefits 
that they promise. But at both the Federal and State/local levels, the 
political power of pension stakeholders is often sufficient to lower 
regulator requirements and allow pension sponsors to shortchange their 
obligations.

    Here is an alternate proposal: first, state out right that benefits 
promised to retirees--whether in the public or private sectors--will be 
considered senior to debts owed to bondholders. This does nothing more 
than recognize political reality. But second, pass and enforce 
accounting rules that will fully and accurately disclose the 
liabilities of pension plans. If such rules were in place, the unfunded 
liabilities of State and local government pensions would not be the 
stated value of about $1 trillion, but somewhere between $3 and $4 
trillion. If bond markets are presented with accurate information 
regarding the true pension liabilities with which they will be 
competing for repayment, those markets should reward entities that 
fully fund their pensions and punish with higher interest rates 
entities that fail to fund responsibly. Market discipline may be able 
to accomplish what government regulation could not.

    Question. Dr. Biggs, your testimony alludes to questionable, or 
perhaps not fully transparent, assumptions regarding the status of 
State and local pension plans. As you probably know, some of us here 
are looking at ways to help the people of Puerto Rico as it faces 
financial challenges. Those challenges arise from more than $73 billion 
of debt, but also from more than $43 billion of unfunded pension 
liabilities. Now, if you adopt what the administration is proposing, 
you'd throw all of those obligations, totaling more than $110 billion, 
into some sort of bankruptcy scheme, and give preference to public 
pension obligations over Puerto Rico obligations in the form of bonds 
that are held by retirees in Puerto Rico and in Utah and every other 
State. We seem to be seeing bigger and bigger municipal bankruptcies, 
and hiding behind the scenes in one way or another are severely 
underfunded public pensions. According to many, including officials at 
the Securities and Exchange Commission, there is not a lot of 
transparency about public pension funding, which can ultimately affect 
values of municipal securities in bankruptcies. Do you agree, or do you 
think that, as things stand, assumptions underlying reported public 
pension obligations are fully out in the open?

    Answer. State and local pensions operate under an accounting scheme 
that is practically unique in the pension or financial world. Private 
sector pensions, or for that matter public employee pensions in other 
countries, generally must discount (or value) their benefit liabilities 
using an interest rate derived from safe assets, because the pensions' 
liabilities are themselves very safe. This is how financial markets 
value almost any liability. Discount rates in the 3 to 4 percent range 
are common. U.S. State and local pensions, by contrast, are allowed--
under rules established by the Governmental Accounting Standards 
Board--to discount guaranteed benefit liabilities using the assumed 
rate of return on a portfolio of risky assets, resulting in discount 
rates in the 7 to 8 percent range. For each 1 percentage point increase 
in the discount rate, a pension's measured liabilities decline by about 
20 percent. This difference in liability valuation implies that U.S. 
State and local pensions contribute substantially less for each dollar 
of promised benefits than do corporate pensions or public employee 
pensions in other countries. The one other pension system that is 
allowed to value its liabilities using the same techniques as State and 
local plans is multiemployer pensions. The fact that the two most 
troubled pension systems use the same lax accounting standards should 
indicate to policymakers where the troubles lie.

    Question. Dr. Biggs, you suggest in your written testimony that 
Congress, bearing in mind moral considerations toward retirees, will 
ultimately have to determine how to address the multiemployer pension 
problem in a manner that does not set a precedent that encourages 
others companies to come to the Federal Government for assistance. I 
would like you to comment on whether you think it would be a helpful 
deterrent if, in the event a plan requires rescue by the PBGC, the 
plan's joint board of trustees be replaced by PBGC managers as in the 
single employer pension insurance system, or with new management from 
some other source?

    Answer. As I wrote in my testimony, the decline of multiemployer 
pension systems was not wholly the result of unforeseen economic 
events. It was the result of pension design that was not resilient to 
unforeseen events and pension sponsors and managers--including both 
company management and employee unions--that failed to fully fund their 
plans. If a multiemployer plan must be taken over by the PBGC, that is 
evidence of mismanagement. And the PGBC should do more than write 
checks to retirees. It should replace the management that helped put 
the pension into the PBGC's hands in the first place.

    Question. Dr. Biggs, in addition to cutting retiree pensions for 
the sake of PBGC solvency, there has been testimony today that PBGC 
premiums also must be increased for the sake of PBGC solvency. 
Historically, only employers have paid PBGC premiums to the 
multiemployer pension insurance system. Yet multiemployer plans are 
jointly managed by unions and employers. Is it appropriate that 
Congress consider requiring unions to begin sharing the sacrifice and 
by paying part of the PBGC multiemployer insurance premium?

    Answer. One witness--the widow of a retired Central States 
retiree--testified that she was unaware of the plan's funding problems 
until she received a letter several months ago. And yet, for decades, 
there have been studies by pension experts concluding that PBGC 
premiums were insufficient to fund the benefit guarantees the agency 
provides. But pension sponsors--including both employers and unions--
resisted higher premiums and more stringent funding requirements, and 
their political sway was strong enough to prevent those rules imposed 
on them. And today we face insolvent pension plans and a PBGC that does 
not have the resources to cover them.

    Pensions should pay sufficiently high PGBC premiums to finance the 
protections they receive from the agency. I have no objection to those 
premiums being made more transparent to employees by having them 
charged to unions--meaning, effectively to employees themselves--as 
well as to employers. The most important point is that pension 
liabilities not be transferred to taxpayers.

    Question. Dr. Biggs, the UMWA has asked for a taxpayer bailout of 
both retiree health care and pension benefits. Health care benefits 
have been bailed out before. To what extent is a pension bailout 
breaking new ground?

    Answer. To date, insolvent pensions have received protection up to 
limits established by PBGC rules and contingent on the sufficiency of 
PBGC funding. If a large multiemployer plan becomes insolvent, that 
could overwhelm the PBGC's resources. At that point, the Federal 
Government's legal obligations to plans ceases. What plans seem to 
desire is a transfer of taxpayer resources in excess of PBGC funds. I 
don't see any reason why the taxpayer should take those costs on. 
Pensions were warned many times regarding funding. Pensions and unions 
resisted higher contributions and premiums, yet today some are asking 
for government protections that they never paid for. The taxpayer 
deserves protection from such demands.

    Question. Dr. Biggs, while the UMWA pension is grossly underfunded 
and on the road to insolvency, the same is true for other multiemployer 
plans, as well as State and municipal plans. Do you have any concerns 
that a taxpayer bailout of the UMWA will become a precedent for 
bailouts of similarly strained multiemployer and public pension plans?

    Answer. Yes.

    Question. Dr. Biggs, a number of factors have contributed to the 
multiemployer pension crisis. Particularly given calls at the hearing 
(explicit and implicit) for taxpayer bailouts of these underfunded 
plans, what types of reforms do you think are appropriate in the 
multiemployer sector. In particular, do you have any views on the 
following: requiring the PBGC to provide 75-year solvency projections, 
similar to those provided by the Social Security Administration; 
requiring multiemployer plans to use more realistic discount rates (as 
single employer plans are required to use); and providing plan 
administrators with greater ability to amend benefits, including 
accrual and eligibility?

    Answer. Long-term projections provide a better view of a plan's 
liabilities. A more accurate discount rate is essential in calculating 
liabilities of both multiemployer and State and local retirement 
systems. I am of two minds regarding giving trustees the power to amend 
benefit. Such a power could help make plans more sustainable. But my 
own experience viewing State and local government plans is that such a 
power would often be used to avoid difficult choices today and push 
costs off into the future, at which point the plan might be beyond 
recovery. I don't see why a well-designed defined contribution plan 
would not provide reasonable benefits to participants, greater 
transparency and certainly for plan sponsors, and better protections 
for the taxpayers.

                                 ______
                                 
      Prepared Statement of Hon. Joshua Gotbaum,* Guest Scholar, 
          Economic Studies Program, The Brookings Institution
---------------------------------------------------------------------------
    * Hon. Joshua Gotbaum is a Guest Scholar in Economic Studies at The 
Brookings Institution. From 2010-2014 he was Director (CEO) of the 
Pension Benefit Guaranty Corporation.
    The Brookings Institution's commitment to independence precludes 
taking institutional positions on issues. This testimony represents my 
personal views and should not be interpreted as reflecting the views of 
Brookings, its employees, officers, and/or trustees, or its other 
scholars.
---------------------------------------------------------------------------
   what congress can do to help people in multiemployer pension plans
    Mr. Chairman, Senator Wyden, and members of the committee, I am 
honored and grateful for the opportunity to speak about the sad choices 
facing some distressed multiemployer pension plans, and about the steps 
that Congress might take in response, some of which could make life 
better for the 1,000,000+ people in those plans, and some of which 
could make it worse.
                 mpra is--and should be--controversial
    There is no question that the Multiemployer Pension Reform Act of 
2014 was and remains controversial: it amended the Employee Retirement 
Income Security Act (ERISA), whose purpose is to protect retiree 
benefits, and allows some distressed pension plans to cut retirees' 
benefits--but only if doing so would save the plan and preserve 
benefits by preventing even greater cuts in the future.


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    Many pension advocates were, and remain, outraged both at the 
substance of the bill and the means of its enactment.\1\ AARP, one of 
the best-organized advocates for seniors, organized a nationwide 
campaign in opposition. They were joined by the Teamsters union, the 
Machinists union and other advocacy groups. Opponents reminded Congress 
of ERISA's purpose,\2\ that pensions are a commitment for which people 
work decades, that many retirees can't afford significant cuts, and 
that for many the option of going back to work or living on their 
investments is unrealistic.
---------------------------------------------------------------------------
    \1\ Given the level of controversy, it is not a surprise that MPRA 
was negotiated, enacted, and signed into law as part of the omnibus 
appropriations bill in a post-election session. However, the claim by 
opponents of MPRA that there had been no hearings or other legislative 
process is inaccurate. I personally testified at several hearings and 
attended multiple public meetings on these issues.
    \2\ The claim that, prior to MPRA, ERISA had never allowed benefit 
cuts under any circumstances is inaccurate. Cuts have been allowed 
under some circumstances ever since the initial multiemployer pension 
legislation in 1980.

    Nonetheless, Chairman Kline and Ranking Democrat George Miller--
public servants with very different political orientations--decided 
legislation was necessary and negotiated its terms. The Service 
Employees International Union (SEIU), the United Food and Commercial 
Workers Union (UFCW) and many other unions either actively supported 
---------------------------------------------------------------------------
the compromise bill or chose not to oppose it.

    I believe they did so, not to undermine theses pensions--which 
continue to provide lifetime retirement benefits while other retirement 
forms increasingly do not--but to preserve them. They also did so to 
avoid having healthy multiemployer plans be ``tainted,'' lest employers 
in healthy plans decide to withdraw and let the entire system collapse.
    did distressed multiemployer plans cause their own distress? no
    Multiemployer plans are negotiated between a union and an employer 
association, largely in industries like construction or trucking or 
food stores where there are many small business employers who cannot 
take on the responsibility of running a pension. The plans themselves 
are run professionally and businesses and unions are equally 
represented as trustees.

    Throughout the 1990s multiemployer plans, like virtually all 
pension plans, were under conventional measures fully funded or 
overfunded. However, since 2001, multiemployer plans were hit by a 
double whammy: Like virtually all pensions, the stock market crashes of 
2001 and 2008/2009 left them seriously underfunded (and, like other 
pension funds, the underfunding is generally not due to bad investment 
choices, but to broad market movements).

    Unlike other pensions, however, many of the retirees in these plans 
are ``orphans'' who worked for companies that are no longer in the 
plan. The diversified employer base historically has protected 
multiemployer plans: if one employer went out of business, there were 
been plenty of others to cover any shortfall. However, some 
multiemployer plans have experienced widespread losses of employers due 
to major industry changes such as trucking deregulation or 
consolidation, so the remaining employer base was now much less 
diversified.

    As a result, the companies and workers still active in the plan are 
now left holding the (empty) bag. They are being asked to pay not only 
their own costs but also for the funding shortfalls of benefits to 
others. To their credit, both employers and employees in most 
distressed plans have increased their contributions, sometimes very 
substantially. However, when there are more ``orphans'' than active 
participants, at some point the burden becomes too great: employers 
negotiate to leave the plan and unions, ultimately, accept.

    The result is a ``death spiral'' under which employers that can 
withdraw do so and the burden on the remaining employers becomes 
intolerable, leading to mass withdrawal, many bankruptcies, and 
eventually, plan insolvency. Before MPRA, most plans had no choice but 
to accept that terrible result. Once they run out of money, all 
retirees' benefits are cut to PBGC guarantee levels--which, under 
ERISA, usually results in cuts from promised benefit levels, sometimes 
very large cuts.
          is the right response for congress to repeal mpra--
         or instead to find additional ways to preserve plans?
Proposals to Repeal or Limit MPRA
    It is not surprising that these controversies continue as plans 
begin to consider and apply for the painful choices that MPRA offers. 
Several bills have been introduced either to repeal MPRA's benefit 
suspension provisions outright,\3\ or to add additional procedural 
requirements.\4\
---------------------------------------------------------------------------
    \3\ E.g., S. 1631, the ``Keep Our Pension Promises Act'' sponsored 
by Senators Sanders, Brown, and Baldwin.
    \4\ E.g., S. 2147, the ``Pension Accountability Act'' sponsored by 
Senators Portman and Burr.

    These proposals, while motivated by the best of intentions, would 
---------------------------------------------------------------------------
likely result in greater benefit cuts and greater suffering.

    In order to see why these efforts to help the participants in 
distressed plans will end up hurting them, it's important to remember 
that the alternative to a planned benefit reduction under MPRA is an 
even worse result.

    What MPRA did was to allow plans that otherwise would fail entirely 
to preserve benefits and keep them from falling all the way to PBGC 
levels. Under MPRA, severely distressed plans can propose a plan to cut 
benefits, but in every case a participant gets at least 10% more than 
PBGC would provide. In many cases, vulnerable participants suffer no 
cuts. For example, in the Central States proposal currently being 
reviewed, about a third of participants would suffer no cuts at all.\5\
---------------------------------------------------------------------------
    \5\ There is an additional group whose cuts will be repaid by their 
former employer, UPS, so the total percentage that will not suffer 
pension cuts isconsiderably higher.

    Without MPRA, Central States and other distressed plans will become 
---------------------------------------------------------------------------
insolvent--and most participants' pensions will be cut far more.

    Even worse, the insolvency of Central States would completely drain 
PBGC's multiemployer reserves, so participants would end up being cut 
far below PBGC guarantee levels. One analyst estimated that, if PBGC 
becomes insolvent, ongoing premiums would only cover about 10% of 
Central States pension benefits--that would mean a 90% cut.

    No one wants to see pension benefits cut--but the alternative to 
the MPRA process is much greater pension cuts, and for many perhaps no 
pensions at all.

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                      adequate pbgc funding is key
    PBGC can preserve plans by financial assistance for mergers and 
``partitioning.''

    In MPRA, Congress recognized that PBGC can play an essential role 
in preserving distressed plans by providing financial assistance to 
facilitate plan mergers, and by ``partition:'' assuming responsibility 
for some of a plan's obligations. Historically, these have been 
obligations for ``orphans,'' retirees of companies that no longer 
contribute to the plan; under partition, PBGC assumes responsibility 
for some obligations, but pays those obligations at PBGC benefit levels 
rather than at a plan's promised levels. MPRA gave PBGC flexibility in 
both merger assistance and in the design of partitions to minimize the 
loss that comes from receiving only PBGC benefits. With PBGC financial 
assistance, either merger assistance or partition, many plans will be 
able to recover using contributions from the remaining active employers 
and employees. According to some early analysis, PBGC partitioning and/
or merger assistance might help preserve plans covering some 800,000 
people.

    But PBGC can't do so if it is underfunded.

    However, MPRA limited PBGC's ability to partition if PBGC is itself 
at risk of insolvency within 10 years and if doing so makes that 
insolvency more likely. Although MPRA increased PBGC premiums to some 
extent and, by permitting plans to avoid insolvency via benefit 
reductions, reduced and deferred the likelihood of some plan failures, 
both PBGC and CBO project that PBGC's multiemployer program will be 
insolvent in just 8 years.

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    Unless Congress is willing to eliminate this requirement--or to 
allow significantly increased multiemployer premiums--PBGC's use of 
financial assistance for mergers and of partition to preserve most 
distressed plans cannot be realized.

    To preserve the multiemployer system, PBGC must be adequately 
funded.

    MPRA increased multiemployer premiums from $12 per person per year 
to the current $27. This amount is clearly insufficient.

     Fortunately, Congress recognized that premiums would need to be 
increased much more substantially: MPRA required PBGC by this coming 
June 1 to propose a level that would be sufficient for PBGC to do its 
job and preserve multiemployer plans. PBGC is also required, every 5 
years since 1980, to report on the sufficiency of its premiums; this 
``quinquennial report'' should also provide guidance.\6\
---------------------------------------------------------------------------
    \6\ By law, PBGC should have produced this report in 2015. Its 
status has not been reported publicly.

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    There will, of course, be claims by both the companies and the 
unions involved in multiemployer plans that increased premiums are 
---------------------------------------------------------------------------
unjustified and unaffordable.

    These claims should be treated with skepticism. The most specious 
argument is that ``PBGC won't run out of money for years.'' (This is 
the sort of claim that, if a private insurance company ever made it, 
would result in losing all its customers and its management losing 
their jobs.) It would be cold comfort to the millions of people who 
expect PBGC to pay benefits for the rest of their lives that they won't 
lose their benefits until it's too late for them to do anything else.

    The other argument is that premiums are unaffordable. In the case 
of multiemployer premiums, the affordability arguments are even more 
specious, because multiemployer premiums are already far, far below 
those already being paid by most pension plans. In 2015, for example, 
multiemployer premiums were $26 per person per year. By comparison, the 
average single employer plan paid PBGC $143 per person--almost 6 times 
as much as multiemployer plans do.\7\
---------------------------------------------------------------------------
    \7\ To be sure, under law PBGC's multiemployer benefits are much 
less generous than its 
single-employer benefits. However, the primary argument against PBGC 
benefits is not the lack of coverage, but the claim that they're 
unaffordable. Furthermore, even at the lower level of multiemployer 
guarantees, it is still the case that more than 1,000,000 people could 
end up relying on them. If PBGC becomes insolvent and active employers 
continue to withdraw, then that 1,000,000 people could end up with no 
pensions at all.

    Nonetheless, there are some plans for which significant increases 
would impose real hardship. That's why increases should take into 
account an individual plan's ability to pay, whether by delegating some 
ability to PBGC to reduce premiums or developing other kinds of 
---------------------------------------------------------------------------
``circuit breakers.''

    The administration has recognized the need to increase PBGC 
premiums very substantially, and has proposed giving PBGC authority to 
increase multiemployer premiums by an average of $1.5 billion per year. 
In the end, it will of course be Congress that decides, but I hope the 
proposals will inform and encourage Congressional action this year. 
Congressional delay will limit PBGC's ability to preserve multiemployer 
plans and the millions that depend on those plans.

             new plan designs can help, but could also harm
    In order to encourage employers to remain within the multiemployer 
system, both unions and employers have proposed to allow new plan 
designs. Under these proposals, existing plans could be split into a 
new ongoing plan and a legacy plan. The new plans would be designed so 
that, if actuarial assumptions prove optimistic or investment returns 
are poor, the benefits can be adjusted. This ability to adjust benefits 
without having to go through a MPRA process means that the new design 
puts market risk on employees rather than employers.

    The primary reason for enabling a new plan design is that employers 
would be willing to participate in the new plan instead of leaving the 
multiemployer DB system entirely. The new plan design includes lifetime 
income, pooled professional management, and other features that make it 
superior to standard defined contribution offerings. It would eliminate 
the contingent risk and withdrawal liability that employers dislike.

    If the multiemployer pension system is to survive, it must be 
allowed to adapt. Unfortunately, ERISA and the tax code have been 
written so narrowly that adaptation has been hamstrung. The alternative 
plan designs would help preserve the multiemployer system.

    There are, however, some important caveats. Depending on the 
particulars, new plan designs could preserve the multiemployer system 
or hasten its demise.

Legacy Plans Need Much Greater Protection
    One of the hardest questions, if employers start a new plan, is how 
to protect the integrity of the old plan. Unfortunately, the current 
proposal seems to weaken protections of legacy plans from current law 
in several respects. For example, underfunded legacy plans could remain 
underfunded for 30 years while contributions are transferred to the new 
plan. Furthermore, the proposal would allow employers to withdraw and 
eliminate any legacy liabilities once a plan is considered fully funded 
under any ``reasonable'' actuarial assumptions (however unrealistic 
they turn out to be in practice). The result, very possibly, would then 
be mass withdrawal from the legacy plan.

    Since most multiemployer plans are already significantly 
underfunded, the effect of the proposal would be both to weaken funding 
requirements and to eliminate the active employer base. If, over time, 
the ``reasonable actuarial assumptions'' of a legacy plan were not 
met--an occurrence that has roughly a 50% chance of happening--there 
would be no option of additional employer contributions. Having been 
abandoned by employers, the only alternative would be benefit cuts, 
whether through benefit ``suspension'' or assumption of the plan by 
PBGC.

    If there is going to be an elimination of withdrawal liability, 
then the requirement should be that a plan is overfunded, not just 
``fully funded.'' Furthermore, the actuarial assumptions used should 
themselves be conservative, not just whatever a hired actuary thinks 
are ``reasonable.'' Other protections are probably appropriate as well.

Adequate PBGC Funding
    As noted earlier, at current premium levels PBGC's multiemployer 
program will itself become insolvent within a decade. Unless Congress 
decides otherwise, the new plans would not involve PBGC premiums and 
thus would narrow the base from which PBGC can fund its activities. 
Congress should consider providing some (probably different) PBGC 
premium for the new plan designs.

    In closing, I remain grateful that the committee continues its work 
to take up the undeniable challenges that some plans now face and to 
consider how best to achieve the secure retirement that Americans 
deserve. If I can be helpful, I would be honored to do so.

                                 ______
                                 
        Question Submitted for the Record to Hon. Joshua Gotbaum
               Question Submitted by Hon. Orrin G. Hatch
    Question. With regard to new, innovative plan designs, you 
expressed concern that broad actuarial discretion in funding 
assumptions could endanger the legacy, traditional portion of composite 
plans. How would you recommend that Congress restrict that discretion?

    Answer. As I noted in my testimony, this is an area where the 
details matter. I don't know enough about the range of circumstances to 
prescribe legislation in detail; for that I'd suggest consulting with 
the technical staff of the PBGC. However, there are clearly some areas 
that Congress should consider:
A. Don't let plans establish a new composite until they're ``green 
        zone''
    Green zone status is not a guarantee of financial health (because 
the actuarial assumptions are not required to be conservative), but 
plans ought to be able to meet at least those standards before risking 
the creation of a legacy plan.
B. Impose real funding limits on legacy plans
    The proposed bill requires only that legacy plans be on a path to 
be fully funded in 30 years, using whatever assumptions the actuaries 
consider ``reasonable.'' This is an even weaker standard than 
multiemployer plans already use, whereas the standard for legacy plans 
should be stronger (since active employers will no longer be 
contributing to the plan).

    Since they lack an active employer base, the standards for legacy 
plans should be at least as high as those of single employer plans 
under the Pension Protection Act of 2006. This has two parts:

      -  Actuaries should be required to use a conservative discount 
rate, such as the bond rate required under PPA.

      - Underfunding should be funded within 7 years, as the PPA 
requires.
C. Stricter limits on the ability to withdraw from legacy plans
    The proposed bill allows employers to withdraw from legacy plans if 
the plans are ``fully funded.'' The standards for ``full funding'' are 
weak: basically, any assumption that a hired actuary considers 
``reasonable.'' Since the consequences of withdrawal are to eliminate 
the only source of funds to prevent insolvency, consider two 
protections:

      - Require the more conservative PPA discount rate; and

      -  Require that the plan be 110% funded under those assumptions, 
not just 100% funded.
D. Require some PBGC premium on composite plans, too
    Although PBGC premiums have historically been so low that they 
don't affect the decision to stay within DB plans or not, if PBGC is to 
be able to do its job and preserve plans those premiums will have to be 
raised substantially--perhaps to the level that single-employer plans 
already pay (which is over $100 per person per year).

    These higher premiums may give an additional incentive for 
employers to withdraw from legacy plans. However, the incentive to 
withdraw from legacy plans could be reduced if there were some premium 
on the composite plans (which would reduce the necessary premium on 
legacy plans). Congress could, as part of its authorization of 
composite plans, authorize a premium on those plans. Such premiums 
would help preserve the entire system.

                                 ______
                                 
              Prepared Statement of Hon. Orrin G. Hatch, 
                        a U.S. Senator From Utah
WASHINGTON--Senate Finance Committee Chairman Orrin Hatch (R-Utah) 
today delivered the following opening statement at a hearing examining 
the multiemployer pension plan system and its effect on unions, 
employers, workers, retirees and taxpayers:

    I'd like to welcome everyone to this morning's hearing to examine 
the multiemployer pension plan system.

    As I said at a recent hearing, financial security for workers and 
their families, and retirement policy in particular, have never been 
more important. While we've enjoyed a number of successes in this area, 
today we will be talking about an area of retirement policy that, for a 
number of reasons, has not delivered on the pension promises made to 
workers and retirees.

    A multiemployer pension plan is a collectively bargained pension 
plan set up by a union and two or more unrelated unionized employers. 
In this system, the employers make contributions to the plan and pay 
premiums to the Pension Benefit Guaranty Corporation, or PBGC, to 
insure the plan. Multiemployer plans are operated by a joint board of 
union and employer trustees that, among other things, sets the amount 
of the pensions. Or, in other words, these boards make the promises.

    Ten million Americans are covered by multiemployer pension plans, 
and, currently, more than one-third of those people are in plans that 
are critically underfunded. Many are in danger of default.

    In the case of a default, the PBGC would pay out pensions to 
retirees. Those payments are capped by law and would be no greater than 
$12,870 per year. In fact, in many cases it would be far less. That 
would be a steep drop for a retiree who was promised an annual pension 
of $30,000 or $40,000 in a plan like the Central States Teamsters Plan, 
one of the plans we'll be talking about today.

    That sounds pretty bad, but the problems in the multiemployer 
pension system are even worse than what I just described.

    There are several plans--like the Central States and United 
Mineworkers Plans, for example--that would bankrupt the PBGC if they 
were to default. The PBGC insurance program for multiemployer plans 
just can't handle that load. And if the PBGC's insurance assets are 
ever exhausted, pension payments will drop to nearly zero.

    The response to this crisis by Congress and the President, in 2014, 
was to enact the Multiemployer Pension Reform Act, or MPRA.

    At the request of multiemployer pension plan managers, employers 
who contribute to multiemployer pension plans, as well as many unions 
representing employees, the MPRA gave pension plan trustees the 
ability, in extreme cases, to petition the Treasury Department for 
approval to cut pensions in the near term in order to avoid insolvency 
and larger cuts down the road.

    This law is, to say the least, controversial, and the committee 
will hear from both defenders and critics of the MPRA today.

    This is a sobering moment for our country, the pension community, 
and retirees. And beyond the hardship for retirees in multiemployer 
plans, this moment also highlights the challenge of delivering on the 
promise of pensions in defined-benefit plans across the board, both 
public and private, and the stakes for retirees if these systems fail.

    Today we will hear testimony from a Central States beneficiary, a 
retiree whose husband recently passed away and is scheduled to receive 
a 40% cut in her survivor's pension if Treasury approves the 
application of the plan's trustees to implement the reductions. Her 
annual pension would be reduced from more than $30,000 to just under 
$18,000.

