[Joint House and Senate Hearing, 115 Congress]
[From the U.S. Government Publishing Office]




                                                        S. Hrg. 115-638
 
     THE HISTORY AND STRUCTURE OF THE MULTIEMPLOYER PENSION SYSTEM

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

                                HEARING

                               before the

                         JOINT SELECT COMMITTEE
                             ON SOLVENCY OF
                      MULTIEMPLOYER PENSION PLANS
                         UNITED STATES CONGRESS

                     ONE HUNDRED FIFTEENTH CONGRESS

                             SECOND SESSION

                               __________

                             APRIL 18, 2018

                               __________
                               
                               

 [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]                                  
 
 
                                     

         Printed for the use of the Joint Select Committee on 
                Solvency of Multiemployer Pension Plans
                
                
                
                
                            _________ 

                U.S. GOVERNMENT PUBLISHING OFFICE
                   
37-183 PDF                WASHINGTON : 2019                      
                
                


                 JOINT SELECT COMMITTEE ON SOLVENCY OF 
                      MULTIEMPLOYER PENSION PLANS

                 Sen. ORRIN G. HATCH, Utah, Co-Chairman

                 Sen. SHERROD BROWN, Ohio, Co-Chairman

Rep. VIRGINIA FOXX, North Carolina   Rep. RICHARD E. NEAL, 
Sen. LAMAR ALEXANDER, Tennessee      Massachusetts
Rep. PHIL ROE, Tennessee             Sen. JOE MANCHIN III, West 
Sen. ROB PORTMAN, Ohio               Virginia
Rep. VERN BUCHANAN, Florida          Rep. BOBBY SCOTT, Virginia
Sen. MIKE CRAPO, Idaho               Sen. HEIDI HEITKAMP, North Dakota
Rep. DAVID SCHWEIKERT, Arizona       Rep. DONALD NORCROSS, New Jersey
                                     Sen. TINA SMITH, Minnesota
                                     Rep. DEBBIE DINGELL, Michigan

                                  (ii)
                                  


                            C O N T E N T S

                              ----------                              

                           OPENING STATEMENTS

                                                                   Page
Hatch, Hon. Orrin G., a U.S. Senator from Utah, co-chairman, 
  Joint Select Committee on Solvency of Multiemployer Pension 
  Plans..........................................................     1
Brown, Hon. Sherrod, a U.S. Senator from Ohio, co-chairman, Joint 
  Select Committee on Solvency of Multiemployer Pension Plans....     2

                               WITNESSES

Barthold, Thomas A., Chief of Staff, Joint Committee on Taxation, 
  Washington, DC.................................................     4
Goldman, Ted, MAAA, FSA, EA, senior pension fellow, American 
  Academy of Actuaries, Washington, DC...........................     8

               ALPHABETICAL LISTING AND APPENDIX MATERIAL

Barthold, Thomas A.:
    Testimony....................................................     4
    Prepared statement...........................................    39
    Responses to questions from committee members................    47
Brown, Hon. Sherrod:
    Opening statement............................................     2
    Prepared statement...........................................    51
Goldman, Ted, MAAA, FSA, EA:
    Testimony....................................................     8
    Prepared statement...........................................    52
    Responses to questions from committee members................    61
Hatch, Hon. Orrin G.:
    Opening statement............................................     1
    Prepared statement...........................................    88

                             Communications

Chamber of Commerce of the United States of America..............    91
ILLOWA Committee to Protect Pensions.............................   122
Jefferson, Henry B., III.........................................   123
Reed, Bill R.....................................................   124
Spott, Thomas J..................................................   124
UAW..............................................................   125
Waggoner, James..................................................   126

                                 (iii)


     THE HISTORY AND STRUCTURE OF THE MULTIEMPLOYER PENSION SYSTEM

                              ----------                              


                       WEDNESDAY, APRIL 18, 2018

                             U.S. Congress,
              Joint Select Committee on Solvency of
                               Multiemployer Pension Plans,
                                                    Washington, DC.
    The hearing was convened, pursuant to notice, at 2:10 p.m., 
in room SD-215, Dirksen Senate Office Building, Hon. Orrin G. 
Hatch (co-chairman of the committee) presiding.
    Present: Senator Brown, Representative Foxx, Senator 
Alexander, Representative Roe, Senator Portman, Representative 
Buchanan, Representative Schweikert, Representative Neal, 
Senator Manchin, Representative Scott, Senator Heitkamp, 
Representative Norcross, Senator Smith, and Representative 
Dingell.
    Also present: Republican staff: Chris Allen, Senior Advisor 
for Benefits and Exempt Organizations for Co-Chairman Hatch; 
and Jeff Wrase, Chief Economist for Co-Chairman Hatch. 
Democratic staff: Jeremy Hekhuis, Legislative Director for Co-
Chairman Brown.

       OPENING STATEMENT OF HON. ORRIN G. HATCH, A U.S. 
         SENATOR FROM UTAH, CO-CHAIRMAN, JOINT SELECT 
      COMMITTEE ON SOLVENCY OF MULTIEMPLOYER PENSION PLANS

    Co-Chairman Hatch. We will call everybody to order. I would 
like to welcome everyone here to the first hearing of the Joint 
Select Committee on Solvency of Multiemployer Pension Plans.
    Today we will begin our work in developing a deep base of 
knowledge on the issues surrounding multiemployer pension plans 
and the Pension Benefit Guaranty Corporation, or what we refer 
to as the PBGC.
    We have an ambitious work plan, but like all great 
endeavors, we need to start with the basics, and that means 
reviewing what these plans are and how they operate; examining 
why the plans were established; and investigating what 
economic, demographic, and other forces have shaped and 
impacted the plans. Going forward, the committee will bring in 
experts from government and academia to help us better 
understand the issues surrounding multiemployer pension plans 
and the PBGC. This insight will be critical. We need to 
understand the numbers that shape the plans and PBGC, because 
the challenges we will look at fundamentally involve 
arithmetic, however unpleasant that arithmetic may be.
    After getting a sense of those basic numbers, this 
committee will also examine the major legal and financial 
issues with the multiemployer plans, how the governing statutes 
have changed over time, and how finances have evolved for the 
various plans and for the PBGC. Certainly, the issues involved 
here are far broader and go much deeper, but to understand the 
scope of the problems that we face, we need basic measures of 
what is going on.
    Looking ahead, we will likely have hearings in which we 
will listen to various stakeholders concerned with the 
operation of these plans. Those stakeholders include retirees, 
active employees, businesses that sponsor the plans, actuaries, 
plan managers, American taxpayers, and the PBGC. We will also 
look at how multiemployer plans are designed and how their 
finances are managed, along with the unique regulatory and 
workforce environments they operate in.
    Following stakeholder input, the committee will examine 
policy options and the costs and benefits that come with them.
    I do not doubt that the committee has a very heavy workload 
ahead. I also do not doubt the sensitivity of the issues we 
will discuss. The committee is charged with a very difficult 
task. No matter what direction we take, we are bound to anger 
some folks. But it is critical that we understand the core 
financial features of multiemployer pension plans as well as 
the PBGC to guide the path forward toward possible solutions.
    For today's hearing, we have brought in two experts to 
provide us with information on the history, structure, 
operations, and evolution of the multiemployer plans since 
their inception in the 1940s. Their perspectives and insight 
will be critical as we begin this first phase of our process. 
And I look forward to hearing from them and learning more.
    Now, let me close my opening remarks by noting that the 
staff of the Joint Committee on Taxation has prepared and 
posted on its website a publication titled, ``Present Law 
Relating to Multiemployer Defined Benefit Plans,'' which will 
serve as one of many valuable resources to this committee. I 
appreciate the work of the JCT and thank Dr. Barthold and his 
team for what I am sure will be useful background information.*
---------------------------------------------------------------------------
    * For more information, see also, ``Present Law Relating to 
Multiemployer Defined Benefit Plans,'' Joint Committee on Taxation 
staff report, April 17, 2018 (JCX-30-18) https://www.jct.gov/
publications.html?func=startdown&id=5089.
---------------------------------------------------------------------------
    So with that, I will turn to our distinguished co-chair, 
Senator Brown, and we will go from there.
    [The prepared statement of Co-Chairman Hatch appears in the 
appendix.]

        OPENING STATEMENT OF HON. SHERROD BROWN, A U.S. 
         SENATOR FROM OHIO, CO-CHAIRMAN, JOINT SELECT 
      COMMITTEE ON SOLVENCY OF MULTIEMPLOYER PENSION PLANS

    Co-Chairman Brown. Thank you. Thank you, Chairman Hatch. 
And thanks to my colleagues on the committee.
    Mr. Barthold, thank you for being here. Your insight is 
always illuminating for us. Thank you, Mr. Goldman. Thank you 
for your acumen and what you will bring to this. We are very 
grateful to both of you.
    We had a productive meeting the last time we met. It is 
clear that people in both parties on this committee are ready 
to work in good faith to find a solution to this crisis.
    I spoke a moment ago to Congressman Buchanan about his 
desire to find out what got us here. And I think today the 
questions I will ask--and we have coordinated with Chairman 
Hatch to elicit the information that we need to understand--
sort of build the framework so we understand these issues the 
way that we need to to come up with a bipartisan solution.
    So, Vern, thank you for your insight.
    There are some hundred multiemployer pension plans on the 
brink of failure. They have members in every single State in 
the country. A number of us in our States and our districts 
have literally thousands of people who could lose their 
pensions and hundreds of businesses that will be affected.
    A million and a half workers and retirees are at risk of 
losing the security they earned at the bargaining table over a 
lifetime of hard work. Small businesses are at risk of 
collapsing if they end up on the hook for pension liability 
they cannot afford to pay.
    Groups as diverse as the Chamber of Commerce and labor 
unions and the AARP are all pushing for a solution, because 
they know what is at stake for them, their businesses, their 
membership.
    It is what we will explore here today: how we got here and 
what is at stake as we work to solve this crisis for retirees, 
for workers, for small businesses, for taxpayers.
    These are workers and businesses who pretty much did 
everything right. They joined with other businesses, companies 
who thought that they were guaranteeing their workers a secure 
retirement because experienced trustees were managing the 
investment.
    This year I talked with a small-business owner from 
Mahoning Valley in Ohio, in the Youngstown area, whose business 
participates in the Central States plan. He wrote me this 
letter afterwards: ``I have owned my business for 18 years, and 
the company has been in my family for over 60 years. It has 
made contributions to this fund to ensure that the hard work 
and dedication of our employees pay off in the form of a 
pension.''
    He then writes: ``Many employers that once contributed to 
these plans have simply gone out of business, leaving the 
remaining employers to support the remaining employees and 
retirees of the companies that have closed.''
    That is, in a nutshell, a pretty good explanation.
    Then he says: ``Please, we are asking you to get together 
with your colleagues, reach across the aisle.''
    That is what we are doing; that is what this committee is 
constructed to do. We need five votes minimum on each side.
    And then he says: ``Find a solution that will help my 
employees keep their jobs.''
    These are the kind of business owners we are talking 
about--honest men and women trying to do right by their 
workers. We need to remember what workers gave up to earn these 
pensions. Workers in these plans sat at negotiating tables. 
They gave up pay and other benefits in the short term today, 
money they could have used for their families, in order to 
guarantee a pension 10, 20, 30, 35 years later when they 
retired.
    Too many people in Washington do not really understand what 
happens during these negotiations. We have to be clear. These 
workers earned these pensions, and they gave up pay to do it. 
They paid into the system for years. Now these plans are about 
to fail--again, through no fault of these businesses or these 
workers.
    Each plan is different. There are many factors that played 
a role in getting them to this place. Many of these plans are 
in the same industries that have been affected by decades of 
bad trade deals, of outsourcing of jobs, of general shifts in 
the American economy.
    There is no question that the economic collapse of 2008 
devastated these plans and the people and the businesses who 
depend on them. Even the coal miners' pension--an industry that 
has been badly hurt, as we know, over the past few decades--
even the coal miners' pension was nearly 90--nearly 90 
percent--funded before the financial crisis.
    If these plans fail, they take thousands of businesses and 
jobs with them. And the Pension Benefit Guaranty Corporation is 
supposed to step in. But the PBGC, as we know too well, is also 
on the brink of failure--$67 billion in the red, $2 billion in 
assets. If PBGC fails, it will be up to Congress to step in or 
to allow the entire multiemployer pension system to fail.
    Failure should not be an option in this committee or for 
this Congress. Failure would wipe out the retirement of 10 
million American workers and retirees and force American 
businesses to file bankruptcy, lay off workers, and close their 
doors.
    The problem only gets more and more expensive to fix, and 
the problem gets greater, the longer we wait. That is why 
Chairman Hatch and I and this group of 14 others wanted to do 
this committee, wanted to have an end date in December, wanted 
it to be bipartisan, and wanted to fast-track this bill to the 
floor if, when--I like to think when--we come to agreement.
    That is why our work is so important. We must fix it now. I 
am eager to hear from our witnesses today.
    Thank you, Mr. Chairman.
    Co-Chairman Hatch. Well, thank you.
    [The prepared statement of Co-Chairman Brown appears in the 
appendix.]
    Co-Chairman Hatch. Well, we are prepared to move ahead.
    Let us go to Mr. Barthold.

    STATEMENT OF THOMAS A. BARTHOLD, CHIEF OF STAFF, JOINT 
             COMMITTEE ON TAXATION, WASHINGTON, DC

    Mr. Barthold. Well, thank you, Mr. Chairman and members of 
the committee. My name is Thomas Barthold. I am the Chief of 
Staff of the Joint Committee on Taxation, and it is my pleasure 
to present to the committee today an overview of the Internal 
Revenue Code provisions governing multiemployer plans.
    As Chairman Hatch has noted, my colleagues have provided a 
detailed overview of present law related to multiemployer 
plans. The testimony that I have submitted today is really in 
outline form and works from general principles to specific 
application of rules in the case of multiemployer plans. And to 
make efficient use of your time, I will not go through every 
page in the outline.
    But just as basis, defined benefit plans--and that is what 
we are really talking about when we look at multiemployer 
plans--generally provide accrued benefits as an annuity 
commencing at the normal retirement age of the individual.
    The code and ERISA require that the benefits be funded 
using a trust for the exclusive benefit of employees and 
beneficiaries. And the Congress has created the Pension Benefit 
Guaranty Corporation to help guarantee that such benefits are 
available at retirement. An important aspect of these rules is 
that cutbacks are prohibited. And if you are following in my 
outline, I am on page 8.
    Under the anti-cutback rules, plan amendments generally may 
not reduce benefits already earned and vested--accrued benefits 
as they are termed--or eliminate other forms of benefits linked 
to an accrued benefit. Benefit reductions or eliminations must 
be on a prospective accrual basis only.
    Now, our topic today is multiemployer defined benefit 
plans. They are a special type of plan--turning to page 10 if 
you are trying to follow along with me. Multiemployer plans 
provide benefits based on the service of all participating 
employers and are common in industries where employees 
regularly work for more than one employer over the course of 
the year or over the course of their careers. But they also 
cover employees who work for only one employer over their 
entire career.
    There are approximately 1,400 such plans now covering 
approximately 10\1/2\ million participants. Many employers 
participating are small employers and midsized to large 
employers, but increasingly, the majority of plans have at 
least one contributor providing more than 20 percent of their 
annual contributions to the trust funding the benefits.
    The Pension Benefit Guaranty Corporation has two different 
programs, one for single-employer pension plans and a special 
program that provides financial assistance in the form of loans 
to insolvent multiemployer plans. This is in contrast to the 
single-
employer program. When an underfunded single-employer plan is 
terminated, the Pension Benefit Guaranty Corporation steps in 
and takes over the plan and its assets and pays the benefits.
    In addition to providing financial assistance to an 
insolvent multiemployer plan, the PBGC has authority with 
respect to mergers and asset transfers between multiemployer 
plans and may partition existing multiemployer plans. The PBGC 
provides a minimum guarantee level in the case of multiemployer 
plans, which, as noted on page 12 of the outline, is the sum of 
100 percent of the first $11 of vested monthly benefits plus 74 
percent of the next $33 of monthly vested benefits multiplied 
by the participant's number of years of service in the 
industry.
    To help finance these guaranteed amounts for multiemployer 
plans, there is a per-participant flat-rate premium paid 
annually, and for 2018 that premium amount is $28 per 
participant.
    Now, I mentioned the anti-cutback limitation as an 
important part of the general principle of defined benefit 
plans, because in multiemployer plans there are exceptions that 
actually permit current benefits to be reduced. And this 
depends upon a classification of the status of the plans.
    Pages 13 through 16 in the outline define these 
classifications. The first classification is a critical status 
classification. To summarize, essentially, critical status is 
when a plan is currently underfunded and it also appears that 
the deficit is likely to increase. As noted on pages 14 and 15, 
there are four specific criteria, but I think it is fair to 
summarize those criteria in those terms.
    The second status is insolvent status. Insolvency is when, 
in the current year, the resources of the plan are insufficient 
to pay plan benefits and the plan sponsor of a critical plan 
determines that the plan's available resources are not 
sufficient to pay benefits coming due in the next plan year. In 
other words, in short, there is not enough money to meet 
current need under the plan.
    The final status is called critical and declining. This is 
if a plan is first critical and also, based on actuarial 
projections, it appears that in the current plan year or any of 
the next 14 years that the plan is likely to become insolvent.
    If a plan meets any of those statuses, then it is possible 
for benefits to be reduced. So, for example, under critical 
plan status, participants and beneficiaries who begin receiving 
benefits after a notice has been given of the plan's critical 
status have certain limitations on the benefits that they may 
have expected to receive under the plan. For example, payments 
in excess of a single-life annuity can be eliminated if a plan 
is in critical plan status.
    In the case of an insolvent plan--page 18 of the outline--
benefits must be reduced to a level that can be covered by the 
plan's assets. The benefits may not be reduced below the level 
guaranteed under the PBGC program, as I described a moment ago, 
but there should be a suspension of benefit payments, and it 
should be substantially uniform across all participants.
    In the case of critical and declining status plans, the 
plan sponsor may determine the amount of benefit suspensions. 
Again, it cannot be reduced below, in this case, 110 percent of 
the PBGC guarantee level. And there are special protections 
based on the age of beneficiaries.
    That describes special rules under multiemployer plans that 
can affect benefits that are paid. There are also special 
funding rules for multiemployer plans.
    Basically, it is important to remember that funding is part 
of a negotiated contract cycle. So in making projections about 
necessary funding, it is part of the negotiation; often in a 
union contract, it is a 3- or a 5-year cycle. This is in 
contrast to single-employer plans, where you can always be 
reviewing your status on an annual basis, and you are only 
reviewing the status for one contributor to a plan with respect 
to yourself, as opposed to having multiple contributors to the 
plan. The basic funding is determined by calculating a funding 
standard account, which is trying to make a projection of what 
is coming in and what is going out of the plan over the life of 
the contract.
    Let me see. Let me skip ahead to page 22.
    The annual minimum required contributions are the amount 
that is needed to maintain a balance of the inflows and the 
outflows. There is a deficiency if the accumulated charges 
exceed the inflows. There is a credit balance if the opposite 
occurs.
    Additional funding may be required in the case of plans 
that are deemed endangered or on critical status. And this 
essentially sets in progress a procedure to review the funding 
in the next cycle, where the employers and the employees in the 
negotiation get together and try to improve the funding status 
of the plan.
    Key definitions here are, a plan's funding may be 
considered in endangered status--looking at page 23 of the 
outline--if the plan is not in critical status but the plan's 
funded percentage is less than 80 percent, or the plan has an 
accumulated funding deficiency for the plan year or is 
projected to have an accumulated funding deficiency in any of 
the next 6 plan years.
    A plan would be deemed to be in seriously endangered status 
if both one and two above--if you are less than 80 percent and 
projected to have a funding deficiency in the current year or 
any of the next 6 years--if both those factors are the case. A 
plan that is already in critical status--remember, going back, 
that was essentially where we are in decline in terms of what 
is flowing in and flowing out of the fund. If plans are deemed 
to be endangered, they have to adopt a funding improvement 
plan. Critical plans have to adopt what is referred to as a 
rehabilitation plan.
    Generally speaking--and as outlined on page 24--a funding 
improvement plan consists of actions that may include a range 
of options to be proposed as part of the bargaining of the 
parties, using reasonable actuarial assumptions to attain 
certain benchmarks for improvement over the ensuing 10-year 
period.
    Likewise--as described on page 25--a rehabilitation plan, 
again, is a series of actions, options, a series of options 
proposed, again, to the bargaining parties, formulated on using 
reasonable actuarial assumptions to enable the plan to cease to 
be in critical status by the end of a 10-year period.
    I know that is a lot of material in a short period of time. 
It is probably best for me to turn the microphone over to my 
colleague at the table. I would be happy to answer any 
questions that the members might have when it gets to question 
time. Thank you very much, Mr. Chairman.
    Co-Chairman Hatch. Very nice; thank you.
    [The prepared statement of Mr. Barthold appears in the 
appendix.]
    Co-Chairman Hatch. Our second witness is Mr. Ted Goldman, a 
senior pension fellow from the American Academy of Actuaries.
    Mr. Goldman, an actuary with 40 years of actuarial 
retirement experience, has been the senior pension fellow at 
the American Academy of Actuaries since January 2016. Prior to 
that, Mr. Goldman was a retirement consultant with several 
major benefit consulting firms.
    In addition to being a member of the American Academy of 
Actuaries, Mr. Goldman is also a fellow of the Society of 
Actuaries, an enrolled actuary, and a fellow of the Conference 
of Consulting Actuaries. He received an undergraduate degree in 
mathematics from the University of Missouri Columbia.
    I thank the witnesses for agreeing to join us today and 
look forward to your testimony. And hopefully you can help us 
to understand this better.
    Go ahead, Mr. Goldman.

