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





                                                        S. Hrg. 115-697

  THE STRUCTURE AND FINANCIAL OUTLOOK OF THE PENSION BENEFIT GUARANTY 
                              CORPORATION

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

                                HEARING

                               before the

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

                     ONE HUNDRED FIFTEENTH CONGRESS

                             SECOND SESSION

                               __________

                              MAY 17, 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
                      
38-021-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 FOX, 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
Brown, Hon. Sherrod, a U.S. Senator from Ohio, co-chairman, Joint 
  Select Committee on Solvency of Multiemployer Pension Plans....     1
Hatch, Hon. Orrin G., a U.S. Senator from Utah, co-chairman, 
  Joint Select Committee on Solvency of Multiemployer Pension 
  Plans..........................................................     3

                         ADMINISTRATION WITNESS

Reeder, Hon. W. Thomas, Director, Pension Benefit Guaranty 
  Corporation, Washington, DC....................................     5

               ALPHABETICAL LISTING AND APPENDIX MATERIAL

Brown, Hon. Sherrod:
    Opening statement............................................     1
    Prepared statement...........................................    35
Hatch, Hon. Orrin G.:
    Opening statement............................................     3
    Prepared statement...........................................    36
Reeder, Hon. W. Thomas:
    Testimony....................................................     5
    Prepared statement...........................................    37

                                 (iii)

 
                      THE STRUCTURE AND FINANCIAL
                     OUTLOOK OF THE PENSION BENEFIT
                          GUARANTY CORPORATION

                              ----------                              


                         THURSDAY, MAY 17, 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. Sherrod 
Brown (co-chairman of the committee) presiding.
    Present: Senator Hatch, Representative Roe, Senator Crapo, 
Representative Buchanan, Senator Portman, Representative 
Schweikert, Representative Neal, Senator Manchin, 
Representative Scott, Senator Heitkamp, Representative 
Norcross, and Senator Smith.
    Also present: Republican staff: Chris Allen, Senior Advisor 
for Benefits and Exempt Organizations for Co-Chairman Hatch. 
Democratic staff: Gideon Bragin, Senior Policy Advisor for Co-
Chairman Brown. Undesignated staff: Julie Cameron, PBGC 
Detailee; and Constance Markakis, PBGC Detailee.

 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. I would like to welcome our colleagues 
and everyone in attendance to this second hearing of the Joint 
Select Committee on Multiemployer Pension Reform.
    Our job on this committee, to be sure, is to find a 
bipartisan solution on the multiemployer pension crisis 
threatening 1.3 million Americans and thousands of small 
businesses.
    To do that, we have to confront the secondary crisis 
threatening the Pension Benefit Guaranty Corporation. Congress 
created the PBGC more than 40 years ago in 1973 to serve as the 
insurance company for these retirement plans. Like any 
insurance plan, PBGC coverage does not kick in until after the 
damage has been done: after a plan has failed, after businesses 
have gone under, and after jobs have been lost.
    PBGC is supposed to cover part of the retirement that 
workers earned.
    Ask anyone who has ever totaled a car or dealt with 
flooding or fire in their homes--you are sure glad you have 
insurance, but you would much rather have avoided disaster in 
the first place.
    We have the opportunity, really beginning today, in the 
work we do in the next 7 months, to do just that: to help keep 
these businesses open and save these jobs to ensure workers get 
the entire retirement they earned.
    Simply propping up PBGC is not enough. We cannot take our 
hands--continuing the metaphor--we cannot take our hands off 
the wheel, close our eyes, and allow this car to crash simply 
because we bought an insurance policy. We cannot do that to the 
retirees whom we serve, we cannot do that to the businesses 
which we want to thrive, whose plans are in crisis, and we 
cannot do that to the multiemployer system.
    As the crisis in the multiemployer plans has developed over 
the last few years, a second, quieter crisis has developed at 
the PBGC, a crisis that means allowing just one of these major 
plans to fail could put enough strain on the insurance system 
to bring down the entire PBGC multiemployer system.
    According to the latest estimates, the multiemployer system 
at PBGC faces a deficit of some 65-billion-and-growing dollars. 
It has just $2 billion in assets. It is projected to become 
insolvent within the next 7 years. We are all familiar with 
those numbers.
    We see the writing on the wall. When one of these large 
plans on the brink of failure requires PBGC to step in, the 
PBGC will also fail, potentially leaving taxpayers on the hook, 
not just for millions, not just hundreds of millions, not just 
billions, but tens of billions of dollars.
    It is our job to make sure that that does not happen. The 
Federal Government helped create this crisis; the Federal 
Government must help solve it.
    Each plan is different. There are many factors that 
contributed to bringing them down. There is no question that 
Wall Street squandered some of this money, but the government 
also played a role through perverse tax incentives, 
insufficient premium levels, inadequate tools and financing for 
PBGC--all parts of this system that were designed by Congress 
and put in place by Congress.
    We have a responsibility to correct each of these errors. 
That means, yes, addressing future actuarial assumptions within 
these plans, but we know that is an inadequate, incomplete 
solution.
    To truly address this crisis, we must do two things: first, 
update and upgrade PBGC so that it never happens again; and 
second, solve the current crisis facing retirees, workers, and 
businesses. We really cannot do one without the other.
    Updating and strengthening PBGC alone would still lead to 
massive pension cuts. It would leave small businesses drowning 
in withdrawal liability and active workers paying into a 
premium that they will never receive.
    We need to make it clear to all Americans whose lives will 
be upended by the failure of these plans--way more than the 1.2 
million workers, now retirees, way more than the thousands of 
businesses--we need to make it clear to all Americans whose 
lives will be upended by the failure of these plans that we 
will not let that happen. That is the seriousness and gravitas 
of our mission.
    At the same time, we cannot just put out the fire we are 
fighting today and leave the PBGC as a box of kindling waiting 
to ignite another crisis a few years down the road. We must 
ensure we never get to this place again.
    I am confident we can do both together and that the 
information we obtain today will be an important part of that 
process.
    The committee will continue to hold hearings--two more in 
June, another two in July. At the same time, we are holding 
numerous staff and member-level briefings, including with 
members of both parties, not the 16 of us on this committee. We 
are continuing to receive comments and input on our website, 
pensions.senate.gov.
    This will continue to be a bipartisan process. The 
committee was structured that way. Senator Hatch and I insist 
on it and have the relationship to work together to do it.
    This information will arm our members with the information 
we need and give the people we serve the opportunity to weigh 
in.
    In July, when the bulk of these hearings conclude, we will 
have to start the process of negotiating a bipartisan solution 
to this crisis. Remember, we need five Democrats and five 
Republicans to support this. And Chairman Hatch and I are very 
aware of that.
    I am ready and willing to consider any idea that solves the 
current crisis and helps prevent a future crisis. I know 
Chairman Hatch shares that approach.
    And with that, I yield to my co-chair, Senator Hatch, for 
his opening statement. Thank you.
    [The prepared statement of Co-Chairman Brown appears in the 
appendix.]
    Co-Chairman Brown. Orrin?

 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. Well, thank you, Senator Brown.
    This is the Joint Select Committee's second hearing to 
delve into issues concerning the operations of the 
multiemployer pension system.
    As I noted last time, it is critical for us to remember 
that the mandate of the Joint Select Committee is not just to 
develop reports and recommendations on the multiemployer plans, 
but to also review the solvency of the Pension Benefit Guaranty 
Corporation.
    To do this, we have brought in one of the Nation's top 
experts on the PBGC, Tom Reeder, who happens to also be the 
current Director of the Corporation, which insures benefits for 
the more than 30 million Americans in defined benefit pension 
plans.
    To provide context, one of the core issues confronting 
pension policymakers is the issue of benefit security. Pension 
benefit security and protection can be approached in a number 
of ways, including strong pension plan funding rules, robust 
asset management requirements, and meaningful disclosure 
mandates.
    In the United States, we have historically used a benefit 
guaranty system, essentially a form of insurance, for many 
defined benefit pension plans to cover lost pension income if a 
retirement plan becomes insolvent or sponsoring employers go 
bankrupt.
    The problem is that the U.S. system is very complicated and 
often difficult to effectively operate. There are a lot of 
moving parts and numerous variables for which to account.
    Some of those variables include questions on how plans are 
insured, to what extent benefits are guaranteed, and how we can 
sufficiently fund the system while still ensuring employers are 
properly incentivized to sponsor retirement plans.
    The problems do not end there, though. It is clear that 
since its inception in 1974, the PBGC has faced design and 
operational issues that have made achieving its policy goals 
difficult.
    This morning, Mr. Reeder will provide an overview of the 
PBGC's structure and finances, answering key questions about 
the organization, including how it is structured and, most 
important, how it is financed. It is imperative that the Joint 
Select Committee develop a solid base of knowledge about the 
corporation and how it is funded before turning to the PBGC's 
current funding status.
    And in a word, that funding status is troubled. I will not 
recite the grim statistics, because we have all read them and 
we are all deeply concerned.
    Over the course of the next number of weeks and months in 
the Joint Select Committee, I trust that we will learn more 
about the economic and demographic forces that impact the 
multiemployer system and, consequently, the financial health of 
the PBGC.
    But today, let us dig into the fundamentals first. After 
all, it is hard to plot a course without getting a good map of 
the terrain.
    As we work today with Mr. Reeder, here are some fundamental 
questions I think both sides should keep in mind. What is the 
corporation's charter and how does that affect its operations 
and success? What does it mean to be a wholly owned government 
corporation? What are the PBGC's core functions, and how is it 
structured to achieve these functions? Does PBGC have the right 
tools and flexibility to intervene in the management and 
operation of troubled multiemployer plans? How does the 
corporation manage the funds under its management? Also, 
importantly, how do the insurance premiums work to fund the 
plan guarantees? And is this all the right model for the 
economic and demographic markets in which these plans operate? 
That is an important question, and it is something we are going 
to have to answer. And I am very concerned about it, it is easy 
to see.
    Frankly, I believe we need to get these answers and then 
spend some time understanding what those answers mean before 
the Joint Select Committee can effectively consider any 
proposals to repair the multiemployer system.
    So let us get started.
    Senator Brown, we will turn it back to you.
    [The prepared statement of Co-Chairman Hatch appears in the 
appendix.]
    Co-Chairman Hatch. I have to be at the Judiciary Committee 
this morning, but I have every confidence in Senator Brown and 
others on this committee to move this along in the proper way.
    Co-Chairman Brown. Good. Thank you, Senator Hatch.
    I have the pleasure to introduce W. Thomas Reeder. He 
serves as the 15th Director of the Pension Benefit Guaranty 
Corporation.
    Mr. Reeder began his employee benefits career as an 
associate attorney at Akin, Gump, Strauss, Hauer, and Feld and 
later at Paul Hastings, where he became a partner in the 
national employee benefits practice group.
    In February of 2000, he joined the office of Benefits Tax 
Counsel in the Office of Tax Policy at the Treasury Department, 
where he worked for three administrations. He was named 
benefits tax counsel in 2005. He joined the staff of the Senate 
Finance Committee, meeting in this room, in May of 2009. He was 
a key adviser as such in several significant legislative 
initiatives affecting the employee benefits area. Starting in 
March of 2013, Mr. Reeder served as an executive in the Office 
of Chief Counsel at the IRS.
    A native Texan, Mr. Reeder is a graduate of the University 
of Texas at Austin College of Arts and Sciences, Graduate 
School of Business, and School of Law.
    Welcome back to the Senate, Mr. Reeder. We are now ready to 
hear your testimony. Director Reeder, thank you.