    Her case is the very definition of hardship in the context of the 
pension system.

    We will hear testimony today about the United Mine Worker's Pension 
Plan, another financially strapped pension plan that, even without 
additional cuts, provides a relatively modest pension, around $6,000 
per year on average, for its beneficiaries.

    In addition, we have witnesses who will address the hard truth 
that, without the MPRA, future pension cuts will be even worse. We will 
hear that the MPRA allows many plans that otherwise would fail entirely 
to keep their benefits from dropping all the way to PBGC levels, or 
perhaps to no pension at all.

    Now, we know there are some who advocate a taxpayer bailout of the 
PBGC's multiemployer pension program. In my view, that will be very 
difficult to achieve if recent history is any guide. The idea of a PBGC 
bailout was proposed by unions, employers, and multiemployer plans in 
2010. Back then, the House, Senate and White House were all controlled 
by Democrats, and the proposal got absolutely no traction. I have a 
hard time seeing how such a proposal could move forward in the current 
environment.

    But, for the sake of argument, let's imagine that there was another 
way, outside of premiums, to finance the PBGC. What then? The cuts 
would still be larger.

    Older retirees and disabled retirees, who today cannot receive cuts 
at all under the MPRA, would be cut all the way down to the PBGC level. 
Even the retirees whose pensions are eligible for cuts under the MPRA 
are at least assured of always receiving at least 10 percent more than 
the PBGC level, and perhaps much more. But without the MPRA, even that 
minimal level of protection would vanish.

    Ultimately, the critics of the MPRA have to recognize that, when 
dealing with this problem, there were really only three choices: bad, 
worse and worst of all. In 2014, a bipartisan majority in Congress and 
the President went with bad. No one is happy with that choice, I 
suspect, but it was the best option available to us at the time.

    The question we have to consider now is: How can we avoid these 
problems in the future?

    Today we will hear testimony about how the design and funding of 
multiemployer plans led us to this point. Not surprisingly, I suspect 
we'll hear that it is easier to promise pensions than to fund them. We 
will hear that because of lax rules in the current system, there is a 
great temptation for plan managers to make unrealistic actuarial 
assumptions and take on excessive investment risk. And we will learn 
about disturbing parallels between multiemployer pensions and the 
defined benefit pension plans run by many state and local governments.

    Finally, I want to say another word about the Mine Worker pension 
plan. I promised Ranking Member Wyden that I would work with him on 
this issue and I have kept my promise. I have done my best to advance 
legislation introduced by Senators Capito and Manchin, which, given the 
already low pension payments, the Obama administration's war on the 
coal industry, and the depressed state of the economy in most of coal 
country, is, in my view, the best option available to us. I plan to 
continue that effort.

                                 ______
                                 
               Prepared Statement of Hon. Amy Klobuchar, 
                     a U.S. Senator From Minnesota
    Chairman Hatch, Ranking Member Wyden, and members of the Senate 
Committee on Finance, thank you for holding this hearing on the 
multiemployer pension plan system.

    I believe that promises made should be promises kept. The promise 
that was made to the workers in multiemployer pension plans is simple--
that the pension they have earned through their decades of hard work 
will be there when they retire. Saving for retirement is often 
described as a three-legged stool--Social Security, a pension, and 
personal savings. A stable and secure retirement relies on all three 
legs being strong. But some multiemployer pension plans are facing 
funding challenges that could weaken one of those legs.

    Employers offer pension plans to help their employees save for 
retirement. According to the U.S. Department of Labor, in 2014, 64 
percent of full-time workers participated in an employer-sponsored 
retirement plan.\1\ These plans include defined-contribution plans, 
such as a 401(k), and defined-benefit plans, which include single 
employer plans and multiemployer plans. In a multiemployer plan, many 
employers in the same industry join together under a collective 
bargaining agreement to form and maintain a pension plan for their 
employees. Over 10 million Americans participate in a multiemployer 
pension plan and rely on these pension benefits for a safe and secure 
retirement.\2\
---------------------------------------------------------------------------
    \1\ ``Multiemployer Defined Benefit (DB) Pension Plans: A Primer 
and Analysis of Policy Options.'' Congressional Research Service report 
R43305. July 24, 2015.
    \2\ Department of Labor (DOL) Employee Benefits Security 
Administration, Private Pension Plan Bulletin Abstract of 2013 Form 
5500 Annual Reports. September 2015.

    Many multiemployer pension plans are facing funding challenges and 
do not have sufficient plan assets to pay all of the benefits promised. 
I believe that we need to work together to find solutions that maintain 
the solvency of these multiemployer pension plans without severely 
---------------------------------------------------------------------------
penalizing current retirees, active employees, and beneficiaries.

    In December 2014, the Multiemployer Pension Reform Act (MPRA) 
became law as part of the FY 2015 Omnibus Appropriations Act (H.R. 83). 
The MPRA allows underfunded multiemployer pension plans, like the 
Central States Pension Fund, to cut benefits for current retirees, 
active employees, and beneficiaries. I did not think MPRA was the right 
solution when we voted on the FY 2015 Omnibus Appropriations Act (H.R. 
83), and I voted against this legislation because of the impact it 
could have on hundreds of thousands of American workers and retirees.

    To address underfunding, the Central States, Southeast and 
Southwest Pension Plan (Central States Pension Plan) Fund submitted a 
proposed plan to the U.S. Department of the Treasury on September 25, 
2015 that would reduce benefits for current retirees, active workers, 
and some former workers. The Department of the Treasury has until May 
7, 2016 to review the plan and ensure that it meets the requirements 
established by the MPRA. If the application fails to meet these 
criteria, the Department of the Treasury would be required to reject 
the application.

    Right now, two-thirds of the nearly 400,000 participants of the 
Central States Pension Plan face the real possibility that their 
pensions will be reduced under the provisions in MPRA with some facing 
cuts as high as 70 percent. In Minnesota, there are nearly 22,000 
participants. Ohio has nearly 48,000 participants; Michigan, over 
47,000; and Missouri, over 32,000. In fact, the top 10 states with 
participants facing possible cuts account for 72 percent of the total 
Central States Pension Plan participants--and 7 of those 10 states are 
in the Midwest.\3\
---------------------------------------------------------------------------
    \3\ Based on Congressional District data provided by the Central 
States Pension Plan. The top 10 states are Ohio, Michigan, Missouri, 
Illinois, Wisconsin, Texas, Indiana, Minnesota, Florida and Tennessee. 
The data is available at http://www.pensionrights.org.

    We also know that the size of the potential cuts for workers, 
retirees and beneficiaries are not fairly distributed. Retirees who are 
80 and older and disabled individuals are protected against having 
their benefits reduced. But for everyone else, the possible cuts would 
not reward their years of work and contributions. While many are facing 
cuts of 30 percent, 40 percent or even 50 percent, I think people would 
be shocked to learn that over 44,000 people are facing pension cuts of 
over 60 percent and nearly 2,500 people are facing possible cuts of 
---------------------------------------------------------------------------
over 70 percent.

    I am hearing from people across Minnesota who are facing drastic 
cuts to the promise of a pension that they worked for and contributed 
to over decades. I have heard from Michael from Shoreview who is facing 
a possible cut of 40 percent after 40 years of hard work and 
contributions. Thomas from Sandstone who is 71 years old and, after 
paying in to the Central States Plan for 30 years, is facing a possible 
cut of 60 percent. Steve from Maple Grove wrote me to let me know that 
he is 69 years old and is unable to return to work but his pension may 
be cut by 37 percent. And that's just a few examples. These hard 
working Minnesotans, many who are in their 60s and 70s, should be able 
to be secure in the retirement they have worked for their whole life. 
Instead they are now facing the loss of their home, struggles with 
medical bills and financial insecurity at a time when they can least 
afford it.

    I recently invited Department of the Treasury officials to visit 
Minnesota and hear firsthand how this proposal would affect the 
thousands of workers, retirees, and their beneficiaries participating 
in the Central States Pension Plan and why the proposed cuts should be 
rejected. I know the Treasury has held similar meetings across the 
country and heard from workers and retirees in Missouri, Michigan, 
Indiana, Illinois, North Carolina, Wisconsin, and Ohio. I hope Treasury 
will seriously consider the views of those with the most to lose--the 
people who are directly affected by the cuts under this proposal.

    Chairman Hatch, Ranking Member Wyden, and members of the Senate 
Committee on Finance, we need to find a workable solution for 
underfunded multiemployer pension plans that does not come at the 
expense of those who have worked hard, paid into the pension plan, and 
built their retirement based on the promise of a pension. I want to 
work with you to find a fiscally responsible alternative that protects 
the promise of a retirement with security and dignity for all.

    We all know that delay only makes the solution more costly. The 
time is here. We can't put it off any longer. We must move forward now 
to get this done for our workers, our businesses, and our country.

                                 ______
                                 
            Prepared Statement of Rita Lewis, Beneficiary, 
                      Central States Pension Plan
    Mr. Chairman, Members of the Committee, thank you so much for 
inviting me to speak. My name is Rita Lewis, and I live in West 
Chester, Ohio. I am here representing my dearly beloved late husband 
Butch Lewis, who worked 40 years for USF Holland, a Midwest trucking 
company. Butch, a leader of the Retired Teamsters of Southwest Ohio 
Pension Committee, fought hard, until his last dying breath, to stop 
the shameful and unfair cuts authorized under the Multiemployer Pension 
Reform Act of 2014. I am here today to take up Butch's fight, and to 
make sure that his death was not in vain.

    I'm here today to urge you, to plead with you really, to stop the 
cuts in MPRA and find a bi-partisan solution to shore up underfunded 
multiemployer plans and protect retirees. I'm here not just to help 
myself, but to speak on behalf of the 270,000 retired truck drivers, 
widows and spouses whose lives will be devastated if the Central States 
Pension Plan is allowed to go through with these cruel and unfair cuts, 
taking away as much as 40-70 percent of our hard-earned promised 
pensions. These cuts are unprecedented and are plain wrong.

    I want to start with an important point: This is not a partisan 
issue. This is an issue of fundamental American values, of keeping 
earned promises to this nation's retirees. We are Republicans and 
Democrats and Independents. We live in your states--we are your 
constituents. We worked hard our whole lives and did everything right 
so we could have a comfortable retirement. Not an extravagant 
retirement; we just wanted to have enough income to live our sunset 
years with dignity and independence, to pitch in to help our kids and 
grandkids, especially in today's uncertain economy, and to continue 
being productive members of our communities.

    I understand if Central States is allowed to go forward and slash 
our pensions, there are somewhere around 100-200 underfunded 
multiemployer plans that are waiting in the wings to cut their 
retirees' benefits, too, potentially affecting at least a million 
American retirees. Many of you on this committee have already heard 
from affected retirees, and I expect many of you will hear from 
additional constituents once the dam breaks and the flood of benefit 
cut letters begins. I plead with you today to find a solution to shore 
up underfunded pension plans, and to protect our pension benefits, 
before this becomes a huge national crisis and your constituents from 
lots of other plans are sitting where I am today.

    Also, I want to say that I, and other Teamster retirees, support 
the United Mineworkers in also protecting their retired members and we 
hope and pray there can be a separate solution for them.

    Now let me tell you my story. My husband and I were married for 40 
years, after being childhood sweethearts. Butch was a professional 
baseball player after high school and was drafted by the Pittsburgh 
Pirates. But he gave up that opportunity and volunteered instead to 
fight in Vietnam when he was only 18 years old. He served in the 
Special Forces Army Rangers 173 Airborne Division for 2 years, but had 
been in the jungle of Vietnam for 5 months when his unit came under 
attack. While carrying his fellow soldiers to safety, Butch got hit in 
the knee by a mortar shell and he came home with life-threatening 
injuries. Butch received the Bronze Star and a Purple Heart for his 
service.

    When Butch returned home he never complained. He would say, ``Rita, 
I'm happy to be alive, and we have to look forward, not backwards, and 
believe that God has a plan for us.'' So when he came home, he got a 
good-paying job in the trucking industry, joined the Teamsters union 
where he stayed a loyal member throughout his life, and we got married 
and started a family. His dreams of being a ball player were over, but 
now he had a new dream of being a working man taking care of our 
family.

    Every day for 40 years, he went to work, driving a semi tractor 
trailer which is hard work. It's like being an industrial athlete, 
driving long miles, throwing huge packages on to the truck, jumping in 
and out of the cab. This was back when truck shock absorbers were 
practically non-existent, and the vibrations of the truck left him with 
bad hearing. And he did all this without complaining, even while he was 
having 37 surgeries to fix the knee that was blown out in Vietnam. He 
never complained about his pain, but I saw it. And he worked every day 
to earn enough not just to take care of us, but also to earn a good 
pension so when we were old we could finally enjoy the fruits of our 
labor. And this pension wasn't a gift. He worked hard for every penny 
of that pension. He gave up wages, and vacation pay and other benefits 
in exchange for a modest, reliable retirement income, because that's 
what responsible workers do.

    Butch was getting his pension for just about a year when he got the 
letter from Central States saying that his pension was being cut from 
$3,348.82 a month to $1,998.65. Butch couldn't believe it. He was so 
upset, he couldn't sleep. He started talking to other retirees and he 
learned that others were even in worse shape, facing cuts that would 
slash their pensions by 50, 60, or even 70 percent.

    Butch had already had a few minor strokes and the doctor had warned 
him to avoid stress. But Butch wasn't that kind of man. He was a 
warrior. And just like he did in Vietnam, he fought to right this 
injustice by working with what are now 50 retirees' committees across 
the country--all organized to stop the cuts. As he said, this was a war 
just like he had fought in Vietnam, and the cuts being forced on 
retirees were a ``war against the middle class and American values.''

    But after fighting hard, Butch died of a massive stroke last New 
Year's Eve. The doctors said all the stress he was living with because 
of the impending destruction of our financial future contributed to the 
stroke.

    Now I'm left without my husband who was the love of my life and 
facing cuts in my own joint and survivor benefit from $2,511.61 to 
$1,498.98 a month. Butch paid for that survivor pension while he was 
working by giving up wages so I would be taken care of if something 
happened to him.

    So instead of having the life I had envisioned with my husband, 
enjoying our secure retirement together, I now have to worry about how 
I will make ends meet. And my husband is gone and can't help me.

    I am going to have to sell the house that Butch and I had made our 
dream home. Right now I am helping take care of my dad who has stage IV 
cancer, and I worry I won't be able to keep doing that if my survivors' 
benefits get cut. I won't be able to help out my son and daughter or 
help pay for my grandchildren's college like we expected.

    And believe me, I'm in better shape than many: I have a job, paying 
me $17 an hour, with the police department, and I hope, God willing, I 
can continue working. And the cut to my pension is only 40 percent. As 
I said, some people are going to lose 50 to 70 percent or more of their 
pensions.

    Let me tell you about some of the others who are affected, some of 
whom are here with me today:

      Whitlow Wyatt, 72, for 33 years worked for a trucking company 
that went out of business. His pension is slated to be cut 60 percent, 
the maximum allowed by MPRA, and his pension will go from $3,300 a 
month to $1,018.16. His wife now has stage IV breast cancer, and they 
will drastically have to downsize, including selling their house. The 
Wyatts are among the thousands of retirees and their families in Ohio 
who will suffer greatly.

      Tom Krekeler, 68, worked for a food company and is facing a 
pension cut of 52 percent. He and his wife run a small farm in 
Cincinnati and have enough left over that they often donate to non-
profits. They don't know how they'll be able to afford their expenses, 
and fear they'll have to sell their farm, which they worked a lifetime 
to buy. He wonders whether he and his wife will have to choose between 
food and medicine.

      There's Ava Miller of Flint, Michigan, who is now in her 60s. 
She was a car hauler dispatcher for 42 years. Her pension is being cut 
58% because Central States considers her an ``orphan'' because some of 
the companies she worked for don't exist anymore and she is being cut 
the maximum amount. Why should Ava be penalized? She did everything 
right and yet now, wracked with health problems and soaring bills, she 
may have to sell her house.

      Larry Maxfield of Winfield, Missouri is 73 and has a heart 
condition, diabetes, high blood pressure, spinal stenosis, bad knees, 
COPD, and bronchitis and takes 20 pills each day. Central States told 
him his pension will be reduced from $3,100 to $1,276.03 monthly, a 58% 
cut--and he has no idea how he'll make it.

      There's Bob Amsden, from Milwaukee, Wisconsin, who worked for 32 
years as a road driver, city driver and on the dock for five different 
companies. Bob has been told his pension will be cut 55.4%. He said if 
these cuts are allowed to go through, ``The life I spent working for my 
pension will be for nothing.''

      Ron Daubenmeier of Cedar Rapids, Iowa, is facing a cut of 60 
percent because he worked for Consolidated Freight which went 
bankrupt--again through no fault of his own or of the other retirees 
left in the lurch. Ron is 74 and is facing a steep cut of his benefit 
from $3,200 to $1,286.00 a month--which will leave him struggling to 
make ends meet.

      And, finally, I heard about Clarence Moody, whose pension is 
being cut to zero--penalizing him because of the way a divorce decree 
was written.

    These are just some of the stories I have heard. There are 
thousands of stories just like these. I know that Central States says 
the average cuts are around 22.5 percent, but just about everyone we've 
talked to has been told their cuts are 40 to 70 percent. These cuts are 
hitting us like a ton of bricks and none of us has time to prepare for 
the cuts, or make additional accommodations like we might have done if 
we were still young. It's cruel to cut our pensions now when few of us 
can go back to work, leaving us without options to make up the 
difference in our incomes.

    The unfairness of the cuts is magnified when you look at how much 
the plan pays in administrative and investment expenses. While they're 
cutting our pensions, many of the people on the staff of the fund make 
hundreds of thousands of dollars a year, and the Central States Fund's 
director, Tom Nyhan, recently accepted a raise of $32,000--almost twice 
what I'll be getting as a pension. He is now making $694,786. Need I 
say more?

    When a pension is cut, it's not just about the individual. It also 
affects multiple generations and communities. If these cuts are allowed 
to go into effect, folks like me will lose our homes, won't be able to 
assist our kids and grandkids, won't be able to pay for medicine and 
supplies, and won't go shopping in the malls or to local restaurants. 
Those of us who paid for our pensions, and never asked for a handout, 
may now be forced to go on public assistance. And even if we are able 
to avoid this fate, many of the kids and grandkids we are supporting 
will not.

    We're asking you today to please help us. The cutback provisions of 
MPRA are not the right way to solve this problem. As you know, the MPRA 
was negotiated behind closed doors, without any public hearings on the 
actual bill, without input from the retirees and employees and their 
widows and spouses, who will be most affected. If that bill hadn't 
passed, I know I and others like me would be able to count on our 
promised benefits for another decade and more. And I'm confident 
Congress could certainly come up with a better solution to the funding 
problem during that time.

    The bill reverses 40 years of protections from the private pension 
law ERISA which says that you can't cut back the already-earned 
benefits of retirees in a multiemployer plan unless the plan completely 
runs out of money, and even then, retirees are to be protected the most 
because we are the most vulnerable. Most of us can't go back to work or 
plan ahead to find other savings. The cuts are happening right now--
today--and there's no time for us to adjust.

    And our benefits are being decimated now--even though Central 
States is expected to have enough money to pay our benefits for the 
next 10 to 15 years.

    I've heard the argument used that it's better to get a haircut 
today then a beheading tomorrow. But I'd like to say that this is a 
beheading for most of us. Those of us facing pension cuts are all are 
in our 60s and 70s, and we don't have the time to make up for the lost 
income. And not to be so blunt, but let's face it, a lot of these 
retirees, like my husband, will be gone long before Central States will 
run out of money. And why would Congress allow pension plans, like 
Central States, to try to balance their books on our backs?

    It's plain wrong.

    I know that something has to be done. And I know that the federal 
pension insurance program is not funded well enough. I'd like to know 
why aren't we making that a priority. I understand it was set up to 
ensure that when plans run out of money, retirees would be the last to 
suffer, not the first--and yet MPRA blames us for all the financial 
problems of multiemployer pension plans even though we didn't cause any 
of them.

    So I'm asking you today to please help us. When Detroit faced 
bankruptcy, everyone came together and struck a Grand Bargain to 
minimize the cuts. I want to thank my own Senators from Ohio on the 
committee who are working with us to solve the problem. Senator Brown 
thank you for supporting the Keep our Pension Promises Act which would 
solve the whole problem of underfunded multiemployer plans by getting 
money into pension plans and the pension insurance program to assist 
them. And I want to thank you, Senator Portman, for sponsoring the 
Pension Accountability Act which will fix the broken voting process in 
MPRA.

    But time is running out. I'd like to say to members of both 
parties, please do not let politics get in your way, we need a 
comprehensive bill that both parties can support that truly fixes the 
problem for current and future retirees. The America I know is one that 
keeps its promises to its citizens, particularly those who are older 
and vulnerable. My husband Butch was a hero who fought for his country 
and for the American values we all hold dear. Now I'm asking you to be 
heroes too and help us solve this problem by finding a solution to 
support plans, the PBGC and save our pensions.

    Thank you for taking time to listen to me today and I will be happy 
to answer any questions you may have.

                                 ______
                                 
           Submitted for the Record by Hon. Joe Manchin III, 
                   a U.S. Senator From West Virginia

                        Brief Chronology of the

                    UMWA Health and Retirement Funds

             and the History of U.S. Government Involvement

        The UMWA Health and Retirement Funds ``is as much a creature of 
        government as it is of collective bargaining. There is a line 
        running from the original Boone Report to the present system. 
        In a way, the original Krug-Lewis agreement predisposed, if not 
        predetermined, the system that evolved.'' Coal Commission 
        Report, 1990.\1\
---------------------------------------------------------------------------
    \1\ Coal Commission Report: A Report to the Secretary of Labor and 
the American People, The Secretary of Labor's Advisory Commission on 
United Mine Workers of America Retiree Health Benefits, November 1990.

Early 1900s           Prior to the creation of the UMWA Health and 
Retirement Funds, there was no pension plan for retired coal miners and 
medical care in the nation's coal field communities consisted of a pre-
paid system based on deductions from the miners' paychecks. Under this 
system, coal companies deducted money from the miners' pay and hired 
doctors to provide medical services to the miners. Over time, the 
miners came to view the company doctor system as wasteful and harmful 
---------------------------------------------------------------------------
to their interests.

1935                  President Franklin Roosevelt appoints a federal 
Interdepartmental Committee to Coordinate Health and Welfare 
Activities. He named as chairman of the committee Josephine Roche, who 
later became neutral trustee and executive director of the UMWA Funds. 
One of the major activities of the committee was to convene a National 
Health Conference, at which the UMWA called for the establishment of 
``group medicine and group hospitalization'' in coal mining 
communities.

1938                  The UMWA, through the Good Will Fund of Boston 
and the Twentieth Century Fund of New York, commissioned a report on 
medical conditions in the coal fields. The study by the Bureau of 
Cooperative Medicine \2\ concluded that there was a pressing need for 
medical care reform in the coal fields.
---------------------------------------------------------------------------
    \2\ Medical Care in Selected Areas of the Appalachian Bituminous 
Coal Fields, The Bureau of Cooperative Medicine, March 1, 1939.

1946                  When the National Bituminous Wage Conference 
convened in early 1946, a health and welfare fund for miners was the 
union's top priority. The operators rejected the proposal and miners 
walked off the job on April 1, 1946. Negotiations under the auspices of 
the U.S. Department of Labor continued sporadically through April. On 
May 10, 1946, President Truman summoned UMWA president John L. Lewis 
and the coal operators to the White House. The stalemate appeared to 
break when the White House announced an agreement in principle on a 
---------------------------------------------------------------------------
health and welfare fund.

                       Despite the White House announcement, the coal 
operators still refused to agree to the creation of a medical and 
pension fund. Another conference at the White House failed to forge an 
agreement and the negotiations again collapsed.

                       Faced with the prospect of a long strike that 
could hamper post-war economic recovery, President Truman issued an 
Executive Order \3\ directing the Secretary of the Interior to take 
possession of all bituminous coal mines in the United States and to 
negotiate with the union ``appropriate changes in the terms and 
conditions of employment.'' The Executive Order also provided that 
``All Federal Agencies are directed to cooperate with the Secretary of 
the Interior to the fullest extent possible in carrying out the 
purposes of this order.'' Secretary of the Interior Julius Krug seized 
the mines the next day and ordered the miners to return to work. The 
miners refused, and negotiations continued, first at the Interior 
Department and then at the White House, with President Truman 
participating in several conferences.
---------------------------------------------------------------------------
    \3\ Executive Order 9728, Authorizing the Secretary of the Interior 
to Take Possession of and to Operate Certain Coal Mines, May 21, 1946.

                       On May 29, 1946 the historic Krug Lewis 
agreement was announced and the strike ended. The agreement was signed 
in the White House with President Truman presiding. It created a 
welfare and retirement fund to make payments to miners and their 
dependents and survivors in cases of sickness, permanent disability, 
death or retirement, and other welfare purposes determined by the 
trustees. The fund was to be managed by three trustees, one to be 
appointed by the federal government, one by the UMWA and the third to 
be chosen by the other two. Financing for the new fund was to derive 
---------------------------------------------------------------------------
from a royalty of 5 cents per ton of coal produced.

                       The Krug Lewis agreement also created a separate 
medical and hospital fund to be managed by trustees appointed by the 
UMWA. The purpose of the fund was to provide for medical, hospital, and 
related services for the miners and their dependents.

                       The Krug Lewis agreement also committed the 
federal government to undertake ``a comprehensive survey and study of 
the hospital and medical facilities, medical treatment, sanitary and 
housing conditions in coal mining areas.'' The expressed purpose was to 
determine improvements were necessary to bring coal field communities 
in conformity with ``recognized American standards.''

1947                  To conduct the study, the Secretary of the 
Interior chose Rear Admiral Joel T. Boone of the U.S. Navy Medical 
Corps. Government medical specialists spent nearly a year exploring the 
existing medical care system in the nation's coal fields. Their report, 
A Medical Survey of the Bituminous Coal Industry,\4\ found that in coal 
field communities ``provisions range from excellent, on a par with 
America's most progressive communities, to very poor, their tolerance a 
disgrace to a nation to which the world looks for pattern and 
guidance.'' The survey team discovered that ``three-fourths of the 
hospitals are inadequate with regard to one or more of the following: 
surgical rooms, delivery rooms, labor rooms, nurseries and x-ray 
facilities.'' The study concluded that ``the present practice of 
medicine in the coal fields on a contract basis cannot be supported. 
They are synonymous with many abuses. They are undesirable and in many 
instances deplorable.''
---------------------------------------------------------------------------
    \4\ A Medical Survey of the Bituminous Coal Industry, Report of the 
Coal Mines Administrator, 1947.

                       Thus the Boone report not only confirmed earlier 
reports of conditions in the coal mining communities, but also 
established a strong federal government interest in correcting long-
standing inadequacies in medical care delivery. Perhaps most important, 
it provided a road map for the newly created UMWA Fund to begin the 
---------------------------------------------------------------------------
process of reform.

1947                  The first checks from the UMWA Fund are issued to 
the widows of the miners who died in the Centralia, Illinois mine 
disaster.\5\ The checks are signed by John L. Lewis and Captain N.H. 
Collisson, a U.S. Navy captain who was a trustee appointed by the U.S. 
government.
---------------------------------------------------------------------------
    \5\ The Centralia No. 5 mine exploded on March 25, 1947, killing 
111 coal miners. The Bureau of Mines report on the disaster found that 
``the dusty conditions of the mine and blasting procedures are contrary 
to the State mining law and to the federal Mine safety Code under which 
the mine was being operated by the Coal Mines Administrator.''