STATEMENT OF TED GOLDMAN, MAAA, FSA, EA, SENIOR PENSION FELLOW, 
         AMERICAN ACADEMY OF ACTUARIES, WASHINGTON, DC

    Mr. Goldman. Thank you, Mr. Chairman.
    And I apologize in advance if I repeat some of Tom's 
testimony, but I think it is good to hear this more than once. 
So here we go.
    Distinguished Senators and House members, on behalf of the 
Pension Practice Council of the American Academy of Actuaries, 
I am Ted Goldman, senior pension fellow at the Academy. I 
appreciate this opportunity to provide testimony to the Joint 
Select Committee on Solvency of Multiemployer Pension Plans.
    The Academy is a strictly nonpartisan professional 
association representing U.S. actuaries before public 
policymakers. The Academy's Pension Practice Council has 
diligently been working over the past few years to analyze the 
financial condition of troubled multiemployer plans.
    In keeping with the purpose of today's hearing, I am here 
to provide you with information regarding the history and 
current status of U.S. multiemployer pension plans. Let me 
begin with an overview. More than 10 million people participate 
in about 1,400 multiemployer pensions plans. More than 1 
million people are in approximately a hundred of these plans 
that will be unable to pay benefits in full.
    The Pension Benefit Guaranty Corporation, the government-
sponsored program designed to backstop troubled plans, is 
likewise projected to be unable to pay all of the multiemployer 
plan benefits that it guarantees. If the PBGC fails, 
participants in these plans could see their benefits cut by 90 
percent or more; in other words, retirees could get less than 
10 percent of the benefits that they had expected. In addition 
to impacting these million individuals, the reductions have 
broader implications for our economy and our social safety net 
programs.
    Now let us talk about the basics. A multiemployer defined 
benefit pension plan is a retirement plan sponsored by at least 
two employers in the same industry or geographic region. These 
plans are established by collective bargaining agreements and 
managed by a board of trustees containing an equal number of 
members appointed by both labor and the employers. Plans can be 
local, regional, or national. These plans commonly cover 
occupations such as construction workers, truckers, mine 
workers, grocery clerks, and janitorial workers, among others. 
Employers are required to fund the plans in accordance with the 
negotiated contribution rates, subject to certain regulations. 
The plans pay PBGC premiums for underlying financial support in 
the event of a plan failure.
    I now want to turn to a discussion of the rationale for 
these plans. Multiemployer pension plans were created as a way 
to deliver lifetime income retirement benefits to workers in 
blue-collar industries. Employers tended to be small, and it 
was common for workers to stay in an industry but work for many 
employers over the course of their career. The multiemployer 
approach captures economies of scale, offers benefit 
portability, and pools risks--an intended win-win for the 
employer and the employee.
    Next, it is important to understand how we got here. 
Negotiated plans appeared in the 1930s and 1940s in industries 
such as the needle trades and coal mining. The Taft-Hartley Act 
of 1947 created the concept of joint labor and management 
trusteeship. Plans then grew in prominence during the 1950s and 
1960s. Such plans covered about a million workers in 1950, 
ultimately peaking at over 10 million workers in 1989. And the 
system today still covers over 10 million participants.
    In 1974, the Employee Retirement Income Security Act, 
ERISA, brought a fundamental change to private-sector pension 
plans. Among other provisions, ERISA protected benefits that 
plan participants had already accrued, often referred to as the 
anti-cutback rule. Employers contributing to multiemployer 
plans became responsible not only for the negotiated 
contributions, but also for any funding shortfalls that 
developed in these plans. ERISA also established the PBGC.
    During the late 1990s, very strong asset returns led many 
plans to increase benefits in order to share the gains with 
participants and to protect the tax deductibility of the 
employer contributions. These years were followed by a period 
of very poor asset returns that erased much of the investment 
gains. While the investment gains proved to be temporary, the 
increased benefit levels that plans adopted were protected by 
the anti-cutback rules. This combination of temporary asset 
gains and permanent benefit improvements is a contributing 
factor to the challenges facing multiemployer plans today.
    The Multiemployer Pension Plan Amendments Act of 1980 was 
intended to prevent employers from exiting a financially 
troubled multiemployer plan without paying a proportional share 
of the unfunded liability. Under this law, withdrawals are 
recognized as a potential problem that threatens the long-term 
financial health of plans. As employers withdraw, the liability 
for these employees, often termed ``orphan liabilities,'' will 
become the ongoing responsibility of the employers remaining in 
the plan. This is often referred to as ``the last man 
standing'' problem and could result in significant financial 
burdens for the remaining employers.
    While this law took steps to address the problem of 
employer exits, the new withdrawal liability rules were not 
fail-safe. Bankruptcies, poor investment performance, and the 
ability to collect the full amounts all resulted in additional 
liabilities for the remaining employers in these plans.
    The primary contributors to the current challenge relate to 
investment performance, past benefit increases, the maturation 
of plans, the decline of collectively bargained workforces in 
some industries, and weaknesses in the withdrawal liability 
requirements. Typically, a combination of these factors has 
contributed to a projection that a plan will be unable to pay 
benefits.
    The Pension Protection Act of 2006, PPA, made certain 
changes to multiemployer funding rules. The changes were 
designed to give plan trustees more flexibility in dealing with 
funding challenges and require plans to identify and address 
problems early.
    PPA classifies multiemployer plans into one of three 
categories based on current and projected funding levels: 
critical status, which is referred to as a ``red zone;'' 
endangered status, the ``yellow zone;'' and neither, which is 
the ``green zone'' plans. Plans that are in critical or 
endangered status are required to take corrective action. The 
tools available under PPA were largely limited to increases in 
employer contributions and reduction in benefits for non-
retired participants.
    While these tools enabled many plans to recover from the 
dramatic asset losses and economic contraction that immediately 
followed the effective date of the law, they proved to be 
insufficient for others. The severely distressed plans that 
were unable to recover using the tools under PPA are often 
characterized by high maturity levels. In other words, the 
number of active participants in the plans is dwarfed by the 
number of inactive and retired participants in those plans.
    The Multiemployer Pension Reform Act of 2014, MPRA, 
provided additional tools and strategies for these severely 
distressed plans. MPRA added a fourth category of ``critical 
and declining'' status to further differentiate those plans 
projected to become insolvent within the next 20 years. Of 
particular note, MPRA allows distressed-plan sponsors to 
voluntarily reduce benefits that have already been earned. 
While mandatory benefit reductions that occur when plans become 
insolvent were part of the law prior to MPRA, the ability of 
trustees to implement discretionary reductions in order to 
prevent insolvency and preserve long-term benefit levels was a 
significant departure from prior law.
    The sponsor of a distressed plan that elects to suspend 
benefits under MPRA must submit an application for review and 
approval to the Department of the Treasury. Of the first 25 
applications for benefit suspensions, however, only four have 
been approved. While MPRA may remain a viable option for some 
distressed plans, many others may be too far down the road 
toward insolvency to take advantage of it.
    Finally, I would like to wrap up with five important 
observations. Number one, the status quo is not sustainable. 
Taking no action will not keep things the same; it will result 
in the loss of retirement income for many hardworking Americans 
and the financial collapse of the PBGC multiemployer program. 
These losses have the potential to impact the broader economy.
    Second, many plans remain healthy, having withstood the 
financial market collapse of 2008 and the Great Recession. 
Plans and industries that are experiencing declines in their 
collectively bargained membership, however, remain at risk.
    Third, addressing employer withdrawal liability is 
important. Withdrawal liability remains a barrier to attracting 
new employers into the system, and it also contributes to the 
``last man standing'' concerns of current participating 
employers.
    And fourth, there are several layers to the challenge: one, 
delivering on PBGC guarantees; two, delivering on plan 
commitments; and three, delivering on retirement security to 
future workers, which is something important.
    And finally, time is of the essence. The more time that 
passes, the bigger this problem will become and the harder it 
will be to restore multiemployer pension plans to stability and 
sustainability.
    Moving forward, possible actions can be grouped into one of 
three categories: modify workers' benefits, increase funds 
available to troubled plans, or shift risks from plans to third 
parties. A combination of these actions would result in sharing 
the burden.
    Thank you for inviting me to testify before this 
distinguished panel today. The Pension Practice Council of the 
American Academy of Actuaries stands ready to help you by 
providing our objective and nonpartisan input as you work to 
fulfill your charge to address these challenging issues.
    I thank you for this opportunity to appear before you 
today, and I look forward to addressing your questions.
    Co-Chairman Hatch. Well, thank you for your wise counsel.
    [The prepared statement of Mr. Goldman appears in the 
appendix.]
    Co-Chairman Hatch. And we appreciate all of you there at 
the table. Let me just ask a question of Mr. Barthold.
    Funding rules for multiemployer plans, I am concerned 
about. Under funding rules for multiemployer plans, actuarial 
assumptions used by a plan must be, quote, ``reasonable,'' 
unquote. In addition, the funding rules do not specify the 
interest rate or mortality tables that must be used.
    Mr. Barthold, I would like you to answer two brief 
questions about funding rules, which I will run through, after 
which you may respond. First, do the same or similar funding 
rules that apply to multiemployer plans also apply to single-
employer plans?
    Mr. Barthold. No, sir. The single plans--there are specific 
segment rates that are specified in terms of calculating 
liabilities. Those are some of the changes that were enacted in 
the Pension Protection Act in 2006.
    Co-Chairman Hatch. Okay.
    Mr. Barthold. So there are somewhat different rules.
    Co-Chairman Hatch. Okay. Secondly, if the rules are not the 
same across plan types, and you say they are not, then why are 
funding rules for multiemployer plans different?
    Mr. Barthold. Mr. Chairman, I could only speculate, as that 
was a decision in terms of the rules that the Congress enacted 
for different plans. One factor that I mentioned and that Mr. 
Goldman mentioned is that multiemployer plans are collectively 
bargained plans involving multiple parties. And so that might 
be the basis for which you would enact different rules to apply 
in a collectively bargained environment with multiple 
employers.
    Co-Chairman Hatch. Mr. Goldman, let me ask you this 
question. One of the primary concerns of many on this committee 
is the funding standards for multiemployer pension plans. The 
issue is whether the funding standards are adequate and whether 
they provide a reasonable, prudent, and actuarially sound level 
of assets to cover future liabilities of the plans.
    Let me briefly run through two related questions, after 
which I would like you to respond. First, could you describe 
the funding methods for the multiemployer plans prior to the 
enactment of the Employee Retirement Income Security Act? And 
second, could you discuss what new funding standards were 
established by ERISA along with the impact those standards have 
had on the funding of the plans themselves?
    Mr. Goldman. Yes. Let me start at basics. The goal of 
pension funding is to, as people earn benefits, make enough 
contributions and invest those assets so that, by the time they 
get to retirement, those assets are there to pay them. And then 
how you determine that is the actuarial funding method, and to 
do that requires a lot of assumptions.
    If you think about it, we look at an entire population and 
say, you know, what is the probability somebody is going to 
make it to retirement? When are they going to leave? What is 
the benefit going to be at retirement? How long are they going 
to live? So the valuation is an estimate. And there are, 
arguably, as many ways to make an estimate as there are 
actuaries out there.
    But having said that, before ERISA--to answer your 
question--plans basically negotiated the contribution level in 
multiemployer plans. And that contribution level then--from 
there, the actuaries would work with the plan trustees to 
determine the level of benefit that could be paid from that. So 
there were not a lot of rules around that. And the plans 
remained healthy for a long, long time without a lot of 
requirements.
    And then when ERISA came in, ERISA did several things. It 
added the minimum funding requirements, which had a structural 
way of saying, we want to make sure that that money is there in 
time for people to retire. And later, MPRA introduced the 
withdrawal liability piece. So the withdrawal liability is a 
major differentiator from the multiemployer plans.
    And another thing under ERISA--actuaries, as you said, make 
their best estimate and determine the contribution based on the 
expected return on the assets, which is the same as the 
discount rate, and other assumptions under the plan.
    Co-Chairman Hatch. Well, thank you.
    Senator Brown?
    Co-Chairman Brown. Mr. Chairman, thank you.
    I know that a number of my colleagues on both sides of the 
aisle in both houses want to talk about the impact of this 
issue on working families and small businesses. To be sure, 
that should always be the focus of our discussions.
    It is pretty clear--I mean, you are laying out the history, 
Mr. Goldman, Mr. Barthold, the reasons workers and employees 
agreed to enter into these agreements. Employers wanted them 
for the well-being of their workers, to attract good workers. 
Employees wanted them to be there for retirement security.
    So if the two of you would, lay out sort of general 
purposes and just describe the basic structure of a 
multiemployer plan. How are they governed? How are trustees 
selected? Are they equally, jointly managed by labor and 
industry? Just each of you, if you would, either of you, walk 
through sort of the governing structure of these from the 
moment they are set up to how they run year by year.
    Mr. Barthold. A multiemployer plan is governed by a joint 
labor and management board, Senator Brown. There is equal 
representation of employees and employers. But as a qualified 
plan, as is sort of the general rule, the assets have to be 
administered for the exclusive benefit of the employees and 
their beneficiaries.
    And then as I noted, in terms of governing and planning, 
the planning is done over the collective bargaining cycle.
    Co-Chairman Brown. Okay. Go ahead, Mr. Goldman.
    Mr. Goldman. Yes; I do not have a lot to add there.
    Co-Chairman Brown. Okay. And trustees are selected--there 
will be trustees both for the employer and the employee, I 
assume. And how are they selected?
    Mr. Barthold. That would be part of the bargaining.
    Co-Chairman Brown. The collective bargaining agreement.
    Mr. Barthold. The agreement.
    Co-Chairman Brown. Okay.
    Mr. Goldman, you talked about the flexibility provided in 
the 2006 PPA Act. And shortly after that, the economy went into 
recession. The new rules began to be eased, I guess were able 
to, under the flexibility that was provided. How has the easing 
of the rules contributed to the current financial condition of 
the plans?
    Mr. Goldman. The easing of the rules was an attempt to help 
employers fund the plans. Keep in mind, the plans that have 
experienced the biggest shocks, in terms of this maturity that 
I talked about and having a smaller active participant base 
supporting a higher retirement base, are the ones that are in 
trouble.
    And PPA gave them more tools. Look, think of it as giving 
you more tools. Flexibility equals more ways to figure out how 
to fund the plans and get them strong again.
    Co-Chairman Brown. And the most serious shortfall, I 
assume, came through these years post-2006, after the 2006 act 
was signed by President Bush. The faltering of the plans was 
mostly, I assume, because of the number of employers that went 
out of business and quit paying into the plans?
    Mr. Goldman. That was a component of it. Like I said, it is 
the decline of industries, and also the decline in membership 
in the collective bargaining too. We are finding a lot more of 
the younger people are not joining the collective bargaining 
agreement side, so you have a smaller and smaller base of 
people. I would say, if I had to point to one issue, it is the 
smaller base supporting the larger liability.
    And a lot of it, you know, is these plans have been around 
for a while. So if you think about it, to fund a plan, you have 
to have enough money to pay all the benefits and the expenses 
of the plan. And the only two sources of income are the 
contributions from the employers and the investment earnings. 
So when a plan is young, the contributions cover most of the 
needs. But as a plan ages and the assets accumulate, more and 
more of that income comes from the assets. So when there is a 
shock to the system and those assets do not perform, you have a 
shortfall that now has to be spread amongst the remaining 
employers.
    Co-Chairman Brown. So the smaller base is both employers 
and employees paying in.
    Mr. Goldman. That is right. Well, only employers pay in. It 
is collectively bargained, so it comes out of the wage.
    Co-Chairman Brown. I mean, excuse me, the smaller base is 
the employers paying in and the employees who choose to be in. 
Correct?
    Mr. Goldman. That is right.
    Co-Chairman Brown. And so were you seeing, as in cases 
where employers were paying in, even in those companies that 
did not go out of business, were you seeing employees withdraw 
during that period? I think people withdraw more out of the 
necessity. There are some withdrawals of healthy plans, so you 
have two kinds.
    That is just the last part of my question. So employers go 
out of business, that is clear. Those employers that were in 
business, their employees, in some cases, were withdrawing from 
the plans because they wanted the income, they wanted the money 
now? I mean, they did not want to pay any employee share at 
that point, they just did not trust the health of the plan? 
What was it mostly?
    Mr. Goldman. Well, for employees who withdraw, there is the 
withdrawal liability. And the withdrawal liability, in theory, 
is the employer has to pay their fair share of the remaining 
liability for the people who remain in the plan.
    So if an employee withdraws, the employees who had benefits 
in those plans stay in the plan. You do not pull out the 
employees. And the reasons are probably all over the map in 
terms of why. Some of it is, we want to get out now because we 
do not like where this is going. Some get out for other 
business purposes--a wide range of reasons.
    Co-Chairman Hatch. Representative Foxx?
    Representative Foxx. Thank you, Mr. Chairman.
    I want to thank both of our witnesses here today.
    Mr. Barthold, we know that employer contributions and 
promised benefits for multiemployer plans, as you all have 
described, are determined pursuant to collective bargaining 
agreements.
    In the context of multiemployer pension benefits, can you 
discuss which parties are involved in the collective bargaining 
process? Who determines the employer contribution and 
participant benefit amounts?
    Mr. Barthold. Well, in any collective bargaining situation, 
employers and employee representatives, union representatives, 
negotiate how much compensation will be in the form of current 
cash wages, how much might be in terms of other benefits, such 
as health benefits and retirement benefits. And so it is that 
negotiation that then determines amounts of necessary 
contributions to these plans, because if we are promising 
certain pension benefits, the parties work with actuaries, such 
as Mr. Goldman, to determine, well, what does that mean future 
liabilities will be; what sort of funding is necessary?
    And then in the current situation, as was noted, an 
important part of the overall liabilities of these plans is 
based on people who had previously worked in the industry, 
covered by the plans and currently retired. So the current 
retiree liabilities, that would also be a factor in the 
negotiations that the parties have to consider, because they 
are funding not just current employees, but also the legacy 
employees.
    Representative Foxx. When a multiemployer plan fails, what 
liability attaches to unions, which are one half of this 
bargaining operation, and what liability attaches to employers?
    Mr. Barthold. In a bankruptcy? These are----
    Representative Foxx. No, when a multiemployer plan fails.
    Mr. Barthold. Oh, when a plan fails. If a plan goes 
insolvent--as I noted and we have provided some detail on--the 
Pension Benefit Guaranty Corporation provides loans, 
guaranteeing certain minimum payments. It is not divided 
between employers and employees. What has failed is the trust 
that governs the pension benefits, and so this is a transaction 
between, in this case, the Pension Benefit Guaranty Corporation 
and the trust.
    Representative Foxx. And the trust. Thank you.
    Another question, Mr. Barthold. Changes made by the 
Multiemployer Pension Reform Act of 2014 allowed plans in 
critical and declining status to apply to the Department of 
Treasury for suspended benefits in order to prevent plan 
insolvency. How many plans have successfully applied for 
suspension of benefits under this law and remain solvent to 
continue providing the pension benefits that employers have 
promised their employees?
    Mr. Barthold. I do not have those numbers at my fingertips, 
but I believe Mr. Goldman cited at least half of the answer to 
your question in his testimony. So if I could defer.
    Representative Foxx. Please feel free, Mr. Goldman.
    Mr. Goldman. Yes. There have been four approvals to date 
under the MPRA applications. And it is too soon to tell whether 
the cutbacks are going to be effective long-term. The way MPRA 
works is, the proposed cutbacks they present need to be 
equitable and need to have at least a 50-percent chance of 
being successful. So we are projecting things way into the 
future, and there is a lot of scrutiny put over each and every 
assumption that is used in those calculations. And time will 
tell us what happens.
    Representative Foxx. Thank you, Mr. Chairman. I will 
continue to try to be a good role model and yield back the 
balance of my time.
    Co-Chairman Hatch. Great. Representative Neal?
    Representative Neal. Thank you, Mr. Chairman.
    In 2016, Central States applied to the Treasury Department 
to cut retiree benefits, which gave us a glimpse of what 
insolvency for a large national pension plan would look like.
    A retiree from my home State of Massachusetts barely 
escaped those benefit cuts. He worked as a car hauler for 
almost 30 years. Then, years into his retirement, he received a 
notice from his plan telling him that his benefit could be cut 
by more than 50 percent. Fortunately, the pension plan's 
benefit cuts application was denied, but the plan is still 
troubled. And this retired Massachusetts couple's financial 
security remains very much at risk.
    I introduced legislation to address the multiemployer 
crisis for retirees and workers just like Norman Proulx. And 
while we are focused today more on understanding the 
multiemployer funding problem than on solutions, I think 
talking about solutions might help us to better understand the 
issue.
    In fact, the legislation that I introduced is bipartisan 
and I believe has about 10 Republicans who are on the bill.
    Mr. Goldman, last year, you and other members of the 
American Academy of Actuaries provided a bipartisan briefing 
entitled ``Multiemployer Pension Plans: Potential Paths 
Forward.'' In your materials, you mentioned that a loan program 
could help solve the multiemployer funding crisis by allowing 
plans to borrow money at low interest rates and invest the 
proceeds in the plan, which would, in your words, quote, 
``provide a longer time frame for employers to pay the costs 
and to provide leverage on plan investment returns relative to 
the borrowing rate.''
    As you know, Senator Brown and I also introduced additional 
legislation which, if enacted, would create this loan program.
    Mr. Goldman, it has been a year since you previously spoke 
about loan programs. How has the landscape for multiemployer 
plans changed during that time frame?
    Mr. Goldman. Well, the looming multiemployer insolvency 
crisis grows with each passing year. What my final comment on 
the urgency of time was, you know, the car is going toward the 
side, and it is getting closer and closer.
    Most multiemployer pension plans had favorable returns in 
2016 and 2017 in particular, but those gains have not 
significantly changed the projected dates of insolvency for 
those plans.
    The healthier plans with more assets, that was a bigger 
deal. But you have to keep in mind, the level of assets 
relative to the liability in these plans is low. So a good 
return for a year or two is not going to materially change the 
outlook.
    Representative Neal. Yes.
    Mr. Goldman, I have proposed a solution, as I noted a few 
minutes ago, that would work in terms of the recognition that 
you have offered in terms of testimony, if we act now. In your 
expert opinion, what will be the economic impact to retirees 
and at large if we do not act in the near future?
    Mr. Goldman. Well, we have said several times today there 
are over a hundred plans that are in critical and declining 
status and have projected insolvency within the next 20 years. 
These plans facing insolvency cover a million participants and 
beneficiaries and they pay over $7 billion in benefits each 
year.
    If these plans become insolvent, it will go to the PBGC. 
They will be unable to uphold its guarantees, meaning that 
these benefits for these participants will be reduced to near 
zero.
    There is another topic that is probably worth mentioning 
called a ``contagion effect.'' And what the dynamics here are, 
in some of the troubled multiemployer plans--there are perhaps 
hundreds of employers in those plans. These employers also may 
be in multiple other plans that are healthy.
    So if the plan that they are in has a financial challenge 
that they have to step up for and puts pressure on them, it 
could actually start to impact the healthy plans as well and 
then expand to bring down, to collapse, the whole system. So 
that is another potential risk that is out there.
    Representative Neal. Thank you, Mr. Chairman. I will yield 
back my time.
    Co-Chairman Hatch. Okay.
    Congressman Roe, I believe, is next.
    Representative Roe. Thank you, Mr. Chairman.
    And I first of all thank both of you for being here. And I 
think we pretty well understand.
    Mr. Goldman, I want to just read from the last paragraph of 
your testimony that you have given. It says, from a conceptual 
standpoint, the options are straightforward. One of three 
actions must be taken. Either benefits are to be reduced--this 
is the current course if there is no intervention--or 
contributions to the plan have to be increased, or as a third 
option, more risk would be taken by plans to achieve 
prospective investment gains.
    So it is just an arithmetic problem. You have more going 
out than coming in. And that is basically what it is, am I 
correct?
    Mr. Goldman. Right. It simplifies down to those three 
choices. It is simple from that point. Anything beyond that is 
not simple.
    Representative Roe. Now, the solutions are not simple.
    Mr. Goldman. Right.
    Representative Roe. And I understand that.
    Just a couple of quick questions, and this is maybe out of 
your purview, but why are the PBGC premiums different for a 
single-employer plan than a multiemployer plan? Why is there a 
huge discrepancy?
    Mr. Goldman. Yes, there is a huge discrepancy between the 
two programs. I actually did some research on the background of 
that. And part of the challenge, as PBGC looked at this back in 
the late 1970s, was that if they made premiums too high, it 
would chase employers out of the plan. So everything is about a 
balance, right? We have to find the right balance of enough to 
keep employers in the plan, but not topple things down.
    And so they actually delayed the implementation of the 
multiemployer program to get a couple of experiences. And in 
the early days, they had, I think, the milk industry, the 
people who used to deliver milk to your door--the industry 
declined--and millenaries. So they had some data.
    And people thought too, because of the joint trusteeship, 
that there was a lot less risk. And the way these multiemployer 
plans are set up with a lot of small employers, if an employer 
goes out of business, that is fine. It is just when a whole 
industry is impacted that it is a problem. So it was deemed as 
a small risk.
    Representative Roe. And it did not work.
    Mr. Goldman. Right.
    Representative Roe. If they had had those premium 
increases, the PBGC might be able to cover these benefits at 
the level of the single employer, which is a much higher level.
    Mr. Goldman. Right.
    Representative Roe. What assumptions are made when these 
benefits are looked at? Actuarially, when you look at it, what 
return? In other words, I can pencil in a 6-percent return, a 
5-percent return, an 8-percent return, to get the number I 
want. What are they using actuarially to calculate these 
returns?
    Mr. Goldman. Well, that is a great question. And the answer 
is, there is no one right number. So there are a couple of 
approaches.
    One is to use a discount rate that is equal to the expected 
return on the assets of the plan. And that has some risk 
attached to it. It is all about risk/return tradeoff.
    Others would argue that we should be valuing these 
liabilities on a risk-free rate and that is a better measure of 
the true obligation.
    So there is not one number that is more right than the 
other number, they just provide different types of information. 
And the more information that is available, the better you can 
understand the problem.
    Representative Roe. You described in the 1990s, during the 
dot-com boom, plans that were, quote, ``overfunded.'' I have 
never seen a pension plan that had too much money. I have not 
had anybody come to me yet and complain about that.
    But the rules and the laws at that time prevented an 
employer from funding it more. So we as employers will always 
take a chance this year, because the gains have been so much 
that you do not need to put anything in this year. That is a 
temptation that is out there. That was a mistake also.
    And that is one that Mr. Norcross and I, in a bill that we 
have together, a hybrid plan going forward--but that is going 
forward; that is not solving the problem with these plans right 
here.
    Is anyone from the government, since we are now being 
looked to, as Mr. Neal says, for loan guarantees or whatever--I 
think the PBGC has only had one loan paid back, so that is a 
pretty stark reality. But is anybody from the government there 
at this or is it just employers and the union representatives, 
because we are now involved.
    Mr. Goldman. Anybody where?
    Representative Roe. From the Federal Government when these 
benefits are determined, what they are going to be.
    Mr. Goldman. No, the collective bargaining process 
determines the level of benefit.
    Representative Roe. Bargaining determines the level. And 
the last question I have very quickly is, when I put money in--
I can certainly see the argument. I put this money in, I should 
be getting it out. Why is that not true? In other words, I put 
money in, I should have covered myself, just like a defined 
contribution plan does. I have what I have. Why does it not do 
that?
    Mr. Goldman. And that is a fundamental difference between a 
defined benefit and a defined contribution plan. Defined 
contributions go into an individual's account that earns 
however they choose to invest it, and then that is the money 
they have at the end of retirement. In the defined benefit, it 
is a pooled approach. So everybody in the plan contributes, and 
those contributions are for everybody.
    And then we project out who is going to get it and when 
they are going to need it, and that drives the funding of that 
plan.
    Representative Roe. Yes. I yield back, Mr. Chairman.
    Co-Chairman Hatch. Representative Scott?
    Representative Scott. Thank you, Mr. Chairman.
    Mr. Chairman, I would like to get some information on what 
kind of problem we are in to kind of quantify the problem we 
have. I mean, there is the old adage: if you do not change 
directions, you are going to end up where you are headed. If we 
do not do anything, where are we headed?
    Mr. Goldman, if one of the plans becomes insolvent, does 
the ``last man standing'' rule require all of the remaining 
participating corporations to pay the benefits?
    Mr. Goldman. It is complicated. In concept, I think that is 
true: the fewer employers in the plan take on more, but there 
are some complex rules that might limit how much people pay on 
the way out. And there are payments over time.
    Representative Scott. Well, if you are participating in a 
plan and you owe some money, are all of the corporate assets 
exposed to pay these benefits?
    Mr. Goldman. I am not sure on that. I do not know. I will 
defer to Tom on that. I know there used to be a 30-percent 
limit; I am not sure what it is.
    Mr. Barthold. Generally not, sir.
    Representative Scott. They are not obligated to pay the 
benefits if they are----
    Mr. Barthold. Not with all the assets of the corporation.
    Representative Scott. Okay. If the plan becomes insolvent, 
are the Pension Benefit Guaranty Corporation's assets 
sufficient to pay the hundred plans that you expect to become 
insolvent? Does the PBGC have enough assets to pay those 
benefits?
    Mr. Goldman. No, they do not. And as we mentioned before, 
the guarantee levels of the PBGC are already fairly low. The 
maximum a 30-year employee could get is just under $13,000. And 
if these plans all go as expected, the PBGC may pay less, 5 or 
10 cents on the dollar from that smaller amount.
    Representative Scott. Okay. So if that happens, the 
retirees in the plans that become insolvent and the tens of 
thousands who are already receiving PBGC assistance would see 
catastrophic reductions in their income?
    Mr. Goldman. You are saying the existing people?
    Representative Scott. Well, the existing people and the 
retirees who are in insolvent plans who are not going to get 
anything, they will be getting less money than promised. And I 
guess they will be paying less Federal, State, and local tax, 
is that right?
    Mr. Goldman. Yes.
    Representative Scott. Do you know how much less they are 
going to be paying?
    Mr. Goldman. No; I have not done that analysis.
    Representative Scott. Are they more likely to become 
reliant on the social safety net programs like food stamps, 
Medicaid, job training programs? Do you have an idea of how 
much we are on the hook for?
    Mr. Goldman. I do not, but I think that is an important 
part to measure as you all move forward.
    Representative Scott. Is it possible to get that number, 
particularly with a contagion effect where one company is 
jeopardized because of one plan and cannot contribute to the 
next plan?
    Mr. Goldman. There have been at least two places that have 
tried to measure that, but I am not familiar with the analysis. 
So it is possible to do an analysis, but you are going to have 
to make a lot of assumptions.
    Representative Scott. Are there other foreseeable costs to 
the Federal Government if we do not do anything?
    Mr. Goldman. I think you touched on the major ones.
    Representative Scott. Just from an actuarial point of view, 
I think following up on Dr. Roe's question, if these plans are 
solvent, they should not have to rely on ongoing contributions 
to pay out the benefits, is that not right?
    Mr. Goldman. Well, ongoing contributions from the 
collective bargaining?
    Representative Scott. Yes. Like, you have workers today 
paying into the plan.
    Mr. Goldman. So solvent means that, assuming the 
contributions continue to come in, that they will be able to 
pay in the future.
    Representative Scott. Well, no, no, no. If it is solvent, 
they should be able to pay the benefits, even if people stop 
paying.
    Mr. Goldman. No, that is not necessarily true. Solvency 
means that the plan is not expected to run short and will be 
able to make good on its future obligations.
    Representative Scott. So the plan assets, then--are you not 
into a Ponzi scheme if you are relying on ongoing revenues?
    Mr. Goldman. No, because what happens is, you only have to 
pay benefits that accrue, that are earned.
    Representative Scott. Right. And so if you stop, if 
everybody stops paying in, you ought to have enough assets to 
pay what you have promised.
    Mr. Goldman. That is the ``last man standing'' problem, 
yes.
    Representative Scott. No, that is not the ``last man 
standing'' problem. You ought to have enough assets to pay what 
you have promised.
    Mr. Goldman. And that is the maturity issue of a bigger 
retiree base. And you know, the funding rules would take care 
of that as long as there are not extreme events that take 
place.
    Co-Chairman Hatch. Okay.
    Senator Heitkamp?
    Senator Heitkamp. Thank you, Mr. Chairman.
    Important and complicated information, and I think that is 
one of the great problems that we have. This is a complex issue 
with no simple solutions. This is a problem that has festered 
for a long time without appropriate and proper attention.
    And here we are, having people's retirement threatened, 
having the economy, in many ways, threatened. I do not think we 
can overstate that. I think these are incredibly challenging 
times. And we are looking for creative solutions. We are 
looking for ways that everybody can win and ways that we can 
send a message to people who would save that their retirement 
is going to be secure, that they will have something for all 
the sacrifice that they make by doing the right thing in 
America, and that is saving for their retirement.
    And so I just have a couple of questions that I think, 
hopefully--I had another committee hearing--have not been 
overly discussed here, which involve timing.
    When you look at the problem that we have, and let us look 
forward--for either of the gentlemen who are testifying--what 
is our window for a solution? What is our time envelope for a 
solution to this problem? How much worse can it get if we wait 
beyond the year that this committee has to try to resolve this 
problem?
    And we will start with you, Mr. Goldman.
    Mr. Goldman. Timing is of the utmost importance. And the 
longer you wait, the more that you think of it as plans going 
off the side of the cliff. The closer you get to that side, the 
less choices you have of slamming on the brakes or making a 
turn. So the longer you wait--some of these plans are on the 
precipice right now, others are farther up the hill, so one 
issue is, the longer you wait, the more plans will go bad.
    Senator Heitkamp. Yes. If I can just, I mean, going with 
your analogy, how close to the cliff are we right now?
    Mr. Goldman. Well, the PBGC's projection was 2025 before 
they will run short of funds.
    Senator Heitkamp. Do you agree with that?
    Mr. Goldman. Yes.
    Senator Heitkamp. Okay. So that would be a catastrophic 
cliff event, 2025.
    Mr. Goldman. It would give you some marker.
    Senator Heitkamp. And so some of the options that we may 
have had 5 years ago, 10 years ago, are no longer available to 
us, is that correct?
    Mr. Goldman. Right, or at least some of the plans will not 
be able to be helped by those solutions.
    Senator Heitkamp. Well, Mr. Barthold, do you disagree with 
any of that?
    Mr. Barthold. Senator, my colleagues and I have not 
undertaken an independent analysis of the PBGC, so I really 
should not comment.
    Senator Heitkamp. Have not taken----
    Mr. Barthold. We have not undertaken an independent 
analysis of the PBGC.
    Senator Heitkamp. Economic analysis.
    Mr. Barthold. Correct.
    Senator Heitkamp. Okay. When you look at additional tools 
and you look at some of the plans--have either one of you had 
an opportunity to look at some of the plans, even the 2014 
plan, and analyze those? Obviously, the 2014 plan did not 
result in approval of the Central States recommendation. But 
have you had a chance to look at various methods and plans that 
have been considered and evaluated? And do you have a 
preference for any of those?
    Mr. Goldman?
    Mr. Goldman. And can you clarify that?
    Senator Heitkamp. Have you looked at the Butch Lewis bill 
that was introduced last year?
    Mr. Goldman. Yes. I am going to keep my comments on kind of 
what led up to it at this point, if that is okay.
    Senator Heitkamp. Okay, that is fine.
    Mr. Barthold?
    Mr. Barthold. Senator, the Joint Committee staff does not 
make policy recommendations to the Congress. We work with the 
members on their policy recommendations.
    Senator Heitkamp. But you do evaluate proposals. I am not 
asking for a recommendation. I am asking because we need to 
have a range of tools in our toolbox. Let us put it this way. 
Are there tools that have been considered by the Joint 
Committee that we should be considering right now?
    Mr. Barthold. Well, things that lead to underfunding are, 
what are the level of benefits that are promised and what are 
the funding requirements? What are investment returns? What 
risks are we willing to accept, both in terms of investment 
plan and risks that might be borne by the residual guarantor of 
the Pension Benefit Guaranty Corporation--and additional 
funding from the outside were we just to supplement the assets 
of the PBGC, for example? So those are all possible policy 
tools that members may want to consider.
    Senator Heitkamp. Yes, I think--if can just comment 
quickly--I think when we look at this, I think one of the 
questions is, this is not something that can happen independent 
of intervention from the Congress, and I think that seems clear 
in all the evaluation. And so I thank you for your answers.
    Co-Chairman Hatch. Senator Portman?
    Senator Portman. Thank you, Mr. Chairman.
    And thank you both for your in-depth analysis today. The 
information that you are able to provide us is critical to 
figuring this thing out. And it is complicated, and there are 
different rules for multiemployers, as we have talked about 
today.
    I think there is a consensus around the table, I hope, that 
the status quo is not acceptable. And that was your first 
summary comment, Mr. Goldman.
    I think also, there is a deep interest in figuring out what 
we can do going forward to not just provide some solvency for 
Central States' plan and a PBGC that otherwise could go 
insolvent as soon as 2025, but also to put rules in place going 
forward that avoid some of the problems that have occurred, and 
one is withdrawal liability. And you talked about that a little 
bit, Mr. Goldman. I think it was your third point. You said the 
status quo is not acceptable, though many plans remain healthy. 
And you talked about withdrawal liability. And your point was 
that it keeps employers from being able to effectively help 
solve the problem, right?
    Mr. Goldman. Yes.
    Senator Portman. The key question I think we need to spend 
a lot of time on is figuring out the extent to which this 
insolvency is going to drive more employers into bankruptcy and 
create more issues. And one of the issues that concerns me is 
that, for the roughly 200 employers in Ohio in Central States, 
they would be reducing contributions to other multiemployer 
plans too, right, creating a contagion effect, as you all call 
it.
    Mr. Goldman. It could happen.
    Senator Portman. Which threatens to compound the entire 
multiemployer system. And there are many ways this could happen 
under current law, as is evident from reading your report: the 
withdrawal liability issue and the possibility of a mass 
withdrawal once Central States becomes insolvent.
    On page 46 of the Joint Committee report that we got, you 
noted, Mr. Barthold, that the amount of an employer's 
withdrawal liability is in theory determined by the plan 
sponsor and generally based on the employer's portion of the 
plan's unfunded vested benefits. However, it is my 
understanding that the amount of withdrawal liability that 
employers actually pay is calculated based on their previous 
contributions to the plan and is payable with interest in 
annual installments and that those can last up to a maximum of 
20 years. It can also be paid in a lump sum based on the net-
present value of that 20 years or it can be a negotiated 
solution between the plan sponsor and the employer for a 
different amount.
    Can either of you comment on how often employers pay the 
full withdrawal liability, pay it off within the 20-year period 
versus having some of the withdrawal liability forgiven at year 
20? Do you know the answer to that?
    Mr. Barthold. Senator Portman, I do not know the answer.
    Mr. Goldman. I think it is not uncommon for employers to 
not pay that full liability. There is a mechanism that has a 
20-year payment cap, and after you have paid those 20 years, 
you are done. It does not necessarily always align with the 
total amount that you should have paid, so that is another kind 
of leakage from the process. And sometimes there is a 
negotiation up-front and a lump-sum settlement that is often 
well below the total value of that withdrawal liability, mostly 
dependent on the ability of the withdrawing employer to be able 
to pay. So it is better to get something than nothing.
    Senator Portman. Yes. So it is not uncommon, you are 
saying, at year 20 to have the withdrawal liability forgiven, 
and in fact it is leakage; the money never comes back in.
    How would the employer withdrawal burden change in the 
event of a mass withdrawal once a plan becomes insolvent?
    Either one of you.
    Mr. Goldman. In the mass withdrawal, then, let us see, I am 
blanking out on how that works. Let me see.
    I will have to get back to you on that one.
    Mr. Barthold. Yes, I think when there is a mass withdrawal, 
there is no 20-year cap on the payment.
    Mr. Goldman. Right. That is right. There is no 20-year cap.
    Mr. Barthold. That is the answer.
    Mr. Goldman. And everybody has to pay up at that point.
    Senator Portman. Yes, which is very hard to imagine, right?
    Mr. Goldman. Right.
    Senator Portman. So, I mean, look, we have lots of issues 
here, but one is, you know, what is the current law with regard 
to withdrawal liability doing to make these plans even riskier 
and to take away some of the possibility of us solving this 
problem?
    Another question that I am not going to have time to ask 
but I would like to get an answer for in writing if I could, is 
on the rate of return. You know, what do we assume the rate of 
return is? Which is really the discount rate. And I think in 
multiemployer plans, it is about 7 to 8 percent. And how often 
has that been true?
    In other words, is part of our problem here just that we 
have estimated that there be a much higher return on investment 
than there actually has been?
    Mr. Goldman. Yes. And by the way, on the cap, you are 
right: the cap goes away and the payment is in perpetuity, in 
theory.
    Senator Portman. Yes.
    Mr. Goldman. On the interest rate, one thing to keep in 
mind is, this is very long-term; pension plans have a long 
timeline, a long investment horizon. So you are funding for 
people when they join the plan in their 20s and projecting out 
when they are actually going to get their last payment at 
death.
    So the long-term rate reflects long-term expectations and 
also reflects the investment mix of a plan. So it is unique to 
a plan, and each plan has to go through a process of assuring 
that the rate that they select is defensible and appropriate.
    Co-Chairman Hatch. Representative Norcross?
    Senator Portman. If you could give me some comments in 
writing on how many times the 7 or 8 percent has been achieved, 
that would be great. Thanks.
    Thanks, Mr. Chairman.
    Co-Chairman Hatch. Representative Norcross--is he here?
    Representative Norcross. Thank you, Mr. Chairman and 
others, for coming here today.
    The history and structure of multiemployer plans in 15 
minutes--it is almost an impossible task, yet we are asking to 
understand not only the history, the structure, but the 
problems. And so I want to move forward rather quickly.
    The difference in this and other plans is you have a joint 
board that is appointed by either the companies or their 
employees. And the one thing that struck me--and something that 
we know--is the funds that are accumulated in that joint plan 
are for the exclusive use of the employees--the exclusive use--
which means it is the pensioners' money. Any use other than 
that we see as a problem.
    But let us go back a little bit further and start talking 
about the very function of--how is it determined what the 
pension numbers are going to be for an individual? Is it done 
on a yearly basis? Every 10 years? How are those assumptions 
made from day one for a pensioner?
    Mr. Goldman?
    Mr. Goldman. So you have, let us say, 1,000 people in your 
pension plan, right?
    Representative Norcross. Right.
    Mr. Goldman. So the way the model works is, we actually 
take each of those people--we know how old they are, if it is a 
pay-
related thing--and you make assumptions probably of turnover, 
of early retirement, and so forth. So all those assumptions go 
into determining----
    Representative Norcross. That is the human side.
    Mr. Goldman. And there is value for each person, but it 
rolls up to the present value of the liability for the whole 
plan.
    Representative Norcross. But the point is, who makes the 
determination, okay, you are going to get one credit year, two 
credit years? Who actually makes the determination? They do it 
on a yearly basis as trustees, do they not?
    Mr. Goldman. Yes, an annual valuation.
    Representative Norcross. So on a yearly basis, they are 
going to understand, taking all those factors in, and they are 
going to throw a dart and hit a point.
    Mr. Goldman. And the beauty of it is that you do not have 
to be right, because every year you are redoing it and we have 
what we call our experience gains and losses. So we thought 
this was going to happen, instead that happened, and we are 
able to quantify that.
    Representative Norcross. Exactly the point. So you should 
make those adjustments year by year.
    Mr. Goldman. Yes.
    Representative Norcross. So if you make a rosy assumption, 
you end up paying for it later on if you do not make those 
assumptions.
    Mr. Goldman. That is correct.
    Representative Norcross. Which takes me into the question 
about bankruptcy which, to a large degree, is the ``last man 
standing''--Chapter 7, Chapter 11. When an employer goes 
bankrupt, Chapter 7, and has no appreciable assets to 
distribute, what happens to its unfunded liability?
    Mr. Goldman. It stays in the plan, and the remaining 
employers----
    Representative Norcross. It gets distributed to those 
healthy employers that are left.
    Mr. Goldman. Distributed to the healthy employers, correct.
    Representative Norcross. Okay. If he wants to reorganize, 
where in the bankruptcy position does the employer's obligation 
to that plan lie?
    Mr. Goldman. I am not sure of the answer to that; I will 
have to get back to you.
    Representative Norcross. Low--because that is part of the 
problem. They end up reorganizing, shedding this massive 
liability, and coming back healthy, which is part of the 
problem.
    So when a plan goes insolvent and there is a difference 
between when we think about the end of the line, insolvent 
versus terminating of the plan, if you terminate it, everyone 
left there has to pay for that obligation. Correct?
    Mr. Goldman. Correct.
    Representative Norcross. If it goes insolvent, what happens 
to the employers that are still left in that plan?
    Mr. Goldman. The employers left in that plan continue to 
make their contributions. The PBGC--this is probably important 
too--the program for multiemployer plans works very differently 
than the single employer. PBGC essentially makes a loan to the 
plan for financial assistance to----
    Representative Norcross. The trustees still operate it----
    Mr. Goldman. Trustees still operate it, right.
    Representative Norcross. They get the money from PBGC and 
continue to pay. The maximum amount, no matter how much a 
pensioner might be receiving--$20,000, $40,000, $70,000--the 
most they can ever get is $12,870. Is that correct?
    Mr. Goldman. That is correct.
    Representative Norcross. So if you have a $70,000 pension 
and it goes insolvent, the most you are ever going to get is 
$12,870. And then, if a large one goes under, within a year 
they might go down to zero because PBGC goes under.
    Mr. Goldman. Right, exactly.
    Representative Norcross. I think that is the most important 
thing that we are talking about today: the costs of doing 
nothing. Forget everything else. If we do not create this loan 
program to smooth out the numbers, we are talking about, within 
2 years of that plan going under, those pensioners, those 
millions whom you are talking about, are going to get zero and 
in fact will be worse off because that will contribute to other 
plans going under, will it not?
    Mr. Goldman. Yes, it could.
    Representative Norcross. I yield back the balance of my 
time.
    Co-Chairman Hatch. Our next one is Representative 
Schweikert.
    Representative Schweikert. Thank you, Mr. Chairman.
    Can we play--let us play a speed round, just to help me 
sort of get my head around a number of things.
    Mr. Goldman, give me, quickly, what are the attributional 
differences between a plan we say is in the green and in the 
red? So if I lay them side to side, what do I see is different?
    Mr. Goldman. The red one is apt to be insolvent.
    Representative Schweikert. But what did they do? Did they 
make different baseline financial decisions, yield decisions, 
NPV?
    Mr. Goldman. Well, once they become red, they have more 
options. They need to come up with an improvement plan, right? 
So they really exhaust every possible avenue to get out of 
being red. You can increase contributions. You can reduce 
benefits, to a certain extent.
    Representative Schweikert. Well, that is what they can do. 
I am sort of trying to understand why, when you say there are 
1,400 plans but only a couple hundred that are truly in the red 
zone, okay, what are some of the green plans doing that the red 
zones were not doing?
    Mr. Goldman. The main difference is this industry decline.
    Representative Schweikert. Okay.
    Mr. Goldman. The decline of the active base versus the 
retiree base.
    Representative Schweikert. All right.
    Mr. Goldman. A lot of the green plans survived all the 
economic stress and did the exact same things; they did not do 
anything different.
    Representative Schweikert. In that same category, should I 
be worried that a number of the green plans, if I actually used 
a discount rate or net-present value that personally I would be 
more comfortable with, all of a sudden, by my math, they start 
to look a lot closer to the red plans?
    Mr. Goldman. Yes.
    Representative Schweikert. Okay. So we need to understand 
that it is more than just the ones that are in the red. We have 
a number that we are calling green, that if we were to all 
agree that the benchmark is going to be high-quality corporate 
bonds, and that is our net-present value calculation, a number 
of those that today we are calling green would not look so 
green.
    Mr. Goldman. Yes.
    Representative Schweikert. Okay. That is a real concern 
that we need to understand. A lot of them we are saying are 
healthy may not be nearly as healthy. And we also probably need 
to set a standard of what that net-present-value dollar is. 
Because the fact of the matter is, right now, the equal number 
of employer representatives and union representatives act 
functionally as an investment board.
    Mr. Goldman. Yes. Keep in mind, though, that however you 
decide to measure that liability, whether the plan is insolvent 
or not depends on whether there are enough assets to pay all 
the benefits back.
    Representative Schweikert. Yes, and then your population 
statistics.
    Mr. Goldman. And the other point to keep in mind is, a lot 
of these green plans have gone through a couple of hardships 
themselves. So if we were to see another shock to the market, a 
lot of the green plans may end up in the red zone as well.
    Representative Schweikert. Yes; okay.
    Mr. Barthold, so in a multiemployer plan, I have my union 
representatives, my business representatives. Is it fair for me 
to think of them sort of as an investment board?
    Mr. Barthold. They select the managers and they oversee, 
like the trustees.
    Representative Schweikert. Okay. And as part of that 
negotiation, do they also have an option of saying, hey, here 
is what we are saying our NPV is or here is what we think we 
are going to----
    Mr. Barthold. It is supposed to be under reasonable 
actuarial assumptions. So the trustees should be blessing the 
reasonableness.
    Representative Schweikert. Do they carry any personal 
fiduciary liability that, like the rest of us, if we ever sat 
on a pension or investment board for our charity or for our 
school----
    Mr. Barthold. The board is a fiduciary.
    Representative Schweikert. Okay, so do they carry fiduciary 
insurance?
    Mr. Barthold. I would imagine they might, but I do not 
know.
    Representative Schweikert. Okay. That would be fascinating 
to know.
    Mr. Goldman. Yes, they do.
    Representative Schweikert. So the investment board, Mr. 
Goldman--if I came to you and said, right now I would love a 
good population census--and these sometimes are very 
uncomfortable to talk about, but it turns out workers from 
certain professions often have variance in longevity.
    Mr. Goldman. Correct.
    Representative Schweikert. And so I have been curious on 
the elegance and the quality of the calculations of what our 
actual liabilities are. And are we seeing that this particular 
fund had more individuals that were from a profession that 
actually has different lifespans? And is that being properly 
calculated in as we are actually starting to work out our math?
    Mr. Goldman. Yes. Each assumption has to be reasonable. And 
with the larger plans, there is usually enough data to do 
experience studies.
    Representative Schweikert. I am actually not asking for 
reasonable, I am asking for population census data that you 
would put in as an actuary. Because, you know, if I had only 
1,000 or 2,000 or 10,000--I mean, you are going to have really 
very good, down-to-the-individual population data.
    Mr. Goldman. A lot of effort is made to get it correct. At 
the same time, it is a large population, so there are blue-
collar tables, for example, in mortality that reflect certain 
workforces. And the actuary makes sure that the mortality that 
is used reflects that experience.
    Representative Schweikert. At some point, for some of those 
who are interested in that and staff, for some of those, we 
think there may be a number of inputs that may not have been 
discussed here completely, and some of that is also going to be 
needed for us to get some calculations.
    And I am already over time. Thank you for your patience, 
Mr. Chairman.
    Co-Chairman Hatch. Senator Smith?
    Senator Smith. Thank you very much, Mr. Chairman.
    And thank you very much for this testimony. This is a very 
complicated issue, and I appreciate the questions that are 
being asked today to really try to understand this.
    And actually, many of my questions have been touched on, so 
let me just see if I also can make sure I am understanding 
this.
    So the reason we have this problem, it sounds to me, is 
complicated, right? We have industry decline and economic 
stress as one issue. Another is just sort of the reality of 
demographic changes and more people leaving the pension, not 
enough people paying for the people who are still there. Right?
    And then we have the impact of the 2007, 2008 market crash. 
And then we also have this weird sort of the tax incentive 
issue. Can you just explain that to me a little bit, either one 
of you?
    Mr. Goldman. Yes. So at the time when things were great and 
the markets performed beautifully and the plan assets grew to 
what we call a surplus, there were actually more assets than 
you needed, and your minimum contribution might have been 
zero--the government's concern about making sure you put in at 
least enough to pay the benefits but not too much to take too 
much of a tax deduction.
    So the tax-deductible limits were getting in the way. And 
the response to that was, well, let us increase benefits to use 
up the surplus so we do not have excess taxes.
    Senator Smith. So that was to make sure that companies were 
not taking too big of a tax credit----
    Mr. Goldman. Exactly.
    Senator Smith [continuing]. For the money that they were 
paying into the pensions. But the result was that then benefits 
got increased at an unsustainable rate, just based on number, 
right?
    Mr. Goldman. Well, they were sustainable at the time.
    Senator Smith. Right, they were sustainable at the time.
    Mr. Goldman. But then the future events put that at risk.
    Senator Smith. But not them, right?
    Mr. Goldman. Correct.
    Senator Smith. But there has also been this interesting 
conversation about sort of assumptions that were made, 
actuarial assumptions about rate of return. Is that sort of 
another issue or problem here? Or is that not the right way of 
characterizing that?
    Mr. Goldman. I think your bigger issues are the points that 
you raised.
    Senator Smith. Okay. But there is nothing in here about--it 
is not as if there was some sort of mismanagement or bad 
acting.
    Mr. Goldman. No, not at all.
    Senator Smith. Right. And then also at the end, the 
question is, what do we do? And not that this is simple. And 
you say basically at the end--and I appreciated the simplicity 
of this--we know either benefits can be cut or reduced or 
contributions to the plans have to go up, or you can assume 
more risk in the system, which basically is kind of like taking 
the ``wish and a prayer'' approach. Right?
    Mr. Goldman. Yes.
    Senator Smith. And I have a couple of minutes left, but you 
also say there are obviously pros and cons to each of these 
approaches. And I do not mean to ask for your advice so much. 
Could you just describe for us a few of the pros and cons that 
you see for each one of these approaches?
    Mr. Goldman. Well, let us start with the benefit cuts. That 
is the easiest. The con of that is that you are impacting 
people who thought they had a pension and now it is less and 
puts them in a difficult position.
    Senator Smith. And how much, roughly? Is there an average 
dollar amount for the pension that we are talking about? Or 
what is the range? I am not clear on that.
    Mr. Goldman. It is all over the map. It could be $10,000 a 
year to $60,000, $70,000 a year.
    Senator Smith. Depending on how much they put in.
    Mr. Goldman. Depending on the industry and how long the 
person worked.
    Senator Smith. Okay. All right. Continue.
    Mr. Goldman. And then on the issue of more contributions, 
the second one, again, the pro is, it puts more money into 
these plans, which is needed. The con is, we have already 
stretched the participating employers to the limit in many 
cases, so asking them to contribute more brings the employers 
down or pushes them out of the system.
    And then the sharing of risk is a way to say, all right, we 
all take risks every day, every time we walk out of our front 
door. But how much risk? It is a tradeoff, it is a balance of 
how much risk you are willing to take in order to solve the 
problem. And the loans are a form of that, where somebody is 
putting an influx of cash into the system. That is a good 
thing, and if these plans have more money, it gives them an 
opportunity to pay benefits for a longer time and work their 
way out of the process.
    Again, it ties back to the industry and what is going to 
happen on those other factors that you mentioned.
    Senator Smith. Right. One of the things that I think I 
really struggle with on the question of reducing benefits is 
that it is sort of the problem we have sometimes in health 
care. You reduce the amount of money that you are paying, but 
you do not reduce the need. So somehow the need has to be paid 
for in another way.
    Mr. Goldman. Right. And that is where you get into some of 
the social insurance systems and so forth. Somebody has to pick 
that up somewhere along the way or people reduce their standard 
of living in retirement.
    Senator Smith. Right. Okay, thank you. I appreciate it.
    Co-Chairman Hatch. Representative Dingell?
    Representative Dingell. Thank you, Mr. Chairman.
    Like most of my colleagues, many of my questions have been 
answered. But I want to try to fill in under them.
    My district is one of those districts--I have the largest 
number of members of the Central pension fund in the country, 
and I see them every single weekend. And I have had grown men 
just come to my front door and cry in my arms. Women too, but a 
lot of them are men.
    But I have small businesses that are threatened if these 
pension systems go down. And you have talked about what the 
impact is going to be, so this is really one of the most 
serious issues we have. We have to work together. This has to 
be nonpartisan, and we have to work together.
    I want to follow up on my colleague's question about the 
impact of the failure of a multiemployer plan on a union. It is 
my understanding--and please clarify if I am wrong--that unions 
are comprised of their members.
    So, Mr. Goldman, do union members negotiate smaller current 
wages in order to get this later benefit?
    Mr. Goldman. That is absolutely how they would look at it, 
sitting at the table. You have a choice between current 
compensation, health care, retirement; you agree on something, 
and you think you are going to get a payback from that at some 
point.
    Representative Dingell. So now they are losing that.
    Mr. Barthold, would you classify that as deferred 
compensation?
    Mr. Barthold. Pension benefits are a form of deferred 
compensation, yes, ma'am.
    Representative Dingell. So I am going to ask both of you, 
do a union and its participants face reduced benefits from the 
PBGC at this point of insolvency?
    Mr. Goldman. Can you clarify? Do they face reduced benefits 
once the plan becomes insolvent----
    Representative Dingell. Right.
    Mr. Goldman. Once the plan becomes insolvent, then the PBGC 
takes over at the lower guaranteed limits. So they would lose 
some of their benefits at that point.
    Representative Dingell. Mr. Barthold, did you want to----
    Mr. Barthold. That is correct.
    Representative Dingell. So let me, Mr. Goldman, go to 
another point, although I want to follow up on Senator Smith's 
questions, because I was going to ask those questions too.
    A lot of people want to say that these funds were 
mismanaged. Can we really be clear that that is not what we are 
dealing with, that we are dealing with all of the other factors 
and this is not mismanagement, especially as seen by those who 
are supposed to be receiving these benefits?
    Mr. Goldman. I mean, I think I cannot speak for all the 
plans, but from my perspective, the issues you cited are the 
ones that are responsible for this.
    Representative Dingell. I think that that is really--you 
know, we have talked about some of the economic impacts and the 
reasons, but also, I mean, especially when you talk about the 
single-employer pensions, they were underfunded quite frankly. 
How much does underfunding of these funds contribute to this? 
And what was the cause of that underfunding?
    Mr. Goldman. Well, the underfunding is an outcome of all 
these issues, and again, not enough money coming in relative to 
the benefits that are getting paid.
    Representative Dingell. Right.
    Mr. Goldman. I also want to add, on your prior question, 
just to clarify from an actuarial profession standpoint, we 
have qualifications and standards that govern our profession, 
and each actuary has to sign off and verify that the 
assumptions they picked were reasonable and appropriate for the 
purpose for which the calculations were made.
    Representative Dingell. That does get into the other 
questions about fiduciary responsibilities and who assumes that 
ultimate liability.
    I am going to ask one--I only have about a minute left, so 
I will go to another question.
    Mr. Goldman, in your testimony, you state that some plans 
may be too far down the road to utilize the MPRA. Could you 
elaborate on this?
    Mr. Goldman. Well, Central States is a good example where, 
had action been taken earlier, there would have been more 
options, and other things could have been done. But as the 
amount of assets that remain in the plan relative to the 
benefits that are about to be paid gets smaller and smaller, 
then the solution gets harder and harder.
    Representative Dingell. Mr. Chairman, I do not have enough 
time to ask another question, so I will follow my colleagues.
    Co-Chairman Hatch. Thank you so much.
    Senator Manchin?
    Senator Manchin. Thank you. Thank you, Mr. Chairman.
    Thank you all.
    Again, a lot of good questions have been asked here. I 
bring a little different perspective. I come from the coal 
fields, UMWA pension plan--you know what we are doing. We would 
be the first major pension plan to go defunct by 2022. If that 
goes down, then it starts tumbling--PBGC, everything starts 
happening.
    And you have been talking about no fault of their own, this 
and that. Where is the fault? Is the fault in bankruptcies? 
What has caused this? I know we have had downturns, 2001, 2008 
market crashes, but if it is no fault of the men and women who 
work--they take it out of their pay, they pay for their 
benefits, the company contributes and matches--at the end of 
the day bankruptcy laws happen and they walk away with nothing. 
The financial institutions get in front of the human being, and 
there is nothing left for anybody.
    Why? This is not going to change anything. And we are going 
to fix something maybe for a short period of time, but the 
pension plans that are coming after, we are going to be back in 
the same hole. We need answers and help from you all, the 
experts, Mr. Goldman. How do we prevent this from ever 
happening again? How do we fix the wrong that we have? How do 
we prevent it from happening?
    To me, bankruptcy laws in America are the absolute 
atrocities of what is going on. Do you agree or disagree?
    Mr. Goldman. I will leave the fault question to the 
committee.
    Senator Manchin. Well, do you agree that it is a problem? 
Just tell me the facts, sir; do not be politically correct. We 
have enough people around here trying to do that. I need 
answers. I need help here. We need people with your expertise 
to help fix these laws that have caused the problems we have.
    I do not think another miner, another worker in any type of 
a factory, or any pension person should be faced with, hey, 
everybody else got something, I got nothing. Where did my money 
go? I mean, they have all worked for it. That is what we are 
dealing with. And how do we subvert that?
    So I know everybody has asked you some good questions. 
There have been some good contributions, but I have a serious 
situation. I have 63,000 miners in West Virginia, a pension 
they are depending on. The average pension in West Virginia for 
a miner--the average--is $595. Most of that is for widows; 
their husbands are gone. You take any amount of that away from 
them, and they are done; they cannot make it.
    Now, I know there are some big pensions, and God bless 
everybody. I am dealing with necessities now. I need your help.
    Mr. Goldman. I am happy to provide it.
    Senator Manchin. So could you help us change the bankruptcy 
laws so the human being----
    Mr. Goldman. That would be a ``no.''
    Senator Manchin. Do you want to comment? Do you think the 
human being should get the same type of consideration that a 
financial institution does during a bankruptcy hearing?
    Mr. Goldman. I am not going to answer that.
    Senator Manchin. But you would if it was you.
    Mr. Goldman. I will focus on explaining the reasons why we 
got here.
    Senator Manchin. Well, we are not going to get out of this 
unless you all have enough guts to start speaking out. I have 
to be honest with you. Unless you all who have the knowledge to 
do something are willing to speak up and help us, we are not 
getting out of this mess.
    Mr. Goldman. I promise to contribute on the future 
sessions.
    Senator Manchin. Well, let me go into some other things; 
maybe I can get an answer from you. Let me get off the 
bankruptcy; I know you are not going down that path.
    What happens to the insolvency at 2022? When does PBGC, 
when do they go into problems, the way it is right now? You 
have evaluated that, I am sure.
    Mr. Goldman. Twenty twenty-five is what the PBGC has 
projected to be----
    Senator Manchin. That is because of the----
    Mr. Goldman [continuing]. The likely date.
    Senator Manchin. Is that the Central States pensions?
    Mr. Goldman. That is even independent of Central States.
    Senator Manchin. That is if nothing changes right now.
    Mr. Goldman. Central States is, how big is the problem, not 
necessarily, when is the problem?
    Senator Manchin. So from the miners to the Central States, 
this thing is on a doomsday course no matter what.
    Mr. Goldman. Correct.
    Senator Manchin. That is pretty daunting. Do you have a 
recommendation of what we could do for the miners' pension to 
prevent this domino effect by 2022?
    Mr. Goldman. Not at this time. I think that is the 
challenge that is ahead of us.
    Senator Manchin. Yes, year 2025, there will be nothing left 
by the time they get done with us--2022, we are all gone. We 
are looking--I mean, we really are. I think this is a good 
committee, wants to find answers. We can do all the history 
that you want. We need to start getting to the crux of this 
thing, because this thing is going to come to a head very 
quickly.
    And I have people right now, they do not know what to do. I 
mean, they are in limbo. And we have to figure a way to fix it. 
And we have looked at this loan program.
    What are your thoughts on the loan? You know the bill that 
we have in front of us. You have seen it, right?
    Mr. Goldman. Yes.
    Senator Manchin. Do you support that or not? Or would you 
modify it, or do you have any contribution to that bill that 
would make it better?
    Mr. Goldman. Not at this time, no.
    Senator Manchin. So you would recommend that the government 
should loan us the money that it takes.
    Mr. Goldman. I do not have a recommendation.
    Senator Manchin. Does anybody?
    Mr. Barthold, do you want to say something?
    Mr. Barthold. No, Senator. [Laughter.]
    Senator Manchin. What the hell are we having this meeting 
for then? We are not giving up, but you guys have to help us.
    Mr. Goldman. We are here to help. Today was about context 
and background. We have to crawl before we walk.
    Senator Manchin. I am done.
    Co-Chairman Hatch. Okay.
    Co-Chairman Brown. Mr. Chairman, I have gotten a request 
from a number of people on our side about a second round.
    Co-Chairman Hatch. I am not going to give you a second 
round.
    Co-Chairman Brown. I am co-chair: I think we should. I am 
willing to stay, Mr. Chairman. And we are equally co-chairs, 
and I have a couple more questions to tie up loose ends.
    Co-Chairman Hatch. Well, I am not going to foreclose 
questions, but I am not going to go through a second round.
    Co-Chairman Brown. Okay. Well, however we do it.
    Co-Chairman Hatch. If a few of you have some extra 
questions----
    Co-Chairman Brown. Okay, I have a couple of questions----
    Co-Chairman Hatch [continuing]. You can stay here and ask 
them.
    Co-Chairman Brown [continuing]. And I know Representative 
Norcross does.
    Co-Chairman Hatch. Okay.
    Co-Chairman Brown. All right. Thank you, Mr. Chairman.
    Co-Chairman Hatch. Okay. Well then, let us turn to you.
    Co-Chairman Brown. Yes, let us tie up a couple of loose 
ends.
    And, Mr. Barthold, who set the standard for the lower PBGC 
premiums for the multiemployer program?
    Mr. Barthold. Congress did, sir.
    Co-Chairman Brown. Congress did? Okay, that is what I 
thought.
    Mr. Goldman, a handful of questions to you--and it will not 
nearly take 5 minutes, Mr. Chairman.
    We talked about rate of return. You are an actuary, 
correct?
    Mr. Goldman. Correct.
    Co-Chairman Brown. Congress does not prescribe rates of 
return is my understanding. Do you think Congress should 
prescribe rates of return?
    Mr. Goldman. The single-employer plan does prescribe rates 
of return. But there are significant differences between the 
single and multiemployer plans.
    Co-Chairman Brown. And we do not, and you are not saying we 
should prescribe them for the multiemployer plans.
    Mr. Goldman. I am not.
    Co-Chairman Brown. Okay. Briefly describe how an actuary 
makes their assumptions on rates of return.
    Mr. Goldman. In the case of multiemployer plans, it is 
really a function of how the assets are invested and then 
looking at capital market projections, you know, 10-, 20-, 30-
year projections. Usually with projections, it is hard to find 
more than 10 or 20 years. And then based on the mix of your 
portfolio, you align it back to the expected returns on each of 
those.
    Usually, they will look at a wide array of projections, 
because there are surveys out there that will show a fairly 
significant range of expected returns for each asset class.
    Co-Chairman Brown. And you actuaries, you represent--you as 
an actuary yourself, you are governed by professional 
standards, I assume; correct?
    Mr. Goldman. Correct.
    Co-Chairman Brown. And if you violate those standards, 
there is real punishment, I assume.
    Mr. Goldman. That is correct. There is a standards board.
    Co-Chairman Brown. Could you tell us, roughly, your view? 
Do you know what the average, say, since ERISA and 
multiemployer plans, what is the average, roughly, in these 40, 
42, 43 years, what is the average annualized return of the S&P 
500?
    Mr. Goldman. I do not know, but probably 7 to 8 percent is 
not a bad----
    Co-Chairman Brown. Well, my understanding is, it is more 
like 10 or 11 or even 12 percent. Would that be in the range, 
do you think?
    Mr. Goldman. That would be.
    Co-Chairman Brown. That would sound like it could be right, 
10 or 11, 12?
    Mr. Goldman. Right, right.
    Co-Chairman Brown. So it would not be unreasonable, that 
being the case, for an actuary to assume a 7- or 8-percent 
return on investment over those 4 decades on a long-term 
investment. Correct?
    Mr. Goldman. Right, but it is more than looking at history. 
I think we are in an interesting economic time with very low 
rates, so you may look at history for patterns and parts of the 
process, but it is much more complicated than that to take into 
account what you think is going to happen, what has happened in 
the past, and how your assets are managed.
    Co-Chairman Brown. When the return is significantly more 
than assuming a 7- or 8-percent return, it is a pretty clear 
signal, correct?
    Mr. Goldman. Correct.
    Co-Chairman Brown. Okay. Thank you.
    Mr. Goldman. And a portfolio is made up of stocks and 
bonds. And now we are seeing more alternative investments as 
well into the portfolio.
    Co-Chairman Brown. Thank you.
    Co-Chairman Hatch. Any more last-minute questions?
    Co-Chairman Brown. Mr. Scott?
    Representative Scott. Thank you, Mr. Chairman.
    Mr. Goldman, you are an actuary, but staff showed me what 
the definition of insolvency is, and you are right, it is 
cashflow. And so, if you have no assets in the trust fund but 
you have enough money coming in to pay the benefits, you call 
that solvent?
    Mr. Goldman. Correct.
    Representative Scott. That does not shock you?
    Mr. Goldman. I had not thought about it before, but now 
that you raise it----
    Representative Scott. Zero assets, but you have enough 
coming in so you can pay the bills.
    Mr. Goldman. It is all about----
    Representative Scott. And then you wonder why we are in the 
trouble we are in when you call that solvent. [Laughter.]
    Can you quantify the contagion problem?
    Mr. Goldman. I cannot; I have not tried to quantify that, 
no.
    Representative Scott. Mr. Barthold, do you want to try to 
make a comment about the contagion problem?
    Mr. Barthold. As I noted before, we have not, my colleagues 
have not, undertaken an independent analysis, anything 
different from that done by the Pension Benefit Guaranty 
Corporation.
    Representative Scott. Thank you, Mr. Chairman.
    Representative Norcross. Well, hopefully we are going to be 
addressing some of the same issues, but let us talk about PBGC 
premiums. Back during MPRA 2014, they more than doubled the 
premium to $26 per, so that was a hell of a spike for those who 
are paying it.
    But let us talk about some of the causes, because we have 
heard a lot of them. You had the decline of the industry or of 
membership. Some of the older industries, we understand that. 
The investment performance, the downturn, those are things 
that, in some way, you can predict or at least use a history of 
it.
    Bankruptcy--bankruptcy is an issue that would be to the 
individual company at the individual time, whether or not they 
want to escape their liabilities. Some of these have the 
potential to take down some of the biggest employers in our 
country. They have to make a decision.
    ``Last man standing''--you have to be doing the right 
thing, making all the right decisions. Those rosy assumptions 
each year that we as trustees make might have been a little bit 
too high, but somehow the company next to you bails out and now 
you are not only carrying your weight, but carrying their 
weight.
    The assumptions--and this is something that we have to 
touch on--should be reasonable. I would love to say that, if I 
could make my mortgage payment reasonable, but that is a real 
problem. Two different companies, two different pension plans, 
two different trustees, can look at this. So the pension 
smoothing issue, in many ways, is like a loan program.
    But let us go on and talk about the tax issue. You were 
allowed to increase the benefit because you did not want to go 
over that 110 percent over funding and jeopardize your taxes. 
But when things went south, there was no mechanism, not to take 
you down below where you originally were, but you could not 
even take it to where it was before you gave that. Is that 
correct?
    Mr. Goldman. That is correct.
    Representative Norcross. So of all those issues--and we can 
talk about a loan program, and I think it is so important to 
help smooth out this issue. Because certainly, if you save the 
banks, you save Wall Street, this is saving people, and I think 
that is so important. But structurally, we have to make the 
changes or we just come back here. Would you agree to that and 
the fact that if you do not make structural changes moving 
forward----
    Mr. Goldman. I think you've got it.
    Representative Norcross. A loan program to help smooth out 
the spikes that we are looking at, is it reasonable to assume 
that this can be done within the confines of some of the 
programs that have been put forward to you?
    In other words, if you look at the dollars and the rate of 
return over the course of the program for 20, 25 years, 
depending on what we end up with, the costs of doing nothing 
would far exceed the cost of the loan program?
    Mr. Goldman. That is possible. I have not done any of the 
analysis on any of the specific loan proposals. We are actually 
working on an issue brief that outlines the benefits and risks 
of a loan approach in general, but not for any specific 
proposal.
    Representative Norcross. Well, just in rough numbers, you 
talked about the 10 million if this were to go down, the cost 
of the loan program versus the cost to our society--and the 
human side of it far exceeds that.
    And we will follow up on some additional questions at our 
next hearing. But I yield back, and thank you, Mr. Chairman.
    Co-Chairman Hatch. Well, thank you.
    These are really tough questions at a really tough time to 
try to figure all this out. But unless somebody has----
    Co-Chairman Brown. Mr. Schweikert has a couple of 
questions.
    Co-Chairman Hatch. Do you have some questions?
    Representative Schweikert. Do not look at me so 
disappointed, Mr. Chairman. [Laughter.]
    Co-Chairman Hatch. I am looking at you disappointed. And I 
tell you----
    Representative Schweikert. And I apologize to everyone in 
the room and the committee. This is some of the most 
fascinating stuff I have ever gotten to do, which probably 
explains why I have no friends. [Laughter.]
    Mr. Goldman. You could have been an actuary.
    Representative Schweikert. And I will do this one quickly.
    Some of the discussion from my brothers and sisters on the 
other side, on the loan program functioning--the mechanism 
there is almost the arbitrage of government loan, low interest 
rate, we will actually invest it in equities or something like 
that, and we basically pick up the arbitrage difference. And 
that is where the yield kicker is.
    Mr. Goldman. Some of the loan proposals have that as a way 
to get additional cash. Others use the money to immunize and 
either buy annuities or invest those assets in risk-free 
investments and align them directly with the benefits.
    Representative Schweikert. Okay. But the payback on that 
actually becomes----
    Mr. Goldman. You lose. Yes, it is all about balance and the 
tradeoffs.
    Representative Schweikert. Yes, because you lose the 
benefit, and then with the time value, if there is, you know, a 
yield back to the taxpayers----
    Mr. Goldman. It is how much risk you want to take.
    Representative Schweikert. Yes. Okay. Actually this goes 
back to--we got our hands on something from PBGC. It is a 
couple years old. And it was their calculations of how many of 
our plans are actually in trouble if we used their sort of NPV. 
And I am sure you have seen this. You are an expert on this.
    But it is disturbing. If I will do something like my 
corporate bond, which I seem to personally sort of like as a 
benchmark or, you know, 30-year treasuries plus a couple of 
kickers, you are starting to look at the vast majority of the 
plans, even those we are calling green, as being 60, under 70-
percent funded. Am I being fair if I use that as my benchmark, 
that many of what we are calling green plans are actually also 
in trouble?
    Mr. Goldman. Yes. The difference would almost double the 
liability.
    Representative Schweikert. Okay. That is actually a 
brilliant way to phrase it.
    Mr. Goldman. And there is actually some analysis being done 
now--it is not ready yet--that will show you how many 
participants and how many plans move based on the different 
assumptions and different returns in the future too.
    Representative Schweikert. Thank you. I think that is 
really important as we are starting to put together what we are 
hoping is a workable solution. It is not only just dealing with 
those that we know to be in great stress, but those that, if we 
actually set up some benchmarks, we pull just by the definition 
of the benchmark, into the stress category.
    Also, as you do that work, maybe just because I have been 
around a lot of this, it is also helpful for a lot of those 
members here to understand that there are lots of levers. There 
is more than just the yield; it is the population, it is how 
many workers, what their compensation is compared to previous 
retirees' compensation. It is more complex than just rate of 
return.
    And you know, even dealing with lifespan calculations, you 
have many levers you have to calculate.
    Mr. Goldman. And one more consideration too. I think it is 
worth mentioning, on the single-employer plan, that does use 
the risk-free rates. Take a look at that system. And a lot of 
the plans are now frozen, employers have exited from defined 
benefit to defined contribution. It is arguable whether defined 
contribution is going to give the same retirement security, so 
you could almost make a case that by moving to lower rates and 
increasing contributions, you have pushed some employers out of 
the plan because they cannot afford it.
    Representative Schweikert. But at the same time, I do not 
have millions of my brothers and sisters who are looking at 
retirement insecurity coming crashing down upon them. So I may 
lose some employers, which we do not want, but I really do not 
want people moving into the retirement age and realizing they 
have such fragility in their future payments.
    Mr. Barthold, is there anything you want to say before I 
hit the button and make the chairman happy that I have stopped 
talking? [Laughter.] My chairman would probably like you to 
make him happy.
    Mr. Chairman, I yield back.
    Co-Chairman Brown. Mr. Chairman, I ask that members submit 
questions for the record by 5 p.m. next Wednesday and that Mr. 
Barthold and Mr. Goldman answer as quickly as they can.
    Co-Chairman Hatch. Well, thank you. We will agree with 
that.
    I want to thank you all for your attendance and 
participation today. As we have heard today, these are really 
important and complex issues, and I look forward to working 
with each of you on both sides of the Capitol as well as both 
sides of the aisle.
    So I ask any member who wishes to submit questions for the 
record to do so by close of business Thursday, April 26th.
    And with that, I want to compliment all my colleagues for 
putting in the time on this, because this is important stuff. 
And I wish I had the answers, but we will see what we can do to 
keep this working.
    And we are very appreciative of your patience down there at 
the table. And we hope that you will think about it and help us 
to find some answers to this as well, if there are any.
    So with that, this hearing is adjourned.
    [Whereupon, at 4:05 p.m., the hearing was concluded.]

                            A P P E N D I X

              Additional Material Submitted for the Record

                              ----------                              


       Prepared Statement of Thomas A. Barthold, Chief of Staff, 
                      Joint Committee on Taxation
    My name is Thomas A. Barthold. I am the Chief of Staff of the Joint 
Committee on Taxation. It is my pleasure to present to the Joint Select 
Committee on the Solvency of Multiemployer Pension Plans an overview of 
the Internal Revenue Code (``the code'') provisions governing 
multiemployer defined benefit plans.

    Most individuals covered by a pension plan are covered by single-
employer plans. These plans may be defined benefits plans or defined 
contribution plans. The code provides rules governing employer funding 
of the future pension benefits provided by defined benefit plans. 
However, at present, approximately 10.5 million individuals are 
participants in one or more of approximately 1,400 multiemployer 
defined benefit plans. A multiemployer plan (also known as a ``Taft-
Hartley'' plan) is a plan maintained pursuant to one or more collective 
bargaining agreements with two or more unrelated employers and to which 
the employees are required to contribute under the collective 
bargaining agreement(s). A multiemployer plan is not operated by the 
contributing employers; instead, it is governed by a board of trustees 
(``joint board'') consisting of labor and employer representatives. In 
applying code and ERISA requirements, the joint board has a status 
similar to an employer maintaining a single-employer plan and is 
referred to as the ``plan sponsor.''

    The outline that follows highlights the defined benefit code 
provisions governing multiemployer plans.

            Overview of Multiemployer Defined Benefit Plans

                                 topics
      Qualified Retirement Plans Generally.

      Defined Benefit Plans.

          Structures, general requirements, selected requirements 
        (including anti-
        cutback rule).

      Multiemployer Plans.

          Background, Pension Benefit Guaranty Corporation (``PBGC'') 
        program.

          Exceptions to anti-cutback rules.

          Funding rules (including withdrawal liability).

          History of multiemployer plan funding issues.

      Appendix: Brief Legislative History of Significant Changes 
Relating to Multiemployer Plans.
             employer-sponsored qualified retirement plans
      Tax-favored treatment applies to a deferred compensation plan 
that meets qualification requirements under the code, as a ``qualified 
retirement plan,'' of which there are two general types:

          Defined contribution--benefits based on separate account for 
        each participant (employee), with contributions, earnings, and 
        losses allocated to each individual participant account; 
        participant benefits from investment gain and bears risk of 
        investment loss.

          Defined benefit--benefits are under a plan formula and paid 
        from plan assets, not from individual accounts; employer 
        responsible for providing sufficient assets to pay benefits at 
        retirement.

      Tax-favored treatment generally includes:

          Pretax treatment of contributions, with current deduction 
        for employer (both subject to limits).

          Tax-deferred earnings for participant.

          Income inclusion to participant at distribution (with option 
        to rollover for certain plans)

          Tax-exempt status for trust holding plan assets.
          general requirements for qualified retirement plans
      Plan qualification requirements:

          Participant and beneficiary protections (e.g., age and 
        service conditions, vesting, spousal protections) that parallel 
        protections in Employee Retirement Income Security Act of 1974 
        (``ERISA'').

            ERISA is within Department of Labor (``DOL'') 
        jurisdiction.

          Limits on benefits and contributions (code only).

          No discrimination in favor of highly compensated employees 
        (code only).

