[Joint House and Senate Hearing, 115 Congress]
[From the U.S. Government Publishing Office]
S. Hrg. 115-719
EMPLOYER PERSPECTIVES ON
MULTIEMPLOYER PENSION PLANS
=======================================================================
HEARING
before the
JOINT SELECT COMMITTEE
ON SOLVENCY OF
MULTIEMPLOYER PENSION PLANS
UNITED STATES CONGRESS
ONE HUNDRED FIFTEENTH CONGRESS
SECOND SESSION
__________
JUNE 13, 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
38-499-PDF WASHINGTON : 2019
JOINT SELECT COMMITTEE ON SOLVENCY OF
MULTIEMPLOYER PENSION PLANS
Sen. ORRIN G. HATCH, Utah, Co-Chairman
Sen. SHERROD BROWN, Ohio, Co-Chairman
Rep. VIRGINIA FOXX, North Carolina Rep. RICHARD E. NEAL,
Sen. LAMAR ALEXANDER, Tennessee Massachusetts
Rep. PHIL ROE, Tennessee Sen. JOE MANCHIN III, West
Sen. ROB PORTMAN, Ohio Virginia
Rep. VERN BUCHANAN, Florida Rep. BOBBY SCOTT, Virginia
Sen. MIKE CRAPO, Idaho Sen. HEIDI HEITKAMP, North Dakota
Rep. DAVID SCHWEIKERT, Arizona Rep. DONALD NORCROSS, New Jersey
Sen. TINA SMITH, Minnesota
Rep. DEBBIE DINGELL, Michigan
(ii)
C O N T E N T S
----------
OPENING STATEMENTS
Page
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.......................................................... 4
WITNESSES
Langan, Christopher, vice president of finance, UPS, Atlanta, GA. 6
Wong, Aliya, executive director of retirement policy, U.S.
Chamber of Commerce, Washington, DC............................ 8
Moorkamp, Mary, chief legal and external affairs officer, Schnuck
Markets, Inc., Saint Louis, MO................................. 10
Blackman, Burke, president, Egger Steel Company, Sioux Falls, SD. 12
ALPHABETICAL LISTING AND APPENDIX MATERIAL
Blackman, Burke:
Testimony.................................................... 12
Prepared statement........................................... 39
Brown, Hon. Sherrod:
Opening statement............................................ 1
Prepared statement........................................... 43
Hatch, Hon. Orrin G.:
Opening statement............................................ 4
Prepared statement........................................... 45
Langan, Christopher:
Testimony.................................................... 6
Prepared statement........................................... 46
Moorkamp, Mary:
Testimony.................................................... 10
Prepared statement........................................... 51
Neal, Hon. Richard E.:
``Multiemployer Pension Reform Principles 2018''............. 56
Scott, Hon. Bobby:
Letter to Co-Chairmen Hatch and Brown from Rep. Tonko et al.,
May 31, 2018............................................... 57
Wong, Aliya:
Testimony.................................................... 8
Prepared statement with attachments.......................... 58
Communications
American Bakers Association...................................... 103
ArcBest Corporation.............................................. 105
Johnson, James E................................................. 107
Nadolinski, David................................................ 107
Noon, Thomas A................................................... 109
Skrabacz, Mary Lynn.............................................. 110
Strebe, Michael R................................................ 112
Trzybinski, Dr. Irene............................................ 117
EMPLOYER PERSPECTIVES ON MULTIEMPLOYER PENSION PLANS
----------
WEDNESDAY, JUNE 13, 2018
U.S. Congress,
Joint Select Committee on Solvency of
Multiemployer Pension Plans,
Washington, DC.
The hearing was convened, pursuant to notice, at 2:18 p.m.,
in room SD-215, Dirksen Senate Office Building, Hon. Sherrod
Brown (co-chairman of the committee) presiding.
Present: Senator Hatch, Representative Foxx, Senator
Alexander, Representative Roe, Senator Portman, Representative
Buchanan, Senator Crapo, Representative Schweikert,
Representative Neal, Senator Manchin, Representative Scott,
Senator Heitkamp, Representative Norcross, Senator Smith, and
Representative Dingell.
Also present: Republican staff: Chris Allen, Senior Advisor
for Benefits and Exempt Organizations for Co-Chairman Hatch.
Democratic staff: Gideon Bragin, Senior Policy Advisor for Co-
Chairman Brown.
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. The Committee on Solvency of
Multiemployer Pension Plans will come to order.
Senator Hatch will be here in a moment. He asked that I
begin. And I hope he is here by the time he can introduce the
panel. And then if not, I will introduce them and we will begin
then, and Senator Hatch will make his opening statement.
Thank you all for joining us today again, as always. This
is the third hearing of the Joint Select Committee on
Multiemployer Pension Reform. We know our job on this
committee: to find a bipartisan solution to the crisis
threatening 1.3 million Americans and thousands of small
businesses across this country.
This job is essential. We know what happens--and I know
this panel today will help us paint a picture of what happens
if we do not do our jobs here. And this committee was put
together to be as bipartisan as possible.
In the end, as I think you panelists know, we need five
Republicans and five Democrats to come to the table and support
whatever this committee recommends. It is what Chairman Hatch
and I have set out to do. I thank him for his work, and I thank
all the members of this committee. I have spoken with all of
you. I appreciate the seriousness with which each of you is
approaching this task.
Chairman Hatch and I decided from the outset to use this
initial period to educate ourselves and our colleagues about
this complex issue and the broad impact on people whom we
serve.
We have made real progress. This will be our third actual
hearing. We have three more hearings scheduled. We have
assembled a committee staff made up of top people from the
PBGC, the Department of Labor, and from offices here and staff
here. Staff is working to provide us with the critical
technical information that members of this committee require in
deepening and broadening their expertise on this subject.
Congressman Buchanan and I just spoke about more
interaction, formally and informally, among the group of us as
principals. We are all open to that. In general, we are
convening a dozen staff briefings, half of which have already
taken place. We have received hundreds of comments online at
pensions.senate.gov.
One of our witnesses today came to our attention when he
wrote in to the committee. Thank you for that.
As I said, we will hold two more hearings in Washington,
one more in the field, where the workers and business people
and retirees will have the chance to weigh in. By the end of
July, it will be time to take what we have learned through this
process and get serious about the actual negotiations of an end
product--it is what it will take to address this.
We all have to put talking points and biases and political
parties aside. We have to take what we are learning to craft a
bipartisan solution. Senator Hatch and I are absolutely
committed to that, because--as we will hear today--not passing
a solution to this crisis is simply not an option for our
retirees, for our businesses, for the PBGC, for our companies,
for our economy, for our country. It is not an option for the
millions of Americans who are part of these multiemployer
pensions. It is not an option for the millions more who will be
affected if the system falls apart. It is not an option for the
hundreds, actually thousands of employers and their employees
whose entire business is at stake.
We have heard a lot over the past year about the very real
threat to retirees who have paid into these pensions over a
lifetime of work. Many have talked to many of us on this
committee. I would say all 16 of us have talked to retirees and
heard their stories.
It is because of their activism--and I absolutely credit
them--their refusal to give up was the reason this committee
was created in the first place. And I applaud them for that.
But the threat to current workers and to small businesses
and our economy as a whole is equally real. If the
multiemployer pension system collapses, it will not just be
retirees who feel the pain. Current workers will be stuck
paying into pensions they might never receive. Small businesses
will be left drowning in pension liability that they cannot
afford. And that will have ripple effects through our economy.
Small businesses that have been in the family for
generations--I hear from dozens of those in my State alone--
could face bankruptcy. Workers will lose jobs as businesses are
forced to close shop. These businesses are already feeling the
effects of this crisis. Uncertainty surrounding their future
threatens their access to credit, their ability to invest in
their own businesses, and their decisions about whether to
expand and create jobs. That is why this issue cuts across
party lines, across ideological lines, through every region of
the country.
One of the reasons we have heard more from workers than
from businesses is that retirees are more free to speak their
minds. But we need to think about the plight of these small-
business owners. And this is crucial: if they speak publicly
about fearing their business could go bankrupt, it would alarm
their customers, it would scare their employees, and it might
chase away their creditors. So I want to thank the witnesses
here today for speaking for the thousands of small-business
people who think they cannot.
You represent businesses that by and large have done
everything right. These businesses joined multiemployer pension
plans to do right by their employees. They thought they were
guaranteeing their workers a secure retirement, making their
business an attractive place to work. They followed the rules
set by Congress. They kept doing the work to make their
businesses thrive; they kept contributing to the pension plan.
Now these employers are being punished for succeeding where
their competitors failed and for living up to their obligations
when so many have walked away.
Meanwhile, it was Congress that passed upside-down tax
incentives and required insufficient premium levels. Congress
allowed inadequate tools and financing for the PBGC. It was
that government regulation that allowed this crisis to fester;
it is our responsibility to clean up the mess Congress helped
make. And that means more than the simple act--the simple, but
inadequate act--of increasing PBGC premiums and marginally
improving the minuscule PBGC guarantee. I do not oppose that,
but that proposal is far too insufficient.
Businesses and the groups that represent them all agree
that saving the PBGC alone does not help anyone. Retirees will
still see dramatic cuts to their pension, workers will still
pay into a retirement they may never see, and businesses will
face increased PBGC premiums while a crippling liability still
hangs over those businesses' heads.
I am confident we will find a bipartisan solution that will
solve this current crisis and improve and strengthen the system
so it never happens again. I am willing to consider--as I know
Senator Hatch has told me--any idea that meets these goals.