1947                  Nation's bituminous coal mines returned to 
private owners. UMWA and coal industry begin 2-year struggle over 
direction of the Fund. After a 7 month stalemate, the neutral trustee 
---------------------------------------------------------------------------
resigns.

1948                  Miners strike to force activation of UMWA pension 
plan. Court holds UMWA in contempt because miners refuse to return to 
work. The Speaker of the U.S. House of Representatives, Joseph Martin, 
asked Fund trustees to meet with him. Speaker Martin proposes Senator 
Styles Bridges of New Hampshire as the neutral trustee. Senator 
Bridges, pointing out that nearly 2 years had elapsed since the Krug-
Lewis Agreement, voted with UMWA trustee John L. Lewis to activate the 
pensions. The first UMWA pension check is presented to Horace 
Ainscough, a retired miner from Rock Springs, Wyoming.

1950                  Coal operators create the Bituminous Coal 
Operators' Association (BCOA) to represent the coal industry in 
bargaining with the UMWA.

1950s                 UMWA Fund recruits doctors from the U.S. Public 
Health Service to administer the medical care program.

1954                  A special section 404(c) is added by Congress to 
the IRS Code to ``grandfather'' the existing UMWA Health and Retirement 
Fund to ensure the deductibility of employer contributions and 
favorable tax treatment for employees and retirees.

1955                  Recognizing the need for modern hospital and 
clinic facilities, the UMWA Funds constructed 10 hospitals in Kentucky, 
Virginia and West Virginia. The hospitals, known as Miners Memorial 
Hospitals, provided intern and residency programs and training for 
professional and practical nurses. Thus, because of the Funds, young 
doctors were drawn to areas of the country that were sorely lacking in 
medical professionals.

1963                  Kennedy Administration assists UMWA Funds in 
selling miners hospital chain to Appalachian Regional Hospitals, 
providing federal funds to the buyers. Although they were no longer 
owned and operated by the UMWA Funds, the hospitals continued to serve 
miners and other residents of coal field communities and contributed to 
a significant improvement in overall medical care.

1971                  Federal courts add nearly 20,000 primary 
beneficiaries to Funds pension and health programs in Blankenship v. 
Boyle and Kiser v. Huge.

1971                  The 1971 negotiations over the National 
Bituminous Coal Wage Agreement (NBCWA) take place during a period of 
federal wage and price controls imposed by the Nixon administration. 
The 1971 NBCWA increased labor costs by 15%, driven in part by the 
doubling of contributions to the UMWA Funds. The U.S. government 
approved the contract but did not allow an increase in the price of 
coal to consumers to pass through the increase in the contribution 
rates.

1974                  Congress enacts the Employee Retirement Income 
Security Act (ERISA). ERISA retained and amended Section 404(c) to 
retain the grandfathering of the existing UMWA Health and Retirement 
Fund. To comply with ERISA, the UMWA and BCOA create separate pension 
and benefit plans, creating the UMWA 1950 Pension Plan, the UMWA 1950 
Benefit Plan, the UMWA 1974 Pension Plan and the UMWA 1974 Benefit 
Plan.

1977-78               UMWA and BCOA bargain for a successor NBCWA 
agreement. BCOA proposes individual company health plans to replace the 
UMWA Funds. UMWA engages in 111 day nationwide strike. Federal 
government intervenes, attempts to mediate the dispute and obtains 
Taft-Hartley injunction. Under the NBCWA of 1978, responsibility for 
health care benefits for active workers and post-1975 retirees shifts 
from the UMWA Funds to individual companies. UMWA 1974 Benefit Plan is 
retained to serve as an orphan safety net to provide lifetime retiree 
health benefits to retirees when their employers go out of business.

1978                  President Carter appoints President's Coal 
Commission to examine the issues that led to the 1978 nationwide 
miners' strike, including ``health, safety and living conditions in the 
Nation's coal fields.'' The Coal Commission found that medical care in 
the coal field communities had greatly improved, not only for miners 
but for the entire community, as a result of the UMWA Funds. 
``Conditions since the Boone Report have changed dramatically, largely 
because of the miners and their Union--but also because of the Federal 
Government, State, and coal companies.'' The Commission concluded that 
``both union and non-union miners have gained better health care from 
the systems developed for the UMWA.'' \6\
---------------------------------------------------------------------------
    \6\ The American Coal Miner: A Report on Community and Living 
Conditions in the Coalfields, President's Commission on Coal, 1980.

1980                  Congress enacts the Multiemployer Pension Plan 
Amendments Act (MPPAA). MPPAA includes provisions exempting the 1950 
and 1974 Pension Plans from various withdrawal liability provisions, 
including the 20-year cap on amortized payments and the 50% cap on 
liquidation claims and otherwise providing different treatment to those 
---------------------------------------------------------------------------
Plans.

1981                  UMWA Funds enters into an agreement with U.S. 
Department of Labor to process DOL Black Lung medical claims.

1980s                 Royal-Nobel federal court cases \7\ hold that 
UMWA retiree health benefits are for life, but an employer's 
obligations to pay for that promise expires with the contract. In the 
Royal II and Nobel decisions, courts hold that lifetime promise rests 
at the UMWA Funds. Companies begin attempts to dump their liabilities 
onto the UMWA Funds.
---------------------------------------------------------------------------
    \7\ District 29, UMWA v. Royal Coal Co., 768 F.2d 588, 590 (4th 
Cir. 1985) (``Royal I''), District 29, UMWA v. 1974 Benefit Plan, 826 
F.2d 280, 282 (4th Cir. 1987), cert. denied, 485 U.S. 935 (1988) 
(``Royal II''), UMWA v. Nobel, 720 F. Supp. 1169, 1180 (W.D. Pa. 1989), 
affirmed without opinion, 902 F.2d 1558 (3d Cir.), cert. denied, 498 
U.S. 957 (1990).

1984                  Retirement Equity Act exempts the 1950 Pension 
Plan from requirements relating to Joint and Survivor Annuities and 
---------------------------------------------------------------------------
Preretirement Survivor Annuities.

1988-1989            Pittston Strike--Pittston refuses to participate 
in UMWA Funds and terminates health care for 2,000 retirees and widows. 
Pittston claims that under Royal-Noble decisions, Pittston retirees are 
responsibility of UMWA Funds. After working for over a year without a 
contract, Pittston miners strike in April 1989. Thousands of UMWA 
supporters engage in peaceful civil disobedience to protest Pittston's 
cutoff of health care, and more than 4,000 protesters are arrested. 
UMWA is fined $64 million by state courts during the strike.

1989                  U.S. Secretary of Labor Elizabeth Dole visits 
coal fields to investigate the Pittston strike, appoints ``super-
mediator'' Bill Usery, who mediates an end to the strike on New Year's 
Eve. Health benefits are restored and UMWA miners return to work.

1989                  MPPAA is amended to add a special withdrawal 
liability provision applicable only to the 1950 Pension Plan.

1990                  Secretary of Labor Elizabeth Dole appoints a 
federal commission (Coal Commission) to examine the provision of 
retiree health care in the coal industry.

1990                  Coal Commission issues findings and 
recommendations--``Retired coal miners have legitimate expectations of 
retiree health care benefits for life; that is what they were promised 
during their working years and that is how they planned their 
retirement years. That commitment should be honored.'' \8\
---------------------------------------------------------------------------
    \8\ Coal Commission Report: A Report to the Secretary of Labor and 
the American People, The Secretary of Labor's Advisory Commission on 
United Mine Workers of America Retiree Health Benefits, November 1990.

1990                  UMWA Funds enters demonstration project with 
Medicare under which the Funds is paid a per capita fee for Part B 
services, placing the Funds at risk for providing benefits within the 
---------------------------------------------------------------------------
level of these payments.

1991                  UMWA holds retiree meetings throughout the coal 
fields to rally support for federal legislation. Thousands of UMWA 
retirees pledge support for federal legislation.

1991                  Congress holds hearings on Coal Commission 
recommendations. UMWA testifies that Congress must step in to keep the 
promise of lifetime retiree health benefits.

1992                  Coal Act enacted by Congress and signed by 
President Bush. Pursuant to the Coal Act, companies still in business 
are required to maintain benefit plans for retired miners covered by 
the Act. The Coal Act merged the UMWA 1950 Benefit Plan and the UMWA 
1974 Benefit Plan into a new Combined benefit Fund (CBF). The Act also 
mandated the transfer of $210 million from UMWA 1950 Pension Plan to 
the new Combined Benefit Fund. The Coal Act also established a new UMWA 
1992 Benefit Plan to serve as an orphan safety net for retirees whose 
employers go out of business.

1990s                 Coal companies mount continuing legal assault on 
Coal Act, ``Reachback companies'' form political coalition to repeal or 
amend the Coal Act. Companies mount more than 70 constitutional 
challenges and repeatedly seek to relieve themselves of liability 
through legislation.

1994                  U.S. Supreme Court unanimously overturns $64 
million fines against UMWA in Pittston strike.

1995                  AML interest becomes available to fund Coal Act 
health benefits. UMWA Funds and the U.S. Office of Surface Mining and 
Enforcement (OSM) enter into a memorandum of understanding on the Coal 
Act transfers.

1996                  Alabama federal court issues NCA v. Chater 
ruling,\9\ which reduces premiums paid to the CBF by coal companies by 
about 10%. Over the long run, this decision will cost the CBF hundreds 
of millions of dollars.
---------------------------------------------------------------------------
    \9\ National Coal Association v. Chater, 81 F.3d 1077 (11th Cir. 
1996).

1997                  UMWA Funds demonstration risk agreement with 
---------------------------------------------------------------------------
Medicare expands to include Part A services.

1998                  Supreme Court rules in Eastern Enterprises,\10\ 
relieving some companies of Coal Act retiree obligations. Obligations 
that Congress intended for the companies to pay must now be paid from 
interest earned by the AML Fund.
---------------------------------------------------------------------------
    \10\ Eastern Enterprises. v. Apfel, 524 U.S. 498 (1998).

1999                  Alabama federal court orders UMWA Combined 
---------------------------------------------------------------------------
Benefit Fund to rebate $40 million to coal operators.

1999                  Congress appropriates $68 million to shore up 
Combined Benefit Fund.

2000                  Clinton Administration proposes $346 million Coal 
Act legislation, to be funded out of general revenues.

2000                  Congressman Nick Rahall introduces CARE 21, a 
bipartisan bill to shore up the financing of the CBF.

2000                  UMWA Rally in Washington, more than 10,000 UMWA 
supporters gather on the Capitol steps to Save the Coal Act.

2000                  Congress appropriates up to $98 million to cure 
deficits in CBF.

2000                  LTV Steel files for bankruptcy.

2001                  UMWA Funds demonstration agreement with Medicare 
again expanded to include 3-year Medicare prescription drug study; 
Funds to receive reimbursement for 27% of its Medicare prescription 
drug costs.

2001                  Bethlehem Steel files for bankruptcy.

2002                  Bankruptcy Court relieves LTV of its retiree 
health obligations. About 500 retired coal miners and surviving spouses 
are transferred from LTV's health plan to the UMWA Funds. In addition, 
LTV ceases paying Coal Act premiums that support nearly 3,000 LTV 
retirees receiving benefits from the CBF. While the CBF pursues and 
collects some money in bankruptcy claims, most of the future costs of 
the LTV retirees in the CBF shifts to the AML fund interest.

2002                  General Accounting Office (GAO) issues report, 
reinforcing need for additional Coal Act financing.\11\
---------------------------------------------------------------------------
    \11\ Retired Coal Miners Health Benefit Funds: Financial Challenges 
Continue, U.S. General Accounting Office, April 2002.

2002                  House of Representatives enacts CARE 21, Senate 
---------------------------------------------------------------------------
adjourns without taking up the bill.

2002                  National Steel files for bankruptcy.

2002                  Horizon Natural Resources files for bankruptcy.

2003                  Supreme Court decision in Barnhart v. Peabody 
requires companies to continue paying for their retirees in the CBF, 
regardless of when initial assignments are made.

2003                  Bankruptcy Court approves Bethlehem's motion to 
terminate benefits for 3,300 retired coal miners, who are transferred 
from Bethlehem's health plan to the UMWA Funds. In addition, Bethlehem 
ceases paying Coal Act premiums that support nearly 1,500 Bethlehem 
retirees receiving benefits from the CBF. While the CBF pursues and 
collects some money in bankruptcy claims, most of the future costs of 
the Bethlehem retirees in the CBF shifts to the AML fund interest.

2003                  Congress appropriates $34 million to shore up 
CBF.

2003                  Supreme Court denies cert. to A.T. Massey and 
Berwind Corp. in cases where the companies sought to evade liability by 
claiming they were ``substantially identical'' to Eastern Enterprises. 
The courts rejected those arguments and held that they must continue to 
pay for their retirees.

2003                  Bankruptcy Court relieves National Steel of its 
retiree health obligations. About 750 retirees and their surviving 
spouses are transferred from National Steel's health plan to the UMWA 
Funds. In addition, National Steel ceases paying Coal Act premiums that 
support nearly 570 national Steel retirees receiving benefits from the 
CBF. The CBF pursues and collects significant money in bankruptcy 
claims from a solvent related party, so to date the costs of the 
National Steel retirees in the CBF have not been shifted to the AML 
fund interest.

2004                  UMWA Funds commissions a study by Mercer 
Consulting that found the Funds population was older than and had a 
significantly higher burden of illness (35% higher) than a 
geographically comparable Medicare population. When adjusted for these 
factors, the Funds health expenditures were 7% lower than Medicare.\12\
---------------------------------------------------------------------------
    \12\ Health Status Assessment Project, Mercer Human Resource 
Consulting, July 2004.

2004                  Bush Administration announces extension and 
expansion of Funds Medicare prescription drug demonstration project. 
UMWA Funds to receive reimbursement for 60% of its Medicare 
---------------------------------------------------------------------------
prescription drug costs.

2004                  Bankruptcy court relieves Horizon of its 
obligation to provide retiree health care to some 4,500 UMWA retirees 
and surviving spouses. The retired miners and their surviving spouses 
are transferred to the UMWA Funds.

2006                  Congress enacts the Pension Protection Act (PPA). 
PPA differentiated the 1974 Pension Plan from other multiemployer plans 
by placing the responsibility for designing a Funding Improvement Plan 
or Rehabilitation Plan on the UMWA and BCOA rather than on the Board of 
Trustees.

2006                  Congress enacts Tax Relief and Health Care Act of 
2006, which contained Coal Act/AML provisions that the UMWA had 
advocated for several years. President Bush signed the bill into law on 
December 20, 2006. The legislation expanded the Coal Act to provide 
financing to cure deficits in the Combined Benefit Fund and to provide 
support for orphan retirees in both the UMWA 1992 Plan and the UMWA 
1993 Plan. The UMWA Funds now has access to AML interest, plus a 
permanent appropriation of up to $490 million per year from the Federal 
Treasury.

2007                  UMWA 1950 Pension Plan merged into UMWA 1974 
Pension Plan.

2008-2009            Stock market plummets in response to Wall Street 
shenanigans, leading to the worst recession since the Great Depression. 
Pension plans are devastated. The UMWA 1974 Pension Plan goes from 
being about 92% funded to about 74% funded. Federal government bails 
out banks responsible for the financial crisis.

2009                  UMWA Funds commissions a second study by Mercer 
Consulting that found the Funds population was older than and had a 
significantly higher burden of illness (32% higher) than a 
geographically comparable Medicare population. When adjusted for these 
factors, the Funds health expenditures were 12% lower than 
Medicare.\13\
---------------------------------------------------------------------------
    \13\ Health Status Assessment Project, Mercer, August 2009.

2010                  Bills are introduced in the U.S. House of 
Representatives and the U.S. Senate (CARE Act) to include the UMWA 1974 
Pension Plan in the 2006 Coal Act transfers. The bills would allow the 
1974 Pension Plan access to the $490 million permanent appropriation, 
---------------------------------------------------------------------------
after all existing Coal Act health plan and state transfers are met.

2010                  1974 Pension Plan commissions an analysis by 
Mercer that showed about half of the retirees in the Plan and 40% of 
the accrued liability derived from defunct employers that have gone out 
of business.

2010                  The 1974 Pension Plan is certified as being in 
``Seriously Endangered'' status under the PPA.

2012                  Patriot Coal, the second largest contributor to 
the UMWA Funds, files for bankruptcy.

2013                  Revised CARE Act bills are introduced in the U.S. 
House of Representatives and the U.S. Senate to include the UMWA 1974 
Pension Plan in the 2006 Coal Act transfers. The bills would allow the 
1974 Pension Plan access to the $490 million permanent appropriation, 
after all existing health plan and state transfers are met. In 
addition, the bills would provide Coal Act protection to retirees of 
companies that shed their retiree health obligations in bankruptcy.

2013                  Bankruptcy court relieves Patriot Coal of the 
obligation to provide health benefits to over 11,000 retired miners and 
surviving spouses. The retiree health obligations are shifted by the 
bankruptcy court to the Patriot Retirees Voluntary Employees' 
Beneficiary Association (VEBA). The bankruptcy court provides $15 
million financing for an estimated retiree health liability is $1.6 
billion.

                       Patriot is also relieved by the bankruptcy court 
of its obligations to all UMWA funds (including the 1993 Benefit Plan) 
except the 1974 Pension Plan. Primarily as a result of Patriot's 
withdrawal, the 1993 Benefit Plan is facing a projected deficit of 
about $18 million by the end of 2016, jeopardizing the health benefits 
of about 3,300 orphan retirees not covered by the Coal Act.

2013                  UMWA reaches settlement agreements with Patriot 
Coal, Peabody Energy and Arch Coal to provide nearly $400 million in 
additional financing to the Patriot VEBA through 2017.

2013                  H.R. 2918 is introduced in the U.S. House of 
Representatives. This legislation, which has substantial bi-partisan 
support, is similar to the CARE Act with respect to the 1974 Pension 
Plan but represents an alternative method of providing protection for 
the Patriot retirees. H.R. 2918 has 41 Republican co-sponsors and 28 
Democratic co-sponsors.

2014                  Senate Finance Committee Chairman Ron Wyden and 
Ranking Member Orrin Hatch announce agreement to work together to solve 
the Coal Act problems related to the Patriot retirees and the 1974 
Pension Plan.

2014                  1974 Pension Plan is projected to enter 
``Critical Status'' under the PPA.

2014                  H.R. 2918 is considered as part of the 2015 
Continuing Resolution enacted in the lame duck session of Congress in 
December, but was ultimately dropped before final passage.

2015                  A provision based on H.R. 2918 is included in the 
President's 2016 Budget proposal released by the White House February 
2, 2015.

                                 ______
                                 
 Prepared Statement of Cecil E. Roberts, Jr., International President, 
                     United Mine Workers of America
    Chairman Hatch, Ranking Member Wyden, and members of the committee, 
I want to thank you for holding this very important hearing today. 
Later this spring, we will mark the 70th anniversary of the historic 
agreement between the UMWA and the federal government that created the 
UMWA Health and Retirement Funds and established the government's 
promise to retired miners that their retirement would be secure. I have 
attached a brief history of the UMWA Funds and the government's 
involvement in those Funds to this testimony. It is those Funds, and 
more importantly the people they cover, that I would like to discuss 
with you today.

    Let me start by saying that the U.S. coal industry is in the midst 
of what can only be called a depression. In the past 5 years, U.S. coal 
production and consumption have gone down substantially, steam coal and 
metallurgical coal prices have plummeted and about 25,000 coal miners 
have lost their jobs. Aggregate stock values of the publicly traded 
U.S. coal companies have dropped more than 90 percent over the last 4 
years.

    As a result, the coal industry has experience an unprecedented wave 
of bankruptcies that have swept over some of the largest producers in 
the industry, including Patriot Coal (two bankruptcies in 3 years), 
Walter Energy, Alpha Natural Resources and Arch Coal. Together these 
companies accounted for about 29% of total U.S. coal production in 
2011, producing a combined 316 million tons of coal. There are rumors 
and speculation that other large employers may be forced to file for 
bankruptcy.

    The bankruptcies jeopardize the retiree health benefits of about 
20,000 retired UMWA miners and their families, and threaten the 
already-tenuous financial position of the UMWA 1974 Pension Plan. 
Bankruptcy courts have relieved Patriot and Walter of their lifetime 
obligations at the same time they have awarded their executives with 
millions of dollars in bonuses. These courts have also directed the 
UMWA to establish VEBAs to provide health benefits to the retirees. 
Unfortunately, the bankruptcy courts have not provided anywhere close 
to sufficient funds to pay for them.

    To date, the UMWA has been saddled with the management of lifetime 
health care benefits of about 12,150 retirees and dependents from 
Patriot Coal and, just recently, about 2,800 retirees and dependents of 
Walter Energy. Unfortunately, the funds available to pay those benefits 
will run out at about the end of 2016 if not sooner. The Alpha 
bankruptcy is still pending but there is every indication that Alpha, 
like Patriot and Walter, will seek to be relieved of its lifetime 
obligations to nearly 3,000 of its former employees.

    The bankruptcy courts have also allowed these companies to escape 
their obligations to the UMWA 1993 Benefit Plan, a plan that provides 
retiree health benefits to about 3,500 retirees and dependents not 
covered by the Coal Act. The loss of contributions from these companies 
will jeopardize the benefits of those retirees as well.

    Every court or government tribunal that has ever examined the 
question agrees that UMWA retirees are entitled to lifetime health 
care. A federal blue ribbon commission established by the U.S. 
Secretary of Labor, the Coal Commission, found in 1990 that:

        ``Retired miners have legitimate expectations of health care 
        benefits for life; that was the promise they received during 
        their working lives, and that is how they planned their 
        retirement years. That commitment should be honored.''

    But today, there is a looming health care tragedy unfolding in the 
coalfields, with potentially devastating human effects. In many cases, 
the loss of health care benefits will be a matter of life and death. In 
all cases it will be a financial disaster that the retired miners, who 
live on very meager pensions, will not be able to bear.

    In addition to the potential loss of health care benefits, the 
retired miners are facing a crisis in their pension plan. In 2007, 
shortly before the Wall Street meltdown in 2008-2009, the UMWA 1974 
Pension Plan was about 93% funded and projections showed it heading 
toward 100% funding over the next decade. The financial crisis blew a 
gaping hole in those projections, and the 1974 Plan today is projected 
to become insolvent within the coming decade. With the bankruptcy 
courts allowing companies to withdraw from the Plan, the insolvency 
looms ever larger and closer.
                            who is at risk?

    Senate Bill 1714, the Miners Protection Act, introduced by Senators 
Manchin and Capito, would ensure the promise of health care for retired 
miners is kept for retirees whose companies have been forced into 
bankruptcy due to the severe downturn in the coal industry. Without the 
passage of this legislation, about 20,000 retirees, their dependents or 
widows stand to lose their promise of lifetime retiree health care 
within a matter of months. In addition, S. 1714 would provide much-
needed support for the 1974 Pension Plan.

    These are real people we are talking about. They live on small 
pensions, averaging $530 per month, plus Social Security. They rely 
very heavily on the health care benefits they earned through decades of 
hard work in the nation's coal mines. Some of them are with us in this 
hearing room today, from Pennsylvania, Ohio and Virginia. They spent 
decades putting their lives and health on the line every single day, 
going into coal mines across this nation to provide the energy and raw 
materials needed to make America the most powerful nation on earth. And 
they did that even though they knew they would pay a physical price for 
it.

    Statistics show that UMWA retirees have a much higher level of 
cardiopulmonary diseases than the general population of people their 
age. They have more musculo-skeletal injuries. They have higher rates 
of cancers. Many of them have black lung to at least some degree, and 
thousands have severe cases.

    So, knowing the eventual toll mining would take on their bodies, 
they demanded that their union negotiate the best possible health care 
benefits we could. Over many decades of hard and too often dangerous 
work, they gave up money that could have gone into better wage 
increases or better pensions and instead demanded that they have high-
quality health care when their working days were over.

    But now, through no fault of their own, thousands of retirees face 
the loss of these benefits because of coal company bankruptcies that 
occurred in 2012 and 2015. Bankruptcy courts have relieved their former 
employers of the contractual obligations to provide health care 
benefits for retirees.

    These retirees have earned that health care many times over. They 
performed a critical service to our nation for decades. But more 
importantly, their government promised that they would have these 
benefits. They believe the United States Government should keep its 
promises. But if this legislation does not pass, these retirees and 
thousands more like them will be confronted with the loss of those 
lifetime benefits around the end of this year, or sooner. They and 
their dependents do not have the luxury of waiting any longer for this 
legislation to pass.

    S. 1714 would also ensure that the pensions these members worked to 
hard to earn will be preserved, as well as eliminating the likelihood 
of the UMWA 1974 Pension Plan's failure and the resulting failure of 
the Pension Benefit Guaranty Corporation (PBGC) if it is forced to 
assume the liabilities of the 1974 Pension Plan. Indeed, the PBGC 
recently confirmed in a letter to Representative David McKinley that 
insolvency of the 1974 Plan would hasten the insolvency of the PBGC's 
multiemployer program.

    The UMWA 1974 Pension Plan is a Taft-Hartley multiemployer pension 
plan that is part of the UMWA Health and Retirement Funds, a group of 
multiemployer health and pension plans that originated in a contract 
between the UMWA and the federal government during a time of government 
seizure of the nation's bituminous coal industry in 1946. That 
contract, known as the Krug-Lewis agreement, was signed in the White 
House with President Harry S. Truman presiding. The Krug-Lewis 
agreement, named after Secretary of the Interior Julius Krug and UMWA 
president John L. Lewis, promised miners that upon retirement they 
would be entitled to pensions and health benefits for life.

    The 1974 Plan provides pension benefits to coal miners who worked 
under the National Bituminous Coal Wage Agreement (NBCWA). Other funds 
administered by the UMWA Health and Retirement Funds provide health 
benefits to retired coal miners and their dependents under the Coal Act 
and the NBCWA.

    The UMWA 1974 Pension Plan is one of the largest multiemployer 
pension plans in the country, providing pensions to nearly 90,000 
pensioners and surviving spouses who live in nearly every state in the 
United States. There are also about 16,000 active miners and former 
miners who will have a claim for a future pension. Its active and 
retired participants are concentrated in the coal producing states of 
Appalachia.

    The 1974 Plan has been well managed, with investment returns over 
the last 10 years averaging 8.2% per year, placing it in the 97th 
percentile of multiemployer plans. However, one key measure shows the 
demographic problem facing the 1974 Pension Plan: it has a ratio of 
active participants to retired participants of 0.09, meaning there are 
more than 10 retired or non-working participants for every working 
miner under the Plan. This places the 1974 Plan in the lowest 10th 
percentile among its multiemployer plan peers.

    The 1974 Pension Plan is on the path to insolvency. Although the 
average pension paid by the 1974 Plan is low (about $530 per month), 
the plan pays out a significant portion of its assets each year in 
total benefits. At its last valuation, the 1974 Plan had about $3.8 
billion in assets and pays out about $600 million in benefits, or over 
15% of its assets, each year. Despite being about 93% funded just 
before the financial crisis in 2008, the 1974 Plan's actuary projects 
the plan will become insolvent in the 2025-2026 plan year absent 
passage of S. 1714. The PBGC recently said that some of its actuarial 
simulations show insolvency as soon as 2020.