          Requirements generally apply on a controlled-group basis.

      Prohibited transaction rules, i.e., no self-dealing (code and 
ERISA).

      Limitations on employer deduction for contributions (code only).

      Rules specific to defined benefit plans, and to multiemployer 
plans.
                   defined benefit plans--in general
      A defined benefit plan generally provides accrued benefits as an 
annuity commencing at normal retirement age in the amount determined 
under the plan's stated benefit formula (generally based on years of 
service and compensation of participant).

          The accrued benefit is the portion of the participant's 
        normal retirement benefit that has been earned as of a given 
        time.

          Optional forms must provide payments that are not less than 
        actuarial equivalent of accrued benefit.

      The code and ERISA require benefits to be funded using a trust 
for the exclusive benefit of employees and beneficiaries.

      The employer (or employers) must fund the trust by making a 
minimum level of annual contributions.

          Investment gains and losses on trust assets affect 
        employers' funding obligations.

      Private plan benefits generally (and all multiemployer plan 
benefits) are insured by the PBGC, subject to guarantee limits.
             general requirements for defined benefit plans
      Cannot make in-service distributions before earliest of normal 
retirement age, age 62, or plan termination.

      Spousal protections (applicable if present value of accrued 
benefit is more than $5,000).

          For married participant, benefit must be a life annuity for 
        employee with a survivor annuity for spouse (unless spouse 
        consents otherwise).

          If employee dies before benefits commence, an annuity for 
        surviving spouse generally required.

      Limits on benefits--Benefits under a defined benefit plan are 
generally limited to lesser of 100 percent of high 3-year average 
compensation or annual dollar amount ($220,000 for 2018), with 
actuarial adjustments depending on form of benefit and age of 
commencement.

          However, the 100 percent of compensation limit does not 
        apply to multiemployer plans.

      Nondiscrimination requirements--prohibit discrimination in favor 
of highly compensated employees.

          Collectively bargained plans, including multiemployer plans, 
        are generally deemed to automatically satisfy the 
        nondiscrimination requirements.
            selected rules for determining a participant's 
                   benefit in a defined benefit plan
      Definitely determinable benefit--plan must specify the formula 
for objectively determining normal retirement benefits (e.g., 
traditional formula or hybrid formula, such as cash balance) and 
actuarial factors for determining other forms of benefit.

          Cannot be subject to plan sponsor discretion.

          Formula may include a variable factor, such as a market 
        index, as long as specified in the plan and determinable 
        without plan sponsor discretion.

      Accrual rules for benefit--plan must specify the method used to 
determine a participant's accrued benefit under of three permissible 
methods (133\1/3\ percent, fractional, or 3 percent).

      Vesting requirements--Participant's entitlement to accrued 
benefit without additional service, i.e., as if terminating employment, 
cannot be forfeited (``vested accrued benefit'').

          Traditional plan: 5-year cliff (zero vesting before 5 years, 
        then 100-percent vesting at 5 years) or 3- to 7-year graduated 
        vesting (20 percent per year).

          Hybrid plan: 3-year cliff.

      Anti-cutback requirements.
          anti-cutback requirements for defined benefit plans
      Under the ``anti-cutback'' rules, plan amendments generally may 
not reduce benefits already earned (accrued benefits) or eliminate 
other forms of benefit linked to accrued benefit (e.g., subsidized 
early retirement benefit or lump sum).

      Benefit reductions or elimination of benefit forms must be for 
prospective accruals only, subject to some exceptions, including for 
underfunded plans.

      Reductions in dollar amount of benefits allowed if resulting 
from application of permissible variable factors.
                    defined benefit plan structures
      Three structures:

          Single-employer plan--maintained solely for employees of a 
        single employer with controlled group members treated as a 
        single employer.

          Multiple-employer plan--maintained for employees of 
        unrelated but associated employers, such as employers in the 
        same industry (e.g., rural electric co-ops); subject to much 
        the same funding rules as single-employer plans.

          Multiemployer plan (also called ``Taft-Hartley'')--
        maintained under collectively bargaining agreements with two or 
        more unrelated employers, generally in the same industry (e.g., 
        hotel and restaurant).
                    multiemployer plans--background
      Multiemployer plans provide benefits based on service for all 
participating employers and are common in industries where employees 
regularly work for more than one employer over the course of the year 
or over their careers, but they also cover employees who work for only 
one employer over their careers.

      A multiemployer plan is generally governed by a joint labor-
management board of trustees (``joint board'') with equal 
representation of employees and employers; however, as a legal matter, 
like all qualified plans, the plan (and plan assets) must be 
administered for the exclusive benefit of the employees and 
beneficiaries.

      Multiemployer plans cover employees in many industries across 
the economy, including construction, transportation, retail food, hotel 
and restaurant, health care, manufacturing, and entertainment.

      Based on PBGC premium filings for 2016, there are nearly 10.5 
million participants in 1,375 multiemployer plans; some very large 
(10,000 or more participants), some small (fewer than 250 
participants), and some at all sizes in between.

      Many employers participating in multiemployer plans are small 
employers; many midsized and large employers also have employees 
covered by multiemployer plans.
                   multiemployer program of the pbgc
      The PGBC, a corporation within the DOL, was created under ERISA 
to provide an insurance program for benefits under most defined benefit 
plans maintained by private employers.

          Insures pension benefits under separate programs for single-
        employer and multiemployer defined benefit plans.

          Board of directors consists of the Secretary of the 
        Treasury, the Secretary of Labor, and the Secretary of 
        Commerce.

      The PBGC provides ``financial assistance'' in the form of loans 
to insolvent multiemployer plans (plans unable to pay basic PBGC-
guaranteed benefits when due) in the amount needed for the plan to pay 
benefits at the guarantee level (to be repaid if the plan's funded 
status later improves).

          Under the single-employer program, when an underfunded 
        single-employer plan terminates, the PBGC steps in, takes over 
        the plan and its assets, and pays benefits.

      In addition to providing financial assistance to an insolvent 
multiemployer plan, the PBGC has authority with respect to mergers and 
asset transfers between multiemployer plans and partitions of 
multiemployer plans.

      For multiemployer plans, the PBGC benefit guarantee level is the 
sum of (1) 100 percent of the first $11 of vested monthly benefits and 
(2) 75 percent of the next $33 of vested monthly benefits, multiplied 
by the participant's number of years of service.

          For single-employer plans, the formula for the guarantee 
        level is determined differently (including being based on the 
        participant's age and payment form).

      For a multiemployer plan, the per-participant flat-rate premium 
for 2018 is $28.

          For a single-employer plan, the per-participant flat-rate 
        premium for 2018 is $74; for a plan with unfunded vested 
        benefits, a variable rate premium of $38 per $1,000 of unfunded 
        vested benefits also applies; a termination premium could also 
        apply.
  exceptions to anti-cutback rules for multiemployer plans of certain 
                                 status
      Exceptions (subject to notice and other procedural requirements) 
apply to three categories of plan:

          Critical status plans.

          Insolvent status plans.

          Critical and declining status plans.
  exceptions to anti-cutback rules: definition of critical status plan
      Critical status--four separate standards. If as of the beginning 
of the plan year:

          The plan's funded percentage is less than 65 percent, and 
        the sum of (a) plan assets' market value and (b) the present 
        value of reasonably anticipated employer and employee 
        contributions for the current year and next 6 years (assuming 
        that the terms of the collective bargaining agreements continue 
        in effect) is less than (c) the present value of all benefits 
        projected to be payable during that same period of time (plus 
        administrative expenses);

          The plan, not taking into account any amortization 
        extensions, either: (1) has an accumulated funding deficiency 
        for the current year, or (2) is projected to have an 
        accumulated funding deficiency for any of the next 3 years (4 
        years if the funded percentage of the plan is 65 percent or 
        less);

          Either (1) the sum of (a) the plan's current year normal 
        cost and (b) interest for the current year on the amount of 
        unfunded benefit liabilities as of the last day of the 
        preceding year, exceeds (c) the present value of the reasonably 
        anticipated employer contributions for the current year, (2) 
        the present value of inactive participants' vested benefits is 
        greater than the present value of active participants' vested 
        benefits, or (3) the plan has an accumulated funding deficiency 
        for the current year, or is projected to have one for any of 
        the next 4 years, not taking into account amortization 
        extensions; or

          The sum of (a) the plan assets' market value and (b) the 
        present value of reasonably anticipated employer contributions 
        for the current year and each of the next 4 years (assuming 
        that the terms of the collective bargaining agreements continue 
        in effect) is less than (c) the present value of all benefits 
        projected to be payable under the plan during the current year 
        and each of the next 4 years (plus administrative expenses).

    If the plan is not in critical status under one of these standards, 
but is projected to be in critical status in any of the next 5 years, 
the plan sponsor may elect to treat the plan as in critical status.
    exceptions to anti-cutback rules: definitions of insolvent and 
                  critical and declining status plans
      Exceptions apply to three categories of plan--(1) critical, (2) 
insolvent, (3) critical and declining:

          Insolvent status--occurs when available resources in a plan 
        year are not sufficient to pay plan benefits for that plan 
        year, or when the plan sponsor of critical plan determines that 
        the plan's available resources are not sufficient to pay 
        benefits coming due in next plan year.

          Critical and declining status--occurs when the plan 
        otherwise meets one of the definitions of critical status and 
        is projected to become insolvent in the current plan year or 
        any of the next 14 plan years (19 years if the ratio of 
        inactive plan participants to active plan participants is more 
        than 2:1 or the plan's funded percentage is less than 80 
        percent).
       exceptions to anti-cutback rules for critical status plans
      For critical plans:

          For participants and beneficiaries whose benefits begin 
        after receiving the notice of the plan's critical status:

            Payments in excess of single life annuity (plus any social 
        security supplement, if applicable) can be eliminated.

            Plan sponsor may make certain reductions to ``adjustable 
        benefits'' that the plan sponsor deems appropriate.

              ``Adjustable benefits'' include disability benefits not 
        in pay status, early retirement benefits or retirement-type 
        subsidies, and most benefit payment options, but not the amount 
        of an accrued benefit payable at normal retirement age.
      exceptions to anti-cutback rules for insolvent status plans
      For insolvent plans:

          Benefits must be reduced to level that can be covered by 
        plan's assets.

          Suspension of benefit payments must apply in substantially 
        uniform proportions to benefits of all persons in pay status 
        (although Treasury rules may allow for equitable variations for 
        different participant groups to reflect differences in 
        contribution rates and other relevant factors).

          Benefits may not be reduced below level guaranteed under 
        PBGC's multiemployer program.

            If plan assets are insufficient to pay benefits at the 
        guarantee level, PBGC provides financial assistance.
  exceptions to anti-cutback rules for critical and declining status 
                                 plans
      For critical and declining plans where (1) actuary certifies 
that benefit suspensions are projected to avoid insolvency and (2) plan 
sponsor determines (despite taking all reasonable measures) that plan 
is projected to become insolvent unless benefits are suspended, then:

          Plan sponsor may determine the amount of benefit suspensions 
        and how the suspensions apply to participants and 
        beneficiaries.

            Benefits cannot be reduced below 110 percent of the 
        monthly PBGC guarantee level.

            Limited reductions for those between ages 75 and 80; no 
        reductions for those age 80 and over.

            In the aggregate, benefit suspensions must be ``reasonably 
        estimated'' to achieve--but not materially exceed--the level 
        needed to avoid insolvency.
             general funding rules for multiemployer plans
      Funding rules exist to ensure that plan trust maintains 
sufficient assets to meet its anticipated obligations to pay current 
and future benefits to participants and beneficiaries.

      Each plan must maintain a ``funding standard account''--a 
notional account maintained over the entire life of the plan into which 
``charges'' and ``credits'' are made each plan year.

          ``Charges'' include the cost of benefits earned that year 
        (``normal cost''), increased liabilities from any benefit 
        increases, and losses from worse than expected investment 
        return or actuarial experience.

          ``Credits'' include contributions for that year (including 
        withdrawal liability payments), reduced liabilities resulting 
        from any benefit decreases, gains from better than expected 
        investment return or actuarial experience.

      A multiemployer plan is required to use an acceptable actuarial 
cost method (plan's funding method) to determine the elements included 
in its funding standard account for a year.

          Actuarial assumptions used in funding computations, 
        including interest rate, must be reasonable--but no specific 
        interest rate or mortality assumptions are prescribed by 
        statute.

          Value of plan assets generally are determined using an 
        actuarial valuation method, which recognizes better or worse 
        than expected investment experience over a period of years, 
        thereby smoothing changes in asset values.

          Charges and credits attributable to benefit increases or 
        decreases and actuarial experience are also amortized (that is, 
        recognized for funding purposes) over a specified number of 
        years (generally 15 years).

      Annual minimum required contributions are the amount (if any) 
needed to balance the accumulated charges and credits to the funding 
standard account--calculated using an acceptable actuarial funding 
method.

      A ``funding deficiency'' results when accumulated charges to the 
funding standard account exceed credits, which generally triggers an 
excise tax on employers unless a waiver is obtained.

      A ``credit balance'' results when accumulated credits to the 
funding standard account exceed charges, which reduces the employer 
contributions needed to balance the funding standard account in future 
years.
  additional funding requirements for significantly underfunded plans 
                   (in endangered or critical status)
      There are three categories of underfunded multiemployer plans: 
(1) endangered; (2) seriously endangered; and (3) critical.

          Endangered status generally means the plan is not in 
        critical status and as of the beginning of the plan year (1) 
        the plan's funded percentage for the year is less than 80 
        percent or (2) the plan has an accumulated funding deficiency 
        for the plan year or is projected to have an accumulated 
        funding deficiency in any of the next 6 years (taking into 
        account amortization extensions).

          Seriously endangered status means the plan meets both 
        requirements of an endangered plan.

          A critical status plan is defined as it is for purposes of 
        the exceptions to anti-cutback rules.

      Endangered plans must adopt a funding improvement plan.

      Critical plans must adopt a rehabilitation plan.

      ERISA penalties or code excise taxes may apply (depending on 
funding status and certain other rules) to violations of applicable 
rules.

      An annual actuarial certification as to the plan's status is 
required within a certain time frame.
             funding improvement plan for endangered plans
      Generally, a funding improvement plan consists of actions, 
including options (or a range of options), to be proposed to the 
bargaining parties by the plan, based on reasonable anticipated 
experience and reasonable actuarial assumptions for the attainment of 
certain ``applicable benchmarks'' over the ``funding improvement 
period.''

          Possible actions include contribution increases and benefit 
        reductions, such as reducing future accrual rates and 
        elimination of benefits not protected under the anti-cutback 
        rules (for example, most disability and death benefits).

          The funding improvement period is generally a 10-year 
        period--and may end earlier if the plan is no longer in 
        endangered status or if the plan enters critical status.

          The funding improvement period generally cannot begin until 
        the plan year that begins after the second anniversary of the 
        date of adoption of the funding improvement plan. However, it 
        could begin earlier depending on when collective bargaining 
        agreements expire.

      For plans that are endangered, but not seriously endangered, by 
the end of the funding improvement period, the plan's funded percentage 
must increase by 33 percent of the difference between 100 percent and 
the funded percentage of the plan at the beginning of the first plan 
year for which the plan is in endangered status.

          The plan also must not have an accumulated funding 
        deficiency for the last plan year in the funding improvement 
        period.

      For plans that are seriously endangered, different percentage 
improvements and periods may be substituted in certain circumstances, 
depending upon the plan's funded percentage at the beginning of the 
funding improvement period and certain other facts.
                 rehabilitation plan for critical plans
      Generally, a rehabilitation plan consists of actions, including 
options (or a range of options), to be proposed to the bargaining 
parties by the plan, formulated based on reasonable anticipated 
experience and reasonable actuarial assumptions to enable the plan to 
cease to be in critical status by the end of the rehabilitation period.

          Possible actions include reductions in plan expenditures 
        including plan mergers and consolidations, reductions in future 
        benefit accruals, or increases in contributions.

      The rehabilitation period is generally a 10-year period, 
determined in the same way as the 10-year period for funding 
improvement plans--and may end earlier if the plan emerges from 
critical status.

      Critical plans are generally required to adopt measures to 
emerge from critical status, but if the plan sponsor (i.e., joint 
board) determines emergence is not possible, instead reasonable 
measures must be taken to emerge from critical status at a later time 
or to forestall insolvency.

      If a critical plan fails to make ``scheduled progress'' for 3 
consecutive years or fails to meet the applicable requirements by the 
end of the rehabilitation period, then for excise tax purposes (unless 
the excise tax is waived), the plan is treated as having a funding 
deficiency equal to (1) the amount of the contributions necessary to 
leave critical status or make scheduled progress or (2) the plan's 
actual funding deficiency, if any.

      Certain surcharges (additional contributions) apply to certain 
critical status plans, with specific rules on amounts and timing--and 
are generally disregarded in determining an employer's withdrawal 
liability.
                          withdrawal liability
      Under ERISA, if an employer withdraws from a multiemployer plan, 
the employer is generally liable to make ongoing payments to fund its 
share of unfunded vested benefits under the plan, often based on the 
employer's share of total plan contributions during a preceding period, 
rather than benefits of the employer's own employees.

      Withdrawal from the plan occurs for this purpose if the employer 
ceases operations covered by the plan or if the employer's obligation 
to contribute to the plan ceases or significantly declines.

      Plan sponsor must determine amount of employer's withdrawal 
liability and notify the employer, with a process for resolving 
disputes if needed.

      Withdrawal liability amount is generally paid (with interest) in 
installments, determined in part by reference to the amount of the 
employer's previous contributions.

      Payment period is limited to 20 years, even if installments 
during that period will not cover full liability amount.

      Other exceptions and limitations apply.
              history of multiemployer plan funding issues
      The amount of employer contributions are specified in the 
bargaining agreement (commonly based on hours worked or units of 
production)--while the specified contribution level generally takes 
into account benefits to be earned under the plan, it historically has 
not been explicitly tied to the amount needed to satisfy Code/ERISA 
funding requirements.

      If the industry has contracted (resulting in fewer active 
employees), the liabilities for benefits of retirees and other former 
employees generally have become disproportionately large compared to 
liabilities for benefits of current employees.

      Also, liabilities under the plan include previously earned 
benefits for employees of employers that no longer participate in 
(i.e., contribute to) the plan.

          Former participating employers may have withdrawal 
        liability, but payments may not be sufficient to cover unfunded 
        amount or former participating employer might no longer exist.

      Underfunding in many cases is too great to realistically cover 
with future investment income or ongoing contributions.
          appendix: brief legislative history of significant 
                changes relating to multiemployer plans
      Employee Retirement Income Security Act of 1974 (ERISA), Pub. L. 
No. 93-406, September 2, 1974.

          Established PBGC multiemployer insurance program and 
        provided multiemployer funding rules.

      Multiemployer Pension Plan Amendments Act of 1980 (MPPAA), Pub. 
L. No. 96-364, September 26, 1980.

          Strengthened funding requirements, set new funding and 
        benefit adjustment rules for financially weak plans, revised 
        multiemployer insurance program, and established withdrawal 
        liability.

      Consolidated Appropriations Act of 2001, Pub. L. No. 106-554, 
December 21, 2000.

          Increased benefit guarantee for multiemployer plans.

      Deficit Reduction Act of 2005, Pub. L. No. 109-171, February 8, 
2006.

          Increased the flat-rate per participant premium for 
        multiemployer defined benefit plans from $2.60 to $8.00; for 
        2007 plan year and later, premium indexed to rate of growth of 
        national average wage.

      Pension Protection Act of 2006 (PPA), Pub. L. No. 109-280, 
August 17, 2006.

          Established new funding requirements, including creation of 
        additional funding rules for plans in endangered or critical 
        status.

          Also made revisions to amortization periods, changes to 
        funding waivers, and revisions to reasonableness requirement 
        for actuarial assumptions.

          Enhanced reporting and disclosure requirements.

      Worker, Retiree, and Employer Recovery Act of 2008 (WRERA), Pub. 
L. No. 110-458, December 23, 2008.

          Made technical corrections to PPA.

          Provided funding relief to multiemployer plans in response 
        to economic downturn.

      Preservation of Access to Care for Medicare Beneficiaries and 
Pension Relief Act of 2010 (PRA 2010), Pub. L. No. 111-192, June 25, 
2010.

          Provided funding relief in form of extended amortization 
        periods for experience gains and losses, and also expanded the 
        asset smoothing period where certain requirements satisfied 
        (solvency test, additional benefit restrictions, and reporting 
        requirements).

      The Moving Ahead for Progress in the 21st Century Act (MAP-21), 
Pub. L. No. 112-141, July 6, 2012.

          Increased the 2013 PBGC premium for multiemployer defined 
        benefit plans by $2 per participant; after 2013, premium to be 
        indexed for increases in annual rate of growth in national 
        average wage index.

      Multiemployer Pension Reform Act of 2014 (MPRA), Pub. L. No. 
113-235, December 16, 2014.

          Repealed the December 31, 2014 sunset of, and made 
        permanent, the PPA multiemployer funding rules.

          Established a new process for multiemployer pension plans in 
        critical and declining status to propose a temporary or 
        permanent reduction of pension benefits.

          Provided for PBGC to facilitate mergers between two or more 
        plans (including providing financial assistance).

          Expanded PBGC partition rules.

                                 ______
                                 
        Questions Submitted for the Record to Thomas A. Barthold
               Question Submitted By Hon. Orrin G. Hatch
    Question. Under the funding rules for multiemployer plans, 
actuarial assumptions used by the plan must be ``reasonable.'' In 
addition, the funding rules do not specify the interest rate or 
mortality tables that must be used. Is this same or similar to the 
funding rules for single-employer plans? If not, how are the funding 
rules for multiemployer different?

    Answer. Generally, assumptions for both single-employer plans and 
multiemployer plans are subject to ``reasonableness standards.'' That 
is, actuarial assumptions are required to be reasonable taking into 
account the experience of the plan and reasonable expectations, and 
must, in combination, offer the plan's enrolled actuary's best estimate 
of anticipated experience under the plan based on information 
determined as of the valuation date. However, unlike multiemployer 
plans, for single-employer plans the Internal Revenue Code of 1986, as 
amended (the ``code'') and applicable regulations set forth prescribed 
interest rates and mortality tables which must be used to determine the 
valuation (present value) of plan assets. The code and regulations also 
prescribe interest rates that must be used for certain funding 
determinations for the plan year (called ``segment rates'').

    Single-employer plans that are at-risk have additional required 
actuarial assumptions. For example, all employees who are not otherwise 
assumed to retire as of the valuation date but who will be eligible to 
elect benefits during the plan year and the next 10 plan years must be 
assumed to retire at the earliest retirement date under the plan but 
not before the end of the plan year for which the ``at-risk funding 
target'' and ``at-risk normal cost'' are being determined. Also, all 
employees must be assumed to elect the retirement benefit available 
under the plan at the assumed retirement age (determined as above) that 
would result in the highest present value of benefits.

    The at-risk funding target is the present value of all benefits 
accrued or earned under the plan as of the beginning of the plan year 
using the actuarial assumptions described above, with the addition of a 
loading factor which arises when the plan has been in at-risk status 
for at least 2 of the 4 preceding plan years. This loading factor is 
equal to the sum of (1) $700 multiplied by the number of participants 
in the plan and (2) 4 percent of the funding target (determined without 
regard to the definition of at-risk funding target).

    The at-risk normal cost for a plan year generally represents the 
excess of the sum of (1) the present value of all benefits which are 
expected to accrue or to be earned under the plan during the plan year 
using the at-risk assumptions described above plus (2) the amount of 
plan related expenses expected to be paid from plan assets during the 
plan year, over (3) the amount of mandatory employee contributions 
expected to be made during the plan year. In addition, where the plan 
has been in at-risk status for at least 2 of the 4 preceding plan 
years, a loading factor is added, which is equal to 4 percent of the 
target normal cost (the excess of the sum of (1) the present value of 
all benefits which are expected to accrue or to be earned under the 
plan during the plan year plus (2) the amount of plan related expenses 
expected to be paid from plan assets during. the plan year, over (3) 
the amount of mandatory employee contributions expected to be made 
during the plan year). Otherwise, generally assumptions for single-
employer at-risk plans are subject to reasonableness standards.

    Endangered or critical status multiemployer plans are also 
generally subject to reasonableness standards. Although the code 
requires the actuary's determinations for endangered or critical status 
plans to be based on the unit credit funding method for purposes of 
certain determinations (the plan's normal cost, actuarial accrued 
liability, and improvements in the plan's funded percentage), proposed 
Treasury regulations--which taxpayers may rely upon--modify these 
rules. The unit credit funding method bases its calculations on the 
benefits earned (accrued) at the beginning of the year and earned 
during the year, and as a result, is a more conservative method for 
determining a plan's normal cost. Specifically, the proposed 
regulations permit the plan to determine its accumulated funding 
deficiency and status (as endangered or critical) based on 
reasonableness standards and not the unit credit funding method. In 
addition, the proposed regulations only require the unit funding method 
for determining the plan's funded percentage and for purposes of one of 
the tests to determine critical status (comparing the present value of 
reasonably anticipated contributions for the current plan year to the 
sum of the plan's normal cost and interest on the plan's unfunded 
liability).

                                 ______
                                 
                Questions Submitted by Hon. Rob Portman
    Question. My understanding is that if a multiemployer pension plan 
is certified as a ``critical status'' plan under the Pension Protection 
Act of 2006, and the plan's trustees adopt and implement a 
rehabilitation plan, the employer excise tax liability for the 
accumulated funding deficiency is waived. If the pension fund takes all 
reasonable measures to avoid insolvency but still becomes insolvent, 
what happens to the excise tax? Under that scenario, docs the employer 
become liable for the accumulated funding deficiency excise tax when 
the plan becomes insolvent?

    Answer. Generally, if a multiemployer plan has an accumulated 
funding deficiency (determined based on assumptions under the 
reasonableness standards), an excise tax equal to 5 percent of the 
accumulated funding deficiency as of the end of the plan year applies. 
In addition, an excise tax of 100 percent of the accumulated funding 
deficiency applies if the accumulated funding deficiency is not 
corrected within a certain period. However, these excise taxes are 
waived for plan years when the plan is in critical status (also 
determined based on assumptions under the reasonableness standards). It 
appears that a policy intent behind waiving the excise taxes for plans 
in critical status is to allow the money that would otherwise be used 
for payment of the taxes to instead be used to rehabilitate the plan.

    An exception to this waiver applies if a critical status plan fails 
to meet the requirements of its rehabilitation plan by the end of the 
rehabilitation period, or if it has received a certification for three 
consecutive years that the plan is not making the specified ``scheduled 
progress'' in meeting its rehabilitation plan requirements. The amount 
of the excise tax will then be the greater of (1) the aunt of the 
contributions necessary to meet applicable benchmarks or requirements 
for each plan year until the benchmarks or requirements are met or (2) 
the accumulated funding deficiency. It is our understanding that, in 
practice, the excise tax is rarely (if ever) paid in these situations.

    If a critical plan changes its status to insolvent, the code does 
not indicate whether the excise tax would apply, nor has Treasury 
issued guidance on this issue. As a result, it is unclear what occurs 
in practice, but a reasonable assumption is that the excise tax is not 
paid when this change in status occurs.

    Question. On page 46 of your report (JCX-30-18), you note that in 
determining an employer's withdrawal liability, ``a portion of the 
plan's unfunded vested benefits is first allocated to the employer, 
generally in proportion to the employer's share of plan contributions 
for a previous period. The amount of unfunded vested benefits allocable 
to the employer is then subject to various reductions and 
adjustments.'' Can you elaborate on the reductions and adjustments that 
could most significantly change an employer's annual withdrawal 
liability calculation?

    Answer. There are three ways that withdrawal liability can arise: 
(1) complete withdrawal (generally where an employer permanently ceases 
operations under the plan or ceases to have an obligation to make 
contributions to the plan); (2) partial withdrawal (generally if, on 
the last day of a plan year, there is a 70-percent contribution decline 
or there is a partial cessation of the employer's contribution 
obligation); and (3) mass withdrawal (generally where every 
contributing employer or substantially all employers withdraw from the 
plan pursuant to an arrangement or agreement).

    To determine an employer's withdrawal liability, there are two 
general steps: (1) determine the employer's withdrawal liability, and 
then (2) determine the employer's annual installment amount.

    1.  Determining withdrawal liability: to determine a withdrawing 
employer's share of the plan's unfunded liability (vested benefits 
minus assets), this first step requires an allocation of unfunded 
liability to the withdrawing employer as compared to all employers 
contributing to the plan. This allocation is determined based on the 
date(s) of the valuation of assets and liabilities, the actuarial 
assumptions and methods used, and the allocation method chosen by the 
plan. The basic allocation method generally looks at the change in the 
unamortized amount of unfunded vested liabilities for each year in 
which the employer is obligated to contribute to the plan, compares 
that employer's amount of change to that of all employers contributing 
to the plan, and then allocates this liability among the employers 
required to contribute that year--based on what they were obligated to 
pay over that year and the prior 4 years. This is the average of the 
employer's contributions over the 5 years, divided by the contributions 
to the plan by all employers over the 5-year period. Other rules apply.

          However, as noted, there are a number of rules that can 
        reduce and adjust withdrawal liability, described further 
        below.

    2.  Determining annual installments: the annual installment 
determination is generally determined based on the employer's 
contributions in the preceding 10 years. It is the highest contribution 
rate in the 10 preceding years including the year of withdrawal, 
multiplied by the employer's average contribution base in the three 
years (of that 10) in which the base was greatest. (``Base'' means 
covered hours or days.)

    Here are some of the more significant rule rules that permit 
reductions and adjustments to an employer's withdrawal liability (this 
list is not all-inclusive):
                              20-year cap
    Unless a mass withdrawal occurs, the employer's liability is 
limited to 20 annual installments. These are the annual installments 
(in step 2 above) of the employer's total withdrawal liability which 
are payable in level annual installments amortized over a specified 
period. If the period exceeds 20 years, the payments are not required 
after year 20.
                          insolvent employers
    An employer undergoing a ``liquidation or dissolution'' (not a 
reorganization) is liable for an amount equal to 50 percent of its 
normal withdrawal liability (unfunded vested benefits). However, the 
employer's exposure for the next 50 percent of its normal withdrawal 
liability is limited to the employer's liquidation or dissolution 
value. This rule is applied on a controlled group basis.

    In addition, if an employer withdraws from more than one plan as 
part of the same liquidation or dissolution, its liability is allocated 
to each plan based on the ratio that its liability to each plan bears 
to its total liability (calculated before applying any applicable 
limitations).
                           ``free look'' rule
    This rule is intended to encourage new employers to join the plan 
despite the risk of withdrawal liability. It permits employers that 
meet certain conditions to enter the plan and later leave it without 
incurring withdrawal liability, and only applies if a plan sponsor 
specifically adopts the rule. This rule requires the employer to leave 
the plan within the earlier of the plan's vesting period or within 6 
years from the employer's date of entry into the plan. In addition; the 
employer must have made less than 2 percent of the total contributions 
to the plan in each year of membership and cannot have taken a previous 
``free look.'' Other rules apply, including that an employer eligible 
for free look nonetheless may be allocated liability upon a mass 
withdrawal.
                             labor dispute
    A labor dispute involving an employer's employees, such as a strike 
or lockout, will not result in a withdrawal if an employer suspends 
contributions under the plan during the dispute.
                        industry specific rules
    Special rules apply to certain industries, including the building 
and construction industry, the entertainment industry, the retail food 
industry, the coal industry, and the trucking, moving, and public 
warehousing industry. The Pension Benefit Guaranty Corporation may also 
prescribe regulations for plans in industries other than the 
construction or entertainment industries that are similar to the rules 
that apply to the construction and entertainment industries.

    For the building and construction industry (defined in the Taft-
Hartley Act), if certain conditions apply, a complete withdrawal is 
only deemed to occur if the employer ceases to have an obligation to 
contribute under the plan and the employer continues to work in the 
industry in the same geographic area, or resumes such work within 5 
years and does not resume contributions to the plan. The conditions for 
eligibility are generally that substantially all union employees 
participating in the plan work in the building and construction 
industry and the plan--primarily covers employees in this industry or 
is amended to provide that this particular rule applies. Other rules 
apply for when a partial withdrawal is considered to occur.

    For the entertainment industry (generally, motion picture, theatre, 
radio, television, sound or visual recording, music, and dance), if 
certain conditions apply, a complete withdrawal is only deemed to occur 
if the employer ceases to have an obligation to contribute under the 
plan and the employer continues to work in the plan's jurisdiction, or 
resumes such work within 5 years and does not resume contributions to 
the plan. The conditions for eligibility are generally that the plan 
primarily covers employees in the entertainment industry, there is an 
obligation to contribute to the plan for work in the industry primarily 
on a temporary or project-by-project basis, and the plan has not been 
amended to deny this particular rule to a group or class of employers 
of which the employer is a member. Other rules apply for when a partial 
withdrawal is considered to occur.

Sale of All or Substantially All Assets in Arm's Length Transaction 
        Between Unrelated Parties
    If this rule applies, the employer's withdrawal liability is 
limited to the greater of (1) a portion of the employer's liquidation 
or dissolution value determined without regard to withdrawal liability 
or (2) the unfunded vested benefits attributable to that employer (if 
the plan uses the attributable method of allocating withdrawal 
liability). The first prong is determined on a sliding scale from 30 to 
80 percent of the employer's liquidation or dissolution value, based on 
a value of $5 million to values that exceed $25 million. If the 
employer withdraws from more than one plan, this limit is apportioned 
among the plans (so it is the employer's aggregate limit).
                     mandatory de minimis reduction
    A mandatory de minimis reduction applies to employers that meet 
thresholds for minor participation in the overall plan, and where the 
employer's withdrawal liability is less than $150,000. The de minimis 
reduction amount is a maximum of $50,000 (it is less if 0.75 percent of 
the plan's unfunded vested benefits is less than $50,000). If the 
employer's withdrawal liability exceeds $100,000, the reduction is 
adjusted downwards by the excess of the employer's liability over 
$100,000. However, mandatory de minimis reductions are not permitted if 
a mass withdrawal occurs.
                     elective de minimis reduction
    If an employer's withdrawal liability is less than $250,000, the 
plan sponsor can amend the plan to apply a de minimis reduction up to 
$100,000 (or if less, 0.75 percent of the plan's unfunded vested 
benefits). If the employer's withdrawal liability exceeds $150,000, the 
reduction is adjusted downwards by the excess of the employer's 
liability over $150,000. However, elective de minimis reductions are 
not permitted if a mass withdrawal occurs.

                                 ______
                                 
Prepared Statement of Hon. Sherrod Brown, a U.S. Senator From Ohio, Co-
 chairman, Joint Select Committee on Solvency of Multiemployer Pension 
                                 Plans
    WASHINGTON, DC--U.S. Sen. Sherrod Brown (D-OH)--co-chair of the 
Joint Select Committee on Solvency of Multiemployer Pension Plans--
released the following opening statement at today's hearing.

    Thank you, Senator Hatch, and thank you to all my colleagues on the 
committee.

    I'd like to welcome our witnesses, Thomas Barthold of the Joint 
Committee on Taxation, and Ted Goldman, a senior pension fellow at the 
American Academy of Actuaries.

    We had a productive meeting the last time we met, and it's clear 
that people of both parties on this committee are ready to work in good 
faith to find a solution to this crisis.

    There are more than 100 multiemployer pension plans on the brink of 
failure, with members in every single State in the country.

    More than 1.5 million workers and retirees across this country are 
at risk of losing the retirement security they earned over a lifetime 
of hard work.

    Small businesses are at risk of collapsing if they end up on the 
hook for pension liability they can't afford to pay.

    Groups as diverse as the Chamber of Commerce and labor unions and 
the AARP are all pushing for a solution, because they know what is at 
stake.

    And that's what we will explore here today: how we got here and 
what's at stake, as we work to solve this crisis for retirees, workers, 
small businesses, and taxpayers.

    These are workers and businesses who did everything right.

    By joining with other businesses, companies thought they were 
guaranteeing their workers a secure retirement, because experienced 
trustees were supposed to manage the investment.

    This year, I talked with a small business owner from the Mahoning 
Valley in Ohio, whose business participates in the Central States plan. 
After we met, he wrote me a letter saying, ``I have owned my business 
for 18 years, and the company has been in my family for over 60 years. 
It has made contributions to this fund to ensure that the hard work and 
dedication of our employees pay off in the form of a pension.''

    But he goes on to say that, ``Many employers that once contributed 
to these plans have simply gone out of business, leaving the remaining 
employers to support the remaining employees and retirees of the 
companies that have closed. Please, we are asking you to get together 
with your colleagues, reach across the aisle, and find a solution that 
will help my employees keep a job.''

    These are the kind of business-owners we're talking about--honest 
men and women trying to do right by their workers.

    We also need to remember what workers gave up to earn these 
pensions. Workers in these plans sat at negotiating tables and 
sacrificed pay and other benefits in the short term, in order to 
guarantee a pension when they retired.

    Too many people in Washington don't really understand what happens 
during these union negotiations. But we have to be clear--these workers 
earned their pensions, and they gave up pay to do it. They paid into 
this system for years.

    Now these plans are about to fail, through no fault of these 
workers or these businesses.

    Each plan is different and there are many factors that played a 
role in getting them to this place. Many of these plans are in the same 
industries that have been affected by decades of bad trade deals, 
outsourcing of jobs, and general shifts in the American economy.

    There's also no question that the economic collapse of 2008 
devastated these plans and the people and businesses who depend on 
them.

    Even the coal miners pension--an industry that has been badly hurt 
over the past few decades--was nearly 90 percent funded before the 
financial crisis.

    If these plans fail, taking thousands of businesses and jobs with 
them, the Pension Benefit Guaranty Corporation is supposed to step in. 
But the PBGC is also on the brink of failure. It's $67 billion in the 
red, with just $2 billion in assets. If the PBGC fails, it will be up 
to Congress to step in, or allow the entire multiemployer pension 
system to fail.

    Failure is not an option. Failure would wipe out the retirement of 
10.1 million American workers and retirees, and force American 
businesses to file bankruptcy, lay off workers, and close their doors.

    The problem only gets more and more expensive to fix the longer we 
wait.

    That's why our work on this bipartisan committee is so important--
we must fix this now, when we can still save these businesses, these 
jobs, and these pensions.

    I'm eager to hear from our witnesses today, from Chairman Hatch, 
and from my fellow committee members.

    Thank you.

                                 ______
                                 
           Prepared Statement of Ted Goldman, MAAA, FSA, EA, 
          Senior Pension Fellow, American Academy of Actuaries
    Distinguished Senators and House members, on behalf of the Pension 
Practice Council of the American Academy of Actuaries, I am Ted 
Goldman, senior pension fellow at the Academy. I appreciate this 
opportunity to provide testimony to the Joint Select Committee on 
Solvency of Multiemployer Pension Plans. The Academy is a strictly non-
partisan, objective professional association representing U.S. 
actuaries before public policy makers. As a member of the Academy, I am 
also bound by its Qualification Standards, its Code of Conduct and the 
Actuarial Standards of Practice. The Academy's Pension Practice Council 
has diligently been working over the past few years to analyze the 
financial condition of troubled multiemployer plans and to provide 
actuarial analysis of the challenges the multiemployer plan system 
faces and potential ways forward to address them.

    In keeping with the subject of today's hearing, I am here to 
provide you with information regarding the history and current status 
of U.S. multiemployer plans.
                              introduction
    Of the more than 10 million people who participate in about 1,400 
multiemployer pension plans,\1\ in excess of 1 million are in 
approximately 100 plans that will be unable to pay the full benefits 
they have been promised under current projections.\2\ The Pension 
Benefit Guaranty Corporation (PBGC)--the government-sponsored program 
designed to backstop these troubled plans--is likewise projected to be 
unable to pay all of the benefits that it guarantees, which are already 
typically much smaller than the underlying plan benefits. If the PBGC 
fails, participants in these plans could see their benefits cut by 90 
percent or more.
---------------------------------------------------------------------------
    \1\ Pension Benefit Guaranty Corporation (PBGC), ``FY 2017 Annual 
Report,'' November 15, 2017.
    \2\ PBGC, ``FY 2016 Projections Report,'' August 3, 2017.

    As it stands now, participants in these failing multiemployer plans 
will not receive the full retirement benefits they expect, nor will 
they even receive the level of benefits guaranteed by the PBGC. Benefit 
reductions could significantly affect the livelihoods of the retirees 
and their families who will rely on this income during their retirement 
years. In turn, these reductions could have broader implications for 
our economy and our social safety net programs.
                       multiemployer plan basics
    A defined benefit (DB) pension plan provides employees with 
lifetime monthly payments in retirement. A multiemployer DB pension 
plan is a retirement plan sponsored by at least two employers in the 
same industry or geographic region, established by collective 
bargaining agreements, and managed by a board of trustees containing an 
equal number of members appointed by the union and the employers. Plans 
can be local, covering employees working in a narrow geographical 
region, or they can be national and cover employees working in crafts 
and trades throughout the United States.

    Multiemployer pension plans are found in private sector industries 
that are often characterized by small employers and workers who switch 
employers frequently. More than half of multiemployer pension plans are 
rooted in the construction industry where workers tend to move where 
the work is. Among construction industry workers, the median tenure 
with an employer in 2016 is 4 years.\3\ In addition, about 82 percent 
of construction establishments employ fewer than 10 workers; less than 
1 percent of construction establishments employ 100 workers or more.\4\ 
In addition to construction, other industries that tend to have workers 
covered by multiemployer pension plans are trucking, garment 
manufacturing, and grocery stores.\5\
---------------------------------------------------------------------------
    \3\ Bureau of Labor Statistics (BLS), ``Employee Tenure in 2016,'' 
September 22, 2016.
    \4\ BLS, ``Quarterly Census of Employment and Wages,'' accessed on 
April 17, 2018.
    \5\ BLS, ``Multiemployer Pension Plans,'' Spring 1999.

    Multiemployer pension plans are distinct from single-employer 
pension plans that are sponsored by one employer. Multiemployer pension 
plans are also distinct from multiple employer plans, which involve 
more than one employer but are not collectively bargained and do not 
---------------------------------------------------------------------------
necessarily cover a mobile workforce.

    Contributions to multiemployer pension plans are collectively 
bargained, and workers typically forgo some direct compensation in 
exchange for contributions to retirement income plans. In turn, 
employers are required to fund the plans in accordance with their 
collective bargaining agreements and subject to certain regulations. 
The contribution rate is usually a specific amount per hour or other 
unit worked by or paid to the employee. The plans must pay PBGC 
premiums for underlying financial support of an insured level of 
benefit in the event of a plan failure. Assets are maintained in a 
qualified trust, and trustees retain investment professionals to assist 
with the management of fund assets.

    Multiemployer pension plans are governed by a joint board of 
trustees. As fiduciaries, the trustees must act for the sole and 
exclusive benefit of the participants and beneficiaries. In general, 
governance terms for multiemployer plans are defined in a trust 
agreement, and the benefits provided by the plan are defined in a plan 
document. Traditionally, the board of trustees has sole authority to 
determine the plan design and level of benefits that will be supported 
by the negotiated contributions. However, in some cases, collective 
bargaining agreements may describe the plan design and benefits. In 
these situations, the trustees are given the authority to collect 
sufficient contributions to fund the benefits.

    The amount of benefits can vary widely from plan to plan. In 
addition, different plans use different formulas to define the level of 
benefits. For example, a plan may define the benefit based on a flat 
dollar amount for each year a participant works. Alternatively, a plan 
may define the benefit as a percentage of the employer's contribution. 
To illustrate, in the first example, a benefit equal to $60 per year of 
service would result in a monthly benefit starting at retirement of 
$1,800 ($21,600 per year) for an employee with 30 years of service. In 
the second approach, a contribution-based formula could provide a 
benefit equal to 2 percent of the total employer contributions. Thus if 
the contribution was equal to $2 for each hour worked, an employee who 
works 1,500 hours in a year would earn a benefit of $60 per year (2 
percent times 1,500 hours times $2) and after 30 years be entitled to 
$1,800 per month payable at retirement.

    To help put the financial security of a pension plan into context, 
it may be helpful to consider the following formula: Benefits + 
Expenses = Contribution + Investment Earnings. In other words, the 
benefits paid to plan participants and expenses paid to operate the 
plan must be covered by employer contributions, accumulated with 
investment earnings. If employer contributions or investment earnings 
fall short of expectations, available resources may not support 
promised benefits and required expenses. This dynamic stands true and 
will be useful when considering options and understanding the events 
that led up to the current situation.

    Defined benefit plans differ from defined contribution plans, such 
as 401(k) plans, in that the retirement income is distributed as a 
lifetime income stream at retirement rather than as an individual 
account balance that holds the employer contributions. Defined benefit 
plans pool risks for investment as well as longevity whereas in defined 
contribution plans risks are primarily borne by each participant.

    In a DB plan, all of the money in the plan is available to pay any 
of the benefits owed by the plan to any participant. In a multiemployer 
DB plan, this sharing of risks occurs not just from one employee of a 
company to another, but also across the employee populations of 
multiple companies.
                    benefits to labor and management
    Multiemployer plans incorporate risk sharing and portability to 
provide retirement security to career union workers.

    The pooling of employers provides stability, as the plan does not 
depend on the financial position of a single company. If an employer 
goes out of business, the multiemployer plan continues functioning as a 
separate entity, and contributions from remaining employers continue. 
Participation by numerous employers leads to more covered participants 
and greater assets, allowing these plans to achieve economies of scale 
and reduce operating expenses. Without the economies of scale of a 
multiemployer plan, the same benefits could not be provided to 
participants for the same cost, as more resources would be spent on 
operating expenses.

    Another characteristic of multiemployer plans is their portability. 
With a multiemployer plan, service with all contributing employers is 
aggregated for benefit calculation purposes, allowing employees 
uninterrupted pension coverage as they move among companies 
participating in the plan. Without the aggregation of pension service, 
an employee changing jobs could lose benefits by not having enough 
service to have vested rights to a pension. This aggregation feature is 
especially important in industries such as construction and 
entertainment, where it is common for employees to work for multiple 
companies as they move from project to project. Furthermore, 
multiemployer plans usually have reciprocity agreements with plans in 
other geographic areas covering employees in the same industry or 
trade, allowing pension portability with employers that participate in 
other plans.

    The reasons that prompted the adoption of multiemployer plans are 
largely still relevant today. In particular, portability of benefits 
and the economies of scale are still valid. As evidence of this 
relevance, several recent bills introduced in Congress would expand the 
availability of multiple employer plans to companies with no common 
collective bargaining connection as a means of improving cost-effective 
access to retirement plans for employees.
            early history of multiemployer plans--pre-erisa
    Multiemployer plans have evolved and adapted over time either to 
strengthen areas of weakness or to respond to changes in the business 
or economic environment. The following historical context provides a 
baseline to addressing the current challenges.

    The Bureau of Labor Statistics has occasionally done studies of 
multiemployer pension plans, generally tracking their prevalence and 
reporting on plan features. Only a few multiemployer pension plans 
existed before the Taft-Hartley Act was enacted. Plans grew in 
prominence during the 1950s and 1960s. Such plans covered about 1 
million participants in 1950, 3.3 million in 1959, 7.5 million in 1973, 
and 10.4 million in 1989. Throughout the 1990s and since, the number of 
workers in such plans has been steady at just over 10 million.\6\
---------------------------------------------------------------------------
    \6\ BLS, ``Multiemployer Pension Plans,'' Spring 1999.
---------------------------------------------------------------------------
The Beginning--Simplicity
    The first employer-funded multiemployer pension plan is thought to 
be one that was started in 1929 by Local 3 of the Brotherhood of 
Electrical Workers and the Electrical Contractors Association of New 
York City.\7\ Then in the 1930s and 1940s negotiated plans appeared in 
industries such as the needle trades and coal mining. The employer's 
responsibility was typically limited to the amount specified in the 
collective bargaining agreement. Plans paid out benefits at a level 
that could be afforded based on the available resources, and if those 
resources proved inadequate, the employers were not liable for the 
shortfall. It is of interest to note that in 1935 life expectancy from 
birth was about 60 years and individuals who reached the age of 65 
might expect to live another 12 years, on average,\8\ whereas today 
U.S. life expectancy is over 78 years of age \9\ with individuals 
reaching age 65 expected to live another 20 years on average.\10\
---------------------------------------------------------------------------
    \7\ Employee Benefits Research Institute, ``Multiemployer Plans,'' 
accessed on April 17, 2018.
    \8\ William J. Wiatrowski, ``Changing Retirement Age: Ups and 
Downs,'' April 2001.
    \9\ National Center for Health Statistics, ``Life Expectancy,'' 
accessed on April 17, 2018.
    \10\ Social Security Administration, ``Life Expectancy,'' accessed 
on April 17, 2018.
---------------------------------------------------------------------------
Joint Labor and Management Responsibility
    In 1943 the War Labor Board ruled \11\ that fringe benefits were 
not subject to the wage freeze resulting from the Wage and Salary Act 
of 1942 that attempted to contain wartime inflation. This ruling 
encouraged employers to offer pension, health, and welfare benefits as 
an alternative means to attract workers. Then in 1947, the Labor-
Management Relations Act (also known as the Taft-Hartley Act) provided, 
among other matters, for the establishment and operation of pension 
plans administered jointly by an employer and a union. Multiemployer 
pensions grew in popularity and continued to operate and provide 
retirement benefits with relatively few statutory standards.
---------------------------------------------------------------------------
    \11\ Georgetown University Law Center, ``A Timeline of the 
Evolution of Retirement in the United States,'' accessed on April 17, 
2018.
---------------------------------------------------------------------------
        the passage of erisa--shift of employer responsibility 
                     from contributions to benefits
    In 1974, the Employee Retirement Income Security Act (ERISA) was 
passed. ERISA brought a fundamental change to private sector pension 
plans, including multiemployer plans. ERISA protected benefits that 
plan participants had already accrued, often referred to as the ``anti-
cutback'' rule. ERISA also shifted the responsibility of the employer 
from the negotiated contribution amount to an obligation to fund the 
promised benefit. In other words, employers contributing to 
multiemployer plans became responsible not only for their negotiated 
contributions, but also for any funding shortfalls that developed in 
the plans.

    ERISA also introduced a number of provisions aimed at protecting 
participants including minimum funding standards, expanded participant 
disclosures, and fiduciary standards. Minimum funding requirements and 
maximum tax deductible limits were also established. It was important 
to make sure sufficient contributions were made to secure employer 
commitments, but at the same time, prevent employers from using the tax 
deductibility advantages of trusts beyond what was needed to secure the 
benefits. Minimum funding requirements strengthened the financial 
position of multiemployer plans.

    ERISA also established the PBGC to provide mandatory insurance for 
DB pension plans. Separate insurance programs were established for 
single-employer and multiemployer plans. These programs have different 
premium requirements and benefit guarantees. They are also structured 
differently. For multiemployer plans, financial assistance is provided 
to a plan that becomes insolvent, but plan administration remains in 
effect. In the single-employer program, the PBGC takes over trusteeship 
for a plan that terminates with insufficient assets.