[The prepared statement of Co-Chairman Brown appears in the
appendix.]
Co-Chairman Brown. I will introduce the panel. Senator
Hatch should be here in a moment, and we will begin the
testimony.
Our first witness is Chris Langan, vice president of
finance at UPS. Mr. Langan began his 37-year career with UPS as
a part-time employee loading package cars at night. He spent
the last 15 years working as the finance representative for
UPS's union labor negotiations. He currently serves as a
trustee in the Western Conference of Teamsters Pension Trust.
He also serves as co-chair on the jointly trusteed UPS/IBT
full-time employee pension and the UPS Teamsters national
401(k) savings plan with combined assets of over $20 billion.
Welcome, Mr. Langan. Thank you for joining us.
Our next witness is Aliya Wong. Ms. Wong is the executive
director of retirement policy at the U.S. Chamber of Commerce.
In this position, she is responsible for developing, promoting,
and publicizing the Chamber's policy on employer-provided
security plans, nonqualified deferred compensation, and Social
Security.
Welcome, Ms. Wong. Thank you for joining us.
Our third witness is Mary Moorkamp. Ms. Moorkamp is the
chief legal and external affairs officer and corporate
secretary for Schnuck Markets, Inc.
Thank you for joining us, Ms. Moorkamp.
And our final witness is Mr. Burke Blackman, president,
Egger Steel Company in Sioux Falls, SD. Founded in 1946, Egger
Steel is a third-generation, family-owned steel fabricator that
serves the upper Midwest. Mr. Blackman joined Egger Steel
Company in 2002 as vice president of operations. He has served
as vice president of finance before becoming president. He has
several years of finance experience in the securities trading,
mutual fund, and venture capital industries.
Welcome, Mr. Blackman.
Pending the chairman's arrival--okay, he is 1 minute away,
and I will wait until he makes his opening statements.
And then, Mr. Langan, you can proceed. But hang on a
second.
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. Sorry I was a little late here.
I would just say, good afternoon and welcome to today's
hearing.
Today we continue our informational hearings on the
multiemployer pension system. We have brought in business
representatives to provide their perspectives on issues with
the defined benefit system in order to better understand the
realities employers face participating in the multiemployer
system.
We will delve into some fundamental questions, including
why employers entered into collective bargaining contracts to
participate in these plans to begin with, how participation
affects a business's ability to operate as a going concern, and
how the financial condition of these plans affects their
ability to access credit, invest in new facilities and
equipment, expand operations, and hire new employees.
Before I proceed, I want to provide a brief update on the
activities of the Joint Select Committee. The committee is
operating on several tracks. We have the outward-facing process
of the hearings, which have been useful to better understand
the issues confronting the committee. Committee staff have also
held a number of briefings on a wide variety of technical
issues in the multiemployer area, including topics that will be
touched upon today, such as the impact of withdrawal liability
and the operation of the bankruptcy laws in the multiemployer
space.
The committee is also working on a range of possible policy
options for review. And we continue to develop and evaluate
these options, working with the PBGC, our in-house experts, and
other agency officials to put some flesh on the bones of these
ideas.
I remain open as to what the committee may consider later
this year. And my co-chair, Senator Brown--and I am grateful he
started this off on time--has similarly expressed openness. I
also know that there are members of this committee who are
actively working on proposals which they may put forward after
fully analyzing their ideas.
But with all of that said, there remains a lot of work to
do. And I think I should be clear that I do not see our choices
as being limited to a referendum on some sort of loan program.
I bring this up because some prior comments have indicated to
me that some of my friends have become convinced that we are
stuck with a loan-or-nothing choice. I have a few thoughts
about that.
First, some of us have genuine concerns and questions about
the nature of the proposed loan programs, which have yet to be
fully analyzed. And a major question remains: what is the
limiting principle on risk to the American taxpayer?
Multiemployer plans are private arrangements between
employers and unions covering wage compensation and fringe
benefits. Yes, they are shaped to some degree by the tax and
pension laws, but so are defined contribution plans and other
pension arrangements, as well as a whole host of other
financial arrangements in the private sector.
It is clear that the employer and union participants
entered into these contracts with an understanding of the terms
and conditions that should have allowed them to manage these
obligations in a way that would ensure their financial
viability. And although Federal actions over the last 50 years
have helped shape where these plans stand today, the
arrangements are, at their core, privately bargained-for
contracts negotiated without the Federal Government's input.
And candidly, the vast majority of Federal taxpayers have no
financial interest in these plans.
So let us be diligent and methodical as we approach these
issues and negotiate solutions. I want to be sure that we are
mindful of all of the consequences of our approach, intended or
not, so that we can prevent future failures, mismanagement of
taxpayer dollars, and the economic dangers of moral hazard.
We need to learn from our mistakes and do better here.
Now, none of what I am saying is to dismiss the real
concerns of participants, including active workers and retirees
who face real hardship as these plans decline and even fail. As
a former skilled union member--and I did learn a skilled trade
and practiced it as a full journeyman--I understand these
perspectives, and I recognize that the difficult, but necessary
choices we have to make as this committee will affect real
people with real families. But I also know that real people who
are currently employed and paying taxes are also affected by
the decisions these businesses have to make.
And the difficulty businesses encounter because of the
current condition of these pension plans is sometimes bizarre,
if not ludicrous. As just one example, it is alarming, as we
will hear today, to learn that the estimates of withdrawal
liability frequently exceed the book value of the sponsoring
companies. And that some companies will testify there is a real
fight to get out from underneath the burdens of pension
liability for employees who were never even employed, let alone
received a pay packet.
It is truly a complicated issue, one that requires us to
move thoughtfully instead of jumping to conclusions to score
political points. That is why I look forward to exploring these
issues in-depth today and beyond and am pleased by our
witnesses today, who will share with us their views on these
matters.
With that, let us get going with the testimony. I am glad
that Senator Brown has done such a good job and introduced all
of our witnesses here today.
So we will just begin with our witnesses.
[The prepared statement of Co-Chairman Hatch appears in the
appendix.]
Co-Chairman Brown. Mr. Langan, would you, please? Thank
you.
Thank you, Orrin.
STATEMENT OF CHRISTOPHER LANGAN,
VICE PRESIDENT OF FINANCE, UPS, ATLANTA, GA
Mr. Langan. Good afternoon. My name is Chris Langan. I have
been with UPS for 37 years, and I am currently a vice president
of finance. I would like to thank the committee for the
opportunity to speak with you today.
Over the past 15 years, I have been deeply involved in the
multiemployer community as a trustee and advocate for
legislative change. As you have heard in previous testimony,
multiemployer pension plans are critically important to over 10
million American participants and thousands of contributing
employers.
The challenges facing multiemployer plans are not new.
Since the tech bubble in 2002, the system has been strained,
and the 2008 recession compounded their demographic problems.
The bipartisan Pension Protection Act of 2006, or PPA,
included the creation of the green, yellow, and red zones and,
for the most part, worked to stabilize the system and cure
funding issues.
Unfortunately, no one predicted the market declines of
2008.
We are here today to find solutions for troubled plans that
work for all the parties involved. The issue can be broken down
into a few buckets: negative cash flow, the PBGC's role,
withdrawal liability pressures, and, lastly, the contagion
effect.
These plans simply have a math problem. Negative cash flow
in critical and declining plans cannot be fixed by investment
returns or increased employer contributions alone. As the PBGC
executive director, Mr. Thomas Reeder, testified before this
committee, these plans need a cash infusion now to remain
viable.
Some have argued that employers can just increase their
contributions to provide the necessary funding. The problem
with this idea is that critical and declining plans do not have
an employer base that can handle their higher contributions.
Raising contributions to the point of unaffordability will
cause already-struggling employers to go bankrupt and reduce
the employer base further.
Since the enactment of the PPA in 2006, most employers have
seen their contribution requirements more than double.
That leads me to my second point. The PBGC has estimated
its unfunded liabilities at over $65 billion. Many feel that
the PBGC's impending insolvency can be addressed with a
significant increase in premiums. As Mr. Reeder testified, the
agency needs $16 billion over the next 10 years just to
survive.
While increasing premiums to the PBGC sounds logical, it
can have unintended consequences. The premiums are an
administrative expense that is assessed to the plans on a per-
participant basis. The catch-22 is that plans pay premiums on
all participants, whether they have an active employer or not.
Most of the amount of the increases needed puts further strain
on the plans and, ultimately, the few remaining employers.
We believe a solution exists where financial assistance can
be provided to the plans under a structure where it will be
paid back in full. Under this structure, plans will not need to
turn to the PBGC for assistance. Premiums will not need to be
increased over 800 percent, as estimated by the CBO, to keep
the PBGC solvent. And retiree benefits will not need to be
slashed 50 to 70 percent.
The other dynamic we cannot ignore is the potential
withdrawal liability that companies face in these plans. In
many cases, it is more than the value of the company. The
small-business owner participating in the MEP system cannot
sell their business or leave it to their children. The
potential liability is impacting companies' ability to borrow
money and grow their business. Banks and investors are not
stepping in because, in many cases, the contingent liability is
greater than the value of the company.
This leads me to my last point today: the contagion effect
between healthy and unhealthy plans is real. When plans become
insolvent, they will impact the financial health of a well-
funded plan. Like many employers, UPS participates in multiple
plans across the country with many of the same employers.
I would like to pause and ask you to take a look out over
the room. Now imagine half of the room is empty. The half of
the room that is gone also participates in many different
plans. The impacted plans have just lost a significant portion
of their contribution stream.