 STATEMENT OF HON. W. THOMAS REEDER, DIRECTOR, PENSION BENEFIT 
              GUARANTY CORPORATION, WASHINGTON, DC

    Mr. Reeder. Thank you, Chairman Brown and Chairman Hatch 
and members of the committee.
    I really very much appreciate the opportunity to appear 
before you to discuss the key challenges PBGC faces in 
protecting pensions earned by participants in multiemployer 
plans.
    I have submitted my full statement for the record, as is 
the custom, and will focus my oral testimony on what I believe 
are the most pressing points.
    To aid in conveying my points, we have prepared a 
collection of seven charts from my prepared statement, which I 
believe you have before you. And I apologize in advance for 
making it look like a PowerPoint, but I think it is better to 
have some of the information in graphic form.
    As has been mentioned, Congress established PBGC as part of 
ERISA in 1974 to provide basic insurance for participants' 
defined benefit pensions. Today, PBGC insures 10 million people 
in the multiemployer system in addition to a little less than 
30 million in the single-employer system.
    Multiemployer plan participants face three major problems. 
First, and I believe foremost, PBGC lacks the money needed to 
ensure workers will receive the benefits guaranteed under ERISA 
if their plan fails. Second, even if PBGC were able to meet its 
obligation to these workers, many still face significant losses 
because the pension they earned is greater than the ERISA 
guarantees. Third, even though most multiemployer plans are not 
in imminent risk of failure, ERISA rules do far too little to 
prevent plans from becoming severely underfunded in the future.
    Looking first to PBGC's ability to keep its commitments, 
you can see from Figure 1 that our multiemployer program is in 
dire condition. It has liabilities of more than $67 billion and 
assets of just over $2 billion.
    The comparison of those two numbers--the $65-billion 
deficit is one thing. The fact that you are using $2 billion in 
assets to pay $67 billion is another thing. In other words, we 
cannot grow our way out of this.
    This is in stark contrast to the single-employer program, 
which has liabilities of $117 billion and assets of $106 
billion, leaving a deficit of only $11 billion. This is as of 
our last annual report.
    Annual premiums paid for single-employer plans are $6.7 
billion a year. Annual premiums paid in the multiemployer fund, 
on the other hand, total only $291 million. In other words, we 
are dealing with a deficit measured in dozens of billions of 
dollars with premiums measured in millions of dollars.
    Both the single and multiemployer programs have been in 
deficit for about 15 years.
    In Figure 1, you can see that in the single-employer 
program, the deficit has been steadily declining. We are still 
in deficit, but it is steadily declining.
    During the same period, there has been a rapid increase in 
the deficit of the multiemployer program. That is the blue.
    The multiemployer deficit is the direct result of an 
unprecedented level of plan failures that we expect in the very 
near future. Approximately 130 multiemployer plans covering 1.3 
million participants have publicly reported to their 
participants and to the PBGC that they are in critical and 
declining condition. That means that they expect to fail within 
the next 20 years, some much sooner than that.
    This is in addition to the 93,000 participants in plans 
that have already become insolvent that we are providing 
assistance to.
    Figure 5, what we call the flag chart, shows that critical 
and declining plans cover about 13 percent of the participants 
in the multiemployer system. That is the area to the right of 
the solid black line.
    You can also see that there are many more participants in 
critical plans--that are in the red zone--that are still at 
significant risk of failure, even though they are not yet 
critical and declining.
    And then the chart shows that more than half of all 
multiemployer participants are in green zone plans. Let me 
emphasize that green zone does not mean hunky-dory. Green zone 
means anything other than critical or in danger.
    So Figure 3 shows PBGC's most recent projections report. It 
shows that before the end of 2025, plan failures in the near 
future will lead to claims for PBGC financial assistance--
measured by the red bars--in amounts that will exceed the money 
in our multiemployer insurance program--measured by the green 
area.
    As you can see, the green area gradually increases until 
about 2022, at which time it takes off on a very steep slope. 
It is not the beginner slope, it is the Olympic slope.
    The program's insolvency would be catastrophic for many 
participants and surviving beneficiaries. The maximum 
guaranteed benefit for a retiree in a multiemployer plan is 
often cited as $12,870, but that is $12,870 for somebody with 
30 years' experience and 30 years of working under the plan.
    And unlike the single-employer system, the multiemployer 
system guarantee level is determined by how many years you have 
under the plan. So most people have a guarantee level that is a 
lot lower than $12,870.
    If PBGC's program becomes insolvent, the benefit would only 
be a small fraction of the amount that is under the statute.
    Again, in Figure 3, the green line at the bottom of the 
chart represents PBGC's annual premium income. That is the only 
benefits we will be able to pay once we become insolvent. That 
would result in us being able to pay only about an eighth or 
less of the amounts we already pay under ERISA. And again, we 
already pay a very low amount compared to what many people are 
earning today in their pensions.
    Even if sufficient funds are provided to PBGC, many people 
will suffer significant losses, because the pensions they earn 
are well over the ERISA guarantee level.
    We saw this last year when the Road Carriers Local 707 
pension fund failed. As a result of that failure, nearly half 
of the 5,000 participants lost 50 percent of their earned plan 
benefit.
    Figure 7 shows the size and distribution of the cutbacks to 
the multiemployer guarantee limit for the retirees in the 707 
plan. The green is the amount they will receive due to the 
financial assistance provided by PBGC. It is a jagged line 
because each of those lines represents an individual, a human 
being, and some of them have a higher guarantee level than 
others based on their years of service and their accrued 
benefit.
    The red is the amount of benefit they earned by working 
under the plan--and they are not getting. The full benefit 
earned by current retirees and beneficiaries in the 707 fund 
averages $1,313 a month or a little bit less than $16,000 a 
year. Not a rich benefit. But the average guaranteed benefit is 
only $570 a month. As a result, the average loss for the 3,000 
retirees in the plan is $743 per month for the rest of their 
life.
    Protecting against these kinds of losses would require a 
much higher ERISA guarantee or cash infusions into the plan 
from either contributing employers or third parties.
    Finally, better protecting participants and plans that are 
not in danger of insolvency in the near future will likely 
involve limiting the broad discretion given to unions and 
contributing employers when they negotiate plan contributions, 
and to plan trustees when they consider benefit improvements.
    Figure 4 shows the distribution of participants in 
multiemployer plans and single-employer plans by the funding 
ratio in the plan. As you can see, most participants in the 
multiemployer system are covered by plans with a funding ratio 
of less than 50 percent.
    On the other hand, most participants in the single-employer 
system are in plans with funding ratios greater than 60 
percent. This is not a new phenomenon.
    Figure 4 shows that for several decades the funding ratio 
of plans in the multiemployer system has been consistently and 
significantly less than the funding ratio for single-employer 
plans. The relatively lower funding ratios of multiemployer 
plans put their participants at greater risk when our economy 
encounters adverse conditions, such as the Great Recession.
    While there are many challenges facing participants in the 
multiemployer plans, I want to return to the first issue I 
discussed earlier. The looming insolvency of the PBGC 
multiemployer program could be the most drastic consequence to 
those affected by plan insolvencies.
    If this insurance program becomes insolvent, the only money 
available to provide guaranteed benefits will be incoming 
premiums, and that will cover only a fraction of the benefit 
that we cover now. This will be catastrophic for many people: 
current and former workers, retirees, beneficiaries, their 
families, and their communities.
    Employers are also concerned and are pushing for action to 
prevent further damage in the system. As many have already 
said, and I cannot overemphasize it, this problem is now. As 
more time passes, it will become increasingly difficult or 
impossible to craft a solution that could be viewed as fair or 
even viable.
    I appreciate the leadership of the members of this 
committee in addressing the challenges faced by multiemployer 
plans and the PBGC multiemployer program. And I look forward to 
continuing to work with you to ensure that the PBGC guarantee 
is one that workers can rely on in the future.
    And I will do my best to answer whatever questions you 
have.
    Co-Chairman Brown. Thank you, Director Reeder. A pretty 
sobering presentation.
    [The prepared statement of Mr. Reeder appears in the 
appendix.]
    Co-Chairman Brown. The task that the 16 of us face is not 
easy. Our success, as you point out and others on this 
committee have pointed out in their States and districts and 
here, is that our success is critical for the millions of 
workers and retirees and companies that they work for across 
the country.
    I want to ask you, Director Reeder, a series of questions 
to help us understand what is at stake, what action means, what 
inaction means.
    Start with this: what happens to these plans and benefits 
if nothing is done? Walk us through so we understand the 
severity of this and the importance of doing this by the end of 
the year. Walk us through the fallout, not just for your 
agency, but for retirees and current workers. Keep your answer 
to what happens to the workers and the retirees.
    Mr. Reeder. If you do nothing today, workers and retirees 
will continue to lose the benefits that have been promised to 
them. That is the red zone in the crescent-shaped chart I 
showed earlier. People will continue to lose this red benefit. 
And there will be dire consequences.
    If you do nothing for the next couple of years, you will 
erase the green part without a significant infusion of cash to 
the PBGC.
    Right now, the administration has laid out a proposal for 
increased premiums to pay the benefits that are promised, and 
that is at $16 billion spread out over 10 years. The longer we 
wait to put that money into the PBGC, the more that money will 
have to be over a shorter period of time.
    Co-Chairman Brown. Thank you. Talk about the business side. 
What would be the impact on withdrawal liability for businesses 
who employ these workers, again, if we do nothing?
    Mr. Reeder. If you do nothing, the withdrawal liability, 
which is already significant, will not go away. But I believe 
that most--and I think the consensus at PBGC is that most--
plans that will be facing insolvency in the near future will 
not terminate, and they will continue on. So there will not be 
a mass withdrawal.
    And so employers will not incur withdrawal liability, but 
they will have a continuing obligation to make a contribution 
to a plan that has already become insolvent. So they are making 
contributions for active workers for benefits that they will 
never get.
    Co-Chairman Brown. Thank you. We are seeing--obviously, we 
all hear from pensioners in our State about what has happened 
to benefits in many cases. And I wanted to ask you about that.
    The minimum guaranteed benefit PBGC pays to retirees if a 
plan fails is already much lower than the retirement these 
workers earned, that they bargained for, that they gave up pay 
raises for, that they budgeted for when taking out mortgages, 
and that they count on to pay their bills.
    I remember many years ago a steel plant ended up in PBGC, 
and the workers got huge cuts in what they expected as the 
minimum payment you all made.
    Absent congressional action, would the PBGC even be able to 
pay that minimum guaranteed benefit?
    Mr. Reeder. No. We would be cutting to about one-eighth of 
what the minimum benefit is, a little less.
    Co-Chairman Brown. Talk more about that. So you would be--
the minimum benefit, which is markedly less than what people 
were promised, what they negotiated, what they were getting, 
what they thought they were getting, that minimum benefit is 
already small, relatively. You would be forced to cut the 
average benefit how much then?
    Mr. Reeder. If they are making $8,000 in guaranteed 
benefits today, they would get less than a thousand dollars. I 
am talking about an annual number.
    Co-Chairman Brown. So it would be cut. It would be cut down 
to one-eighth perhaps----
    Mr. Reeder. Or less.
    Co-Chairman Brown [continuing]. Of what they were getting.
    Mr. Reeder. And, Mr. Chairman, I have to point out----
    Co-Chairman Brown. One-eighth of a smaller number already.
    Mr. Reeder. Yes.
    Co-Chairman Brown. Okay.
    Mr. Reeder. Yes. These are modest benefits to start with. 
As I showed you earlier in the 707, the highest benefit there 
that was promised, that was earned under the plan, was about 
$40,000. It is a rich plan in the multiemployer world, but it 
is a modest benefit. And as you can see, most benefits, more 
than half of the benefits, were much less than that, about 
$15,000, $16,000.
    Our guarantee cuts it way down from there, cuts it by 50 
percent or more. And then if we cannot make good on the 
guarantee, it is going to cut that low amount to one-eighth.
    Co-Chairman Brown. So it may have been, when you said 
$40,000, it may have been $3,000-plus a month. Then your 
guarantee is maybe $1,200 a month, and this would cut it by 70, 
80, 90 percent below that, beyond that, more or less.
    Mr. Reeder. You are faster than I am in math.
    Co-Chairman Brown. No, I am not. [Laughter.]
    So after that devastation, you know, we have the PBGC 
guarantee, which is much less. We have companies going out of 
business because of the withdrawal liability issue; we have 
PBGC paying way less than you normally paid.
    If Congress then steps in to ensure the minimum PBGC 
benefit--the minimum PBGC benefit--what is the potential cost 
to taxpayers then?
    So we do nothing, after all that devastation, we have done 
nothing, then Congress needs to step in to ensure the minimum 
PBGC benefit. What is the potential cost to taxpayers then?
    Mr. Reeder. The number that is out there now that we have 
produced is $16 billion over 10 years beginning today. So if we 
delay, that number is going to move. But that keeps PBGC alive 
for approximately 2 decades. And it may need more after 2 
decades.
    Co-Chairman Brown. So you talk about what inaction means. 
What you are saying is, after the pensions have been cut, the 
businesses have suffered, the workers have lost their plan, 
after all that, the taxpayers would still have to pay a massive 
price to keep the PBGC in operation.
    Mr. Reeder. If Congress elected to provide that. Right now, 
we are not backed by the full faith and credit of the U.S. 
Government, and so Congress could elect not to do that. But I--
--
    Co-Chairman Brown. Well, I cannot imagine that. So thank 
you.
    Congressman Roe?
    Representative Roe. Thank you, Mr. Chairman.
    And just a couple of quick questions.
    So basically, the options are this: you have an increased 
premium, decreased benefits, increased earnings, or a cash 
infusion. Does that pretty well summarize it?
    Mr. Reeder. Yes, sir. I do not know about the increased 
earnings, because we are working, if you are talking about 
PBGC, we are working with the----
    Representative Roe. No, I am talking about the plans.
    Mr. Reeder. Yes.
    Representative Roe. If the plans had, you know--obviously, 
if the market does well, their investments do well. That 
extends it a little longer. So that would be--some combination 
of those four things I just mentioned; there is not any other 
combination.
    Mr. Reeder. Yes.
    Representative Roe. And let me ask you just a couple of 
other questions. How much of a premium increase would it take? 
And why is there such a disparity--I think I know the answer--
but why is there such a disparity between the single and multi 
plans and what is paid into the PBGC? And I know this is 
negotiated as an hourly wage and so forth. I know all that. But 
why are there--so are single-employer plans negotiated plans 
too?
    Mr. Reeder. Are you talking about the amount that goes into 
the plan, not the premium?
    Representative Roe. No, the premium that goes to the PBGC; 
there is a huge disparity between a multi and a single.
    Mr. Reeder. Well, that is not negotiated. That was set back 
in 1980 and again revised in about 2000. And it was set low in 
order to--in 1980, it was not that low, and it was not 
increased with inflation.
    Representative Roe. Okay.
    Mr. Reeder. Whereas the single side has been increased with 
inflation, as have premiums. Premiums have increased and the 
guarantee has too.
    Representative Roe. So what if you made the premiums the 
same? That is more cash coming into the PBGC.
    Mr. Reeder. Well, that would definitely do the trick, but 
that is a lot--that is, the disparity is so wide that making 
them the same would be----
    Representative Roe. But again, that is my question. Why is 
that disparity so wide? They are both a defined benefit pension 
plan. Why was there ever allowed to be that much disparity?
    Mr. Reeder. I believe there was a perception in 1980 when 
the law was written that because there are lots of employers 
contributing to the plan that it was less likely to become 
insolvent.
    Representative Roe. Okay, which was wrong.
    Mr. Reeder. Yes, sir.
    Representative Roe. Badly wrong. And when we look at this, 
you said the way to make this function--as I understand Senator 
Brown's questioning--is, it is maybe $1.6 billion a year over 
10 years from the taxpayers that would do exactly what?
    Mr. Reeder. Just to put a finer point on it, we are talking 
about premiums from the plans. Many regard that as a tax, but 
it could be income taxes, but the proposal is increased 
premiums, and that would keep PBGC's multiemployer program 
afloat, we believe, for approximately 2 decades, maybe longer.
    Representative Roe. Okay. So in other words, however that 
$1.6 billion a year comes in, whether it is premium increases, 
earnings, whatever, whatever combination, am I getting that 
right?
    Mr. Reeder. Yes, sir. But the earnings are not likely 
because we are starting with only $2 billion, and we are going 
to go down really fast.
    Representative Roe. Okay. So there is an opportunity. So 
how much would the premiums have to go up?
    Mr. Reeder. We are talking about an average of $1.6 billion 
and I guess an average of five, five-and-a-half times.
    Representative Roe. Okay, so they would have to go up 
multiple. Could you bring this up on a graduated--reduce the 
premium a little bit so you do not get all the bad medicine in 
one year? I mean, that would be hard to swallow.
    Mr. Reeder. I think the proposal is to do that.
    And let me also say that that is not a flat-rate premium. 
It would introduce a variable-rate premium that would be higher 
for less funding.
    Representative Roe. Okay. And in your testimony, you noted 
that financial assistance to multiemployer plans is technically 
a loan to the insolvent plans, but only one of these loans has 
ever been repaid, according to your testimony.
    What happens to these loans when a plan cannot repay them? 
Does the PBGC ever recoup that loan?
    Mr. Reeder. No, except in that one case.
    Representative Roe. In the one case, and that was not one 
where it was a long term, as I read a little more detail about 
it.
    You mentioned that the variable premium proposal in the 
President's budget in 2019 is projected to keep the 
multiemployer program alive for 20 years. Is that correct?
    Mr. Reeder. Yes, sir.
    Representative Roe. What do you think? I mean, the 
employers that I have talked to are really pushing back on the 
premium increase. And I understand that; it is an extra cost to 
their business. I do get that. But there is going to have to be 
more money from somewhere. I mean, after hearing this, it is 