    Under ERISA, funding requirements for multiemployer plans are 
primarily based on liabilities calculated using the expected rate of 
return on plan assets. Under this approach, it is anticipated that 
there will be periods of both strong and weak investment performance, 
and over time these will tend to offset each other. ERISA does not 
contain any provisions requiring that plans maintain the surpluses 
created by investment gains for use as a buffer against future losses. 
In fact, until 2002, the maximum deductible contribution rules strongly 
discouraged multiemployer plans from maintaining funding surpluses, as 
contractually required employer contributions would not have been 
deductible unless the plan trustees found a way to eliminate the 
overfunding.\12\
---------------------------------------------------------------------------
    \12\ Economic Growth Tax Relief Reconciliation Act (EGTRRA) of 
2001, Pub. L. 107-16.

    During the late 1990s, very strong asset returns led many plans to 
improve benefit levels in order to share the gains with participants 
and protect the deductibility of the employer contributions. 
Unfortunately, these years were followed by a period of very poor asset 
returns that erased much of these investment gains. While the 
investment gains proved to be temporary, the increased benefit levels 
that plans adopted were not, as they are protected by ERISA's anti-
cutback provisions. This combination of temporary asset gains and 
permanent benefit improvements is a contributing factor in the 
challenges facing multiemployer plans today.
                  introduction of withdrawal liability
    While ERISA introduced the concept of minimum required contribution 
levels for multiemployer plans, employers had the ability to circumvent 
these rules by simply withdrawing from the plans. The Multiemployer 
Pension Plan Amendments Act (MPPAA) of 1980 was intended to prevent 
employers from exiting a financially a troubled multiemployer plan 
without paying a proportional share of the underfunding liability. 
MPPAA required a withdrawal liability assessment for employers exiting 
a multiemployer plan that is less than fully funded. At the time, few 
plans faced severe funding issues, but withdrawals were recognized as a 
potential problem that threatened the long-term financial health of 
plans because as employers left, the liability for their employees 
(termed ``orphan liabilities'') became the responsibility of the 
employers remaining in the plan. This could result in significant 
financial burdens for the remaining employers for employees who never 
worked for them. In addition, it could deter new employers from joining 
a plan.

    Prior to MPPAA, an employer that withdrew from an underfunded 
multiemployer plan did not have to pay anything to the plan unless the 
plan was terminated within 5 years of the employer's withdrawal. In 
addition, the amount paid was limited to no more than 30 percent of the 
employer's net worth. Under MPPAA, the employer must pay a withdrawal 
liability equal to the employer's proportionate share of the unfunded 
vested liabilities at the time of departure.

    While MPPAA took steps to address the problem of employer exits, 
the new withdrawal liability rules did not fully stem the growth of 
orphan liabilities that remained in plans. Bankrupt employers often 
were unable to pay the full withdrawal amounts. Changes to the size of 
the liability due to economic or demographic factors also remained in 
the plan. The withdrawal payment requirements include a payment 
schedule with a 20-year cap that can leave behind unfunded liabilities. 
And finally, for some industries, such as construction and 
entertainment, there are no withdrawal liability assessments unless an 
employer continues to perform the same type of work in the same 
jurisdiction after withdrawing from the plan.
             contributing factors to the current challenges
    Following several decades during which nearly all participants 
received their full benefit amounts from multiemployer pension plans, 
weaknesses have been exposed which have demonstrated there are limits 
to the stability and benefit security intended in the current system. 
In 1985 and 1986 the first signs of distress were detected in a small 
number of plans which exposed some of the weaknesses of the withdrawal 
liability approach laid out in MPPAA. In spite of generally meeting the 
ERISA funding requirements, serious challenges (described below) 
emerged as plans matured, and these challenges were exacerbated by the 
recession of 2007-2009. Today the guaranteed benefits that PBGC expects 
to pay participants in troubled plans produce a liability of $65.1 
billion on PBGC's financial statements.\13\
---------------------------------------------------------------------------
    \13\ W. Thomas Reeder, testimony before the House Committee on 
Education and the Workforce Subcommittee on Health, Employment, Labor, 
and Pensions, November 29, 2017.

    The primary contributors to the current challenges relate to 
investment performance, past benefit increases, the maturation of 
plans, the decline of unions and some industries, and weaknesses in the 
withdrawal liability requirements. Typically a combination of these 
factors has contributed to a projection that a plan will be unable to 
pay benefits.
Pension Assets Are Invested in Diversified Portfolios
    Plans have invested in diversified portfolios to try to achieve 
investment returns that can support higher benefit levels and lower 
contribution requirements than would be possible if the assets earned 
risk-free rates of return. These investment strategies, however, are 
not guaranteed, and plans need additional contributions or reduced 
benefits if the anticipated investment returns are not achieved.

    In 2000, the price of technology stocks fell drastically. Like most 
institutional investors, multiemployer pension plans had dot-com 
investments, and the low returns reduced pension surpluses, not long 
after the granting of benefit increases. By the mid-2000s, most plans 
recovered, but some plans remained financially weakened. The recession 
in 2007-2009 added further strain to the financial stability of most 
plans.
Past Surpluses Led to Benefit Increases That Were Not Sustainable
    Funding pension plans using diversified portfolios can strengthen a 
plan's funding status when investment returns are robust. These 
investment gains may be needed to offset losses when returns are weak. 
However, following the large asset gains in the late 1990s, many plans 
became significantly overfunded, and responded by increasing benefit 
levels or taking contribution holidays. Both dynamics of the collective 
bargaining process and regulatory policies were not conducive to 
maintaining overfunded plans and contributed to this trend. These 
benefit increases ultimately became unaffordable for many plans when 
their assets declined dramatically in the subsequent decade.
Mature Plans Have Fewer Resources to Recover From Investment Losses, as 
        the Assets Grow Relative to the Contribution Base Supporting 
        the Plan
    In young plans, contributions are the primary source of asset 
growth and investment returns are comparatively small, while the 
opposite is true in mature plans. As the plan relies more heavily on 
investment returns, it becomes more difficult to make up for investment 
losses through additional contributions.
Fewer Workers Are Employed in Industries Sponsoring Multiemployer Plans
    Some unionized industries have seen significant transformations 
over time. In some industries the workforce has shifted to more non-
union employees as a result of restructurings or regulatory changes, 
while others have seen declines in the number of employees needed due 
to global competition, automation, or general declines in the industry. 
A decline in the active workforce results in a diminished economic base 
for collectively bargained employer contributions. While pension assets 
grew to historical levels, union membership started to see a steady 
decline. Private-sector union membership in 1983 was 12 million. By 
2015 that number had fallen to 7.6 million.\14\ While pension assets 
were increasing due to the stock market, the contribution base was 
beginning to decline due to fewer workers in the plans.
---------------------------------------------------------------------------
    \14\ Megan Dunn and James Walker, ``Union Membership in the United 
States,'' BLS, September 2016.
---------------------------------------------------------------------------
Employers Have Exited Multiemployer Pension Plans, Either Through 
        Bankruptcy or Withdrawal, Leaving Unfunded Obligations for the 
        Remaining Employers in the Plans
    These orphan liabilities add to the maturity of a plan and subject 
the remaining employers to additional risks related to the funding of 
the orphan liabilities. Orphan participants make up a significant share 
(about 15 percent, or 1.6 million) of total multiemployer 
participants.\15\
---------------------------------------------------------------------------
    \15\ Alicia H. Munnell et al., ``Multiemployer Pension Plans: 
Current Status and Future Trends,'' Center for Retirement Research at 
Boston College, December 2017.

    The majority of multiemployer plans remain healthy and have endured 
many of the above challenges. However, these factors have created 
significant stress and pressure on a number of plans and participants 
which the Joint Select Committee is seeking to address during its work 
this year.
        actions taken to-date to address these recent challenges
    In recognition of the growing risks associated with multiemployer 
pension plans, a number of actions have taken place. The Pension 
Protection Act of 2006 (PPA) amended ERISA and the Internal Revenue 
Code to make certain changes to multiemployer funding rules. The 
changes were designed to give plan trustees more flexibility in dealing 
with funding challenges and require plans to identify and address 
problems in time to prevent further deterioration of the short- and 
long-term financial security of the plan.

    PPA classifies multiemployer plans into one of three categories 
based on current and projected funding levels. In short, a plan that is 
projected to fail to meet its minimum funding requirements in the next 
4 or 5 years is in critical status (the ``red zone''). A plan that is 
not in critical status but is currently below 80 percent funded or 
projected to fail to meet its minimum funding requirements in the next 
seven years is in endangered status (the ``yellow zone''). A plan that 
is neither in critical status nor in endangered status is considered to 
be in the ``green zone.'' Plans that are in critical or endangered 
status are required to take corrective action to rehabilitate or 
improve their funding. While PPA's focus on the projected financial 
condition and early adoption of corrective measures has helped many 
plans gain a better understanding of their financial condition, these 
tools were insufficient to deal with the dramatic asset losses and 
economic contraction that immediately followed the effective date of 
the law. Thus, the Multiemployer Pension Reform Act of 2014 (MPRA) was 
enacted, which provided additional tools and strategies for severely 
distressed plans.

    In addition to the classifications defined under PPA, MPRA added a 
fourth category of ``critical and declining'' status to further 
differentiate those plans projected to become insolvent within the next 
20 years. One of the benefits of this categorization has been a better 
perspective on how many plans may be at risk and the degree of the 
risk. Of the nearly 1,300 plans across all industries identified in one 
study, 62 percent are green plans, 12 percent are endangered, 16 
percent are critical, and 10 percent are critical and declining. The 
construction, service, and entertainment industries have the lowest 
percentage of critical and declining plans (4 percent, 6 percent, and 6 
percent respectively). The industries with the highest percentage of 
declining plans are manufacturing (36 percent), transportation (20 
percent), and retail/food (10 percent).\16\ Keep in mind, however, that 
a green plan today is still subject to the same risk factors that 
caused other plans to enter a red or critical status.
---------------------------------------------------------------------------
    \16\ Jason Russell, ``Keeping Healthy Plans Healthy,'' April 12, 
2018.

    Of particular note, MPRA broke new ground with respect to pensions 
by allowing plan sponsors, subject to an application process, to 
voluntarily reduce benefits that have already been earned, including 
for current retirees (with some exceptions). Only plans that face 
inevitable insolvency are eligible for this provision, and after the 
application of the reductions, all participant benefit must remain at 
least 10 percent above the level guaranteed by the PBGC. These 
``benefit suspensions'' offered a potentially effective way for plans 
to avoid insolvency, acknowledging the adverse impact to participants. 
MPRA also increased PBGC premiums from $12 to $26 (to be indexed in the 
---------------------------------------------------------------------------
future).

    Between PPA and MPRA, the tool box for identifying and addressing 
multiemployer plans' financial condition expanded to include:

          Assessment of the level of plan risk through the zone status 
        classifications.

          Plans in endangered status must develop a funding 
        improvement plan.

          Plans in critical status must develop a rehabilitation plan.

          Plans in critical and declining status may apply for a 
        suspension of benefits (benefit reductions) if doing so would 
        enable the plan to avoid insolvency.

          Higher maximum tax-deductible limits to allow the buildup of 
        greater surpluses.

          Partitions that allow plans to move a portion of the 
        liabilities to the PBGC prior to insolvency.

          Mergers facilitated by PBGC to combine troubled and healthy 
        plans to generate economies of scale while saving PBGC 
        resources in the long-term.
                  effectiveness of recent legislation
    On the positive side, the challenges facing the multiemployer plan 
system are now out in the open and better data is being accumulated to 
facilitate helpful analysis. Prompted by recent legislation, distressed 
multiemployer plans have taken steps to address funding problems and 
many have improved their financial health, but some have not. Of the 
first 25 applications for benefit suspensions under MPRA, only four 
have been approved and six are currently under review. The remaining 15 
were either denied (five) or withdrawn (10). One of the largest plans, 
the Central States Teamsters plan, was denied. Thus, while MPRA remains 
a viable choice for plans, some plans may be too far down the road to 
take advantage of it. The U.S. Department of the Treasury and PBGC have 
taken steps to communicate feedback to those preparing applications to 
help plans make decisions as to whether or not to apply and how best to 
prepare applications if they choose to move forward. Treasury and PBGC 
both now offer pre-application conferences to plan sponsors to further 
facilitate the process.

    Employers that have significantly increased contributions or 
contribute to plans that have pared back benefit accrual rates and 
ancillary plan features (such as early retirement or disability 
benefits) have expressed concerns about their ability to remain 
competitive. Many of them are in industries that have very thin profit 
margins or are in competitive global markets.

    A recent study \17\ indicates that aggregate contributions to 
multiemployer pension plans from 2009 to 2014 increased by 6.9 percent 
per year, significantly outpacing the average inflation rate of 2.1 
percent over this period. Even though contributions are increasing, for 
many plans, the amount of contributions is not closing the funding gap. 
This can be measured on two bases--one that uses a discount rate tied 
to the long-term expected return of the plan (46 percent of the plans 
lost ground), and one based on a rate reflecting U.S. Treasury bonds 
(75 percent of the plans saw an increase to the shortfall). At the same 
time, roughly 75 percent of the plans had a minimum required 
contribution of zero due to accumulated contributions being greater 
than minimum requirements in the past years. According to the study, 
between 89 percent and 94 percent of plans made contributions in excess 
of their minimum.
---------------------------------------------------------------------------
    \17\ Lisa A. Schilling and Patrick Wiese, ``Multiemployer Pension 
Plan Contribution Analysis,'' Society of Actuaries, March 10, 2016.

    The partition and plan merger options available under MPRA have 
been used sparingly. To date, there has been only one approved 
partition.
   overall status of the current system--historical and future trends
    The applications for benefit suspensions under MPRA are very 
thorough and detailed. As part of the application, the plan sponsor 
must describe the key factors that led to the request. A few excerpts 
from the descriptions provided by some of the plans that have filed 
under MPRA illustrate the seriousness and state of affairs for these 
programs.\18\
---------------------------------------------------------------------------
    \18\ Alicia H. Munnell et al., ``Multiemployer Pension Plans: 
Current Status and Future Trends,'' Center for Retirement Research at 
Boston College, December 2017.

          Automotive Industries--Decline in automotive industry 
        businesses in the San Francisco Bay Area as a result of both 
        the decline over the last 10 years . . . and economic 
        recessions over the last 15 years. Plan employers engaged in a 
        fragmented, competitive industry and have higher labor costs. 
        Only four of the 149 original employers still exist. In 2000, 
        16 Ford and 10 Chrysler dealerships contributed to the plans. 
        As of 2015, only three of those 26 dealerships remain in the 
---------------------------------------------------------------------------
        plan.

          Bricklayers Local 7--Plan provides generous benefits 
        relative to non-union bricklayers. Experiencing increased 
        member attrition to nearby unions, which maintain plans that 
        are better funded. Decline in the number of union members in 
        the area.

          Central States Teamsters--Deregulation of trucking in the 
        1980s and the economic and financial crisis since 2001 forced 
        many major trucking companies out of business. Of the 50 
        largest contributing employers that participated in 1980, 
        almost all are out of business and only three contribute today.

          Ironworkers Local 16--Economic decline, loss of qualified 
        workers due to fewer opportunities, stagnant wages. Dramatic 
        drop in employers from 125 to 60 over the past 6 years. Large 
        bankruptcy from an employer that generated between 13 and 22 
        percent of work hours for members of the plan.

          United Furniture Workers--The rapid increase in U.S. 
        furniture imports since the 1970s put increasing pressure on 
        U.S. furniture manufacturers and, thus, the pension plan. From 
        1981 to 2009, 35 contributing employers filed for bankruptcy. 
        Since 2008, 29 of 53 contributing employers have withdrawn from 
        the plan, and active participants have dropped from about 2,500 
        to 1,000.

    Maintaining the financial health of multiemployer plans is an 
important factor in stabilizing the multiemployer system. Three of the 
most important indicators of vulnerable plans are:

          Maturity levels--the ratio of inactive (retirees and vested 
        terminations) to active participants;

          Funded status--commonly expressed as the assets divided by 
        the liabilities; and

          Cash flow situation--a comparison of benefits paid out 
        versus contributions and investment earnings coming into the 
        plan.

    Data is available from the required Form 5500 \19\ government 
filings that offer information as to the health status of all plans. 
Plans that have three or more inactive participants per active 
participant have significantly more critical and declining plans than 
those with less than a 3:1 ratio. Plans with funded ratios below 70 
percent also tend to be in the critical and declining category. 
Critical and declining plans have, on average, a negative annual cash 
flow of 11 percent. By comparison, the average cash flow percentages 
for yellow and green plans are a negative 1.2 percent and negative 1.6 
percent respectively. Plans with two or more of these three 
characteristics are especially vulnerable.
---------------------------------------------------------------------------
    \19\ Employee Benefits Security Administration, ``Form 5500 
Series,'' accessed on April 17, 2018.

    Pension plans also go through an aging process. In the early years, 
assets are low and most of the growth in assets comes from the employer 
contributions. There are very few retirees relative to active employees 
and as a result contributions, which are generated based on the active 
workforce significantly exceed benefit payments. As the plan matures, 
more assets accumulate, and asset returns from investments become a 
larger and larger source of the plan's income. At the same time, the 
retiree population grows and in some industries there is a shrinking 
contribution base. As this situation progresses, investment performance 
becomes more and more important. Thus when actual investment returns 
are lower than expected there is a resulting loss to the plan. There 
are mechanisms to smooth out the impact of this volatility, but for 
mature plans, these methods can create significant stress. This 
situation is exacerbated if on top of the normal aging process, there 
---------------------------------------------------------------------------
are significant industry downturns and loss of participating employers.

    Plan sponsors need to find ways to improve the financial position 
of the plan, but to do this without placing burdens on participating 
employers to keep them in the plan as well as make the plan attractive 
to new employers. One approach that is emerging is to adopt variable 
benefits for future service to the extent permissible under current 
law. In plans that utilize this method, benefits move up or down with 
investment performance and thereby minimize future withdrawal 
liability. Strategies that can maintain benefit security, but eliminate 
or significantly reduce the threat of withdrawal liabilities will help 
avoid adding further burdens to the system. These strategies, however, 
do not address underfunding for legacy liabilities and create a 
challenge for allocating new contributions between paying off current 
unfunded legacy benefits and funding the new benefit accruals.
                               conclusion
    Multiemployer pension plans were created as a way to deliver 
lifetime income retirement benefits to workers in blue collar 
industries. Employers tended to be small and it was common for workers 
to stay in an industry, but work for many employers over the course of 
their career. The multiemployer approach captures economies of scale 
and pools risks--an intended ``win-win'' for the employer and employee.

    For decades, these plans worked much as expected, with little 
threat of insolvency (the PBGC multiemployer plan program has provided 
periodic financial assistance to only 70 multiemployer plans through 
2015). However, a combination of economic, demographic, and regulatory 
changes have placed a small but material segment of these plans at 
risk. Employees who negotiated for these benefits as part of wage and 
benefit packages were expecting to benefit from these arrangements at 
retirement. Now those expectations may not be met.

    I hope my testimony provided the Joint Select Committee context and 
history leading up to the development of the current financial 
challenges facing the multiemployer pension plan system. Identifying 
solutions is not part of the scope of today's hearing, but from a 
conceptual standpoint the options are straight-forward. One of three 
actions must be taken: Either benefits are reduced (this is the current 
course if there are no interventions), or contributions to the plans 
have to increase, or as a third option, more risk can be taken by plans 
to achieve prospective investment gains. Each option presents pros and 
cons with very different outcomes to different stakeholders.

    Thank you for asking me to speak today. The Pension Practice 
Council of the American Academy of Actuaries stands ready to help you 
at each step of the way with objective and non-partisan input.

Appendix
    American Academy of Actuaries background information regarding 
multiemployer pension plans:

    Issue Brief: Overview of Multiemployer Pension System Issues, 
http://www.
actuary.org/files/publications/IB-Multiemployer.06.27.2017.pdf.

    Capitol Hill Briefing: Multiemployer Pension Plans/Potential Paths 
Forward, http://www.actuary.org/files/publications/HillBriefing-
Multiemployer_June_27_
2017.pdf.

    Issue Brief: Honoring the PBGC Guarantee for Multiemployer Plans 
Requires Difficult Choices, http://www.actuary.org/files/publications/
PBGCissuebrief10.20.
16.pdf.

                                 ______
                                 
           Questions Submitted for the Record to Ted Goldman
               Questions Submitted by Hon. Orrin G. Hatch
    Question. Please describe what employer's withdrawal liability 
responsibility is a mass withdrawal event?
                    withdrawal liability in general
    Answer. When a contributing employer withdraws from an underfunded 
multiemployer pension plan, it must pay ``withdrawal liability,'' which 
represents the employer's share of the plan's unfunded vested benefits. 
The amount of the plan's overall unfunded vested benefits is determined 
annually by the plan actuary.

    Under the Employee Retirement Income Security Act of 1974 (ERISA), 
when an employer withdraws from a multiemployer pension plan, it is not 
obligated to pay its withdrawal liability in a lump sum. Rather, the 
statute requires the employer to pay down its withdrawal liability 
obligation, with accumulated interest, through periodic payments. The 
amount of the periodic payment is determined based on the employer's 
historical contribution rates and contribution base units, such as 
covered hours or wages.

    In general, the statute limits an employer's withdrawal liability 
payments to 20 years; this is often called the ``20-year cap.'' In 
other words, if the statutory periodic payments are not sufficient to 
pay down the employer's allocated withdrawal liability, with 
accumulated interest, the payments stop after 20 years. Any unpaid 
withdrawal liability must be reallocated among the remaining employers 
in the plan.
               withdrawal liability in a mass withdrawal
    A mass withdrawal has occurred for a multiemployer pension plan 
when every employer--or substantially every employer--has withdrawn 
from the plan. In a mass withdrawal situation, different rules apply to 
how employer withdrawal liability is calculated.

          The plan's overall unfunded vested benefits must be 
        calculated based on assumptions prescribed by the Pension 
        Benefit Guaranty Corporation (PBGC) for plan termination 
        situations. These conservative assumptions could substantially 
        increase the amount of unfunded vested benefits allocated to 
        each employer.

          The other notable difference under a mass withdrawal is that 
        the 20-year cap ceases to apply. In many mass withdrawal 
        situations, the removal of the 20-year cap means that employers 
        will be obligated to make their statutory withdrawal liability 
        payments indefinitely.

    Question. Where do pension obligations fall in the order of 
priority in bankruptcy?

    Answer. The status of withdrawal liability claims against an 
employer that has filed for bankruptcy protection is not expressly 
dealt with in either the U.S. bankruptcy code or ERISA. However, in our 
observation, courts have generally held that a claim for withdrawal 
liability is not entitled to priority status as an administrative 
claim. As a result, withdrawal liability does not have priority status 
and withdrawal liability is treated as a general unsecured claim.
                           funding standards
    Question. In our initial review of the issues surrounding the 
multiemployer pension plans, one of the primary concerns the committee 
plans to investigate are the funding standards for these plans. The 
issue is whether the funding standards are adequate, providing the 
proper level of assets to cover the future liabilities of the plans. As 
a preliminary, can you describe the funding methods for the 
multiemployer plans prior to the enactment of the Employee Retirement 
Income Security Act? What new funding standards were established by 
ERISA, and what impact did these standards have on the funding of the 
plans?

    Answer. Before discussing statutory funding standards and funding 
methods, it may be helpful to define certain terms commonly used in 
pension funding. The ``normal cost'' is the value of benefits being 
attributed to the coming plan year, and it often includes an adjustment 
for expected administrative expenses. The ``actuarial liability'' is 
the value of benefits that are attributed to prior plan years, in other 
words, past service liabilities. To the extent that plan assets are 
less than the actuarial liability, there is an ``unfunded liability.''

    Prior to the 1976 effective date of ERISA, there were no Federal 
statutory funding standards. Actuaries would advise plan sponsors as to 
whether contributions and benefits were in balance. In simplified 
terms, it was desirable for contributions to cover plan costs, which 
included the normal cost and some amortization of the unfunded 
liability. To the extent contributions equaled or exceeded plan costs, 
the plan would be projected to become 100 percent funded over time.

    ERISA imposed new minimum funding requirements on private sector 
pension plans. The minimum requirements are determined annually based 
on a notional ``funding standard account.'' Under the funding standard 
account calculations, employer contributions must cover plan costs, 
which include the normal cost and amortizations of changes in the 
unfunded liability over a fixed period. Currently, the amortization 
period is generally 15 years from inception, though there are legacy 
layers of liability that have a longer outstanding period. To the 
extent that accumulated contributions exceed accumulated plan costs, 
the funding standard account will develop a ``credit balance.'' If, 
however, contributions fall short of plan costs, there will be an 
``accumulated funding deficiency,'' meaning the plan is not meeting its 
minimum funding requirements. In that case, excise taxes on 
contributing employers and other penalties may apply until the 
deficiency is corrected.

    Focusing only on multiemployer pension plans, the funding standards 
under ERISA--as amended by the Pension Protection Act of 2006 (PPA)--
have provided a framework to target improving funding levels and work 
toward restoring a credit balance for plans that are facing a funding 
deficiency. Overall, funding levels for multiemployer pension plans 
have improved in recent years, after the damage rendered by the poor 
investment performance of the early 2000s and the recession of 2008-
2009. Today, more than 60 percent of the nearly 1,300 multiemployer 
plans are in the ``green zone'' under PPA. However, approximately 100-
120 plans approaching insolvency will not be able to pay promised 
benefits without a legislative solution or enhanced access to 
regulatory approval of the restructuring remedies provided by the 
Multiemployer Pension Reform Act of 2014 (MPRA).
                             discount rates
    Question. In your testimony, you note that the majority of 
multiemployer plans remain healthy. Is this actually the case, when in 
fact PPA zone status reflects pension liabilities discounted at the 
plans expected long-term investment return assumption? Given a low 
return investment environment, is the use of a long-term, higher, 
discount rate appropriate? Would your assessment of the relative health 
of the multiemployer plans change if we used investment return 
assumptions that reflect current market valuations or other more 
conservative measures?

    Answer. Two major concepts are implicit in these questions: (1) the 
selection of an investment return assumption and (2) how different 
measurements can inform an assessment of the health of a multiemployer 
pension plan.
                     investment return assumptions
    Under actuarial standards of practice (ASOPs) No. 27, the purpose 
of measurement is an important factor in selecting a reasonable and 
appropriate interest rate or investment return assumption. For example, 
an investment return assumption may be used as a discount rate--often 
referred to as the valuation interest rate--to determine the actuarial 
present value of benefits under a pension plan. Alternatively, an 
investment return assumption may apply to the rate of return expected 
to be earned on plan assets over a period of time. For some purposes, 
the valuation interest rate and the assumed rate of return on plan 
assets are the same; for others, they are necessarily different.

    The following are three common measurements relevant to 
multiemployer pension plan funding, each of which uses a different 
investment return assumption.

          Actuarial accrued liability. This is the measurement of the 
        plan's accrued liability for benefits earned to date and is 
        based on a valuation interest rate assumption that represents 
        the expected return on plan assets over the long term. Under 
        ERISA, the assumption is the actuary's best estimate. For most 
        multiemployer plans, the assumption is in the range of 7.0 and 
        7.5 percent, which is set considering the plan's investment 
        policy, asset class expectations, and other factors. The 
        actuarial accrued liability generally serves as the basis for 
        determining ERISA minimum funding requirements, budgeting for 
        long-term sufficiency of contribution rates, and PPA zone 
        status.

          Current liability. This is a measurement of the plan's 
        accrued liability and is based on a discount rate and mortality 
        tables prescribed by statute. Current liability is used for 
        certain disclosures and for determining maximum tax-deductible 
        limitations. It is also similar--but not identical to--an 
        assessment of the value of plan liabilities in a settlement or 
        immunization situation. The current liability interest rate 
        represents a weighted average of 30-year Treasury securities, 
        which is considered to be a proxy for current risk-free 
        interest rates. In other words, the current liability interest 
        rate is set independent of the expected return on plan assets. 
        For 2017, current liability interest rates were slightly above 
        3.0 percent.

          Actuarial projections. When performing projections of future 
        solvency or funding levels, actuaries often use an investment 
        return assumption that is the same as the valuation interest 
        rate. Increasingly, however, actuaries are performing 
        projections under different investment return assumptions. For 
        example, actuaries may perform sensitivity projections 
        reflecting higher or lower expected returns on plan assets over 
        the short term. There is no statutory requirement to perform 
        sensitivity projections, but actuaries may do so to reflect the 
        expectation that investment returns will be lower in the near-
        term than their historical averages in the current low interest 
        rate environment. Additionally, actuaries may perform 
        sensitivity projections--such as sensitivity analysis, scenario 
        testing, and risk tolerance--for purposes of plan sponsor 
        education and planning.
                         assessing plan health
    When assessing whether a multiemployer pension plan is ``healthy,'' 
it is often helpful to consider more than one single number or 
perspective. The following are metrics often considered when evaluating 
the health of a multiemployer pension plan.

          Statutory requirements. Minimum funding requirements and PPA 
        zone status are largely based on a funded percentage (assets 
        divided by the actuarial liability) and the current and 
        projected funding standard account. These measurements are 
        designed to support the determination of a contribution amount 
        that balances considerations of long-term stability and 
        sufficiency.

          Market-based measurements. Additional metrics can provide 
        further insight into the health of a plan. For example, 
        valuations can be performed using current bond market interest 
        rates rather than expected returns. Such an approach can 
        provide greater comparability across plans that have different 
        investment allocations or capital market expectations. It can 
        also help to illustrate the extent to which expected future 
        investment returns are relied upon to provide for the targeted 
        benefits outlined in the plan. The current liability measure 
        mentioned earlier is an example of a market-based measure 
        calculated and disclosed for multiemployer pension plans.

          Current and projected funding levels. Rather than focusing 
        solely on the current funded status of a multiemployer pension 
        plan, an assessment of plan health should also consider what 
        its funding levels are projected to be in the future. For 
        example, consider a plan that is currently 90 percent funded 
        and projected to remain about 90 percent funded in all future 
        years. Next, consider a plan that is currently 80 percent 
        funded and projected to become 105 percent funded within the 
        next 15 years. All other factors being equal, one may argue 
        that the second plan is healthier than the first, in that its 
        upward trajectory makes it more likely to be resilient to 
        future adverse experience.
                    plan experience gains and losses
    Question. In examining the financial status of the multiemployer 
plans, the committee is compiling plan data on experience gains and 
losses. Is this data gathered by plan administrators or trustees?

    Answer. Actuarial gains and losses represent the differences 
between actual plan experience and the actuarial assumptions. Actuaries 
review gains and losses each year as part of the annual actuarial 
valuation process. Historical gains and losses are often summarized in 
the actuarial valuation reports, which are presented to the plan 
trustees and retained by plan administrators.

    When reviewing data on gains and losses, it is important to 
distinguish between those arising from demographic sources and those 
arising from investments. For multiemployer pension plans, investment 
experience tends to be much more volatile than demographic experience 
(such as mortality and retirement experience).

    Annual gains and losses from demographic sources are usually 
relatively small when compared to those related to investment returns. 
It is also important to note that gains and losses related to 
contribution levels may have a relatively small impact on a plan's 
current funding level, but they can have significant effects on 
projected funding levels. To get a more complete picture of experience 
gains and losses and their impact on projected funding levels, it is 
important to understand how contribution levels have changed over time, 
and how they have compared with assumed levels over the years.
                               mortality
    Question. In general terms, what are the mortality assumptions used 
by these plans and how have these assumptions changed since 2000? How 
are these assumptions established, and are they subject to any manner 
of oversight, or legal or professional standards?

    Answer. In general, actuaries who practice in multiemployer pension 
plans use mortality assumptions that are based on published tables. In 
rare cases involving very large plans that can demonstrate that 
experience is fully credible and significantly different from the 
mortality rates under the published tables, the actuary may develop a 
table of mortality rates based on plan experience.

    When setting a mortality assumption based on published tables, 
actuaries who work with multiemployer pension plans may make 
adjustments to rates in the published tables based on industry trends, 
individual plan experience, and professional judgment. For example, 
actuaries who practice in multiemployer plans often use the ``blue 
collar'' version of the published mortality table, which may be a 
better representation of anticipated experience for the participant 
population than the ``white collar'' or general tables.

    The published mortality tables most commonly used by actuaries are 
developed by the Retirement Plan Experience Committee (RPEC) of the 
Society of Actuaries (SOA). Since 2000, the RPEC has published the 
``RP-2000'' and ``RP-2014'' mortality tables, along with a series of 
different scales to project future improvements in life expectancies. 
In general, the studies that the RPEC has published have shown 
improvements in mortality over time--in other words, increasingly 
longer life expectancies.

    When selecting actuarial assumptions to be used in determining 
minimum funding requirements under ERISA, actuaries must operate in 
accordance with actuarial standards of practice (ASOPs). ASOP No. 35 
deals with the selection of mortality assumptions and was recently 
updated to provide actuaries with more specific guidance related to 
selecting the appropriate mortality table, making adjustments to the 
table as appropriate, and projecting future improvements in life 
expectancies.

    An actuary who is believed to have violated the ASOPs may be 
reported to the Actuarial Board for Counseling and Discipline (ABCD). 
After reviewing the situation, the ABCD may recommend disciplinary 
action if the actuary is found to have violated the ASOPs or the Code 
of Professional Conduct. Discipline may include reprimand or 
recommendation of suspension of credentials by the issuing actuarial 
organizations.

    Question. How do mortality assumptions for multiemployer plans 
compare to the prescribed single-employer/current liability mortality 
tables? Have these assumptions changed in any manner since 2000?

    Answer. In late 2017, the Department of Treasury and Internal 
Revenue Service issued a new rule regarding mortality tables that must 
be used in determining minimum funding requirements for single-employer 
pension plans. The same mortality tables must also be used for 
determining current liability for multiemployer plans. In general, the 
new mortality tables must be used for plan years beginning on or after 
January 1, 2018.

    The prescribed current liability mortality tables are based on the 
RP-2014 mortality tables, adjusted for expected future improvement in 
life expectancies. Mortality assumptions for determining minimum 
funding requirements for multiemployer plans will vary plan by plan--
again, based on industry trends, plan experience, and reflecting the 
actuary's professional judgment. For that reason, the extent to which 
the plan's own assumptions will differ from the prescribed current 
liability tables will also vary plan by plan. The following are some 
common differences between the current liability mortality tables and 
the mortality assumptions developed by actuaries for purposes of 
multiemployer plan minimum funding:

          Blue collar adjustments. Current liability mortality tables 
        are based on the general population, in other words, all 
        pension plan participants regardless of occupation. Many 
        actuaries use a mortality assumption that reflects a ``blue 
        collar'' adjustment in multiemployer plans to reflect the 
        individual plan's demographic characteristics. Based on the 
        tables published by the RPEC, blue collar populations tend to 
        have shorter life expectancies than the general population.

          Plan-specific adjustments. Similarly, currently liability 
        mortality tables include no provision to adjust for actual 
        observed plan experience. If experience for a multiemployer 
        pension plan is credible and differs from the mortality rates 
        in the published tables, the actuary may make appropriate 
        adjustments to those rates when setting the mortality 
        assumption.

          Projected improvements. The current liability mortality 
        tables include a full projection of expected future improvement 
        based on the scale published by the RPEC. Many actuaries 
        working with multiemployer plans use a mortality assumption 
        that includes a provision for future improvement, but not all 
        do. It is difficult to predict how much mortality rates will 
        improve in the future. Rising obesity rates and the opioid 
        epidemic are frequently cited as factors that may shorten life 
        expectancies, at least for certain segments of the population. 
        Additionally, recent mortality improvements in the general 
        population have been heavily weighted toward higher-income 
        individuals, with substantially less improvement observed in 
        lower-income groups.

    Question. In reviewing the actual mortality experience of these 
plans, do you have any aggregate or summary data on the mortality gains 
and losses for these plans since 2000? Is there any information 
available that you could share or provide us access to that would show 
to what extent actual deaths that have occurred or didn't occur versus 
changes to the underlying mortality assumptions?

    Answer. The American Academy of Actuaries Pension Practice Council 
does not track data regarding mortality gains or losses.

    Question. What actual mortality developments (whether within a plan 
or in the wider population) cause plans to change their mortality 
assumptions?

    Answer. As described earlier, actuarial gains and losses represent 
the differences between actual plan experience and the actuarial 
assumptions. Actuaries review gains and losses each year as part of the 
annual actuarial valuation process. If a pattern of consistent gains or 
losses emerges, the actuary would be compelled to do a closer review of 
plan experience and update the assumption if appropriate. This review 
applies to all demographic actuarial assumptions, including mortality. 
In addition, when new mortality tables are published, many 
multiemployer plan actuaries will review the new tables to see if they 
may offer a better representation of anticipated plan experience.
                   benefit accruals and contributions
    Question. Could you provide information on the benefit accrual 
rates in the multiemployer plans? Similarly, is there any information 
available on the contribution levels of these plan for each year since 
1974? Do you have information comparing plan contributions to other all 
other compensation in CBAs that govern these programs?

    Answer. Benefit accrual rates vary widely plan by plan, industry by 
industry, and region by region. Often, the health of a plan can affect 
the accrual rate. For example, an underfunded plan that must devote 
more from each contribution dollar to pay down its unfunded liability 
will likely have less left over to provide for future benefit accruals. 
How the bargaining parties prioritize pension benefits within the 
overall wage package is another important factor. Two otherwise 
identical plans could have significantly different accrual rates due to 
decisions made by bargaining parties over time.

    The Academy's Pension Practice Council does not track historical 
data on contribution rates and levels for multiemployer plans. 
Furthermore, most plans themselves do not track this sort of 
information that many years in the past (going back to 1974). Most 
analyses of aggregate trends among multiemployer pension plans are 
based on data from Form 5500 filings. Form 5500 data is available on 
the Department of Labor (DOL) website, but only from 1999 or 2000 
forward. Furthermore, while the Form 5500 data includes the aggregate 
amounts of contributions made to the plan each year, it is limited in 
what it can tell us about contribution rates and accrual rates for 
multiemployer pension plans. It is also important to note that Form 
5500 data does not provide information pertaining to the overall wage 
package.

    With those caveats, Form 5500 data \1\ does show the following 
noteworthy trends in employer contributions made to multiemployer 
pension plans since 2000:
---------------------------------------------------------------------------
    \1\ The figures that follow are based on an analysis of historical 
Form 5500 data performed by Horizon Actuarial Services LLC. This 
analysis serves as the basis for the Multiemployer Retirement Landscape 
reports published by the International Foundation of Employee Benefit 
Plans.

          Aggregate employer contributions to all plans were about $28 
        billion in 2015. For comparison, aggregate contributions to all 
        plans were about $11 billion in 2001. Note that these aggregate 
        amounts are affected by changes in covered employment levels as 
        well as increases in employer contribution rates. These amounts 
---------------------------------------------------------------------------
        may also include employer withdrawal liability payments.

          While Form 5500 data does not include robust information on 
        contribution rates, it may be instructive to evaluate 
        contributions per active participant--in other words, the 
        plan's contributions in a given plan year divided by the number 
        of its active participants. Focusing on this measure, median 
        contributions per active participant increased 187 percent from 
        2000 to 2015, which represents an average compounded increase 
        of 7.3 percent per year over that 15-year period.

    Question. In your experience, is it possible for plans to track 
what benefits are attributable to which service and with which 
employers? Likewise, is it possible to track the level of contributions 
each employer has made in each plan in each year?

    Answer. The ability to track which benefits are attributable to 
different employers will vary from plan to plan. Some plans maintain 
very detailed records to determine which specific portions of each 
participant's benefits are attributable to service with different 
employers. Other plans maintain records sufficient to determine the 
total amount of each participant's benefit, but they may have 
difficulty attributing portions of the total benefit to service with 
different employers.

    As for the level of contributions each employer has made to the 
plan in each year, multiemployer pension plans do track this 
information, as it is required for determining employer withdrawal 
liability. The historical periods for which this data is readily 
available may vary from plan to plan, due to a number of factors, 
including the plan's withdrawal liability allocation method. For 
example, some plans may need to track historical contribution data 
(including contribution rates and contribution base units) for the past 
10 or 11 plan years in order to accurately calculate employer 
withdrawal liability. Other plans may need to track contribution data 
for the past 25 years or more.

    Question. Workers are protected under ERISA and the tax code to 
receive the full benefit they are promised. What steps have plans and 
employers taken to guarantee workers receive the full benefit they are 
promised? Are liabilities calculated by actuaries in such a way as to 
guarantee that workers will receive the full benefit they are promised? 
If not, and it is in fact employees who bear much of the risk under the 
current multiemployer system, are workers and retirees aware of that 
risk? How is the risk disclosed to them?
                          statutory framework
    Answer. As its name indicates, the Employee Retirement Income 
Security Act of 1974 (ERISA) was intended to secure the retirement 
benefit promises made to workers. It is important to understand, 
however, that while ERISA provides a framework intended to ensure that 
participant pension benefits are adequately supported, it does not 
provide an absolute guarantee of these benefits.

    ERISA first established minimum funding standards for private 
sector pension plans. It also created the ``anti-cutback'' rule, 
protecting workers from reductions to benefits they had already 
accrued. However, ERISA contains provisions to address the possibility 
that some plans might fail to fulfill their promised benefits. It 
established the PBGC to assist insolvent plans in paying benefits, up 
to ``guaranteed'' levels. ERISA also addresses what happens in the 
event that PBGC itself might not be able to provide full support to 
insolvent plans. If this event were to occur, ERISA provides that PBGC 
will provide support not to the ``guaranteed'' levels, but only to the 
extent its available resources will allow.

    Both PPA and MPRA provided further exceptions to the concept of an 
ironclad benefit guarantee for multiemployer pension plans. Most 
notably, for plans in critical status, PPA provides for reducing 
``adjustable benefits.'' PPA also permits plans to target delaying 
insolvency--rather than emerging from critical status--but only if the 
plan sponsor has determined that all reasonable corrective measures 
have been exhausted. Perhaps more significantly and subject to certain 
restrictions, MPRA enabled sponsors of plans in critical and declining 
status to reduce already-accrued benefits if doing so would enable the 
plan to avoid insolvency. (These developments are described in more 
detail in our responses to other questions from the committee.)
                      steps taken by plan sponsors
    When evaluating the steps that multiemployer pension plan sponsors 
have taken over the years to ensure benefit promises were kept--as well 
as in reviewing how actuaries measure plan liabilities--it is important 
to also consider how statutory, financial market, and economic 
conditions have changed over the past few decades.

          ERISA was passed in 1974 and became effective in 1976, first 
        establishing funding standards for private sector pension 
        plans--a comprehensive contribution framework that is intended 
        to ensure that participant benefits are adequately supported. 
        Most multiemployer plan sponsors have taken steps to fulfill 
        the benefit promises made to workers in the form of having 
        contributions exceed ERISA requirements. (By definition, if a 
        plan has a credit balance in its funding standard account, 
        historical contributions have exceeded historical funding 
        requirements.)

          At the time ERISA was passed, most actuaries were using 
        conservative interest rate assumptions, around 5 percent, to 
        determine minimum funding requirements. In about 1980, 
        actuarial interest rate assumptions began to receive scrutiny 
        for being too conservative. Market interest rates were in the 
        double digits, and many argued that lower interest rate 
        assumptions were overstating plan liabilities. From a Federal 
        tax perspective, employers were overfunding their pension 
        plans, and were therefore taking greater tax deductions on 
        contributions than was justified. By the mid-1980s, most 
        actuarial interest rate assumptions had been raised to the 
        range of 7 to 8 percent.

          The investment returns of the 1980s and 1990s were strong. 
        Most private sector pension plans were close to full funding, 
        and many were overfunded. The Internal Revenue Code at the 
        time, however, limited the tax-deductibility of employer 
        contributions to plans that were fully funded. This point is 
        important, because as pension plans invest in assets that have 
        volatile returns, they need to be able to build up funding 
        surpluses following investment gains, so they can buffer 
        against investment losses that will inevitably follow. In the 
        case of multiemployer pension plans, many plan sponsors decided 
        to increase benefit levels in order to preserve the tax-
        deductibility of already-negotiated employer contributions.

          The 2000s brought investment losses, with the ``dot-com 
        bubble burst'' from 2000 to 2002 and the financial market 
        collapse from 2008 and early 2009. Having entered the decade 
        without much of a cushion, most multiemployer plan sponsors 
        spent the next several years developing strategies to restore 
        funding to its pre-2000 levels. At the same time, many 
        industries faced declining contribution bases, which were 
        worsened by the 2008-2009 Great Recession. These factors made a 
        path to recovery even more challenging.

          While the American Academy of Actuaries Pension Practice 
        Council does not possess comprehensive data, anecdotally, the 
        Pension Practice Council has observed that multiemployer plans 
        that were hit hard by the economic climate of the 2000s have 
        responded with significant corrective measures. It is not 
        unusual to see plans where the contribution rates have more 
        than doubled while the rate of benefit accrual applicable to 
        future service is less than half of what it was previously. For 
        a majority of plans, these measures are expected to be 
        sufficient to ensure that all benefits will be paid. However, 
        some plans that have been hit the hardest by the economic 
        downturn will be unable to recover despite taking draconian 
        measures to protect benefits.
                              disclosures
    ERISA requires the disclosure of ``current liability,'' which is a 
proxy for risk-free liability measurements (i.e., current liability). 
ERISA, however, does not require that plans fund to current liability 
levels. A risk-free funding approach would make participants' benefits 
more secure, but it would also dramatically reduce benefit levels, and 
pension funding often involves striking a balance between security and 
cost-efficiency.

    ERISA also contains various disclosure requirements directed at 
participants, but these requirements do not contain significant 
information on benefit security risks.
                            plan resilience
    Question. What are the consequences to the plans if the stock 
market has a downturn/low returns over 2 or 3 years sometime in the 
next 5 years?

    Answer. If there is another market downturn, multiemployer pension 
plans will no doubt be put under further stress. Many plans are in a 
strong enough position to be able withstand another downturn, but 
others are not. Even some plans currently in the ``green zone'' have 
increased employer contribution rates and reduced participant benefit 
levels as much as they reasonably can. These plans have limited 
remaining actions they can take to cope with further adverse market 
events.

    Question. Which large plans are vulnerable if a handful of 
participating employers encounters financial difficulties or withdraws 
(even paying their full share of withdrawal liability)?

    Answer. The Academy's Pension Practice Council has not done an 
analysis of which specific large plans are most vulnerable to the 
distressed withdrawal of a small number of employers.

    Question. If another economic downturn similar to the 2008-2009 
downturn were to occur again within the next 10 years, are plans 
prepared to survive it? What about plans in the green zone? What steps 
are plans, and their actuaries, taking to properly assess risk in 
response to the lessons learned from '08, which you have cited as a 
major cause of the downfall of certain plans such as Central States?

    Answer. If another economic downturn similar to the 2008-2009 
recession were to occur, some plans would be able to develop continued 
strategies to recover. Many other plans would not be able to recover, 
however, including many plans currently in the ``green zone.'' As 
described earlier, the reality is that most multiemployer plans have 
taken significant corrective action in recent years to improve plan 
funding, including reducing the rate of future benefit accruals and 
increasing employer contribution rates. While some plans have the 
ability to take further corrective action if needed, others cannot 
reasonably make significant changes on top of those they have already 
made.

    Many actuaries working with multiemployer pension plans are 
actively discussing risk with plan sponsors, quantifying how projected 
funding levels may be affected by future adverse events. A new 
actuarial standard of practice (ASOP No. 51 \2\) provides guidance on 
how pension actuaries should be discussing risk with plan sponsors, to 
the extent they have not already been doing so.
---------------------------------------------------------------------------
    \2\ http://www.actuarialstandardsboard.org/asops/estimating-future-
costs-prospective-property
casualty-risk-transfer-risk-retention/.

    Question. You testified that ``[plans take money from actives and 
pay retiree benefits; the contributions on behalf of actives are not 
going towards guaranteeing their pension promises].'' Is this a 
structurally sound model moving forward? Are employees fully aware that 
the contributions coming out of their paycheck each week are not in 
fact going towards their future retiree benefits? What other investment 
---------------------------------------------------------------------------
plans use this model?

    Answer. Contributions made to multiemployer pension plans are tied 
to work performed by active participants. A portion of incoming 
contributions will go toward paying for benefits being earned by the 
active participants, and a portion will go toward further securing 
benefits that have already been earned. (The portion of contributions 
going toward securing benefits could go either to paying down 
underfunding or to building up a funding cushion against future adverse 
experience.) This is how pension plan funding works at a fundamental 
level.

    It is important to note that qualified pension plans under ERISA--
including multiemployer pension plans--must be prefunded. In other 
words, the intent is for contributions, accumulated with investment 
earnings, to prefund benefits as they are being earned. When experience 
is worse than anticipated, however, the plan may become underfunded, 
and a portion of incoming contributions must go toward paying down that 
unfunded liability. Once the plan is restored to full funding, however, 
ongoing contributions from active participants will not be needed to 
pay down the unfunded liability, but rather to further secure the 
overall funding of the plan or to pay for additional benefits being 
earned by active participants.

    To contrast, other benefit programs--such as Social Security and 
Medicare--are not prefunded, but rather, largely pay-as-you-go. By 
their design, these programs rely more heavily on incoming 
contributions from the current active generation to pay benefits that 
were earned by prior generations. Additionally all insurance programs 
pool risk and therefore involve a sharing of program assets across all 
participants.
                          withdrawal liability
    Question. Are you familiar with and would you have access to 
information on which employers have withdrawn from multiemployer plans 
in each year since 1974? Is there any aggregate or plan specific 
information available on the amount of these withdrawal liability 
payments? (Preferably by employer to each such plan.)

    Answer. The Academy's Pension Practice Council does not track data 
on which employers have withdrawn from multiemployer plans. We are also 
not aware of any aggregate or plan-specific information on withdrawal 
liability payments. Focusing on Form 5500 filings, limited information 
on employer withdrawals and withdrawal liability assessments can be 
found on the Form 5500 Schedule R. However, this information has only 
been required since 2009.

    Question. In general terms, how do withdrawal liability payments 
compare to each withdrawing employer's share of the unfunded 
liabilities on an actuarial basis?

    Answer. The amount of an employer's statutory withdrawal liability 
payments (as defined under section 4219 of ERISA) is not directly 
related to its assessed withdrawal liability amount, which represents 
the employer's allocated share of the plan's unfunded vested benefits. 
In general, the amount of the payment increases as employer 
contributions increase. (Under MPRA, contribution rate increases 
required under a rehabilitation plan that take effect after 2014 are 
excluded from determining withdrawal liability payments.) In the case 
of a plan with a relatively small unfunded vested liability, the 
employer's statutory withdrawal liability payments will pay down its 
withdrawal liability assessment, including applicable interest, in less 
than 20 years.

    In general, the statute limits withdrawal liability payments to 20 
years, often referred to as the ``20-year cap.'' (The 20-year cap does 
not apply in a mass withdrawal situation.) Therefore, if a plan is 
deeply underfunded, 20 years of statutory payments will often not pay 
down the employer's withdrawal liability assessment. In general, the 
worse funded the plan, the bigger the unfunded liability that will not 
be covered by the statutory withdrawal liability payments.
                                 assets
    Question. Is there information available on the portion of each ME 
plan's assets that have a readily ascertainable market value such as 
publicly traded stock, Treasury bonds, or cash versus items whose value 
is not readily ascertainable?