The contagion effect has occurred right in front of your
eyes. The failure of these troubled plans will continue to put
pressure on the remaining contributing employers, the
participants, and the PBGC. Some may be skeptical of this
scenario, but the one fact you cannot argue is that once a
company is gone, they are no longer making contributions to any
plan and have left their liabilities behind. Is this a risk
worth taking?
In closing, we think there are viable solutions that can
save these troubled plans. Generally, we believe long-term,
low-interest-rate loans are a viable solution and would stop
the plans from selling assets to pay benefits, giving them an
opportunity to regain their financial strength and repay the
loan in full over time.
We believe there are ways to provide assurances that the
loans can be repaid so the taxpayers are protected as well.
Letting the system fail will increase individuals' reliance
on other government programs. The committee has an opportunity
to responsibly solve a serious problem in a bipartisan fashion.
Thank you again for the time to testify today. We look
forward to working with you in the future.
Co-Chairman Hatch. Well, thank you for your testimony.
[The prepared statement of Mr. Langan appears in the
appendix.]
Co-Chairman Hatch. Ms. Wong, we will turn to you.
STATEMENT OF ALIYA WONG, EXECUTIVE DIRECTOR OF RETIREMENT
POLICY, U.S. CHAMBER OF COMMERCE, WASHINGTON, DC
Ms. Wong. Good afternoon. I would like to thank the co-
chairs and all members of the committee for the opportunity to
testify in front of you today on the employer perspective in
multiemployer plans. I am Aliya Wong, executive director for
retirement policy for the U.S. Chamber of Commerce. Chamber
membership includes numerous contributing employers to
multiemployer plans. And as such, the Chamber has been engaged
in various legislative efforts to reform the system.
Despite the best intentions of this legislation, the
multiemployer pension crisis remains. At the end of 2017, the
Chamber issued a report that provides an overview of the
current crisis. Today, the Chamber issued a subsequent report,
``The Multiemployer Pension Crisis: Businesses and Jobs at
Risk,'' and we ask to have this report entered into the record.
[The report appears in the appendix beginning on p. 94.]
Ms. Wong. This report underscores the risks to contributing
employers, and those are the risks I wish to discuss today. To
be clear, the risks to businesses include employers not only in
declining plans, but also in healthy plans. And the job risks
impact not only union employees, but also nonunion employees.
Moreover, this is not a future crisis; it is a current crisis.
Employees and workers are being impacted today, and it will
only get worse the longer we wait.
Contributing employers are currently suffering under a
number of burdens: withdrawal liability estimates that exceed
the value of their businesses, exorbitant partial termination
withdrawal liability assessments, and high contribution rates.
These burdens are resulting in less optimal lending rates and
even the denial of credit, the inability to expand business
operations, problems with employee retention, and, in some
cases, the closure of the business.
The multiemployer crisis is today, and today it is
detrimentally impacting employers' abilities to efficiently run
a business.
Once we start to see additional plan insolvencies in the
future, these problems will multiply. Here, I would like to
stress the uncertainty of the situation. While there have been
plan insolvencies, there has been nothing on the scale of what
will happen if Central States and the Mine Workers' fund goes
insolvent. And we definitely have not experienced an insolvency
of the PBGC.
This uncertainty is paramount. Contributing employers can
try to make plans. But in reality, there are various scenarios
that are out of their control and could have a devastating
effect on their business.
In testimony before this committee, the PBGC suggested that
an insolvent plan may never terminate and employers can instead
continue to make ongoing contributions to the plan. While
continuing to pay contributions in an insolvent plan may save
an employer from short-term economic disaster, it is doubtful
that an employer can endure such high pension contributions
over the long term.
Instead, these high contributions in perpetuity could lead
to the closure of the business, filing for bankruptcy, or both.
On the other hand, if an employer decides to withdraw from
a plan, it might find itself part of a mass withdrawal if all
the other employers also decide to withdraw. Liabilities
determined under a mass withdrawal are higher than in a
standard withdrawal, and there is not a 20-year cap. Therefore,
this unexpected and expanded liability could cause a business
to end up in bankruptcy.
Further uncertainty surrounds the minimum funding rules in
an insolvent plan. Plans in critical status that adopt a
rehabilitation plan are exempt from the minimum funding rules
and corresponding excise tax. However, it is unclear how or if
these rules would apply if there is a major plan insolvency or
insolvency of the PBGC. It is possible that the IRS and the
PBGC could take an aggressive approach and reinstate the
minimum funding rules and the excise taxes.
Because the rules are unclear, employers that continue to
contribute in accordance with their rehabilitation plan post-
insolvency could be required to make up a funding deficiency
and pay excise taxes, potentially putting the employer out of
business.
Finally, I would like to discuss the contagion effect. As
mentioned, because employers contribute to more than one
multiemployer plan, there is a valid concern that the failure
of one plan, particularly a large plan, could cause other plans
to go insolvent. Further, a plan insolvency could cause an
employer to go bankrupt and, therefore, not able to make
contributions to other plans, causing those plans to go
insolvent as well.
In addition, the bankruptcy of one large employer could
also trigger a string of plan insolvencies. These scenarios are
very likely in critical and declining plans in particular,
where in a number of them over 80 percent of the contributions
are made by only one or two employers.
I would be remiss if I did not mention that there is a
growing concern from healthy plans. While the focus has
understandably been on critical and declining plans, it is also
necessary to keep healthy plans healthy. As such, we need a
comprehensive solution that addresses the entire multiemployer
plan system.
These are difficult issues, and the answers are not easy.
However, if we do not find an immediate and comprehensive
solution, there will be a devastating impact on businesses,
jobs, and the entire multiemployer plan system.
Thank you for the opportunity to testify, and I look
forward to your questions.
Co-Chairman Hatch. Well, thank you so much.
[The prepared statement of Ms. Wong appears in the
appendix.]
Co-Chairman Hatch. Senator Brown and I have to go vote,
but, Ms. Moorkamp, we will take your testimony.
And then when she is finished, we will----
Co-Chairman Brown. And all seven of us from the Senate will
be gone for probably 20 to 30 minutes. So we have your written
testimony, Ms. Moorkamp and Mr. Blackman, and we will return.
Co-Chairman Hatch. So we are taking notes, and we will go
straight----
Co-Chairman Brown. Congressman Neal, I believe, is going to
preside from our side.
Co-Chairman Hatch. I will go straight across the board. And
you are presiding over here, and Ms. Foxx will help you too.
Representative Neal. Thank you, Mr. Chairman.
Co-Chairman Hatch. Okay.
Representative Neal [presiding]. So we will proceed with
the testimony as offered.
Ms. Moorkamp?
STATEMENT OF MARY MOORKAMP, CHIEF LEGAL AND EXTERNAL AFFAIRS
OFFICER, SCHNUCK MARKETS, INC., SAINT LOUIS, MO
Ms. Moorkamp. Co-Chairman Hatch, before you leave, Co-
Chairman Brown, and members of the Joint Select Committee, I am
Mary Moorkamp. I am the chief legal and external affairs
officer for Schnuck Markets based in Saint Louis, MO. Thank you
for the opportunity to testify before you today.
My message today is simple: this committee must succeed in
its mission to solve the multiemployer funding crisis. The
consequences of failure are real and significant, not only to
retirees, but to employers, employees, and our local
communities.
To quote from the movie Apollo 13: ``Failure is not an
option.''
Schnucks is a third-generation, family-owned retail grocery
chain. We were founded in Anna Donovan Schnuck's kitchen in
1939 as a way to feed her family and neighbors during the
Depression. Nearly 80 years later, we have more than 13,000
teammates and 100 stores across five midwestern States. We are
proud of our local heritage, and our mission of nourishing
people's lives goes beyond selling groceries.
We focus on promoting health and wellness, supporting human
services such as workforce development, and reducing hunger by
partnering with food pantries to provide almost $12 million in
food annually to help feed those who might otherwise go
without.
I want to turn to the multiemployer funding crisis and how
it could jeopardize employers. While my comments focus on
Central States, the PBGC says about 130 funds are projected to
go insolvent within 20 years.
Schnucks entered Central States in 1958. This was more than
15 years before Congress enacted ERISA or the withdrawal
liability rules. So it is not that we made a bad deal; rather,
the rules were changed on us after the fact.
Our contribution rate when we entered Central States was $3
per week. Since then, our contribution rate has increased 114-
fold. Our contribution rate today is $342 per week, which is
nearly $18,000 per participant per year.
According to Central States, 59 percent of the retirees in
the plan are orphans, meaning their contributing employer no
longer pays into the fund. Fifty-four percent of our
contribution dollars, or $185 a week, goes to pay benefits of
participants who never worked for Schnucks. When an employer
leaves the fund, the unfunded liabilities of its participants
shift to the remaining employers. This drives up our
contribution rates and means that the responsible employers who
followed the rules are the ones left holding the bag.
The unfunded liabilities also create a staggering
withdrawal liability. Of our 13,000 teammates, about 200
participate in Central States. According to Central States, our
withdrawal liability for these 200 participants exceeds $281
million. This averages to $1.4 million per Teamster
participant.
While we expect to pay less, it makes no sense for a
company that has made every required payment for 60 years and
seen its contribution rate increase 114-fold to have a
withdrawal liability that even approaches this amount.
One question I hear is, why does Congress have to deal with
this now as opposed to 2025? Well, I will show you why.
First, we are reluctant to grow our business. For each new
store we open, we have to hire a driver who must go into
Central States. And by our calculations, each new driver that
we add increases our withdrawal liability by $200,000.