    While 2020 sounds like there is time to put off this problem for 
another day, there is not. Delay is not an option. Indeed, the 
actuarial estimates indicate that absent the transfers called for in S. 
1714, the 1974 Plan will be on an irreversible glide path to insolvency 
very soon, unless a massive infusion of money is found that is 
significantly in excess of what is available via S. 1714.

    The 1974 Plan sponsors have taken steps to address the 
deteriorating financial outlook of the plan. Contribution rates were 
increased from $2.00 per hour in 2007 to $5.50 per hour in 2011. PBGC 
has reported that multiemployer plans on average increased their 
contributions in response to the financial crisis from 2008 to 2010 by 
16.3%. Over the same period, the contribution rate for the 1974 Plan 
increased 42.9%, and from 2007 to 2011 it increased 175%. In addition, 
the 2011 contract closed the plan to new inexperienced miners hired 
after 2012, while still requiring the signatory coal companies to pay 
contributions to the plan on their hours. The contribution rate today 
is $6.05 per hour worked.

    The timeline for insolvency has accelerated in just the last year 
as three major coal companies--Patriot Coal, Walter Energy and Alpha 
Natural Resources--filed for bankruptcy. Two of them have been relieved 
of their pension obligations and have ceased making contributions to 
the 1974 Pension Plan. A court decision on the continuing obligations 
for pension payments for the third company could come within the next 
few months.

    As a result of this, about 45% of the 1974 Pension Plan's 2014 
total employer contributions have been, or soon could be lost. Adding 
to this is the severe downturn experienced by the coal industry the 
last several years, which has resulted in fewer active miners working 
for those employers that remain and a corresponding additional drop in 
contributions. The coalfield layoffs also mean that some miners retire 
earlier than they otherwise might have, leading to greater pension 
payouts.

    The Multiemployer Pension Reform Act (MPRA) was enacted in December 
2014, but it offers no solution to the 1974 Pension Plan, a fact that 
the primary advocate of the legislation, the National Coordinating 
Committee for Multiemployer Plans (NCCMP), acknowledged when it 
initially urged Congress to adopt the law. The MPRA provides that 
certain plans that are ``critical and declining'' may voluntarily 
suspend accrued benefits for retired participants, provided the plan's 
actuary certifies that the plan is projected to avoid insolvency after 
taking into account the suspensions.

    Actuarial projections show that the 1974 Plan cannot avoid 
insolvency even if it cut accrued benefits to the maximum extent 
allowed under the MPRA. Because benefits are very modest under the 1974 
Plan, averaging about $530 per month, cutting benefits for retired 
participants does not achieve sufficient savings to prevent insolvency. 
However, pension cuts would be harsh for the individual retirees and 
for the communities in which they live.

    The MPRA also contains a provision to allow for the partition of 
certain pension plans by PBGC. In order to approve a partition, a plan 
must first cut accrued benefits to the maximum permitted under the law, 
and PBGC must certify that granting a partition does not impair the 
PBGC's ability to meet financial obligations to other multiemployer 
plans. It appears that PBGC could not certify to Congress that it could 
meet its financial obligations to other multiemployer plans if the 1974 
Plan were partitioned. In addition, partitioning the 1974 Plan would 
have the same effect on PBGC as insolvency, but at an earlier date.

    Most importantly, either letting the 1974 Plan become insolvent or 
partitioning the plan are more expensive than fixing the problem with 
S. 1714. We asked an actuary to estimate the costs of these 
alternatives last year. They concluded, as shown in the chart below, 
that S. 1714 is less expensive to the government than any other 
outcome. The cost of an insolvency is projected to have a present value 
of about $4.6 billion, compared to about $2.3 billion for S. 1714. And 
partitioning the Plan under MPRA, even if PBGC could legally do so, 
would also be significantly more expensive than S. 1714.

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]



    S. 1714, the Miners Protection Act, clearly offers the most cost 
effective solution to the problems of the 1974 Pension Plan. It 
provides a solution to the 1974 Plan financial problems without adding 
to the looming financial problems of the PBGC. Further, S. 1714 does 
not deprive struggling retirees and coalfield communities of much 
needed income.
                       keeping america's promise
    The United States government has a long history of involvement with 
the UMWA Health and Retirement Funds, dating back to its creation in 
the White House in 1946. Indeed, the Coal Commission found that UMWA 
Funds ``is as much a creature of government as it is of collective 
bargaining. There is a line running from the original Boone Report to 
the present system. In a way, the original Krug-Lewis agreement 
predisposed, if not predetermined, the system that evolved.''

    I don't know if there is another example of an industry-wide, 
multiemployer health and pension fund that was established in a 
contract between private sector workers and the federal government. The 
Krug-Lewis agreement represented a joint commitment between the federal 
government and the nation's coal miners. Coal miners made a commitment 
to provide the nation with much-needed energy, even at the risk of 
their lives and health in often dangerous conditions. The government 
committed that upon their retirement they would have pensions and 
health care for life. The miners lived up their commitment and the 
federal government has enacted federal legislation on numerous 
occasions to live up to its commitments.

    The pension plan that grew out of the Krug-Lewis agreement is now 
on the path to insolvency, not because of mismanagement or overly 
generous benefits, but because of demographic factors that it cannot 
overcome. On the health care side, bankruptcy courts are relieving 
responsible employers of their legal, contractual and moral obligations 
to provide retiree health benefits to thousands of their former 
workers, creating a new class of orphan retirees. The Coal Act was 
based on the simple premise that responsible coal operators should 
continue to provide promised benefits, but federal government support 
was needed for orphaned retirees. Congress has stepped up to the 
challenge of orphan miners before in times of crisis. It is time once 
again for the federal government to fulfill its commitment to retired 
coal miners. The Miners Protection Act keeps the promise that began in 
the White House so long ago and has been periodically renewed by 
Congress over the last few decades, and it does so at a cost that is 
lower than any other alternative.

    I want to personally thank those on the committee who have worked 
so hard over the last two Congresses to ensure that the promise is kept 
to the nation's miners. I know that you came very close on two separate 
occasions to enacting S. 1714. Senators and Representatives from both 
sides of the aisle have worked hard to secure passage of this vital 
legislation because they know the disaster that awaits us in the 
coalfields if we fail to act. I'm here today to remind you that we are 
running out of time. S. 1714 must be enacted in this Congress if the 
promise to retired miners is to be kept.

                                 ______
                                 
                              attachment i
      the umwa health and retirement funds and the u.s. government
    The UMWA Health and Retirement Funds (the Funds) was created in 
1946 in a contract between the United Mine Workers of America and the 
federal government during a time of government seizure of the mines. 
The contract was signed in the White House with President Harry Truman 
presiding over the historic event.

    The UMWA first began proposing a health and welfare fund for coal 
miners in the late-1930s but met strident opposition from the coal 
industry. During World War II, the federal government urged the union 
to postpone its demands to ensure coal production for the war effort. 
When the National Bituminous Wage Conference convened in early 1946, 
immediately following the end of the war, a health and welfare fund for 
miners was the union's top priority. The operators rejected the 
proposal and miners walked off the job on April 1, 1946. Negotiations 
under the auspices of the U.S. Department of Labor continued 
sporadically through April. On May 10, 1946, President Truman summoned 
John L. Lewis and the operators to the White House. The stalemate 
appeared to break when the White House announced an agreement in 
principle on a health and welfare fund.

    Despite the White House announcement, the coal operators still 
refused to agree to the creation of a medical fund. Another conference 
at the White House failed to forge an agreement and the negotiations 
again collapsed. Faced with the prospect of a long strike that could 
hamper post-war economic recovery, President Truman issued an Executive 
Order directing the Secretary of the Interior to take possession of all 
bituminous coal mines in the United States and to negotiate with the 
union ``appropriate changes in the terms and conditions of 
employment.'' Secretary of the Interior Julius Krug seized the mines 
the next day. Negotiations between representatives of the UMWA and the 
federal government continued, first at the Interior Department and then 
at the White House, with President Truman participating in several 
conferences.

    After a week of negotiations, the historic Krug-Lewis agreement was 
announced and the strike ended. It created a welfare and retirement 
fund to make payments to miners and their dependents and survivors in 
cases of sickness, permanent disability, death or retirement, and other 
welfare purposes determined by the trustees. The fund was to be managed 
by three trustees, one to be appointed by the federal government, one 
by the UMWA and the third to be chosen by the other two. Financing for 
the new fund was to be derived from a royalty of 5 cents per ton of 
coal produced.

    The Krug-Lewis agreement also created a separate medical and 
hospital fund to be managed by trustees appointed by the UMWA. The 
purpose of the fund was to provide for medical, hospital, and related 
services for the miners and their dependents. The Krug-Lewis agreement 
also committed the federal government to undertake ``a comprehensive 
survey and study of the hospital and medical facilities, medical 
treatment, sanitary and housing conditions in coal mining areas.'' The 
expressed purpose was to determine what improvements were necessary to 
bring coal field communities in conformity with ``recognized American 
standards.''

    To conduct the study, the Secretary chose Rear Admiral Joel T. 
Boone of the U.S. Navy Medical Corps. Government medical specialists 
spent nearly a year exploring the existing medical care system in the 
nation's coal fields. Their report, ``A Medical Survey of the 
Bituminous Coal Industry,'' found that in coal field communities, 
``provisions range from excellent, on a par with America's most 
progressive communities, to very poor, their tolerance a disgrace to a 
nation to which the world looks for pattern and guidance.'' The survey 
team discovered that ``three-fourths of the hospitals are inadequate 
with regard to one or more of the following: surgical rooms, delivery 
rooms, labor rooms, nurseries and x-ray facilities.'' The study 
concluded that ``the present practice of medicine in the coal fields on 
a contract basis cannot be supported. They are synonymous with many 
abuses. They are undesirable and in many instances deplorable.''

    Thus the Boone report not only confirmed earlier reports of 
conditions in the coal mining communities, but also established a 
strong federal government interest in correcting long-standing 
inadequacies in medical care delivery. Perhaps most important, it 
provided a road map for the newly created UMWA Fund to begin the 
process of reform.

    The Funds established 10 regional offices throughout the coal 
fields with the direction to make arrangements with local doctors and 
hospitals for the provision of ``the highest standard of medical 
service at the lowest possible cost.'' One of the first programs 
initiated by the Funds was a rehabilitation program for severely 
disabled miners. Under this program, more than 1,200 severely disabled 
miners were rehabilitated. The Funds searched the coal fields to locate 
disabled miners and sent them to the finest rehabilitation centers in 
the United States. At those centers, they received the best treatment 
that modem medicine and surgery had to offer, including artificial 
limbs and extensive physical therapy to teach them how to walk again. 
After a period of physical restoration, the miners received 
occupational therapy so they could provide for their families.

    The Funds also made great strides in improving overall medical care 
in coal mining communities, especially in Appalachia where the greatest 
inadequacies existed. Recognizing the need for modern hospital and 
clinic facilities, the Funds constructed 10 hospitals in Kentucky, 
Virginia and West Virginia. The hospitals, known as Miners Memorial 
Hospitals, provided intern and residency programs and training for 
professional and practical nurses. Thus, because of the Funds, young 
doctors were drawn to areas of the country that were sorely lacking in 
medical professionals. A 1978 Presidential Coal Commission found that 
medical care in the coal field communities had greatly improved, not 
only for miners but for the entire community, as a result of the UMWA 
Funds. ``Conditions since the Boone Report have changed dramatically, 
largely because of the miners and their Union--but also because of the 
Federal Government, State, and coal companies.'' The Commission 
concluded that ``both union and non-union miners have gained better 
health care from the systems developed for the UMWA.''
                          the coal commission
    In the 1980s, medical benefits for retired miners became a sorely 
disputed issue between labor and management, as companies sought to 
avoid their obligations to retirees and dump those obligations onto the 
UMWA Funds, thereby shifting their costs to other signatory employers. 
Courts had issued conflicting decisions in the 1980s, holding that 
retiree health benefits were indeed benefits for life, but allowing 
individual employers to evade the obligation to fund those benefits. 
The issue came to a critical impasse in 1989 during the UMWA-Pittston 
Company negotiations. Pittston had refused to continue participation in 
the UMWA Funds, while the union insisted that Pittston had an 
obligation to the retirees.

    Once again the government intervened in a coal industry dispute 
over health benefits for miners. Secretary of Labor Elizabeth Dole 
appointed a special ``super-
mediator,'' Bill Usery, also a former Secretary of Labor. Ultimately 
the parties, with the assistance of Usery and Secretary Dole, came to 
an agreement. As part of that agreement, Secretary Dole announced the 
formation of an Advisory Commission on United Mine Workers of America 
Retiree Health Benefits, which became known as the ``Coal Commission.'' 
The commission, including representatives from the coal industry, coal 
labor, the health insurance industry, the medical profession, academia, 
and the government, made recommendations to the Secretary and the 
Congress for a comprehensive resolution of the crisis facing the UMWA 
Funds. The recommendation was based on a simple, yet powerful, finding 
of the commission:

        ``Retired miners have legitimate expectations of health care 
        benefits for life; that was the promise they received during 
        their working lives, and that is how they planned their 
        retirement years. That commitment should be honored.''

    The underlying Coal Commission recommendation was that every 
company should pay for its own retirees. The Commission recommended 
that Congress enact federal legislation that would place a statutory 
obligation on current and former signatories to the National Bituminous 
Coal Wage Agreement (NBCWA) to pay for the health care of their former 
employees. The Commission recommended that mechanisms be enacted that 
would prevent employers from ``dumping'' their retiree health care 
obligations on the UMWA Funds. Finally, the Commission urged Congress 
to provide an alternative means of financing the cost of ``orphan 
retirees'' whose companies no longer existed.
                              the coal act
    Recognizing the crisis that was unfolding in the nation's coal 
fields, Congress acted on the Coal Commission's recommendations. The 
original bill introduced by Senator Rockefeller sought to impose a 
statutory obligation on current and former signatories to pay for the 
cost of their retirees in the UMWA Funds, require them to maintain 
their individual employer plans for retired miners, and levy a small 
tax on all coal production to pay for the cost of orphan retirees. 
Although the bill was passed by both houses of Congress, it was vetoed 
as part of the Tax Fairness and Economic Growth Act of 1992.

    In the legislative debate that followed, much of the underlying 
structure of the Coal Commission's recommendations was maintained, but 
there was strong opposition to a general coal tax to finance orphan 
retirees. A compromise was developed that would finance orphans through 
the use of interest on monies held in the Abandoned Mine Lands (AML) 
fund. In addition, the Union accepted a legislative compromise that 
included the transfer of $210 million of pension assets from the UMWA 
1950 Pension Plan. With these compromises in place, the legislation was 
passed by Congress and signed into law by President Bush as part of the 
Energy Policy Act.

    Under the Coal Act, two new statutory funds were created--the UMWA 
Combined Benefit Fund (CBF) and the UMWA 1992 Benefit Fund. The former 
UMWA 1950 and 1974 Benefit Funds were merged into the Combined Fund, 
which was charged with providing health care and death benefits to 
retirees who were receiving benefits from the UMWA 1950 and 1974 
Benefit Plans on or before July 20, 1992. The Coal Act also mandated 
that employers who were maintaining employer benefit plans under UMWA 
contracts at the time of passage would be required to continue those 
plans under Section 9711 of the Coal Act. Section 9711 was enacted to 
prevent future ``dumping'' of retiree health care obligations by 
companies that remain in business. To provide for future orphans not 
eligible for benefits from the CBF, Congress established the UMWA 1992 
Benefit Fund to provide health care to miners who retired prior to 
October 1, 1994 and whose employers are no longer providing benefits 
under their 9711 plans.

    In passing the Coal Act, Congress recognized the legitimacy of the 
Coal Commission's finding that ``retired miners are entitled to the 
health care benefits that were promised and guaranteed them.'' Congress 
specifically had three policy purposes in mind in passing the Coal Act:

        ``(1) to remedy problems with the provision and funding of 
        health care benefits with respect to the beneficiaries of 
        multiemployer benefit plans that provide health care benefits 
        to retirees in the coal industry;

        (2) to allow for sufficient operating assets for such plans; 
        and

        (3) to provide for the continuation of a privately financed 
        self-sufficient program for the delivery of health care 
        benefits to the beneficiaries of such plans.''

    Without question, Congress intended that the Coal Act should 
provide ``sufficient operating assets'' to ensure the continuation of 
health care to retired coal miners. However, the financial mechanisms 
in the Coal Act eventually proved to be inadequate and Congress was 
required to intervene on several occasions to shore up the CBF, 
including special appropriations on three occasions in 1999, 2000 and 
2003. In addition, the Funds Medicare demonstration programs were 
expanded to include significant funding for prescription drugs in 2001 
by the outgoing Clinton administration, and again in 2004 by the Bush 
administration.
                      the 2006 coal act amendments
    A wave of bankruptcies in the early 2000s prompted Congress to 
revisit the Coal Act. The bankruptcies of LTV Steel, National Steel, 
Bethlehem Steel and Horizon Natural Resources added thousands of orphan 
retirees into the 1992 Benefit Plan and the 1993 Benefit Plan. In 
response, Congress adopted the 2006 amendments to the Coal Act as part 
of the Tax Relief and Health Care Act of 2006. Those amendments 
expanded the Coal Act to provide financing to cure deficits in the 
Combined Benefit Fund and to provide support for orphan retirees in 
both the UMWA 1992 Plan and the UMWA 1993 Plan. The financial 
mechanisms of the Coal Act were also expanded to include not only 
interest on the Abandoned Mine Lands fund, but also mandatory spending 
of up to $490 million each year. This amount was based on the amount of 
money estimated to be paid by the coal industry in mineral leasing 
fees.

                                 ______
                                 
                              attachment 2

             UMWA Health and Retirement Funds  Benefit Expenditures and Populations by State, CY 2015
----------------------------------------------------------------------------------------------------------------
                                              Total Pension  Paid        Total Health
        State         Total Health  Expense           \3\             Beneficiaries \4\     Total Pensioners \4\
----------------------------------------------------------------------------------------------------------------
** \1\                             $15,392                $44,841                      1                     12
AK                                 $85,909                $61,929                      7                     16
AL                             $11,998,485            $58,186,593                    605                  6,075
AR                                $780,820               $401,913                     46                     97
AZ                                $817,317               $903,665                     34                    164
CA                              $1,282,450               $362,339                     47                     92
CO                              $3,378,310             $2,354,676                    186                    501
CT                                $106,328                $33,351                      6                     10
DC                                $115,622                $26,899                      4                      9
DE                                $243,293               $101,018                     15                     28
FL                              $8,231,620             $6,137,265                    403                  1,175
GA                              $1,386,403             $1,134,585                     76                    236
HI                                      $0                $16,891                      0                      3
IA                                 $52,000                $71,187                      4                     15
ID                                $204,562                $98,416                     12                     29
IL                             $32,812,666            $64,951,785                  1,965                  8,807
IN                             $21,472,390            $22,216,788                  1,338                  2,848
KS                              $1,523,983               $900,934                     91                    164
KY                             $56,414,817            $52,531,191                  3,001                  9,511
LA                                 $66,220               $114,633                      4                     23
MA                                $100,190                $14,831                      2                      5
MD                              $1,624,344             $1,263,897                     66                    236
ME                                      $0                $23,940                      0                      4
MI                                $852,383               $302,328                     47                     90
MN                                 $67,533                $36,353                      2                      9
MO                              $1,252,283             $3,529,424                     63                    658
MS                                $123,846               $162,803                     10                     42
MT                                $293,857               $104,333                     13                     30
NC                              $5,688,722             $4,702,335                    304                  1,019
ND                                      $0                 $5,152                      0                      3
NE                                 $10,499                $14,970                      1                      3
NH                                 $14,521                $10,119                      1                      4
NJ                                $373,582               $118,645                     17                     30
NM                                $451,112             $2,334,078                     29                    313
NV                                $265,351               $247,083                     13                     61
NY                                $782,781               $209,959                     31                     55
OH                             $19,772,263            $39,892,451                  1,002                  5,810
OK                              $1,046,685               $816,902                     52                    198
OR                                $154,534                $64,738                      4                     14
PA                             $96,730,615            $83,646,912                  4,960                 12,951
PR                                 $10,921                 $6,729                      1                      2
RI                                 $65,868                $13,402                      2                      3
SC                              $2,530,058             $2,507,292                    137                    425
SD                                      $0                $22,366                      0                      6
TN                              $8,960,426             $5,325,722                    467                  1,138
TX                              $1,180,231               $894,370                     55                    201
UT                              $4,410,367            $10,565,439                    245                  1,153
VA                             $38,145,855            $42,950,952                  2,107                  7,507
VI                                      $0                $28,438                      0                      2
VT                                 $42,288                 $5,711                      1                      2
WA                                $366,386               $143,927                     22                     38
WI                                $228,115                $81,172                      8                     21
WV                            $187,851,332           $202,114,914                 10,513                 27,391
WY                                $274,902               $258,869                     16                     48
Total Expense                 $514,660,437           $613,071,457                 28,036                 89,287
 
Total Population
----------------------------------------------------------------------------------------------------------------
\1\ Unmatched records or beneficiary lives outside U.S.
\2\ Total Expense from 12/2015 runout estimates.
\3\ CY 2015 Pension includes first-time payments, bonuses, and monthly pension paid (data provided by Systems).
\4\ Total health and pensioner populations as of 12/31/2015.
A zero population indicates no active population on 12/31/2015, but payment(s) could have been made during 2015.


                                 ______
                                 
      Questions Submitted for the Record to Cecil E. Roberts, Jr.
               Questions Submitted by Hon. Orrin G. Hatch
    Question. Mr. Roberts, you say in your written testimony that 
enacting the bill sponsored by Senators Capito and Manchin is the least 
expensive way for Congress to address the UMWA pension crisis. Please 
explain why this is the least expensive alternative for taxpayers.

    Answer. Policy makers have essentially three choices before them: 
do nothing and let the 1974 Plan become insolvent, try to use the tools 
available under the newly enacted Multiemployer Pension Reform Act 
(MPRA) or enact S. 1714, the Miners Protection Act. All three 
alternatives involve costs, but the Manchin/Capito bill is the most 
efficient, least expensive and least disruptive way to address the 
problems of the 1974 Pension Plan.

    We asked an outside actuarial firm with expertise in multiemployer 
pension plans, Horizon Actuarial Services, to compare the costs of the 
three alternatives. Their detailed analysis found that insolvency would 
impose costs of about $4.6 billion (in present value dollars). This 
includes about $5 billion of liability for the PBGC and about $1.4 
billion in lost income to coalfield communities that otherwise would 
flow from the 1974 Plan because of the benefit cuts that would be 
imposed by PBGC.\1\ Discounted to today's dollars, that amounts to 
about $4.6 billion.
---------------------------------------------------------------------------
    \1\ Pursuant to recent revisions in the House rules adopted as part 
of H. Res. 5, the macroeconomic effects of major legislation are now 
required to be taken into account in evaluating the overall impact of 
such legislation on the Federal budget.

    The Horizon analysis found that MPRA does not work for the 1974 
Plan \2\ because actuarial projections show that the 1974 Plan cannot 
avoid insolvency even if it cut accrued benefits to the maximum extent 
allowed under the MPRA. The MPRA also contains a provision to allow for 
the partition of certain pension plans by PBGC. In order to approve a 
partition, a plan must first cut accrued benefits to the maximum 
permitted under the law, and PBGC must certify that granting a 
partition does not impair the PBGC's ability to meet financial 
obligations to other multiemployer plans. It appears that PBGC could 
not certify to Congress that it could meet its financial obligations to 
other multiemployer plans if the 1974 Plan were partitioned. Even if 
the conditions for a partition under the MPRA could be met, the total 
cost of partition is greater than that of the Manchin/Capito approach. 
The PBGC would have to take on a minimum direct liability of about $2.0 
billion in 2017 in order to allow the 1974 Plan to remain solvent.\3\ 
In addition, coalfield communities would lose nearly $1.1 billion in 
income due to the benefit cuts required for a partition under MPRA, for 
a total present value cost of about $3.1 billion.\4\
---------------------------------------------------------------------------
    \2\ The MPRA was based on recommendations from the National 
Coordinating Committee for Multiemployer Plans (NCCMP). In its report, 
Solutions Not Bailouts, NCCMP noted that its proposal to permit plans 
to reduce accrued benefits did not work for certain deeply troubled 
plans like the 1974 Plan. It noted in footnote 7, ``Certain deeply 
troubled plans, including one of the two plans referenced in footnote 3 
above, have problems of such severity that the proposed partial 
suspension of benefits would be insufficient to address their problems. 
Consequently, this proposal is not applicable to such plans. 
Furthermore, such plans in certain industries both require and are more 
amenable to solutions that take into account both their problems and 
available industry specific sources of funding.'' The NCCMP was 
referring specifically to the 1974 Plan in footnote 7.
    \3\ These projections assume that a partition would occur in 2017. 
A partition assumed to occur later would increase the cost because the 
1974 Plan assets are projected to decline faster than its liabilities.
    \4\ Horizon Actuarial Services, LLC, Analysis of 1974 Pension Plan, 
April 16, 2015.

    The Horizon study also estimated the cost of the Manchin/Capito 
approach. Assuming that the 1974 Plan would receive about $200 million 
per year under the bill, Horizon estimated the present value costs at 
about $2.3 billion. This is about half the cost of insolvency and 
substantially less than the cost of MPRA, even if the MPRA partition 
could be legally accomplished. Further, both insolvency and MPRA would 
impose significant costs on retirees and coalfield communities that are 
already struggling from the loss of coal mining jobs. S. 1714 would 
avoid those devastating losses to the coalfield communities. In 
addition, S. 1714 provides a solution to the 1974 Plan financial 
---------------------------------------------------------------------------
problems without adding to the looming financial problems of the PBGC.

    Question. Mr. Roberts, understanding that certain defined benefits 
have been earned, has UMWA considered a hard freeze on the defined 
benefit plan and a move to a 401(k) plan to keep from digging the hole 
deeper?

    Answer. The 2011 National Bituminous Coal Wage Agreement (NBCWA) 
closed the plan to new entrants who began working in the coal industry 
in 2012. Those miners do not accrue any pension from the 1974 Plan but 
instead receive employer contributions into a multiemployer 401(k) 
plan. Despite the fact that these new miners do not accrue any pension 
credit, the 2011 NBCWA requires companies to pay contributions 
(currently $6.05 per hour worked) to the 1974 Plan for the work of 
these miners.

    Question. Mr. Roberts, a number of factors have contributed to the 
coming UMWA insolvency. Still, do UMWA and the plan's trustees accept 
any responsibility for the plan's current shortfalls, and if so, has 
there been any accountability for poor fund management by the UMWA and 
the plan's trustees that has contributed to such severe underfunding?

    Answer. The 1974 Pension Plan has been prudently managed and we do 
not believe the Plan's financial difficulties are the result of ``poor 
management.'' In 2007, shortly before the Wall Street meltdown in 2008-
2009, the UMWA 1974 Pension Plan was about 93% funded and projections 
showed it heading toward 100% funding over the next decade. The 
financial crisis blew a gaping hole in those projections, and the 1974 
Plan today is projected to become insolvent within the coming decade. 
With the bankruptcy courts allowing companies to withdraw from the 
Plan, the insolvency looms ever larger and closer.

    The chart below shows the 1974 Plan actuary's projection for the 
funded status of the Plan in 3 different years. The green line at top 
shows the projected funded status in December 2007. The Plan was about 
93% funded and the actuary projected that it would approach 100% funded 
in the coming decade. The blue line at bottom shows the actuary's 
projection in April of 2009 after the Wall Street meltdown, indicating 
insolvency around 2017-2018. The red line in the middle shows actual 
experience through 2015 and projections through 2024. As you'll note, 
the actual experience of the Plan has been significantly better than 
what the actuary projected in 2009. Instead of being about 25% funded 
in 2015 as projected, the Plan was about 67% funded. This chart shows 
the Plan has continued to be well-managed in the wake of the Wall 
Street crisis and subsequent recession.