    Answer. There is limited publicly available data regarding the 
asset allocations for multiemployer pension plans. Perhaps the best 
data source is the Form 5500 Schedule R, which was recently updated to 
require plan sponsors to provide basic information regarding their 
asset allocations.

    The following table provides the average asset allocations for 
multiemployer pension plans, based on the asset classifications on the 
Form 5500 Schedule R. Note that the allocations are expressed as 
percentages of plan assets, and only plans with at least 1,000 
participants are included. Results are for Form 5500 filings for plan 
years ending between June 1, 2016, and May 31, 2017.


                            Average Asset Allocations for Multiemployer Pension Plans
----------------------------------------------------------------------------------------------------------------
                                   Investment Grade
             Stocks                      Debt           High-Yield Debt      Real Estate             Other
----------------------------------------------------------------------------------------------------------------
47.7%                                         18.9%                5.1%                9.6%               18.7%
----------------------------------------------------------------------------------------------------------------

                              liabilities
    Question. When valuing plan liabilities, are actuaries routinely 
given information regarding employers in the plans? If not, would it be 
helpful for them to have this information to better assess risk of the 
plans and ability of employers to pay should the plan become insolvent?

    Answer. Plan sponsors do not generally have information regarding 
the financial health of its participating employers, as there is no 
statutory requirement for employers to provide such information to the 
plans in which they participate. It is also important to keep in mind 
that providing financial information could be quite burdensome for 
small or privately held companies. While detailed financial information 
on contributing employers could help multiemployer plans assess 
employer-related risks, the practical aspects of gathering and 
analyzing this information could make such assessments extremely 
complex, time-consuming, and expensive.
                           plan alternatives
    Question. For employees who do not wish to take on the risk that is 
disclosed to them, would there be a way of providing the employees with 
different options to bear less risk going forward, such as the choice 
of having their contributions going either into a separate pool with 
lower discount rates, or a 401(k) plan in which the employee can make 
his or her own retirement decisions?

    Answer. We are not aware of any examples where employees covered 
under a multiemployer defined benefit pension plan can opt out of that 
plan and into an alternative arrangement. There have been a small 
number of opt-out arrangements in the public plan sector and single-
employer plans to allow employees to move into a defined contribution 
arrangement.

    When evaluating alternative plan designs, it is important to 
consider the risks associated with those designs--to both the plan 
sponsor and the employee. Specifically:

          Defined contribution plan. With a defined contribution plan 
        (such as a 401(k)-type plan), the employee has reduced or 
        eliminated risk associated with the financial health of the 
        participating employers or industry in which they work. In 
        exchange, the employee now bears all the investment risk and 
        longevity risk for the rest of his or her life. Without the 
        pooling of risk inherent in a defined benefit pension plan, the 
        employee is now subject to risk factors such as the ability to 
        invest wisely and his or her own life expectancy.

          Lower-risk defined benefit plan. The sponsor of a 
        multiemployer pension plan could elect to move toward a more 
        conservative investment policy, which would provide a lower 
        expected return but also lower volatility. Such a move would 
        lead to a lower discount rate associated with the actuarial 
        funding measurements. This arrangement would increase the 
        likelihood that the plan would be able to deliver the promised 
        benefit amount. However, with a lower expected return on plan 
        assets, either the promised level of plan benefits would be 
        lower, the level of contributions needed from employers would 
        be higher, or both. In other words, under a more conservative 
        defined benefit arrangement, an employee would have a higher 
        degree of certainty in the promised benefit being delivered, 
        but the level of that promised benefit would be lower.

    If the Joint Select Committee wishes to consider an ``opt out'' 
provision, there are many factors to be considered, including 
participant education, whether the options provide lifetime income, 
anti-selection (participants selecting the option most beneficial to 
them, thus raising costs and diluting the benefits of pooling risks), 
and the possibility of individuals making decisions that are not in the 
interest of their long-term financial security. If employees are 
allowed to opt out to a defined contribution plan, the contribution 
base available to support the benefits of the remaining active 
employees in the defined benefit plan will be reduced, which increases 
the risk to those choosing to remain in the defined benefit plan. The 
potential administrative complexities related to providing participant 
choice between different defined benefit and defined contribution 
options is another important consideration.

                                 ______
                                 
               Questions Submitted by Hon. Sherrod Brown
    Question. Please describe the advantages and disadvantages to the 
various discount rates that could be used for valuing the liabilities 
of multiemployer pension plans for minimum funding purposes, such as 
the current rate based on long-term investment return expectations, the 
rates applicable to single-employer plans based on corporate bond 
yields, and rates based on Treasury bond yields.

    Answer. In addition to the response below, we refer to the response 
to Question #2 from Senator Hatch, which covers similar topics.

    Actuarial methods and assumptions should be appropriate for the 
purpose of the particular measurement. It is critical to note that the 
advantages and disadvantages of a discount rate for minimum funding 
purposes, which is what the question asks and this response provides, 
may be very different in other contexts. The same quality that supports 
one measurement objective may be contrary to a different objective. 
Comprehensive understanding of plan dynamics is unlikely to be derived 
from any single measurement.

    Two American Academy of Actuaries pension issue briefs \3\--
released in November 2013 and July 2017--compared and contrasted 
various liability measurements. These papers made use of the following 
terminology.
---------------------------------------------------------------------------
    \3\ ``Measuring Pension Obligations: Discount Rates Serve Various 
Purposes,'' http://www.
actuary.org/files/IB_Measuring-Pension-Obligations_Nov-21-2013.pdf, and 
``Assessing Pension Plan Health, More Than One Right Number Tells the 
Whole Story,'' http://www.actuary.org/files/publications/IB-
RightNumber07.17.pdf.


------------------------------------------------------------------------
              Purpose                     Discount Rate Assumption
------------------------------------------------------------------------
Budget Value                         Expected long-term investment
                                      return
------------------------------------------------------------------------
Immunized Value                      Current corporate bond yields
------------------------------------------------------------------------
Solvency Value                       Current Treasury bond yields
------------------------------------------------------------------------


    As noted in the November 2013 issue brief, using the expected long-
term investment return determines a ``Budget Value.'' The Budget Value 
is the theoretical asset amount that would be expected to be sufficient 
to pay all currently earned (and future) plan benefits if that amount 
is invested and earns the anticipated return of the plan's investment 
portfolio, assuming that the current asset allocation remains in place.

    The ``Immunized Value'' is an amount that is theoretically required 
to fully immunize benefit payments accrued to date with a dedicated 
high-quality bond portfolio. This is a common measurement for an 
employer to use to value the pension obligations from single-employer 
defined benefit pension plans under Financial Accounting Standards 
Board (FASB) Accounting Standards Codification (ASC) Topic 715.

    The ``Solvency Value'' is a current market-based measurement that 
determines the amount that a pension plan theoretically would need to 
invest in risk-free securities in order to provide the accrued benefits 
with certainty to the affected participants, assuming no additional 
contributions.

    Key advantages and disadvantages of these discount rate assumptions 
for minimum funding purposes follow:
Expected long-term investment return
    Advantages:

          Liability provides the asset value necessary to provide 
        promised benefit payments if the expected return is realized in 
        each future year.

          May provide greater stability for minimum required 
        contribution amounts than other approaches.

    Disadvantages:

          Presumes that the sponsor can make additional contributions 
        if the assumed return is not achieved.

          May incent a more aggressive asset allocation to decrease 
        the measurement of the liability.

          Not comparable across plans with different investment 
        allocations.

          Return expectations are subjective and can vary widely.
Corporate bond rates
    Advantages:

          Liability reflects what would be held on a corporate balance 
        sheet for a similar promise, if considered very low in default 
        risk.

          Greater comparability of liabilities across plans.

          Less incentive for risky investment.
Disadvantages:
          Does not reflect the investment policy of the plan. If the 
        plan is fully funded with this liability measure and a typical 
        investment mix is used, the plan sponsor is likely to have 
        contributed more than is actually necessary to pay benefits.

          Discount rate and resulting liability may be quite volatile, 
        presenting challenges for collective bargaining and other plan 
        management functions.
Treasury bond rates:
          Generally the same advantages and disadvantages as for 
        corporate bond rates, but the liability reflects the value of a 
        promise with no default risk (as opposed to very low default 
        risk), consistent with Treasury bond pricing.

    Question. Please describe in detail the role that the trustees of 
multiemployer pension plans, employers, and unions representing 
employees have in setting benefit and contributions levels for plan 
participants and employers. If there is a range of customary practices, 
please describe the most prevalent practices.

    Answer. Contributions to multiemployer pension plans are 
collectively bargained, and workers typically forgo some direct 
compensation in exchange for contributions to retirement plans. In 
turn, employers are required to fund the plans in accordance with their 
collective bargaining agreements and subject to certain regulations. 
The contribution rate is usually a specific amount per hour or other 
unit worked by or paid to the employee. When a plan becomes 
underfunded, the trustees may establish minimum contribution rates as 
part of their funding improvement or rehabilitation plans.

    Traditionally, plan boards of trustees have sole authority to 
determine the plan design and level of benefits that will be supported 
by negotiated contributions. However, in some cases, collective 
bargaining agreements may describe the plan design and benefits. In 
these situations, the trustees are given the authority to collect 
sufficient contributions to fund the benefits.

    Question. Please describe the procedures by which trustees are 
selected to serve as such for a multiemployer pension plan.

    Answer. Multiemployer plans' boards of trustees consist of an equal 
number of employer trustees and union trustees. The employer trustees 
are selected by the contributing employers, or from associations that 
represent those employers. The union trustees are selected by the 
participating union or unions. Multiemployer plans are typically 
governed by trust agreements that can contain varying levels of detail 
regarding the process that is followed for appointing trustees.

    Question. Please describe what an investment policy is for a 
multiemployer pension plan, including how it is created and how it is 
used.

    Answer. An investment policy is a vital document for multiemployer 
pension plan governance. As the trustees of a multiemployer pension 
plan are fiduciaries to the plan, they must act with care and in the 
best interest of plan participants and beneficiaries in all matters--
including those related to plan investments. For that reason, the 
investment policy is important in documenting the objectives, duties, 
policies, procedures related to the plan investments.

    A plan's investment policy is typically created by the plan's board 
of trustees, with guidance from professional advisors such as the 
investment consultant and legal counsel.

    Some of the key features of an investment policy include the 
following:

          Objectives: The general investment-related goals for the 
        plan, which may include the targeted annual return, 
        minimization of volatility, and adequate liquidity to pay 
        benefits and expenses.

          Duties: Who is responsible for making certain decisions and 
        taking certain actions related to plan investments? Parties 
        typically include the board of trustees, an investment 
        committee of the board of trustees, the plan administrator, the 
        investment consultant, investment managers, or custodian.

          Asset allocation: The targeted percentage allocations to 
        various asset classes (such as stocks, bonds, and alternative 
        investments) designed to meet the goals of the investment 
        policy. Typically, the policy will also define acceptable 
        ranges for the asset allocation, as well as procedures for 
        rebalancing the portfolio.

          Manager selection: The policies and procedures for selecting 
        investment managers--the firms responsible for investing a 
        portion of plan assets according to a specified strategy, the 
        manager's approach (for example, active versus passive) and 
        fees, are important considerations.

          Monitoring and review: The metrics for regularly evaluating 
        the performance of the overall strategy relative to the stated 
        goals, and the performance of individual investment managers 
        relative to specified benchmarks.

    Question. Please explain the risk to the multiemployer system in 
the aggregate if an employer that participates in numerous 
multiemployer plans goes bankrupt.

    Answer. If a major contributing employer that participates in 
numerous multiemployer plans goes bankrupt, each of those plans will be 
left with unfunded ``orphan'' liabilities, as well as a diminished 
contribution base. These factors will create additional strain on those 
plans.

    The Academy's Pension Practice Council has not done an analysis of 
the possible impact to the multiemployer pension system in the 
aggregate if a single employer that participates in several plans were 
to go bankrupt. The magnitude of the risk to the multiemployer system 
depends on the size of the employer, the number of plans in which the 
employer participates, and the current strength of those plans.

    Question. Please describe the characteristics of better-funded 
plans from those that are facing financial troubles.

    Answer. The current funded status of a multiemployer pension plan 
is likely to have been shaped by many factors, both internal and 
external. Decisions by the board of trustees with respect to the plan's 
investments, participant benefit levels, and employer contribution 
rates all contribute to the current and future health of the plan. 
There are also significant factors in play that are beyond trustees' 
control, such as market volatility, plan maturity, overall industry 
strength and activity, and the financial health of participating 
employers.

          Investment performance: Some multiemployer pension plans 
        have performed better than others with respect to investment 
        returns. That said, the vast majority of plans--which by and 
        large are invested in diversified, balanced asset portfolios--
        were similarly affected by market volatility in recent decades.

          Benefit and contribution levels: Many boards of trustees 
        have taken proactive measures to strengthen plan funding levels 
        in recent years through a combination of increases in employer 
        contribution rates and reductions in participant benefit 
        levels. It is important to note, however, that some plans are 
        so distressed that no reasonable corrective measures available 
        under current law can restore them to good health.

          Plan maturity: One measure of plan maturity is the ratio of 
        the number of inactive and retired participants to the number 
        of active participants: this is often called the ``support 
        ratio.'' In other words, more mature plans have more inactive 
        and retired participants supported by fewer active 
        participants. Plan maturity is perhaps the most significant 
        factor in distinguishing healthy plans from those in distress. 
        The mere fact that a plan is mature does not mean that the plan 
        will be distressed, but mature plans tend to be less resilient 
        to adverse experience.

          Industry activity: ``Industry activity'' is a term often 
        used to refer to overall covered employment levels. Declining 
        industry activity can accelerate plan maturity--it causes there 
        to be fewer active participants in the plan and a smaller 
        contribution base, and also increases the support ratio 
        described above. Plans in declining industries tend to be less 
        resilient to investment volatility, due to the diminished 
        impact any changes to future contribution rates or benefit 
        accrual rates will have on the trajectory of the plan.

          Employer health. A factor related to industry activity is 
        the financial health of participating employers. If employers 
        are distressed, they will be less able to afford increases in 
        contribution rates to strengthen plan funding levels. They are 
        also less likely to be able to pay their full withdrawal 
        liability obligation in the event of a withdrawal, creating 
        unfunded orphan liabilities that must be absorbed by the 
        remaining employers.

    Question. Please explain whether it benefits a multiemployer 
pension plan to have diversity in the industries represented by its 
participating employers.

    Answer. Multiemployer pension plans cover workers in a variety of 
industries, such as construction, service, transportation, retail food, 
manufacturing, and entertainment. In most cases, multiemployer plans 
cover workers in a specific industry; they are not usually diversified 
across industries.

    Diversification is an important element in reducing risks 
associated with multiemployer plans--both in pooling of risk among 
employers, as well as in structuring a balanced asset portfolio. 
Diversification across industries or trades may have similar benefits 
for multiemployer plans, in that it would make them more resistant to 
forces that may adversely affect one industry but not another. That 
said, structuring multiemployer plans to cover workers in a variety of 
industries, trades, or unions would represent a major shift in how 
these plans are created and maintained.

    Question. Please describe the current rules that allow 
multiemployer plans to merge with other pension plans.

    Answer. A merger is when two or more multiemployer plans join to 
create a single ongoing plan. The plans are often in similar industries 
or geographic regions and often have employers that contribute to both 
plans. The trustees of both plans have to make a decision on whether a 
merger is in the best interest of their plan and its participants, and 
among other things decide on the future benefits and levels of 
contributions and whether the underfunding, if any, is made up by the 
individual plans or managed on a combined basis. The PBGC has provided 
regulations for allocating unfunded vested benefits for merged plans, 
where the individual liability is phased out over time.

    Section 4231 of ERISA lays out several rules for mergers and 
transfers between multiemployer plans. That is, the plan must notify 
the PBGC 120 days prior to merger date, accrued benefits cannot be 
reduced, benefits are not reasonably expected to be subject to 
suspension under section 4245 (insolvent plans), and an actuarial 
valuation must be completed for each of the affected plans before the 
merger date.

    PBGC may provide assistance to facilitate a merger if it's in the 
best interest of the participants and beneficiaries of at least one of 
the plans and is not reasonably expected to be adverse to the overall 
interests of the participants and beneficiaries of any of the plans. 
PBGC's facilitation may include financial assistance, training, 
technical assistance, mediation, communication with stakeholders, and 
support with related requests to other government agencies.

    PBGC may provide financial assistance to facilitate a plan merger 
if: (1) at least one plan is critical and declining, (2) financial 
assistance will reduce PBGC's expected long-term losses from the plans 
involved, (3) financial assistance is needed for the merged plan to 
become or remain solvent, (4) PBGC confirms the financial assistance 
will not impair its ability to meet existing obligations, and (5) any 
financial assistance is paid out of the PBGC multiemployer guarantee 
fund.

    Question. Please describe the steps, if any, that individual 
workers could have taken to prevent multiemployer plan funding 
shortfalls. Please describe if it were possible for workers to 
anticipate or prevent the insolvency of the multiemployer plans in 
which they participate.

    Answer. We are not aware of any actions individual workers could 
have taken that would have had a significant effect on preventing 
multiemployer pension funding shortfalls.

                                 ______
                                 
                Questions Submitted by Hon. Rob Portman
    Question. Mr. Goldman, you noted that it is not uncommon for 
employers to pay a negotiated withdrawal liability in the form of a 
lump sum settlement that is often well below the amount of the 
employer's withdrawal liability that would otherwise be calculated 
under the statute. You further indicated that in reality, an employer's 
actual payment is often based on its ability to pay, since as you said, 
``it is better to get something than nothing.''

    To further crystalize this point, what is your analysis of the 
approximate percentage of employers who negotiate a lump sum 
withdrawal, and how much of their full withdrawal liability is that 
negotiated amount?

    Additionally, among employers that pay their withdrawal liability 
in annual installments, about what percentage have their withdrawal 
liability forgiven after 20 years, and among these employers, how much 
is typically forgiven?

    Answer. Specific data on withdrawal liability payments is not 
readily available. However, we can provide some anecdotal observations.

          In very well-funded plans, there is no withdrawal liability. 
        In moderately well-funded plans, the withdrawal liability is 
        paid off in less than 20 years. In distressed plans, however, 
        withdrawal liability payments are often limited by the 20-year 
        cap.

          The typical lump sum settlement amount is usually some 
        percentage (for example, 80 to 90 percent) of the present value 
        of the future withdrawal liability payments. Any settlement 
        below 100 percent of the present value of future payments would 
        likely reflect the uncertainty of the employer's ability to 
        make its required withdrawal liability payments many years into 
        the future. In evaluating proposed settlements, plan trustees 
        often weigh the amount of the discount against the added 
        certainty of receiving the entire amount upfront.

          A very wide range of settlement terms have been negotiated 
        between withdrawn employers and multiemployer funds, and 
        unfortunately there is no data available that summarizes these 
        agreements.

    Question. To follow up regarding the rate of return that 
multiemployer plans currently assume in discounting their liabilities, 
how often in the past 30 years have multiemployer pension plans 
achieved a market rate of return of over 7 percent?

    Answer. When reviewing investment returns for multiemployer pension 
plans (or retirement plans in general, for that matter), it is 
important to keep in mind that annual returns can be quite volatile, 
even with a well-diversified portfolio. It is also important to note 
that historical data on investment returns for multiemployer pension 
plans is not broadly available.

    With that said, we have prepared an analysis of historical median 
investment returns for multiemployer pension plans. This analysis draws 
on publicly available Form 5500 data where it is available, 
specifically for calendar years from 2000 through 2016. For calendar 
years from 1982 through 1999, and for calendar year 2017.\4\ (Note that 
this data may include multiemployer plans other than defined benefit 
pension plans.) For calendar years prior to 1982, investment return 
data for multiemployer plans was not readily available. Therefore, for 
those years, the analysis uses a 50/50 blend of index returns for the 
S&P 500 and bond markets.
---------------------------------------------------------------------------
    \4\ The analysis is based on market data for multiemployer benefit 
plans gathered by Segal Marco Advisors, an investment consulting firm 
in the industry.

---------------------------------------------------------------------------
    Based on the above data and indexes:

          Focusing on the 30-year period from 1988 through 2017, 
        median investment returns met or exceeded a 7.0 percent 
        benchmark return in 19 of 30 years. The annualized return for 
        that 30-year period is 7.7 percent. It is important to note 
        that even over a 30-year period, these statistics can be 
        endpoint sensitive. In other words, these stats may change 
        noticeably by simply shifting the period forward or backward by 
        one year.

          Investment returns for multiemployer plans have varied by 
        decade, sometimes significantly. Median annualized returns 
        were: 6.7 percent for the 1970s; 13.1 percent for the 1980s; 
        11.2 percent for the 1990s; and 2.7 percent for the 2000s. The 
        median annualized return so far this decade (for the 8 years 
        from 2010 through 2017) has been 8.2 percent.

                                 ______
                                 
                Questions Submitted by Hon. Bobby Scott
    Question. Please describe in detail the funding rules of the 
single-employer pension plans and the multiemployer pension plans.

    Answer. Below is a comparison of the general funding rules for 
single-employer plans and multiemployer plans:


    Comparison of U.S. Single-Employer and Multiemployer Pension Plan
                          Minimum Funding Rules
------------------------------------------------------------------------
                           Single-Employer            Multiemployer
------------------------------------------------------------------------
Relevant Internal     Sections 412, 430, 436.    Sections 412, 431, 432.
 Revenue Code
 Sections
------------------------------------------------------------------------
Actuarial Assumptions:
------------------------------------------------------------------------
Economic                  Selection subject to Actuarial Standard of
 PAssumptions                   Practice No. 27 \5\ P(ASOP 27)
------------------------------------------------------------------------
Assumed Rate of       Generally based on
 Return on             expected return over a
 PInvestments          long-term investment
                       horizon (typically 20
                       or more years) for the
                       actual or target
                       investment portfolio
                       held in trust.
                                                Generally based on
 
------------------------------------------------------------------------
Discount Rate          Prescribed, based on 24- Selection is subject to
                       month average of high-    ASOP 27, with a ``best
                       quality corporate bond    estimate'' standard.
                       yields. However,          The discount rate is
                       statutory relief          based on the expected
                       measures adopted          long-term rate of
                       following the 2008        return on investments
                       financial crisis have     that will be used to
                       broken the link with      pay all future benefits
                       current market rates by   (including those not
                       extending the averaging   yet accrued). For
                       period to 25 years.       current liability, a 4-
                                                 year average of 30-year
                                                 Treasury bond yields is
                                                 prescribed.
------------------------------------------------------------------------
Other Economic        Actuary selects           Actuary selects
 Assumptions Such as   assumptions.              assumptions.
 Inflation or
 Assumed Rate of
 Future Salary
 Increases
------------------------------------------------------------------------
Demographic               Selection subject to Actuarial Standard of
 Assumptions                    Practice No. 35 \6\ P(ASOP 35)
------------------------------------------------------------------------
Mortality             Prescribed.               In general, actuary
                                                 selects assumption,
                                                 however, ``Current
                                                 Liability'' measurement
                                                 uses prescribed
                                                 assumptions.
------------------------------------------------------------------------
Other Demographic     Actuary selects           Actuary selects
 Assumptions           assumptions, using a      assumptions, using a
                       ``best estimate''         ``best estimate''
                       standard.                 standard.
------------------------------------------------------------------------
Funding Method            Selection subject to Actuarial Standard of
                            Practice Nos. 4 and 44 (ASOPs 4 and 44)
------------------------------------------------------------------------
Actuarial Cost        Prescribed, a             Selection subject to
 Method                traditional Unit Credit   ASOP 4 \7\ and pre-PPA
                       method that results in    rules. Most common
                       a Target Liability and    methods are Entry Age
                       Target Normal Cost.       Normal and traditional
                                                 Unit Credit.
------------------------------------------------------------------------
Asset Valuation       Actuarial Value of        Selection subject to
 Method                Assets (AVA) is Fair      ASOP 44 \8\ and various
                       Market Value or may be    rules promulgated by
                       calculated under a        the IRS. Reflection of
                       restricted number of      market returns over a
                       alternative methods       period of 5 years is
                       outlined in Internal      allowed, with AVA
                       Revenue Service (IRS)     limited to within 20
                       Notice 2009-22 which      percent of Fair Market
                       recognize market          Value.
                       returns over not more
                       than 24 months, with
                       AVA limited to within
                       10 percent of Fair
                       Market Value.
------------------------------------------------------------------------
Amortization of       Generally over 7 years;   Generally over 15 years;
 Unfunded              temporary amortization    certain pre-PPA amounts
 Liabilities           relief permitted;         amortized over longer
                       extended amortization     periods may continue to
                       periods of up to 15       be amortized over the
                       years for certain years   remainder of those
                       between 2008 and 2011.    periods.
------------------------------------------------------------------------
Calculation of        Target Normal Cost (the   Normal Cost plus
 Minimum  Required     value of benefits         amortization of
 Contribution (MRC)    expected to be earned     unfunded liabilities.
                       in the year plus plan
                       administrative expenses
                       expected to be paid
                       from plan assets during
                       the year), plus
                       amortization of
                       unfunded Target
                       Liability (referred to
                       as the Funding
                       Shortfall). If the AVA
                       exceeds the Target
                       Liability, any Excess
                       Assets reduce the
                       Target Normal Cost.
------------------------------------------------------------------------
Credit Balances       Plan sponsor may elect    Accumulated past
 Available to Offset   to apply contributions    contributions in excess
 MRC                   in excess of MRC to       of MRC can be used
                       ``Prefunding Balance''    automatically (to the
                       (PFB), which may be       extent needed) to
                       used to offset future     offset MRC for current
                       MRC contributions. Plan   and future years. Plan
                       assets are reduced by     assets are not reduced
                       PFB and any pre-PPA       by credit balance when
                       Carryover Balance (COB)   determining funded
                       when MRC is calculated,   percentage. Interest is
                       and use of COB/PFB is     credited based on the
                       generally precluded if    discount rate.
                       plan is less than 80
                       percent funded.
                       Interest is credited
                       annually on unused
                       balances based on the
                       actual return on plan
                       assets.
------------------------------------------------------------------------
Annual Certification  Annual Adjusted Funding   Annual ``Zone Status''
 of Funded Status by   Target Attainment         Certification required.
 Enrolled Actuary      Percentage (AFTAP)        Satisfactorily funded
                       Certification required.   (generally 80 percent
                                                 funded with no
                                                 projected inability to
                                                 pay MRC in next 7
                                                 years) plans in Green
                                                 Zone. ``Endangered''
                                                 plans (generally less
                                                 than 80 percent funded
                                                 or projected unable to
                                                 pay MRC) in Yellow
                                                 Zone. Critical plans
                                                 (generally projected
                                                 inability to pay MRC in
                                                 near future) in Red
                                                 Zone. A critical and
                                                 declining subset are
                                                 projected to become
                                                 insolvent within 20
                                                 years (or within 15
                                                 years for certain
                                                 plans).
------------------------------------------------------------------------
Consequences of       Plans with AFTAP less     Plans not certified as
 Lower Funding         than 80 percent funded    Green by Enrolled
 Levels                are subject to            Actuary must adopt plan
                       restrictions on payment   of action to reduce
                       of accelerated benefit    benefits and/or
                       distributions (most       increase employer
                       commonly lump sums),      contributions to
                       amendments increasing     improve plan funding
                       plan benefits, and        and emerge from current
                       unpredictable             zone status. Red Zone
                       contingent event          plans have benefit
                       benefits. Plans less      improvement
                       than 60 percent funded    restrictions.
                       must freeze benefit
                       accruals. Additional
                       restrictions apply for
                       plans with an AFTAP
                       less than 100 percent
                       where sponsor is in
                       bankruptcy. Accelerated
                       contributions may also
                       be required if plan
                       deemed ``At-Risk'' or
                       to remove benefit
                       restrictions in some
                       cases.
------------------------------------------------------------------------
Quarterly             Generally, plans less     Quarterly contributions
 PContribution         than 100 percent funded   not required.
 Requirement           must make quarterly       Contributions are
                       payments toward the       generally made
                       MRC.                      throughout the year
                                                 pursuant to collective
                                                 bargaining agreements.
------------------------------------------------------------------------
Failure to            Excise taxes,             Excise taxes and other
 contribute MRC        notification of           penalties apply.
                       participants, the DOL,    However, plans in the
                       IRS and PBGC, possible    Red Zone operating
                       lien against plan         under a Rehabilitation
                       sponsor's assets if       Plan generally qualify
                       aggregate unpaid          for waiver of excise
                       amounts exceed $1         tax.
                       million.
------------------------------------------------------------------------
\5\ http://www.actuarialstandardsboard.org/asops/selection-economic-
  assumptions-measuring-pension-obligations/.
\6\ http://www.actuarialstandardsboard.org/asops/selection-of-
  demographic-and-other-noneconomic-assumptions-for-measuring-pension-
  obligations/.
\7\ http://www.actuarialstandardsboard.org/asops/measuring-pension-
  obligations-determining-pension-plan-costs-contributions/.
\8\ http://www.actuarialstandardsboard.org/asops/selection-use-asset-
  valuation-methods-pension-valuations/.


    Question. What are the main differences between the two?

    Answer. The main differences between the single-employer plan and 
multiemployer plan funding rules are the following:

 Differences Between U.S. Single-Employer and Multiemployer Pension Plan
                              Funding Rules
------------------------------------------------------------------------
                           Single-Employer           Multiemployer
------------------------------------------------------------------------
Discount Rate         Prescribed, based on      Selection is subject to
                       modified                  ASOP 27. Typically the
                       (``stabilized'') high-    discount rate is based
                       quality corporate bond    on the expected long-
                       yields.                   term rate of return on
                                                 investments. Current
                                                 liability discount rate
                                                 prescribed based on 30-
                                                 year Treasury rates.
------------------------------------------------------------------------
Mortality             Prescribed.               Selection subject to
                                                 ASOP 35; however,
                                                 ``Current Liability''
                                                 measurement uses
                                                 prescribed assumptions.
------------------------------------------------------------------------
Asset Valuation       Investment gains/losses   Investment gains/losses
 Method                smoothed over no more     smoothed over no more
                       than 24 months; AVA       than 5 years; AVA
                       limited to within 10      limited to within 20
                       percent of Fair Market    percent of Fair Market
                       Value.                    Value.
------------------------------------------------------------------------
Amortization of       Generally over 7 years.   Generally over 15 years.
 Unfunded
 PLiabilities
------------------------------------------------------------------------
Credit Balances       Available only when plan  Automatically applied as
                       funded at 80 percent or   needed to meet minimum
                       higher in the prior       funding requirements,
                       year. Applied based on    regardless of plan
                       plan sponsor elections.   funded status. Credit
                       Existing balanced         balances do not offset
                       offset AVA in some        plan assets in funded
                       cases when determining    status measures. Unused
                       funded status measures.   balances carried at
                       Unused balances marked    book value by crediting
                       to market by crediting    interest based on
                       interest based on         discount rate (i.e.,
                       actual return on plan     expected return on plan
                       assets.                   assets).
------------------------------------------------------------------------
Consequences of       Plans less than 80        Plans not certified as
 Lower Funding         percent funded are        Green by Enrolled
 Levels                subject to restrictions   Actuary must take
                       on accelerated benefit    actions to reduce
                       distributions,            benefits and/or
                       amendments increasing     increase employer
                       plan benefits, and        contributions to
                       payment of                improve plan funding.
                       unpredictable             Benefit improvements
                       contingent event          are restricted for Red
                       benefits. Plans less      Zone plans.
                       than 60 percent funded
                       must freeze benefit
                       accruals. Additional
                       restrictions when plan
                       sponsor is in
                       bankruptcy. Accelerated
                       contributions may be
                       also be required if
                       plan deemed ``At-Risk''
                       or to remove benefit
                       restrictions in some
                       cases.
------------------------------------------------------------------------


    Question. What would be the key impacts to plans, employers, and 
participants if multiemployer pension plans were funded like single-
employer plans?
                                 plans
    Answer. Use of the single-employer plan funding rules would 
generally result in significantly lower funded status percentages.\9\ 
Many multiemployer pension plans would be subject to accelerated 
funding requirements and restrictions on benefit payments. Some plans 
would be required to freeze benefit accruals due to being under 60 
percent funded. Plans could see a resulting decline in active 
participation as bargaining units negotiate out of plans where their 
members will receive no additional accruals.
---------------------------------------------------------------------------
    \9\ Note that funded status is only one measure of plan funding or 
financial health. Different measures of funded status may be used for 
different purposes but are only estimates of the relative values of 
plan assets and liabilities at a point in time, using a specified set 
of assumptions to estimate the plan's liabilities. The true cost of a 
defined benefit plan is based on the actual benefits that come due to 
participants in the future, the pattern of which will inevitably differ 
from any estimate developed to measure the cost of those payments.
---------------------------------------------------------------------------
                               employers
    Use of the single-employer plan funding rules would generally 
result in increased and unstable contribution requirements. Increases 
to the contributions would need to be negotiated, and instability would 
severely hamper employer viability, especially in construction and 
other competitive industries. Failure to negotiate contribution 
increases may result in excise taxes and other penalties owed by the 
employers. If unfunded vested benefit liability were calculated using 
the single-employer liability assumptions, the exposure to withdrawal 
liability in some plans would increase for many employers (depending on 
the actuarial basis used), and the instability of ongoing funding could 
lead to a wave of employer withdrawals that would result in additional 
plans becoming insolvent.
                              participants
    Future participant benefits would likely be reduced from current 
levels. Plans less than 60 percent funded under the single-employer 
rules would be required to freeze benefits. Plans over 60 percent 
funded may still need to reduce future benefit accruals in order to 
meet the accelerated amortization of unfunded liability. Members would 
be pressured to give up more of their wages to help meet higher funding 
requirements, and be far less likely to support continued plan 
participation.
Additional Details on the Primary Differences Between the Single-
        Employer and Multiemployer Plan Funding Rules
                            discount rate(s)
    Single-Employer: The single-employer funding rules require 
discounting of future expected pension benefit payments using rates 
based on the yields on high-quality corporate bonds, regardless of the 
plan's actual investments, in order to develop the actuarial present 
value of accrued benefits as of a valuation date. Under the original 
PPA 2006 rules, the bond rates could either be based on a full yield 
curve incorporating a 1-month average of bond yields, or could be based 
on three ``segment rates'' derived from a 24-month average of rates. 
The three segment rates represent the average yields for periods less 
than 5 years (the first segment rate), 5 to 20 years (the second 
segment rate), and 20 years and beyond (the third segment rate).

    The Pension Relief Act of 2010 (PRA) was the first of several 
funding relief measures in the wake of the 2008-2009 financial crisis. 
PRA allowed plan sponsors to extend the amortization period of the 
funding shortfall for any 2 of the years 2008 through 2011, inclusive. 
In 2012, the Moving Ahead for Progress in the 21st Century Act (MAP-21) 
provided for ``Segment Rate Stabilization,'' which limited the segment 
rates to within a corridor defined by a decreasing percentage (starting 
at 30 percent and reducing in 5-percentage-point increments to 10 
percent) of the 25-year average of the original PPA segment rates for 
calculation of the MRC and AFTAP used to determine the applicability of 
the PPA benefit restrictions. Segment Rate Stabilization raised the 
allowable segment rates, which significantly decreased minimum required 
contributions and provided relief from benefit restrictions for single-
employer plans. The phase-out of the corridor based on 25-year average 
rates has been extended subsequent to MAP-21 by the Highway and 
Transportation Funding Act of 2014 and again in the Bipartisan Budget 
Act of 2015.

    Notably, Segment Rate Stabilization did not apply to the funded 
status measurements required to determine whether reporting to the PBGC 
under ERISA section 4010 was required by a plan sponsor, and also did 
not apply to the calculation of the unfunded vested benefits used to 
compute a plan's PBGC variable premium. Thus, since enactment of the 
PRA many plan sponsors have been able to satisfy the minimum funding 
requirements but are faced with PBGC variable premiums sufficiently 
large that a significant incentive exists for the sponsor to fund at a 
higher level than the MRC (which may not be affordable for some plan 
sponsors) or to remove liability from their plans through pension risk 
transfer transactions (e.g., lump sum windows or annuity purchases).

    As of March 31, 2018, the segment rates applicable for various 
purposes are shown in the table below. For comparison purposes, the 
``effective interest rate,'' which is the single discount rate that 
would produce the same target liability as the segment rates, will 
typically fall between the second and third segment rates.


------------------------------------------------------------------------
                                                    Segment Rate
   Measurement Purpose    Averaging Period -----------------------------
                                              First    Second     Third
------------------------------------------------------------------------
Minimum Required          25 years.\10\       3.92%     5.52%     6.29%
 Contribution and PPA
 Benefit Restrictions.
------------------------------------------------------------------------
PBGC ERISA section 4010   24 months.          1.94%     3.66%     4.46%
 Reporting
 Applicability.
------------------------------------------------------------------------
PBGC Variable Rate        One month.          2.91%     3.99%    4.43%
 Premiums.
------------------------------------------------------------------------
\10\ The actual 25-year average is made using 24-month averages of the
  monthly segment interest rates, effectively extending the averaging
  period beyond 25 years.


    Multiemployer: Multiemployer plan actuaries generally use a 
discount rate to value plan liabilities equal to the expected long term 
rate of return on plan assets. Selection of this assumption is subject 
to ASOP No. 27. Since most multiemployer plans invest in a diversified 
portfolio that includes return-seeking asset classes such as equities, 
discount rates tend to be higher than the single-employer discount 
rates, even with Segment Rate Stabilization. The average discount rates 
reported on the IRS Form 5500s used by multiemployer plans in 2015 was 
approximately 7.4 percent.
                               mortality
    Single-Employer: The mortality rates (and allowance for improvement 
over time) to be used to calculate the Funding Target and Target Normal 
Cost are prescribed. These rates are generally based on studies 
performed by the SOA, but until a recent update in 2018 were based on a 
study published in 2000 and had not been revised since PPA was enacted. 
The mandated assumptions do not vary by industry, geographical area or 
other plan-specific demographics. Only very large plans may use their 
own mortality experience to set assumptions, if they can show that 
their plan experience is statistically significantly different from the 
mortality rates under the standard prescribed tables.

    Multiemployer: The selection of the mortality tables and 
improvement scales to be used for multiemployer plans is subject to 
ASOP No. 35. The recent SOA studies published in 2014 (with subsequent 
updates to the improvement scales in 2015, 2016, and 2017) have 
included mortality tables that vary by ``collar'' and many 
multiemployer plans may use some variation of these ``blue collar'' 
tables, although those tables were not based on multiemployer 
experience. The SOA's RP-2014 blue collar mortality rates may result in 
slightly lower plan liabilities than the prescribed tables for single-
employer plans. There are studies indicating that plans, and many 
industries in which multiemployer plans are prevalent, experience 
mortality rates that are significantly higher than the SOA blue collar 
table would indicate, so actuarial judgment is often used to modify the 
SOA tables.
                        asset valuation methods
    Both single-employer and multiemployer funding rules allow for an 
AVA to be used for funding calculations. Generally, this is allowed to 
smooth out volatility in investment returns so that plan costs are less 
volatile than what would be calculated if the fair market value of 
assets was used in the calculations.

    Single-Employer: The allowable AVA methods are narrowly defined in 
IRS Notice 2009-22. Actual investment returns differing from expected 
investment returns must be fully recognized in the AVA within 24 
months. The expected rate of investment returns is limited by the third 
segment rate as of each valuation date, and the AVA must lie between 90 
and 110 percent of fair market value.

    Multiemployer: The range of allowable AVA methods is subject to 
ASOP No. 44 and pre-PPA regulatory guidance. Actual investment returns 
differing from expected investment returns are typically recognized 
over a period of 5 years or less. The expected rate of investment 
return is based on a best estimate of expected returns for the plan's 
investment portfolio. The AVA must lie between 80 and 120 percent of 
fair market value.

    One of the PRA 2010 funding relief measures allowed for 10-year 
recognition of 2008-2009 investment losses in the AVA and longer 
amortization of those losses after they are recognized for 
multiemployer plans that elected the relief.
                  amortization of unfunded liabilities
    Single-Employer: The single-employer funding rules define the 
``Funding Shortfall'' as the Funding Target minus AVA, where AVA is 
reduced by any PFB or COB. Each year, the Funding Shortfall in excess 
of the unamortized balance of prior Funding Shortfall amounts is 
amortized over 7 years. A single annual amortization base is 
established, such that changes due to experience gains/losses, plan 
amendments, and assumption changes are not separately identified.

    One of the PRA 2010 funding relief measures allowed for 
amortization of Funding Shortfall amounts for 1 or 2 of the plan years 
beginning in 2008, 2009, 2010, and 2011 to be amortized over 15 years 
or over ``2 plus 7'' years (where amortization was interest only for 
the first 2 years).

    Multiemployer: Under the multiemployer funding rules, the unfunded 
actuarial liability (UAL) is defined as Actuarial Liability (AL) minus 
AVA. The PPA 2006 multiemployer funding rules allowed for the 
previously established amortizations of past plan amendments and 
assumption changes to be amortized over the remainder of their original 
30-year amortization periods. Pre-PPA 2006 gains or losses continued to 
be amortized over the remainder of their 15-year amortization periods. 
All post-PPA 2006 changes in UAL due to experience gains or losses, 
plan amendments, or assumption changes are amortized over 15 years. 
Changes in UAL are separately identified and amortized by source, even 
though the amortization period is the same for each of these sources. 
Funding method changes are amortized over 10 years.

    Another of the PRA 2010 funding relief measures allowed for 
amortization of 2008-2009 investment losses to be amortized over a 29-
year period.
                         calculation of the mrc
    Single-Employer: Under the single-employer funding rules, the MRC 
is generally equal to Target Normal Cost plus Shortfall Amortization, 
where, as discussed earlier, Target Normal Cost (TNC) is calculated 
using prescribed discount rates based on corporate bond yields and a 
prescribed mortality table, Shortfall Amortization is over 7 years, and 
the Funding Shortfall is calculated based on AVA reduced by PFB and 
COB. The TNC includes an estimate of the administrative expenses 
expected to be paid from plan assets during the year, and is reduced by 
any Excess Assets (defined as the AVA-COB-PFB-TL).

    Multiemployer: Under the multiemployer funding rules, the MRC is 
generally equal to Normal Cost plus amortization of UAL, where, as 
discussed earlier, Normal Cost is calculated using a discount rate 
equal to the expected rate of return on plan assets and a best-estimate 
mortality table, and UAL is amortized generally over 15 years. The 
expense load for expected plan administration expenses may be defined 
explicitly by inclusion in the normal cost (as with single-employer 
plans) or implicitly through a reduction in the discount rate.
                credit balances available to offset mrc
    Both the single-employer and multiemployer funding rules allow plan 
sponsors to offset the MRC by past contributions made in excess of past 
MRC amounts.

    Single-Employer: The use of COB or PFB is restricted in a number of 
ways under the PPA 2006 single-employer funding rules, to reduce the 
ability of a plan sponsor with a seriously underfunded plan to rely on 
a large credit balance to meet minimum funding requirements. PPA 2006 
does not allow a plan less than 80 percent funded to use these balances 
to satisfy minimum funding requirements. PPA 2006 requires the funding 
shortfall to be calculated deducting PFB and COB from AVA, so 
maintaining these balances actually increases a plan sponsor's 
calculated MRC amounts by increasing the shortfall amortization 
amounts. A plan sponsor may also waive these balances to increase the 
funded percentage, for example to avoid benefit restrictions or 
restrictions on plan amendments under IRC section 436 or reporting to 
the PBGC under ERISA section 4010.

    The COB and PFB are credited annually with interest at the actual 
rate of return on plan assets, to the extent not used to offset the MRC 
or reduced to improve the funded percentage. This mark-to-market 
approach precludes a plan sponsor from incurring large losses while 
still increasing its future funding credits with an assumed rate of 
return. Plan sponsors must actively elect to use the balances to 
satisfy the MRC, and must specify the exact amount to be used each 
year.

    Multiemployer: The PPA funding rules for multiemployer plans 
retained the credit balance concept from the pre-PPA funding rules. Any 
prior years' contributions in excess of prior MRC amounts are 
accumulated at the valuation interest rate (i.e., an expected return on 
assets) and are automatically used to satisfy current minimum funding 
requirements to the extent not otherwise satisfied with cash 
contributions. If the credit balance ever becomes negative, this amount 
is called a ``funding deficiency.'' If a funding deficiency occurs or 
is projected to occur in the next 4 or 5 years, the plan will be 
considered to be in critical status (in the Red Zone) and must adopt a 
rehabilitation plan, which reduces plan benefits and/or increases 
employer contributions to correct the funding problem, if possible. If 
a funding deficiency is projected to occur within 7 years, a plan is 
considered to be endangered (in the Yellow Zone) and must adopt a 
Funding Improvement Plan, reducing the rate of future benefit accruals 
and/or increasing employer contributions to correct the funding 
problem.
                  consequences of lower funding levels
    Single-Employer: Plans less than 80 percent funded are subject to 
restrictions on (a) payment of accelerated benefit distributions (such 
as lump sums and other amounts paid more rapidly than in equal 
installments over a participant's lifetime), (b) amendments increasing 
plan benefits, and (c) unpredictable contingent event benefits. Special 
``At-Risk'' funding measures accelerate the minimum funding 
requirements for certain plans that are less than 80 percent funded on 
the regular funding assumptions and less than 70 percent funded using 
special ``At-Risk'' assumptions.\11\ Plans less than 60 percent funded 
must freeze benefit accruals. Additional contributions in excess of the 
minimum funding requirements may be made to remove these restrictions, 
and cannot be added to the plan's PFB. A plan sponsor in bankruptcy 
will be subject to the accelerated benefit restrictions unless the 
plan's actuary has certified the funded percentage for the current year 
to be in excess of 100 percent. The only remedial actions available for 
underfunded single-employer plan sponsors are to reduce or eliminate 
future benefit accruals, waive PFB and COB, or contribute their way out 
of underfunding.
---------------------------------------------------------------------------
    \11\ The special ``At-Risk'' assumptions reflect accelerated 
retirement timing and an election of the most valuable form of benefit 
payment at the assumed retirement date.

    Multiemployer: Plans not certified as Green by the Enrolled Actuary 
must take actions to reduce benefits and/or increase employer 
contributions to improve plan funding. Within 30 days of certification 
as endangered or critical, the plan must notify all participants and 
beneficiaries, the bargaining parties, the PBGC, and the Secretary of 
Labor. Certain improvements are to be made over a funding improvement 
period or rehabilitation period of about 10 years. Annual certification 
of ``scheduled progress'' under the funding improvement plan or 
rehabilitation plan must be certified by the Enrolled Actuary or 
further corrective action is required. The guidelines and applicable 
timelines for establishing the funding remedies were designed to work 
---------------------------------------------------------------------------
under the collective bargaining process.

    Generally, endangered plans may reduce future benefit accruals and 
increase employer contributions. Critical plans may reduce optional 
forms of benefit subsidies, amounts payable at early retirement ages 
and disability benefits payable prior to normal retirement age, in 
addition to reducing future benefit accruals. Some severely underfunded 
critical plans may not be able to restore funding within the 
rehabilitation period and in that case may conclude that all 
``reasonable measures'' to restore plan funding have been taken.

    MPRA allows critical and declining plans to apply for benefit 
suspensions to reduce all benefits, but not below 110 percent of the 
PBGC guaranteed level, if this is projected to restore solvency after 
all reasonable measures have been taken to attempt to restore funding 
without benefit suspensions. Another MPRA measure allows the PBGC to 
consider applicants for a ``partition,'' in which the agency provides 
immediate resources to pay for the benefits of a segment of the 
participants, in combination with a maximum suspension for all 
participants, enabling long-term solvency to be projected for the non-
partitioned segment.
                        quarterly contributions
    Single-Employer: Plans less than 100-percent funded must make 
quarterly payments toward the MRC to accelerate the payment of minimum 
required contributions to the plan. Plan sponsors may elect to use PFB 
or COB to cover the quarterly requirements, in certain circumstances. 
Failure to make a quarterly contribution or a timely election to use 
PFB or COB to cover the quarterly requirement is a PBGC-reportable 
event, and requires participant notification (unless promptly 
corrected).

    Multiemployer: There is no quarterly contribution requirement for 
multiemployer plans. Employer contributions are generally made 
throughout the year based on hours or other units worked for which 
employer contributions are due under the applicable collective 
bargaining agreements.
                       failure to contribute mrc
    Single-Employer: There are several consequences of failure to 
satisfy the minimum funding requirements.

          Additional interest penalties apply when quarterly 
        contributions are paid late. When the full MRC is not paid by 
        the final contribution due date (8\1/2\ months after the end of 
        the year), interest on the late amount continues to accrue 
        until paid. For late quarterly payments, an additional 5 
        percent interest penalty applies in addition to the regular 
        interest accrued.

          An excise tax equal to 10 percent of the unpaid MRC is due 
        for failure to pay the full amount by the final contribution 
        due date. Amounts remaining unpaid continue to accrue 
        additional 10-percent penalties as of each final contribution 
        due date for subsequent years, until corrected. Amounts that 
        remain uncorrected after several years may become subject to a 
        100-percent excise tax.

          The PBGC must be notified of the failure to pay the MRC in a 
        timely fashion. Special reporting applies when the aggregate 
        unpaid amount of any quarterly and final installments (with 
        interest) exceeds $1 million.

          When aggregate unpaid contributions (with interest) exceed 
        $1 million, the PBGC may place a lien against the plan 
        sponsor's assets.

    Plan sponsors experiencing temporary financial hardship may apply 
for a minimum funding waiver, allowing them to defer and amortize the 
waived contribution over a period of 5 years, if they can demonstrate 
an ability to make the amortization payments in addition to their 
projected funding requirements in future years.

    Multiemployer: Excise taxes and other penalties apply. However, 
plans in the Red Zone operating under a Rehabilitation Plan generally 
qualify for a waiver of the excise tax.

    Question. In the PBGC's multiemployer program, the ``insurable 
event'' is plan insolvency. What does that mean in practice? Please 
describe in detail the corrective action specified under the Pension 
Protection Act (PPA) and the Multiemployer Pension Reform Act (MPRA) 
requiring plans to identify and take steps to remedy funding challenges 
before insolvency is reached.
                        plan insolvency and pbgc
    Answer. A multiemployer pension plan is insolvent when it will have 
insufficient liquid assets and revenue to pay next year's benefit 
payments to retirees and beneficiaries in pay status. When a 
multiemployer pension plan becomes insolvent, triggering PBGC's 
insurable event, PBGC will provide the plan with financial assistance 
to enable the plan to make benefit payments, but only up to the PBGC-
guaranteed levels. The amount of the financial assistance considers the 
plan's available resources--any liquid plan assets and cash inflow such 
as employer contributions and withdrawal liability payments--that can 
be used to pay at least a portion of guaranteed benefits.

    Technically, the financial assistance provided by PBGC is 
structured as a loan, but it is highly unlikely the insolvent plan will 
be able to repay that loan. (To date, only one insolvent plan has 
repaid the financial assistance provided to it by PBGC.)
                      corrective actions under ppa

    PPA provided multiemployer pension plans a framework and new tools 
to address their underfunding that did not previously exist under 
ERISA. Most notably:

          Required remedial action plans in endangered or critical 
        status: PPA requires annual actuarial status certifications for 
        multiemployer pension plans. Certifications are based on 
        current and projected funded levels. The sponsor of a plan 
        certified to be in ``endangered'' status must adopt a ``funding 
        improvement plan,'' and the sponsor of a plan in ``critical'' 
        status must adopt a ``rehabilitation plan.''