Second, we face recruiting problems. Prospective drivers
know what is happening in Central States, and they want no part
of it.
Third, there are business decisions that make complete
economic sense that are not being made because of withdrawal
liability rules.
And fourth, lenders, rating agencies, and auditors are
becoming increasingly concerned about the impact of a Central
States insolvency. This impacts our credit rating and our cost
of capital.
These are issues we face today, not 2025.
What I have described is the Schnuck's story, but I suspect
that you are hearing similar stories from your local employers.
There are about 5,400 employers that contribute to plans that
are heading towards insolvency. The future for many of these
employers is very uncertain if the plans go insolvent.
So what tools should the committee consider?
The multiemployer rules date back nearly 40 years, and they
have not kept pace with economic changes. The rules need to be
reformed. But first and foremost, this committee must focus on
measures to stabilize the patient before it can cure the
patient.
These 130 plans face a math problem, and no realistic,
sustainable level of increased contributions, investment
returns, or benefit reductions will solve the problem. The
unfortunate reality is the math does not work without a long-
term, low-interest-rate Federal loan accompanied by sacrifices
by all stakeholders to reduce the cost. And the loan program
must be implemented quickly and structured in a way to ensure
its repayment.
Developing a solution will not be easy. And if structured
fairly, all the stakeholders are going to dislike parts of it.
But again, failure is not an option.
Thank you again for the opportunity to appear before you
today. And I will be happy to answer your questions.
Representative Neal. Thank you very much.
[The prepared statement of Ms. Moorkamp appears in the
appendix.]
Representative Neal. Mr. Blackman?
STATEMENT OF BURKE BLACKMAN, PRESIDENT,
EGGER STEEL COMPANY, SIOUX FALLS, SD
Mr. Blackman. Good afternoon, members of the Joint Select
Committee on Solvency of Multiemployer Pension Plans. Thank you
for the opportunity to speak with you today about a topic that
has significantly impacted my business.
I am the president of Egger Steel Company, a third-
generation, family-owned business located in Sioux Falls, SD.
We currently have 51 employees, 34 of whom are hourly shop
workers. On their behalf, we contribute to the Boilermaker-
Blacksmith National Pension Trust. We have been contributing to
this pension since 1971.
We first became aware that the Boilermaker-Blacksmith
pension had an unfunded liability when we were notified that
our company's 2002 withdrawal liability was over $900,000.
Prior to that notification, we had never heard the term
``withdrawal liability.'' Our most recent valuation indicates a
withdrawal liability of approximately $2.1 million, or over
$60,000 per active eligible employee.
What impact does this have on my company? The short-term
impact is that it increases my shop labor costs. In order to
attract and retain employees, I have to offer competitive take-
home wages. Younger employees are cynical about the value of
their pension benefits, so they will leave my company for a
nonunion competitor if their paychecks are not equivalent to
what they could receive somewhere else.
The problem is that, while my nonunion competitors are
offering between 3-percent and 6-percent 401(k) contributions,
the equivalent rate for my company's total pension contribution
is 14 percent. My shop labor costs are therefore 8-percent to
11-percent higher than my nonunion competitors because of the
underfunded pension.
The long-term impact of this crisis is related to my
company's withdrawal liability. While my competitors are
purchasing expensive new technology to improve their
productivity, I am limited to fixing or replacing broken
equipment, because at any time my withdrawal liability could
skyrocket like it did in 2008. The pension could impose steep
increases in contribution rates. Or if too many employers
withdraw from the pension, it could fold and assess withdrawal
liabilities on whichever participating employers are left to
absorb its losses.
While it is true that, if a withdrawal liability were to be
assessed, I could pay the liability at the same annual rate
that I have been making contributions, in reality I would incur
the additional cost of contributing to a new 401(k) account for
those employees who would no longer be earning a pension
benefit and would otherwise leave my company for a competitor
that does offer retirement benefits. Instead of my labor costs
being 8-percent to 11-percent higher than my competitors, they
would now be 13-percent to 16-percent higher.
The multiemployer pension crisis is serious, and it is
getting worse every day because the pension plans are still
making new defined benefit commitments without collecting
enough contributions to cover their true costs.
Before we do anything else, we must recalculate the true
extent of the problem using realistic actuarial assumptions. I
am not suggesting that all multiemployer pension plans should
immediately recast their projections. Doing so risks a
cascading failure in which weaker companies will fold under the
pressure of higher contributions or higher withdrawal
liabilities and will dump their obligations onto a shrinking
number of survivors.
This committee, however, should independently determine the
realistic funding status of these plans to ensure that any
solutions offered do more than just kick the can down the road
for a future Congress to address.
My second recommendation is to transition orphaned
beneficiaries to the Pension Benefit Guaranty Corporation. The
last man standing provision of multiemployer pension
legislation was a mistake, and correcting it would eliminate
the risk of cascading failure.
The PBGC would require additional funding to support these
orphans, which could come from higher premiums or from
transferring proportional assets from the orphans' former
pension funds to the PBGC.
In either case, the PBGC should consider the funding status
of the affected pension plans and vary the premiums or funds
collected to avoid harming significantly underfunded plans.
My third and final recommendation is to stop making new
defined benefit commitments. In my company's example, instead
of paying 14 percent of wages to the pension, I would propose
to redirect 5 percent to a defined contribution plan for all
new hours worked and continue contributing the remaining 9
percent to the pension until its unfunded liabilities are paid
off.
The pension may require Federal loans to satisfy its short-
term cash flow needs, but if it stops making new commitments
while continuing to collect contributions, it will eventually
be able to pay back its loans.
If it would take the pension 50 years under this scenario
to pay off its liability, then perhaps we need to consider
current retiree benefit cuts or direct taxpayer assistance. But
before we do either of those things, we need to admit that the
era of defined benefit retirement plans is over.
On a closing note, I would like to mention that I have
listened to all the previous committee hearings and am aware of
three proposals made thus far: loans, bankruptcy law changes,
and hybrid pension plans. I believe that each of these
proposals has some merit. But as a small-business owner, I have
concerns about all of them that I would be happy to share.
And I welcome your questions.
Representative Neal. Thank you very much.
[The prepared statement of Mr. Blackman appears in the
appendix.]
Representative Neal. I think the panel offered an
encapsulating view of what the challenge is that we all face.
And Ms. Foxx I know has an obligation on the floor, so I am
going to recognize her first.
Representative Foxx. Thank you very much, Congressman Neal.
I thank each of you and the employers you represent for
being here today to share your perspectives and your stories
with the members of this select committee. I especially want to
thank the representatives of UPS, Schnuck Markets, and Egger
Steel. It takes a lot of courage to put your company's story
out there in a setting like this. But it is important and
necessary in order for all of us on this committee to get the
full picture. So thank you.
I want you to know we are listening, that I understand the
issues you are facing, and I understand the importance of
finding a fair, fiscally responsible, and forward-looking
solution to these problems.
Ms. Wong, I have a question for you. Which of your member
companies have made the difficult decision to withdraw from a
multiemployer pension plan in the last decade? Are there common
factors that went into company decisions to leave the plans?
Ms. Wong. Thank you. So there have been a number of members
that have decided to withdraw. I, for their purposes, will not
give their names.
But the main decision has been that they have looked at the
liabilities they are facing now versus the liabilities they
might face later and whether they could afford to pay those
liabilities now. A number of employers have looked at that and
have determined that they cannot make that decision now and so
they are staying in the plans, which adds to the crisis and
makes it even something more that we need to worry about.
Representative Foxx. So when determining contribution
amounts to a multiemployer plan, do your member companies aim
to fully fund the plans in which their employees participate?
Or do they instead aim to meet the minimum contribution amount
required by their respective collective bargaining agreements?
And do you believe employer contribution amounts are sufficient
to provide plan stability?
Ms. Wong. So our members aim to meet the requirements of
the collective bargaining agreement. That is what they
negotiated, and that is what they expected to pay.
In terms of the amounts, they look to plan professionals to
figure out exactly how that works. That is what we look to at
the Chamber as well.
So all of our employers aim to fulfill their commitments.
All of them aim to be able to provide benefits.
I think it was mentioned, the rules of the game have
changed. There have been outside factors that have weighed in
as well that have made that more and more--or made it harder
for them to do.
Representative Foxx. Thank you.
Mr. Blackman, very quick question. Boards of trustees for
multiemployer plans are made up of union and employer
representatives. As a small employer in a large plan, do you
find the interests of your employees are well-represented by
the trustees?
Mr. Blackman. Let me answer this without implicating
anybody unnecessarily.
We are a small employer. And I would answer the question
this way. Since our company's founding, we, to my knowledge,
have never been invited to express an opinion to the board of
trustees of the Boilermaker pension.
The communications that we receive from the pension are the
legally required communications. We do not vote on the
trustees. We have never been asked to vote on the trustees. To
my knowledge, the employer trustee representatives must elect
themselves, because we do not elect them.
Representative Foxx. Thank you. I yield back, Mr. Chairman.
Representative Neal. Thank you very much, Ms. Foxx.
Just a couple of thoughts. I have been here for a long
time. I think that we need to be reminded, because I do have a
loan program out there that has been well-met. It is bipartisan
in the House; we have Republicans and Democrats who have signed
the legislation in the House.
And with a long memory, I would point out that I got here
not to create the S&L problem, but to be part of the solution.
And there was an awful lot of money borrowed to get many of
those S&Ls out of a problem that they had.