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]



    The 1974 Plan historically has performed well compared to its 
multiemployer peers. The 1974 Plan is one of the largest multiemployer 
pension plans in the country, ranking in the 97th percentile of 
multiemployer plans in terms of assets and participants. The 1974 Plan 
has been well managed, with investment returns over the last 10 years 
averaging 8.2% per year, also placing it in the 97th percentile of 
multiemployer plans.\5\
---------------------------------------------------------------------------
    \5\ Comparison data on 1974 Plan and multiemployer peers taken from 
The Multiemployer Retirement Plan Landscape: a Ten-Year Look, a 2013 
study for the International Foundation of Employee Benefit Plans 
(IFEBP) conducted by Horizon Actuarial Services, LLC.

    The major difficulty facing the 1974 Plan is the high ratio of 
retired miners to active miners and the rapid erosion of the 
contribution base. There are over 10 retired miners to every active 
participant in the 1974 Plan. This ratio places the 1974 Plan in the 
lowest 10th percentile among its multiemployer plan peers. The median 
multiemployer plan has a participant ratio of 6 workers for every 10 
retirees. In general, the lower the participant ratio, the harder it is 
to affect plan funding by employer contribution increases or reductions 
in future benefit accruals. Indeed, the Pension Benefit Guaranty 
Corporation (PBGC) noted in a June 2014 report that ``some already 
distressed plans remain critically underfunded and will not be able to 
further raise contributions or reduce benefits sufficiently to avoid 
insolvency.'' \6\
---------------------------------------------------------------------------
    \6\ PBGC press release, PBGC Report Shows Improvement in Single-
Employer Plans, but Underscores Increased Risks to Some Multiemployer 
Plans, June 30, 2014.

    Question. Mr. Roberts, Secretary Hillary Clinton recently stated 
that as President that she intended ``to put a lot of coal miners and 
coal companies out of business.'' If she were to succeed, enacting 
policies that put more coal companies out of business, what would be 
---------------------------------------------------------------------------
the potential impact on UMWA's pension and health care plans?

    Answer. Bankruptcy courts have already done serious harm to the 
1974 Plan's contribution base and have relieved employers of the 
lifetime obligation to provide benefits to approximately 15,000 
retirees, surviving spouses and their dependents. Patriot Coal and 
Walter Energy have already been relieved of their retiree health 
obligations and have, with bankruptcy court approval, withdrawn from 
the 1974 Plan. Together they accounted for about 30% of the 1974 Plan 
contribution base.

    Alpha Natural Resources is in the bankruptcy process but it appears 
they also will seek to follow Patriot and Walter's lead and terminate 
retiree health care and withdraw from the 1974 Plan. If they succeed, 
that will create about 3,000 new orphan retirees and further reduce the 
1974 Plan contributions. Alpha accounts for about 15% of the 
contribution base, so these three bankruptcies alone could reduce the 
1974 Plan contributions by about 45%. In addition, Walter and Alpha are 
contributors to the UMWA 1993 Benefit Plan, which has about 3,600 
retirees and dependents not covered by the Coal Act. The bankruptcy 
court relieved Patriot of its obligations to the 1993 Plan in 2013. The 
bankruptcy courts relieved Walter of any obligation to pay for these 
retirees and Alpha may follow suit this spring. The loss of their 
contributions will mean that those 3,600 retirees and dependents 
lifetime benefits will be in jeopardy by the end of the year. All told, 
these three bankruptcies could result in about 21,000 retirees and 
surviving spouses losing benefits very soon.

    The UMWA does not agree that our Nation's energy and environmental 
policies should result in putting coal companies out of business and 
coal miners out of work. There are too many unemployed coal miners in 
the Nation's coalfields and too many companies in bankruptcy court. I 
would note that a few days after making that statement, Secretary 
Clinton wrote a letter to Sen. Manchin that acknowledged she was 
mistaken in her remarks and said, in part, that, ``I wanted to make the 
point that, as you know too well, while coal will be part of the energy 
mix for years to come, both in the U.S. and around the world, we have 
already seen a long-term decline in American coal jobs and a recent 
wave of bankruptcies as a result of a changing energy market--and we 
need to do more to support the workers and families facing these 
challenges.'' I would agree with Secretary Clinton that as a Nation we 
need to help the people in the coal fields.

                                 ______
                                 
                 Prepared Statement of Hon. Ron Wyden, 
                       a U.S. Senator From Oregon
    Thank you, Chairman Hatch. In this country, there is a longstanding 
principle of pension law that says you don't take away benefits that 
workers have earned. But unless Congress acts soon, that guarantee is 
about to be broken.

    There are more than a thousand multiemployer pension plans around 
the country, and millions of Americans rely on them for economic 
security in retirement. But many of those pension plans are in dire 
financial straits. And I want to begin by focusing on one group of 
workers who are particularly at risk: thousands of coal miners' 
pensions are hanging in the balance.

    The clock is ticking down to disaster for retired coal miners in 
the coming months. Over decades of perilous, backbreaking work fueling 
the American economy, miners earned retiree health benefits and 
pensions. But there's a serious risk that thousands of miners will lose 
their health benefits by December of this year. By December 2017, 
miners' pension benefits could be at risk as well.

    I come from a state that doesn't mine coal, but there are 
communities across Oregon that have traditionally been extremely 
resource-dependent. A lot of those communities are experiencing the 
same kind of economic pain you see in mining towns in other parts of 
the country. You cannot turn your backs on the workers and retirees in 
those communities when times are tough.

    If the worst happens, retired miners may not have anywhere to turn. 
And the Pension Benefit Guaranty Corporation, which insures 
multiemployer pension plans, is under immense pressure and at risk of 
insolvency down the road.

    Senators Manchin and Capito, who represent West Virginia, have come 
together on a bipartisan basis to introduce the Miners Protection Act. 
Senators Brown, Casey and Warner have also championed this issue and 
put in extraordinary work. It's my view that this committee and the 
Congress should move on this bill as soon as possible.

    Of course, it's also critical that the Finance Committee take the 
wider view at the crisis unfolding in multiemployer pension plans 
nationwide.

    Hundreds of them--accounting for the pensions of more than a 
million workers and retirees--were less than 40 percent funded as of 
2011. And unfortunately, a provision that added fuel to the fire was 
slipped into a must-pass government funding law in 2014--despite my 
opposition. It gave a green light to slashing benefits in a lot of the 
hardest-hit multiemployer plans, and that's going to make life more 
difficult for a lot of seniors who are already struggling to get by.

    It's my view that Congress ought to protect the promise that you 
don't take away pension benefits that American workers have earned. 
This is an enormous challenge, and the fact is, there's no silver-
bullet policy proposal apparent at the moment. But with the economic 
security of so many Americans on the line, it's vital that Democrats 
and Republicans come together quickly to find solutions to this crisis. 
The Finance Committee Democrats and I sent a letter to you, Chairman 
Hatch, outlining many of our big concerns on this issue, and I know I 
speak for my colleagues on this side in saying that we are eager to 
work with you on a bipartisan basis to solve this crisis.

                                 ______
                                 

                             Communications

                              ----------                              


                                  AARP

                           Real Possibilities

                601 E Street, NW | Washington, DC 20049

  202-434-2277 | 1-888-OUR-AARP | 1-888-687-2277 | TTY: 1-877-434-7598

  www.aarp.org | twitter: @aarp | facebook.com/aarp | youtube.com/aarp

March 1, 2016

The Honorable Orrin Hatch
Chairman
U.S. Senate
Committee on Finance
219 Dirksen Senate Office Building
Washington, DC 20510

The Honorable Ron Wyden
Ranking Member
U.S. Senate
Committee on Finance
219 Dirksen Senate Office Building
Washington, DC 20510

Dear Chairman Hatch and Ranking Member Wyden:

As the largest nonprofit, nonpartisan organization representing the 
interests of our 38 million members and all Americans age 50 and older, 
we commend the Senate Finance Committee for holding a hearing on 
multiemployer pension plan issues. Approximately 10 million workers and 
retirees, 25 percent of all defined benefit plan participants, are 
counting on multiemployer pension plans for their retirement security. 
Unfortunately, for hundreds of thousands of retirees--who worked 
decades to earn their pensions--their benefits are now at great risk. 
We urge the Committee to take action this year to stop proposed plan 
cuts to retiree benefits until a fairer solution can be achieved.

The affected retirees and their families live across the United States. 
They provide financial support to hundreds of thousands of husbands, 
wives, parents, children and grandchildren. Some of the proposed 
pension cuts are as much as 50-70% of their pensions. If Congress 
permits the pensions these retirees rely upon to be dramatically cut, 
their States and communities will bear much of the burden--nutrition 
programs, Medicaid, nursing homes, and other government programs will 
be faced with higher costs for these devastated families.

These cuts are a direct outgrowth of the recently enacted Multiemployer 
Pension Reform Act (MPRA)--which breaks longstanding precedent 
protecting retirees' earned pensions. Rather than requiring additional 
plan contributions, MPRA permits underfunded plans to cut the already 
earned pensions of vulnerable retirees. The MPRA was enacted without 
the review of the main committees of jurisdiction, including the 
Finance Committee, and inserted at the last minute at the end of the 
last Congress in the year-end budget bill. Given this process, the fact 
that problems have arisen is not surprising. This legislation 
addressing multiemployer plans, unlike prior legislation addressing the 
funding shortfall in single employer plans, did not require employers 
to make the needed contributions. In the single employer world, no 
employer could evade funding unless it filed for bankruptcy. Upon a 
bankruptcy filing, the plan would be terminated and the retirees paid 
first with guaranteed benefits provided by the Pension Benefit Guaranty 
Corporation (PBGC).

In the year since the MPRA was passed, three pension plans already have 
filed applications to cut retiree pensions--Central States Teamsters, 
New Jersey Teamsters and Ohio Iron Workers. If Congress does not act to 
modify the MPRA, additional filings are likely. Over 50 plans have 
filed critical funding status notices with the Department of Labor for 
2015 and over 100 plans are reported to be in serious trouble, 
according to the PBGC and the Center for Retirement Research. The MPRA 
creates a moral hazard that will encourage more plans to cut earned 
pensions; the more easily plans are able to cut retirees' pensions, the 
greater the number of plans that will choose to do so. Indeed, as plans 
and employee representatives work out a path forward, retirees remain 
unrepresented--and the outcome, while unprecedented, is not surprising. 
As a result, under MPRA, more employers are likely to cut retirees' 
benefits and abandon plans altogether.

The Central States application to cut retiree benefits demonstrates the 
unfair sacrifice. The ``compromise'' only seeks increased contributions 
of 2.5% a year from most contributing employers, whereas affected 
retirees are asked to accept benefit cuts over 50% a year. Some large 
profitable employers are permitted to leave the plan completely. Active 
workers may still take subsidized early retirement for another 5 years. 
The plan itself is counting on unrealistic investment returns--and even 
then has only a 50/50 likelihood of survival.

Some plan representatives may argue that the sooner they start the 
cuts, the smaller the pain for everyone. But, in almost all cases, the 
plans have at least 10 more years of assets. Permitting more time to 
find a better solution will not significantly change the plan's funding 
status, but it will significantly protect the income that tens of 
thousands of retirees now count on. Many of the retirees have publicly 
stated that they would rather have their full benefits for as long as 
possible and save what they can for the future if Congress does not 
come up with a fairer solution.

There are alternative solutions. Multiemployer plan premiums paid to 
the PBGC--initially set far lower than in single employer plans as 
funding was not deemed a problem--should be substantially increased. 
For example, PBGC premiums, which were set too low for too long, now 
need to rise to make up for the prior inadequacy. Premiums only 
increased to $27 per participant this year (compared to base single 
employer premiums of $64, and variable premiums which can be as high as 
$500 a person). The PBGC should be provided flexible authority to take 
over or supplement the pensions of ``orphan'' retirees for employers 
who completely left the plan. Congress could devise a tax credit to 
facilitate and offset increased employer contributions. Allowing the 
PBGC to appropriately take on responsibility for an affordable number 
of ``orphan'' retirees, with adequate premiums, will permit both the 
remaining plans and the PBGC to better meet their ongoing 
responsibilities.

Some multiemployer plans are interested in converting to a more 
affordable type of hybrid pension plan. AARP is open to such 
conversions, provided the former plan is adequately funded, no earned 
pensions in the former plan are cut, and the plan bears its fair share 
of the cost of underfunding in the multiemployer system.

We understand solutions are not simple or perfect. But, it is unfair to 
impose the greatest pain on the innocent retirees who worked hard and 
bore no responsibility for plan funding and management decisions. AARP 
stands ready to be part of any process to find fairer solutions for the 
potentially millions of affected men, women and families.

We appreciate your consideration of these comments. If you have further 
questions or need additional assistance, please feel free to contact me 
or have your staff contact Michele Varnhagen on our Government Affairs 
staff at (202) 434-3829.

Sincerely,

Joyce Rogers
Senior Vice President
Government Affairs

                                 ______
                                 
                American Auto Dealers for Pension Reform

                          200 Lothenbach Ave.

                        West St. Paul, MN 55118

                        STATEMENT FOR THE RECORD

              For the Senate Finance Committee hearing on

               ``The Multiemployer Pension Plan System: 
                Recent Reforms and Current Challenges''

                             March 1, 2016

    Mr. Chairman and Members of the Committee, we appreciate the 
opportunity to provide a written submission for the record for your 
hearing on efforts to modernize the multiemployer pension system. The 
American Auto Dealers for Pension Reform represents potentially 
hundreds of new car and truck dealers, with franchises, both domestic 
and international, impacting thousands of U.S. jobs. We are submitting 
this statement to convey a concern on behalf of our members who have 
unionized mechanics (and on behalf of many more auto dealers in 
affected union states that may not even be aware of the pension 
liabilities they face). Even within dealerships with unionized workers, 
a greater proportion of the business's workers are not unionized. Thus, 
auto dealers are not ``traditional'' employers as compared to other 
employers in these plans, nor those who have often participated in the 
management of the multiemployer plans.

    While the Multiemployer Pension Reform Act of 2014 (MPRA) made 
substantial changes to the current system, the pressing issue of 
withdrawal liability relief, particularly that for small and non-
traditional employers, was not adequately addressed. In fact, the MPRA 
provides that in order for withdrawal liability relief to apply, 
employers must continue to contribute for at least 10 years after a 
suspension of benefits has been implemented. For some of our small 
family-owned auto dealers, waiting another decade for relief is not 
feasible.

    We ask that Congress find a solution to relieve small businesses 
that wish to exit plans from the crushing withdrawal liability and we 
believe it is possible to do that without harming the long-term health 
of the plans. We would ask that any legislation considered by this 
committee to address issues from MPRA also include language on 
withdrawal liability relief. We welcome your efforts to provide 
additional legislation addressing this concern for small businesses and 
would appreciate any opportunity to meet and explain our concerns in 
greater detail.

           SMALL EMPLOYER MULTIEMPLOYER PLAN WITHDRAWAL ISSUE

Background on Multiemployer Plans

    There are approximately 1,500 multiemployer defined benefit pension 
plans covering large and small employers with 104 million participants. 
However, 76% of all participants and beneficiaries are concentrated in 
168 plans each with more than 10,000 employees (with an average of 786 
contributing employers per plan). Very large employers contribute more 
than 50% of all plan contributions to 80% of the critical status 
(underfunded) plans. The smallest 610 plans (i.e., plans covering less 
than 1,000 participants) only cover 3% of all participants.

    In March 2013, the PBGC testified that it believed that most plans 
``appear to be recovering from the 2008 financial crisis.'' Much of the 
underfunding relates to investment losses.

    Employers can voluntarily leave multiemployer plans but must pay a 
withdrawal liability upon leaving (although ERISA provides for an 
exemption from the withdrawal liability rules from some industries, 
such as construction, in certain circumstances). Withdrawal liability 
can be substantial because as other employers terminate plan 
participation through bankruptcy or liquidation, the remaining 
employers are left with the financial burden to continue funding 
benefits for their own employees as well as the employees or retirees 
of the former employer who terminated plan participation (``orphans''). 
Total withdrawal liability is generally capped: (a) per year at an 
employer's recent annual contribution amount; and (b) limiting overall 
payments to no more than 20 years. Many other countries with 
multiemployer plans do not have such significant withdrawal liability 
requirements as a large withdrawal penalty can act as a barrier for 
attracting new employers to join plans.

Small Employer Issue

    Small employers in multiemployer plans may get locked into these 
plans with a significant withdrawal liability and their only way out 
may be to file for bankruptcy or liquidate the business. This liability 
can preclude a sale of the business as the liability amount can 
sometimes exceed the entire value of the business. In addition, over 
the past few years, many small employers' weekly contribution per 
participant has increased as much as 70% in order to keep these plans 
solvent. Small employers in non-traditional multiemployer industries 
(such as auto dealers) are at a larger disadvantage as they generally 
have no representation in the management of the pension trust and even 
access to information can be difficult to obtain.\1\
---------------------------------------------------------------------------
    \1\ An auto dealership might be a good example of a non-traditional 
employer in a multiemployer plan, with their union mechanics being 
their participating employees. Thus, dealers would have few employees 
in the plan and as an industry group represents a small fraction of the 
total participants in most plans, yet would still have withdrawal 
liability per dealership in the millions. Recently, this withdrawal 
liability issue has been cited as a major factor for being unable to 
sell or transfer dealerships.
---------------------------------------------------------------------------

Solution

    Legislation is needed to help small employers who have these 
excessive withdrawal liabilities. Such withdrawals by small employers 
in non-traditional multiemployer covered industries will not harm to 
any degree a plan's financial situation. Small businesses seeking 
relief should be required to contribute to such plans upon their 
withdrawal, while the plans get more financially secure. Thus, an 
excessive and lengthy withdrawal liability is not needed by the plans 
from their smallest contributors.

      A solution should:

      Ease the transfer of a business within a family by permitting 
that next generation to avail themselves of the same withdrawal 
liability rules as would apply to the sale of business assets to an 
unrelated third party when taking over the family business; and
      Permit an existing small employer to make a lump sum payment to 
withdraw from the plan based upon either: (a) the average withdrawal 
liability the plan has historically collected from other employers; or 
(b) withdrawal liability rules which apply to sales of business assets 
to unrelated third parties.

    Current ERISA law provides some help to small employers but only if 
business assets are sold to an unrelated third party. Even better 
relief is available to those in the carpentry trades. Their special 
rules wipe away all withdrawal liability if such small construction 
trade employers close down or move their business.

    However, nothing exists in current law to help those family-owned 
small businesses that want to keep their businesses within their 
families but cannot in good conscience pass along previously unknown 
huge withdrawal liabilities to their children. It does not makes sense 
that our pension laws would discourage the continuation of family-owned 
businesses and instead incent businesses to close or sell to owners 
with no connection to the local community.

Conclusion

    Congress must find a solution that does not harm the long-term 
health of the plans by providing these plans a few additional years to 
shore up their investments, while relieving the small businesses that 
wish to exit from a crushing withdrawal liability.

                                 ______
                                 
               Buffalo, NY Committee to Protect Pensions

                            2667 Staley Rd.

                         Grand Island, NY 14072

To: SENATE FINANCE COMMITTEE                          February 28, 2016

The Multiemployer Pension Plan System: Recent Reforms and Current 
Challenges

March 1, 2016

Dear Senate Finance Committee Members,

In December 2014 the Multiemployer Pension Reform Act of 2014 (MPRA) 
was enacted into law. This law may seem like a good fix for pensions on 
the face until you look into the reality of this law. We are in the 
Teamster Central States Pension Fund; it is a multiemployer fund which 
has a very low failure rate compared to single employer funds. Our fund 
was put into ``critical and declining'' status after James Hoffa 
(Teamster President) let UPS withdraw from the Central States Fund.

This put the UPS Fund into critical state. The Teamsters Union was 
under U.S. Government watch for corruption for the last 30 years. Why 
was this allowed to happen? The Employees Retirement Income Security 
Act (ERISA) of 1974 was also responsible to oversee the fiduciaries and 
conduct standards. It also was responsible to protect the funds and 
make sure the participants receive their benefits. ERISA did not do its 
intended job, in fact it failed miserably and then was dissolved in 
December when the MPRA was passed. The government should be taking 
responsibility to rescue these pension plans right here, without 
further explanation.

Central States Pension Fund has over $17 billion in it; it has bounced 
up and down for years. Participants in the fund were promised an amount 
they could collect after 30 years of service. We were told by the 
Teamster fund it is safe, the government said it is safe, ERISA, even 
the government Pension Benefit Guaranty Corp. (PBGC) said we are safe.

Now when the participants that have put into the fund for 20, 30, 40 
years and more are going to collect--this fund began in 1955--the rules 
are all changing; everyone lied!

The participants in this plan did the responsible thing all these years 
and took the pension and health insurance benefits instead of the huge 
pay increases other areas of the country took. The huge increases I 
mean were double and triple pay increases. We did not want to be a 
burden to our families or the government in our older years. Most of 
the participants work weeks were not a 40-hour week; they were 50-, 60- 
and 70-hour weeks. We earned every penny of our pay and benefits and 
are proud of our hard work. We played by the rules and expected 
companies and government to do the same.

Now even the PBGC is saying we are going broke and can't do what we 
promised; more lies! There has even been talk Representatives John 
Kline (R-MN) and George Miller (D-CA) who attached amendment MPRA to 
bill H.R. 83 are heroes. This amendment was brought out on December 
9th; the bill was signed into law the 16th and attached to the omnibus 
government budget and spending bill. Meaning the whole bill would pass 
or the U.S. Government would shut down for the second time, which was 
not going to happen.

This was a sneaky middle of the night amendment, lawmakers did not get 
to look over and see the real impact of this amendment. Furthermore 
these representatives are not heroes saving pension plans; they have 
been poorly informed of what will really happen. Who are they being 
saved for? We the 407,000 retirees are the ones that built the pension 
fund and the ones meant to collect it.

A typical 30-year pension is about $3,000.00 a month, not the generous 
world trip fantasy retirement plan that it is made out to resemble. The 
cuts to save our plan are estimated to be about 50%, 60%, even 70%, 
averaging an $1,800.00 a month reduction. There may be a few who could 
afford this but most participants are going to be in financial ruin, 
bankruptcy, home foreclosures and welfare-bound. Pension rules state 
you cannot work in any capacity after retiring. Others are too old to 
work and many are disabled from the work we used to perform.

     We are asking that amendment MPRA be repealed to start.
     That the government investigate why ERISA did not do its intended 
job.
     That the government investigate why PBGC did not raise its 
insurance premiums years ago to avoid going broke.
     That the Teamsters Central Pension Fund and its trustees while 
under government watch be investigated for not having participants' 
interests protected.
     That government investigate why James Hoffa was allowed by ERISA 
to let United Parcel Service (UPS) withdraw from the Central States 
Pension Fund.

We paid into the funds with our money--OUR MONEY--for 20, 30, 40, even 
50 years. We fully funded the plan over all those years. Huge amounts 
of money were put into the plan. The fiduciary responsibility of Wall 
Street was not to sit by and watch it lose billions and do nothing 
about it. Then ERISA sat by and let it happen, even after the 
government allowed Wall Street to run our plan. We did not control our 
Pension, Wall Street did.

We the pension retirees did nothing wrong. The responsibility should 
fall on Wall Street, ERISA, the PBGC, and Congress to make this 
injustice right.

In the end if these cuts are allowed to happen to our and the other 
Multiemployer Pensions, the government is going to pick up the tab for 
these affected participants through payments of Medicaid, welfare, food 
stamps, subsidized housing, etc.

The economic impact is going to be devastating; there are numbers out 
there right now.

Sincerely,

Michael A. Jablon
Buffalo, NY Committee to Protect Pensions

                                 ______
                                 
                      Central States Pension Fund

           9377 West Higgins Road, Rosemont, IL 60018-4938 | 
                       MyCentralStatesPension.org

                                          Employee Trustees
                                         Charles A. Whobrey
                                          George J. Westley
                                               Marvin Kropp
                                     William D. Lichtenwald

                                          Employer Trustees
                                       Arthur H. Bunte, Jr.
                                           Gary F. Caldwell
                                           Ronald DeStefano
                                                Greg R. May

                                         Executive Director
                                            Thomas C. Nyhan

March 7, 2016

Senate Committee on Finance
Rm. SD-219
Dirksen Senate Office Bldg.
Washington, DC 20510-6200

Dear Members of the Senate Finance Committee:

The Board of Trustees for the Central States, Southeast and Southwest 
Areas Pension Plan wishes to submit the letters enclosed herein for 
inclusion in the record for the Committee's March 1, 2016 hearing, 
``The Multiemployer Pension Plan System: Recent Reforms and Current 
Challenges.''

Sincerely,

Arthur H. Bunte, Jr.                Charles A. Whobrey
Employee Trustees Chairman          Employee Trustees Chairman

Enclosures

                                 ______
                                 
                                                  February 18, 2016
The Honorable Gary C. Peters
The Honorable Debbie Stabenow

Dear Senators:

Thank you for your and your colleagues' interest in the application to 
reduce benefits that the Board of Trustees (the ``Board'') of the 
Central States, Southeast and Southwest Areas Pension Plan (``Central 
States'' or the ``Fund'') has submitted to the Department of the 
Treasury.

We share your concerns regarding the negative effect that the proposed 
pension reductions would have on retirees and their families. The Board 
is committed to preserving the benefits of participants in the Fund to 
the greatest extent possible, and we appreciate that Members of 
Congress are engaged in the same pursuit.

We are disappointed, however, that the letter you and your colleagues 
sent to Treasury Special Master Ken Feinberg simply opposed the Fund's 
rescue plan application without providing any hint of a real solution. 
The Treasury Department's rejection of the benefit reduction 
application would result in the insolvency of the Fund with every 
participant losing virtually all of their benefits within the next 10 
years. We are writing to instead urge you to support real solutions 
that will help save the Fund--and protect retiree and participant 
benefits.

Funded Status and History

There are no easy solutions to the problems facing Central States. 
Annual benefit payments currently exceed contributions by more than $2 
billion. The Fund is projected to become insolvent and unable to pay 
benefits in approximately 10 years, and that date could accelerate if 
the participants and contributing employers withdraw their support for 
the Fund because they do not see a viable path forward. The Fund needs 
$11 billion in funding to prevent insolvency and meet its long-term 
obligations; nothing else will save the Fund and prevent benefit 
losses.

The major reasons for this funding shortfall are trucking deregulation, 
which was passed by Congress in 1980, and the two recent severe 
economic downturns. In 1980, there was one retiree or inactive employee 
for every four active employees in the Pension Fund. Today, that ratio 
has been completely reversed--now there are nearly five retirees and 
inactive employees for each active employee. In 1980, there were 
approximately 12,000 contributing employers to the Fund, but there are 
only approximately 1,500 today. Since then, over 10,000 employers have 
either liquidated or otherwise withdrawn from the Fund without paying 
for their share of the Fund's liabilities.