not complicated math. We know exactly--it has to come from one 
to three or four places. Am I correct?
    Mr. Reeder. Yes, sir.
    Representative Roe. Okay, thank you.
    I yield back.
    Mr. Reeder. Thank you, Dr. Roe.
    Co-Chairman Brown. Thank you.
    Thank you, Director Reeder.
    Nobody contested in some cases premiums have been too low, 
but raising premiums alone only addresses part of the problem. 
Obviously, it does not even solve that part----
    Mr. Reeder. Just PBGC.
    Co-Chairman Brown. Yes.
    Congressman Neal?
    Representative Neal. Thank you very much, Mr. Chairman.
    When we talk about multiemployer pension plans and the 
crisis that we are confronting, we often talk about plans 
slated to go insolvent. When we talk about plans like Central 
States and United Mine Workers, it is important to remember, 
however, that PBGC has been paying assistance to many smaller 
insolvent plans for a long period of time.
    How many plans are currently relying on PBGC for financial 
assistance?
    Mr. Reeder. Seventy-two.
    Representative Neal. Seventy-two. If PBGC were to go 
insolvent, as has been depicted by some, what would be the 
impact on multiemployer retirees who will then be relying on 
PBGC for benefit payments?
    Mr. Reeder. That is an important point. Not only will 
participants in future plans that go insolvent be cut to the 
bare, bare, bare minimum, but the ones that are already getting 
assistance will be cut.
    Representative Neal. Acknowledging that the Mine Workers 
will likely be insolvent by then, this is all likely before 
plans like the Central States and other very large plans become 
insolvent. Correct?
    Mr. Reeder. Yes.
    Representative Neal. Okay. What are the chances PBGC could 
become insolvent before 2025?
    Mr. Reeder. I think there is a good chance that it happens 
in 2024. By ``good,'' I mean not more than 50 percent. It is 
somewhere below 50 percent, but it could happen in 2024. We do 
not believe it will happen before then, just based on the plans 
we see coming in. And there is a tiny chance that it could 
happen in 2026. But we are about 90 percent certain that it 
will happen by the end of 2025.
    Representative Neal. Mr. Reeder, why, given the climate 
that you have noticed across America today, why are the 
American people not paying more attention to what is happening 
to pension planning everywhere?
    Mr. Reeder. That is a philosophical question.
    Representative Neal. Philosophical, but it is entirely 
relevant to what is happening everywhere. I read a piece this 
morning about a State on the East Coast where I believe that 
$119 billion in liability is out there on the public side.
    From time to time, we discuss the realities of what is 
happening with 401(k) plans, the catch-up provisions that 
happened after the recession; people are working longer. There 
have been pretty staggering consequences for retirement. And 
yet, it does not seem to gain the same traction that many other 
controversial issues do every day in America when you consider 
that there are people who are looking--in the audience perhaps 
today--at their pensions being cut in half.
    Mr. Reeder. I think when you are looking at--the answer, by 
the way, in State and local may be different. But I think when 
you are looking at compensation packages, I think there is a 
human tendency to look at what you get today: health care, 
cash, other benefits that you are using today.
    And if you have a limited pot, I think you are less likely 
to put a significant amount of that limited pot into the 
benefits that you are going to get in 20 years or 30 years.
    Representative Neal. Is it safe to say that most pension 
plans today in America, they would need a return north of 7\1/
2\, 8 percent annually to remain solvent?
    Mr. Reeder. I certainly would not say that about most 
pension plans, but I would say that about most critical and 
declining plans. They would need significantly higher earnings 
than that to remain solvent.
    And I think that is true with other plans that are not 
critical and declining. There are some yellow zone plans and 
other red zone plans that would need earnings north of that to 
stay afloat.
    Representative Neal. Thank you very much.
    Thank you, Mr. Chairman.
    Co-Chairman Brown. Senator Portman?
    Senator Portman. Thank you, Senator Brown.
    And, Director Reeder, we appreciate your coming today and, 
more importantly, the help you have given us already on this 
commission.
    PBGC, as some of you know, has some real experts in this 
area.
    And your assistant general counsel, Connie Markakis, and 
your actuary, Julie Cameron, come highly recommended, and we 
need them.
    Mr. Reeder. We miss them.
    Senator Portman. Thanks for letting us borrow them.
    This is tough. And you know, your testimony today was very 
sobering, because it lays out clearly the huge challenge that 
we face.
    You were just talking back and forth about when PBGC might 
go insolvent. And it sounds like 2025 is the year that you have 
kind of focused on, understanding there could be some changes 
that push that a little forward or a little bit back. That is 
only 7 years from now, and that is PBGC insolvency, which is 
sort of the most dramatic of the potential problems that we 
face.
    And to me, the drastic cuts in the earned pensions--again, 
we talked a lot about that today, what that is, but if you go 
insolvent, it is about a 90-percent cut probably to the Central 
States fund and the Teamsters. Is that about right?
    Mr. Reeder. Yes. It is on the order of that.
    Senator Portman. And then the impacts to the broader 
economy. Central States has said that the insolvency of their 
fund alone would result in less than half of the promised full 
benefits.
    And again, if 400,000 Teamsters see the PBGC go under in 7 
short years, then it is about 90 percent. Is that about right?
    Mr. Reeder. Yes.
    Senator Portman. And how about the mine workers? As I 
understand it, there are about 76,000 mine workers who would 
lose, on average, about 21 percent of their promised benefits 
if their plan goes insolvent--and of course, much deeper cuts 
if PBGC goes under.
    What would it be like for the mine workers if the PBGC runs 
out of money?
    Mr. Reeder. They would be cut down to about the same level 
as the----
    Senator Portman. About the same as the Teamsters?
    Mr. Reeder. Not percentage-wise, because their benefits are 
lower, but the dollar amount would be cut down to the same 
amount.
    Senator Portman. Yes. Pretty modest pensions there with the 
mine workers.
    Mr. Reeder. Yes.
    Senator Portman. Average about 600 bucks a year, right?
    Mr. Reeder. Very small. The retirees are averaging lower 
than the actives. The actives would suffer more because their 
benefits are richer.
    Senator Portman. Yes. Active, about 10,000; retirees, about 
100,000 mine workers.
    Mr. Reeder. That sounds right.
    Senator Portman. Is that about right?
    Mr. Reeder. I have the numbers in here, but I----
    Senator Portman. Yes, it is upside-down. In other words, 
that is a big problem.
    Mr. Reeder. Yes, sir.
    Senator Portman. And already, again, the benefits are very 
modest.
    Then there are probably over 100 additional multiemployer 
plans that are at risk, right, in addition to those two big 
ones?
    Mr. Reeder. One hundred and thirty.
    Senator Portman. And so, you know, I do not think most of 
my colleagues in the broader Congress are focused on this yet. 
But I think we have to get these numbers out there and talk 
about it.
    Could you talk a little about the cost to the government of 
insuring guaranteed financial assistance payments the longer we 
wait?
    In other words, for the government--and I would say to the 
taxpayer--what is the danger of waiting?
    Mr. Reeder. We would just have to raise the same amount 
over a much shorter period of time. Right now we are talking 
about $16 billion over 10 years.
    Senator Portman. And that is just to keep PBGC afloat.
    Mr. Reeder. Yes. I thought that was your question.
    Senator Portman. Yes.
    Mr. Reeder. But just to keep PBGC afloat. And the longer 
you wait, the more compact that number will be.
    Senator Portman. So the $16 billion over 10 years is your 
calculation.
    Mr. Reeder. Yes.
    Senator Portman. And you are saying that if we were to wait 
a couple of years, you are going to have more requirements in a 
shorter period of time.
    Mr. Reeder. And a shorter period of time to ramp up to the 
higher premiums.
    Senator Portman. Can you talk for a second about the 
contagion effect? I do have employers come to see me quite 
often very concerned about the impact on their solvency. And if 
there were an insolvency by one of the big plans, or certainly 
by PBGC, you know, the possibility is that their liability 
would be such that they would become bankrupt, and we 
understand that. And a lot of small businesses in Ohio are very 
concerned about that.
    But could you talk a little about the broader contagion on 
the economy and what you think would happen based on your 
experience?
    Mr. Reeder. Well, we do not have a lot of experience with 
big plans going under.
    Senator Portman. There has actually been nothing like this 
ever in history.
    Mr. Reeder. Right.
    Senator Portman. But let us assume that we do not act and 
we allow the status quo to continue because we have gridlock 
here, we cannot get anything done, we cannot figure out a 
solution, all the answers are tough, and we end up with a 
situation where these plans go insolvent, but also PBGC, in 7 
short years, goes insolvent. What is the impact on the economy?
    Mr. Reeder. Well, as I mentioned earlier, I think that 
there will be very dire consequences for the communities where 
many of these people live.
    I do believe that there is a possibility of contagion 
affecting other plans that are much more healthy. We cannot 
measure that yet, and we are working on that.
    Senator Portman. But talk about what that contagion means.
    Mr. Reeder. Well, the contagion I normally hear, when 
people are using the word in the context of the multiemployer 
world, is when a plan, a large plan--it does not necessarily 
have to be large--but when a plan goes under but its 
contributing employers also contribute to other plans--and 
there is a hypothesis that if a plan goes under and incurs mass 
withdrawal liability, that puts those companies under--that 
that could affect the health of many other plans.
    And this is particularly true in the Teamster world.
    Senator Portman. Yes. So let us be specific. When the 
contractors were in this week talking about infrastructure, I 
asked them about pensions. Some of these contractors have as 
many as five different multiemployer plans. So they may have a 
plan with the carpenters, they may have a plan with the 
Teamsters, they may have plans with other operators.
    And you are saying that if one of the big plans goes under, 
let us say the Teamsters plan, that company will not be able to 
make its premium payments to the other plans as well. And the 
contagious issue is that there is contagion with these other 
plans.
    Is that accurate?
    Mr. Reeder. Well, that is the hypothesis. One big variable 
is that a lot of these plans, such as 707, will not actually 
terminate and will not actually trigger mass withdrawal 
liabilities, and employers will just continue to contribute to 
the plan. It is a little bit sad, because they are contributing 
to an insolvent plan, but it does not put the employers under.
    And I would suspect that many of the plans that go under in 
the near future, especially the big ones, will be hard-pressed 
to terminate and declare a mass withdrawal.
    So that is the big variable in measuring how serious the 
contagion effect really is.
    Senator Portman. Yes. Well, I think the broader impact--my 
time is well over; I apologize, Mr. Chairman--but I think that 
that is the bigger issue we have to talk about too. As bad as 
it is for these retirees and for these individual plans, it 
also has a broader impact on our economy. Not just the local 
communities that will obviously be affected, but the larger 
economy.
    Thank you, Mr. Chairman.
    Co-Chairman Brown. Thank you, Senator Portman.
    And Rob is so right about that in terms of the contagion 
effect.
    I think it is important to remember that two-thirds of 
these plans are in fact in the healthy green zone area. But it 
means the system can be saved if we act in the months ahead.
    Senator Heitkamp?
    Senator Heitkamp. Thank you, Mr. Chairman.
    I want to just walk a little bit through history, Mr. 
Reeder. And so I would like to talk about how we ended up with 
pension insurance in the first place. I know you talked a 
little bit about that to begin with.
    But prior to 1974, there was basically no protection for 
private pensions in this country. So as a worker, when your 
employer went down, you were on your own; you were really out 
on the street.
    And we saw that happen with the old automaker Studebaker. 
It halted U.S. operations at the end of 1963, and it terminated 
its pension plan. And for 4,000 of their workers, including for 
some who had worked there 40 years, they lost the bulk of their 
pensions.
    That event, I think, woke up the people of this country, 
and it stirred Congress to act because they looked around and 
thought, we have to have a better system to protect our 
workers, to make sure people are playing by the rules, and to 
make sure pension promises are kept.
    Mr. Reeder, I am sure you know that the legislative 
initiative that resulted from Studebaker's collapse was ERISA 
and then the agency that you chair.
    And you know who the chief proponent of that legislation 
was. It was Jacob Javits, a Republican Senator. And it was 
signed into law by a Republican President: Gerald Ford.
    When Gerald Ford signed the bipartisan legislation, he said 
ERISA will provide assurances that retirement dollars will be 
there when they are needed. That was the promise.
    And that is what this is all about: making sure retirement 
dollars are there when they are needed. And I mentioned that 
Republican history because we all need to realize that this is 
a bipartisan issue.
    To be sure, we have heard a lot about reforms that need to 
happen, and I am all ears. And I think we should take a hard 
look at how we can improve the retirement guarantee system. 
This is probably a long time coming; it should have been 
addressed years ago as we looked at changing demographics and 
as we looked at more and more erosion of defined benefit plans 
to a 401(k) system.
    But right now, we have an emergency. And I think Senator 
Portman outlined the contagion effect, so no one should feel 
safe. This could result in dire consequences. And at the tip of 
the spear is our Central States pension and the Mine Workers.
    So simply raising premiums is not going to get the job 
done. I think we all need to recognize that, that there are no 
easy solutions.
    My colleagues and I have put forth the Butch Lewis Act, 
which is a type of loan program that would help workers 
rehabilitate their pension plans so that they can keep their 
benefits.
    I know there has been a fair amount of criticism of that as 
a result of what people see as overt involvement of the Federal 
Government in providing that level of assistance and that level 
of loan guarantee.
    But I want to look at the history of loan programs in the 
United States of America and with the American economy.
    AGI, we loaned them $67 billion. Bank of America, we loaned 
them $45 billion. Goldman Sachs, we loaned them $10 billion. 
JPMorgan Chase, $25 billion. These are just a few of the big 
financial companies.
    We also helped the automakers. General Motors, we loaned 
them $50 billion; Chrysler, $10 billion; U.S. Airlines, up to 
$10 billion; Farm Credit, $4 billion in bonds.
    And I raise that history because I think that, as we are 
looking at the amount of Federal taxpayer exposure to help at 
times of economic crisis in this country, we have been willing 
to disburse a whole lot of money. In fact, by our calculation, 
when you add it all up, it is over $600 billion.
    And today, the taxpayers have come out ahead as a result of 
that. We have not only prevented catastrophic economic decline, 
but we have been able to right the ship and improve the 
economy.
    So when big corporations get in trouble, the answer has 
been clear: we help them out.
    As distasteful as that may be and as politically challenged 
as that may be, we have stepped up, and the Federal Government 
has become the lender of last resort.
    So, Mr. Reeder, would you agree that loan programs in the 
past have been used in times of economic crisis?
    Mr. Reeder. I believe so.
    Senator Heitkamp. And do you believe that challenges facing 
funds like Central States and other similarly situated plans 
could cause massive economic damage to workers, their families, 
small businesses, and, by contagion, the entire economy? Would 
you agree?
    Mr. Reeder. Yes, I agree with that.
    Senator Heitkamp. So clearly, when it is the banks or the 
insurance companies or the automakers, we provide loans to 
stabilize our economy.
    I am open to anything that works, but I would ask 
colleagues to take a similarly open-minded position on helping 
during this time.
    And so, if I can just close with a statement that, yes, we 
have to look at the macroeconomic challenges that we have.
    But behind you are a number of workers who do not know that 
there is any certainty and economic dignity for them and their 
families. Watching this hearing are other hundreds of thousands 
of American workers who wonder when is it their turn to get 
listened to.
    And so I just want to make sure that we do not dismiss out 
of hand plans that would in fact respond to this challenge the 
way we have responded to many, many dire economic challenges in 
the past, and that is to provide the security and support to 
make sure that these funds are fully funded and that our 
pensioners get the pensions they deserve.
    Thank you, Mr. Chairman.
    Co-Chairman Brown. Congressman Norcross?
    Representative Norcross. Thank you.
    I appreciate the hearing on this. And it is remarkable that 
we have been talking about this a long time, but nothing has 
happened. And when we think about the PBGC and the numbers you 
go through, there are, what, about 1,400 plans on the multi 
side?
    Mr. Reeder. Yes, sir.
    Representative Norcross. And there are about a hundred of 
those critical or declining?
    So when we had an opportunity as a country back in the 
1990s, when things were going really well, there was a rule in 
place that said you can only fund them to 110 percent or they 
lose their tax status. Correct?
    Mr. Reeder. Yes.
    Representative Norcross. So that prevented us from creating 
a better cushion for the times that were not so well and to go 
back on that. So that is a structural issue.
    And what we heard about here today is PBGC, by its nature, 
is the insurance company, and we heard how we can keep it, 
which is $16 billion over 20 years. So it is the healthy plans 
that would have to pay that. If you are insolvent, you are not 
paying your premiums. Is that correct?
    Mr. Reeder. Well, yes, healthy a little bit less, yes.
    Representative Norcross. So here we are, we are trying to 
hold up an insurance plan that by design is created not to pay 
enough money to those people who are retiring. It is set up 
this way. This is the insurance we bought. We have the formula 
set for those insolvent plans. Correct? That is where we get 
the $12,870?
    Mr. Reeder. That is right.
    Representative Norcross. We bought cheap insurance. And 
when you try to compare that to the single employers, they made 
a different decision to pay much different premiums.
    So we are trying to create and prop up an insurance company 
that is already structurally flawed by the money they are 
paying out. If you were as healthy as a horse and plans were to 
go under, they would still get a rotten benefit paid out.
    So we need to understand that there are two very different 
issues here. And when we look at what the problem is, the 
problem for PBGC is one thing, but it is the problem of the 
actual insurance for those pension plans. Why are they failing? 
What is it that we are doing that we have these massive 
failures?
    Nobody is talking about that. We get this great loan 
program and then we are still in the same boat. The causes for 
those different plans to go down--bankruptcy, does that play a 
role in it?
    Mr. Reeder. Yes.
    Representative Norcross. Why don't you explain how 
bankruptcy--if a company goes under and they have $100 million 
worth of unfunded liability, where does that go?
    Mr. Reeder. It usually goes to the back of the line.