          Required contribution increases: A critical status 
        rehabilitation plan or endangered status funding improvement 
        plan may include schedules of required increases in 
        contribution rates, which must be adopted by the bargaining 
        parties. Prior to PPA, multiemployer plan sponsors could 
        encourage bargaining parties to adopt increases in contribution 
        rates, but there was no specific statutory authority providing 
        for this.

          Reductions in adjustable benefits: A rehabilitation plan 
        (but not a funding improvement plan) may include reductions to 
        ``adjustable benefits,'' which include early retirement 
        benefits, ancillary benefits, and other subsidies. These 
        reductions may apply to benefits that have already been 
        accrued, but generally may not apply to participants in payment 
        status. Prior to PPA, accrued benefits were protected under the 
        anti-cutback rule first established under ERISA.\12\ With very 
        limited exceptions, accrued normal retirement benefits and 
        benefits already in payment status when a plan enters critical 
        status remain protected under PPA.
---------------------------------------------------------------------------
    \12\ Internal Revenue Code section 411(d)(6) prohibits the 
reduction or elimination of any accrued benefit, early retirement 
benefit and retirement-type subsidies, and optional forms of benefit.

          Exhaustion of all reasonable measures: Under PPA, the 
        primary goal of a rehabilitation plan is to enable the plan to 
        emerge from critical status by the end of a 10-year 
        rehabilitation period. If, however, a plan sponsor determines 
        that it has exhausted all reasonable measures, it can instead 
        adopt a rehabilitation plan that takes reasonable measure to 
        enable the plan to emerge from critical status at a later date, 
---------------------------------------------------------------------------
        or to forestall the projected insolvency.

    The financial market collapse of 2008 and the Great Recession put 
significant strain on multiemployer pension plans, but most were able 
to work within the framework provided by PPA to restore funding levels. 
Some plan sponsors, however, found their plans were too severely 
distressed to develop a remedial plan that enabled the plan to emerge 
in a timely way from critical status or avoid projected insolvency.

    For these severely distressed plans, even after significant benefit 
reductions, the contribution rate increases needed to emerge from 
critical status within the required statutory time frame were so 
immense that they would cripple or bankrupt the participating 
employers. Therefore, these plan sponsors relied on the ``exhaustion of 
reasonable measures'' clause under PPA and adopted rehabilitation plans 
that focused instead on emerging from critical status at a later date, 
or perhaps delaying insolvency for as long as possible. Those plan 
sponsors acknowledged the reality that unreasonable required 
contribution increases and unreasonable benefit reductions would be 
counterproductive. In other words, overly burdensome contribution 
increases could actually reduce plan revenue by triggering employer 
withdrawals or the rejection of plan participation by active employees.
                     corrective actions under mpra
    When MPRA was passed in late 2014, it targeted those plans in 
critical status that had exhausted all reasonable measures and were 
still on the path toward insolvency. MPRA intended to provide these 
severely distressed plans with additional tools to enable them to 
remain solvent. Specifically:

          Critical and declining status: MPRA established a new status 
        for severely distressed plans: critical and declining status. 
        In general, a multiemployer pension plan is in critical and 
        declining status if it is in critical status and also projected 
        to become insolvent (in other words, run out of money) in the 
        next 20 years.

          Suspension of benefits: MPRA permits sponsors of plans in 
        critical and declining status to elect to suspend benefits if 
        doing so would enable the plan to be reasonably expected to 
        avoid projected insolvency. For this purpose, a suspension of 
        benefits is a temporary or permanent reduction in benefits that 
        would otherwise be protected under ERISA, including benefits 
        that have already been accrued and benefits already in payment 
        status. Certain classes of participants--for example, those 
        over a certain age or those who are or will be receiving 
        disability benefits under the plan--are fully or partially 
        protected from suspensions. Additionally, suspensions must not 
        reduce benefits below 110 percent of PBGC guarantee levels. 
        Plan sponsors that decide to suspend benefits must submit an 
        application to the Department of Treasury for review and 
        approval.

          Partitions and facilitated mergers: MPRA also permits 
        sponsors of plans in critical and declining status to apply to 
        PBGC for special assistance in the form of a partition or a 
        facilitated merger. Under a partition, PBGC would provide 
        financial assistance to cover a portion of plan benefits, but 
        only up to PBGC-guaranteed levels. A precondition of a 
        partition is that the plan must suspend benefits to the maximum 
        extent permitted under law. Under a facilitated merger, PBGC 
        may provide financial assistance to enable a merger between two 
        plans, with the goal of extending plan solvency and reducing 
        PBGC's overall anticipated losses related to the plans 
        involved. PBGC may only approve a partition or facilitated 
        merger if the transaction would not impair PBGC's ability to 
        provide financial assistance to other insolvent plans. Given 
        the financial condition of PBGC's multiemployer program, the 
        impairment requirement significantly limits the level of 
        available financial assistance from PBGC.

    Question. In any case where all but one employer withdraws from a 
multiemployer pension plan, is that one remaining employer's withdrawal 
liability equal to the entire unfunded liability of the plan? Please 
describe in detail the ``last man standing'' rule.

    Answer. Many refer to the ``last man standing'' rule as meaning 
that the final remaining employer in a multiemployer pension plan is 
responsible for the entire unfunded liability of the plan. When a 
multiemployer plan is suffering from a declining employer base, the 
remaining employers tend to bear a larger proportional share of the 
plan's underfunding. However, it is also important to understand that 
there are provisions in the statute that significantly limit the actual 
exposure to the last remaining employers. Most notably:

          Under ERISA, as amended by PPA, the sponsor of a plan in 
        critical status may determine that it has exhausted all 
        reasonable corrective measures to emerge from critical status 
        within the required number of years. In that case, the plan 
        sponsor may develop a rehabilitation plan that includes 
        reasonable measures that target emergence from critical status 
        at a later date, or forestall possible plan insolvency. This 
        provision provides relief to plans with only a few remaining 
        participating employers, in that it does not force them to 
        provide unreasonable contribution increases to rectify 
        underfunding that may be associated with employers that have 
        previously withdrawn.

          Under ERISA, an employer's withdrawal liability assessment 
        is not required to be paid as a lump sum. Instead, the statute 
        establishes a withdrawal liability payment schedule based on 
        historical contribution rates and contribution base units. 
        Furthermore, under ERISA, withdrawal liability payments are 
        generally subject to the ``20-year cap,'' meaning that they 
        stop after 20 years if the statutory payments have not paid 
        down the employer's withdrawal liability assessment, with 
        accumulated interest. In a mass withdrawal situation, however, 
        the 20-year cap no longer applies, meaning that the statutory 
        payments could continue indefinitely. Even if statutory 
        withdrawal liability payments continue forever, however, an 
        employer's withdrawal liability assessment may not be fully 
        satisfied. In other words, the statute does not require an 
        employer to pay its withdrawal liability assessment, even in a 
        mass withdrawal situation.

          Finally, under ERISA, a mass withdrawal may be triggered if 
        ``substantially all'' employers have withdrawn from a 
        multiemployer pension plan. Furthermore, mass withdrawal rules 
        may ``claw back'' certain employers that have withdrawn in the 
        3 years prior to a mass withdrawal. These provisions may help 
        mitigate the unfunded liability exposure to the final few 
        employers participating in a multiemployer plan.

    Question. Please explain why the risk to employers participating in 
multiemployer pension plans could occur sooner than plan insolvency 
dates if accounting rules eventually require such employers to record 
their contingent withdrawal liability on their balance sheets.

    Answer. Under current accounting rules, there are required 
disclosures for employers that participate in multiemployer pension 
plans, including information regarding the employer's total 
contributions to all multiemployer plans in which they participate. 
Withdrawal liability is not a balance sheet liability, nor is it a 
required financial disclosure. That said, some employers voluntarily 
disclose contingent withdrawal liability in their financial reporting 
footnotes.

    If employers were required to record contingent withdrawal 
liability on their balance sheet, it would likely result in lowered 
valuations for publicly traded companies. Many employers, both public 
and private may experience increased difficulty in securing financing. 
In some cases, these factors could add additional financial pressures 
to companies already facing challenging economic conditions.

    Question. In your written testimony, you concluded by saying 
``[o]ne of three actions must be taken: either benefits are reduced 
(this is the current course if there are no interventions), or 
contributions to the plans have to increase, or as a third option, more 
risk can be taken by plans to achieve prospective investment gains. 
Each option presents pros and cons with very different outcomes to 
different stakeholders.'' Please describe in detail the key 
considerations of each option.

    Answer. All available solutions to avoid the insolvency of plans in 
critical and declining status, which have not found a means to resolve 
their funding distress, will involve one or more of three actions, 
broadly defined. In each of these approaches, equity and fairness to 
participants, employers, and taxpayers--and the ability to accept and 
withstand risk--all need to be considered.
                   option 1: benefits can be reduced
    There are many ways this could be accomplished on a targeted basis. 
It would be necessary to decide whose benefit is reduced (e.g., 
everyone, future retirees, or current retirees, or even current 
retirees under a specified age), and by how much to reduce benefits. 
The reductions could vary by group or even by individual. If no action 
is taken, benefit reductions to the PBGC guarantee limit are the 
default, upon insolvency. However, if the PBGC is unable to honor its 
guarantee, then further drastic reductions will take place.

    This option relies on sacrifices from plan participants in order to 
resolve the funding crisis.
                 option 2: provide financial assistance
    Financial assistance provided to troubled plans could be in the 
form of more contributions--from employers, existing participants, or 
even retirees--or from other sources. There are practical limits on how 
much employer contributions can be increased and still be affordable 
(i.e., not contribute to bankruptcy or withdrawal), and limits on how 
much can be paid from participants; in general, critical and declining 
plans have determined that they have already reached that limit--they 
have no recourse in the absence of other sources of assistance.

    The PBGC offers financial assistance that, per the statute, is a 
loan (that is realistically not anticipated to be repaid); however, the 
PBGC's multiemployer program is itself currently projected to become 
insolvent by the end of 2025 if another solution is not found to stave 
off several pending insolvencies from systemically significant plans. 
An alternative is for financial assistance to come from outside the 
current multiemployer system. To the extent that this option draws on 
taxpayer money, it represents a sacrifice from the associated 
taxpayers.
                      option 3: take on more risk
    The option of taking on more risk could reduce the amount of 
benefit reduction or additional financial support needed to avoid 
projected insolvency. It is important to note, however, that taking on 
additional risk could still result in plan insolvency. It should also 
be noted that taking on additional risk must be done in combination 
with other measures. In other words, plans currently in critical and 
declining status cannot reasonably expect to alleviate their projected 
insolvency solely by taking on more investment risk in hopes of 
achieving higher returns.

    An example of taking on additional risk would be to use funds from 
a government-backed loan at a lower interest rate but then investing 
the borrowed amount in return-seeking assets (including stocks) with 
the potential to earn a better return than the fixed rate of the loan, 
which would shift the risk to whatever entity provides or underwrites 
the loan.

    This option will likely involve a taxpayer cost that is expected to 
be less than would be required under Option 2, but that cost will not 
be known in advance, and could be higher than expected or could result 
in unanticipated benefit losses if future experience is poor.

    Question. Is present law sufficient to address the looming failure 
of several systemically important multiemployer pension plans and the 
insolvency of the PBGC's multiemployer program? Or are additional 
legislative tools necessary?

    Answer. As described above, the provisions under PPA and MPRA are 
not sufficient to avoid the looming insolvency for roughly 100 to 120 
multiemployer plans. For some plans in critical and declining status, 
Treasury and PBGC may be able to provide a means of survival via 
approval of plan applications for benefit suspensions and partitions. 
For other plans the existing tools are insufficient and additional 
legislative measures will be needed to avoid the insolvency and to 
prevent the failure of the PBGC guarantee program. However, it is 
important to not jeopardize the survival of the 90 percent of plans 
that are doing well, or are far along the path to recovery from the 
financial crisis.

                                 ______
                                 
 Prepared Statement of Hon. Orrin G. Hatch, a U.S. Senator From Utah, 
   Co-Chairman, Joint Select Committee on Solvency of Multiemployer 
                             Pension Plans
WASHINGTON--Joint Select Committee on Solvency of Multiemployer Pension 
Plans Co-Chairman Orrin Hatch (R-Utah) today delivered the following 
opening statement at a committee hearing examining the history and 
structure of America's multiemployer pension system.

    Today, we will begin our work in developing a deep base of 
knowledge on the issues surrounding multiemployer pension plans and the 
Pension Benefit Guarantee Corporation, or PBGC.

    We have an ambitious work plan, but like all great endeavors, we 
need to start with the basics. That means reviewing what these plans 
are and how they operate; examining why the plans were established; and 
investigating what economic, demographic, and other forces have shaped 
and impacted the plans.

    Going forward, the committee will bring in experts from government 
and academia to help us better understand the issues surrounding 
multiemployer pension plans and the PBGC. This insight will be 
critical: We need to understand the numbers that shape the plans and 
the PBGC, because the challenges we will look at fundamentally involve 
arithmetic--however unpleasant that arithmetic may be.

    After getting a sense of those basic numbers, this committee will 
also examine the major legal and financial issues with the 
multiemployer plans, how the governing statutes have changed over time, 
and how finances have evolved for the various plans and for the PBGC.

    Certainly, the issues involved here are far broader and go much 
deeper, but to understand the scope of the problems that we face, we 
need basic measures of what's going on.

    Looking ahead, we will likely have hearings in which we will listen 
to various stakeholders concerned with the operation of these plans. 
Those stakeholders include retirees, active employees, businesses that 
sponsor the plans, actuaries, plan managers, American taxpayers, and 
the PBGC.

    We will also look at how multiemployer plans are designed and how 
their finances are managed, along with the unique regulatory and 
workforce environments they operate in.

    Following stakeholder input, the committee will examine policy 
options, and the costs and benefits that come with them.

    I do not doubt that the committee has a very heavy workload ahead.

    I also do not doubt the sensitivity of the issues we will discuss. 
The committee is charged with a very difficult task. No matter what 
direction we take, we are bound to anger some folks.

    But it is critical that we understand the core financial features 
of multiemployer pension plans, as well as the PBGC, to guide the path 
toward possible solutions.

    For today's hearing, we have brought in two experts to provide us 
with information on the history, structure, operations, and evolution 
of the multiemployer plans since their inception in the 1940s.

    Their perspectives and insight will be critical as we begin this 
first phase of our process, and I look forward to hearing from them and 
learning more.

    Now, let me close my opening remarks by noting that the staff of 
the Joint Committee on Taxation has prepared, and posted on its 
website, a publication titled ``Present Law Relating to Multiemployer 
Defined Benefit Plans,'' which will serve as one of many valuable 
resources to this committee. I appreciate the work of the JCT and thank 
Mr. Barthold and his team for what I am sure will be useful background 
information.

                                 ______
                                 

                             Communications

                              ----------                              


          Chamber of Commerce of the United States of America

                           1615 H Street, NW

                          Washington, DC 20062

                              202-463-5769

                             April 18, 2018

The Honorable Orrin Hatch           The Honorable Sherrod Brown
Co-Chair                            Co-Chair
Joint Select Committee on Solvency 
of Multiemployer Pension Plans      Joint Select Committee on Solvency 
                                    of Multiemployer Pensions Plans
U.S. Senate                         U.S. Senate
Washington, DC 20510                Washington, DC 20510

Dear Co-Chairs Hatch and Brown:

    Thank you for your work to address the multiemployer pension plan 
crisis, which affects retirees, participants, and employers with plans 
and, potentially, the entire retirement system.

    The Chamber has issued a report, ``The Multiemployer Pension Plan 
Crisis: The History, Legislation, and What's Next?'', which provides an 
in-depth analysis of the events leading up to the crisis, and various 
proposals to fix it. Please include this report in the record of your 
hearing on the ``The History and Structure of the Multiemployer Pension 
System.''

    There is no easy solution for this crisis. However, if nothing is 
done, the consequences will be devastating. We look forward to working 
with Congress to find a solution that minimizes the negative impact of 
this crisis. Thank you for your consideration of our comments and this 
report.

            Sincerely,

            Glenn Spencer
            Senior Vice President
            Employment Policy Division

CC: Members of the Joint Select Committee on Solvency of Multiemployer 
Pension Plans.

                                 ______
                                 

                The Multiemployer Pension Plan Crisis: 
               The History, Legislation, and What's Next?

                        U.S. CHAMBER OF COMMERCE

                             December 2017

                           EXECUTIVE SUMMARY

There is a looming pension crisis in the U.S. that unless addressed 
quickly by the federal government could jeopardize the retirement 
security of hundreds of thousands--if not millions--of Americans. 
Multiemployer pension plans provide pension benefits to over 10 million 
Americans in industries as diverse as construction, mining, trucking, 
and retail and a significant number of these plans find themselves in 
seriously distressed financial condition. If these funds become 
insolvent--and the time frame for that insolvency ranges from 2 to 8 
years--the results could be devastating for retirees, for current 
employees, for the companies that contribute to the plans, and for the 
communities in which companies and beneficiaries reside.

The financial crisis is not limited to one region or industry. It 
potentially will affect companies, workers, retirees, and communities 
throughout the U.S. and would include states as diverse as Ohio, Texas, 
New York, Wisconsin, Kentucky, West Virginia, Kansas, and North 
Carolina.

The narrative is bleak. A recent report found that 114 multiemployer 
defined benefit plans (out of approximately 1,400 nationally), covering 
1.3 million workers, are underfunded by $36.4 billion. Without a 
solution, most of these plans will be bankrupt within the next 5 to 20 
years. Moreover, the federal agency that backstops pension benefits--
the Pension Benefit Guaranty Corporation (PBGC)--is itself in financial 
distress. It is projected that the PBGC could be insolvent in a mere 5 
years and, if that occurs, the retirement security of multiemployer 
plan beneficiaries could be wiped out entirely. Action is needed now to 
avert this pending crisis.

This report chronicles how the multiemployer pension plan system 
arrived at this point. It provides a history of the multiemployer plan 
system, the demographic issues that have plagued it, and attempts to 
fix it. Additionally, the report identifies several initiatives to 
resolve the crisis. Ultimately, however, the report presents a strong 
case for why Congress and the Administration need to act now.

Although many multiemployer plans were fully funded in the 1980s and 
1990s, this euphoria came to an end in 2000, when the price of 
technology stocks fell drastically. Many multiemployer plans had ridden 
the wave of these dot-com companies to historic highs in asset levels, 
but when the market crashed and investment returns were disastrous, 
plans were hit twice as hard because of their declining contribution 
bases. Moreover, the 2008 global recession led funding levels in most 
plans to plummet. For those plans that had not sufficiently recovered 
from the bursting of the dot-com bubble, 2008 proved catastrophic.

National and global financial events exacerbated the financial troubles 
of multiemployer plans that already faced significant demographic and 
financial pressures. Shrinking industries and declining union 
participation eroded the contribution base of many plans. Between 1983 
and 2016, the number of unionized workers dropped by almost half. 
Moreover, there has been increased competition facing contributing 
employers and their employees. Due to competition and fewer unionized 
workers, untenable ratios of inactive-to-active participants were 
created. Many plans now see ratios of one active worker for every two, 
three, or even five retirees. As expected, industries with high 
inactive-to-active retiree ratios experience the lowest average funding 
levels. Due to all of these factors, certain plans will enter a ``death 
spiral'' where there is no realistic chance of recovery.

There have been several attempts to address the multiemployer pension 
funding problem. In 1980, Congress passed the Multiemployer Pension 
Plan Amendments Act (MPPAA), which was designed to discourage employers 
from leaving financially troubled multiemployer plans by implementing a 
withdrawal liability. Although the introduction of withdrawal liability 
was supposed to prevent withdrawing employers from shifting pension 
obligations to remaining employers, the biggest problem is that many 
withdrawing employers do not have the financial means to satisfy their 
withdrawal liability.

In 2006, Congress passed the Pension Protection Act (PPA). The purpose 
of the PPA is to give plan trustees more flexibility in dealing with 
funding while at the same time forcing them to identify and correct 
existing and potential funding issues in time to prevent further 
funding level deterioration and stabilize the plans' finances. While 
PPA did provide additional tools, it was not enough for those 
underfunded plans with a declining active population base and severe 
negative cash-flow problems.

Recognizing that some plans could not avoid insolvency without drastic 
changes in the law, Congress passed the Multiemployer Pension Reform 
Act (MPRA) in 2014. MPRA created three new tools to help plans stave 
off insolvency: plan mergers, plan partitioning, and benefit 
suspensions. Most notably, for the first time under the Employee 
Retirement Income Security Act of 1974 (ERISA), Congress allowed plans 
that were in severe financial distress to reduce benefits that had 
already accrued, including benefits that were in pay status.

In addition, plan trustees have also implemented strategies to solve 
plans' funding issues. These strategies include; reductions to future 
benefit accruals, increased employer contributions, new funding 
policies, and a ``two-pool withdrawal liability method.''

While the legislation has provided benefit to some plans and some of 
these strategies have been helpful, the funding issues for the most 
underfunded plans remain. If these plans fail, the impact will affect 
individuals, businesses, the retirement system, and entire communities. 
If the largest underfunded plans become insolvent, they will bankrupt 
the PBGC. The subsequent benefit cuts that follow will also have deep 
impacts on the communities where participants live. Retirees will see 
their standard of living reduced. In addition, the insolvencies could 
bankrupt employers, potentially leaving workers without income.

Reduced spending by workers and retirees will be felt by businesses, 
and less money will be paid to local government in sales and other 
taxes. While tax revenue decreases, the demand for social programs will 
increase, because many retirees and workers could lose their homes and/
or have difficulty paying for medical costs. This will cause many to 
become reliant on social programs that have to be funded by taxpayers 
at a time when tax revenue will decline.

Consequently, new ideas and proposals are being discussed. Some are 
purely legislative proposals, whereas others deal with new pension plan 
designs. Solutions will not be easy, but they are necessary to address 
the looming crisis that will affect us all.

                   OVERVIEW OF CURRENT MULTIEMPLOYER 
                      PENSION PLAN FUNDING PROBLEM

Since the beginning of the last decade, many multiemployer defined 
benefit pension plans have seen their funding level erode to the point 
that their ability to pay pension benefits into the future is severely 
threatened. While the majority of multiemployer plans are sufficiently 
funded, several distressed plans are facing insolvency within the next 
5 to 15 years. Some of the most underfunded plans cover hundreds of 
thousands of participants. If they fail, the economic impact will be 
disastrous for the U.S. economy as a whole and for certain industries. 
In addition to the direct impact to contributing employer companies, 
many secondary businesses will fail and retirees living on a fixed 
income will see their benefits significantly reduced, resulting in 
additional stresses on already strapped social service programs and 
reduced revenues to state and local governments.

There are several reasons for this pending funding crisis. There have 
been shifts in U.S. regulatory and trade policies over the years, which 
have resulted in increased competition for businesses in certain 
industries. The number of employees covered by collective bargaining 
agreements (CBA) in these industries has declined precipitously. This 
has resulted in a change in demographics, where many plans have two or 
more retired participants receiving pension benefits for every one 
active participant on whose behalf the plan is receiving contributions.

The increased ratio of retirees to active employees has led to negative 
cash flow; many plans are paying significantly more in pension benefits 
than they are receiving in employer contributions. This negative cash 
flow can only be made up through investment returns. However, not only 
can market returns not be predicted, but taking an overly aggressive 
approach in investing pension plan assets in the hope that outsized 
investment gains will be realized is risky and raises other potential 
legal concerns.

Severe market downturns at the beginning of this century and in 2008 
exacerbated the problem for many plans because they compounded the 
effect of the already existing negative cash flow. Many plans have seen 
their contribution base further eroded by contributing employers that 
left the plan due to bankruptcy with little or no remaining assets to 
pay their share of the plan's unfunded liability. The employees of 
these employers are referred to as ``orphans,'' and the cost for 
funding their benefits was placed on those employers who remained 
behind.

Historically, there were only three ways for multiemployer pension 
plans to improve their funding: (1) reduce future benefit accruals, 
thus saving costs; (2) increase employer contributions; and (3) obtain 
investment returns above the rate assumed by the plan actuary.

While many plans have reduced future benefit accruals, the savings 
yielded from doing so have generally not been sufficient to materially 
improve funding. This is because the liabilities that jeopardize 
pension plans mostly relate to past service (i.e., benefits that have 
already accrued and in many cases are already being paid to retirees). 
Until recently, there has been a blanket prohibition against reducing 
benefits already accrued, so plans reduced future accruals. Plans have 
also consistently increased employer contributions. However, plans in 
some industries have increased employer contribution rates to the point 
that employers cannot be competitive or are on the brink of bankruptcy. 
Investment returns cannot be predicted, and historically have not 
provided the type of returns that would be needed to cure most plans' 
underfunding.

Despite changes in the law designed to provide multiemployer plans with 
greater flexibility in dealing with funding problems, there is nothing 
that exists under current law that will save the multiemployer system's 
most underfunded plans. The risk is not theoretical; some projections 
show the Pension Benefit Guaranty Corporation (PBGC), the government 
entity designed to be a backstop for multiemployer pension plans that 
need financial assistance, will itself become insolvent by 2025. It has 
become increasingly clear that additional legislative solutions are 
necessary if the largest and most underfunded plans are to be saved. If 
these plans become insolvent, the negative repercussions will be felt 
throughout the U.S. economy.

                           Current Statistics

As of 2014, there were a total of 1,403 multiemployer defined benefit 
plans, covering 10.1 million participants.\1\ Approximately 4 million 
were active participants, while a little over 6 million were retired 
participants. It is estimated that more than 1 million defined benefit 
plan participants are in plans that have serious funding issues.\2\ The 
gap between plans with severe funding issues (known as ``critical-
status plans'') and those that are not in critical status continues to 
widen.\3\
---------------------------------------------------------------------------
    \1\ ``Multiemployer Defined Benefit (DB) Pension Plans: A Primer 
and Analysis of Policy,'' Congressional Research Service Report 
prepared for members and committees of Congress, John J. Topoleski, 
November 3, 2016.
    \2\ Alicia H. Munnell and Jean-Pierre Aubry, ``The Financial Status 
of Private Sector Multiemployer Pension Plans,'' Center for Retirement 
Research at Boston College, September 2014, Number 14-14, 3, http://
crr.bc.edu/briefs/the-financial-status-of-private-sector-multiemployer-
pension-plans/.
    \3\ Kevin Campe, Rex Barker, Bob Behar, Tim Connor, Nina Lantz, and 
Ladd Preppernau, Milliman Multiemployer Pension Funding Study, 
Milliman, Fall 2017, http://www.
milliman.com/uploadedFiles/insight/Periodicals/multiemployer-pfs/
multiemployer-pension-funding-fall-2017.pdf.

According to an August 2017 analysis conducted by the actuarial firm 
Cheiron, 114 multiemployer defined benefit plans (out of approximately 
1,400 nationally), covering 1.3 million workers, are underfunded by 
$36.4 billion. Participants covered by plans in the coal, trucking, 
manufacturing, service, retail, and food industries are, and will 
continue to be, at the center of the funding crisis. Unless a solution 
is found, most of these plans will go insolvent during the next 5 to 20 
years.\4\
---------------------------------------------------------------------------
    \4\ ``Cheiron Study Finds 114 Multiemployer Pension Plans Projected 
to Fail Within 20 Years, More Than a Million Participants Could Lose 
Benefits,'' August 27, 2017, https://cheiron.us/articles/
Cheiron%20Analysis%20Critical%20and%20Declining%20Plans.pdf.

In 2016, 167 multiemployer plans filed notices with the Department of 
Labor (DOL) advising that they were in ``critical status'' (critical-
status plans are sometimes referred to as being in the ``red 
zone'').\5\ As of 2012, the funding ratio for plans in critical status 
was 37.1% based on the market value of assets and 62.5% based on the 
actuarial value of assets. The aggregate underfunding on a market value 
basis was $166 billion, and on an actuarial basis $65 billion.\6\ The 
difference between market value and actuarial value is explained in the 
``Funding Rules'' section of this paper.
---------------------------------------------------------------------------
    \5\ ``Critical, Critical and Declining, Endangered and WRERA Status 
Notices,'' Department of Labor, Public Disclosure, https://www.dol.gov/
agencies/ebsa/about-ebsa/our-activities/public-disclosure/critical-
status-notices.
    \6\ Alicia H. Munnell and Jean-Pierre Aubry, ``The Financial Status 
of Private Sector Multiemployer Pension Plans,'' Center for Retirement 
Research at Boston College, September 2014, Number 14-14, 3, http://
crr.bc.edu/briefs/the-financial-status-of-private-sector-multiemployer-
pension-plans/.

In 2016, an additional 83 multiemployer plans filed notices with the 
DOL advising they were in critical and declining status. Critical and 
declining status plans are plans in critical status, but, which, have 
been certified as facing impending insolvency. These plans generally 
have the highest ratios of inactive-to-active participants and the most 
---------------------------------------------------------------------------
severe negative cash flow.

As assets decline and money continues to flow out of these plans, 
investment income is insufficient to offset the negative cash flow. 
Since the market crash of 2008, plans that find themselves in critical 
and declining status have not only failed to improve their funded 
percentage, but have seen their funded percentage continue to decline 
to the point that their only hope of survival is to reduce benefits to 
retirees who are already receiving benefits (referred to as benefits in 
``pay status'').

For some plans, even reductions in benefits to retirees are not enough 
to stave off insolvency. Plans such as Central States, Southeast and 
Southwest Areas Pension Fund (Central States) and the United Mine 
Workers of America 1974 Pension Plan (UMWA Plan) are nearing the point 
of no return. Sometimes referred to as the ``death spiral,'' these 
plans' negative cash flow is so severe that they will have to shift 
their assets away from investments that can provide long-term growth to 
investments that preserve cash to pay benefits.

When this happens, insolvency is no longer a matter of ``if'' but of 
``when,'' and by most accounts, ``when'' is before the end of the next 
decade. Therefore, without a viable resolution, in less than 10 years 
there will be significant benefit cuts for current retirees, active 
participants without retirement benefits, and employers bankrupted 
because of pension obligations.

                   The PBGC ``Backstop'' Is in Danger

The funding crisis for multiemployer plans is exacerbated because the 
Pension Benefit Guaranty Corporation's multiemployer program is itself 
in crisis. The PBGC is a federal agency created by Employee Retirement 
Income Security Act of 1974 (ERISA) to protect the benefits of 
participants in private-sector defined benefit plans. PBGC insures both 
single-employer and multiemployer defined benefit plans, but under two 
separate programs.

The PBGC's multiemployer program is funded from premiums paid by 
multiemployer pension plans and interest income on U.S. Department of 
the Treasury (Treasury) debt. There is no taxpayer funding.\7\
---------------------------------------------------------------------------
    \7\ John J. Topoleski, ``Multiemployer Defined Benefit (DB) Pension 
Plans: A Primer and Analysis of Policy,'' July 24, 2015, Congressional 
Research Service, 1, http://digitalcommons.ilr.
cornell.edu/key--workplace/1436/.

ERISA Section 4002 reads, in part, ``The U.S. is not liable for any 
obligation or liability incurred by the corporation [PBGC].'' Unlike 
public-sector plans that are completely financed by American taxpayers, 
multiemployer plans have always paid their own way, with U.S. 
businesses bearing the bulk of the cost.\8\
---------------------------------------------------------------------------
    \8\ As noted in John J. Topoleski's November 3, 2016, paper, some 
in Congress have expressed reluctance to even consider providing 
financial assistance to the PBGC. See U.S. Congress, House Committee on 
Education and the Workforce, Subcommittee on Health, Employment, Labor, 
and Pensions, ``Examining the Challenges Facing the PBGC and Defined 
Benefit Pension Plans,'' 112th Cong. 2nd sess., February 2, 2012, 112-
50 (Washington: GPO, 2012) and U.S. Congress, House Committee on 
Education and the Workforce, Subcommittee on Health, Employment, Labor, 
and Pensions, ``Strengthening the Multiemployer Pension System: What 
Reforms Should Policymakers Consider?'', 113th Cong. 1st sess., June 
12, 2013.

The crisis in the PBGC multiemployer program has been recent and swift. 
Until 2003, the PBGC multiemployer program operated with a surplus. As 
of 2017, the multiemployer program has a $65 billion deficit.\9\ This 
drastic increase in liabilities is directly due to the insolvency and 
projected insolvency of plans in industries that have been adversely 
affected by regulatory and trade policies. PBGC noted that in 2017 
there were 19 plans newly classified as probable claims against the 
insurance program as they either terminated or are expected to run out 
of money within the next decade. The liabilities represent the present 
value of $141 million in financial assistance to 72 insolvent 
multiemployer plans, up from the previous year's payments of $113 
million to 65 plans.\10\
---------------------------------------------------------------------------
    \9\ Annual Report 2017, Pension Benefit Guaranty Corporation, 
November 16, 2017, https://www.pbgc.gov/sites/default/files/pbgc-
annual-report-2017.pdf.
    \10\ Id.

In addition, employers have seen a steady increase in premiums. In the 
10 years starting in plan year 2007, premiums have increased $20 per 
participant and are now set at $28 per participant for plan year 2018. 
Despite these increases, the PBGC maximum benefit payout has remained 
---------------------------------------------------------------------------
relatively low and is currently $1,251 per year.

As contributing employers to these plans failed, funding levels 
plummeted. Remaining employers see their long-term viability threatened 
by ever-increasing pension liability brought on by employers that went 
bankrupt, liquidated, or otherwise went out of business. When employers 
stop contributing to a pension fund, all remaining employers are 
required to pick up the slack and assume proportionate liability for 
the payments owed to the exited employer's ``orphan'' employees. As 
employers leave the pool of contributors, each remaining employer's 
percentage of the growing funding deficit gets larger. This is known as 
the ``last man standing'' rule and was established to protect plan 
participants from the consequences of employer withdrawals. The ``last 
man standing'' rule has rendered multiemployer plans unstable as nobody 
wants to be the last man standing. This provides incentive for even 
healthy employers to leave, and puts the PBGC in the role of the 
ultimate ``last man.'' \11\
---------------------------------------------------------------------------
    \11\ Carl Horowitz, ``New Report Shows Severe Shortfalls in 
Multiemployer Union Pensions,'' National Legal and Policy Center, July 
3, 2013, http://nlpc.org/2013/07/03/new-reports-show-severe-shortfalls-
multiemployer-union-pensions/.

Given the deficit between total assets and the present value of 
liabilities, PBGC projects that there is a greater than 50% chance that 
the multiemployer plan program will run out of money by 2025, and a 
greater than 90% chance that it will run out of money by the end of 
2035.\12\ Absent a dramatic increase in premiums that multiemployer 
plans pay (which would further undermine many plans' funding levels and 
is thus likely not feasible), or a change in how the PBGC is funded, 
pension plans facing impending insolvency (or even those that are 
already insolvent and receiving PBGC financial assistance) cannot rely 
on assistance from PBGC beyond the next 10 years.
---------------------------------------------------------------------------
    \12\ PBGC FY 2016 Annual Report, 61.

The pressure the projected plan insolvencies will place on the PBGC 
will be catastrophic, absent congressional action. In 2014, the Center 
for Retirement Research in Boston College delivered an ominous 
---------------------------------------------------------------------------
assessment of the situation:

        The actuarial model projects that it is more likely than not 
        that the program [PBGC] will be insolvent by 2022, with a 90-
        percent chance of insolvency by 2025. Once the fund is 
        exhausted, the PBGC would have to rely on annual premium 
        receipts and would be forced to pay only a fraction of its 
        paltry guaranteed benefit. One estimate is that a retiree who 
        once received a monthly benefit of $2,000 and whose benefit was 
        reduced to $1,251 under the PBGC guarantee would see the 
        monthly benefit decline to $125. The exhaustion of the 
        multiemployer insurance fund could also undermine confidence in 
        the entire system.\13\
---------------------------------------------------------------------------
    \13\ Alicia H. Munnell and Jean-Pierre Aubry, ``Can PBGC Save 
Multiemployer Plans?,'' Center for Retirement Research at Boston 
College, September 2014, Number 14-16, 5, http://crr.bc.edu/
uncategorized/can-pbgc-save-multiemployer-plans/.
---------------------------------------------------------------------------

           MULTIEMPLOYER DEFINED BENEFIT PENSION PLAN BASICS

Private-sector multiemployer defined benefit pension plans are plans 
jointly sponsored by a labor union(s) and a group of employers. Such 
plans usually cover employees working in a common industry such as, for 
example, coal, construction, food, maritime, textile, trucking, etc. 
Many multiemployer plans cover employees working at a particular craft 
within an industry, such as electricians, bricklayers, and truck 
drivers. While most plans are ``local plans'' and cover employees 
working in a specific geographical area, there are also ``national 
plans,'' which cover employees working in crafts or trades throughout 
the U.S. Many of the industries in which multiemployer plans prevail 
have high worker mobility and/or seasonal employment.

Due to the migratory nature of the work, employees frequently work for 
more than one employer during their careers. Oftentimes, employees 
would not work long enough for one employer to vest in a benefit under 
that specific employer's pension plan; however, multiemployer plans 
allow employees to move from employer to employer and still earn 
service credit under the multiemployer plan, provided the employers for 
which the employee works participate in the multiemployer plan.

Multiemployer plans are established via collective bargaining between a 
union and two or more employers. Ordinarily, the union and the 
employers will enter into a collective bargaining agreement which is 
negotiated between local, regional, or national unions and individual 
employers or an association of employers bargaining as a group. The 
collective bargaining agreement establishes the employer's obligation 
to contribute to the plan, identifies the bargaining unit to which the 
collective bargaining agreement applies, and sets the rate and basis on 
which employers pay contributions to the plan. The contribution rate is 
usually a specific sum per hour or unit of time worked by or paid to 
the employee.

Negotiations over pension contribution rates are not done in a vacuum. 
The union and employers also must negotiate contribution rates to other 
multiemployer benefit plans (health and welfare, vacation, defined 
contribution pension, etc.) as well as wages. The combination of wages 
and benefit plan contributions is commonly referred to as the ``wage 
and benefit package'' or the ``total package.'' Thus while pension plan 
funding is a factor that bargaining parties must take into account 
during negotiations, they also must be cognizant of ever-increasing 
medical inflation and its impact on medical costs as well as employees' 
desire to receive increases in their hourly wage. As many employers 
operate on thin profit margins, addressing these competing factors can 
be complex. Compounding the complexity is that, once negotiated, the 
pension contribution rate is often subject to review and approval by 
the plan's trustees.

             STATUTES GOVERNING MULTIEMPLOYER PENSION PLANS

                     Labor Management Relations Act

The Labor Management Relations Act (LMRA), commonly known as the Taft-
Hartley Act, requires employers to pay contributions into a trust fund 
that must be jointly administered by an equal number of union and 
employer representatives. The obligation to contribute must be set 
forth in a written document (usually a collective bargaining 
agreement), and the contributions must be used for the sole purpose of 
providing benefits to employees.\14\
---------------------------------------------------------------------------
    \14\ LMRA Section 302 (c)(5).
---------------------------------------------------------------------------

                Employee Retirement Income Security Act

The union and employer representatives who manage the pension plan and 
administer the trust are called trustees. As trustees of the monies 
deposited into the trust, the trustees are fiduciaries to the 
participants (both active employees and retirees) covered by the 
pension plan. The fiduciary duties to which the trustees must adhere 
are established under the Employee Retirement Income Security Act of 
1974 \15\ and are enforced by the U.S. Department of Labor's Employee 
Benefits Security Administration. ERISA requires the trustees to act 
with the ``care, skill, prudence, and diligence under the circumstances 
then prevailing that a prudent man acting in like capacity and familiar 
with such matters would use in the conduct of an enterprise of a like 
character and with a like aim.'' \16\ This is known as the ``prudent 
expert'' rule and is the standard to which all fiduciary decisions are 
held.
---------------------------------------------------------------------------
    \15\ ERISA Section 1001, et seq.
    \16\ ERISA Section 404(a)(1)(B).
---------------------------------------------------------------------------

                         Internal Revenue Code

While a plan's trustees generally have the discretion to determine the 
amount of benefits a plan will provide, there are other plan features 
that must comply with the requirements of the Internal Revenue Code of 
1986 (Code).\17\ One such requirement is that, in general, a plan 
cannot be amended to reduce accrued benefits, optional forms of 
payment, early retirement benefits, and retirement-type subsidies.\18\ 
This is known as the anti-cutback rule, which until recently was the 
lynchpin of the federal pension system. Amendments are generally 
allowed to reduce future benefit accruals, as well as optional forms of 
payment, early retirement benefits, and retirement-type subsidies that 
accrue after the date of the amendment.\19\
---------------------------------------------------------------------------
    \17\ Some Code requirements are also found in ERISA.
    \18\ Code Section 411(d)(6) and ERISA Section 204(g).
    \19\ ``Present Law, Data, and Selected Proposals Relating to 
Multiemployer Defined Benefit Plans,'' The Joint Committee on Taxation, 
February 26, 2016, https://www.jct.gov/
publications.html?func=startdown&id=4872.

The anti-cutback rule, which has been a backbone of federal pension law 
since ERISA's inception in 1976, has been considerably weakened by 
passage of the Pension Protection Act of 2006 (PPA) and the 
Multiemployer Pension Reform Act of 2014 (MPRA). The weakening of the 
anti-cutback rule has been in direct response to the pending funding 
crisis of certain multiemployer plans and has been helpful to many 
plans trying to avoid insolvency. However, MPRA has not been entirely 
successful, as there are many severely underfunded plans that are going 
to need additional help from Congress to survive.

                             Funding Rules

ERISA's and the Code's minimum funding rules require multiemployer 
plans to maintain a funding standard account. The funding standard 
account gets debited for charges related to benefit accruals, 
investment losses, and other negative plan experience. Credits are 
given for employer contributions, investment gains, and other positive 
plan experience. The minimum required contribution to a multiemployer 
plan is the amount needed, if any, to balance the accumulated credits 
and accumulated debits to the funding standard account. If the debits 
exceed the credits, there is a negative balance, and contributing 
employers must pay the amount necessary to balance the account. The 
liability is allocated to all of the plan's contributing employers.

If participating employers do not make the contribution necessary to 
balance the funding standard account, the plan has a minimum funding 
deficiency and contributing employers can be assessed excise taxes on 
top of having to make up the deficiency. On the other hand, if the plan 
was overfunded, it would have to increase benefits in order to prevent 
paying an excise tax on the overfunding.

The calculations related to determining the amount in a multiemployer 
plan's funding standard account are performed by an actuary. The plan 
must use a specific funding method to determine the elements included 
in its funding standard account for a given year. Such elements include 
the plan's normal cost and the supplemental cost. Normal cost is the 
cost of future benefits allocated to the year under the plan's funding 
method. Supplemental cost is generally the costs attributable to past 
service liability or to investment returns that were less than those 
assumed by the actuary. The supplemental costs are amortized over a 
specified period of years by debiting the funding standard account over 
that period. If experience is good, there can also be actuarial gains 
that result in credits being made to the funding standard account.\20\ 
When calculating debits and credits to the funding standard account, 
the plan actuary must use reasonable actuarial assumptions.
---------------------------------------------------------------------------
    \20\ Id.

Actuaries calculate plan funding using both actuarial values and market 
values. Actuarial values are computed by the plan's actuary to predict 
how much money a plan needs to set aside to pay future retirees. 
Actuaries cannot use market values for this prediction, because market 
values fluctuate from day to day as the stock market rises and falls. 
An actuary predicts the long-term performance of the plan's investments 
by using mathematics to smooth out year-to-year market variations. This 
means that when investment performance is bad for a given year, the 
actuary will not recognize the entire loss in the year it occurs, but 
rather will ``smooth'' the loss by recognizing a portion each year for 
---------------------------------------------------------------------------
a period of years. Investment gains are treated similarly.

The actuary uses this smoothing method to create an actuarial value of 
the plan's assets, which is the likely value of the investments based 
on typical long-term investment results. Market value is the actual 
value of the plan's assets on any given day without regard to any 
smoothing and provides a more realistic view of a plan's financial 
condition.

As of 2012, the funding ratio for plans in critical status was 62.5% 
based on the actuarial value of plan assets. Under normal 
circumstances, such a ratio would not be disastrous; if the plan's 
investment earnings matched or exceeded its actuarial assumed rate of 
return and if the trustees made changes to benefits, a plan in critical 
status could be expected to right itself. The actuarial assumed rate of 
return is the rate the actuary assumes the plan's investment will earn 
annually, and generally ranges from 7% to 8%. Unfortunately, many plans 
have seen their contribution bases erode to the point where their cash 
flow is so negative they cannot earn their way out of critical status. 
As of June 30, 2017, the aggregate funding percentage of plans in 
critical status fell to 60%, whereas the funded percentage of non-
critical status plans was almost 90%.\21\
---------------------------------------------------------------------------
    \21\ Kevin Campe, Rex Barker, Bob Behar, Tim Connor, Nina Lantz, 
and Ladd Preppernau, ``Milliman Multiemployer Pension Funding Study,'' 
Milliman, Fall 2017, http://www.
milliman.com/uploadedFiles/insight/Periodicals/multiemployer-pfs/
multiemployer-pension-funding-fall-2017.pdf.
---------------------------------------------------------------------------

  THE CURRENT FUNDING CRISIS IS BEING DRIVEN BY A SMALL PERCENTAGE OF 
                   PLANS WITH COMMON CHARACTERISTICS

Multiemployer defined benefit pension plans are not a monolith. The 
most recent surveys illustrate that, as of today, many plans are 
structurally stable and well managed. In fact, a Milliman study 
recently reported that ``in the first 6 months of 2017, the aggregate 
funding percentage for all multiemployer pensions climbed from 77% to 
81%, reducing the system's shortfall by $21 billion--an improvement 
driven largely by favorable investment returns.'' \22\ According to the 
study, the estimated investment returns have outpaced actuarial 
assumptions, reflecting the strong performance of the U.S. stock 
market.
---------------------------------------------------------------------------
    \22\ Id.

During the 1980s and 1990s, many plans were fully funded.\23\ This was 
primarily due to a soaring stock market. While most multiemployer 
plans' actuaries assume that annual investment returns will be in the 
7% to 8% range, investment returns were well above those percentages 
for many plans in the 1990s. The surging stock market seemed like a 
blessing at the time. However, the outsized investment returns masked a 
significant problem.
---------------------------------------------------------------------------
    \23\ Alicia H. Munnell and Jean-Pierre Aubry, ``Private Sector 
Multiemployer Pension Plans--A Primer,'' Center for Retirement Research 
at Boston College, August 2014, No. 14-13, http://crr.bc.edu/briefs/
private-sector-multiemployer-pension-plans-a-primer/.

While pension assets increased at historical rates, union membership 
nationally was in a steady decline. Private-sector union membership in 
1983 was 12 million. By 2015, that number had fallen to 7.6 
million.\24\ Thus, while pension plans assets were increasing thanks to 
the stock market, many plans' contribution bases were declining. With 
fewer contributions coming in, plans relied more heavily on investment 
returns to keep assets growing.
---------------------------------------------------------------------------
    \24\ Megan Dunn and James Walker, ``Union Membership in the United 
States,'' Bureau of Labor Statistics, September 2016, https://
www.bls.gov/spotlight/2016/union-membership-in-the-united-states/
home.htm.

Today, almost half of all union members are between 45 and 64 years 
old.\25\ As these workers age into retirement, there are not enough 
younger union workers to replace them. This exacerbates negative cash 
flow and essentially requires some plans to earn annual investment 
returns that are likely unrealistic based on the investment markets' 
cyclical nature. Moreover, as mentioned above, funds were not able to 
``bank'' these extra returns because they would be subject to an excise 
tax.
---------------------------------------------------------------------------
    \25\ Id.

The euphoria of the 1990s came to an end in 2000, when the price of 
technology stocks fell drastically. Many multiemployer plans had ridden 
the wave of these dot-com companies to historic highs in asset levels, 
but when the market crashed and investment returns were disastrous, 
plans were hit twice as hard because of their declining contribution 
bases. By the mid-2000s, most plans had recovered, but several plans 
remained in dire straits. While very few industries were immune from 
funding issues, certain plans in industries that had seen a significant 
decline in active participants, such as trucking, or in industries with 
cyclical work, like construction, did not recover. In 2008, a global 
recession rocked the investment markets, causing funding levels in most 
plans to plummet. For those plans that had not sufficiently recovered 
from the dot-com bubble burst a few years earlier, 2008 was 
---------------------------------------------------------------------------
catastrophic.

Although the investment markets have had favorable returns in recent 
years, many plans' funding levels have continued to deteriorate. Since 
passage of MPRA in December 2014, 15 multiemployer defined benefit 
plans have filed applications with the Treasury Department to reduce 
benefits to avoid insolvency. As of December 2017, Treasury has 
approved only 4 of the 15 applications. These 15 applicants currently 
account for only 1.35% of multiemployer defined benefits plans, but 
cover roughly 5% of all multiemployer defined benefits plan 
participants. These plans represent a segment of multiemployer pension 
plans that are failing and that, although in the minority, could cause 
the entire multiemployer pension system to crumble if additional 
legislative action is not taken.

What does a plan facing impending solvency look like? By looking 
broadly at the plans and industries they are in we can identify many of 
the conditions and events that lead a plan down the path to critical 
and declining status, and eventual insolvency.

             Shrinking Industries and Declining Union Roles

The Bureau of Labor Statistics (BLS) reports that in 1983, there were 
approximately 12 million American workers covered by a collective 
bargaining agreement, which represented 16.8% of the American 
workforce. By 2016, the number had fallen to about 7.6 million, or 6.4% 
of the workforce.\26\
---------------------------------------------------------------------------
    \26\ Id.

From 2000 to 2015, union membership in the transportation sector, 
alone, declined by 6.7 percentage points. Union membership rates in 
construction, manufacturing, and wholesale and retail trade also 
declined over that period.\27\
---------------------------------------------------------------------------
    \27\ Id.

Unionized workers on average are older than nonunion workers. In 2015, 
nearly half of union members were between 45 and 64 years old, but only 
about one-third of nonunion members belonged in this age group. Workers 
aged 45 to 64 were heavily represented in the manufacturing and 
transportation industries, which also had relatively high unionization 
rates. Furthermore, the lowest union membership rate is among workers 
aged 16 to 24 (4.4%), which makes the systemic replacement of older 
union members with younger members impracticable.\28\
---------------------------------------------------------------------------
    \28\ Id.
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   Competition and Economic Factors Impacting Contributing Employers

Increased competition facing contributing employers and their employees 
is another factor leading to declining pension plan funding levels. 
There has been an onslaught of new competition in the last half century 
caused in part by changes in U.S. regulatory and trade policy. These 
policy changes have contributed to the hollowing out of entire 
industries and their associated retirement plans.