Additionally, two major recessions have torpedoed our economy since 
2000, driving down the Fund's investment assets and pushing a larger 
number of employers into bankruptcy. Although the financial markets 
have rebounded from the 2008 market crash--and the Fund's investment 
returns since then have been strong \1\--it has not been nearly enough 
to make up for the huge imbalance caused by trucking deregulation and 
the two severe economic downturns.
---------------------------------------------------------------------------
    \1\ In the 7-year period following the 2008 market crash, the 
Fund's average annual rate of return was 11.5%.
---------------------------------------------------------------------------

No Magic Solutions

The Fund's Board of Trustees, which is composed of an equal number of 
employer and union representatives, has spent more than a decade trying 
to save the Fund without reductions in accrued benefits. For the past 7 
years, we have been informing Congress that unless the Fund receives a 
large infusion of cash or substantially reduces its liabilities, it 
will become insolvent in the near future. In fact, the Fund's Executive 
Director and General Counsel, Tom Nyhan, testified to this effect 
before the Senate Committee on Health, Education, Labor and Pensions in 
May 2010 \2\ and the Subcommittee on Health, Employment, Labor and 
Pensions of the House Committee on Education and the Workforce in 
October 2013.\3\
---------------------------------------------------------------------------
    \2\ http://www.help.senate.gov/hearings/building-a-secure-future-
for-multiemployer-pension-plans.
    \3\ http://edworkforce.house.gov/uploadedfiles/
final_format_nyhan_testimony.pdf.

Earlier this year, the Fund's Board of Trustees determined that it was 
absolutely necessary to use the benefit reduction tools provided by the 
Multiemployer Pension Reform Act of 2014 (``MPRA'') to protect the 
largest possible number of participants to the greatest extent 
possible. After many months of long and careful consideration, the 
Board of Trustees developed a plan--the rescue plan--to implement 
---------------------------------------------------------------------------
benefit reductions under MPRA in a fair and equitable manner.

Preserving pension benefits is a ``zero sum'' problem. The only way to 
reduce or eliminate the benefit reductions is to provide the Fund with 
additional assets. Other actions might change which participants 
experience benefit reductions, but they will not change the total 
amount of reductions. Simply put, lessening the proposed reductions for 
one group of participants would mean that the benefits of a different 
group of participants would need to be subjected to greater reductions.

While painful, without additional funding the Fund's proposed rescue 
plan is the only realistic option to save the Fund from financial 
failure and help ensure it is able to continue to pay benefits to all 
participants and beneficiaries in the future. Under the rescue plan, 
each participant would receive a higher monthly benefit than he or she 
would receive under the PBGC guarantee formula. Moreover, the Fund's 
actuaries have estimated that approximately 80 percent of the 
participants will be better off under the rescue plan, with both the 
Fund and the Pension Benefit Guaranty Corporation (PBGC) multiemployer 
program becoming insolvent in the absence of the rescue plan. And there 
is no time for a ``do-over'' if the rescue plan is rejected. If the 
rescue plan is not approved and implemented in 2016, benefit reductions 
under MPRA may no longer save the Fund. This is because each month the 
plan is delayed will result in larger benefit reductions until the 
point is reached where the Fund can no longer be salvaged.

The PBGC Does Not Provide Real Coverage to Central States Participants

The PBGC reports that its multiemployer insurance program is currently 
underfunded by approximately $52 billion--a figure that understates the 
true problem because it only includes plans that are expected to begin 
receiving assistance within the next 10 years. In January 2016, the 
Congressional Budget Office released projections showing that it 
expects the PBGC multiemployer program to be insolvent by 2024. And the 
Fund currently pays approximately $2.8 billion in benefits per year, 
while the PBGC only receives $250 million in premiums per year.

Despite the fact that Central States has been paying insurance premiums 
to the PBGC for more than 40 years, the PBGC lacks the resources to pay 
virtually any portion of the guaranteed benefits to our participants. 
This means that the more than 400,000 hardworking Americans covered by 
Central States face the following stark and tragic reality: if and when 
both Central States and the PBGC become insolvent, their benefits will 
be reduced almost to zero.

Additional Funding is the Only Alternative Solution

The only way to lessen or obviate the need for benefit reductions is to 
provide additional funding to Central States. The Fund's actuary has 
estimated that in lieu of any benefit reductions, approximately $11 
billion of additional funding is necessary to prevent the Fund from 
becoming insolvent. If members of Congress are serious about helping 
Central States participants, then they must pass legislation that 
provides some or all of this funding.

Congress could also protect Fund participants by passing legislation 
that raises the PBGC multiemployer guarantee while providing the agency 
with additional funding. Such legislation would ensure that the PBGC is 
able to support its guarantee in the future, and that the guarantee 
provides larger benefits than the Fund is able to pay under the rescue 
plan. Several pieces of legislation have been introduced that would do 
this in recent years, though none have received serious consideration 
in Congress. In the 111th Congress, Central States actively supported 
legislation (H.R. 3936; S. 3157; the ``Create Jobs and Save Benefits 
Act of 2010'') that would have provided funding to the PBGC and updated 
the PBGC's current authority to ``partition'' a multiemployer plan. The 
Keep Our Pension Promises Act (H.R. 2844; S. 1631) introduced in this 
Congress is another similar approach that the Fund supports.

Conclusion

The Board applauds you for making protecting retirement benefits a 
priority, but encourages you and other members of Congress to focus on 
real solutions while avoiding half-measures that, despite being well-
intentioned, will only make the situation worse. Delaying the 
implementation of the reductions, or forcing them to be distributed 
differently than has been proposed in the rescue plan, will not protect 
participants. At best these steps will merely shift the burden from 
some participants onto other participants. At worst, they will lead to 
participants losing their retirement benefits in their entirety.

If Congress is serious about helping Central States' participants and 
beneficiaries, then it must provide additional funding, either directly 
or through the PBGC. No other course of action will protect participant 
benefits.

We appreciate your attention to this matter. If you have any questions, 
please contact Tom Nyhan at (847) 939-2400.

Sincerely,

Arthur H. Bunte, Jr.                Charles A. Whobrey
Employer Trustees Chairman          Employer Trustees Chairman

CC:  Signatories of February 2, 2016 Letter to Special Master Kenneth 
Feinberg

                                 ______
                                 
                                                  February 18, 2016

The Honorable Debbie Dingell
The Honorable John Conyers

Dear Representatives:

Thank you for your and your colleagues' interest in the application to 
reduce benefits that the Board of Trustees (the ``Board'') of the 
Central States, Southeast and Southwest Areas Pension Plan (``Central 
States'' or the ``Fund'') has submitted to the Department of the 
Treasury.

We share your concerns regarding the negative effect that the proposed 
pension reductions would have on retirees and their families. The Board 
is committed to preserving the benefits of participants in the Fund to 
the greatest extent possible, and we appreciate that Members of 
Congress are engaged in the same pursuit.

We are disappointed, however, that the letter you and your colleagues 
sent to Treasury Special Master Ken Feinberg simply opposed the Fund's 
rescue plan application without providing any hint of a real solution. 
The Treasury Department's rejection of the benefit reduction 
application would result in the insolvency of the Fund with every 
participant losing virtually all of their benefits within the next 10 
years. We are writing to instead urge you to support real solutions 
that will help save the Fund--and protect retiree and participant 
benefits.

Funded Status and History

There are no easy solutions to the problems facing Central States. 
Annual benefit payments currently exceed contributions by more than $2 
billion. The Fund is projected to become insolvent and unable to pay 
benefits in approximately 10 years, and that date could accelerate if 
the participants and contributing employers withdraw their support for 
the Fund because they do not see a viable path forward. The Fund needs 
$11 billion in funding to prevent insolvency and meet its long-term 
obligations; nothing else will save the Fund and prevent benefit 
losses.

The major reasons for this funding shortfall are trucking deregulation, 
which was passed by Congress in 1980, and the two recent severe 
economic downturns. In 1980, there was one retiree or inactive employee 
for every four active employees in the Pension Fund. Today, that ratio 
has been completely reversed--now there are nearly five retirees and 
inactive employees for each active employee. In 1980, there were 
approximately 12,000 contributing employers to the Fund, but there are 
only approximately 1,500 today. Since then, over 10,000 employers have 
either liquidated or otherwise withdrawn from the Fund without paying 
for their share of the Fund's liabilities.

Additionally, two major recessions have torpedoed our economy since 
2000, driving down the Fund's investment assets and pushing a larger 
number of employers into bankruptcy. Although the financial markets 
have rebounded from the 2008 market crash--and the Fund's investment 
returns since then have been strong \1\--it has not been nearly enough 
to make up for the huge imbalance caused by trucking deregulation and 
the two severe economic downturns.
---------------------------------------------------------------------------
    \1\ In the 7-year period following the 2008 market crash, the 
Fund's average annual rate of return was 11.5%.
---------------------------------------------------------------------------

No Magic Solutions

The Fund's Board of Trustees, which is composed of an equal number of 
employer and union representatives, has spent more than a decade trying 
to save the Fund without reductions in accrued benefits. For the past 7 
years, we have been informi ng Congress that unless the Fund receives a 
large infusion of cash or substantially reduces its liabilities, it 
will become insolvent in the near future. In fact, the Fund's Executive 
Director and General Counsel, Tom Nyhan, testified to this effect 
before the Senate Committee on Health, Education, Labor and Pensions in 
May 2010 \2\ and the Subcommittee on Health, Employment, Labor and 
Pensions of the House Comm ittee on Education and the Workforce in 
October 2013.\3\
---------------------------------------------------------------------------
    \2\ http://www.help.senate.gov/hearings/building-a-secure-future-
for-multiemployer-pension-plans.
    \3\ http://edworkforce.house.gov/uploadedfiles/
final_format_nyhan_testimony.pdf.

Earlier this year, the Fund's Board of Trustees determined that it was 
absolutely necessary to use the benefit reduction tools provided by the 
Multiemployer Pension Reform Act of 2014 (``MPRA'') to protect the 
largest possible number of participants to the greatest extent 
possible. After many months of long and careful consideration, the 
Board of Trustees developed a plan--the rescue plan--to implement 
---------------------------------------------------------------------------
benefit reductions under MPRA in a fair and equitable manner.

Preserving pension benefits is a ``zero sum'' problem. The only way to 
reduce or eliminate the benefit reductions is to provide the Fund with 
additional assets. Other actions might change which participants 
experience benefit reductions, but they will not change the total 
amount of reductions. Simply put, lessening the proposed reductions for 
one group of participants would mean that the benefits of a different 
group of participants would need to be subjected to greater reductions.

While painful, without additional funding the Fund's proposed rescue 
plan is the only realistic option to save the Fund from financial 
failure and help ensure it is able to continue to pay benefits to all 
participants and beneficiaries in the future. Under the rescue plan, 
each participant would receive a higher monthly benefit than he or she 
would receive under the PBGC guarantee formula. Moreover, the Fund's 
actuaries have estimated that approximately 80 percent of the 
participants will be better off under the rescue plan, with both the 
Fund and the Pension Benefit Guaranty Corporation (PBGC) multiemployer 
program becoming insolvent in the absence of the rescue plan. And there 
is no time for a ``do-over'' if the rescue plan is rejected. If the 
rescue plan is not approved and implemented in 2016, benefit reductions 
under MPRA may no longer save the Fund. This is because each month the 
plan is delayed will result in larger benefit reductions until the 
point is reached where the Fund can no longer be salvaged.

The PBGC Does Not Provide Real Coverage to Central States Participants

The PBGC reports that its multiemployer insurance program is currently 
underfunded by approximately $52 billion--a figure that understates the 
true problem because it only includes plans that are expected to begin 
receiving assistance within the next 10 years. In January 2016, the 
Congressional Budget Office released projections showing that it 
expects the PBGC multiemployer program to be insolvent by 2024. And the 
Fund currently pays approximately $2.8 billion in benefits per year, 
while the PBGC only receives $250 million in premiums per year.

Despite the fact that Central States has been paying insurance premiums 
to the PBGC for more than 40 years, the PBGC lacks the resources to pay 
virtually any portion of the guaranteed benefits to our participants. 
This means that the more than 400,000 hardworking Americans covered by 
Central States face the following stark and tragic reality: if and when 
both Central States and the PBGC become insolvent, their benefits will 
be reduced almost to zero.

Additional Funding is the Only Alternative Solution

The only way to lessen or obviate the need for benefit reductions is to 
provide additional funding to Central States. The Fund's actuary has 
estimated that in lieu of any benefit reductions, approximately $11 
billion of additional funding is necessary to prevent the Fund from 
becoming insolvent. If members of Congress are serious about helping 
Central States participants, then they must pass legislation that 
provides some or all of this funding.

Congress could also protect Fund participants by passing legislation 
that raises the PBGC multiemployer guarantee while providing the agency 
with additional funding. Such legislation would ensure that the PBGC is 
able to support its guarantee in the future, and that the guarantee 
provides larger benefits than the Fund is able to pay under the rescue 
plan. Several pieces of legislation have been introduced that would do 
this in recent years, though none have received serious consideration 
in Congress. In the 111th Congress, Central States actively supported 
legislation (H.R. 3936; S. 3157; the ``Create Jobs and Save Benefits 
Act of 2010'') that would have provided funding to the PBGC and updated 
the PBGC's current authority to ``partition'' a multiemployer plan. The 
Keep Our Pension Promises Act (H.R. 2844; S. 1631) introduced in this 
Congress is another similar approach that the Fund supports.

Conclusion

The Board applauds you for making protecting retirement benefits a 
priority, but encourages you and other Members of Congress to focus on 
real solutions while avoiding half-measures that, despite being well-
intentioned, will only make the situation worse. Delaying the 
implementation of the reductions, or forcing them to be distributed 
differently than has been proposed in the rescue plan, will not protect 
participants. At best these steps will merely shift the burden from 
some participants onto other participants. At worst, they will lead to 
participants losing their retirement benefits in their entirety.

If Congress is serious about helping Central States' participants and 
beneficiaries, then it must provide additional funding, either directly 
or through the PBGC. No other course of action will protect participant 
benefits.

We appreciate your attention to this matter. If you have any questions, 
please contact Tom Nyhan at (847) 939-2400.

Sincerely,

Central States, Southeast and Southwest Areas Pension Fund Trustees

Arthur H. Bunte, Jr.                Charles A. Whobrey
Employer Trustees Chairman          Employer Trustees Chairman

CC: Signatories of February 1, 2016 Letter to Special Master Kenneth 
Feinberg

                                 ______
                                 
             Iowa / Nebraska Committee to Protect Pensions

               2111 Lake Street, Omaha, NE (402) 612-2339

   The Multiemployer Pension Plan System: Recent Reforms and Current 
                               Challenges

                             March 1, 2016

To the wonderful people in the Senate who are addressing the Central 
States Health and Welfare.

Thank you for taking the time to finally discuss this problem. Better 
late than ever.

My father found out about this in a newspaper back in February of 2014.

I took on helping him and starting three Committees in Nebraska and 
Iowa since no one was bothering to inform them of anything. Not even 
the Retiree Representative, Susan Mauren. By the way, she never 
informed them of Feinberg, and sent a consultant to only the hearing on 
the vote, and never bothered to say a word.

There was no communication with the Locals, retiree clubs and certainly 
none with Central States. It was horrible for these people.

I started researching, and this is what I have found.

    1.  I am a fiduciary, as I do Real Estate in the State of Nebraska. 
As a fiduciary I am taught to disclose, disclose, disclose. Now if I 
know a shopping mall is going to be built across the street, in a year 
or two, from a house I am writing a contract on, but do not disclose 
the fact, I will be sued and lose my license.

Thomas Nyhan, director of Central States, knew that this law might 
happen and never disclosed this to the participants. In fact he was on 
a board with the National Coordinating Committee for Multi-Employer 
Pensions, the NCCMP, the so-called ``experts on pensions'' which in 
fact is one of the sole reasons the Pension Benefit Guarantee 
Corporation is in trouble, as they bragged about it on their website, 
about keeping the contributions down. Some experts they are really 
turning out to be, with this mess. Nyhan's involvement with them is 
another non-disclosed fact, as they wrote and passed the bill.

Read Josh Shapiro, Groom Law office Bio online if he hasn't changed it 
yet, but these guys are arrogant so I suspect he hasn't.

Nyhan also said salaries don't matter, of course he meant to the 
actuarials, in his conference to the participants, but cutting them 
would, and that they wouldn't understand. Oh, by the way, Mr. Nyhan 
refinances his house every 3 or 4 years. As an agent this seems very 
odd. Usually people who refinance that way, do it because they can't 
manage money very well. Just curious on that one. Is there some sort of 
incentive to it? As an agent, inquiring minds want to know.

We also need to talk about the fact that Mr. Nyhan is paid from two 
sides. Interesting when he started Solutions not bailouts, he took a 
cut in pay on the pension side, but, Holy Cow, he gave himself a hefty 
raise on the Health and Welfare side, to the tune of . . . well, he can 
tell you. Was that because no one was paying attention? Shifting, or 
shifty, you decide.

    1.  Go back to the 2007 and 2008 5500 forms. You will see how Wall 
Street used these funds and no one said a word. Examples include 
pulling almost 5 billion out of safe savings accounts in 2008 that were 
there in 2007, and flooding the Real Estate Market with investments. 
Also BNY Mellon throwing 5.1 into their co-mingled fund in 2008 and 
that one transaction losing the fund 1.8 billion dollars. What is the 
date this was done, and where are the questions that should have been 
asked and the accountability by those entrusted to this fund?

    2.  Look at the 5500 forms. One would think this fund is being used 
to help offset the deficit with the money going into foreign 
governments. Turkey really? Really? Croatia? Are these countries in 
your private portfolios, ladies and gentlemen?

    3.  I am from Nebraska. No Berkshire A or B stock? I would love one 
share of A stock in my portfolio, and B has been a win for many people. 
Nope, none in 2013.

    4.  ZERO percent bonds? I have a license to sell swamp land in 
Nebraska if these fiduciaries want some.

    5.  My favorite--the African Petroleum Company. Had a million, now 
down to $200,000 in 2013 before the oil market fell. What, did someone 
go to Africa with a weed weasel, stick it in the ground and turn it 
once or twice and say, nope no oil here, suckers? One has to wonder 
what insanity goes into playing so carelessly with other people's 
money. Again, it shows there is no accountability.

    6.  Yes we checked out the Western Conference, the sister fund of 
the Central States conference, and it is night and day. More 
disclosure, dates, transactions, and accountability, hence their 
success verses this fund, oh and they went through Deregulation, stock 
market crashes, and everything else that Nyhan uses as an excuse for 
this funds failure.

    7.  An $8 share--that's eight dollars--in a 17.9 billion portfolio, 
and a $37,000 investment to a builder in California. Well someone got a 
garage. What is going on here?

The perspective of the retirees is this. Congress will protect those 
who do not do their job, at the expense of those who did. MPRA is a 
prime example of covering problems instead of addressing them.

My Dad worked 10 hours driving, 8 hours sleeping, 10 hours driving, 
over and over again, weekends nights and holidays. Ice, snow, wind, 
rain, it did not matter. He did his job, he did it well.

He never made the kind of money these men who sit at nice desks make. 
His hearing is bad from the sound of an engine and the wind blowing in 
his ears. His back is bad. They didn't have air ride when Dad drove. I 
never saw him. We had no beachfront property like some here. We had a 
Ford Granada, it was the first car they got. We lived modestly, went to 
Okoboji Iowa every year, the only time I really saw Dad, and we 
certainly were not wealthy, but we were happy. Dad did what he needed 
to do.

Nyhan, the NCCMP, the Department of Labor, and the Banks have walked on 
the backs of men and women, like my father, to make themselves wealthy, 
and no one cared. The Trustees appointed, were not educated in these 
matters and are just puppets in this. Keep in mind they were Truckers, 
and dockworkers, not CPAs or Financial Advisors.

Okay, now the solution. Get these guys out. How did Nyhan get into his 
position? I have heard three things. He was appointed by the last guy, 
the DOL, and some board who obviously couldn't pick their noses with 
their fingers, let alone someone who could manage a fund. If I sound 
sarcastic, it is because the more you investigate the more unbelievably 
ridiculous this whole thing gets.

Merge the Western Conference the rest of the money and get rid of 
Central States altogether. Problem solved. Get more people into the 
fund, and change ERISA to better protect these men and women, and quit 
listening to the likes of the NCCMP. Actually I have heard it really 
stands for nincompoop. I think that is closer to who they really are. 
Experts of these funds? Look at where their expertise is putting these 
funds. One has got to wonder why this expertise has depleted funds over 
the years, and what their motives are. This Government put their eggs 
into the NCCMP's basket, and it seems that the NCCMP is the only one 
laying the golden eggs, while they have pretended to be sheep, while 
they were wolves helping to create the problems not only with the PBGC, 
but the pension plans themselves.

Again, merge the Western Conference with the Central States fund and 
let Prudential manage. After all a ``Brotherhood'' is what the 
Teamsters are supposed to be. One brother does not let the other go 
down. Sorry, but this must be looked at as an option.

Get rid of these complacent, arrogant idiots who claim to be experts, 
and let's get the greed out of the picture altogether.

And it is time for those who got bailouts to pay the piper. The way I 
see it losses and interest add up to about $12 billion back into the 
fund by the bank fiduciaries. Annuities, and more Real Estate 
investments. Western Conference has all those things.

While I am on a roll, one more thing. Let's talk about Hostess. You 
know those Twinkies and HoHos?

Well we need to talk about how these Corporations that are sneaking out 
of their obligations by filing bankruptcy and opening up under a 
different name.

Come on, Guys, this has got to stop. YRC pays 25% into the fund and yet 
their CEO's are given bonuses for Christmas. Yes let's walk on the 
backs of people to get wealthy. This is what you need to be watching.

There is much work to do, but you can fix this. I believe in you. It's 
going to take time, but you will find a way without these poor men's 
backs being broken worse than they are.

Get the money from those who broke these men's backs just to have a 
cushy, carefree life in a one million four hundred thousand dollar home 
like Nyhan has. Capitalism as some claim it is, while others call it 
legal theft, but that is for you to decide.

Who do you believe? You believe no one. You research as people like 
Mike Walden, Bob Amsden and others have done, and you come to your own 
conclusion based upon fact . . . not half finished statements by those 
who are and will continue to get wealthy from this venture.

Unfortunately Congress had put its eggs in the wrong baskets. Your 
obligations are to people like the mine workers, women like Rita Lewis, 
and Mike Walden, my Dad and the millions of hardworking Americans, not 
organizations who have had failed management, and then tell you not to 
repeal a law that throws their terrible management on the backs of 
people like my Dad or Rita Lewis.

The Hearing Comments--Bad Luck? Josh Gotbaum did nothing. He never 
argued the NCCMP lobbying techniques that kept the PBGC contributions 
down. And let's talk about what the single employer part of this pays 
up to $60,000 when Multi-Employer plans participants only get up to 
$12,000. Really? This is biased, blaming a group and let's just say it 
like it is. ``Josh didn't manage well either.'' Maybe he is a nice guy, 
maybe he has titles and college experience, but he failed at his job. 
This was an insurance plan. Who pays $8.00 per year for home insurance? 
No one! Seriously? Bad Luck? This lack of management has been thrown on 
the back of my Dad, Rita Lewis, and millions. Please quit using the 
Pension Benefit Guaranty Corporation's bad management, as the excuse to 
cut benefits for people like my father. Two thousand dollars a month 
verses $1,000 per month. Easy to say when you are not the participant. 
Ask Rita what she wants, wait she already said she wants her money 
until her money goes insolvent. Mr. Gotbaum, who are you to decide for 
these people?

Mr. Roberts, white collar versus blue collar: then cut single employer 
benefits paid out by the PBGC and then raise the rates as any insurance 
program that insures should have done years ago. What? Those people 
were paying $36 a year for up to $60,000 a year?

Coal miners get what? Who sets this stuff up? People who obviously 
don't care about people.

MPRA is another scapegoat for greed and bad management by Fiduciaries, 
the same as the Bailout of 2008 skirted the issues that created the 
problem.

Take off the blinders. Quit being politically correct at the expense of 
these people and ask harder questions, and thank you for at least going 
back and revisiting this issue. It needs to be addressed.

We have options and solutions, listen to us for once. We are not as 
stupid as people tend to make us. You go, Mr. Portman! You DA man! Ms. 
Stabenow, you DA Woman!

Please listen to Rita, listen to the participants. There are solutions! 
We just need to ``work hard'' and find them, not just do the easiest 
thing on the backs of others. Rita, you hit the nail on the head about 
the mismanagement.

Mr. I couldn't see your name. The Government interference is part of 
the problem especially with the Central States Pension fund more so 
than any other fund as the Federal Government took this away from the 
Teamsters and gave it to Wall Street to manage. It is time to get the 
``greed'' out.

There must be investigations into this to solve this. If you don't do 
this and people are not held accountable for this mess, then you will 
never solve this problem.

Thank you for listening, and if you want documentation to what I wrote 
above, I would be more than happy to give you proof to what I say.

Sincerely,

Mary Packett

Iowa / Nebraska Committee to Protect Pensions

                                 ______
                                 
    National Coordinating Committee for Multiemployer Plans (NCCMP)

815 16th Street, N.W., Washington, DC 20006  Phone 202-737-5315  Fax 
                              202-737-1308

                          United States Senate

                          Committee on Finance

                The Multiemployer Pension Plan System: 
                 Recent Reforms and Current Challenges

                         Tuesday, March 1, 2016

                             Comments from:

                            Randy G. DeFrehn

                           Executive Director

    National Coordinating Committee for Multiemployer Plans (NCCMP)

At the March 1, 2016 hearing on ``The Multiemployer Pension Plan 
System: Recent Reforms and Challenges'' you heard testimony from a 
number of witnesses. Unfortunately, in many respects much of that 
testimony was misguided or misinformed. Therefore, we would like to 
address the following points raised that were raised during the 
hearing, and in particular in Mr. Biggs's comments.

  ``Red zone plans, however, are mandated to take only `reasonable 
measures' to address funding. While red zone plans are authorized to 
reduce certain ancillary benefits, they are also exempted from excise 
taxes on funding deficiencies and thus effectively exempted from 
funding rules.''

Red Zone plans are not exempted from funding rules. The funding rules 
governing red zone multiemployer plans differ from those that apply to 
green zone multiemployer plans, in that red zone plans are allowed more 
time to recover from their financial challenges. But they must develop 
schedules that reduce benefits and/or increase contributions by the end 
of the Rehabilitation Period. It is only after the Trustees determine 
that all reasonable measures have been taken that the Plan is permitted 
to extend the recovery period. This is a determination that the 
Trustees take very seriously, and in fact few plans have taken this 
option. Most red zone plans are developed expecting to emerge from red 
zone status within the period required by law.

In addition, red zone plans are exempt from excise taxes only if they 
continue to make scheduled progress toward recovery as laid out in 
their Rehabilitation Plan. If they fail to make scheduled progress for 
3 years, the previously waived excise taxes must be paid. Therefore, it 
is misleading to characterize a temporary relief measure that is only 
effective when a plan is in compliance with funding requirements as 
being ``effectively exempted from funding rules.''

  ``As of 2008, 80 percent of multiemployer plans were in the green 
funding zone and only 9 percent in the red zone. As of 2013, the share 
of green zone plans had dropped to 59 percent while the number of red 
zone plans has tripled to 27 percent.''

As of 2008, 83% of calendar year multiemployer plans were in the green 
zone, and 7% were in the red zone. Solely as a result of the 2008 
market crash in which every sector of the market experienced 
unprecedented losses, those numbers had declined to 39% of calendar 
year plans in the green zone and 32% of plans in the red zone as of 
2009. From that low, the number of plans in the red zone has decreased 
to 27% as of 2015. The number of plans in the green zone has increased 
back up to 65%. In fact, since 2012 the number of plans in the red zone 
has held relatively steady as plans make the required and expected 
progress toward recovery in their rehabilitation plans.