    Representative Norcross. The last man standing--everybody 
else picks it up. Correct?
    Mr. Reeder. That is right.
    Representative Norcross. Okay, so that is a structural 
issue that changes.
    Pension--what position does that have when a company goes 
bankrupt? Do they get paid first?
    Mr. Reeder. No.
    Representative Norcross. No. They rarely if ever--the 
pension obligation rarely if ever gets paid from the 
bankruptcy. Is that correct?
    Mr. Reeder. In the multiemployer world. In the single-
employer world----
    Representative Norcross. But we are not talking about that.
    Mr. Reeder. Yes.
    Representative Norcross. So that is a structural problem. 
If we change everything here and we do not change that, we are 
back in the same boat.
    Let us take one step further: the assumptions that are 
made. When a plan is healthy or it is in the red zone or 
critical and declining, it has made that decision based on 
over-assuming the payback on a yearly basis. Each pension plan 
makes a decision each year how many assets come in, how we are 
going to pay it out. Is that correct?
    Mr. Reeder. That is right.
    Representative Norcross. So if I overpromise my employees 
that you are going to get a higher pension, that starts us down 
the road where that plan could fail.
    Mr. Reeder. That is correct.
    Representative Norcross. So how do we fix what got us into 
this problem? I do not hear you talking about the pension 
position in bankruptcy. I do not hear us talking about the 
actual assumptions that are given out. You are thinking you are 
getting too much money in or you are promising too much money 
out, because those in the green zone have been making those 
decisions properly.
    Now, we were all hit by the same market downturns. But we 
have structural problems, wouldn't you say?
    Mr. Reeder. Yes. And I agree, as I outlined in testimony, I 
agree that we do need to make changes to those structures if we 
are going to prevent this from happening in the future.
    Representative Norcross. So anything we do to fix the 
current situation so PBGC is still alive has to go hand-in-hand 
with structural changes. If not, we are just going to keep 
going to the healthy plans saying, hey, I am glad you made 
those tough decisions, now you have to pay up.
    Because the part I missed is, during the downturn of the 
recession when the banks failed, they did not go to the other 
banks and say, ``Oh, you are going to pay.''
    Trying to limit the source to just those in the plan who 
will get nothing out of it, I think is wholly unfair. If we can 
do it for the auto companies and the banks, too big to fail--do 
you know what is too big to fail? Those pensioners. And we have 
to come together to make sure that they get an opportunity, 
because they are getting a raw deal here.
    And there is a lot of blood in the water from a lot of 
different people. But the cost of doing nothing is 
unacceptable.
    I will yield back the balance of my time.
    Co-Chairman Brown. Congressman Schweikert?
    Representative Schweikert. Thank you, Mr. Chairman.
    And forgive me. As often, when you are running around from 
meeting to meeting--at some point we should have a discussion 
about scheduling. I say we start doing these in the middle of 
the night. But then, being a House member, we are always 
annoying to Senators. [Laughter.]
    I actually want to walk through just a couple of math 
concerns.
    First off, you had made a statement earlier that I had 
picked up that the number of multiemployer plans that you saw 
as in the green zone, you know----
    Can I ask you, if I came to you right now with your 
background--and oddly enough, I think you have one of the most 
interesting jobs in government--and said, you are going to use 
a perpetual horizon, you are going to calculate to high-quality 
bonds as your net-present-value calc, how many plans truly stay 
within that green zone if we were actually to use those types 
of actuarial tests?
    Mr. Reeder. I do not know the exact number, but as I 
mentioned earlier, green zone does not mean----
    Representative Schweikert. Healthy.
    Mr. Reeder [continuing]. Healthy. It means not distressed. 
And so I do not think most of those green zone plans do use the 
bond rate you refer to.
    Representative Schweikert. Okay. We did some of this math 
in our office a few weeks ago, and we walked away a little--
what would be the right word?--shaken that the number, like, 
tripled of what we thought would be stressed, particularly if 
they were 
single-employer plans and used those types of test 
measurements.
    So the reason I bring that back up again for all of us is 
almost exactly what you were saying. As we do this, we need a 
holistic approach that actually just does not fix the current 
identified centers, but actually says, how do we make this 
whole system much more robust?
    Now I have the question for PBGC. If I came to you and 
said--I look at some of my notes on the reports of what your 
identified liabilities are. And there are some statements I 
have come across--and I need you to help me just because of 
time constraints--that look like they were some outside reports 
saying your liabilities may be double what you report on your 
annual statement.
    Help me understand where those differences are coming from.
    Mr. Reeder. We use pretty conservative interest rate 
assumptions. But in calculating, some people may--and I 
understand the CBO has done this--some people may actually 
factor in a variability analysis.
    Representative Schweikert. And the variability analysis 
would be a projection of a number of plans that would make 
claims or a cascade effect or what?
    Mr. Reeder. Well, it is the cost of--it is the value of 
assets that are not invested in fixed-income funds.
    Representative Schweikert. Okay.
    Mr. Reeder. And it is a variability factor. And just in 
starting the answer to this question, I have gotten myself in 
the weeds above my head. And I would be happy to provide you 
with backup on a QFR.
    Representative Schweikert. On your staff, do you have 
someone whom you consider to be sort of your freaky-smart quant 
or someone who can deal with a couple of creative ideas a 
number of us are talking about? Because there is not a single 
solution here. It is going to actually require lots of 
different inputs and maybe a couple of different types of 
financing mechanisms.
    And in some ways, you might be the appropriate conduit to 
manage, control, house.
    So I mean, do you have the bandwidth if someone like myself 
and a couple of us others came to you and said, would this 
mathematically possibly work if there were sort of these risk-
sharing models, these other things that were also presented?
    Mr. Reeder. We have more quant freaks per capita than any 
place on the planet. [Laughter.]
    Representative Schweikert. That is a term of love, 
understand that.
    Mr. Reeder. It is. It is. And I have to admit that two of 
them are sitting behind you, because they are on detail to the 
committee.
    Representative Schweikert. Can I give you--can we grab your 
cards? Because I have a couple of things where either I am 
going to sound brilliant or like an idiot if I try asking them 
from behind the microphone, because I need a whiteboard.
    But I want to know if some of the solutions we are trying 
to build in our office to present to the team here are actually 
sound.
    And with that, I will yield back, Mr. Chairman.
    Co-Chairman Brown. Senator Manchin?
    Senator Manchin. First of all, thank you, Mr. Chairman. 
This is an important meeting.
    I would like to note for all of us, we are 4 months into 
this, 4 months in, and we do not have one agreed-on solution 
yet, not one agreed-on path from either side of where we are 
going.
    And for 4 months--we have 6 months left to come up with 
something by legislation. We are going to have to agree that we 
have a crisis on our hands.
    I have the United Mine Workers in my State, and so many 
people in my State have a very small pension that it will 
destroy people's lives.
    And I do not know what progress has been made by staff on 
both sides--if we have agreements or disagreements. I would 
like to know that.
    So hopefully by our next meeting, Mr. Chairman, we can get 
a status on the staffs, if we have agreement, any type of 
movement forward.
    There has been a lot of good information that has come out. 
Congressman Norcross came across that bankruptcy--I am very 
much concerned about that. You have to fix the problem. And any 
time you put a financial institution in front of a human being, 
you have a problem. And that is what has been happening for far 
too long.
    We are talking about putting undue burden on businesses. We 
do not want to do that. We just gave the greatest tax cut in 
the history of the United States of America--the greatest tax 
cut we have ever given.
    You can sit here and debate it all day long--too much, not 
enough, whatever--but everyone got a benefit from that except 
the working people. And now we are afraid that we are adding a 
little bit more of a premium, and the premium is not going to 
solve my miners' problem.
    The premium right now, short-term premium, is not going to 
fix what I have facing me in a few years. We need to know how 
we can do this.
    And the only way you are going to be able to do it is be 
able to have a loan program. There is no other way of infusion 
of cash that can keep us from this crisis.
    So my question to you would be, compare this crisis that we 
are going to be facing with what happened in 2008 when we 
bailed everybody out. On what scale would you say is the crisis 
that we have looming between our State's pension and the 
miners' pension? The miners hit first. And if the miners hit 
first and we do not do something, what does it do to your PBGC 
and how quickly does that start accelerating to your 2025?
    Mr. Reeder. That is the main accelerator to 2025.
    Senator Manchin. So the UMWA, if we do not fix that one 
first--we had a fix for this, you understand. We were using AML 
money. That is coal money. Every ton of coal we mine, there is 
a fund we pay into, abandoned mine land. And they have taken 
that and used it for everything but what it is supposed to be 
used for. That is the problem we have.
    We cannot get the legislators to look at how to fix a 
problem and do it with money that we are generating from 
products that we are selling. And now we are looking--we are 
not looking for a bailout. But if, as Senator Heitkamp had 
mentioned, we are able to come to the aid of every corporation 
that has an effect on the economy of this country, surely to 
God we can come to the aid and help of the people who made the 
country. That is what we are talking about.
    So we need some suggestions. Every time, I ask somebody who 
comes and sits where you are sitting to help us, because we 
have to have some things that we are going to put on the table, 
and I think the public needs to know what we agree and do not 
agree, because this is a bipartisan challenge. It is going to 
take a bipartisan solution.
    And right now, we have gotten nowhere except having great 
information and testimony. So if you are recommending that we 
have to have an infusion of cash or we need a borrowing, the 
only thing I can see that is going to help us right now is if 
we have a borrowing, the same as we did with the banks--a 
bailout. They paid it back. We are going to pay it back.
    And we have corporations now that can afford to pay a 
little bit more, I am sure, if you look at the bottom line of 
what we were able to do with this last tax cut.
    Do you think that that is feasible and it is realistic?
    Mr. Reeder. Well, we have been working hard. And we have 
been working with staff. I think we have all identified the 
dials. Congressman Schweikert may have another one, the dials 
that can be turned. But we do not have suggestions as to where 
they should be turned.
    We can help you analyze----
    Senator Manchin. No, but, I mean, you know how much cash it 
is going to take.
    Mr. Reeder. Yes, sir.
    Senator Manchin. How much cash is it going to take to keep 
the United Mine Workers of America from going down the tube in 
2022? We are at about $3 billion, $3\1/2\ billion the last time 
we looked. We were about $2 billion when we could have fixed 
it. We could not get it on the bill; they separated that out 
from the health care, which was absolutely horrific, what was 
done. This would have been over; we would have had that behind 
us and been working towards our Midstate pension. We could 
have, I think, had a pathway forward.
    So what we need to know is, how much money is it going to 
take to keep the miners from going down the tube, to keep the 
Midstate from rolling up into one of the greatest calamities 
that we have had?
    Have you all evaluated the crisis that we have coming?
    Mr. Reeder. We have.
    Senator Manchin. Is it as great as the 2008 collapse?
    Mr. Reeder. I am not an expert on the 2008 collapse, but 
there is bound to be some comparison. I do not know.
    Senator Manchin. What part, how much of the economy--you 
know, can you help answer these questions if I would ask them?
    Mr. Reeder. Well, we know the number of participants that 
will be affected. But, as has been pointed out here, the 
contagion of the effect on those participants is a lot broader. 
It is their families and their communities and, to some degree, 
the whole country.
    Senator Manchin. Well, we have 6 months left. We have to 
have a piece of legislation to go to the floor. And I am 
determined to get a piece of legislation that fixes it.
    Bankruptcy--you have to fix bankruptcy to keep it from 
repeating itself. The human being should be at least equal to 
the financial institution when it comes to divvying up what is 
left when a bankruptcy happens. When there is an intentional 
bankruptcy and we have diversion going into different 
companies, we should be able to reach back; there should be a 
claw-back provision in bankruptcy that allows us to keep the 
individual, the human being whole.
    And if the premiums have to be increased for the 
businesses, we want to make sure we do not put them in a 
hardship. But if we have given them the greatest tax cuts in 
the history of this country, we could negotiate something that 
would not be a hardship to them. This is all reasonable.
    But someone has to tell us how much cash it is going to 
take, where we are going to get it, and what is the payback. 
And we have got to start fixing some problems here.
    I am willing to start voting on fixing a problem. If we 
have a discrepancy, then we have to sit down and work through 
that. But my goodness, we have--I think the examples have been 
given here of what we have been able to do when we hit a 
crisis. I guess we are going to wait until 2022, and then I 
have to look at the miners and say, ``Okay, we are here, 
guys.''
    Most of these are retired widows, is what I am dealing 
with--$595. And you take that away, they have nothing. They 
cannot make it.
    So we are not talking about a windfall; we are talking 
about survival. And all I am asking for is compassion.
    But we are going to need some help. We need some answers. 
And you know, you all, you have the expertise, and we 
appreciate it. We need you now to lay it on the table. Tell us 
what we have to have, and we will figure out how to make it 
happen.
    Mr. Reeder. We can give you those numbers.
    Senator Manchin. Thank you. If you will do that by our next 
meeting----
    And if we can have some direction, Mr. Chairman, of what we 
want to start making some decisions on, I would appreciate that 
very much. Because I have to know if there is a difference that 
we have from one side to the other. Let us find out how we--and 
I think the public needs to know.
    They cannot wait until November and say, okay, we have come 
to an impasse. I want to make sure we start.
    Mr. Reeder. Can I make one point on the mine workers?
    Senator Manchin. Yes, please.
    Mr. Reeder. And that is, I understand the discussion about 
premiums, and I understand the disagreement about premiums. But 
an infusion to keep PBGC afloat will have a very positive 
effect on mine workers, retirees, and beneficiaries.
    Senator Manchin. What I am saying is, that premium will not 
save me by 2022.
    Mr. Reeder. Well, but it will save your participants; it 
will save most of your participants.
    Senator Manchin. Keep them whole?
    Mr. Reeder. No, it will not----
    Senator Manchin. I know that. I am just saying--I am only 
talking $595.
    Mr. Reeder. Okay.
    Senator Manchin. You take me down to a hundred, two hundred 
dollars, these people are destroyed. I cannot let that happen.
    But I am saying I need to know what it does and what extra 
cash we are going to take--or a loan or AML money or 
something--and then we have to repay that. That is what we are 
asking for.
    We are not asking for a handout; we are not asking for a 
bailout. We are asking for a bridge to get us from point A to 
B, which we have done in so many instances in this country.
    Mr. Reeder. We can tell you how the dials calibrate, but we 
cannot tell you which one to turn.
    Senator Manchin. By our next meeting then, hopefully we 
will have some answers.
    And hopefully, Mr. Chairman, we will be able to start 
looking at our differences or coming to an agreement and moving 
a piece of legislation forward.
    Co-Chairman Brown. Thank you, Senator Manchin.
    We have hearings in June and July. We will, I hope, start--
I mean, the staffs are already talking; we are already talking 
individually among ourselves. I would hope we would have some 
serious negotiations beginning no later than July.
    We have put the Butch Lewis Act out, which we think is 
actuarially sound. There has been some bipartisan support for 
it in the House, less so in the Senate, but we are open to 
other discussions with my Ohio colleague and others on both 
sides.
    Senator Smith?
    Senator Smith. Thank you, Senator Brown.
    And thank you so much, Mr. Reeder, for being here today.
    I am gleaning from this committee a sense of real urgency 
and a sense of frustration and a sense of real concern. And I 
appreciate you being here to answer our questions.
    And, Senator Brown, I am really thinking about a meeting 
that I was at with Senator Heitkamp up in Moorhead just a 
couple of days ago. And I can tell you that that sense of fear 
and frustration and concern is even more intense amongst those 
folks who are trying to figure out how they are going to be 
able to take care of themselves.
    And I appreciate what you are saying. You cannot give us 
the answers, but you can give us the data that we need to make 
the decisions that we need to make.
    And another observation I have about this is that this is 
really complicated; it is really difficult. And we need people 
giving us this information and providing us with background who 
know what they are doing and have a background in this area.
    And I would just like to thank you for your expertise on 
this area, if you get my drift.
    I want to just go to this question of solutions. Because 
when I was in Moorhead and when I have, you know, been in other 
places talking with mostly people in Central States, they keep 
saying, you know, we want solutions, we need to know what we 
are going to do about this.
    And as I am understanding this--and I am not an expert--
there are some ideas that have to do with premium increases and 
some ideas that have to do with loans. Is that right?
    Mr. Reeder. Yes. There are other dials. I mean, you could--
but those are two that are being discussed.
    Senator Smith. Those are two that are being discussed. And 
what would be the other? Give me an example of another dial 
that we would be looking at.
    Mr. Reeder. Increasing the guarantee level so that when a 
plan does fail, for the people in it, it would be a reasonable 
insurance.
    As others have referred to, changing the funding rules to 
make sure this does not happen again.
    Senator Smith. Yes, okay. And let me just ask you about 
this premium increase idea. I mean, if we were to go down that 
path, would that be something that would be sustainable or 
feasible for the businesses that would need to pay these 
increased premiums?
    Mr. Reeder. Well, we believe it would be sustainable. It 
seems like a lot because it is a very large multiple of what 
they are paying now. But they have been paying very low 
premiums for a very long time.
    Senator Smith. Is there some concern that there would be 
sort of, like, a sticker-shock effect, I guess?
    Mr. Reeder. Yes. There would be a sticker shock. However, 
the increased premiums under the proposal would go towards a 
variable rate premium so that you would only pay it to the 