In this instance here, there is a different distinction,
though. And the distinction here is that there has been really
no bad decision-making. These have been events that have gone
around the pension plans that have created part of the problem
today.
And I do not have to remind everybody about what happened
here in 2008 when we had a series of controversial votes. There
was a plan that was endorsed by at that time candidate Obama,
candidate McCain, when they were invited to the Oval Office to
discuss a Wall Street solution in which much of the money was
borrowed.
And I think calling attention to those precedents is really
important. We are not suggesting that, as one of the witnesses
has said, that that is the only solution. What we are saying is
that that needs to be at least part of the conversation as we
go forward.
Now, everything has changed over these years. And the
financial crash dealt many of these plans a huge financial
blow. And now with pension plans in every State in the country
in jeopardy, millions of retired workers are facing a financial
nightmare. Cuts to their hard-earned retirement savings are
occurring through no fault of their own.
The reality also is that most employers that contribute to
multiemployer plans, including representative companies that
are here today, have tried to do the right thing. I think that
that needs to be emphasized as well.
Deregulation in the 1980s and the early 1990s as well as
large-scale economic downturns in 2001 and 2008 led to waves of
industry-wide employer insolvencies. And the remaining
employers in these plans are now the last man standing in their
respective multiemployer plans.
To address this crisis, Senator Brown and I did introduce
legislation last year that we hoped would kick off the
conversation. It included a loan program. The money for these
loans and the cost of running the program would come from the
sale of Treasury-issued bonds to financial institutions. And I
have already established a precedent with those who would
purchase the bonds.
The Treasury Department would then, as I noted, sell those
bonds in an open market to large investors. And those financial
firms would then lend money to the plans for the sale of the
bonds to financially troubled pension plans.
I think that this is a program that offers a common-sense
solution. The private sector--they have acknowledged this as
well, and they have been generally supportive, if not
specifically, to the concept that we have offered.
Mr. Langan, UPS has advocated in favor of a loan program to
address the multiemployer pension plan.
Ms. Wong, the U.S. Chamber of Commerce has released a
series of principles and has addressed the multiemployer crisis
within these principles. And the U.S. Chamber has also endorsed
a loan program.
Could I hear from the two of you as to your notions about
loan programs?
Mr. Langan. Yes; thank you. We feel that a loan program is
necessary at this point. We have been discussing a loan concept
over the last 2 years in trying to resolve this issue, because
the plans need cash flow. We have to stop the cash flow that is
coming out the back door compared to the contributions that are
coming in the front door.
And unfortunately, 2008 brought their asset base down on
all these mature plans that are in declining status to where
they cannot earn their way out of it. And in a mature plan,
your asset base really becomes a contributing employer because
of the yield coming off those assets. You get a much different
yield on $30 billion than you do on $15 billion.
So the cash flow is the problem in the plans, and a low-
interest loan would solve that problem. And we have to ensure
it is paid back.
Representative Neal. Thank you.
Ms. Wong?
Ms. Wong. I agree with everything that was said. From the
Chamber's perspective, again, there have been increased
employer contributions. We have seen active employees--their
benefit accruals have been cut back, decreased, and now, you
know, retirees are seeing benefit cuts. So there really is no
more money in the system.
And if we want these plans to survive, and if we want the
employers and the jobs they create to survive, we think a loan
is the best way to do that.
I will say we see it as one part of the solution. We are
looking for a comprehensive solution that does help the entire
system.
Representative Neal. And without objection, I would like
the Multiemployer Pension Reform Principles of 2018 to be
included in the record.
[The document appears in the appendix on p. 56.]
Representative Neal. Ms. Moorkamp, you have also provided
excellent testimony, as the other panelists have offered. In
your testimony, you have supported the loan program. Would you
care to expand upon that?
Ms. Moorkamp. I look at this also as a phased approach. And
I support what Mr. Langan and Ms. Wong have said.
Immediately, the issue before us is, we have to treat the
critical and declining plans. We have to stabilize the patient
before we can cure the disease.
There are no contribution increases, benefit cuts, or
investment returns that will make these plans solvent. We do
believe Federal support is needed and that the best way to do
that is with a long-term, low-interest-rate Federal loan with
the appropriate measures put in place to ensure repayment.
And then, we would look to overhaul the entire system to
take into account the current economy, the mobility of the
workforce today, and changing demographics.
Representative Neal. Thank you.
My time is expired.
I recognize the gentleman from Tennessee, Dr. Roe.
Representative Roe. Ms. Moorkamp, your testimony can be
placed under the ``let no good deed go unpunished'' rule.
The solution--and I have listened to these now for years--
is not complicated. It is increased PBGC contributions,
decreased plan benefits to people who are already out there
getting it. That has been passed 3\1/2\ years ago. Stop new
members, as Mr. Blackman said, do not add any more people to
create the problem and make it worse. And then a loan or a
bailout or whatever you would want to call it. I think those
are the options that we have.
And the fifth option would be to do nothing. So those are
our options. And we can argue about how to do it.
And I guess my question is, since the PBGC has only had one
loan ever paid back, how do the taxpayers--I will put the
taxpayer hat on--how do they get their money back? How does a
failing plan--I am still trying to get my arms around how, when
you loan a plan money that is grossly underfunded, it can pay
back a loan that is made, as Mr. Neal has pointed out. How can
that happen?
Mr. Langan. I will answer that, Mr. Roe. Part of our
proposal--and I am not here to sell either proposal or anything
in that regard--but one of the aspects of our proposal does
unfortunately include benefit modifications. And we feel that
it is important to take a look at the entire plan, stabilize
the cash flow. And in an effort to ensure that those monies are
paid back, there has to be some source of new income coming
into the plan.
One way to do that is through benefit modifications so that
those reductions in the cash flow that is going out the back
door can be reinvested back into the plan. The liabilities that
are in the plan today will be lowered. And if you do it over
time and draw it down over time, the assets have an opportunity
to deal----
Representative Roe. Is there a number out there? Because
you have a lot of people out there who are depending on this
for livelihood. Is there a number? We talked 20 percent, 10
percent, 50 percent. I mean, there is a number out there that
will leave you enough money to do exactly what you just said.
What is that number?
Mr. Langan. What we have modeled, working with all the
large plans, Central States in particular and several other
plans, is we feel that benefit modifications up to 20 percent,
not a flat 20 percent.
There are a lot of ways that you could skin this cat from a
standpoint of how you recognize or give the loans, whether you
give them monthly, as a lump sum, every year, or every 5 years.
The more money the plan has as an opportunity to make asset
returns helps the situation. But you can design the loan to
reduce the amount of cuts that are necessary in order to repay
it.
Representative Roe. And we have not done away with the
economic cycles. So there will be another recession. I mean,
the economy is doing great right now, but look, I have been
through a bunch of them; we will have another recession
somewhere along the line. Is that factored in?
Mr. Langan. That is a very good point. And one aspect of
our proposal that is different from some other proposals is, we
propose loaning the money over time, a monthly loan, to avoid
risks in the market, the downturns in the market.
If you give a plan several billion dollars up front and
they lose it in the market, through no fault of their own, just
a decline, that is going to create a problem, and we will be
right back here.
So if you give it over time, they can weather the ups and
downs of the market itself, while the modifications are still
there trying to grow the assets back.
Representative Roe. Do we have that? Have you laid that out
in a proposal where it can be seen, modeled?
Mr. Langan. Yes, we have, sir.
Representative Roe. Okay. And I guess the other thing that
I did not add to it was, Mr. Norcross and I have a plan going
forward.
Mr. Blackman, we have a 401(k) in our office, in our shop,
but this GROW Act that we have is certainly another option that
could be number five: just stop putting new people in and then
begin doing exactly what you talked about--continue to pay the
legacy liabilities, but enter new people into this new plan,
which gives you the blend of both defined contribution and
defined benefit.
Mr. Blackman. Yes. And I do not pretend to be an expert on
that proposal, but from what I understand, the new pension part
of that actually looks a lot like the pension that we signed up
for in 1971, the pre-ERISA plan. Now, of course, we are all
here because that plan--the rules were changed.
So I guess as a small-business owner, I would say, if you
gave me the option to opt in to that, I would respectfully
decline. It is my understanding that today's Congress cannot
tie the hands of a future Congress, and we have a history of
Congress changing those rules exactly like that in the past. So
that is why my preference is for a pure defined contribution
component, no pension promise whatsoever.
Representative Roe. Well, that is the plan I live with. It
is what I have myself.
I yield back.
Representative Neal. Thank you.
The gentleman from Virginia, Mr. Scott, is recognized.
Representative Scott. Thank you. Thank you, Mr. Chairman.
Ms. Wong, we have heard a lot about the taxpayers' interest
in this. Can you tell me what interest the taxpayer has,
especially if we do nothing, what the taxpayer may be on the
hook for?
Ms. Wong. Yes. Our concern is that there is a huge
liability out there now. But if we do not do anything, that
liability will grow. And although the taxpayer is not
technically on the hook for the PBGC, I think we can all agree
that we do not think Congress will stand by and do nothing if
the PBGC goes bankrupt.
And it is really a question--it is not a question of if,
but when. And so if we can address this issue now, looking at
it from a taxpayer perspective, it seems more responsible than
waiting until the problem is even greater.
Representative Scott. Are you suggesting there is a moral
obligation to make sure the PBGC pays what it has guaranteed,
even if it runs out of money--that we have a moral obligation
to replace the money?
Ms. Wong. I think Congress will have a political preference
to make sure the PBGC pays those benefits.
Representative Scott. And we would be on the hook for other
things like, people are not getting pensions, they are not
paying taxes?