For example, the United Furniture Workers Pension Fund A (Furniture 
Workers Fund) was crippled by an influx of imported goods. In 1999, the 
furniture and related products industry had 537,000 workers. By 2010, 
the industry had only 251,000 workers.\29\ Some of this attrition was 
caused by the 2008 financial crisis, but not all of it. Between 1981 
and 2009, a period that coincides with significant increases in 
importation by foreign manufacturers, 35 contributing employers to the 
Furniture Workers Fund filed for bankruptcy protection and withdrew 
from the plan.
---------------------------------------------------------------------------
    \29\ United Furniture Workers Pension Fund A--Second Application 
for Approval of Suspension of Benefits (File 1), 12.

In the trucking industry, the competition was domestic in origin, but 
similarly dramatic. In 1980, Congress deregulated the trucking 
industry, allowing companies to compete in a free and open market. 
While the deregulation of the trucking industry has been beneficial for 
economy and the American consumer, deregulation has significantly 
---------------------------------------------------------------------------
impacted trucking companies that participate in multiemployer plans.

Researchers at the Center of Retirement Research at Boston College 
summarized the effects, noting ``of the 50 largest employers that 
participated in the Central States Fund in 1980, only four remain in 
business today. More than 600 trucking companies have gone bankrupt and 
thousands have gone out of business without filing for bankruptcy. As a 
result, roughly 50 cents of every benefit dollar goes to pay benefits 
to `orphaned' participants, those left behind when employers exit.'' 
\30\ Even though an employer leaves, the fund--meaning the remaining 
employers--is still responsible for paying the benefits due to all 
participants in the plan. The orphan participants constitute a 
significant share of total multiemployer participants and are much 
likelier to participate in severely underfunded plans.
---------------------------------------------------------------------------
    \30\ Alicia H. Munnell, Jean-Pierre Aubry, Wenliang Hou, and 
Anthony Webb, ``Multiemployer Plans--A Proposal to Spread the Pain,'' 
Center for Retirement Research at Boston College, October 2014, 8, 
http://crr.bc.edu/wp-content/uploads/2014/10/IB_14-17.pdf.
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      Plan Demographics--The Inactive-to-Active Participant Ratio

As competition and demographic shifts reduced the participant 
populations in plans, untenable ratios of inactive-to-active 
participants were created. New York State Teamsters Conference Pension 
and Retirement Fund (New York State Fund) provides a vivid 
illustration.

In 1990, the New York State Fund had 23,883 active participants and 
10,150 retired participants, for a ratio of more than two active 
participants for every one retired participant. By 2000, the ratio was 
reduced to almost one to one, as the number of active participants 
declined to 16,827, and the number of retired participants increased to 
14,198. As of January 1, 2016, there were 11,576 active participants, 
compared to 15,936 retired participants, reversing the ratio of active 
to retired participants in a single career span.\31\
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    \31\ New York State Teamsters Conference Pension and Retirement 
Fund Treasury Application, 24.

According to a survey of multiemployer plans, 87% of beneficiaries in 
critical and declining plans were inactive (either already retired or 
entitled to a benefit at some time in the future but are no longer 
working), compared with 63% in non-critical and declining plans.\32\
---------------------------------------------------------------------------
    \32\ ``Summer 2017 Survey of Plans' Zone Status,'' Segal 
Consulting, Summer 2017, 4.

The survey also found some correlation between average plan funding 
levels by industry and inactive-to-active retiree ratios. Plans from 
the manufacturing sector had the lowest average funding levels at 79% 
and the highest inactive-to-active ratio at 5.8 retirees per active 
employee. Transportation sector plans fared a little better with 
funding levels averaging 81% but with a much more manageable inactive 
to retiree ratio of 2.9:1. Compared to those plans, construction sector 
plans are 89% funded on average and have an average ratio of 1.6:1.\33\ 
As ratios worsen, and the rate of negative cash flow grows, employer 
contribution rate increases have little overall effect on plan funding. 
Instead plans must rely more heavily on investment returns.
---------------------------------------------------------------------------
    \33\ Id., 6.
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                           Financial Pressure

Plans with negative cash flow can survive only if the investment return 
outpaces the benefit payments. During the 1980s and 1990s many 
multiemployer pension plans rode the bull market gains, thereby masking 
ominous trends in the growing retiree population. When the tech bubble 
burst in 2000, many plans, which had been relying on investment returns 
to cover negative cash flows, had to pay benefits directly from plan 
assets. As they did so, plan funding levels dropped, and plans had a 
lower asset base with which to invest. Since the negative cash flow 
problems for many plans did not improve, they were forced to seek 
higher investment returns to bridge the gap between the amount of money 
coming into the plan and the amount going out.

As a plan's assets dwindle, however, trustees are forced to shift 
investments out of equities and into more conservative investment 
vehicles to preserve cash to pay benefits for as long as possible. Such 
investments generally provide for little growth, so there is no 
opportunity for the asset base to grow. If the trustees were to 
continue to leave assets invested in equities, a sharp downturn in 
equity markets could cause a plan to go insolvent much sooner than 
anticipated and to provide trustees with little time for corrective 
action or to request the PBGC's assistance. In such circumstances, 
trustees are at risk of a fiduciary breach claim for imprudently 
investing the assets of the plan. Accordingly, trustees will almost 
always err on the side of making assets last longer to avoid potential 
legal liability. This approach generally leads a plan to enter the 
death spiral where there is no realistic chance of recovery.

The 2008 financial crisis was a disaster for multiemployer plans. Just 
prior to 2008, 80% of plans had funding levels in excess of 80% 
(referred to as the ``green zone''), whereas only 9% of plans were in 
critical status, or the ``red zone.'' By 2009, in the wake of the 
market collapse, the percentage of green zone plans plummeted to 38%, 
while the percentage of plans in the red zone increased to 30%. Over 
time, as the investment markets rebounded, many plans were able to claw 
their way back into the green zone. While some plans are just now 
returning to their pre-2008 funding levels, virtually all funding 
improvements have come exclusively from positive investment 
performance. This suggests that nothing has changed demographically, 
and that these plans will remain vulnerable to investment market 
conditions, which are unpredictable.

                   ATTEMPTS TO FIX THE MULTIEMPLOYER 
                      PENSION PLAN FUNDING PROBLEM

Given the negative cash flow and diminishing contribution bases of 
plans that are facing impending insolvency and the PBGC's precarious 
financial condition, finding a solution to the funding woes of many 
plans will not be easy. Congress and trustees of pension plans have 
attempted to address multiemployer funding issues in the past, 
especially within the last several years. These attempts have helped 
some plans, but additional measures will be needed to save some of the 
most underfunded plans.

                Multiemployer Pension Plan Amendment Act

In 1980, Congress passed the Multiemployer Pension Plan Amendments Act 
(MPPAA).\34\ MPPAA amended ERISA and was designed to discourage 
employers from exiting financially troubled multiemployer plans. 
Congress recognized that when a contributing employer stopped 
contributing to an underfunded multiemployer plan, the unfunded 
liability related to the departing employer was absorbed by the plan's 
remaining contributing employers. Although in 1980 most multiemployer 
pension plans were not facing funding issues as severe as those today, 
withdrawing employers increased pension costs for employers that 
remained, and in many cases threatened their financial viability. 
Withdrawing employers also caused multiemployer plans' contribution 
bases to erode.
---------------------------------------------------------------------------
    \34\ See ERISA Sections 4201-4225.

Prior to MPPAA, an employer that withdrew from a multiemployer plan did 
not have to pay anything to the plan unless the plan was terminated 
within 5 years of the employer's withdrawal. Even then, the employer's 
liability was limited to no more than 30% of the employer's net worth. 
Under MPPAA, an employer that totally or partially withdraws from a 
multiemployer pension plan must pay ``withdrawal liability.'' \35\ An 
employer's withdrawal liability is the amount of the employer's 
proportionate share of the plan's unfunded vested benefits or 
liabilities, or UVBs (i.e., the withdrawing employer's proportionate 
share of the deficit between the amount of the plan's vested benefits 
and the plan's assets).
---------------------------------------------------------------------------
    \35\ Not only is the contributing employer to the plan responsible 
for paying withdrawal liability, but also MPPAA provides that all 
trades or businesses under common control (as defined in Section 414 of 
the Code) are jointly and severally liable for a withdrawing employer's 
withdrawal liability. See ERISA Section 4001(b)(1).

When an employer withdraws from an underfunded multiemployer plan, 
MPPAA requires the plan's trustees to (1) determine the amount of 
withdrawal liability, (2) notify the employer of the amount of that 
liability, and (3) collect that liability. Generally, in order to 
determine an employer's withdrawal liability, a portion of the plan's 
UVBs is first allocated to the employer, generally in proportion to the 
employer's share of plan contributions for a previous period. The 
amount of UVBs allocable to the employer is then subject to various 
---------------------------------------------------------------------------
reductions and adjustments.

ERISA sets forth the amount of annual withdrawal liability payments the 
employer must make directly to the plan. Generally speaking, ERISA 
calls for annual payments to continue until the employer pays the 
liability in full, but caps the annual payments at 20 years. Thus, it 
is possible for an employer that does pay withdrawal liability for 20 
years to still not pay off all of its unfunded liability. When this 
happens, other employers must make up the difference.

An employer's annual withdrawal liability payment amount is generally 
structured to approximate the employer's annual contributions to the 
plan. The amount is equal to the employer's highest recent average 
number of contribution base units, or CBUs (essentially, the amount of 
contribution paid to the plan) multiplied by the employer's highest 
contribution rate in the past 10 years. An employer can prepay its 
liability or attempt to negotiate the amount with the plan. There are 
additional withdrawal liability rules applicable to certain industries, 
exemptions for certain sales of assets, employer and plan disputes, and 
plan terminations following mass employer withdrawals.

Although the introduction of withdrawal liability was supposed to 
prevent withdrawing employers from shifting pension obligations to the 
remaining employers, MPPAA has not always worked as intended. The 
biggest problem is that many withdrawing employers do not have the 
financial means to satisfy their withdrawal liability. Employers often 
withdraw when they are going out of business or when they file for 
bankruptcy. When this happens, it is difficult, if not impossible, for 
the plan to collect the employer's withdrawal liability. As a result, 
some plan participants with vested benefits may have worked for an 
employer that no longer participates in the plan. The liability for 
these ``orphaned'' participants has devastating effects on plan funding 
and is a major contributor to the funding issues that many plans face 
today.

                     Pension Protection Act of 2006

In 2006, Congress passed the Pension Protection Act. The PPA amended 
ERISA and the Code to make certain changes to multiemployer funding 
rules. These changes were designed to give plan trustees more 
flexibility in dealing with funding while at the same time forcing them 
to identify and correct existing and potential funding issues in time 
to prevent further funding level deterioration and stabilize the plans' 
finances.\36\ The PPA requires a multiemployer plan's actuary to 
provide an annual certification to the Internal Revenue Service of the 
plan's funded status. The certification specifies that the plan falls 
into one of three categories: endangered status, critical status, or 
neither.
---------------------------------------------------------------------------
    \36\ Segal Consulting, Segal Bulletin, August 2006.
---------------------------------------------------------------------------

Endangered-Status Plans

A plan is generally in endangered status, also known as the ``yellow 
zone,'' if the plan's funded percentage is less than 80%, or the plan 
has an accumulated funding deficiency for the plan year or is projected 
to have an accumulated funding deficiency in any of the six succeeding 
plan years. A plan's funded percentage for purposes of the PPA 
certification is determined by dividing the value of plan assets by the 
accrued liability of the plan. The trustees of a plan in endangered 
status are required to adopt a funding improvement plan.

A funding improvement plan consists of a list of options, or range of 
options, for the trustees to propose to the union and the employers 
(the bargaining parties). The funding improvement plan is formulated to 
provide, based on anticipated experience and reasonable actuarial 
assumptions, for the plan to attain ``applicable benchmarks'' by the 
end of the funding improvement period. The range of options generally 
is a combination of contribution rate increases or reductions in future 
benefit accruals that would allow the plan to obtain a statutorily 
specified increase in the funded percentage and not have an accumulated 
funded percentage by the end of the funding improvement period, which 
is generally 10 years.

Many plans certified as endangered in the early years of the PPA were 
able to fix their funding problems and now are in neither endangered 
nor critical status (known as the ``green zone''). Other plans were not 
so fortunate, and their status deteriorated from endangered to 
critical. It should be noted that the PPA did not allow plans in 
endangered status to make any changes to benefits that were not already 
allowed under pre-PPA rules. In other words, trustees of endangered 
plans are not allowed to violate the anti-cutback rule of ERISA and the 
Code, and can only reduce future accruals and eliminate other protected 
benefits on a prospective basis. This led some trustees to take the 
counterintuitive action of allowing their plans to fall into critical 
status, because there was more statutory flexibility under the critical 
status rules to address funding problems.

Critical-Status Plans

A plan is in critical status if the plan:

(1)  is less than 65% funded and will either have a minimum funding 
deficiency in 5 years or be insolvent in 7 years; or

(2)  will have a funding deficiency in 4 years; or

(3)  will be insolvent within 5 years; or

(4)  the liability for inactive participants is greater than the 
liability for active participants, and contributions are less than the 
plan's normal cost, and there is an expected funding deficiency in 5 
years.

Trustees of plans in critical status are required to adopt a 
rehabilitation plan. Unlike endangered plans, critical-status plans 
whose trustees adopt and follow a rehabilitation plan generally do not 
have to meet the minimum funding rules of ERISA and the Code.

A rehabilitation plan is a plan that consists of a range of options for 
the trustees to propose to the bargaining parties, formulated to 
provide (based on anticipated experience and reasonable actuarial 
assumptions) for the plan to cease to be in critical status by the end 
of the rehabilitation period, which is generally 10 years. Options 
include reductions in plan expenditures, reductions in future benefit 
accruals, increases in contributions, or any combination of such 
actions. The rehabilitation plan must be updated annually, and the plan 
must show that it is making scheduled progress toward emerging from 
critical status.

If the trustees determine that, based on reasonable actuarial 
assumptions, the plan cannot reasonably be expected to emerge from 
critical status by the end of the rehabilitation period, the plan must 
include reasonable measures to emerge from critical status at a later 
time or to forestall possible insolvency. If a multiemployer plan fails 
to make scheduled progress under the rehabilitation plan for three 
consecutive plan years or fails to meet the requirements applicable to 
plans in critical status by the end of the rehabilitation period, for 
excise tax purposes the plan is treated as having a funding deficiency 
equal either to the amount of the contributions necessary to leave 
critical status or make scheduled progress or to the plan's actual 
funding deficiency, if any. Plans may apply for a funding waiver if the 
case failure is due to reasonable cause and not willful neglect.

The PPA allows trustees of critical-status plans to make changes to 
benefits that endangered-plan trustees cannot. They are allowed to 
reduce or eliminate benefits that were previously protected by the 
anti-cutback rule. Critical-status plans can be amended to reduce or 
eliminate certain adjustable benefits, including post-retirement 
benefits, subsidized optional forms of payment, disability benefits not 
yet in pay status, early retirement benefits or retirement subsidies 
and benefit increases adopted less than 60 months before the plan 
entered critical status. In addition, critical-status plans that 
provide for payment of benefits in the form of a lump sum are required 
to cease paying lump-sum benefits on the date they enter critical 
status.

The ability to eliminate or reduce previously protected benefits was 
heretofore unprecedented, and many plans in critical status have taken 
advantage of these new rules and are projected to emerge from critical 
status or to forestall possible insolvency because of them. However, 
for those underfunded plans with a declining active population base and 
severe negative cash-flow problems, the savings generated by 
eliminating these adjustable benefits were not great enough to improve 
the plans' funded percentages.

Compounding the problem is that after cutting benefits to the maximum 
extent possible, there was little else that could be done to reduce 
costs. That left employer contribution rate increases as the only 
viable option to improve funding. Over the years, however, many plans 
have found that annual increases in employer contribution rates are not 
so viable because employers cannot absorb the costs. Out-of-
control pension costs threaten employers' very survival.

                Multiemployer Pension Reform Act of 2014

Although the investment markets have had favorable returns in recent 
years, many plans' funding levels continue to deteriorate. Under the 
PPA, a prohibition against reducing accrued benefits on a retroactive 
basis remained. Recognizing that some plans could not avoid insolvency 
without drastic changes in the law, Congress passed the Multiemployer 
Pension Reform Act in 2014.\37\ MPRA changed the multiemployer defined 
benefit plan landscape.
---------------------------------------------------------------------------
    \37\ The Multiemployer Pension Reform Act of 2014, Pub. L. No. 113-
235, Division O (2014).

The law created three new tools to help plans stave off insolvency. 
Most notably, for the first time under ERISA, Congress allowed plans 
that were in severe financial distress to reduce benefits that had 
already accrued, including benefits that were in pay status (these 
reductions are referred to as ``benefit suspensions'' under MPRA). This 
was a landmark change and a radical departure from what was previously 
allowed. MPRA also revised ERISA's existing merger and partition rules.

Critical and Declining Status

MPRA created a new funding status called ``critical and declining'' for 
those plans that were the most deeply troubled. A ``critical and 
declining'' plan is one that meets one of the statutory requirements 
for critical status and is actuarially projected to become insolvent 
within 14 years (or within 19 years if more than two-thirds of its 
participants are inactive or retired). A plan that is in ``critical and 
declining'' status can file an application with Treasury to reduce or 
suspend benefits that have already accrued and that are in pay status 
(i.e., are already being paid to retirees and beneficiaries). MPRA 
provides for the following three mechanisms to help critical and 
declining plans avoid insolvency:
PBGC-Facilitated Plan Mergers
Mergers can improve a financially troubled plan's funding issues. By 
transferring its assets to a more financially stable plan, the weaker 
plan can lessen or eliminate the effect of negative cash flow while 
gaining a larger asset base with which to invest. Generally, however, a 
trustee's decision to merge is subject to the fiduciary duty provisions 
of ERISA.\38\ These fiduciary duties are applied to the trustees of 
both plans involved in a contemplated merger. The trustees of both 
plans have to determine that a merger would be in the best interest of 
their respective participants. Both plans' trustees have to examine the 
financial condition of their respective plans before and after the 
merger, as well as the viability of the surviving plan post-merger.
---------------------------------------------------------------------------
    \38\ Merging a plan is arguably a settlor function that would not 
be subject to ERISA's fiduciary rules. The DOL has offered the opinion 
that certain actions taken by trustees of multiemployer plans that 
would ordinarily be settlor functions will be treated as fiduciary 
functions if the plan's trust agreement provides that the trustees act 
as fiduciaries when engaging in what otherwise would be settlor 
functions. If the governing plan documents are silent, activities 
generally considered settlor functions in a non-multiemployer setting 
will be considered as settlor functions with respect to the 
multiemployer plan. DOL Field Assistance Bulletin 2002-2.

Because generally one of the plans in the proposed merger is in worse 
financial condition than the other, finding a good merger partner was 
and is sometimes difficult. For example, the trustees of a financially 
sound plan will likely not want to merge with a plan that is projected 
to become insolvent because of the affect the poorly funded plan would 
have on the funded level of the financially sound plan. Traditionally, 
a merger between a stronger plan and a weaker plan--but not one facing 
insolvency--would have the benefit of a larger asset base in which to 
---------------------------------------------------------------------------
obtain investment gains.

Under MPRA, the PBGC can facilitate mergers between two or more plans, 
including providing financial assistance. By providing financial 
assistance, the PBGC can alleviate the healthier plan's financial/
fiduciary concerns, which might make the healthier plans more willing 
to merge. Upon a plan's request, the PBGC may facilitate a merger if 
PBGC determines the merger is in the interests of the participants and 
beneficiaries of at least one of the plans, and the merger is not 
reasonably expected to be adverse to the overall interests of the 
participants and beneficiaries of any of the plans. The PBGC may 
provide assistance to a plan such as training, technical assistance, 
mediation, communication with stakeholders, and support with related 
requests to other governmental agencies. MPRA allows trustees of plans 
in ``critical and declining'' status to apply for both a facilitated 
merger and a benefit suspension.

The PBGC may also provide financial assistance to facilitate a merger 
if one or more of the plans in the merger is in ``critical and 
declining status''; the PBGC reasonably expects that financial 
assistance will reduce it's expected long-term loss with respect to the 
plans involved and, the PBGC reasonably expects that the financial 
assistance is necessary for the merged plan to become or remain 
solvent; the PBGC certifies its ability to meet existing financial 
obligations will not be impaired by providing the financial assistance; 
and the assistance is paid from the PBGC's fund for basic benefits 
guaranteed for multiemployer plans.
PBGC Plan Partitions
MPRA also expanded ERISA's partition rules, which previously allowed 
only the PBGC to partition plans that suffered significant contribution 
losses as a result of employer bankruptcies. In a partition, PBGC gives 
approval to divide a severely underfunded plan into two plans. 
Generally, the liability for orphaned participants is transferred to a 
new plan, which is technically insolvent from inception. The PBGC pays 
the orphan benefits up to the PBGC guaranteed amount. The original plan 
remains as is, and the goal is to restore its financial health.

A plan in critical and declining status may submit coordinated 
applications to the PBGC for a partition and to Treasury for a benefit 
suspension.

The PBGC may order a partition if the following conditions are 
satisfied:

(1)  the plan is in critical and declining status;

(2)  the PBGC determines that the plan has taken all reasonable 
measures to avoid insolvency, including the maximum benefit suspensions 
as discussed above;

(3)  the PBGC reasonably expects that the partition will reduce its 
expected long-term loss with respect to the plan and partition is 
necessary for the plan to remain solvent;

(4)  the PBGC certifies to Congress that its ability to meet existing 
financial assistance obligations to other plans will not be impaired by 
such partition; and

(5)  the cost arising from such partition is paid exclusively from the 
PBGC's fund for basic benefits guaranteed for multiemployer plans.
Suspension of Benefits
MPRA allows trustees of plans in critical and declining status to apply 
to Treasury to suspend (temporarily or permanently) participants' 
accrued pension benefits, including those already in pay status. MPRA 
defines ``suspension of benefits'' as the ``the temporary or permanent 
reduction of any current or future payment obligation of the plan to 
any participant or beneficiary under the plan, whether or not in pay 
status at the time of the suspension of benefits.''

A plan may suspend benefits only if the plan's actuary certifies that 
the plan is projected to avoid insolvency if the benefit suspensions 
are implemented.

Benefit suspensions are subject to the following limitations:

(1)  a participant or beneficiary's monthly benefit cannot be reduced 
below 110% of the PBGC-guaranteed amount;

(2)  participants and beneficiaries aged 75 and older at the date of 
suspension have limitations on the suspension;

(3)  participants and beneficiaries aged 80 and older at the date of 
suspension are exempt from suspensions;

(4)  disability pensions are exempt from suspensions; and

(5)  benefit suspensions must be reasonably implemented to avoid plan 
insolvency.

MPRA also includes a list of factors the plan may consider to ensure 
the benefit suspensions are equitably distributed among the 
participants and beneficiaries, including age, number of years to 
retirement, and the participants' benefit history.

MPRA requires plans with 10,000 or more participants to select a 
retiree representative to act as an advocate for the interests of the 
retirees and inactive participants during the suspension application 
process. The plan must pay for all reasonable legal, actuarial, and 
other costs the representative incurs.

Benefit Suspension Application Rules

In order to suspend benefits, the trustees must submit a detailed 
application to Treasury and demonstrate that the plan meets the 
statutory requirements. Once Treasury accepts the application for 
review, it has 225 days to render a decision or the application is 
automatically deemed approved. Treasury will generally request 
additional information and pose questions to the plan's attorneys and 
actuaries regarding the application.

If Treasury rejects a plan's application, the plan may challenge the 
denial in court. If Treasury approves a plan's application, the 
suspension is subject to a participant and beneficiary vote within 30 
days of the approval. If a majority of all participants and 
beneficiaries (not simply a majority of those who vote) do not actively 
vote to reject the suspensions, the suspensions are approved. 
Suspensions may not take effect until after the vote, and Treasury 
issues final authorization. If the participants and beneficiaries vote 
to reject the suspensions, Treasury, in consultation with the DOL and 
PBGC, must determine whether the plan is ``systemically important.'' A 
plan is ``systemically important'' if the plan's insolvency will result 
in $1 billion or more in projected PBGC liabilities. If a plan is 
deemed systemically important and suspensions were not approved by the 
participants, Treasury has the discretion either to accept the terms of 
the proposal or to modify the benefit suspensions in some other manner 
projected to avoid plan insolvency.

Since the passage of MPRA, 15 multiemployer defined benefit plans have 
filed applications with the Treasury Department to reduce benefits to 
avoid insolvency. As of December 2017, Treasury has approved only 4 of 
the 15 applications. These 15 applicants currently account for only 
1.35% of multiemployer defined benefits plans, but cover roughly 5% of 
all multiemployer defined benefits plan participants. These plans 
represent a segment of failing multiemployer pension plans that, 
although in the minority, could cause the entire multiemployer pension 
system to crumble if additional legislative action is not taken. 
Details on these applications are provided in ``MPRA Suspension 
Applications to Date'' in this paper.

                      Individual Plan Initiatives

Over the past 15 years, trustees of financially troubled plans have 
employed numerous strategies to solve plans' funding issues. While some 
of these strategies have been helpful, most of these plans' funding 
issues remain.

Reductions to Future Benefit Accruals and Increased Employer 
Contributions

The PPA requires trustees to take an active and forward-looking 
approach in managing their plans. Plans in critical and endangered 
status have to take corrective action. As part of that corrective 
action, plans can continue to reduce future benefit accruals and 
increase contributions. Critical-status plans can also reduce and 
eliminate adjustable benefits for those participants that have not 
retired.

Prior to the PPA, trustees had limited options to combat underfunding 
issues. Most plans had to solve funding problems by: (1) reducing the 
future benefit accruals of the active participants; and/or (2) 
requiring employers to increase their contributions.\39\ While these 
strategies were sometimes successful, for employers in industries like 
coal, trucking, manufacturing, and bakery, continued contribution 
increases became unsustainable.
---------------------------------------------------------------------------
    \39\ In general terms, a participant's accrued benefit represents 
the benefit that the participant has earned or ``accrued'' under the 
plan as of a given time. For example, if a participant terminated 
covered employment before reaching normal retirement age under a plan's 
rules, the benefit to which the participant is entitled to receive on 
reaching normal retirement age is the accrued benefit. The plan usually 
specifies the accrual method used to determine a participant's accrued 
benefit.

Many trustees now recognize that they can no longer feasibly cut 
benefits for active employees and raise employer contributions. 
Employers and bargaining unit groups have left plans at alarming rates 
over the last decade as contribution rates have steadily increased and 
plans have repeatedly reduced benefits for active participants. 
Additional contribution increases are not sustainable in many 
industries, and threaten the employers' competitiveness, and in some 
cases, their existence. Losing employers would further erode the stream 
of contribution revenue on which a plan relies and exacerbate the 
---------------------------------------------------------------------------
negative cash flow problem for severely underfunded plans.

For example, in 1980 the Central States Pension Fund had approximately 
12,000 employers; by July 2015 the number was down to 1,800.\40\ 
Between 2010 and 2014, Central States experienced approximately 260 
involuntary employer withdrawals as a result of employer bankruptcies. 
During this same period, the New York State Fund also had a significant 
number of employers leave, negatively affecting its funding level.\41\ 
In December 2013, the New England Teamsters and Trucking Industry 
Pension Fund (New England Teamsters Fund) reported that in order to 
avoid filing bankruptcy, one of its 10 largest employers negotiated an 
agreement with the International Brotherhood of Teamsters to 
temporarily cease pension contributions, with a subsequent resumption 
at a significantly reduced level. Another large employer emerged from 
bankruptcy and notified the Fund that it was unable to pay its current 
contributions.\42\
---------------------------------------------------------------------------
    \40\ Central States, Southeast and Southwest Areas Pension Fund's 
MPRA Suspension of Benefits Application, dated September 25, 2015, 
Section 19.8.4.
    \41\ New York State Teamsters Conference Pension and Retirement 
Fund's MPRA suspension of benefits application, dated May 15, 2017, 
Section 5.
    \42\ New England Teamsters and Trucking Industry Pension Fund 2013 
Review of the Rehabilitation Plan.
---------------------------------------------------------------------------

Funding Policies

Some trustees have adopted policies with strict rules on the acceptance 
of employer contributions to ensure that the bargaining parties, i.e., 
the union and the employer, do not negotiate a CBA containing pension 
provisions that would adversely affect plan funding. These trustees 
have drafted policies or included rules in the plans' governing 
documents explicitly reserving sole discretion to reject a particular 
CBA if it is not in compliance with the policy or if it is deemed 
economically bad for the plan. While some plans have had such policies 
for many years, others are now just implementing them.

For example, the Board of Trustees of the Western Conference of 
Teamsters Pension Trust Fund does not allow CBAs that permit or require 
pension contributions for non-bargaining unit members or CBAs that 
limit the employees on whose behalf contributions are to be made.

The Trustees of the Central States Pension Fund have taken a similar 
but more aggressive position. They reserved discretion in the Fund's 
trust agreement to reject any CBA it determines to be unlawful or would 
``threaten to cause economic harm to, and/or impairment of the 
actuarial soundness of, the Fund, and/or that continued participation 
by the Employer is not in the best interest of the Fund.'' \43\
---------------------------------------------------------------------------
    \43\ ``Trust Agreement of the Central States, Southeast and 
Southwest Areas Pension Fund as Amended through April 1, 2016,'' 9, 
https://mycentralstatespension.org/-/media/Pension/PDFs/Legal/
pension_fund_trust_agreement_as_amended_april_2016.pdf?la=en&hash=1A7964
61
E51C6BB84ED3111B62C59A326D881686.
---------------------------------------------------------------------------

Two-Pool Withdrawal Liability Method

Some trustees have requested approval from the PBGC to adopt an 
alternative method to calculate withdrawal liability called the ``two-
pool withdrawal liability method'' (the two-pool method). Under the 
two-pool method, the plan maintains two withdrawal liability pools for 
contributing employers: one new pool for new employers and current 
employers that elect to pay off their existing withdrawal liability and 
transition over; and a second old pool for existing employers who, for 
a variety of reasons, decide not to trigger a withdrawal and remain in 
the plan.

Usually, an employer that is not contributing or does not owe 
withdrawal liability to the plan can qualify to be in the new pool. If 
a new employer enters the plan, it would automatically enter the new 
pool. When an already contributing employer moves from the old pool to 
the new pool, it generally agrees to withdraw from the existing 
withdrawal liability pool, to adhere to a withdrawal liability payment 
schedule, and to reenter the plan through the new pool for 
contributions made and benefits earned after that date.

Over the past few years, PBGC has received a number of requests from 
plans looking to implement the two-pool method.\44\ The Central States 
Pension Fund, the New England Teamsters Fund, the New York State Fund, 
and the Bakery and Confectionery Union and Industry International 
Pension Fund have received PBGC approval to use the two-pool method. In 
order to encourage employer participation in the new pool, the trustees 
offer favorable settlement terms to satisfy withdrawal liability, but 
the extent of the relief is related to the employer's sustained 
commitment and continued contributions to the Fund.
---------------------------------------------------------------------------
    \44\ ``Retirement Matters, Request for Information: Two Pool 
Withdrawal Liability,'' PBGC Blog, January 4, 2017, https://
www.pbgc.gov/about-pbgc/who-we-are/retirement-matters/request-
information-two-pool-withdrawal-liability.
    The Western Pennsylvania Teamsters and Employers Pension Fund has 
implemented the two-pool method but is still waiting for the PBGC's 
official approval. See Plan Document of the Western Pennsylvania 
Teamsters and Employers Pension Fund.

The two-pool method has the potential to provide significant benefits 
to some plans. Trustees that have implemented the two-pool method 
believe it helps retain contributing employers that might otherwise 
withdraw.\45\ A plan's long-term funding is affected by the strength of 
its base of contributing employers. Often times, a plan's more 
financially stable employers become frustrated as other employers 
withdraw from the plan. These withdrawals transfer costs and liability 
to the remaining employers over time in the form of higher 
contributions and increased reallocated withdrawal liability. This 
trend encourages healthy employers to withdraw before additional 
financial responsibility shifts to them, which ultimately places 
financial stress on the plan. The two-pool method offers an opportunity 
for healthy employers to remain in a plan while insulating them from 
the less financially stable employers.\46\
---------------------------------------------------------------------------
    \45\ ``Response to Request for Information on Alternative Two-Pool 
Withdrawal Liability Methods,'' American Academy of Actuaries, February 
21, 2017; see also PBGC Letter to the Bakery Confectionery Union and 
Industry International Pension Fund, January 19, 2017.
    \46\ ``Response to Request for Information on Alternative Two-Pool 
Withdrawal Liability Methods,'' American Academy of Actuaries, February 
21, 2017.

Despite its potential benefits, to date the two-pool method has not 
attracted new employers. It is a relatively new concept, however, and 
may be helpful in conjunction with other strategies, such as mergers 
and partitions.

                 DEVELOPMENTS UNDER THE MULTIEMPLOYER 
                       PENSION REFORM ACT OF 2014

Since its passage almost 3 years ago, MPRA has been criticized in part 
because of the manner in which it was enacted but more substantively 
because of the law's allowance for reductions to accrued benefits, 
including benefits already in pay status. Additionally, critics claim 
that implementation of MPRA failed to provide relief to the one plan 
that arguably was the primary focus of Congressional concern: the 
Central States Fund. Supporters assert, however, that absent benefit 
reductions, there are some plans that cannot avoid insolvency and thus 
will result in benefit reductions for most participants far greater 
than proposed under the rescue plan, since participants' benefits will 
be reduced to the PBGC guarantees. That the PBGC itself is projected to 
become insolvent only complicates things.

                  MPRA Suspension Applications to Date

As of December 2017, 15 plans covering a variety of industries, 
including transportation, furniture, machinery, and bricklaying, have 
applied to Treasury to suspend benefits, while four of those same plans 
submitted coordinating partition applications to the PBGC.\47\
---------------------------------------------------------------------------
    \47\ Applications for Benefit Suspension, U.S. Department of the 
Treasury, October 26, 2017, https://www.treasury.gov/services/Pages/
Plan-Applications.aspx.
    See also Partition Requests, Pension Benefit Guaranty Corporation, 
October 26, 2017, https://www.pbgc.gov/prac/pg/mpra/multiemployer-
plans-and-partition.

---------------------------------------------------------------------------
Treasury has denied the following MPRA applications:

      Automotive Industries Pension Plan;

      Central States, Southeast and Southwest Areas Pension Fund 
(Central States);

      Iron Workers Local Union 16 Pension Fund;

      Road Carriers Local 707 Pension Fund (Local 707 Pension Fund); 
and

      Teamsters Local 469 Pension Plan.

The following plans withdrew their applications prior to Treasury's 
issuance of a ruling:

      Alaska Ironworkers Pension Plan;

      Bricklayers and Allied Craftsmen Local No. 7 Pension Plan;

      Bricklayers and Allied Craftsmen Local No. 5 Pension Plan 
(Bricklayers Local 5 Pension Plan);

      Local 805 Pension and Retirement Plan (Local 805 Pension Fund); 
and

      Southwest Ohio Regional Council of Carpenters Pension Plan.

The following application is under review:

      Western States Office and Professional Employees Pension Fund.

Treasury has approved the following applications:

      Iron Workers Local 17 Pension Fund;

      United Furniture Workers Pension Fund A (Furniture Workers 
Fund);

      New York State Teamsters Conference Pension and Retirement Fund 
(New York State Fund); and

      International Association of Machinists Motor City Pension Fund 
(Motor City Fund).

                        MPRA Application Denials

Central States Pension Fund

Treasury denied Central States Pension Fund's suspension application in 
May 2016. The Central States Pension Fund's application was the first 
application submitted under MPRA. Central States, the largest 
multiemployer pension plan in the country with close to 400,000 total 
participants, roughly half of whom currently receive annual benefits 
totaling close to $3 billion,\48\ has been reeling from investment 
losses stemming from the 2008 financial crisis. When Central States 
submitted its MPRA application, it had $16.8 billion in assets against 
$35 billion in liabilities. In 2015, the Fund was certified to be in 
critical and declining status, at 47.7% funded and projected to go 
insolvent by 2026.
---------------------------------------------------------------------------
    \48\ Central States, Southeast and Southwest Areas Pension Fund's 
MPRA suspension of benefits application, September 25, 2015, Section 
5.1.9, https://www.treasury.gov/services/AppsExtended/
(Checklist%205)%20Critical%20and%20Declining%20Status%20Certification.pd
f.

Decades ago, the Fund had four active workers for every retiree or 
inactive member. But, like many other Teamster plans, that ratio 
reversed to approximately five retirees for every one active worker, as 
a decline in membership due to the deregulation of the trucking 
industry and two economic catastrophes in the 2000s resulted in far 
fewer active workers paying into the plan than receiving benefits. The 
Fund's retirees currently earn $1,128 per month on average, although 
that total includes workers with tenures of all different lengths. The 
---------------------------------------------------------------------------
longest-tenured workers receive about $2,400 a month.

Treasury rejected the Central States Pension Fund's application because 
it failed to satisfy several MPRA technical requirements.\49\
---------------------------------------------------------------------------
    \49\ Kenneth R. Feinberg, U.S. Department of the Treasury's MPRA 
suspension application denial letter to the Board of Trustees of the 
Central States, Southeast and Southwest Areas Pension Plan, May 6, 
2016, https://www.treasury.gov/services/Responses2/Central%20States%20
Notification%20Letter.pdf.

According to Treasury, the Fund did not meet the following statutory 
---------------------------------------------------------------------------
requirements:

(1)  to use reasonable investment return assumptions;

(2)  to use a reasonable entry age assumption;

(3)  to equitably distribute the suspensions; or

(4)  to draft its suspension notices to be understandable by the 
average plan participant.

Many commentators were shocked that Treasury denied the Central States 
application, because it is one of the largest and most financially 
troubled plans in the multiemployer system. Many believe MPRA was 
passed specifically to save Central States, on the grounds that if the 
plan went insolvent it would effectively bankrupt the PBGC's 
multiemployer plan insurance program. On the same day that Treasury 
rejected Central States' application, Treasury Secretary Jacob J. Lew 
sent a letter to Congress wherein he advised that the larger funding 
issues facing Central States and other multiemployer plans remain 
unsolved, especially as the PBGC is simultaneously heading toward 
insolvency. Secretary Lew's letter explained that Treasury's rejection 
of the application may have provided participants with some short-term 
relief but pointed out that even larger cuts may be required in the 
future for the Fund to meet MPRA's requirements.\50\
---------------------------------------------------------------------------
    \50\ Jacob J. Lew, Secretary of the U.S. Department of the 
Treasury, Letter to Congress, May 6, 2016, https://www.treasury.gov/
services/Documents/MPRA%20SecLew%20Letter%20to%20
Congress%20050616.pdf.

Central States' executive director, Thomas Nyhan, said the decision was 
disappointing because the trustees believed ``the rescue plan provided 
the only realistic solution to avoiding insolvency.'' Nyhan said the 
Fund's retirees would have been better off with the cuts than they 
would be if the plan became insolvent. Given PBGC's looming insolvency, 
Nyhan noted that without the PBGC safety net, the Fund's participants 
could see their pension benefits reduced to ``virtually nothing.'' \51\
---------------------------------------------------------------------------
    \51\ Thomas Nyhan, Executive Director and General Counsel of the 
Central States, Southeast and Southwest Area Pension Plan Letter to 
Participants, May 20, 2016, https://mycentralstatespension.org/-/media/
Pension/PDFs/cspf-letter-to-participants-05-20-16.pdf?la=
en&hash=5A9F9CCFF4AD8A48781D30CDD684B02092531264.

As of this writing, the Fund has posted the following sobering message 
---------------------------------------------------------------------------
on its website:

        Although the decision to request approval of a pension rescue 
        plan was very difficult for the Fund's Trustees, we are 
        disappointed in Treasury's decision and strongly disagree with 
        the reasons expressed by Treasury for denying our rescue plan 
        application. Central States' proposed rescue plan was a 
        proposal of last resort, and clearly not an option that the 
        Trustees preferred. It was, however, based on a realistic 
        assessment that benefit reductions under a rescue plan were the 
        only available, practical way to avoid the hardship and 
        countless personal tragedies that will result if the Pension 
        Fund runs out of money.

Since the Central States Pension Fund submitted its application, its 
funding percentage has decreased to approximately 42.1%, with an 
estimated insolvency date of 2025. Its liabilities have increased to 
approximately $39 billion, and its assets have decreased to $16.1 
billion.\52\
---------------------------------------------------------------------------
    \52\ 2017 Notice of Critical and Declining Status of the Central 
States, Southeast and Southwest Area Pension Plan, https://www.dol.gov/
sites/default/files/ebsa/about-ebsa/our-activities/public-disclosure/
status-notices/declining/2017/central-states-southeast-and-southwest-
areas-pension-plan.pdf.
    Central States, Southeast and Southwest Area Pension Plan 2016 
Annual Form 5500, Schedule MB, October 6, 2017.
---------------------------------------------------------------------------

Road Carriers Local 707 Pension Fund

Treasury and the PBGC denied the Road Carriers Local 707 Pension Fund's 
coordinated partition and suspension applications in June 2016.\53\ The 
Fund, a Teamster plan based in Hempstead, New York, is currently 
insolvent and receives financial support from the PBGC in the amount of 
$1.7 million per month to pay benefits.\54\
---------------------------------------------------------------------------
    \53\ Kenneth R. Feinberg, U.S. Department of the Treasury's MPRA 
suspension application denial letter to the Board of Trustees of the 
Road Carriers Local 707 Pension Fund, June 24, 2016, https://
www.treasury.gov/services/Responses2/
Local%20707%20Notification%20Letter.pdf.
    See also PBGC Letter to the Board of Trustees of the Road Carriers 
Local 707 Pension Fund, June 2016, https://www.pbgc.gov/documents/PBGC-
Letter-June-2016.pdf.
    \54\ Notice of Insolvency Benefit Level of the Road Carriers Local 
707 Pension Fund, dated December 2016, https://www.pbgc.gov/news/other/
res/road-carriers-local-707-faqs, (October 29, 2017).

At the time the Fund submitted its applications in February and March 
2016, it was less than 5% funded and had only $24.5 million in assets, 
a 2:1 retiree-to-active participant ratio, and only nine remaining 
contributing employers.\55\
---------------------------------------------------------------------------
    \55\ Road Carriers Local 707 Pension Fund Coordinated Application 
for Approval of Suspension of Benefits under MPRA, Exhibits 2-3, March 
15, 2016, https://www.treasury.gov/services/KlineMillerApplications/
Redacted%20Files%20Local%20707%20application_001.pdf.

The trustees had already reduced benefit levels for those in pay status 
and filed the Fund's notice of insolvency with the PBGC, informing the 
Corporation that it would become insolvent and require financial 
support beginning in February 2017. Like many other Teamster plans, 
this Fund has never been able to recover from a combination of trucking 
deregulation, little to no growth in the trucking industry, an 
increasing retiree population, bankrupt employers failing to pay their 
---------------------------------------------------------------------------
withdrawal liability, and the two financial crises in the 2000s.

In its denial of the partition request, PBGC concluded that the Fund 
failed to demonstrate that it would remain solvent following a 
partition, and that its application was based on unreasonably 
optimistic assumptions related to active participants and future 
contribution levels, including those of the Fund's dominant employer, 
YRC Worldwide.\56\ Treasury also denied the Fund's suspension 
application, mainly because the projection of solvency in the 
application was based on the implementation of a partition, which the 
PBGC denied.\57\
---------------------------------------------------------------------------
    \56\ PBGC Letter to Board of Trustees of the Road Carriers Local 
707 Pension Fund, June 10, 2016, https://www.pbgc.gov/documents/PBGC-
Letter-June-2016.pdf.
    \57\ Kenneth R. Feinberg, U.S. Department of the Treasury's MPRA 
suspension application denial letter to the Board of Trustees of the 
Road Carriers Local 707 Pension Fund, June 24, 2016, https://
www.treasury.gov/services/Responses2/
Local%20707%20Notification%20Letter.pdf.
---------------------------------------------------------------------------

Other MPRA Application Denials and Withdrawals

The applications of the Automotive Industries Pension Plan, the 
Ironworkers Local Union 16 Pension Fund, and the Teamsters Local 469 
Pension Plan were all rejected, because they did not meet MPRA's 
technical requirements. According to Treasury's denial letters, these 
plans' applications were denied because the proposed suspensions were 
not reasonably estimated to avoid insolvency, the actuarial assumptions 
and methods (i.e., assumptions about mortality rates, hours of service, 
and spousal survivor benefits) were unreasonable, and/or assumptions 
about the return on investment were unreasonable.\58\
---------------------------------------------------------------------------
    \58\ See U.S. Department of the Treasury Letter to Board of 
Trustees of the Automotive Industries Pension Plan, May 9, 2017; U.S. 
Department of the Treasury Letter to Board of Trustees of the 
Ironworkers Local 16 Pension Fund, November 3, 2016; U.S. Department of 
the Treasury Letter to Board of Trustees of the Teamsters Local 469 
Pension Fund.

On the other hand, a few plans, such as the Alaska Ironworkers Pension 
Plan and the Bricklayers and Allied Craftsmen Local No. 5 and No. 7 
Pension Plans, made the strategic decision to withdraw their 
applications from Treasury consideration before the Department could 
issue its decision.\59\ These plans likely withdrew their applications 
based on discussions with Treasury. To date, three of the four plans 
that received Treasury's approval withdrew their initial applications 
and resubmitted revised applications after consultation with 
Treasury.\60\ The recent approvals may give these plans hope that 
Treasury will approve a refiled application.
---------------------------------------------------------------------------
    \59\ See Applications for Benefit Suspensions, U.S. Department of 
the Treasury, October 31, 2017, https://www.treasury.gov/services/
Pages/Plan-Applications.aspx.
    \60\ Id.
---------------------------------------------------------------------------

                       MPRA Application Approvals

Treasury has now approved four plans' applications to suspend benefits 
under MPRA. Three of these approvals have occurred under President 
Donald Trump's administration and may indicate a changing trend in the 
review and approval process at Treasury.

Iron Workers Local 17 Pension Fund

On December 16, 2016, Treasury issued its first MPRA suspension 
application approval to the Iron Workers Local 17 Pension Fund based in 
Cleveland, Ohio.\61\ At the time the Fund submitted its application, it 
was 44.3% funded with approximately $84 million in assets and $263 
million in liabilities and was projected to become insolvent in 
2024.\62\ This Fund was one of the smaller plans to submit an 
application, with a little fewer than 2,000 participants and a 1:2 
active-to-retired-worker population ratio.
---------------------------------------------------------------------------
    \61\ Letter to the Board of Trustees of the Ironworkers Local 17 
Pension Fund, U.S. Department of the Treasury, December 16, 2016.
    \62\ Iron Workers Local 17 Pension Fund's Application to Suspend 
Benefits, July 29, 2016.

The Fund's proposed suspensions generally involved reducing accrued 
benefits and eliminating early retirement subsidies and extra benefit 
credits indefinitely. Benefits were generally estimated to be reduced 
between 20% and 60%. Under the proposed suspensions, 52%, or 1,029 of 
the plan's 1,995 participants, will not have their retirement benefits 
cut. More than 30% of participants will see benefits cut by at least 
20%. Specifically, 30 participants will see extreme cuts between 50% 
and 60%; 115 participants will see cuts between 40% and 50%; 191 will 
see cuts between 30% and 40%; and 265 will see cuts between 20% and 
30%. Another 168 participants will see benefits cut by 10% or less. The 
suspension will reduce the average monthly benefit for all participants 
by 20%, from $1,401 to $1,120. With these proposed suspensions, the 
Fund's actuaries estimated that the Fund will remain solvent through 
April 2055.

United Furniture Workers Pension Fund A

In July 2017, the Furniture Workers Pension Fund A, based in Nashville, 
Tennessee, became the second plan to receive Treasury's approval to 
suspend benefits.\63\ The Fund has approximately 10,000 participants 
and also received approval for a partition from the PBGC effective in 
September 2017.\64\ At the time the Fund submitted its suspension plan, 
it had assets of approximately $55 million and almost $200 million in 
liabilities, was approximately 30.6% funded, and was projected to 
become insolvent by 2021.\65\ As with other plans facing insolvency, 
the plan's funding had slowly deteriorated over the years due to its 
inability to recover from the market downturns in 2000 and 2008 and to 
competitive pressures caused by increased furniture imports from 
overseas, the loss of some of its larger contributing employers, the 
further decline of its active participant base, and its inability to 
attract new contributing employers in the industry.
---------------------------------------------------------------------------
    \63\ Letter to Board of Trustees of the United Furniture Workers 
Pension Fund A, U.S. Department of the Treasury, August 31, 2017, 
https://www.treasury.gov/services/Responses2/
UFW_Final_Approval_Letter.pdf.
    \64\ Letter to Board of Trustees of the United Furniture Workers 
Pension Fund A, U.S. Department of the Treasury, August 31, 2017, 
https://www.treasury.gov/services/Responses2/
UFW_Final_Approval_Letter.pdf.
    See also PBGC FAQs on the United Furniture Workers Pension Fund, 
https://www.pbgc.gov/about/faq/ufw-partition-faqs.
    \65\ United Furniture Workers Pension Fund A's Second Application 
to Suspend Benefits Under MPRA, Exhibit 3, U.S. Department of the 
Treasury, March 15, 2017, https://www.treasury.gov/services/
KlineMillerApplications/
United%20Furniture%20Workers%20Pension%20Fund%20A%
20-
%20Second%20Application%20for%20Approval%20of%20Suspension%20of%20Benefi
ts%20-%
20File%202a%20of%203_Redacted.pdf.

In the Fund's application, its trustees estimated that 2,800 
participants would receive on average a reduction of 12.7%, and 7,100 
participants would receive no reductions because they were protected 
under MPRA (i.e., they were over age 80, disabled, etc.).\66\ The 
reductions were estimated to range from 0% to 62%.\67\
---------------------------------------------------------------------------
    \66\ Letter from the United Furniture Workers Pension Fund A to 
Participants, March 15, 2017.
    \67\ Id.

In the Fund's partition application, the trustees proposed to partition 
to the successor plan 100% of the liability associated with the 
terminated vested participants and 56% of the liability associated with 
those in paid status (retirees, beneficiaries, and disabled 
participants).\68\ The PBGC generally would become responsible for 
paying the partitioned liabilities in the successor plan. The trustees 
estimated that this would be the minimum amount of liability necessary 
to transfer to the PBGC to relieve some of the financial burden and to 
remain solvent for the 30-year period required under MPRA.
---------------------------------------------------------------------------
    \68\ United Furniture Workers Pension Fund A's Second Application 
to Suspend Benefits Under MPRA, U.S. Department of the Treasury, March 
15, 2017, https://www.treasury.gov/services/KlineMillerApplications/
United%20Furniture%20Workers%20Pension%20Fund%20A%20-%20Se
cond%20Application%20for%20Approval%20of%20Suspension%20of%20Benefits%20
-%20File%20
1%20of%203_Redacted.pdf.
---------------------------------------------------------------------------

New York State Teamsters Conference Pension and Retirement Fund

The New York State Teamsters Conference Pension and Retirement Fund was 
the third and largest plan to receive Treasury approval.\69\ Like the 
other two successful plans before it, this plan withdrew its original 
application and submitted a new one.
---------------------------------------------------------------------------
    \69\ Letter to Board of Trustees of the New York State Teamsters 
Conference Pension and Retirement Fund, U.S. Department of the 
Treasury, September 13, 2017, https://www.
treasury.gov/services/Documents/NYST%20final%20approval%20letter.pdf.