extent you are underfunded.
    Senator Smith. Okay. And what about the loan ideas that 
have been proposed out there? There is certainly Butch Lewis, 
maybe there are others. You know, do you see those as being 
feasible also as ways of solving this problem?
    Mr. Reeder. From a selfish point of view, from the PBGC 
point of view, if you can keep more plans off of our doorstep, 
it will keep us solvent longer.
    Senator Smith. Yes.
    Mr. Reeder. But I think that the proposals are charged with 
controversies.
    Senator Smith. Right. Well, there is going to be a heck of 
a lot of controversy if all these plans, you know, become 
insolvent and it all falls on the PBGC, right? Then we have 
millions of people affected by this.
    A lot of this has been discussed, but I just have--I want 
to just thank Senator Heitkamp for pointing out how we have 
mustered the political will and the kind of sense of common 
good to provide loans in other situations when we saw that 
organizations that are crucial to our economy were going to go 
out of business if we did not all come together. And I totally 
agree with her that that is a way.
    I mean, if that, why not this? Seems to me to be so clear.
    The other thing I just have to observe, Mr. Chairman, is 
that, you know, we just gave a $1.5-trillion tax cut, which 
would have paid for the solution to this problem many times 
over. So this makes me realize again that what we do not--you 
know, some people say, well, we have a math problem here. Well, 
I think what we have is a people problem. We have a real 
problem making sure that people do not literally, as the man I 
talked to in Moorhead, find themselves scooping poop in the 
local parks as the only thing that they can do in order to keep 
themselves in their apartment.
    So I look forward to the increased conversation, more 
conversation about the solutions that we need to explore here 
to make sure that that does not happen anymore.
    Thank you.
    Co-Chairman Brown. Thanks.
    Congressman Scott?
    Representative Scott. Thank you.
    And thank you, Mr. Reeder, for being here.
    I apologize for being late, but the Committee on Education 
and Workforce had a full committee hearing that started at 
10:00, and four members of this committee serve on that. And so 
I would hope, Mr. Chairman, that we can have a little better 
communication in the future to avoid the conflicts.
    Mr. Reeder, the PBGC has charged all of the funds a premium 
for essentially insuring up to the insured level. You have 
assets that are totally insufficient to pay the liabilities in 
the future. What is the legal and moral obligation of the PBGC 
to continue paying benefits even though the funding may be 
gone?
    You may have a legal problem paying if you do not have the 
money, but what is the government's moral obligation to 
continue making payments?
    Mr. Reeder. I am sorry. I consider myself a very moral 
person, but I am not an expert. I do believe that most 
participants and probably the public as a whole believe that 
the guarantee level, at least the amount that PBGC is obligated 
to pay, is a debt of the people of America. But I do not--that 
is not the law.
    Representative Scott. But you believe, as I do, that having 
provided a guarantee and having people live under that 
guarantee, paying the required premium, they would expect, just 
from a moral basis, the payments to be made.
    Now, Senator Brown has talked about what we are on the hook 
for if we do not do something. Have you looked--including the 
contagion effect--have you looked at the total government 
obligation that would be triggered if everything goes under, 
people losing their pension, not paying tax on it, going on 
food stamps and Medicaid and what the effect to the Federal 
budget would be if we do not do something?
    Mr. Reeder. PBGC has not done that research, but I 
understand it is being undertaken, and other people have 
already taken long strides in that direction.
    Representative Scott. The last-man-standing rule--can you 
explain what corporate assets are vulnerable to insolvency of 
plans? Is the whole corporation subject to pay off the deficit, 
or is there some limit to what a corporation can be asked to 
pay as the last man standing?
    Mr. Reeder. If withdrawal liability is in fact triggered, 
then the corporate assets would be subject to--and all the 
assets of the corporation. There is an exception for a small 
employer that wants to liquidate. If the small employer 
liquidates, they can set aside a small amount or a percentage 
of the sales proceeds to pass along or to keep. But generally, 
the entire corporate assets are subject.
    But let's bear in mind that withdrawal liability is 
invariably negotiated between plan trustees and the employers 
themselves. And plans do not like to get employers illiquid. 
And so they will negotiate something lower to keep the employer 
afloat if the employer has the means to stay afloat.
    Representative Scott. But the entire corporate--all of the 
corporate assets are vulnerable to pay debts owed by the funds?
    Mr. Reeder. Yes.
    Representative Scott. There are legislative proposals that 
would allow you to identify troubled plans and invest some 
money to get them kind of over the hump. Are you familiar with 
those plans, one introduced by the gentleman from Texas, Mr. 
Sessions, which would allow investments into the funds to get 
them over the hump if people will stay in the plans?
    Mr. Reeder. Yes, we are. We are aware.
    Representative Scott. Do you have that authority now?
    Mr. Reeder. No. Well, we have the authority to approve 
alternative withdrawal schemes, and we do, and we are analyzing 
them. And we are working with Senator Sessions's staff to come 
up with----
    Representative Scott. Representative Sessions.
    Mr. Reeder. Representative Sessions, thank you; sorry.
    Representative Scott. You are working with his staff to see 
if that is a possible solution, whether you already have the 
authority or whether you need legislation?
    Mr. Reeder. We do have the authority, and we are working 
with him to come up with regularized procedures for making 
approvals of those alternatives.
    Representative Scott. Thank you, Mr. Chairman.
    Co-Chairman Brown. Thank you, Congressman Scott.
    We will do a second round for those who want to stay. And I 
know Congressman Norcross is able to, and I think Congressman 
Neal has a couple of questions.
    Thank you for your candor with all of us and your 
cooperation.
    The administration has put forth a proposal to raise 
premiums in order to stabilize the PBGC insurance program. And 
I understand the importance of that as a component in this 
solution.
    First question: does this proposal, does the 
administration's proposal, do anything to prevent the 
insolvency of the Mine Workers or Central States or Bakers and 
Confectionary of Ohio, Southwest Carpenters?
    Mr. Reeder. No.
    Co-Chairman Brown. Nothing; okay. You can only, it seems to 
me, turn the premium--I guess you said dials earlier, dials, 
levers--you can only turn the premium dial so far because 
multiemployer plans pay premiums out of the same pot of money 
as benefits. Correct?
    Mr. Reeder. Yes.
    Co-Chairman Brown. Okay.
    Mr. Reeder. The proposal has a waiver provision that allows 
the PBGC to waive premiums if it is going to make the plan 
worse off.
    Co-Chairman Brown. If you raise premiums, though, do you 
risk accelerating the insolvency of some of the most vulnerable 
plans?
    Mr. Reeder. Yes, that risk does exist, and it is recognized 
in the proposal by allowing us to waive increased premiums or 
premiums altogether in a situation where it would make the plan 
worse off.
    Co-Chairman Brown. So how would you prevent that proposal 
from making the financial position of these plans even worse?
    Mr. Reeder. Well, we would have to analyze the--in other 
words, I do not think the premiums would be levied on critical 
and declining plans. I think it would be counterproductive to 
increase the premiums on a plan that is about to come into the 
PBGC.
    Co-Chairman Brown. So if you waive that 20-percent of the 
premium, can you guarantee the variable rate premium will not 
make the problem worse in some cases?
    Mr. Reeder. We would do our best. Guarantees are tough. But 
the legislation needs to be drafted, and regulations would need 
to be made towards that end.
    Co-Chairman Brown. Okay.
    Congressman Neal?
    Representative Neal. Thank you, Mr. Chairman.
    Just if we could maybe use the opportunity to be better 
educated here on the panel about the last-man-standing rule. It 
is oftentimes used to describe the general insurance principle 
of multiemployer pension plans where risks are pooled amongst 
employers.
    But as employers leave the plan or go insolvent, the burden 
remains on the employers that are left in the plan. 
Deregulation in the 1980s and 1990s as well as large-scale 
economic downturns in 2001 and 2008 led to waves of industry-
wide employer insolvencies.
    The remaining employers in these plans are now the last man 
standing in their respective multiemployer plans.
    What makes the multiemployer pension plans particularly 
vulnerable to the last-man-standing rule?
    Mr. Reeder. In my mind, it is the very essence of why 
multiemployer plans are subject to less rigorous funding rules, 
lower premiums, lower guarantee rates, because of the 
perception that those employers that are left in the plan can 
pick up the slack for employers that become insolvent or 
bankrupt.
    It only works, though, if the population of contributing 
employers remains relatively the same. So if one employer goes, 
if one trucking company, for example, goes bankrupt, another 
company will take up those routes and will pay those employees 
and will contribute that amount to the plan.
    If, however, the replacement trucking company hires 
nonunion workers or uses fewer workers, then there is a 
decrease in the number of actives, and the system falls apart.
    Representative Neal. So to follow up, under the current law 
then, is there anything an employer can do to counteract the 
problem if they cannot afford to withdraw from the plan?
    Mr. Reeder. Well, I do need to note--the short answer is 
``no.'' But I do want to note that withdrawal liability 
payments are made on an annual basis. It is not the big plan 
coming after the employer for one big chunk of money. They pay 
it on an annual basis, and they do not have to pay any more 
than generally what they have been paying.
    Representative Neal. Thank you, Mr. Chairman.
    Co-Chairman Brown. Congressman Norcross?
    Representative Norcross. I want to follow up. That is 
exactly where we want to go.
    So when we take a look now, Mine Workers, Central States, 
which are in a, I hate to say, unique position, but are in very 
dire straits, taking care of the PBGC as an insurance entity 
still only gets them $12,870 if everything is perfect. Is that 
correct?
    Mr. Reeder. Or less, yes.
    Representative Norcross. Right.
    Mr. Reeder. Based on their service.
    Representative Norcross. So that is life support; we are 
trying to save them from dying. But what Richie spoke about and 
where I wanted to go is, how do we make it a wellness program 
where, (a) structurally things change, but then we get new 
infusions of employees who want to be part of the system?
    And that is part of the problem: too many retirees and not 
enough new folks. Because who wants to sign on to an unfunded 
liability of several billion dollars?
    The opportunity for growth in these funds is almost nil 
when they are in a critical or declining status. Is that 
correct?
    Mr. Reeder. Yes.
    Representative Norcross. So we have all the old debt, all 
the retirees, and nobody new.
    A mechanism to allow new companies to become involved, 
bringing more employees in without being saddled with that--if 
not, they cannot grow. Would you agree with that?
    So we have an emergency patient, trying to keep them alive. 
And we can talk about how we got there, but the fact of the 
matter is, you have to keep them alive. And that certainly is 
Central States.
    But collectively, coming together, what is the most 
important thing that you can do to prevent a plan coming to 
PBGC? You talked about regulatory--you did not have the 
authority.
    Mr. Reeder. And if it is critical and declining, the only 
thing that will help them is an infusion of cash.
    Representative Norcross. Before that, we are trying to 
prevent----
    Mr. Reeder. Right.
    Representative Norcross. Because the Central States is 
already there.
    Mr. Reeder. Yes.
    Representative Norcross. We are trying to prevent piling on 
by others. What can you do as PBGC before they get there?
    Mr. Reeder. Well, we do not have the tools right now. We do 
not have tools to keep them from coming. We do not have the big 
stick to require employers to make necessary contributions and 
actuaries to make reasonable assumptions. We do not have those 
tools.
    Representative Norcross. So what you are telling me is, 
individual plans can make any type of projection they want, 
fund a pension plan on that basis----
    Mr. Reeder. Subject to the fiduciary rule, yes.
    Representative Norcross. Right, and then you pick up the 
mess.
    Mr. Reeder. Right.
    Representative Norcross. Do you think it is altogether 
proper and part of our responsibility that we fix the 
structural problems along with saving the pensions that are in 
critical condition now?
    Mr. Reeder. I am really not--as you know, I am not 
empowered to talk about positions, especially of the 
administration. Maybe you do not know, but I am----
    Representative Norcross. Well, is there any reason why you 
would want to fix this if you are----
    Mr. Reeder. But I think there is a general consensus that, 
especially if we are going to do something about the current 
problem, as Co-Chairman Brown mentioned at the beginning, we 
are going to have to make sure that we do not have this problem 
again.
    I do not think people are going to make the sacrifices that 
they are going to have to make to fix the current problem 
unless they can be convinced that it is not going to happen 
again.
    Representative Norcross. The human factor we have heard so 
much about, the Mine Workers, Central States, and others. But 
the financial condition to our country when some of these plans 
start going under, the impact in all of our neighborhoods--
there are companies going out of business because this vortex 
is going to suck everybody down, major corporations and small 
ones, and they are the ones that provide the jobs.
    So, (a) the Butch Lewis Act has to go in whatever form it 
is, but we also have to be there so those in the future can 
have a plan so they get that golden nest egg that is eluding so 
many people.
    I yield back.
    Co-Chairman Brown. Congressman Scott?
    Representative Scott. Thank you.
    Mr. Reeder, following up on the last-man-standing rule, as 
Mr. Norcross indicated, no sane person would join a plan, and 
so the plans cannot grow. If others would come in, you might be 
able to get through this. But with nobody, no new companies 
coming in, it is just going to get worse.
    What proposals are out there that would, I guess, immunize 
or encourage people to come into programs that are presently 
underfunded?
    Mr. Reeder. Well, most plans are underfunded. And I do 
believe that there are a lot of underfunded plans that are 
growing. There are green status plans that are growing. But as 
Congressman Norcross pointed out, a critical and declining plan 
is not going to grow.
    The only thing that will grow the critical and declining 
plan is a promise to the employer that they are not going to 
have to be subject to the consequences of the insolvency of 
that plan. And that does not help the plan any, because it does 
not contribute towards preventing the insolvency. You are 
between a rock and a hard place.
    Representative Scott. Well, if it injects money coming in--
if you had more companies joining the plan, you would have more 
premium money and more money coming into the pension fund.
    Mr. Reeder. Well, employers are making contributions to the 
plans. That is not a problem. The only way somebody is going to 
make a contribution to a plan is if they are accruing benefits 
commensurate with those contributions.
    And so I will stick by my point that, if it is critical and 
declining, the only solution I see is an infusion of cash.
    Representative Scott. According to your testimony, there 
was not much of a problem with the multi plans until about 
2012, 2013, then all of a sudden everything went south. Were 
there signals that we missed in that time when we could have 
done something to prevent a total collapse?
    The single-employer plans, according to the graph, seem to 
be recovering from the 2008 financial crisis, but the multi 
plans seem to have collapsed. Is there something we missed 
along the way?
    Mr. Reeder. Well, the 2008 collapse happened right after 
the 2006 improvements in the funding rules; there were small 
improvements to the multi rules. But they were not commensurate 
to what--they were not the same as the improvements to the 
single-employer plan rules.
    And so the single-employer plans were better equipped to 
weather that storm. And they came out looking better.
    As far as earlier signs, I think we began to see signs 
right after 2000, but they did not become that apparent until 
the dot-com crisis and bubble and 9/11.
    Representative Scott. Well, you had virtually zero unfunded 
liability through 2010, 2011. And then all of a sudden in 2014, 
you see a big loss, and then it just drops off the scale.
    Mr. Reeder. That is right. So the signals were not bright 
and clear, but they were there.
    Representative Scott. You mentioned in your testimony that 
some funds found themselves, because of investment returns, 
overfunded. And the reaction, rather than kind of bank the 
money, was to increase the promises, which made it more likely 
that they would go insolvent.
    Do you have recommendations on allowing overfunding up to 
certain levels and prohibiting increasing promises until you 
can really afford them?
    Mr. Reeder. Yes. The problem that Mr. Norcross referred to 
about the tax cap on contributions--I think it was you--that 
was part of the problem, and that was fixed in 2006, and I do 
not think it is a problem today.
    If it is, we need to know about it, because there are very, 
very few plans that are at that level.
    But I also think that the plans that weathered the storm 
and the effect of that problem were ones that, when they did 
increase benefits, they increased them with benefits that can 
be restricted later in bad times. And there are lots of plans 
that have done that. They have increased benefits, and then 
when hard times come, they have restricted future accruals, and 
they are doing fine today.
    Representative Norcross. Can I follow up, please?
    Co-Chairman Brown. Really quickly, because I have a vote on 
the Senate floor. I apologize. Really quickly.
    Representative Norcross. Let us follow up.
    Are you talking about a 13th payment piece, that we are 
able to deal with?
    Mr. Reeder. Yes. Well, that is an example.
    Representative Norcross. Because if you included it as a 
cost of living, you cannot roll that back. Is that correct?
    Mr. Reeder. Right. Right. Right.
    Representative Norcross. That is a very big difference.
    Mr. Reeder. There are some you cannot roll back. I am not a 
catalogue of which ones you can and which ones you cannot. But 
I am mainly talking about reducing future accruals.
    Representative Norcross. Yes.
    Mr. Reeder. You can always do that.
    Representative Norcross. Thank you.
    Thank you, Mr. Chairman.
    Co-Chairman Brown. And, Congressman Scott, you were done?
    Representative Scott. I am done.
    Co-Chairman Brown. Okay, thank you.
    Thanks to the members of the committee.
    And, Director Reeder, thank you for your terrific public 
service. I would like to see you be there a lot longer. I guess 
that is my personal view, anyway.
    But thanks to Ms. Markakis and to Ms. Cameron for the work 
that they will do with us. You know, I appreciate the 
administration's work on working to save the PBGC itself, even 
with, you know, the minimalist way that you are able to act, 
but the very important way. It is an important component, but 
only a component.
    I have been very pleased with the staff work already on 
both sides. I think we are making major progress on this. And 
as we have all said all along, it has got to be bipartisan. We 
need five votes on each side. And I am so very hopeful we get 
here.
    So, Director Reeder, thank you so much.
    Mr. Reeder. Thank you.
    [Whereupon, at 11:40 a.m., the hearing was concluded.]