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


  ``While plans in the yellow and orange zones have significantly 
increased contributions to address funding shortfalls, red zone plans 
have contributed substantially less than sponsors of plans in the 
green, yellow and orange zones. Thus the most financially endangered 
are doing less than others to catch up.''

Yellow and orange zone plans have increased contributions, as they are 
required to avoid a projected deficiency in the funding standard 
account. This means that their recovery plans are often very front-
loaded, in that contributions are increased significantly at the 
beginning of the period, often to the detriment of the contributing 
employers to the plan. In contrast, red zone recovery plans often take 
a more measured approach to contribution increases. This does not mean 
that red zone plans are doing less than yellow and orange zone plans to 
recover. In fact, benefits are often reduced as much as necessary in 
the first few years of the recovery plan as new contracts are 
bargained. Contribution increases are generally phased-in over a period 
of years so that employers and participants at the bargaining table can 
adjust to the new reality of what is required to shore up the funding 
of the plan.

Yellow and orange zone plans also have only two options to correct 
their funding challenges--increase contributions or cut future 
accruals. In contrast, red zone plans have additional tools as allowed 
under the Pension Protection Act of 2006 to help them reach their 
funding targets--they may reduce what are called ``adjustable 
benefits.'' In fact, most plans did all three as part of their recovery 
plans--increase contributions, cut accruals and reduce adjustable 
benefits.

  ``If a pension promises to deliver a guaranteed benefit, it should 
discount its liabilities using a low interest rate to reflect that 
guarantee.''

This is a fallacy that does not reflect the fact that multiemployer 
pension plans are long-term, ongoing retirement vehicles. The cash on 
hand today is not the only money that will be available to pay benefit 
obligation in the future. Contributions will continue to be made to the 
plans, and, yes, the assets will continue to earn investment income.

The time horizon of multiemployer pension plans is very long term, 
typically 30, 40 years or more. As you can see in the graph below, over 
rolling 30 year periods since 1956 a typical 50% equity 50% bond 
portfolio earned an annualized yield in excess of 7.5% in 50 out of 60 
years. Sixteen of those years showed annualized 30-year returns in 
excess of 10%. The lowest annualized 30-year return in that period was 
6.66%.

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


When you consider the long-term nature of multiemployer pension plans, 
it does not make sense to focus on the short term volatility of 
investment returns as Mr. Biggs advocates. And in fact, this is the 
generally accepted position of the majority of multiemployer actuaries.

  ``Even a `green zone' multiemployer plan is not nearly as healthy as 
a single employer plan in the green zone, as a single employer plan 
must value its liabilities using a corporate bond yield.''

First, single employer plans are not subject to the same funding rules 
as multiemployer plans. Therefore, there is no concept of a ``green 
zone'' single employer plan.

Second, single employer plans are fundamentally different than 
multiemployer plans. Only one employer participates in a single 
employer plan. Therefore, the pension liabilities are more closely tied 
to the fortunes of the sponsoring company. Multiemployer plans, by 
definition, are made up of more than one employer--often MANY more 
employers. If one employer fails, the others are jointly responsible 
for the pension obligations to the participants of that employer. 
Therefore, the entire concept of applying corporate bond yields, which 
apply a monetary value to investors for the risk of failure associated 
with a single employer standing alone, to a multiemployer plan, in 
which many employers jointly back the pension obligations of each 
other, makes no sense.

  ``In good times, a plan sponsor may not need to make any 
contributions and may be tempted to increase benefits. Both 
multiemployer plans and state and local plans succumbed to that 
temptation during the late 1990s.''

On the contrary, many multiemployer plans were required to increase 
benefits during the late 1990s as a result of overly restrictive laws 
governing the tax deductibility of employer contributions. 
Contributions to multiemployer plans are set in collective bargaining 
agreements. Once set, contributing employers are bound by the 
bargaining agreement to make those contributions. During the 1990s, 
plans faced a situation in which an employer that made all of the 
contributions legally obligated under the bargaining agreement to a 
plan that was fully funded would be subject to an excise tax on a 
portion of those contributions. This occurred, because the 
contributions mandated in the bargaining agreements were greater than 
the maximum amount that could be deducted for tax purposes. Plans 
increased benefits to increase the deductible limit in order to protect 
employers from the excise tax.

In effect, despite pleas from the multiemployer community that applying 
this overly restrictive policy (that was meant to prevent law firms and 
doctors' practices from sheltering income) to multiemployer plan was 
ill conceived and that plans should have been able to build reserves in 
excess of 100% of funding to protect against the inevitable downturn in 
the markets, overly restrictive tax laws forced plans to spend down the 
cushion they had developed from greater than anticipated asset returns, 
and made plans more vulnerable to the combined effects of the 2002/2003 
and 2008 market losses. It has been estimated that upwards of 70% of 
multiemployer plans faced this problem of overfunding in the 1980s and 
1990s despite the fact that the notion of negotiating tax shelters for 
blue collar workers is preposterous on its face.

  ``These companies generally offered traditional defined benefit 
pensions, in which a participant's benefit is calculated based upon his 
final earnings and his years of service with the company. Defined 
benefit pensions are `backloaded,' which means that the benefit formula 
rewards full-
career employees but penalizes those who work short or mid length 
careers. Under a traditional defined benefit pension, for instance, an 
employee who worked for two companies for 20 years each would receive a 
substantially lower benefit than an employee who worked for a single 
company for 40 years.''

It is this type of broad generalization that demonstrates Mr. Biggs's 
lack of familiarity with multiemployer plans and which brings into 
question the usefulness of his conclusions. In fact, this point is 
irrelevant to multiemployer plans. Such a formula is almost unheard of 
in multiemployer plan design. Instead participants earn a dollar 
multiplier for each year of service or a percentage of contributions. 
Under this approach, benefits are not backloaded, but are earned 
equitably over a participant's career. In addition, a participant with 
20 years with two employers will earn the exact same benefit as a 
participant with 40 years with one employer. This is the entire point 
of a multiemployer plan.

  ``It is very unlikely that individuals making their own judgments 
would take nearly as much investment risk as their pension plans are 
taking on their behalf.''

According to a 2014 EBRJ study entitled 401(k) Plan Asset Allocation, 
Account Balances, and Loan Activity in 2013, ``The bulk of 40l(k) 
assets continued to be invested in stocks. On average, at year-end 
2013, 66 percent of 401(k) participants' assets were invested in equity 
securities through equity funds, the equity portion of balanced funds, 
and company stock.'' This allocation is similar to the allocation used 
in many pension plans, and is in fact slightly more aggressive than the 
somewhat standard 60/40 equities to bonds mix of multiemployer pension 
plans.

  ``If some change affects an entire industry_be it trucking 
regulations in the 1980s or environmental regulations in the 2000s_the 
pension sponsors are themselves in a weaker financial position, plus 
they bear the liabilities of companies that went bankrupt or otherwise 
left the plan.''

Please notice that in both examples, it is ``regulations'' that are 
weakening the financial position of pensioners. Unintended consequences 
of regulations are not the fault of the multiemployer plans providing 
benefits to their participants. Aside from changing government 
regulations, it is rare that a change will permanently affect an entire 
industry.

            Respectfully submitted,

            Randy G. DeFrehn,
            Executive Director

                                 ______
                                 
                         Pension Rights Center

              Protecting and Promoting Retirement Security

    1350 Connecticut Ave., NW, Suite 206 | Washington, DC 20036-1739

       P: 202-296-3776 | F: 202-833-2472 | www.pensionrights.org

               ``THE MULTIEMPLOYER PENSION PLAN SYSTEM: 
                RECENT REFORMS AND CURRENT CHALLENGES''

                          COMMITTEE ON FINANCE

                          UNITED STATES SENATE

                             MARCH 1, 2016

The Pension Rights Center is a nonprofit consumer organization that has 
been working since 1976 to promote and protect the retirement security 
of American workers and their families. We are pleased that the Senate 
Finance Committee is holding today's hearing, ``The Multiemployer 
Pension Plan System: Recent Reforms and Current Challenges.'' We hope 
that the hearing will jumpstart a serious conversation on saving 
critically underfunded pension plans without the cruel and unfair 
benefit cuts authorized by the Multiemployer Pension Reform Act. In 
December 2014, Congress passed the Multiemployer Pension Reform Act 
(MPRA) as part of the comprehensive end-of-year spending bill. MPRA's 
cutback provisions eviscerated 40 years of pension law and paved the 
way for gutting the pensions of hundreds of thousands of today's 
retirees and workers.

It is noteworthy that this is the first hearing to be held by any 
congressional committee on the legislation itself. Hearings were held 
in one committee of the House of Representatives on a trade group 
proposal to permit benefit cuts, but the 161-page legislative language 
was never the subject of hearings and was invisible to the public until 
its passage was a fait accompli. Retirees and former employees had no 
seat at the table and no voice in the legislative product, which was 
only considered in the Rules Committee as an amendment to the rule 
governing debate on the so-called ``Cromnibus'' legislation in the 
House. Neither the U.S. House of Representatives nor the U.S. Senate 
ever voted separately on the language of this bill, and many Members 
were unaware of its implications when they voted on the massive funding 
bill. The process was unconscionable; the legislation would never have 
emerged from an open, transparent, and democratic process.

Forty-one years ago Congress passed a different law that emerged from 
almost a decade of legislative and societal debate; a debate driven by 
government and 
private-sector failure to ensure that American working people and 
retirees, and their families, could count on the pension promises made 
to them.

This law, of course, was the landmark federal private pension law 
called the Employee Retirement Income Security Act (ERISA). ERISA's 
chief goal was to protect the reasonable expectations of workers and 
retirees. Among its unbending and foundational principles, ERISA 
ensured that once individuals earned pensions, they could not be 
reduced absent the exceptional circumstance of the failure of a single 
employer pension plan, or when a multiemployer plan completely ran out 
of money. Even then, retirees were provided the maximum protections 
under the law and had first claim to the plan's assets, since Congress 
recognized that they were the most vulnerable participants and would 
not have time, or the ability in many cases, to go back to work and 
make up for the lost pension benefits.

MPRA, however, undoes these critical protections by giving plan 
trustees extraordinary and almost unreviewable power to ``suspend''--a 
euphemism for slashing--already-earned benefits in certain underfunded 
multiemployer plans, including the benefits of most retirees. 
Furthermore, these cuts can happen today, 10 to 15 years before even 
the most troubled plans are projected to become insolvent. Congress 
would have had sufficient time to consider better solutions during that 
time. Retiree cutbacks should have been the last option on the table, 
not the first.

The plan trustees endowed with these new and extraordinary powers are 
not neutral, objective, and independent actors. Rather, they are 
appointed by the bargaining representatives of active employees and by 
the contributing employers, and as such have profound structural 
conflicts of interest. They will, as the MPRA statute implicitly 
invites them to do, seize retiree property for the benefit of those 
they represent. Shockingly, the statute dilutes to almost nothing 
whatever legal duty the trustees might have had to retirees and even 
purports to bar retirees from bringing legal actions challenging the 
trustees' decisions.

The Central States Pension Fund is the first plan to apply to cut 
benefits, and it graphically illustrates how these conflicts will play 
out. The cuts to the benefits of retirees and former employees are far 
steeper than the cuts to active employees, and future financial 
obligations of contributing employers to the plan have been implicitly 
reduced. Hence the burden of balancing the books of these plans falls 
almost entirely on retirees. Indeed, almost a third of retirees face 
cuts from 40 percent to more than 70 percent (and in a few cases, 100 
percent).

And perhaps the supreme irony is that the benefit cuts are unlikely to 
preserve the plan in the long run. To make its application work, the 
actuaries for the Central States Pension Fund claim that it is 
reasonable to believe that Central States will earn a 7.5 percent 
return on investments going forward, an assumption that the experts we 
have consulted think is inappropriate in general and for this plan in 
particular.

The Pension Rights Center has submitted comments to the U.S. Treasury 
Department urging the agency to reject the Central States' application 
because we do not believe the plan has met the statutory criteria 
required for benefit cuts to be permitted. However, we are concerned 
that if the Treasury decides, against the evidence, to approve the 
application, it could spur many more plans to submit their own 
applications to cut benefits. We are concerned that these cuts will be 
as extreme and as unfairly distributed as is the case for the Central 
States' participants.

Now that the full effects of the Multiemployer Pension Reform Act have 
been exposed, Congress simply cannot walk away from MPRA's cruelty and 
unfairness. If the proposed benefit cuts go into effect, many retirees 
will no longer be able to pay their mortgages, or pay for medicines or 
other necessities, or be able to take care of family members who have 
relied on them. Growing demand for financial support could put 
increased strain on governments at the federal, state and local levels, 
in addition to charitable and community support groups that are still 
overwhelmed by demand in areas where the economic recovery has not yet 
taken hold.

There are alternatives to this potentially nightmare scenario. Despite 
the claims of those who wrote and lobbied for MPRA, little effort was 
made to fashion a different solution to the multiemployer pension plan 
problem. These lobbyists determined that the brunt of the financial hit 
from rescuing these plans would be borne by retirees who were not at 
the table. Once this decision was made, little or no effort was made to 
explore alternatives that might have spread the financial burden more 
broadly.

However, the Pension Rights Center has supported alternatives. For 
example, S. 1631, the Keep Our Pension Promises Act (KOPPA), is 
currently pending before this Committee and is sponsored by two 
Committee members, Senator Sherrod Brown and Senator Debbie Stabenow. 
KOPPA would roll back MPRA's pension-cut provisions, while providing 
funding to troubled multiemployer plans and the Pension Benefit 
Guaranty Corporation. KOPPA provides a mechanism for supporting the 
retirees of these companies, which leaves a manageable liability for 
the employers remaining in the plan.

A second bill, introduced by another member of this Committee, Senator 
Rob Portman, is S. 2147, the Pension Accountability Act. This bill was 
not designed as an alternative to MPRA but addresses one of the more 
egregious deficiencies in the statute, the lack of a real voice for 
retirees in the current process, by providing a remedy for MPRA largely 
illusory voting process.

While the Pension Rights Center has supported both bills, we recognize 
that time is running short. We believe there is a need for a new 
comprehensive bi-partisan approach to solve the problem.

We hope that this hearing will be the beginning of this new process. We 
urge the members of this committee to convene a dialogue to find 
innovative approaches to fixing the problem by working with retirees, 
unions, employers and other experts. We strongly believe that ideas 
that may have been considered but discarded in the past may find new 
support in the wake of the devastation that the MPRA cuts will impose 
on retirees and their communities. We also believe that Members of 
Congress, working together with all stakeholders, including retirees 
and their families, have the ability to design a better solution that 
does not place the burden of preserving these plans on the backs of 
retirees.

We note the precedent for such a grand bargain in Detroit, where 
stakeholders from all sides joined forces, Republicans and Democrats 
working together, to ensure the viability of the Detroit public pension 
plans while avoiding the 34 percent pension cuts that had originally 
been proposed. In the end, Detroit's plans reduced civilian retiree 
cuts to only 4 percent and spared police and firefighters from any 
cuts. We should follow Detroit's example and find creative solutions to 
ensure the survival of multiemployer plans, while sparing pensioners 
from cuts.

We conclude with a word of caution for every member of this committee 
and of the United States Senate. Those Senators who have Central States 
Pension Fund retirees as constituents are already well aware of the 
impact MPRA will have on your constituents. But soon this issue may 
affect substantial numbers of retirees in every state. Central States 
was the first multiemployer pension plan to file a plan for retiree 
benefit cuts, but it is by no means the only plan that will do so. At 
this time, there are three other plans that have already filed an 
application, or announced their intention, to cut benefits. But there 
are more than 50 plans that have filed notices of ``critical and 
declining'' status with the Department of Labor--a prerequisite to 
filing a proposal to cut retiree benefits, and we believe there are 
another 100 plans that will be eligible to cut benefits over the next 
several years.

Congress has an opportunity to reverse this ill-conceived and unfair 
legislation now, before its effects spread and become catastrophic, by 
pushing the ``pause button'' on the Central States Pension Fund's 
proposal and bringing all the stakeholders together to develop a 
sensible, fair and workable solution. Retirees in multiemployer plans 
did everything right while they were working, and they are not 
responsible for the financial situation their plans are in today. They 
worked hard and played by the rules, and they relied on promises made 
by their employers--and backed up by a federal guarantee--that they 
would have a secure income in retirement. These are not wealthy 
people--they are the heart of middle America--and their futures are our 
future.

Finally, we want to briefly comment on another subject of this hearing, 
the so-called composite plans. Composite plans are ``hybrid'' plans, in 
which assets are pooled and professionally managed and in which 
benefits are paid in accordance with a formula, with possible 
adjustments to reflect plan experience. In concept, such plans reflect 
a promising new direction, one that the Pension Rights Center has 
championed. But the success of such plans will depend on the 
legislative parameters: Are the plans' promised benefits conservatively 
and responsibly funded? Are retirees and older participants adequately 
protected from downward benefit adjustments? Is there a minimum floor 
benefit that cannot be reduced and which is backed by PBGC guarantees? 
We are also concerned that such plans not be connected to legacy 
defined benefit plans through overlapping trustees and other plan 
officials. But we are interested in the idea of hybrid plans and look 
forward to constructive dialogue with other organizations and 
stakeholders.

The Pension Rights Center is working on ideas both for a new 
comprehensive bipartisan compromise bill to solve the issue of 
underfunded multiemployer plans, as well as an analysis of the 
composite plan concept. We will be happy to share our findings once 
they are completed.

                                 ______
                                 
   Sheet Metal and Air Conditioning Contractors' National Association

     Capitol Hill Office: 305 4th Street, NE  Washington, DC 20002

                Phone: 202-547-8202  Fax: 202-547-8810

  Headquarters: 4201 Lafayette Center Drive  Chantilly, VA 20151-1209

        Mail Address: P.O. Box 221230  Chantilly, VA 20153-1230

                Phone: 703-803-2980  Fax: 703-803-3732

                          Web: www.smacna.org

March 1, 2016

The Honorable Orrin Hatch, Chairman
The Honorable Ron Wyden, Ranking Member
Committee on Finance
U.S. Senate
Washington, DC 20510

Re: The Multiemployer Pension Plan System: Recent Reforms and Current 
Challenges

Dear Chairman Hatch and Senator Wyden:

I am writing on behalf of The Sheet Metal and Air Conditioning 
Contractors' National Association (SMACNA). SMACNA is supported by 
approximately 3,500 construction firms supplying expertise in 
industrial, commercial, residential, architectural and specialty sheet 
metal and air conditioning construction throughout the United States. 
The majority of these contractors run small, family-owned businesses, 
many of which are multi-generational, and contribute to the Sheet Metal 
Worker's National Pension Fund (NPF). Many contribute as well to a 
local pension fund. Pension funding issues figure prominently in their 
day to day business decisions and SMACNA appreciates that this hearing 
will highlight the need for new design options in multiemployer pension 
plans, which went unfinished in 2014.

For the record, SMACNA employers are doing their part to fulfill their 
commitment to the NPF. Recent NPF records show SMACNA employers made 
contributions of over $460 Million in 2015; over $424 Million in 2014; 
and over $315 Million in 2012. But this increasing amount has not been 
enough to keep the national plan adequately funded, and it currently 
resides in Endangered Status.

Contractors want to continue to be able to provide lifetime retirement 
security for their workers but the current Defined Benefit (DB) system 
is unstable and contractors are worried about the viability of their 
businesses and are being driven out of the system. As you know, there 
are large and small DB funds on the verge of collapse. The existing 
economic realities mean that benefit security under the current DB 
system is illusory.

The Solution: Composite Plans

Labor and management came together to craft a solution which has the 
ability to revitalize the multiemployer system with a new type of plan 
called a ``Composite Plan'' that bargaining groups would have the 
option of adopting. Federal law currently allows only a traditional 
Defined Benefit Plan or a 401(k) style Defined Contribution Plan. 
Composite Plans are a hybrid plan designed to bridge the gap between 
the existing options.

So far, SMACNA has not heard any opposition to the new hybrid plan 
design. There are good reasons for that. Employers like it, workers 
like it, and its use is strictly voluntary by plan trustees, which have 
an equal number of labor and management representatives.

Composite Plan Design Features Workers Like:

      Not Mandated: Composite Plan design is simply another tool for 
plans trustees to use to secure long-term retirement benefits for 
participants.

      Lifetime Benefit: Composite plan benefits would be paid as 
lifetime annuities--lump sums not allowed.

      Professional Asset Management and Pooled Risks: Plan assets 
would be professionally managed without the fees associated with 
individual accounts, resulting in far greater efficiency than is 
available in traditional Defined Contribution plans.

      Benefit Security: The flexible benefit structure would protect 
benefits with strict management and funding requirements--most notably 
plan benefits would be required to be funded at 120% of their expected 
costs. The attached Segal/NCCMP document illustrates how plans funded 
at 120% fare under different negative market event scenarios even 
without the benefit of a normal rebound effect.

      Safeguards Against Adverse Experience: In addition to the 
mandatory 20% funding cushion, Composite Plans will protect retirement 
benefits that participants have earned by responding to adverse 
experience by proposing contribution rate increases, reducing the rate 
of future benefit accruals, and scaling back ancillary benefits such as 
early retirement and other supplemental benefits.

      Severe Market Decline Protections: In the unlikely event market 
declines exceed the worst predictions, plans will have the important 
ability to intervene early by reducing benefits to a sustainable level. 
This step is only available after all other options have been 
exhausted. A hard lesson that we have learned from recent experience is 
that when the worst happens, the key to preventing catastrophic benefit 
reductions is to empower plans to make modest adjustments as soon as it 
is clear they are necessary.

      Already Earned Benefits Protected: Composite Plans would apply 
only to benefits earned in the future; benefits already earned in the 
so-called Legacy Plan would not be lost nor cashed out. Instead, 
legislative language is being written in a bi-partisan way to tightly 
protect earned benefits in the transition rules.

Composite Plan Design Features Employers Like:

      Retain and Attract Employers: By eliminating unfunded 
liabilities (withdrawal liability) for employers going forward, the 
composite design would improve the ability of plans to retain existing 
contributing employers and would remove a significant barrier for 
attracting new employers.

      Cost Predictability: Composite Plans would provide cost 
predictability--employers would be required only to contribute the 
amount negotiated in their collective bargaining agreements and would 
not take on outside liabilities.

      Labor Sees Hybrid Plans as a Positive Alternative to Defined 
Contribution Plan: Composite Plans are a design that workers would be 
willing to agree to for the future--whereas they are generally 
skeptical and unwilling to negotiate to a Defined Contribution plan.

      Liabilities in Legacy Plans Gradually Diminish: As time moves 
forward, liabilities in the legacy plans gradually diminish as benefits 
are paid out and participants earn accruals in the new plan.

      Companies Continue to Provide Good Jobs Within a Community: With 
a composite plan in place, instead of closing their doors, employers 
would be able to welcome their children into their businesses with 
confidence or would be able to sell their businesses when they retire, 
because the overwhelming burden of uncontrollable, unknowable risk of 
unfunded liabilities is removed.

      Private Sector Solution: The proposal is a private sector 
solution, not requiring government dollars and is designed to keep the 
current funding crisis from happening in the future.

Composite Plans will modernize and reinvigorate a multiemployer 
retirement system that has struggled in recent years. Once Congress 
authorizes the use of Composite Plans, labor and management will have 
the option to elect a plan design that would provide a safe and secure 
lifetime retirement benefit to employees without risking the survival 
of a sound business that offers good middle-class jobs with important 
benefits for workers and society. A more detailed White Paper authored 
by actuary Josh Shapiro is attached for the record.

Respectfully submitted,

Dana Thompson
Assistant Director, Legislative Affairs
SMACNA, Inc.
Capitol Hill Office

                                 ______
                                 

Composite Plans: A New Approach to Modernizing Multiemployer Retirement 
                                Benefits

                    By Josh Shapiro, Groom Law Group

                               July 2015

Executive Summary

    In 2011 the Retirement Security Review Commission, consisting of 
stakeholders from both labor and management, met to discuss the future 
of the multiemployer retirement system. After a long period of 
discussion and deliberation, the group concluded that revitalizing the 
multiemployer system requires creating a new type of retirement plan. 
These plans are known as ``composite plans,'' and their objectives are:

      Provide adequate and reliable income in retirement to employees.

      Ensure that sponsoring employers are not exposed to financial 
risks that jeopardize the viability of their businesses.

Federal law currently limits plan sponsors to offering either 
traditional defined benefit pension plans or 401(k)-style defined 
contribution plans. Each of these options has certain weaknesses, with 
defined contribution plans struggling to successfully provide adequate 
and secure income to retired workers, and defined benefit plans placing 
financial risks on employers that are driving them out of the system.

    Composite plans provide a voluntary way to bridge the gap between 
these two options, combining the lifetime income payments of defined 
benefit plans with the predictable cost structure of defined 
contribution plans. Since composite plans are neither defined benefit 
nor defined contribution plans, Congress will need to authorize their 
use before companies can begin to offer them to their employees.

    The following key features of composite plans will ensure that they 
provide employees with reliable and cost-effective retirement benefits:

      No individual accounts--all assets invested in a single 
diversified portfolio with professional asset management, and all 
benefits paid as lifetime annuities calculated under a formula 
established by the plan trustees.

      Funding policy that is required to target 120% of the 
actuarially calculated costs, which serves as a buffer against market 
volatility.

Composite plans will also provide the cost predictability that is 
necessary to protect the financial viability of the contributing 
employers.

      Contribution obligation limited to the bargained contribution 
rate, which can only be increased by agreement between labor and 
management.

      Absence of any withdrawal liability assessments or other fees 
payable when an employer exits the plan.

Composite plans work by employing a flexible benefit structure that 
adapts to changing economic conditions. The plan trustees may increase 
benefit levels when significant gains occur, and subject to a variety 
of safeguards, they may reduce benefit levels if this action is 
necessary to maintain a strong long-term funding outlook.

    When a group adopts the composite plan model, it will apply only to 
benefits earned in the future, while the current multiemployer pension 
rules continue to apply to benefits earned before the composite plan is 
adopted. The liabilities in the legacy pension plan will cease to grow, 
and over time they will diminish as benefits are paid out and 
participants earn accruals in the composite plan.

    We know from experience that early corrective action is a key 
source of benefit security. When the actuarial projections show a 
funding imbalance, composite plans require early proactive measures to 
improve funding levels. These measures may include:

      Negotiating additional contributions.

      Reducing the rate of future benefit accrual.

      Scaling back non-core benefits, such as early retirement, 
spousal subsidies, and disability benefits.

Only after these options have been exhausted can the trustees consider 
adopting reductions to the core retirement benefits. Just as with 
current multiemployer plans, all boards of trustees will consist of an 
equal number of employer and employee representatives, which will 
further ensure retirement benefits are protected.

    Extensive stress testing confirms that the composite plan model 
will work as intended. The positive experience of the Canadian 
multiemployer system, which closely resembles composite plans, is 
further proof of the viability of this approach.

    The companies that currently participate in the multiemployer 
system take pride in the fact that they provide high-quality retirement 
benefits to their employees. The structure and safeguards of composite 
plans represent a responsible way for them to continue to do this, 
without taking on financial risks that threaten the survival of their 
businesses.

Introduction

    Several years ago, representatives from both labor and management 
formed the Retirement Security Review Commission in order to discuss 
ideas on how to revitalize the multiemployer pension system. After many 
months of discussion, analysis, and debate, the result of this process 
was a proposal for a new type of retirement plan called a ``composite 
plan.''