Ms. Wong. And I do not have those numbers in front of me,
but I can get them. There have been studies done talking about
the loss of pension benefits and the impact that will have on
the economy. And those losses will be made up somewhere, and we
think they will be made up on the public services.
Representative Scott. You mean like safety net--food
stamps, Medicaid?
Ms. Wong. Exactly.
Representative Scott. And so if we do not do anything, we
have the taxpayers really on the hook for, right now, unknown
billions of dollars.
Ms. Wong. Yes.
Representative Scott. Do you know how many companies may be
in a situation where their withdrawal liability exceeds the net
value of the company?
Ms. Wong. I do not have a specific number, but we hear from
quite a few employers daily.
Representative Scott. Ms. Moorkamp, you indicated some
problems, and Mr. Blackman talked about problems running a
business with this liability hanging over your head. Is that
liability, is the potential liability, listed on your financial
report?
Mr. Blackman. I can answer that.
Representative Scott. Okay; thank you.
Mr. Blackman. So on our audit reports--we are formally
audited every year--the withdrawal liability is listed as a
contingent liability. It is on the notes to our financial
statement. It is not on our balance sheet.
Representative Scott. Do potential creditors, lenders, look
at that and become reluctant to lend you any money because of
that?
Mr. Blackman. Well, I am happy to say that we have had the
same lender for 72 years. That lender has told us that we have
earned the right to have a contingent liability. Not all of
their customers are treated with that degree of trust.
So I would say, though, that, from a practical standpoint,
it does limit our borrowing ability, because even our bank,
which trusts us, would require a personal guarantee for any
large, long-term loan that we would ask for. They already have
a personal guarantee on our line of credit. So from an
operational and a business-planning standpoint, if I am not
prepared to personally pay back that loan, then I will not take
it out.
And what is concerning about this withdrawal liability is
that it seems to be an uncontrollable figure. So to my mind,
the risk associated with taking out another long-term loan is
prohibitive.
Representative Scott. I thank you.
Ms. Moorkamp. Representative Scott, can I----
Representative Scott. Yes.
Ms. Moorkamp [continuing]. Fill in as well? Our lenders
have told us that, when assessing our credit quality, our
lenders as well as our rating agencies are adjusting our credit
statistics to take into account our unfunded pension
liabilities, which leads to higher interest rates and higher
costs of capital.
And anecdotally, we do understand that there are rating
agencies that use a withdrawal liability number, and then they
either increase the liabilities or reduce the EBITDA by a
percentage of the withdrawal liability. And either way, it
leads to a higher credit risk and a higher cost of capital.
Representative Scott. Thank you. And let me follow up. I
think you indicated, Ms. Moorkamp, that your plan was
negotiated under the collective bargaining agreement. Is that
adjusted to reflect what is needed to keep the fund, the
pension fund, solvent?
Ms. Moorkamp. So we have a negotiated contribution rate,
but we have plans that are under rehabilitation plans. And
there are funding increases that we have seen as a result of
that, some as high as 225 percent over what they had been
prior.
Representative Neal. Thank you, Mr. Scott.
The gentleman from Florida, Mr. Buchanan, is recognized.
Representative Buchanan. Thank you, Mr. Neal. I appreciate
the opportunity.
I want to thank all of our witnesses. We have great
companies, smaller companies, UPS.
I was involved with the U.S. Chamber for 8 years on the
board, so I appreciate you being here today. And I was in
business for 30 years prior to coming to Congress and had a lot
of employees and everything else.
But also, I grew up in Detroit. My dad worked in the
factory for 30-some years, paid into a stock program. At the
end of 35 years, he ended up with zero. And one of the concerns
I have is just the precedent we are going to be setting here
for everybody else.
The second thing is the idea of loans. And there might be a
combination. I am a possibility thinker. I am sensitive to
businesses. But we are moving a liability, not all of it, but a
lot of it from companies and stakeholders to the taxpayers or
other people. And we are going to put it on the balance sheet
of the country. And we do a lot of that already, Democrats and
Republicans, so it is unfortunate.
But I guess when I think about being in Detroit, growing up
in Detroit, I use this example. The fourth-largest city went
bankrupt. All the stakeholders had to make adjustments and take
haircuts.
And I guess I would want to know--and I want to put this in
the right light--you are going to benefit quite a bit by us
doing this. If you have equity in companies, if you have
shareholders, you are benefiting because you are removing that
liability.
Let me just ask you this. Everybody needs, in my sense, to
come to the table--it is a restructuring, a reorganization--
other than just the American government. What is the business
community willing to do in terms of their share or because they
feel their sense of responsibility? Because it is going to make
a big difference.
I know that if you had to--if we did not do anything, the
smaller companies, if you got loans, you put maybe everything
you built at risk going forward. But I think everybody, my
sense, has to step up and be a part of the solution going
forward.
So let me ask you, in terms of the business community, what
are you willing to do or what have you given thought to short
of the government just stepping up and fixing the whole thing?
Mr. Langan?
Mr. Langan. That is an excellent question. And looking at
the whole perspective of the problem, we looked at all
different ways in order to solve this. One of them was
increasing employer contributions. Could we raise the
contribution enough in order for the employer to fix the
problem in these plans that are in trouble?
If we go back to the enactment of the Pension Protection
Act, most if not all of the plans that are out there have seen
the employers double their contribution rate over less than 10
years. And a lot of that is due to the rehabilitation and the
funding improvement plans that are out there. So we do feel
that that has already occurred.
Some of these plans are asking for 6-, 8- and 9-percent
increases in their contributions. And the employers that are
remaining in there are obligated to pay those, because it is
part of the collective bargaining process.
Representative Buchanan. And let me just say, because I am
going to run out of time, that when I started my first company
in Detroit, we had a profit-sharing plan for everybody. Then we
went to a 401(k). A lot of people went to the pension plan.
But with pension plans, like city governments and State
governments and everything, there is risk. And we had talked
about this before, about what happened in 2008. The market
dropped 38 percent, the S&P. So there is risk when you get into
these plans that companies and unions and others make those
decisions--and you have a fiduciary, but nobody could expect
that.
But in the first decade--just to think about that--of the
new century, for 10 years it was zero return. And if you have a
50-percent equity portfolio, you know, you pull out of risk.
Ms. Wong, just in terms of--what is the business community
willing to do instead of looking to the government for
everything?
Ms. Wong. Well, I would just like to reiterate what Mr.
Langan said. The business community has already increased
contribution rates, they have increased their PBGC premium
rates, they have been assessed withdrawal liability, either
partial or complete for those who could pay it.
So even at this point--and if you read our principles, we
are not saying that this should just be a loan program. We are
saying everybody needs to put skin in the game. And it is not
that the business community is waiting for Congress or for
someone else to resolve it. They are looking for partners to
help them resolve it.
Representative Buchanan. But you understand, equity owners
and shareholders of all these companies big and small benefit
if we write a big loan in terms of that.
Ms. Moorkamp, do you want to just respond? Your thoughts?
You have two smaller companies, but what is the business
community willing to do to make this deal?
Ms. Moorkamp. Well, I echo again what Mr. Langan and Ms.
Wong have said as to the burden that the employers have been
carrying. But I want to get across I am not here today to
ascribe blame. No one here is to blame. Not the contributing
employers----
Representative Buchanan. I am not looking to discuss blame.
I just want to--I just want to----
Mr. Moorkamp. It appears that way. And we think seriously
that everybody--no one here is to blame, and everybody is going
to have to share in the sacrifice of what needs to be done,
first and foremost to save these critical and declining plans
that are facing insolvency.
Representative Buchanan. Mr. Blackman, anything, quickly?
Mr. Blackman. Yes. All I would say is that, you know, from
my perspective, we have a yellow zone plan. Personally, I am
not asking for a bailout of any kind. I want an exit door; I
want to stop making new promises.
Representative Buchanan. Thank you.
Mr. Blackman. And I need Congress to help me with that.
Representative Buchanan. Thank you. I yield back.
Co-Chairman Brown. Thank you, Congressman Buchanan.
Senator Manchin?
Senator Manchin. Thank you, Mr. Chairman.
First, let me thank all of you. And I want to thank our
chairman and the ranking member for holding this hearing.
And we have to start coming up with some solutions. But as
you know, I am really focused on solutions for the
multiemployer pensions crisis, so I was glad to see that
Senator McConnell gave us a few extra weeks of time to work
this August. [Laughter.]
We should be staying here on Mondays and Fridays too, but,
I mean, that is a bridge too far.
I encourage my colleagues on this committee to use this
time to come to the table and seek bipartisan solutions.
I would also note that I am very happy to see our brothers
and sisters here, the United Mine Workers from my turf, if you
will--people I grew up with. And I appreciate the hard work
they are doing. I hope they continue to come back. Because I
can tell you, when you put a face and a human being with a
problem that we have, then we can find a solution.
You have heard me say before, and I will keep saying it:
the UMWA 1974 Pension Fund is the first that will fail if
Congress does not act. And if or when the UMWA fund would fall,
and if we do not find a solution, the others will start to
tumble. This plan is expected to become insolvent by 2022,
possibly even sooner if we see a market downturn or additional
coal company bankruptcies. We should note that is unlikely.
And while the pensions provided by this plan are small--to
give you an example of what we are talking about with UMWA
pensions, an average of just $595 a month; $595 a month is what
we are talking about for the UMWA. They are critical for
retired miners and families who rely on them, mostly a lot of
widows. If this plan goes under, these families and the
communities they live in will be devastated.