                            A P P E N D I X

              Additional Material Submitted for the Record

                              ----------                              


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. Senator 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.

    I call the committee to order. I would like to welcome my 
colleagues and everyone in attendance to the second hearing of the 
Joint Select Committee on Multiemployer Pension Reform.

    Our job on this committee is to find a bipartisan solution to the 
multiemployer pension crisis threatening 1.3 million Americans and 
thousands of small businesses.

    To do that, we also have to confront the secondary crisis 
threatening the Pension Benefit Guaranty Corporation, or the PBGC.

    Congress created the PBGC in 1973 to serve as the insurance company 
for these retirement plans. Like any insurance plan, PBGC coverage 
doesn't kick in until after the damage has been done--after a plan has 
failed, after businesses have gone under, and after jobs have been 
lost, PBGC is supposed to cover part of the retirement workers earned.

    Ask anyone who's ever totaled a car or dealt with flooding or fire 
in their homes--you're sure glad you have insurance, but you'd much 
rather have avoided the disaster in the first place.

    We have the opportunity to do just that: to keep those businesses 
open, to save those jobs, and to ensure workers get the entire 
retirement they earned.

    Simply propping up the PBGC is not enough. We can't take our hands 
off the wheel, close our eyes, and allow this car to crash, simply 
because we bought an insurance policy.

    We can't do that to the retirees and businesses whose plans are in 
crisis, and we can't do that to the multiemployer system.

    You see, as the crisis in the multiemployer plans has developed 
over the last few years, a second, quieter crisis has developed at the 
PBGC--a crisis that means allowing just one of these major plans to 
fail could put enough strain on the insurance system to bring down the 
entire PBGC multiemployer system.

    According to the latest estimates, the multiemployer system at the 
PBGC faces a deficit of more than $65 billion, and growing. It has just 
$2 billion in assets, and is projected to become insolvent within the 
next 7 years.

    So we can see the writing on the wall. When one of these large 
plans on the brink of failure requires the PBGC to step in, the PBGC 
will also fail--potentially leaving taxpayers on the hook for tens of 
billions of dollars. It's our job to make sure that doesn't happen.

    The Federal Government helped create this crisis, and the Federal 
Government must help solve it.

    Each plan is different, and there are many factors that contributed 
to bringing them down. There's no question that Wall Street squandered 
some of this money.

    But the government also played a role, through perverse tax 
incentives, insufficient premium levels, and inadequate tools and 
financing for the PBGC--all parts of this system that were designed and 
put in place by Congress.

    We have a responsibility to correct each of these errors. Yes, that 
means addressing future actuarial assumptions within these plans, but 
that's not a complete solution.

    To truly address this crisis, we must do two things:

        1.  Update and improve the PBGC going forward, so this never 
        happens again; and

        2.  Solve the current crisis facing retirees and workers and 
        businesses.

    We can't do one without the other.

    Updating and strengthening the PBGC alone would still lead to 
massive pensions cuts. It would leave small businesses drowning in 
withdrawal liability, and active workers paying into a pension they 
will never receive.

    We need to make it clear to all the Americans whose lives will be 
upended by the failure of these plans--we won't let that happen.

    At the same time, we cannot just put out the fire we're fighting 
today, but leave the PBGC as a box of kindling, waiting to ignite 
another crisis a few years down the road. We must ensure that we never 
get to this place again.

    I am confident we can do both together, and that the information we 
obtain today will be an important part of that process.

    This committee will continue to hold hearings--two more in June, 
and another two in July. At the same time, we are holding numerous 
staff and member level briefings and continuing to receive comments and 
input on our website, www.
pensions.senate.gov.

    This will arm all of our members with the information they need, 
and give the people we serve the opportunity to weigh in.

    In July, when the bulk of our hearings conclude, we will have to 
start the process of negotiating a bipartisan solution to this crisis.

    I am ready and willing to consider any idea that solves the current 
crisis and helps prevent a future crisis, and I know Chairman Hatch 
shares that approach.

    And with that, I yield to my co-chairman, Senator Hatch, for his 
opening statement.

                                 ______
                                 
 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 state of the 
Pension Benefit Guaranty Corporation (PBGC).

    This is the Joint Select Committee's second hearing to delve into 
issues concerning operations of the multiemployer pension system.

    As I noted last time, it is critical for us to remember that the 
mandate of the Joint Select Committee is not just to develop reports 
and recommendations on the multiemployer plans, but to also review the 
solvency of the Pension Benefit Guaranty Corporation.

    To do this, we have brought in one of the Nation's top experts on 
the PBGC, Tom Reeder--who happens to also be the current Director of 
the corporation, which insures benefits for the more than 30 million 
Americans in defined benefit pension plans.

    To provide context, one of the core issues confronting pension 
policymakers is the issue of benefit security.

    Pension benefit security and protection can be approached in a 
number of ways, including strong pension plan funding rules, robust 
asset management requirements, and meaningful disclosure mandates.