    Composite plans are a new and innovative approach to providing 
retirement benefits to multiemployer plan participants. In a time when 
more and more workers are financially unprepared for retirement, 
composite plans represent a modernized approach that is viable for the 
future. These plans have two primary objectives:

      Provide adequate and reliable income in retirement to employees.

      Ensure that sponsoring employers are not exposed to financial 
risks that jeopardize the viability of their businesses.

    In order to accomplish these objectives, the composite plan 
structure has the flexibility to adapt to both strong and weak economic 
conditions, which creates benefit security for participants and cost 
stability for plan sponsors. This is especially important during 
difficult economic times when plans become underfunded, as the 
composite plan rules require swift action to improve funding levels, 
while giving labor and management the flexibility to develop solutions 
that meet their specific needs.

    As with current multiemployer retirement plans, composite plans 
would be products of the collective bargaining process between labor 
and management. Current pension law limits employers to offering either 
defined contribution plans such as 401(k) plans, or traditional defined 
benefit pension plans. As composite plans are neither, in order for 
companies to begin offering them to their employees, Congress will need 
to enact legislation authorizing their use.

Why Are Composite Plans Needed?

    Effectively, companies have been forced to choose between 
protecting their businesses and protecting their employees. Composite 
plans provide a way for employers to do both. Composite plans take the 
best features of the options that are available under current law by 
combining the predictable costs of 401(k) style defined contribution 
plans with the lifetime income features of traditional defined benefit 
plans.

    Composite plans are a voluntary ``best of both worlds'' approach 
that will help reverse the recent trend away from pension plan 
sponsorship by providing an option that truly meets the needs of both 
the employees and the employers. They will also help to reduce 
multiemployer plans' reliance on the insurance provided by the Pension 
Benefit Guaranty Corporation, as the high degree of adaptability of 
composite plans makes this insurance unnecessary.

    Under current law, the companies that want to provide retirement 
benefits to their employees face a difficult choice:

      They can offer a traditional defined benefit pension plan, with 
the knowledge that when economic conditions cause pension costs to 
increase, they will bear the burden of these increased costs while many 
of their competitors will not.

      Alternatively they can offer a 401(k) style defined contribution 
plan, knowing that these plans place risks and burdens on employees who 
may lack the proficiency to manage them.

    The vast majority of companies that sponsor multiemployer pension 
plans are small businesses, which in many cases have been handed down 
through several generations of family members. These employers 
understand the importance of retirement income security to employees, 
and they take pride in the fact that their employees are able to 
maintain a decent standard of living in retirement following a lifetime 
of work. Composite plans represent an opportunity for these companies 
to continue to provide high-quality retirement benefits to their 
employees, without taking on financial risks that could ultimately 
cause the demise of their businesses.

Advantages of Composite Plans

Employee Perspective--The Advantages of Composite Plans over Defined 
Contribution Plans

    Professional Asset Management: Composite plans provide for 
professional asset management and the sharing of risks, both of which 
enable these plans to provide retirement security to participants far 
more efficiently than is currently possible in defined contribution 
plans such as 401(k) plans. Today many defined contribution plan 
participants struggle with how to manage their investments while they 
are working, and how to convert those investments into retirement 
income once they retire. Composite plans possess design features that 
address both of these issues, ensuring that they maximize the amount of 
retirement income they provide while minimizing both cost and risk.

    Benefit Security: All composite plan assets are invested in a 
single diversified portfolio that allows the trustees to negotiate the 
lowest possible fee arrangements with managers and advisors while 
maintaining a long-term investment strategy. Composite plans also have 
several design features that provide benefit security during periods of 
economic weakness. These features include:

      A funding structure that mandates that projected plan assets 
exceed the expected benefit obligations by 20%.

      The ability for the bargaining parties to negotiate higher 
contribution levels in order to improve funding without reducing any 
benefits.

      A requirement that plans protect benefits that participants have 
already earned by reducing the rate of future benefit accrual as an 
initial response to funding challenges.

    In a 401(k) plan, the employer deposits contributions into 
employees' individual accounts during their working years, and each 
individual employee is responsible for deciding how to allocate the 
contributions among numerous investment options. When investment losses 
occur, there are no provisions in these plans that provide any 
protection to participants. A typical multiemployer plan participant is 
a middle-class worker, who in most cases does not have the time, 
expertise, or resources that are necessary to develop an investment 
strategy that effectively balances long-term returns with downside risk 
management.

    Lifetime Annuity: Composite plans pay all benefits as lifetime 
annuities, which means that it is impossible for retirees to outlive 
their savings. This feature represents an enormous advantage over 
401(k) plans, as it is exceptionally difficult for an individual 
participant to develop an efficient strategy for drawing down an 
individual retirement account. Imagine a 60-year old worker who has 
never had more than a few thousand dollars in the bank suddenly 
receiving a check for half a million dollars. This money needs to 
provide income over a retirement that could last anywhere from several 
months to several decades. How do you prudently spend this money in a 
way that balances the desire to enjoy the rewards of a lifetime of hard 
work with concerns about being impoverished at age 85? By paying all 
benefits as lifetime annuities, composite plans provide longevity 
protection that will prevent elderly participants from needing public 
assistance in the final years of their lives.

Employer Perspective--The Advantages of Composite Plans Over Defined 
Benefit Plans

    Ability to Provide Secure Benefit for Employees at Predictable 
Costs: From the perspective of the employers, composite plans have the 
advantage of predictable costs. In a composite plan, the employers are 
only obligated to contribute the amounts that are negotiated in 
collective bargaining agreements, and they do not take on any 
liabilities outside of these amounts. As such, the primary factors that 
have made companies reluctant to sponsor multiemployer defined benefit 
plans are entirely absent from composite plans.

    In traditional defined benefit plans, the employers bear the risk 
of plan asset losses. When the plan assets decline, the employer costs 
and liabilities rise in response to those losses. The result is that 
the companies that choose to provide these plans to their employees 
have unpredictable cost structures, while the companies that choose not 
to provide their employees with quality retirement benefits have much 
greater cost stability. The inevitable consequence is that despite 
their value to employees, employers have been forced to move away from 
traditional defined benefit plans in order to remain competitive and 
financially viable. Today very few companies are willing to enter the 
multiemployer defined benefit system, and many of those that currently 
participate are looking for opportunities to exit. Composite plans 
address this issue by strictly limiting the employers' obligations to 
the amounts negotiated in collective bargaining agreements.

    Stable Transition from Traditional DB Plan: In addition, for 
companies that currently sponsor traditional defined benefit pension 
plans that are underfunded, a transition to the composite model would 
allow them to more efficiently address those unfunded liabilities by 
ensuring that employees' future years of service do not cause the 
liabilities to grow.

How Composite Plans Work

    Composite plans will pay benefits in the same manner as current 
defined benefit plans. There will be a benefit formula that determines 
the amount of retirement income each participant receives. Plans may 
include early retirement provisions, disability benefits, spousal 
benefits, and other optional features. Like all multiemployer plans, a 
board of trustees consisting of an equal number of employee and 
employer representatives will be responsible for setting the provisions 
of the plan.

    A composite plan will determine its funded position by first 
measuring the assets and liabilities of the plan, and then projecting 
these values 15 years into the future based on expected contributions, 
benefit accruals, benefit payments, and asset returns. If the ratio of 
the projected assets to the projected liabilities equals or exceeds 
120%, the plan will be considered to be in good shape and can continue 
to operate as is. If this ratio is below 120%, the plan will be 
required to take prompt action to improve its projected funding level.

    As with traditional defined benefit plans, the measures used to 
improve funding levels in a composite plan may take many forms.

      When faced with a funding shortfall, trustees' initial reaction 
will often be to provide the bargaining parties with an opportunity to 
negotiate a higher contribution rate that will pay off the shortfall.

      If necessary, the trustees will also respond by reducing the 
rate of future benefit accrual.

      In the rare cases when these tools are insufficient, plans can 
also respond by scaling back ancillary benefits such as early 
retirement subsidies and disability benefits as a way to improve the 
long-term funding outlook.

    Historically, in all but the worst of economic conditions, 
multiemployer defined benefit plans have been able to correct funding 
imbalances using only the tools described above, and the same will be 
true for composite plans. During the most severe of economic 
catastrophes, such as the 2008 financial market collapse, these tools 
may not be enough for some plans. In the event that the projected 
funded ratio of a composite plan remains below the required level after 
the application of all of the measures outlined above, the trustees of 
composite plans will have the flexibility to adjust benefits that 
participants have already earned in order to raise the projected funded 
ratio. Since both labor and management have equal voices on the board 
of trustees, this decision will require agreement from both sides.

    The ability of a composite plan to adjust benefits that 
participants have already earned will only be available after the plan 
has exhausted all other measures to improve its funding level, and can 
only be utilized with the approval of the employee representatives who 
make up half of the board of trustees. In the event that extraordinary 
economic difficulties force a plan into a position where it needs to 
take this step in order to return to financial health, prompt action is 
vital to preserving participant benefits. There are currently many 
traditional defined benefit plans where participants are facing massive 
benefit losses that could have been avoided if the plans had been 
empowered to adopt modest benefit adjustments years ago.

    The early intervention requirements of composite plans will ensure 
that if a plan ever becomes severely distressed, it will make the 
necessary adjustments quickly before the problem is allowed to worsen. 
The underlying concept is that minor benefit reductions adopted by 
composite plans long before they become insolvent are preferable to the 
much larger benefit losses that occur in traditional multiemployer 
defined benefit plans that are at or near the point of insolvency. If 
plan experience improves in the future, it is generally possible to 
restore benefits that were reduced in the past, but once the 
opportunity to improve funding levels with minor benefit adjustments is 
missed, it is often gone forever.

    From the point of view of an employer, the financial implications 
of a composite plan will be identical to a 401(k)-style defined 
contribution plan. The employer will contribute to the plan in 
accordance with the contribution rate contained in the collective 
bargaining agreement, and under no circumstances will there be any 
liability outside of that negotiated rate. In the event the employer 
ceases to contribute to the plan for any reason, there will be no 
withdrawal liability or other exit fee.

    Current multiemployer defined benefit plans could convert to the 
composite model prospectively, but the composite plan provisions would 
not apply to benefits that participants earned prior to the conversion. 
This means that the benefits that participants earn going forward would 
not have any withdrawal liability associated with them and would be 
subject to the composite plan funding rules. Past benefits earned 
before conversion, however, would continue to be subject to both the 
current defined benefit plan funding requirements and withdrawal 
liability provisions. As newly hired workers replace the current 
population of active and retired participants, the legacy defined 
benefit plan will gradually shrink while the composite plan grows.

How Composite Plans Provide Benefit Security

    Composite plans contain several features that serve to protect 
participant benefits. The funding rules for these plans mandate that 
the contribution rates and benefit levels are structured so that the 
plan assets are expected to reach 120% of the plan liabilities. In 
contrast, the funding rules for current defined benefit plans target an 
asset level that is 100% of the plan liabilities. Further, composite 
plan sponsors will be required to project the assets and liabilities 15 
years into the future, and to take immediate corrective action if the 
plan is not on pace to reach the 120% funding target. The combination 
of the 20% funding cushion and the requirement for early corrective 
action in the event of a long-term funding imbalance will serve to 
ensure that composite plans are funded in a highly conservative and 
responsible manner, and will minimize the possibility that plans ever 
need to rely on the benefit adjustment provisions.

    Benefit security in composite plans will also draw strength from 
the ability of these plans to attract and retain contributing 
employers. The importance of this objective can be seen in the recent 
experience of multiemployer defined benefit plans. The Boston College 
Center for Retirement Research compiled a list of the most severely 
underfunded multiemployer plans in the country, which they defined as 
plans that are expected to fully exhaust their assets in the next 15 
years.\1\ During the period beginning in the year 2000, and ending 
immediately after the 2008 financial crisis, the workforce covered by 
the entire multiemployer system contracted by approximately 8%.\2\ But, 
the plans that Boston College included on the list of the most 
distressed plans contracted by an average of 48% during this timeframe. 
In other words, the plans that failed to attract and retain employers 
in the years prior to the 2008 crisis are the same plans that are 
likely to experience benefit reductions after the crisis. By providing 
the cost predictability that employers need to remain profitable, 
composite plans will be able to maintain strong bases of contributing 
employers, which in turn provides a valuable source of benefit security 
to the plan participants.
---------------------------------------------------------------------------
    \1\ This data was published in the Washington Post Blog on January 
27, 2015. It is available at https://www.washingtonpost.com/apps/g/
page/business/multi-employer-pension-plans-that-could-cut-benefits-to-
retirees/1577/.
    \2\ The decline in the active workforce covered by multiemployer 
plans is based on table M-5 and M-7 from the 2013 PBGC Pension 
Insurance Data Tables. It is available at http://www.pbgc.gov/prac/
data-books.html.

    Composite plans are often compared to traditional defined benefit 
plans, where the conventional wisdom is that participant benefits 
cannot be reduced under any circumstances. Unfortunately, recent 
history has proven that this promise is only valid as long as the plan 
has sufficient assets to pay full benefits, and it goes away when this 
is not the case. Composite plans, in contrast, recognize that a promise 
to pay benefits is meaningless unless the plan actually has the assets 
necessary to support this promise. For this reason, composite plans 
emphasize responsible funding policies, early intervention to address 
funding imbalances, and attracting and retaining contributing 
employers. Composite plans will ensure that plans actually have enough 
money to pay benefits, instead of making promises that last only as 
long as the plan assets last.

Viability of Composite Plans

    The Canadian Experience: While the concepts behind composite plans 
are new to the retirement landscape in America, many of the underlying 
ideas have been used in other countries for years. This fact is most 
notable in Canada, where nearly all multiemployer pension plans operate 
under a system that shares many features with composite plans. The 
employers in these plans are liable only for the negotiated 
contribution levels, and in difficult economic times the trustees have 
the authority to reduce past benefits if it is necessary to maintain an 
adequate funding level. The experience of these plans has been 
enormously successful. There is an expanding base of contributing 
employers and the benefit adjustment authority has been rarely used, 
and only to the modest extent necessary to put plans on a path towards 
long-term health. In fact, the system has been so successful that many 
in Canada are looking for ways to expand this approach outside of the 
multiemployer system.

    Stress Testing: In addition to considering the experience of other 
countries, the group of labor and management stakeholders that 
developed the composite plan concepts also engaged an actuarial firm to 
stress test the model against a variety of economic conditions. This 
testing found that during most economic scenarios, composite plans 
operated smoothly and remained in strong financial health. The analysis 
also showed that during severe downturns comparable to the 2008 
financial crisis, composite plans have the flexibility necessary to 
recover without causing undue harm to either the contributing employers 
or the participants. The majority of composite plans would have been in 
a position to recover from the crisis using only negotiated 
contribution rate increases and prospective reductions in benefit 
levels. The minority of composite plans that would have also needed to 
adjust past benefits in order to recover would have been able to do so 
with modest reductions of less than 10% of participant benefits.

Conclusion

    Composite plans will modernize and reinvigorate a multiemployer 
retirement system that has struggled in recent years. The composite 
plan model takes the best features of the defined benefit and defined 
contribution plans that are available under current law, and uses them 
to construct a new approach to providing employer sponsored retirement 
benefits. Once Congress authorizes the use of composite plans, the 
companies that sponsor multiemployer plans will be able to offer safe 
and secure lifetime benefits to their employees without risking the 
survival of their businesses.

The Retirement Security Review Commission, a working group established 
in 2011 and comprised of stakeholders from both labor and management, 
endorsed Composite Plan designs during extensive discussions on 
safeguarding multiemployer pension plans.

This White Paper on Composite Plans is presented by ``Construction 
Employers for Responsible Pension Reform'' represented by the 
Associated General Contractors of America, Association of the Wall and 
Ceiling Industry, Finishing Contractors Association International, 
International Council of Employers of Bricklayers and Allied 
Craftworkers, Mechanical Contractors Association of America, National 
Electrical Contractors Association, Sheet Metal and Air Conditioning 
Contractors' National Association, and The Association of Union 
Constructors.

The primary author of this White Paper was Josh Shapiro, Senior 
Actuarial Advisor at the Groom Law Group in Washington, DC. Mr. Shapiro 
is a Fellow of the Society of Actuaries and an Enrolled Actuary under 
ER/SA. He is the vice-chair of the American Academy of Actuaries 
Multiemployer Subcommittee and the 2015 recipient of the Wynn Kent 
Public Communication Award. Mr. Shapiro holds a bachelor of arts degree 
in mathematics from Cornell University.

                                 ______
                                 
United Association of Plumbers and Pipefitters International Union (UA) 
        and Mechanical Contractors Association of America (MCAA)

                             March 7, 2016

To:  Senate Finance Committee; Senate Health, Education, Labor, and 
Pensions Committee; House Ways and Means Committee; House Education and 
Workforce Committee

Subject: Imperative need to modernize the Nation's private sector 
multiemployer defined benefit pension plan system

On behalf of the United Association of Plumbers and Pipefitters 
International Union (UA), and the national Mechanical Contractors 
Association of America (MCAA), we urge Congress to act and the 
Administration to support the adoption of badly needed options for plan 
trustees to consider modernizing the Nation's fragile multiemployer 
plan structure. The UA and the MCAA jointly sponsor some 148 Taft-
Hartley defined benefit pension plans covering approximately 434,494 
participants. These plans have $31.35 billion in assets.

A broad national labor/management expert panel, the Retirement Security 
Review Commission, administered by the National Coordinating Committee 
for Multiemployer Plans (NCCMP), proposed a comprehensive, coordinated, 
and long-overdue reform of the multiemployer system providing options 
for plan trustees. Two of the three major recommendations in the 
Commission's proposal, Solutions Not Bailouts, were enacted in the 
Kline/Miller Multiemployer Reform Act of 2014 (MPRA).

We are writing to urge your active and timely support for the most 
fundamental and least controversial part of that proposal--the third 
recommendation that would provide plan trustees with new options to 
consider. The Commission recommended creating a new type of plan, 
called a ``composite plan,'' that is safer and more sustainable for 
both workers and their contributing employers than defined benefit 
plans, which provides a significantly more efficient use of pension 
contributions for pension benefits than is available under the 401(k) 
model.

While defined benefit plans are the primary form of benefit for 
participants in multiemployer plans, a number of factors have changed 
the environment for many contributing employers making continued 
participation in these plans an unacceptable risk.

These factors include increased market volatility that has produced 
both real and perceived threats of unfunded liabilities resulting in 
the re-emergence of withdrawal liability for contributing employers. In 
addition, new financial disclosures for employers imposed by the 
accounting profession have negatively affected the ability of employers 
to access credit markets. This is a critical problem in credit 
dependent industries including such as construction.

Under the current tax laws, for employers who are not willing to 
participate in a multiemployer defined benefit plan, the only available 
alternative to provide any retirement benefits is a defined 
contribution plan. These plans have their own broadly recognized 
shortcomings including transferring longevity and investment risk to 
plan participants, greater fees, lack of professional asset management, 
reduced opportunities to invest in a full range of investment classes 
and account degradation through various forms of ``leakage'' (loans, 
hardship withdrawals, early distributions, etc. . . .). In addition, 
many participants receive their benefits in the form of lump sum 
distributions (instead of annuity income). The result is an inefficient 
system that leaves workers to manage account balances that are 
insufficient to meet their lifetime retirement income needs.

Composite plans are designed as a way of preserving the best of both 
the defined benefit and defined contribution structures. A composite 
plan is neither a defined benefit nor a defined contribution plan, but 
is a new plan design that draws from the best of both of the existing 
structures.

For existing defined benefit ``legacy'' plans that desire to convert to 
a composite plan structure, the retirement plan would be comprised of 
two pieces--the ``legacy'' defined benefit plan, which would be 
required to be fully funded as part of the transition to the new 
composite structure, but which would cease granting future accruals; 
and the new composite benefit plan for future accruals. The legacy plan 
portion of the combined plan remains subject to all of the existing 
ERISA/PPA funding rules, PBGC protections and premium payments, and 
withdrawal liability requirements. One of the transition requirements 
in going from the legacy defined benefit plan to the new composite plan 
would be a required minimum transition contribution that is sufficient 
to amortize the existing legacy plan liabilities over no more than 30 
years. There is no question but that the transition rules must ensure 
that the legacy plan liabilities are fully funded.

The new composite plan design would resemble that of the current 
defined benefit plan (typically $X per month per year of service), but 
would be self-adjusting (as are all defined contribution plans) based 
on market performance. As a composite plan is not a defined benefit 
plan it is not subject to the ERISA funding requirements, PBGC coverage 
or premiums and contributing employers are not subject to withdrawal 
liability on benefits earned under the composite plan. The attraction 
of the composite design, however, is that it is much more efficient and 
addresses the recognized shortcomings of the current defined 
contribution system, allowing more of the contribution and investment 
returns to be paid out to the participants in their retirement benefit. 
In addition, it will provide lifetime retirement income (in the form of 
annuity payments) and require funding targets designed to moderate 
market volatility. Most importantly, however, the composite plan will 
increase long-term retirement security by eliminating the obstacles to 
new employer participation in the plan. By limiting their obligations 
to the negotiated contribution amount new employers will no longer fear 
the emergence of liabilities over which they have no control.

The major features of composite plans are as follows:

      Requires full funding of the legacy defined benefit plan. The 
legacy defined benefit plan remains subject to all of the ERISA/PPA 
funding requirements to which any defined benefit plan is subject. In 
addition, at the time of the transition to the composite design, a plan 
may elect a one-time ``fresh start'' that would provide a re-set to a 
single 30 year amortization of all of the existing amortization bases. 
As an additional funding protection, a plan must meet an additional 
``minimum transition contribution'' under which the remaining 
liabilities of the legacy defined benefit plan must be funded over 30 
years.

      Allow participants to maximize their payout by pooling longevity 
risk. One of the most appealing aspects of traditional defined benefit 
plans is that the benefit is paid as a life annuity using the group 
mortality to determine the payout periods and amounts. Conversely, one 
of the greatest unknowns for anyone who must decide how much to 
withdraw from their IRA or 401(k) is how long they will live. There is 
a significant risk that an individual will outlive his or her 
individual account. The composite plan addresses this problem by 
eliminating individual accounts and pooling longevity risk, requiring 
the benefit to be paid out in a life annuity as it would in a defined 
benefit plan. This will enable higher benefits to be paid than if the 
participant and spouse had to assume the most conservative mortality as 
benefits are drawn down and will insure that that participant and 
spouse do not outlive their retirement assets.

      Reduce costs by professionally managing investments and 
negotiating fees. Defined benefit plan assets are typically large 
enough to permit plan fiduciaries to retain professional investment 
managers and consultants, access asset classes that are unavailable to 
the average individual investor, and to negotiate fees that are only a 
fraction of those charged to the average mutual fund investor. Over 
one's career, these savings could increase benefits paid out by as much 
as 25%. The new composite model will provide such savings to both the 
legacy defined benefit and composite portions of the participant's 
benefit.

      Preserve assets for retirement income. It is often said that 
participation rates in 401(k) and other defined contribution plans 
would be significantly lower if workers felt they would be unable to 
access their funds for other purposes. Nevertheless, one of the factors 
frequently cited as contributing to low account balances in the current 
defined contribution system is the problem of ``leakage.'' Leakage 
occurs when the plan includes features such as loans, hardship or other 
early and lump-sum distributions that diminish the assets in a 
retirement account, defeating the objective of providing lifetime 
income. Composite plans cover all employees pursuant to the applicable 
bargaining or other written agreement making individual elections 
unnecessary and prohibit these other forms of leakage that threaten a 
participant's standard of living in retirement.

      Eliminate barriers to both existing and new employer 
participation. As these are not defined benefit but modified defined 
contribution plans, employers make their negotiated contributions as 
they would under a 401(k) plan, but have no further funding obligations 
as they would under a defined benefit plan. As these plans mature, the 
legacy defined benefit plan liabilities are phased out and no unfunded 
liabilities are attached to any future service under the composite 
plan. Therefore, no withdrawal liability would have to be reported on 
employer financial statements.

      Requires funding at rates sufficient to protect participants 
against market volatility. Recognizing that this approach shifts the 
entire investment risk to the participants as is the case with any 
defined contribution plan, the rules governing composite plans seek to 
mitigate market volatility by requiring target contributions at 120% of 
the projected actuarial cost to fund the benefit. This funding buffer 
is evaluated annually using a 15 year projection of assets at market 
value and the plan's assumed rate of return to determine whether 
intervention is required.

      Requires adjustments when annual funding projections drop below 
120% to further minimize benefit fluctuations due to market volatility. 
Defined contribution plan benefits automatically adjust immediately 
when markets fluctuate. Composite plans moderate adjustments by 
imposing annual reviews and when projections fall below the 120% 
target, by imposing a hierarchy of modifications to restore funding to 
the 120% target. Such modifications would begin with the traditional 
approach of negotiating contribution increases 
and/or adjusting future benefit accrual rates. More substantial 
modifications which resemble changes to adjustable benefits under the 
Pension Protection Act and Multiemployer Pension Reform Act are 
available to return the plan to fiscal health if substantial market 
corrections occur. Under this hierarchy of benefit reductions, the 
normal retirement benefit paid at normal retirement age would only be 
at risk in the event of a catastrophic market event such as the 
recession of 2008-2009 and then, only in the event the plan were 
projected to become insolvent.

In sum, the proposal would allow (not require) joint labor and 
management trustees to consider converting their defined benefit plans 
to a composite plan design that combines the best features of the 
defined benefit and defined contribution models for workers, and 
rebalanced plan funding risk for employers contributing to the plans--
keeping employers in the system and attracting new ones. By ensuring 
greater employer participation in secure retirement plans our industry 
can also address the related problem of growing workforce deficits. 
Absent these essential reforms ongoing economic and asset value 
volatility and mounting adverse demographic challenges will continue to 
erode the stability of the system at an increasing pace. Furthermore, 
competitive pressures will press employers to leave the system and the 
active workers who have borne the brunt of the cost increases to fund 
past generations at the expense of their own retirement security will 
feel no choice but to consider conversion to a less secure defined 
contribution plan.

In fact, making proposed composite plan design available can help plan 
sponsors avoid the fate that currently faces critical and declining 
plans. The trustees of critical and declining plans have determined 
that the only option to preserve benefits for all participants above 
those they would receive if the plans were allowed to become insolvent 
is to judiciously cut benefits now to preserve plan assets for the 
greater number of participants and avoid becoming insolvent which would 
require even more drastic benefits cuts for all.

We are all aware of the devastating impact those remedies will have for 
affected retirees, and we are truly empathetic that this ``least-
worst'' option had to be adopted in MPRA to avert an overall system 
meltdown. We believe that the enactment of legislation permitting 
composite plans will help to preserve existing multiemployer defined 
benefit plans by keeping employers and employees in the system and 
committed to funding legacy defined benefit plans. The composite design 
will insure lifetime retirement income for retirees in place of the 
current defined contribution alternative to defined benefit plans.

So, in the interest of sound and modern pension policy for the Nation's 
1,400 multiemployer plans covering some 10.5 million participants and 
their families, please support enactment of the new composite plan 
design option as proposed in the Solutions Not Bailouts legislative 
proposal and help us move our multiemployer retirement security benefit 
system to much safer ground.

William P. Hite, General President  Steve Dawson, President
United Association of Journeymen 
and                                 Mechanical Contractors Association
Apprentices of the Plumbing and 
Pipe                                1385 Piccard Drive
Fitting of America Industry of the  Rockville, MD 20850
United States and Canada            Phone 301-869-5800
3 Park Place
Annapolis, MD 21401
Phone 410-269-2000

WPH/SD:bdh
Copy: White House, Secretary of Labor, PBGC


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