So I hope that today's discussion will demonstrate for
everyone exactly what will happen to American businesses and
communities, to our poverty services and to our national
economy, if these plans fail. But I also hope that all you
witnesses will offer us more ways to address the crisis. And we
are not putting any blame.
But let me make sure you understand. The working person in
America, the United Mine Worker and anybody who has ever done
any hard work, is not to blame at all. They did not set their
rates of contribution. They did not set the plan. They were not
there when basically the bankruptcy laws were written. It was
all done usually here in Congress. We set basically the slope,
if you will, of what would happen, and this is what we are
dealing with.
They were not responsible for the 2008 financial crisis.
They were not responsible for relaxed oversight of the large
banks. None of this was their fault, but they are all taking
the hit right now, every one of them.
So I will start with Mr. Langan. What is Plan B, sir? What
do we do if we walk away from this? What happens?
Mr. Langan. Well, as was mentioned earlier in Ms.
Moorkamp's testimony, walking away and failure is not an option
to this crisis that we face. We have to figure out a way to
stop the cash flow that is going out the back door and
stabilize these plans and give them an opportunity to return
back to health.
Because, if we do not do that and we just allow the system
to fail, then what is going to happen to the remaining
employers is unknown at this point. If a plan is not, for
example, in compliance with the rehabilitation plan, are they
now facing funding deficiencies? Are they now going to face a
mass exodus out the back door from the employers and the risk
of mass withdrawal?
If you have a mass withdrawal situation come, contributions
stop, accruals stop, and now employers are assessed withdrawal
liability, which now is put on their books.
If you put a liability on your books that is greater than
the value of your company, you are never going to be able to
get out of this. So letting the system just fail and hoping the
PBGC can give a little bit of a benefit is not the answer. We
have to get cash to these plans and figure out a way to pay it
back so the taxpayer is protected.
Senator Manchin. Ms. Wong, if I may ask you, with the
reduction of our corporate tax from 35 to 21 percent, that 14-
percent savings, does it put a hardship on our corporations and
businesses now since they have this extra relief if they do
contribute more? I know you all just talked about
contributions. But would that put an undue hardship----
Ms. Wong. Does the tax cut create an undue hardship?
Senator Manchin. I am saying if I asked you to give a
little bit more back.
Ms. Wong. Oh, I am sorry--on the tax cut. Well, obviously,
the tax cut helps the businesses, providing----
Senator Manchin. Sure. You never expected to get 21, did
you? You would have taken 25 in a heartbeat.
Ms. Wong. I will not lean into that one. [Laughter.]
Senator Manchin. What we are saying is that none of us
wants to put undue hardships and create new unemployment. But
is there enough room in there to help the PBGC? I know there is
going to be an awful lot--anything I am asking for, there has
to be a floor. You cannot ask a person, a widow getting $595,
to take a 20-percent cut or a 10-percent. And we have to have
skin in the game, but there has to be, I think, some compassion
and some, you know, understanding of the economics we are
dealing with here.
Ms. Wong. I appreciate that. And again I would reiterate,
employers already have skin in the game and have been putting
skin in the game. We understand workers and retirees have all
been putting skin in the game.
So it is not an easy solution, but we are asking that,
again, we all come to the table and resolve this together.
Senator Manchin. My time is up. And I will save it for the
second round.
Co-Chairman Brown. Thank you, Senator Manchin.
Congressman Schweikert?
Representative Schweikert. Thank you, Mr. Chairman.
Isn't it fun reaching over and calling you chairman?
Co-Chairman Brown. Yes, sure. I might get used to this.
[Laughter.]
Representative Schweikert. All right.
Mr. Blackman, a couple of moments ago, you actually
mentioned the desire to leave.
Mr. Blackman. Well, I should specify I would like to make
new contributions in a defined contribution plan, and no more
new contributions to the defined benefit. I am perfectly
willing to pay my existing obligations to the defined benefit.
Representative Schweikert. Okay. So there you led me to--so
what is the existing obligation? For many of us, when we have
actually been looking at the math, we think--actually we will
call it the severance mechanism is not actually properly
calculated for the true liability.
Mr. Blackman. I would agree with you.
Representative Schweikert. Okay. In that case, you are my
new best friend. You just made it easy.
Ms. Wong, if I came to you and said, okay, in my
understanding, the Chamber prefers sort of a loan mechanism.
Ms. Wong. Yes. We see that as an important part of a
resolution.
Representative Schweikert. Okay. So as we heard another
member of the panel a little while ago saying, you know,
protecting taxpayers, those things, do you think all the
businesses would be prepared to also sign a promissory note so
they also carried some liability for that loan?
Ms. Wong. I think the businesses feel like they already
have a promissory note.
Representative Schweikert. But if we were going to do a
loan document to make it very clear that they carry the actual
liability----
Ms. Wong. Yes; I will take that back to my membership. I
don't----
Representative Schweikert. How about a mechanism where, if
they file bankruptcy, this is a top-tier obligation, you know,
coequal to other bonds. Because this is, you know, their
pension liability, and now it is a loan obligation to the U.S.
Government, if it were done mechanically as some of the
proposals here. Can we make it a top-tier bankruptcy----
Mr. Langan. Could I speak to that? I think----
Representative Schweikert. I wanted the Chamber to respond,
partially because, at one level, if you are asking to socialize
the risk, okay, but if you are saying you want to socialize the
risk at the same time because it is going to protect taxpayers,
let us protect taxpayers.
Ms. Wong. No, I appreciate the concern. I am not sure if
that is allowed under bankruptcy law, but----
Representative Schweikert. But we can always rewrite the
law. That is what we are here talking about.
Ms. Wong. I agree with that. And I am happy to take that
back to our membership and discuss that with them.
Representative Schweikert. Okay. But don't you think that,
in some ways, if we are going to talk about everyone having
skin in the game and we are doing it fairly and we are all
taking obligations, because I know there seems to be an attempt
here to sort of--you know, we are all dancing with a hot potato
and pushing and trying to socialize the risk, but not take it
ourselves.
Ms. Wong. Employers are taking the risk. I mean, they are
the ones paying into the plans today, and they are the ones
with the risk of going bankrupt if there is not a solution.
Representative Schweikert. Well, but if you actually think
about what we were just talking about before with Mr. Blackman,
okay, so if I leave, I am probably not paying my full actuarial
value for my stranded lives, and that is both a concern and
then my obligation if a participant were to go bankrupt. Even
though we had created this loan mechanism, we need to make sure
that those obligations--so you can actually see, just from a
credit management----
And, Mr. Blackman, before, I had interrupted you.
Mr. Blackman. I am sorry. It sounded like you were talking
about changing the bankruptcy hierarchy of creditors.
Representative Schweikert. Well, it is an honest
discussion. If we are all having--one of the reasons we see
such high levels of underfundedness is concentrations within
those industries. We saw cascades of reorganizations and
bankruptcies and, within those, a movement away from these
obligations because they were discharged through bankruptcy.
Mr. Blackman. Right.
Representative Schweikert. How do we move that up so, as a
society, we make pension obligations a top tier?
Mr. Blackman. I understand. You have to keep in mind that
the way the bankruptcy hierarchy is structured today, that is
what allows my bank to essentially not hold me accountable for
that withdrawal liability today and still grant me credit
today.
If we reverse that and pensions come ahead of banks, we are
done. I mean, we are out of business.
Representative Schweikert. But there we are back where the
socialization of the obligation for your business is back on
everyone else. And look, I am not thrilled with this, but all
of us are trying to have intellectually honest conversations of
how many levers do we actually have.
And the more I read, the more I realize a lot of my levers
do not produce a lot of resources. So, as we are going to
actually continue the conversation of some type of financing
instrument, who is going to help us guarantee that, other than
the rest of the taxpayers?
Ms. Moorkamp. Representative Schweikert, can I just inject
very quickly, please?
Representative Schweikert. Very quickly.
Ms. Moorkamp. Changing the bankruptcy laws is not going to
solve the problem of the 130 plans that are facing insolvency.
Representative Schweikert. We did not say it would, but----
Ms. Moorkamp. I know, but----
Representative Schweikert. Actually, no, no, stop. But once
again, if you are asking to shift it onto the rest of the
taxpayers, shouldn't the rest of the taxpayers also have you
take on some of that obligation?
With that, I am sorry; I am beyond time. I yield back, Mr.
Chairman.
Co-Chairman Brown. Certainly.
Finish your answer, Ms. Moorkamp. We treat witnesses well
in this committee, so go ahead.
Ms. Moorkamp. So I was just going to say, I would be very
careful, to your point, of changing the bankruptcy laws because
that could make it much more difficult for us, other employers
to get credit.
Representative Schweikert. Well, if the chairman would let
me reclaim time then. But also so would signing a promissory
note, because you would be carrying that on your books.
Co-Chairman Brown. Ms. Moorkamp, please finish.
Representative Schweikert. She just did.
Co-Chairman Brown. Okay. Okay. I could not tell.
Representative Schweikert. Thank you, Mr. Chairman.
Co-Chairman Brown. Okay; sure.
Senator Heitkamp?
Senator Heitkamp. Thank you, Mr. Chairman.
I think every person testified as a given that benefit cuts
would have to be part of this.
I just want to put on the table that we have in fact
advanced a plan. And I think both the Chamber and UPS have
suggested that a long-term loan program could actually be part
of this solution.
I think it is really, really important that we set a ground
rule that we are really committed to fixing this problem for
our small businesses and workers and retirees. I do not accept
right out of the chute that we will have to lead with a benefit
cut to solve this problem.