    In the United States, we have historically used a benefit guaranty 
system--essentially a form of insurance--for many defined benefit 
pension plans to cover lost pension income if a retirement plan becomes 
insolvent or sponsoring employers go bankrupt.

    The problem is that the U.S. system is very complicated and often 
difficult to effectively operate.

    There are a lot of moving parts, and numerous variables for which 
to account.

    Some of those variables include questions on how plans are insured, 
to what extent benefits are guaranteed, and how we can sufficiently 
fund the system while still ensuring employers are properly 
incentivized to sponsor retirement plans.

    The problems don't end there though. It is clear that since its 
inception in 1974, the PBGC has faced design and operational issues 
that have made achieving its policy goals difficult.

    This morning, Mr. Reeder will provide an overview of the PBGC's 
structure and finances, answering key questions about the organization, 
including how it is structured and, most important, how it is financed.

    It is imperative that the Joint Select Committee develop a solid 
base of knowledge about the corporation and how it is funded before 
turning to the PBGC's current funding status.

    And, in a word, that funding status is troubled. I won't recite the 
grim statistics because we have all read them, and we are all deeply 
concerned.

    Over the course of the next weeks and months in the Joint Select 
Committee, I trust that we will learn more about the economic and 
demographic forces that impact the multiemployer system, and 
consequently the financial health of the PBGC.

    But today, let's dig into the fundamentals first.

    After all, it's hard to plot a course without getting a good map of 
the terrain.

    As we work today with Mr. Reeder, here are some fundamental 
questions I think both sides should keep in mind.

    What is the corporation's charter, and how does that effect its 
operations and success?

    What does it mean to be a wholly owned government corporation?

    What are the PBGC's core functions, and how is it structured to 
achieve those functions?

    Does PBGC have the right tools and flexibility to intervene in the 
management and operation of troubled multiemployer plans?

    How does the corporation manage the funds under its management?

    Also, importantly, how do the insurance premiums work to fund the 
plan guarantees?

    And, is this all the right model for the economic and demographic 
markets in which these plans operate?

    Frankly, I believe we need to get these answers and then spend some 
time understanding what those answers mean before the Joint Select 
Committee can effectively consider any proposals to repair the 
multiemployer system.

                                 ______
                                 
        Prepared Statement of Hon. W. Thomas Reeder, Director, 
                  Pension Benefit Guaranty Corporation
    Co-Chairman Hatch, Co-Chairman Brown, and members of the committee, 
thank you for the opportunity to appear before you today to discuss the 
Pension Benefit Guaranty Corporation (PBGC) and the challenges it faces 
in protecting pensions of American workers. We are grateful to the 
members of the committee for undertaking this important work.
                          protecting pensions
    Every American worker should have the opportunity to earn a secure 
retirement. A vital part of retirement security for nearly 40 million 
private-sector workers, retirees, and beneficiaries comes from 
traditional defined benefit pension plans. For decades they have been 
an efficient vehicle for a secure retirement. Traditional defined 
benefit plans provide lifetime retirement income that does not depend 
on a participant's investment choices or the market price of annuities 
when the participant retires.

    PBGC's mission is to protect the lifetime retirement income that 
comes from 
private-sector pension plans when employers are unable to make 
contributions to the plans sufficient to fund the promised benefits. 
Today, about 1.5 million current and future retirees and beneficiaries 
depend on PBGC for pensions they earned for years of work but may have 
lost without PBGC.

    Congress established PBGC as part of the Employee Retirement Income 
Security Act of 1974 (ERISA). By law, PBGC is financed from premiums 
and, in the case of the Single-Employer Program, assets from failed 
plans. PBGC is administered by a Director. PBGC has a three-member 
Board of Directors consisting of the Secretary of Labor, who is Board 
Chair, and the Secretaries of the Treasury and Commerce.

    PBGC operates two separate insurance programs: one for single-
employer plans (the Single-Employer Program) and one for multiemployer 
plans (collectively bargained plans with more than one employer) (the 
Multiemployer Program). While each program is designed to protect 
participants' pension benefits when plans fail, they differ 
significantly in the level of benefits guaranteed, how the guarantee is 
provided, the event that triggers payment of the guarantee, and 
premiums paid by insured plans. By law, the two programs are 
financially separate. Assets of one program may not be used to pay 
obligations of the other.

Both programs have been in a deficit position for 15 years or longer, 
meaning that, for each of our two insurance programs, assets are less 
than liabilities. While the financial condition of the Single-Employer 
Program has been improving, the Multiemployer Program's financial 
condition has been deteriorating rapidly and without action the changes 
required to remedy the deficit become more difficult (see Figure 1).

              [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


    As of September 30, 2017, the Single-Employer Program had 
liabilities of $117.1 billion and assets of $106.2 billion, resulting 
in a $10.9-billion deficit, down from a $20.6-billion deficit at the 
end of FY 2016. Continued improvement in the Single-Employer Program is 
projected but not a certainty.\1\
---------------------------------------------------------------------------
    \1\ PBGC uses stochastic modeling that produces a probability 
distribution of potential outcomes for the future financial condition 
of PBGC's two insurance programs. The FY 2016 Projections Report 
continues to show a wide range of potential outcomes.

    In sharp contrast, the Multiemployer Program had liabilities of 
$67.3 billion and assets of only $2.3 billion, resulting in a deficit 
of about $65 billion. The Multiemployer Program is projected to fail in 
just a few years, and without action, the changes required to remedy 
the deficit become increasingly difficult.
                         multiemployer program
    PBGC's Multiemployer Program provides financial assistance to 
multiemployer plans that have run out of money so that they can pay 
benefits at PBGC guaranteed levels.\2\ The program is funded by 
premiums paid by the plans. Our financial assistance is technically a 
loan to the insolvent plan. But because the plans have already run out 
of money, repayment of financial assistance loans is highly unlikely. 
To date, only one loan has been repaid, and that loan was made in the 
circumstance of a plan having a temporary financial need rather than a 
permanent need.
---------------------------------------------------------------------------
    \2\ Financial assistance also covers reasonable administrative 
expenses.

    PBGC's FY 2016 Projections Report shows a projected FY 2026 year-
end mean deficit of about $78 billion (in nominal dollars) in the 
Multiemployer Program, even assuming that some plans use benefit 
suspensions and partitions as allowed under the Multiemployer Pension 
---------------------------------------------------------------------------
Reform Act of 2014 (MPRA) to avoid insolvency (see Figure 2 below).

              [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


    The assets and income of PBGC's Multiemployer Program are only a 
small fraction of the amounts PBGC will need to support the guaranteed 
benefits of participants in plans expected to become insolvent during 
the next decade. Projections show that the Program is more likely than 
not to become insolvent by the end of FY 2025, absent changes in law 
(see Figure 3 below).

              [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


    As insolvency of the insurance program grows closer, the changes 
required to prevent insolvency become more disruptive.
                          multiemployer plans
    A multiemployer plan is a pension plan maintained through a 
collective bargaining agreement between employers and a union. The 
employers are usually in the same or related industries. Multiemployer 
plans provide benefits for people in industries such as transportation, 
construction, mining, and hospitality.

    Multiemployer plans have provided retirement benefits to millions 
of American workers for more than half a century. Today, America's 
1,400 multiemployer plans provide retirement security to more than 10 
million participants and their families.

    There are multiemployer plans and participants in every State. 
Multiemployer plans range in size from small local plans with a hundred 
or fewer participants to large national plans covering hundreds of 
thousands of participants. Businesses of all sizes, including hundreds 
of thousands of small businesses--doing business in every State--
participate in multiemployer plans.

    Multiemployer plans provide pension portability, allowing workers 
to accumulate benefits earned for service with different employers 
throughout their careers. They pool longevity risk, which provides much 
lower-cost annuities than those available in the individual market, and 
they spread the risk of any individual employer's failure across many 
firms.
Benefits to Employers
    Among the advantages of this type of plan is that assets are pooled 
among employers in a single consolidated trust. Efficiencies of scale 
broaden and diversify investment opportunities and lessen the 
administrative and investment costs of operating a separate single-
employer plan. Investment professionals manage the plans' assets, 
helping to reduce risks for contributing employers, employees, and 
retirees.
Importance to Small Businesses
    Multiemployer plans enable employers to provide retirement benefits 
to their employees without imposing administrative burdens on any 
individual employer. Employers generally need only to remit 
contributions set by collective bargaining and are relieved from the 
responsibilities of operating a plan, which are handled by an 
independent joint board of trustees, consisting of equal 
representatives from labor and management. Consequently, these plans 
have historically offered employers, especially small businesses, an 
affordable way to provide pensions to their employees, without the 
administrative burdens.

                  funded status of multiemployer plans
    Multiemployer plans overall are less well funded than single-
employer plans. The disparity between the funded status of single-
employer plans and multiemployer plans has existed for many years (see 
Figure 4). 

              [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

Plan Zone Status
    The Pension Protection Act of 2006 categorized multiemployer plans 
based on funded status, compliance with minimum funding standards, and 
time until likely insolvency: Endangered Status, (commonly referred to 
as ``Yellow Zone''), Seriously Endangered Status (``Orange Zone''), and 
Critical Status (``Red Zone''). The Multiemployer Pension Reform Act of 
2014 (MPRA) created a subcategory of Red Zone plans--Critical and 
Declining; these plans project that they will run out of money within 
15 to 20 years. Plans that do not fall within these categories are 
categorized as Not in Distress (``Green Zone''). Table 1 summarizes the 
criteria for each zone status.


                                 Table 1
                  Summary of Plan Zone Status Criteria
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Not in Distress (Green Zone)          - Not Yellow, Orange, or Red Zone
------------------------------------------------------------------------
Endangered (Yellow Zone)              - Plan is less than 80-percent
                                       funded or a funding deficiency is
                                       projected within 7 years.
------------------------------------------------------------------------
Seriously Endangered (Orange Zone)    - Plan is less than 80-percent
                                       funded and a funding deficiency
                                       is projected within 7 years.
------------------------------------------------------------------------
Critical (Red Zone)                   - Various alternative criteria
                                       indicating severe funding or
                                       liquidity issues--generally less
                                       than 65-percent funded ratio,
                                       insolvency projected within 5-7
                                       years, or a funding deficiency is
                                       projected within 4-10 years.
------------------------------------------------------------------------
Critical and Declining (Red Zone      - Plan is projected to become
 subset)                               insolvent within 15 years (20
                                       years if the plan is less than 80-
                                       percent funded or there is less
                                       than one active for each inactive
                                       participant).
------------------------------------------------------------------------


    The majority of multiemployer plan participants are in Green Zone 
plans. A significant minority of multiemployer plans--about 130 plans, 
some very large--covering 1.3 million participants, are in Critical and 
Declining Status (see Figure 5). The underfunding in Critical and 
Declining plans totals about $100 billion on a market basis.

              [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

Causes of Multiemployer Plan Underfunding
    Lower funding levels in multiemployer plans in part reflect the 
less stringent funding rules that have always applied to multiemployer 
plans. For many years, multiemployer plans were widely considered to be 
inherently more financially stable than single-employer plans because 
they rely on contributions from many employers, unlike single-employer 
plans that generally rely on one employer. If an employer failed, 
others were there to make contributions to fund the promised benefits. 
Perhaps because risks were pooled in this way, the law allowed plans to 
take more time to pay down underfunding created by benefit improvements 
or adverse experience, such as investment returns that were lower than 
anticipated or industry declines.

    Many other factors--financial, economic, and demographic--also have 
contributed to underfunding in multiemployer plans and the financial 
distress of some multiemployer plans.

    Before the decade of the 2000s, defined benefit plans, including 
multiemployer plans, earned historically high rates of return, which 
kept plans well-funded without large employer contributions. High 
investment returns financed benefit improvements, such as increased 
benefit accrual rates, past service credit, new or increased early 
retirement subsidies, and disability pensions.\3\ These new obligations 
elevated plan liabilities in the late 1990s in a way that was difficult 
to reduce later.
---------------------------------------------------------------------------
    \3\ Because of maximum deductible limits, some plans increased 
benefits during this period to avoid losing deductible treatment of 
employer contributions for Federal income tax purposes, which also 
contributed to longer-term cost. These limits were raised in the 
Pension Protection Act of 2006.

    The significant market losses in the early 2000s and especially in 
the 2008 market crisis and Great Recession took a huge toll. Average 
funded ratios (market value of assets divided by liabilities discounted 
using a standardized PBGC interest factor that reflects group annuity 
prices) exceeded 90 percent in the 1990s, then dropped to the mid-60-
percent range in the mid-2000s and fell below 50 percent after the 2008 
---------------------------------------------------------------------------
market crisis.

    Even before the 2008 market crisis, Congress recognized the 
seriousness of multiemployer plan underfunding and enacted the Pension 
Protection Act of 2006 (PPA). Under PPA, plans classified as Critical 
Status (Red Zone) generally must establish a Rehabilitation Plan 
detailing how they intend to emerge from Critical Status (generally 
within 10-13 years), through actions such as increasing contributions 
and reducing or eliminating future accruals or adjustable benefits. If 
they are not projected to emerge from Critical Status during the 
rehabilitation period after exhausting all reasonable measures, they 
must develop an alternative scenario that allows them to emerge at a 
later time or to otherwise forestall possible insolvency.

    A significant number of plans were not able to recover, including 
some very large plans covering thousands of participants and in a few 
cases hundreds of thousands. As the financial markets and the economy 
improved, many plans became better funded, and the percentage of 
participants in plans that were Not in Distress (Green Zone plans) 
increased markedly. But the percentage of participants in Critical 
Status plans declined only slightly, reflecting the stagnant or 
shrinking contribution base and high percentages of retirees that 
characterize struggling plans (see Figure 6). About one-third of the 
participants in Critical Status plans are in Critical and Declining 
Status plans.

              [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


    Factors such as declines in unionized employment, competitive 
pressures from non-unionized businesses, and declines in demand for 
products or services, caused some companies to go out of business. They 
left behind the unfunded benefits of their inactive and retired workers 
(sometimes referred to as orphan liabilities).

    Today, the ratio of active to inactive participants is at its 
lowest point ever. Among multiemployer plans in the aggregate, fewer 
than 4 out of every 10 covered participants are actively employed by a 
participating employer.\4\ In addition, contributions by downsized 
companies that remained in business declined.
---------------------------------------------------------------------------
    \4\ Active participants account for about 35 percent, separated 
vested participants about 35 percent, and retired participants about 30 
percent.