Over the past 35 years, this Fund faced a significant deterioration in 
its contribution base. In 1990, the Fund had 37,953 total participants, 
with an active population of approximately 23,883 workers and a retiree 
and terminated vested population of 14,070.\70\ The Fund had almost 500 
contributing employers and received $60 million in annual 
contributions, while paying about $46.9 million in annual benefits.
---------------------------------------------------------------------------
    \70\ New York State Teamsters Conference Pension and Retirement 
Fund Second Application to Suspend Benefits, U.S. Department of the 
Treasury, May 15, 2017, https://www.
treasury.gov/services/KlineMillerApplications/
01a%20NYSTPF%20MPRA%20App%20C%
20Exhibits%2001%20to%2016_Redacted.pdf.

At the time the Fund submitted its revised application to Treasury in 
May 2017, it had almost the same number of participants (34,459); 
however, it now had two retirees for every active worker, and only 184 
contributing employers. The Fund was receiving $118.7 million in annual 
contributions but paying approximately $280.1 million in annual retiree 
benefits. While almost fully funded in 2000, as of January 1, 2017, the 
plan was 37.8% funded, with $1.28 billion in assets and $3.39 billion 
---------------------------------------------------------------------------
in liabilities.

In its application, the trustees proposed a 19% reduction for all 
active participants and a 29% benefit reduction for all inactive 
participants. It was estimated that nearly 28% of participants would 
not see any cuts due to MPRA's protections.

International Association of Machinists Motor City Pension Fund

On November 6, 2017, the Troy, Michigan-based International Association 
of Machinists Motor City Pension Fund (Motor City Fund) became the 
fourth plan to receive Treasury's approval to suspend benefits.\71\ 
This Fund became the first one to receive Treasury's approval without 
undergoing a resubmission process.
---------------------------------------------------------------------------
    \71\ Letter to the Board of Trustees of the International 
Association of Machinists Motor City Pension Plan, U.S. Department of 
the Treasury, November 6, 2017, https://www.treasury.gov/services/
Pages/Benefit-Suspensions.aspx.

Over the last 15-plus years, the Motor City Fund's finances have been 
affected by the same factors plaguing other plans seeking MPRA relief--
loss of contributing employers, a decrease in active participants, and 
an inability to recover from the economic catastrophes of the 
2000s.\72\ In 2006, the Fund was 74% funded with a market value of 
assets of approximately $84 million and about $111 million in 
liabilities.
---------------------------------------------------------------------------
    \72\ Board of Trustees of the International Association of 
Machinists Motor City Pension Plan Application to Suspend Benefits, 
U.S. Department of the Treasury, March 29, 2017, https://
www.treasury.gov/services/Pages/International-Association-of-
Machinists-Motor-City-Pension-Fund.aspx.

Since then, the Fund's demographics and asset base have declined. The 
Fund has experienced numerous employer withdrawals over the years. The 
Fund had 20 contributing employers in 2012, 16 in 2015, and 11 in 2016, 
and is currently down to five. As of June 30, 2016, the Fund was about 
58% funded with only $51 million in assets and about $101 million in 
liabilities. It pays out $8.69 million in benefits to its retirees 
annually, while receiving only $1.6 million in employer contributions. 
Unbelievably, it has almost eight inactive participants receiving 
benefits per every one active worker. Without the benefit suspensions, 
---------------------------------------------------------------------------
the Fund is projected to be insolvent by the end of the 2026 plan year.

Under the Fund's suspension plan, monthly benefits payable to 
participants in pay status as of January 1, 2018, would be reduced to 
110% of the PBGC-guaranteed amount, which is the maximum reduction 
allowed under MPRA. The reduction applies to benefits earned up to 
January 1, 2018. Accruals after January 1, 2018, will return to 0.5% of 
credited contributions. As of December 2017, the Fund was in the 
process of submitting its proposal to its 1,134 members for voting.

                            IS MPRA WORKING?

MPRA has been neither an unmitigated disaster nor a panacea for 
multiemployer pension plans. Many commentators and, without a doubt, 
most plan participants are unhappy with MPRA because it allows plan 
trustees to violate the most basic tenet of ERISA: that once a benefit 
is earned, it cannot be taken away. There is little doubt, however, 
that prior to MPRA there was nothing some plans could do to avoid 
insolvency given the anti-cutback rule and the unsustainability of 
employer contribution increases. For plans that have recently reduced 
benefits, there is now hope that they will provide benefits for at 
least the next 30 years and perhaps in perpetuity. For other plans like 
Central States and the UMWA Pension Plan to survive, additional 
legislative action will need to be taken.

                                  Yes

MPRA now allows plans to reduce accrued benefits, which are by far the 
highest expense most plans have. It is virtually impossible for a plan 
with severe funding issues to reduce costs sufficiently when reductions 
are limited to future accruals. While there is a cost to providing 
future service credit, it is the past liabilities, many of which are 
unfunded but still owed, that normally sink a pension plan. With 
limited cost-cutting measures available pre-MPRA, plan trustees looked 
to employers to pay more and more every year. Now that well has run dry 
and the ability to cut accrued benefits is the last tool available for 
some plans to avoid insolvency.

The MPRA application process also appears to be getting more 
streamlined. The first several MPRA applications were denied because 
Treasury was not comfortable with the actuarial and investment 
assumptions that plans were making in proposing their benefit 
suspensions. Treasury has since issued new regulations governing 
suspension applications and has demonstrated a willingness to engage 
plan advisors during Treasury's review process. This allows for the 
exchange of information and the tweaking of certain assumptions that 
make it easier for the plan to demonstrate that suspensions will avoid 
insolvency for at least 30 years, which is what is required for 
Treasury to approve an application.

Treasury has now approved four MPRA applications, with the Motor City 
Pension Fund being the first plan to obtain an approval on its initial 
application. This could possibly bode well for future applications.

                                   No

Although Treasury seems to have implemented a process that may 
ultimately result in more suspension application approvals, the process 
is still lengthy and expensive. This is partly attributable to 
Treasury's use of its own actuarial and investment assumptions when 
reviewing and evaluating a plan's suspension application. By 
substituting its own assumptions for those of the plans' actuaries, 
Treasury adds a layer of complexity that slows the process and makes it 
more expensive.

MPRA's statutory text does not require (or authorize) Treasury to make 
such a detailed review of suspension applications. The statute 
authorizes Treasury to review applications to determine if the plan is 
eligible for the suspension and has satisfied the requirements of MPRA. 
In fact, the statute specifically says that when evaluating an 
application, Treasury must accept the trustees' determinations unless 
the plan's determinations are clearly erroneous.

While MPRA allows plans to make drastic reductions in costs by reducing 
accrued benefits, nothing in MPRA helps to infuse new money into the 
plans. Ultimately, some of the larger and most underfunded plans will 
need a new income stream in addition to benefit cuts to avoid 
insolvency. A combination of new money and benefit reductions could 
stop the bleeding from negative cash flow and allow a plan to earn its 
way out of critical and declining status. There is nothing in MPRA that 
helps on the income side of the equation.

Benefit cuts alone do not appear to be sufficient to address the 
payment of the orphan liability some plans have. MPRA has been unable 
to save two of the largest and most underfunded plans: Central States 
and the UMWA Plan. Central States' application was denied, and the UMWA 
Plan's benefit levels do not seem to make it a candidate for benefit 
suspensions under MPRA because it is already paying out benefits in 
many cases that are below the minimum amount allowed under MPRA. PBGC's 
projected insolvency is in part based on the liabilities it sees coming 
from these two plans. Although other legislative proposals have been 
made to provide relief to the UMWA Plan, nothing has been passed to 
date.

MPRA has been helpful to some plans and may prove helpful to others. 
But MPRA will not save Central States, the UMWA Pension Plan, and the 
other most severely underfunded plans because it provides no additional 
funding mechanism, which these plans will require. For these plans, and 
the more than 1 million participants in them, additional legislation is 
needed in short order.

                    WHAT HAPPENS IF NOTHING HAPPENS?

Central States, the UMWA Plan, and other plans approaching insolvency 
are not in a position to impose additional benefit cuts or employer 
contribution increases. These plans generally have no realistic 
expectation that any new employers will enter the plan. As assets 
dwindle, the trustees' fiduciary duty limits their ability to diversify 
the plan's investments.\73\ Now begins the death spiral, the inexorable 
slow march that will see the assets depleted while benefits are still 
due and owing.
---------------------------------------------------------------------------
    \73\ As mentioned earlier, as a plan's assets dwindle, trustees are 
obligated by their fiduciary duties to shift a plan's investments out 
of equities and into more conservative investment vehicles to preserve 
cash to pay benefits for as long as possible. Such investments 
generally provide for little growth, so there is no opportunity for the 
asset base to grow. If the trustees continued to leave assets invested 
in equities, a sharp downtown in equity markets could cause a plan to 
go insolvent much sooner than otherwise anticipated.

If insolvency occurs, participants will receive significant cuts in 
payments, because PBGC insurance covers only a fraction of the promised 
pension benefit payment. For example, a Local 707 Pension Fund 
participant with 30 years of service once received approximately 
$48,000 a year from the plan. Since the plan's insolvency, that 
participant receives only $12,870 per year from the PBGC, which is the 
maximum guaranteed amount. This reduction obviously puts participants 
---------------------------------------------------------------------------
in a difficult position.

Many cannot return to work because of age and health issues, not to 
mention potential skill and certification gaps. As a result, they will 
have to find other ways to make up for the reduction, including 
liquidating their assets, relying on family members, and looking to the 
government, and by extension the taxpayer, through the use of Medicare, 
Medicaid, Social Security, Supplemental Nutrition Assistance Program 
benefits, and other social safety net programs.

The failure of the largest and most underfunded plans will ultimately 
bankrupt the PBGC. In its FY 2016 Projections report, the PBGC stated 
that the multiemployer insurance program is likely to run out of money 
by the end of 2025. The PBGC Multiemployer Program's 2016 deficit of 
$59 billion increased to $65.1 billion in 2017 and is expected to 
explode to $80 billion by 2026.\74\ Once the multiemployer program is 
bankrupt, participant payments will be cut even further and may even 
cease. As such, the scenario described above will become even direr.
---------------------------------------------------------------------------
    \74\ ``PBGC Projections: Multiemployer Program Likely Insolvent by 
the End of 2025; Single-Employer Program Likely to Eliminate Deficit by 
2022,'' Press Release, Pension Benefit Guaranty Corporation, August 3, 
2017, https://www.pbgc.gov/news/press/releases/pr17-04.

A failure of this magnitude in the multiemployer system will damage the 
entire economy--not just employers in the multiemployer plan system. 
Insolvencies and the subsequent benefit cuts that follow also have deep 
impacts on the communities where participants live. Retirees will see 
their standard of living reduced. At a minimum, they will have less 
income to spend in local economies. The reduced spending will be felt 
by businesses, especially in small communities. Less money spent by 
retirees also means less paid to local government in sales and other 
taxes. When tax revenue decreases, the demand for social programs will 
increase, because many retirees will likely lose their homes and/or 
have difficulty paying for medical expenses. This will cause many to 
become reliant on social programs that have to be funded by taxpayers 
at a time when tax revenue will be declining. Simply put, pension plan 
insolvencies and a PBGC collapse will have a cumulative negative effect 
on entire communities. Individuals, government, and businesses will all 
suffer unless a solution is found.

                          POTENTIAL SOLUTIONS

Several proposals have been designed to address the multiemployer 
pension plan funding problem. Some are purely legislative proposals, 
whereas others deal with new pension plan designs. The most widely 
considered of the proposals are discussed below.

          PBGC Takeover of Critical and Declining Status Plans

The prospect of the PBGC taking over all plans that are classified as 
critical and declining has some appeal. After all, the PBGC was 
established in 1974 to provide insurance to private pension plans, 
including multiemployer plans. If the PBGC's mission is to provide 
assistance to financially troubled multiemployer plans, the plans in 
the worse shape should look to PBGC to not only help pay benefits if 
necessary, but to operate the plan as well.

Proponents of a complete PBGC takeover of critical and declining plans 
cite these primary reasons for their position--PBGC-operated plans will 
save money by reducing administrative expenses; or the threat of a PBGC 
takeover will provide an incentive for trustees to ensure adequate 
funding, because their jobs will be at risk otherwise.\75\
---------------------------------------------------------------------------
    \75\ Rachel Grezler, ``Congress Needs to Address the PBGC's 
Multiemployer Program Deficit Now,'' The Heritage Foundation Issue 
Brief, September 13, 2016, 2.

When a single-employer defined benefit pension plan goes insolvent, the 
PBGC takes over the operation of the plan. When a multiemployer plan 
goes insolvent, the PBGC offers financial assistance in the form of a 
loan. Not only are these loans almost never repaid, but the plan 
continues to operate under the pre-insolvency structure. This means 
that there remains a board of trustees comprised of an equal number of 
union and employer representatives who are charged with administering 
the plan in accordance with the fiduciary requirements of ERISA and the 
tax- qualification requirements of the Code. The trustees hire 
actuaries, attorneys, accountants, investment consultants, and 
investment managers to help comply with the various legal requirements. 
These professional advisors cost money, and therefore even an insolvent 
plan receiving financial assistance from PBGC has continuing 
---------------------------------------------------------------------------
administrative costs.

A PBGC takeover of critical and declining multiemployer plans would 
likely reduce administrative costs. The costs would not be eliminated, 
because the PBGC would still need the same actuarial, legal, 
accounting, and investment advisory services that the plan's trustees 
use. Nevertheless, many of the advisors would either already be on 
staff at PBGC, or the services could be provided in a less costly 
manner due to economies of scale.

However, the PBGC is not currently funded well enough itself to offer 
any meaningful long-term financial relief to multiemployer plans under 
its current structure of offering only loans. If the PBGC were to take 
over the administration of critical and declining plans, PBGC's costs 
would increase, even if only slightly. More important, plans that are 
in critical and declining status are not in that condition because of 
their administrative expenses; rather, they are in critical and 
declining status primarily because of massive negative cash flow issues 
brought on by having to pay millions more in benefits to retirees than 
they receive in contributions for active employees. While a PBGC 
takeover would most assuredly reduce administrative expenses, a 
reduction in administrative expenses alone, without shoring up the 
PBGC's financial condition, would not provide a long-term solution.

Another reason frequently cited by those advocating for PBGC takeovers 
is that the threat of a takeover will incentivize plan officials to 
more closely monitor a plan's funding level. This line of thinking 
assumes that once a plan becomes critical and declining, the PBGC 
takeover of the plan will cost people their jobs, and therefore, for 
self-preservation purposes, plan officials will do everything possible 
to prevent a plan from becoming critical and declining. While it is 
true that a plan's professional advisors and in-house administration 
(if any) would not be needed after a PBGC takeover, professional 
advisors and administrative staff do not have the authority to make 
decisions for the plan that affect funding.

Those decisions are made by the plan's trustees, who generally are not 
full-time plan employees. Being a trustee of a multiemployer plan is 
often one of the duties of a union official or employer-appointed 
trustee, but it is not a job in and of itself. Therefore, it is 
doubtful that very many plan trustees will lose their jobs if the PBGC 
were to take over a plan; the professional advisors whose jobs would be 
at risk are already incentivized to help keep a plan out of critical 
and declining status, because if their advice is shoddy, the trustees 
will terminate them. Finally, the PBGC ``takeover as incentive/threat'' 
position assumes that critical and declining plans are in that 
condition because plan officials were not diligent or were asleep at 
the wheel. This is rarely the case, as changing demographics and stock 
market returns have been more influenced by government policy and 
market forces than by trustees' decisions.

                              PBGC Funding

There are limited tools available to improve the PBGC's funded status. 
Historically, the PBGC multiemployer program has been funded solely 
through annual premiums that multiemployer plans are required to pay, 
and not by individual tax payers. Broadening the PBGC's funding 
mechanisms to include taxpayer dollars from the general treasury is 
appealing to some but anathema to others.\76\ Some pundits believe that 
the federal government has been complicit in the downfall of some 
multiemployer plans by imposing strict funding rules and deregulating 
certain industries.\77\ These pundits believe that the government 
should help fund the PBGC to make up for prior policies that have put 
the plans at risk. Others believe that American taxpayers, the majority 
of whom do not participate in multiemployer pension plans, should not 
be asked to sacrifice for others when they have their own retirements 
to fund.\78\
---------------------------------------------------------------------------
    \76\ Id., 2.
    \77\ Mary Sanchez, ``The Federal Government's Little Known Pension 
Heist,'' Baltimore Sun, February 17, 2015.
    \78\ Rachel Grezler, ``Congress Needs to Address the PBGC's 
Multiemployer Program Deficit Now,'' The Heritage Foundation Issue 
Brief, September 13, 2016.

Another way to improve PBGC funding is to increase the annual premiums 
that multiemployer plans pay. This has already been done in recent 
years, but increases have not been large enough to solve the PBGC's 
funding deficit. In 2014, multiemployer plans paid an annual flat rate 
premium of $12 per participant. In 2018, multiemployer premiums will be 
$28 per participant. Despite more than doubling the premium, the PBGC 
still projects that there is a 90% chance it will be insolvent by 2035. 
Even more disturbing is that the PBGC estimates that if premiums were 
increased to $120 per participant, its deficit in 2022 would still 
increase by $15 billion.\79\
---------------------------------------------------------------------------
    \79\ Alicia H. Munnell and Jean-Pierre Aubry, ``Can PBGC Save 
Multiemployer Plans?'', Center for Retirement Research at Boston 
College, September 2014, Number 14-16, 5, http://crr.bc.edu/
uncategorized/can-pbgc-save-multiemployer-plans/.

According to the Congressional Budget Office, PBGC premiums would have 
to be increased to $232 per participant to achieve a 90% probability of 
covering its deficit by 2036.\80\ Based on the fair-value estimated 
deficit of $101 billion, a $232 premium increase would cover only 36% 
of the PBGC's deficit.\81\ Furthermore, raising premiums eightfold 
would require increasing employer contributions. As many plans are in 
critical and declining status because employers could not afford the 
contribution increases required under their rehabilitation plans, it 
seems unlikely that employers would be able to pay the increases 
necessary to increase PBGC premiums to a level that would cure the 
PBGC's deficit.
---------------------------------------------------------------------------
    \80\ Rachel Grezler, ``Congress Needs to Address the PBGC's 
Multiemployer Program Deficit Now,'' The Heritage Foundation Issue 
Brief, September 13, 2016, 2.
    \81\ Alicia H. Munnell and Jean-Pierre Aubry, ``Can PBGC Save 
Multiemployer Plans?,'' Center for Retirement Research at Boston 
College, September 2014, Number 14-16, 5, http://crr.bc.edu/
uncategorized/can-pbgc-save-multiemployer-plans/.
---------------------------------------------------------------------------

                        Partitioning of Orphans

Orphan participants constitute a significant portion of total 
multiemployer participants. Approximately 1.6 million of the 10.7 
million multiemployer plan participants are orphans.\82\ To relieve 
severely underfunded plans of the burden of unfunded orphan liability, 
many practitioners suggest that the liability be transferred to the 
PBGC via a partition. Once a partition is approved, and the original 
plan transfers liabilities to the PBGC, the PBGC becomes responsible 
for paying benefits to the partitioned participants at the PBGC 
guaranteed level.
---------------------------------------------------------------------------
    \82\ Alicia H. Munnell, Jean-Pierre Aubry, and Caroline V. 
Crawford, ``Multiemployer Pension Plans: Current Status and Future 
Trends,'' Center for Retirement Research at Boston College, November 
2017, 170.

Since MPRA's enactment, only the Furniture Workers Fund has 
---------------------------------------------------------------------------
successfully applied for a partition.

While partitions can help reduce a plan's underfunding, they are far 
from a panacea because they rely on the PBGC to pay the partitioned 
participants' benefits. PBGC is simply not funded well enough to pay 
all orphaned liabilities for all critical and declining plans. The PBGC 
funding issue is actually exacerbated in a partition, because PBGC 
starts paying the partitioned benefits immediately, unlike when the 
plan as a whole goes insolvent. Absent additional funding, this move 
would likely accelerate PBGC's projected insolvency.\83\ Assuming the 
funding issue could be resolved, the value of partitioning would be to 
help plans to focus on maximizing contributions to pay for current 
costs.
---------------------------------------------------------------------------
    \83\ Alicia H. Munnell and Jean-Pierre Aubry, ``Can PBGC Save 
Multiemployer Plans?'', 5.
---------------------------------------------------------------------------

                              Plan Mergers

As discussed previously, MPRA provides the PBGC with the authority to 
facilitate mergers. Some commentators believe that, with PBGC-assisted 
mergers or partitions, many plans will be able to recover using 
contributions from the remaining active employers and employees, which 
might help preserve plans covering some 800,000 people.\84\ However, it 
does not appear that many plans have sought PBGC assistance in 
effectuating mergers under MPRA. This could be because trustees of 
critical and declining plans have been focused on determining whether a 
benefit suspension and/or partition application would solve their 
plans' solvency issues rather than on investigating potential mergers.
---------------------------------------------------------------------------
    \84\ ``What Can Congress Do to Help People in Multiemployer Pension 
Plans?'': testimony by Hon. Joshua Gotbaum before the Senate Committee 
on Finance, March 1, 2016, https://www.finance.senate.gov/imo/media/
doc/03012016%20Gotbaum%20SFC%20Gotbaum%20Multi
employer%20Pensions%20Testimony.pdf.

The MPRA application process is labor intensive, time consuming, and 
expensive and requires only the involvement of one board of trustees. 
It would thus be difficult and time consuming to explore potential 
mergers or perform a merger study and to prepare a MPRA application at 
the same time. It is possible that those plans that have had their MPRA 
applications rejected, or who have withdrawn their applications, may 
investigate whether a PBGC-facilitated merger with another plan is 
feasible. However, any solution that requires PBGC funding is not 
necessarily going to permanently resolve a plan's funding issues 
because of PBGC's own precarious financial condition. To make plan 
mergers a viable tool for critical and declining plans, more guidance 
is needed from Treasury/PBGC and/or Congress.

                         Benefit Modifications

While the PPA has allowed many plans to make benefit modifications to 
future accruals and other adjustable benefits, and MPRA now authorizes 
reductions to benefits in pay status, some are calling for even more 
flexibility to allow financially troubled plans to make benefit 
modifications. It is possible that for some deeply troubled plans that 
are nearing the death spiral, benefit reductions that go beyond those 
allowed by MPRA may be necessary.

The more time that elapses without a workable solution, the bigger the 
cuts will have to be. These plans' plights are exacerbated by PBGC's 
underfunded status. It is estimated that if the PBGC becomes insolvent, 
ongoing premiums that multiemployer plans pay would cover only about 
10% of the benefits for which Central State is responsible. This would 
require participants to take a 90% reduction in their benefits.\85\
---------------------------------------------------------------------------
    \85\ Id.

In an article for the Heritage Foundation, Rachel Grezler proposed 
several ideas to improve multiemployer plan funding. First, she 
suggested creating special rules for critical and declining plans that 
``have no hope of becoming solvent.'' Under the proposal, critical and 
declining plans would not be allowed to continue adding new 
liabilities. Instead, they would be required to freeze new benefits and 
reduce existing benefits, including to those in pay status, similar to 
MPRA.\86\ The paper also advocates for rules making it easier for plans 
to reduce benefits prior to becoming insolvent as doing so would 
prevent older workers in underfunded plans from continuing to receive 
full benefits, while younger worker accrue very little. The authors 
suggest that plans looking to make MPRA reductions be able to do so 
without demonstrating that the reductions will result in the plan's 
long-term solvency.\87\ Another concept is to allow the PBGC, on its 
initiative, to reduce benefits within a plan prior to the plan going 
insolvent, or to reduce the PBGC guaranty after insolvency. The 
Heritage Foundation recognizes however, that reductions in the PBGC 
guaranty alone would not be enough to prevent PBGC insolvency, and that 
other changes are necessary.
---------------------------------------------------------------------------
    \86\ Rachel Grezler, ``Congress Needs to Address the PBGC's 
Multiemployer Program Deficit Now,'' The Heritage Foundation, September 
13, 2016, 3.
    \87\ Id.
---------------------------------------------------------------------------

                     Variable Defined Benefit Plans

While technically a defined benefit plan, a variable defined benefit 
plan has characteristics of both defined benefit and defined 
contribution plans. Interestingly, the variable defined benefit plan 
has been used by multiemployer defined benefit plans with severe 
funding issues (like the Sheet Metal Workers' National Pension Fund) to 
allocate part of the investment risk to employees, as well as by 
multiemployer 401(k) plans (like the UNITE HERE Local 26 Pension Plan) 
to shift some investment risk to employers.

Variable defined benefit plans can be designed to be 100% funded.\88\ 
They are similar to traditional defined benefit plans in that the 
contributing employers bear the financial obligation and the plan's 
assets are invested in a pooled account. They are unlike defined 
benefit plans in that they spread investment risk among contributing 
employers and participants and rely on less risky investment 
assumptions.\89\ The benefit the plan pays is ``variable,'' because the 
amount varies depending on actual investment performance.
---------------------------------------------------------------------------
    \88\ David B. Brandolph, ``Hotel Industry Trust That Left 401(k) 
for Pension Gets IRS OK,'' August 2017, Bloomberg BNA, https://
www.bna.com/hotel-industry-trust-n73014462612/.
    \89\ Gene Kalwarski, ``The Variable Defined Benefit Plan,'' 
Cheiron, accessed December 13, 2017, https://www.cheiron.us/
cheironHome/doc/Retirement_USAv1.pdf.

Basically, the variable defined benefit plan pays the greater of a 
floor defined benefit and a variable benefit. After taking into account 
contribution levels, the plan actuary will determine the floor benefit 
based on plan demographics and a conservative interest assumption (for 
example 4% to 5%). The floor benefit would also be converted into 
investment units in the plan's collective assets, which would be 
professionally managed. These investment units fluctuate in value 
annually, increasing in value if the plan's investment return exceeded 
the conservative interest assumption (plus a reserve factor) and 
decline in value if the plan's investment return falls below the 
---------------------------------------------------------------------------
assumption.

At retirement, the employee would receive the greater of the sum of his 
or her floor benefits or the sum of his or her investment units.\90\ 
The floor benefit is thus designed to be the minimum that a participant 
might receive at retirement, but the variable component allows the 
benefit to increase (within certain specified limits) when investment 
returns are higher. Extraordinarily high investment returns above those 
specified in the plan are placed into reserve to protect against the 
inevitable negative investment return years.
---------------------------------------------------------------------------
    \90\ Gene Kalwarski, ``Re-Envisioning Retirement Security: Variable 
Defined Benefit Plan,'' Retirement USA, October 21, 2009, http://
www.retirement-usa.org/re-envisioning-retirement-security-variable-
defined-benefit-plan.

Proponents of the variable defined benefit plan laud the design's 
ability to pay an adequate benefit in the form of a life annuity, while 
at the same time allocating the investment risk among contributing 
employers and participants. The conservative investment assumption is 
lower than the traditional 7% to 8% that most defined benefit plans 
assume, which provides a higher probability that the promised floor 
benefit will never have to be adjusted because the lower return is more 
likely to be achieved.\91\
---------------------------------------------------------------------------
    \91\ David B. Brandolph, ``Hotel Industry Trust That Left 401(k) 
for Pension Gets IRS OK,'' August 2017, Bloomberg BNA, https://
www.bna.com/hotel-industry-trust-n73014462612/.

Variable defined benefit plans are of recent vintage in the 
multiemployer arena. While there appear to be benefits to all 
stakeholders, these plans might be more helpful for younger workers and 
could possibly become the defined benefit plan of the future. The 
variable defined benefit plan does not do anything to solve the funding 
issues of plans that face insolvency today and that jeopardize the 
retirement security of those near or in retirement.

                            Composite Plans

Another plan design that has gained traction among multiemployer plan 
stakeholders and practitioners is the composite plan. The concept of 
the composite plan was first introduced in 2013 by the National 
Coordinating Committee for Multiemployer Plans (NCCMP).\92\ Draft 
legislation language was released by the House Education and Workforce 
Committee in September 2016, but to date no legislation has been 
enacted.
---------------------------------------------------------------------------
    \92\ See NCCMP 2013 Retirement Security Review Commission Report, 
``Solutions Not Bailouts.''

Like variable defined benefit plans, composite plans are designed to 
allocate investment risk to both employers and participants. A 
composite plan is neither a defined benefit nor a defined contribution 
plan, but has characteristics of each. Like multiemployer defined 
benefit plans, the trustees would determine the rate at which benefits 
accrue and benefits would be paid in the form of an annuity. However, 
unlike defined benefit plans, the ultimate benefit paid would be 
variable and depend on the market value of assets.\93\ Benefit amounts 
would be adjusted on an annual basis to mitigate the frequency and 
impact of market fluctuations, projected for a 15-year period.\94\ 
Composite plans would not have any withdrawal liability and would not 
be subject to PBGC guarantees. The employers' contribution obligation 
would be limited to the rates negotiated with the union.\95\
---------------------------------------------------------------------------
    \93\ The United States House of Representatives Committee on 
Education and the Workforce Subcommittee on Health, Employment, Labor, 
and Pensions, ``Examining Reforms to Modernize the Multiemployer 
Pension System,'' testimony of Randy G. DeFrehn, April 29, 2015.
    \94\ Id.
    \95\ Id.

Those advocating for composite plans note that composite plans no 
longer place the risk of ensuring performance of the investment markets 
solely on employers, while at the same time providing a mechanism for 
union workers to receive retirement income for life.\96\ The composite 
plan design also has its critics. International Brotherhood of 
Teamsters President James Hoffa believes the composite plans would not 
be adequately funded under the proposed legislation and the net result 
would be two underfunded plans.\97\ The Pension Rights Center describes 
the proposed legislation as a bill that would allow ``relatively 
healthy multiemployer plans with secure adequate benefit structure to 
transition to two inferior plans.'' \98\
---------------------------------------------------------------------------
    \96\ ``Examining Reforms to Modernize the Multiemployer Pension 
System,'' testimony of Randy G. DeFrehn, April 29, 2015.
    \97\ ``Teamsters Strongly Oppose New House `Composite' Pension 
Legislation,'' Teamsters, September 22, 2016, https://teamster.org/
news/2016/09/teamsters-strongly-oppose-new-house-composite-pension-
legislation.
    \98\ ``Composite Bill Legislative Summary,'' Pension Rights Center, 
November 10, 2016, http://www.pensionrights.org/issues/legislation/
composite-bill-legislative-summary.
---------------------------------------------------------------------------

                         Loan Program Proposals

In recent months, stakeholders representing both union and management 
have put forth potential legislative solutions they believe could solve 
even the most severely underfunded plans' funding problems. Recognizing 
the uphill political battle procuring a pure tax payer bailout of 
multiemployer plans would entail, these proposals involve providing 
loans to pension plans that would be paid back to the U.S. government 
over time.

Butch Lewis Act

In November 2017, Senator Sherrod Brown (D-OH) and Representative 
Richard Neal (D-MA) introduced the Butch Lewis Act (S. 2147 and H.R. 
4444, respectively), which would allow struggling multiemployer pension 
plans to borrow money from Treasury to remain solvent.

The bill would create a new office within Treasury, known as the 
Pension Rehabilitation Administration (PRA). The PRA would allow 
financially troubled plans to borrow money for up to 30 years at low 
interest rates. The PRA would raise money for the loan program through 
the sale of Treasury-issued bonds to financial institutions. The 30-
year period is supposed to give the borrowing plans ample time to repay 
the loan, while simultaneously incentivizing it to make smart long-term 
investments. The legislation would also prohibit the plans from making 
certain ``risky'' investments during the loan period. Every 3 years, 
the plans will have to report back to the PRA and demonstrate they are 
rehabilitating themselves and avoiding insolvency. The PBGC would also 
share some responsibility in financing the loan program by providing a 
plan the funds it requires beyond the loan program to pay benefits.\99\
---------------------------------------------------------------------------
    \99\ ``Brown Announces Plan to Protect Ohio Pensions, Keep Promises 
to Ohio Workers,'' Press Release, Sherrod Brown, Senator for Ohio, 
November 12, 2017, https://www.brown.senate.gov/newsroom/press/release/
brown-announces-plan-to-protect-ohio-pensions-keep-promises-to-ohio-
workers.
---------------------------------------------------------------------------

Curing Troubled Multiemployer Pension Plans: Proposal

A stakeholder group made up of employers and unions has been proactive 
in formulating its own legislative proposal, and has been actively 
marketing the proposal to multiemployer plans, the NCCMP, and members 
of Congress. The proposal is titled ``Curing Troubled Multiemployer 
Pension Plans'' and the theme is that saving multiemployer plans will 
require shared sacrifices. Under this proposal, multiemployer plans 
will be saved from impending insolvency through a combination of 
federal loans, benefit reductions, and surcharges to plan participants.

Under the proposal, any plan that is in critical and declining status 
would be eligible for a federal loan. The plan would submit an 
application to the Department of Treasury, together with an actuarial 
certification that the plan is critical and declining and that the loan 
proceeds would be sufficient to cure the plan's funding issues and that 
the plan could repay the loan. The loan proceeds would cover the plan's 
negative cash flow (i.e., the difference between the amount the plan 
pays in benefits each month, plus administrative expenses and the 
amount the plan receives in employer contributions).

A plan would be able to take up to three loans. The total amount of the 
loan would be calculated by the plan's actuary, and would be sufficient 
to pay five times the projected contribution income and earnings minus 
benefit payments and administrative expenses. The proposal refers to 
this amount as the ``shortfall.'' The interest rate on the loan would 
be 1% and would be paid over 30 years, with interest-only payments 
during the first 5 years (or 10 years if two loans are necessary, and 
15 years if three are needed).

The proposal also requires plans to reduce all benefit payments by 20% 
within 60 days after the loan application is approved. These benefit 
reductions would apply to all participants and there would be no 
protected classes. The reductions would apply even if they resulted in 
a participant receiving less than the PBGC guarantee. The 20% reduction 
would also apply to those participants who are not yet receiving 
benefits. Proponents of the proposal assert that because the loan will 
cover the shortfall, and the shortfall is calculated using the 
unreduced benefit amounts, plans will have an opportunity to improve 
its funded status through investment performance.

After the initial 5-year loan period, the plan's actuary will determine 
whether the plan is still in critical and declining status. If the plan 
is still critical and declining, the shortfall is recalculated (again 
without including benefit reductions) and a new loan amount is 
calculated and paid in monthly installments. If the plan is no longer 
in critical and declining status, repayment of the loan principal 
begins. Benefit reductions would remain in place until the plan is 
neither in critical or endangered as defined in the PPA.

The Curing Troubled Multiemployer Pension Plans proposal estimates that 
approximately $30 billion in loans might be necessary to save 
underfunded multiemployer plans. In order to reduce the risk of default 
on the loans (the plans will be paying interest only for 5 to 15 
years), a multiemployer plan risk reserve pool (MRRP) would be 
established. The MRRP would be funded by imposing monthly surcharges on 
participants and employers, and by increasing PBGC premiums that 
multiemployer plans pay. PBGC would administer the MRRP and would 
invest the money in a trust separate from PBGC's other assets.

Draft Federal Credit Proposal

The NCCMP has put forth its own proposal. The NCCMP was instrumental in 
designing and lobbying for the passage of MPRA and firmly believes that 
Central States' funding issues would have been resolved if Treasury had 
approved Central States MPRA application.\100\
---------------------------------------------------------------------------
    \100\ Michael D. Scott, ``Multiemployer Pension Facts and the Draft 
Emergency Multiemployer Pension Loan Proposal,'' September 20, 2017, 8.

The NCCMP proposal is similar to the shared sacrifices proposal. The 
NCCMP's Draft Credit Proposal (DCP) also contemplates federally 
subsidized 30-year loans at a 1% interest rate. According to NCCMP, it 
has modeled its program using data from five plans and that each plan 
demonstrated that it would maintain solvency and be able to repay the 
loan. The DCP provides for three alternatives to be presented to 
---------------------------------------------------------------------------
Congress.

Alternative 1 would require no benefit reductions and the federal 
government would pay all credit subsidy costs. The credit subsidy cost 
is the estimated long-term cost to the government of a direct loan or 
loan guarantee, calculated on a net present value basis and excluding 
administrative costs. The NCCMP concedes that there is no precedent for 
any federal credit program that did not require the recipients to 
restructure their obligations and governance.\101\ It is thus hard to 
imagine that Alternative 1 would be adopted given the current political 
climate.
---------------------------------------------------------------------------
    \101\ Id., 11.

Alternative 2 requires the same 20% across the board reduction in 
benefits that the shared sacrifices proposal calls for. Unlike the 20% 
UPS reductions, which would be used to provide plans with the ability 
to earn their way back to solvency, the reductions under the DCP would 
be paid to the government to reduce the cost of the government subsidy. 
The government would pay any remaining subsidy costs. The NCCMP is on 
record that it will not support any tax or other payment on the 
multiemployer plan system to pay for or credit-enhance the loan program 
because the structure is consistent with the Federal Credit Reform 
Act.\102\
---------------------------------------------------------------------------
    \102\ Id.

Alternative 3 also requires a 20% across-the-board benefit reduction, 
and then requires any additional amounts needed to achieve a zero 
credit subsidy to the government.\103\
---------------------------------------------------------------------------
    \103\ Id.

The NCCMP recognizes that for plans like Central States and the UMWA 
Plan, time is of the essence in passing a solution. Each day that goes 
by brings both plans closer to the death spiral from which there would 
likely be no return. The NCCMP believes that its proposal maximizes the 
probability of success and would be palatable to the government, which 
makes implementation more likely.

                               CONCLUSION

Although most multiemployer pension plans are not in endangered or 
critical status, a significant crisis is looming in the multiemployer 
system. Most plans have survived last decade's two financial crises and 
absorbed the impact of a dwindling ratio of active participants to 
retirees. These plans survived primarily due to a combination of 
benefit reductions and contribution increases allowed by the Pension 
Protection Act of 2006, as well as an improving economy. Some plans 
might be able to survive if they make significant Multiemployer Pension 
Reform Act of 2014 reductions to benefits in pay status. Those appear 
to be the fortunate plans.

Unfortunately, some plans are nearing the death spiral, where even 
maximum reductions under the Multiemployer Pension Reform Act of 2014 
will not be sufficient to stave off insolvency. At the same time, the 
gap between those critical and declining plans and healthier funds 
continues to widen, while the Pension Benefit Guaranty Corporation's 
insolvency is quickly approaching. If these plans fail, the negative 
effects will be felt by the participants and their families, local 
economies, and U.S. taxpayers as a whole.

                                 ______
                                 
                  ILLOWA Committee to Protect Pensions

                       Illinois/Iowa Quad Cities

                        1815 37th Street Place,

                            Moline, IL 61265

                             (309-797-9578)

Judith Weeks--Chairperson
Ruth M. Puck--Recording Secretary
Diane Roth--Treasurer
_______________________________________________________________________

May 12, 2018

Joint Select Committee on Solvency of Multiemployer Pension Plans
219 Dirksen Senate Office Building
Washington, DC 20510

Dear Committee Members:

Please support the Butch Lewis Act (S. 2147 and H.R. 4444). We believe 
it will relieve the taxpayer of the burden of funding the Pension 
Benefit Guarantee Corporation (PBGC) and of taxpayers supporting over 
10 million retirees in their declining years.

This letter pertains to the plight of nursing homes across America that 
will be harmed if multiemployer pension funds are allowed to become 
insolvent. Many retirees are in those nursing homes because they have a 
pension that they (or their spouse) earned while working. Most of them 
may not even be aware of the possibility of losing the pension check 
that pays for their care. They need you to speak for them and make sure 
that those nursing homes receive those pension checks so seniors won't 
be moved onto Medicaid and state or county homes at taxpayer expense.

This is also about the future of retirees who aren't currently in 
nursing homes. One day, many of us may need nursing home care and we 
want to make sure that we have pension checks to pay for that 
possibility. We don't want to be dependent upon the state or federal 
government to care for us in our declining years.

The loss of those pensions could devastate the economy as well. Please 
refer to the newly released Economic Impact Study for the entire 
multiemployer pension system. The data on the Economic Impact Study is 
from the National Institute on Retirement Security (NIRS) which used 
DOL Form 5000 data.

Many of these retirees are veterans who are currently paying for 
Medicare and a secondary health insurance because they can afford to 
with their pensions. If they lose those pensions, they will end up 
getting services at the Veterans Administration, again at taxpayer 
expense. And many of those who lose pensions will quality for 
subsidized housing and even food stamps, again at taxpayer expense.

Our committee, ILLOWA Committee to Protect Pensions, is mostly Teamster 
retirees and spouses from Central States but we represent over 10 
million retirees in multiemployer pension plans. We are a part of a 
group of over 60 committees across America that is working with 
congress to solve this funding problem.

Thank you for your work with the Joint Select Committee on Solvency of 
the Multiemployer Pension Plans. We need your support in our efforts to 
stay in our homes, provide for ourselves, meet our obligations, and 
feel secure in our futures. Again, please support S. 2147 or H.R. 4444.

Sincerely,

Members of ILLOWA Committee to Protect Pensions
Ruth M. Puck (Contact Person)

                                 ______
                                 
               Letter Submitted by Henry B. Jefferson III

May 20, 2018

U.S. Senate
Committee on Finance
219 Dirksen Senate Office Bldg.
Washington, DC 20510-6200

RE: Central States Pension Fund

Dear Senate Committee,

My name is Henry B. Jefferson III. I was employed by The Kroger Company 
for 36 years. I am now 78 years old and have had multiple sclerosis for 
23 years. A cut in my pension plan would put a hardship on my wife and 
me. The pension plan was part of my wages and it is not my fault that 
the money was mismanaged. Thank you for your assistance in this matter.

Sincerely,

Henry B. Jefferson III

                                 ______
                                 
                    Letter Submitted by Bill R. Reed

                              May 3, 2018

U.S. Senate
U.S. House of Representatives
Joint Select Committee on Solvency of Multiemployer Pension Plans
219 Dirksen Senate Office Building
Washington, DC 20510

Honorable Committee Members:

I am writing you to ask for your support in saving the Central States 
Pension Fund from insolvency.

I worked for 47 years as a truck driver in St. Louis and was a member 
of Teamsters Local 600. When it was time for my pension my wife and I 
decided to take the option of spousal survival and set aside a portion 
of my pension for her if she survives me.

Now I understand that unless the pension plan receives funding from the 
government, it will be insolvent in 2025 and there will be no more 
pension payout from Central States for either the retiree or the 
surviving spouse. The impact upon my wife and me will be severe. 
Without the pension income we will have to sell our house because we 
will no longer be able to set aside money for real estate taxes and 
home owners insurance. We have worked hard to improve our house and 
surroundings and will not be able to enjoy living in the house as we 
get older.

Please add your voice to help those of us who are retired after working 
hard for so many years and genuinely need our pension to lead our 
lives. This is our number one priority and we hope that the members of 
the Committee will support us.

Thank you for listening and for fighting for all our hard-earned 
pensions.

Sincerely,

Bill R. Reed

                                 ______
                                 
                  Letter Submitted by Thomas J. Spott

April 18, 2018

U.S. Congress
Joint Select Committee on Solvency of Multiemployer Pension Plans
Dirksen Senate Office Bldg.
Washington, DC 20510-6200

Comments for:

Mr. Thomas A. Barthold
Chief of Staff
Joint Committee on Taxation
Washington, DC

And

Mr. Ted Goldman, MAAA, FSA, EA
Senior Pension Fellow
American Academy of Actuaries
Washington, DC

Regarding the April 18, 2018 hearing of the Joint Select Committee on 
Solvency of Multiemployer Pension Plans on ``The History and Structure 
of the Multiemployer Pension System''

Wages are paid now--called ``salary'' and paid later called 
``pension.'' If your employer funds a ``noncontributory'' ``defined 
benefit plan'' then your employer computes when you are going to retire 
and how long you are going to live. With that information they put away 
some money that is expected to grow over that time period and get paid 
to the retiree. NO MEDICARE OR SOCIAL SECURITY TAXES ARE PAID ON IT. 
Upon retirement that retiree gets a check. They pay income taxes on it 
but NO OTHER TAXES LIKE MEDICARE or SOCIAL SECURITY. They get the same 
Medicare coverage as everyone else and all they paid for it was the tax 
taken from their salary. Their Social Security check is a tad smaller 
than it would be if the pension funding were part of the computation.

If an employer has a ``contributory'' or commonly called ``401(k)'' 
plan, the rules are different. From the ``salary'' of their employee, 
the employer withholds MEDICARE and SOCIAL SECURITY TAX first. Then 
from what is left over, the employee can contribute to the 401(k). When 
this money is paid out to them in retirement they pay income taxes on 
it the same as the defined benefit plan retiree. They get the same 
Medicare coverage as the defined benefit retiree. But they paid more 
for it as a function of total ``salary.''

We are told Medicare is going broke. We are told that Social Security 
is going broke.

It wouldn't be if EVERYONE paid their fair share on the same rules. 
Literally trillions of dollars are put into defined benefit plans by 
employers and ALL of it escapes Social Security and Medicare Taxes.

Please stop this unfair lunacy. What you can do is start by taxing the 
retirees that are currently getting defined benefit payments--MEDICARE 
and SOCIAL SECURITY (tax the employer, too). And going forward have the 
employers pay tax on their contributions.

The IRS Publication 15 says defined benefit plan contributions are not 
subject to Medicare or Social Security Tax. Also you can call any 
pension specialist if you want a citation.

Let me know if you have any questions.

Yours truly

Thomas J. Spott

                                 ______
                                 
                                  UAW

                           1757 N Street, NW

                          Washington, DC 20036

                       Telephone: (202) 828-8500

April 25, 2018

U.S. Congress
Joint Select Committee on Solvency of Multiemployer Pension Plans
Dirksen Senate Office Bldg.
Washington, DC 20510-6200

           Statement of Josh Nassar, UAW Legislative Director

On behalf of the more than 1 million active and retired members of the 
International Union, United Automobile, Aerospace and Agricultural 
Implement Workers of America, UAW, I am writing to encourage the Joint 
Select Committee on Solvency of Multiemployer Pension Plans to include 
the provisions of the Butch Lewis Act (S. 2147/H.R. 4444) and to avoid 
making benefit cuts.

Butch Lewis rightfully honors our nation's commitment to millions of 
retirees, including thousands of UAW members and retirees, to help them 
receive their earned and promised benefits in the multi-employer 
pension system. It does so by enabling the Treasury to provide bond-
backed loans for plans that are in critical and declining status. 
Thousands of UAW members in multi-employer plans are at risk of not 
receiving benefits through no fault of their own if Congress continues 
to fail to act to address our retirement security crisis.

Nearly two-thirds of retirees rely on Social Security for half or more 
of their retirement income, as nearly one third of workers have no 
savings at all. No senior citizen should have to choose between paying 
household expenses and affording their medicine. Sadly, millions upon 
millions are faced with these choices every day. Congress's response is 
long overdue, and this commission has an important opportunity to begin 
the process by ensuring that people in multiemployer pension plans 
continue to receive the benefits they have earned. We stand ready to 
work with you to ensure all Americans can live with dignity and 
economic security in their golden years.

Thank you for considering our views.

                                 ______
                                 
                   Letter Submitted by James Waggoner

April 19, 2018

U.S. Congress
Joint Select Committee on Solvency of Multiemployer Pension Plans
Dirksen Senate Office Bldg.
Washington, DC 20510-6200

Members of this committee,

My name is James Waggoner, and I live in Lebanon, TN. I am a retiree 
from The Kroger Company, where I was employed for 31 years. I have been 
retired since January 2001, and I am 74 years old, married, and have 8 
grandchildren. My wife is also retired. We are, by no means, wealthy. I 
would guess our earnings status could be put at lower middle class. To 
lose a portion of our pension would be a huge setback in our finances. 
I can only think of electronics as the only thing that has gone down in 
price since I have been retired. Grocery stores increased their costs 
because (it was reported) the price of oil increased the costs of 
transportation. However, when the cost of oil went down, the price of 
groceries stayed the same or even went higher in some instances. The 
automobile that I drive is 11 years old, and my wife's is 14 years old. 
We will be needing an automobile in the not too distant future but the 
price of a new car has gone completely out of question for our budget. 
We can only afford a used car, and even a late model is very 
questionable. This doesn't take into account that I still have a long-
term mortgage.

It was my understanding that one of our (employee) benefits was our 
pension program and it was for life. This pension was a negotiated 
benefit for which we gave up other benefits such as hourly wages, 
vacation, holidays, etc. We paid a price back then in order to get this 
pension when we retired. We were only offered a 401(k) for 
approximately the last 3 years (1999) of my employment. Kroger 
furnished financial counselors for its employees when they offered this 
benefit, and I was counseled that the 401(k) would not be beneficial 
assuming the short time I would be employed. With my retirement, I felt 
that I could have used most all my wages for family needs, instead of a 
savings plan. In hindsight, I would have saved as much money as I 
could.

To add insult to injury, so to speak, we (retirees) were very limited 
to what employment we could do after retirement. Basically, I could not 
have any employment in the ``craft'' that I worked. Being employed for 
31 years in a warehouse, I had no other experience that I could draw 
upon for supplemental income. It seemed insane that I could not use the 
only experience I had to get other jobs. I was told by the pension 
representative that I could not even take a warehouse supervisor's 
position because it was ``in the craft.''

I have referenced a portion of our ``Pension Plan'' \1\ for your 
convenience to read. You can plainly see that the only ``permissible 
employment'' was primarily government jobs or be over 65 years of age. 
An office job was an option but I had no experience in that field. 
After working in a warehouse for 30 years, I was not physically able to 
do any work that I had experience in.
---------------------------------------------------------------------------
    \1\ Summary Plan Description Benefit Classes 15 and Higher, see p. 
19-21, https://mycentralstatespension.org/-/media/Pension/PDFs/
pl_pen_spd_15plus.pdf.

As you can see, if our pension is cut, I can't make up that difference 
by finding other employment. Who wants to hire a 74 year-old man with 
diabetes, hypertension, COPD and peripheral neuropathy with only 
warehouse experience? Being 74 years old, mine and my wife's health is 
only going to get worse. That means higher medical/prescription bills. 
My wife has already experienced the ``donut hole'' in her medicines. 
---------------------------------------------------------------------------
So, retirement is very nice but it is not exactly a financial windfall.

I ask that you, the Committee members, see the tragic situation we are 
in through no fault of our own. The pension crisis will affect millions 
more going forward. Personally, I think, the Brown act is a solution 
that would put Multiemployer Pensions on sound footing that would work 
for all its members. We worked very hard for what little we earned. We 
had no part in the failure of this retirement plan and I don't feel 
that we should have to pay a price to make it solvent.

The Federal Government appointed someone to be a ``watchdog''' of the 
pension plan, to make sure the investments were handled correctly. The 
pension investors, from what I am informed, were careless at best with 
our pensions. Supposedly they made investment decisions based on the 
highest commissions instead of the safest returns. Why was this allowed 
to happen?

In closing, I am hoping the members of this committee make this 
decision based solely on what is best for several millions of people. 
Please don't turn this into a partisan issue.

Respectfully,

James Waggoner

                                   