    As underfunding in these plans deepens, remaining employers are 
faced with a difficult choice: higher contributions if they stay; 
higher payments for their allocated share of plan underfunding 
withdrawal liability if they leave (withdrawal liability). And if they 
do leave, the plan will be at greater risk of failure.
Contagion
    Some have asked whether the failure of a multiemployer plan could 
cause failure of other multiemployer plans in which the affected 
employers also participate (``contagion''). This situation would most 
likely occur as a consequence of the insolvency of a very large plan. 
We have not yet experienced the failure of a very large plan, so it is 
too early to test the contagion theory, but it seems plausible. Some 
also have asked whether failure of an employer that contributes to more 
than one multiemployer plan could lead to failure of multiple plans 
(another type of contagion). This would most likely occur as a 
consequence of the failure of a company that is a dominant employer in 
multiple plans. Here also the theory seems plausible. We are aware of 
at least one instance where bankruptcy of a major contributor to 
multiple plans put financial stresses on those plans.
Severity of the Problem
    PBGC's Financial Statements \5\ reflect the serious underfunding in 
multiemployer plans that are in financial distress. Our Projections 
Report \6\ shows how this underfunding is likely to result in a growing 
deficit and, more important, the inability of the Multiemployer Program 
to provide the financial assistance to cover guaranteed benefits.
---------------------------------------------------------------------------
    \5\ PBGC FY 2017 Annual Report: https://www.pbgc.gov/sites/default/
files/pbgc-annual-report-2017.pdf.
    \6\ PBGC FY 2016 Projections Report: https://www.pbgc.gov/sites/
default/files/fy-2016-projections-report-final-signed.pdf.

    In FY 2017, PBGC paid $141 million in financial assistance to 72 
insolvent multiemployer pension plans, covering the benefits of over 
63,000 retirees with another 30,000 people entitled to benefits once 
they retire. In the coming years, the demand for financial assistance 
from PBGC will increase as more and larger multiemployer plans run out 
of money and need help to provide benefits at the guarantee level set 
---------------------------------------------------------------------------
by law.

    As of September 30, 2017, the Multiemployer Program had assets of 
$2.3 billion to cover $67.3 billion in liabilities in 187 plans. The 
liabilities \7\ consist of:
---------------------------------------------------------------------------
    \7\ The liabilities add to $65.4 billion rather than $67.3 billion 
due to rounding.

          $2.7 billion for the 72 plans currently receiving financial 
---------------------------------------------------------------------------
        assistance (about 93,000 participants).

          $2.0 billion for 68 plans that have terminated but have not 
        yet started receiving financial assistance payments from PBGC 
        (about 78,000 participants). Terminated multiemployer plans no 
        longer have employers making regular contributions for covered 
        work, though some plans continue to receive withdrawal 
        liability payments from withdrawn employers.

          $62.7 billion for 47 plans that are ongoing (i.e., have not 
        terminated), but PBGC expects they will exhaust plan assets and 
        need financial assistance within 10 years (about 1,160,000 
        participants).\8\
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    \8\ The liability for ongoing plans includes a small probable bulk 
reserve of $1.1 billion.

    The last two categories--terminated plans and ongoing plans 
expected to need financial assistance within 10 years--are classified 
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as ``probable'' obligations of the Multiemployer Program.

    The $67.3 billion in Multiemployer Program liability is an increase 
from $61.0 billion in FY 2016. In addition to the $67.3 billion booked 
as a liability in our financial statements, there is $14 billion in 
underfunding in ongoing multiemployer plans projected to become 
insolvent in the next 10 to 20 years; these plans, which are not booked 
as liabilities, are classified as ``reasonably possible'' future 
obligations.

    As noted earlier, our most recent projections show that, absent a 
change in law, the mean 2026 deficit is about $78 billion (in nominal 
dollars), and Multiemployer Program assets are likely to be exhausted 
in 2025.\9\
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    \9\ PBGC FY 2016 Projections Report: https://www.pbgc.gov/sites/
default/files/fy-2016-projections-report-final-signed.pdf.
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      helping plans avoid insolvency: previous legislative efforts
    Congress enacted two pieces of legislation to address underfunding 
in multiemployer plans: the Pension Protection Act of 2006 (PPA), 
discussed earlier, and more recently, the Multiemployer Pension Reform 
Act of 2014 (MPRA).

    MPRA defined a subcategory of Critical Status plans that are 
``Critical and Declining.'' These are Critical Status plans whose 
actuaries project that plan insolvency will occur within the current 
plan year or any of the 14 succeeding plan years (or in certain 
situations, within 19 succeeding plan years).

    MPRA gives the trustees of Critical and Declining plans additional 
options to address the risk of insolvency. Under MPRA, Critical and 
Declining plans may take steps to improve long-term solvency by 
reducing benefit promises to participants and beneficiaries if they 
meet certain requirements, including application to and approval by the 
Department of the Treasury.\10\ MPRA permits participants' benefits to 
be reduced to 110 percent of the PBGC guaranteed amount, subject to 
statutory protections that prohibit or limit reductions for 
participants who are disabled or elderly. These statutory protections 
from MPRA benefit cuts for the disabled and elderly do not extend to 
insolvent plans that receive financial assistance from PBGC.
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    \10\ Prior to MPRA, reduction of benefits already accrued was 
generally prohibited by the ``anti-cutback rule.''

    MPRA also changes PBGC's ability to provide early financial 
assistance to plans, either by assuming part of the plan's liabilities 
via a plan partition or by providing assistance to facilitate a merger. 
To receive partition assistance, the plan must take all reasonable 
measures to avoid insolvency including the maximum benefit reductions 
allowed by MPRA (i.e., reduction to 110 percent of the PBGC guarantee, 
---------------------------------------------------------------------------
with the MPRA protections for the disabled and elderly), if applicable.

    Mergers can stabilize or increase the base of contributing 
employers, combine plans' assets for more efficient investing, and 
reduce plans' administrative costs. Under MPRA, PBGC is authorized to 
help plans merge with other multiemployer plans. Plans may request 
technical assistance, and Critical and Declining plans may also apply 
for financial assistance to facilitate a merger, if necessary to avoid 
plan insolvency. Importantly, a partition, or any facilitated merger, 
must reduce PBGC's expected long-term loss and cannot impair its 
ability to provide financial assistance to meet existing obligations to 
other plans.

    To date, 19 troubled plans have applied for benefit reductions, 
with five also seeking financial assistance from PBGC in the form of a 
partition to remain solvent. One joint application for a suspension and 
partition, and three applications to reduce benefits (without 
partition), have received all the required approvals and authorizations 
to proceed. One suspension-only application has been approved, with 
authorization to implement the suspension dependent on a participant 
vote. Two joint 
suspension-partition applications and four suspension-only applications 
are under review.

    MPRA can help some Critical and Declining plans but cannot help all 
of them. In some cases, underfunding is so large relative to future 
cash inflows that benefit suspensions and partition cannot keep the 
plan solvent long-term.

    The United Furniture Workers Pension Plan A is an example of a plan 
that is helped by MPRA. The Road Carriers Local 707 Pension Fund is an 
example of a plan for which MPRA could not work because of the plan's 
severe underfunding and inadequate projected cash inflows. Outcomes for 
both plans are described below.
United Furniture Workers Pension Plan A
    The United Furniture Workers Pension Plan A (``UFW Fund''), based 
in Nashville, TN, is using MPRA to avoid plan insolvency. In August 
2017, PBGC approved the partition of the plan in conjunction with 
approval by Treasury of benefit suspension under MPRA. This was the 
first MPRA partition approved by PBGC. With this early financial 
assistance from PBGC, along with required benefit reductions, the UFW 
Fund is projected to avoid insolvency and pay benefits above the 
guarantee level to nearly 10,000 participants and beneficiaries over 
the long term. Under the law, benefits of approximately 7,100 
participants and beneficiaries were not reduced, because MPRA includes 
statutory limitations that protect against cuts for certain 
participants and beneficiaries based on age, disability status (as 
defined by the plan), and whether benefits are not more than 10 percent 
greater than PBGC guarantees would provide. The remaining approximately 
2,800 participants will see future benefit reductions to 110 percent of 
the PBGC guaranteed amount, averaging a 12.7 percent cut in benefits.
Road Carriers Local 707 Pension Fund
    The Road Carriers Local 707 Pension Fund (``707 Fund''), which is 
based in Hempstead, NY and covers nearly 5,000 participants, was unable 
to use MPRA to avoid insolvency. The 707 Fund applied for a MPRA 
benefit suspension and a PBGC partition in order to preserve benefit 
payments above PBGC guarantee levels. But projected future 
contributions and other income were insufficient to avoid insolvency, 
even with the maximum benefit reductions allowed under MPRA and a PBGC 
partition.

    As a result, the 707 Fund became insolvent early in 2017, and PBGC 
began providing financial assistance to the plan to cover benefits at 
PBGC guaranteed levels.\11\ For nearly one-half of all 5,000 
participants in the plan, the guarantee covers less than 50 percent of 
the benefits earned.
---------------------------------------------------------------------------
    \11\ News release: ``PBGC Provides Financial Assistance to Road 
Carriers Local 707 Pension Fund--Participants' Benefits Payments Cut to 
PBGC Guaranteed Levels,'' https://www.
pbgc.gov/news/press/releases/pr17-02.

    The red area in Figure 7 below shows the benefit losses for the 707 
Fund's 3,000 retired participants as a result of the plan insolvency 
(approximately one-third experienced benefit cuts of over 50 percent). 
The green area shows what PBGC will pay as long as we have sufficient 
---------------------------------------------------------------------------
assets to pay the current guarantee.

    The benefit losses will result in hardship for many of the plan's 
participants and beneficiaries. There also will be economic effects 
that go beyond these individuals and their families. They will have 
less money to spend in the local economy and they will pay less in 
Federal and State income taxes. In some cases, they will need to rely 
on social programs to provide basic needs that they previously had paid 
for with their earned pension benefits.

              [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


    Where MPRA is a viable option, the degree to which plans will 
attempt to extend solvency through requests for benefit reductions and 
early financial assistance remains unknown.
Outlook for PBGC Multiemployer Program
    In modeling projected insolvency dates and deficits for the 
Multiemployer Program, PBGC looked at scenarios where some plans use 
MPRA benefit suspensions or early financial assistance and where no 
plans used such MPRA tools. The mean year for Multiemployer Program 
insolvency was FY 2025 in both scenarios. The mean FY 2026 deficit in 
nominal dollars differed only slightly by scenario--$77.8 billion with 
MPRA and $78.8 billion without use of MPRA.
            consequences of multiemployer program insolvency
    Insolvency of the Multiemployer Program will dramatically reduce 
the already relatively low guarantee for multiemployer plan 
participants. Under current law, when Multiemployer Program assets are 
exhausted, the only money available to provide financial assistance for 
benefit payments will be incoming multiemployer premiums. Multiemployer 
premium income in FY 2017 was under $300 million, and the annual 
premium rate, $28 per participant for 2017 and 2018 plan years, will 
increase only by indexing.

    The Multiemployer Program will soon be spending more in financial 
assistance than it receives in premium income. Funds in the 
Multiemployer Program will represent only a small fraction of the 
amount required for current guarantee levels. Under the program's 
authorizing legislation,\12\ PBGC would submit to Congress, in advance 
of Multiemployer Program insolvency, a schedule of reduced basic-
benefit guarantees which would be necessary in the absence of a premium 
increase. Such reduced guarantees would result in participants in 
failed multiemployer plans, receiving a very small fraction--an eighth 
or less, on average--of the current guarantee level, no matter when 
their plan became insolvent.
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    \12\ ERISA section 4022A(f)(2).

    Even if the Multiemployer Program were adequately funded, a 
remaining challenge to benefit security is the guarantee for 
multiemployer plans. Multiemployer guarantees are much lower than 
single-employer guarantees. The multiemployer guarantee has not 
increased since 2001 and is not indexed for inflation. For example, the 
maximum guaranteed benefit for a retiree with 30 years of service is 
$12,870 annually. In contrast the maximum guaranteed benefit for a 
retiree in a single-employer plan is $65,045 annually. The Single-
Employer guarantee is indexed for inflation. The single-employer 
guarantee typically protects full benefits of approximately 85 percent 
of participants in terminated plans. While the multiemployer guarantee 
has provided similar protection in the past, lack of indexing has 
eroded severely the value of the guarantee.
                          need for legislation
    We work with troubled multiemployer plans and their sponsors who 
come to us seeking to prevent plan insolvency. We provide advice and 
assist them in whatever way we can. But the tools PBGC has to address 
the multiemployer crisis are very limited. We have been working with 
stakeholders and policy makers to find new ideas for shoring up the 
program.

    Legislation is needed to address the looming insolvency of PBGC's 
Multiemployer Program and again make the PBGC guarantee something 
American workers and retirees, and their families, can count on. A 
number of proposals have been put forward. Some are designed to help 
plans avoid insolvency and thus help PBGC indirectly. Others are 
designed to help PBGC avoid insolvency.

    The President's FY 2019 budget includes a proposal to shore up the 
PBGC's Multiemployer Program. The budget proposes adding a variable-
rate premium on unfunded benefits, similar to the Single-Employer 
Program, with provision for waiver to avoid accelerating insolvency in 
the most troubled plans. The proposal also includes an exit premium on 
companies that withdraw from multiemployer plans. The proposal is 
estimated to raise an additional $16 billion over the 10-year budget 
window and is expected to be sufficient to fund the Multiemployer 
program for the next 20 years. However, additional actions may be 
necessary to address all the problems facing the broader multiemployer 
plan system.
                               conclusion
    While the Single-Employer Program is improving, the Multiemployer 
Program is headed toward insolvency--more likely than not by the end of 
2025.

    If the PBGC Multiemployer Program is allowed to become insolvent, 
the only money available to provide guaranteed benefits will be 
incoming premiums. Only a small fraction of the current, very modest 
guarantee will then be funded. The result will be catastrophic for many 
people--current and former workers, retirees, beneficiaries, and their 
families. These losses have consequences beyond the immediate parties, 
increasing demands on social programs. Employers are also concerned and 
are pushing for action to prevent further damage in the system.

    As more time passes, it is increasingly difficult to craft a 
solution that can be viewed as fair, or that is even viable.

    I appreciate the leadership of the members of this committee in 
addressing the challenges faced by multiemployer plans and the PBGC 
Multiemployer Program. I look forward to continuing to work with you to 
ensure that PBGC's guarantee is one that workers and retirees can count 
on in the future.

    I am happy to answer any questions.

                                   [all]