And so, you know, we are going to continue to look for
solutions, but I think it is really important that we recognize
the need for shared sacrifice, but that we try to lay down a
marker.
I would like to mainly address the question of withdrawal
liability. We have heard compelling testimony, I think, today
about the cost of doing nothing, especially for Main Street
businesses.
In the Central States Pension Fund, pretty much the only
businesses that are left are in fact small businesses, but 90
percent of contributing employers have less than 50 employees.
I will tell you a story of one of those employers based in
Fargo, which recently celebrated its 100th anniversary, has
been important to people in my State for 100 years. For 100
years, the business has played by the rules, contributed to the
economic prosperity of our community and our State, and
provided that employment opportunity. And for over 60 years, it
has made contributions to the Central States Pension Fund.
Yet for 2017, the owners tell me that their withdrawal
liability number is about $7.4 million. That is up from $5
million in 2015, and that is to cover 21 people. It is
overwhelming and it is frightening, and it is terrifying small
businesses all across my State that are still part of this
program.
So can you walk me through--and I will throw this out to
anyone who wants to answer--can you walk me through how this
withdrawal liability might affect access to credit and capital,
employer hiring decisions, and business investment for any
firm? And what are the risks to employers participating in
critical and declining plans such as Central States if
accounting rules require contingent withdrawal liability to be
required on the balance sheet?
So right away, we go back to access to capital. You put
that on your balance sheet, and I do not know who is going to
give you money. And that goes back to the question I think Mr.
Schweikert is getting at, which is, this is very complicated
and it affects not only solving this problem, but bankruptcy,
access to capital, and small-business development.
So, Mr. Langan?
Mr. Langan. Yes, thank you. From a withdrawal liability
standpoint, there is one thing we have to keep in mind.
Withdrawal liability occurs when you are going to withdraw in
the simplest form. Your obligation to the plans is what you
collectively bargain, so that your per se liability that goes
through your----
Senator Heitkamp. Mr. Blackman wants to get out, so let us
just--he wants to withdraw, but he cannot afford to.
Mr. Langan. I understand that. And we have withdrawn from a
couple of plans ourselves, and we did pay the amount of the
withdrawal liability that was required under the calculation.
It is a financial decision for the company.
But to your point, it is disclosed in the footnotes of the
company today, so it is out there. And then once you ultimately
do withdraw, you do have to book that on your balance sheet.
Senator Heitkamp. But how do I, as a Senator from North
Dakota, tell this small business that has 21 employees that it
is reasonable to assume their withdrawal liability is over $7
million?
Mr. Langan. Unfortunately, the way the law is written
today, that is how it is calculated. I can give you an example
of a plan we were in. We had two employees, and the liability
was $5 million. So it is a function of how the math works and
the way the law is today. It is spelled out very clearly how
the withdrawal liability calculations are determined,
unfortunately.
Senator Heitkamp. I want to make this point. So responsible
employers who have provided this defined benefit plan and who
have not taken advantage of the bankruptcy exit now are holding
the bag. I think that is a fair characterization of what is
going on.
So, you know, when you say, do not change the bankruptcy
laws, I agree that that will create a huge amount of disruption
in changing the queue on who gets paid first. But it also means
that everybody who is the last man standing, or the last person
at the end of that ladder, ends up with all the liability. And
that fundamentally--just as it is not fair to these workers who
played by the rules and did everything right that they are
getting cut, it is not fair to these employers and these small
businesses to be stuck here in this position.
And I understand that we have to balance this and we have
to realize or think about what the government's role should be.
And so, I wanted to just make the point that the employees are
incredibly sympathetic, but so are my small businesses who are
challenged with this problem. And we have to come up with a
solution that solves this for everyone.
Mr. Langan. If I could add just one quick thing, I will not
take long. I think one way to look at this is, the employers
that have remained in the plans, we have actually acted as the
PBGC in these plans because we absorb the liability.
Co-Chairman Brown. Senator Portman?
Senator Portman. Thank you, Mr. Chairman.
I am going to first talk about something general, which is
that there has been discussion here when I was here earlier,
and I understand even in my absence--I went to vote--about who
is for what and are you for loan programs or not. And I just
hope we do not take things on and off the table. I think we
need to keep everything on the table at this point. We have a
huge problem ahead of us.
And I know there has been discussion about having a hearing
here where we talk about solutions. I am for that, but I want
to be sure we have the data to be able to do it. So I would
hope that if we have a hearing about solutions, that we have
the data and information that we need, particularly an analysis
from PBGC and from CBO on the options.
So a lot of us have requested that for the last several
months, and we still do not have the numbers that we need to be
able to, I think, make important, informed decisions.
Ms. Wong, I want to ask about some of the rules here and
one particular one that troubles me, which is the convoluted
rule that could actually result in hundreds, maybe even
thousands of employers, particularly small employers, going
bankrupt if this is not addressed. And that is what you talked
about a little in your testimony: the uncertainty regarding
minimum funding considerations.
We talked in the last hearing about this. And we talked
about the fact that employers in healthy plans have to meet
their minimum required contributions every year based on new
promises they have made to new employees, promises they make to
current workers, and in addition any accrued deficiencies they
have in the plan's funding standard account.
But once that plan goes into critical status, that changes,
doesn't it? And I think it is something to focus on in terms of
the law and maybe an inadvertent, but a potentially negative
consequence, because then the trustees are required to come up
with this rehabilitation plan which can include exempting them
from needing to contribute the required contributions, at least
under normal accounting standards. And additionally, employers
have the excise tax liability enforcing payment of these
minimum required contributions waived as well.
So once you go into that status, it changes. And for
employers in Central States, my understanding is that employers
are currently paying less than half of what their minimum
required contributions are, as an example, and at least what
they would be doing under normal accounting standards. And once
that plan becomes insolvent, it might no longer technically be
in critical status, right?
Ms. Wong. Right. That is the uncertainty, exactly: how the
rules work together.
Senator Portman. So what happens there? I mean, it is
unclear to me, looking at the legal part of this, the extra
statutory language, what happens with the excise tax then.
We asked the Joint Tax Committee about this in anticipation
of this hearing. We have heard that Treasury has never issued
guidance on this issue; the statute is ambiguous.
And you know, I think it is an enormous uncertainty and a
potential for a catastrophe for a lot of businesses.
So you noted that a multiemployer plan must satisfy certain
code provisions, the rehabilitation plan. And you said that if
a multiemployer plan fails to make scheduled progress under the
rehabilitation plan for 3 consecutive plan years or fails to
meet the requirements applicable to plans in critical status in
the rehabilitation period, the excise tax for such a plan is
treated as having a funding deficiency.
Let us translate this a little bit just for our purposes
today. It looks to me like once an insolvent plan cannot show
improvement or meet rehabilitation plan requirements--when
Central States becomes insolvent, doesn't that mean that
employers would have to meet their minimum-contribution
requirements and possibly pay excise taxes?
Ms. Wong. And that is what the law says. So let me take
that.
Senator Portman. How does that make sense?
Ms. Wong. The purpose of the rehabilitation plan is to
allow and to give plans time and employers time to make those
plans whole again and make them solvent.
The concern is that--again, we were involved with PPA and
making that happen--we did not foresee what would happen in the
time before that. And so the thought was not given, what would
happen if there was an insolvency at the PBGC? What would
happen if there was a major plan insolvency that would impact
those rehabilitation plans or the entire system, like we are
facing now? And so I think it was an oversight in terms of how
those rules work together.
In the report we issued today, that is what we point out,
that legally there is the ability for the IRS and the PBGC to
come in and reimpose those minimum funding standards and the
excise tax. If it will happen, we do not know, because----
Senator Portman. Aren't you really saying that you are
hoping that the IRS does not enforce the law, that they do not
read the letter of the law, which would require massive
contributions and the potential insolvency of hundreds of
businesses, just in the Central States example?
Ms. Wong. We think it is unclear and that they definitely
can come in and assess it, but it is unclear about how and when
or if they could do that.
Senator Portman. Mr. Langan, how would uncertainty
regarding a possible funding deficiency crisis affect the mass
withdrawal possibility?
Mr. Langan. A mass withdrawal is defined. It is not
insolvency that creates a mass withdrawal, it is when all the
employers leave, or substantially all of the employers leave,
or it can be triggered by the trustees making that decision.
Senator Portman. But this could be resolved, right?
Mr. Langan. Yes, it could. What will happen, in essence,
that a lot of folks are concerned about is, people will start
leaving. They will see that there is no benefit for their
participants who are in the plan, they will see that there is
no hope, this plan is going under, and they will start heading
to the exits at that point.
Senator Portman. Yes, which would lead to the meltdown of
the entire multiemployer system probably.
Mr. Langan. Yes.
Senator Portman. Yes. Anyway, I think it is something we
are going to have to address as part of whatever solution we
come up with, certainly at least adding clarification to it.
Thank you, Mr. Chairman.
Co-Chairman Brown. Thank you, Senator Portman.
This is a sort of ``what happens if we do nothing''
hearing. And I think the four of you have done a good job
explaining that.
I want to kind of step back and ask you sort of, generally,
where you think your member companies or individual companies
go--start with that and go into this in greater depth.
Ms. Wong, describe the impact on member businesses if
Congress does nothing. And describe what happens, in your view,
in the economy. Quantify as much as you can the impact inaction
would have on businesses and the general economy.
Ms. Wong. So first, I want to emphasize that there are
already impacts being felt today. As we have discussed with the
withdrawal liability estimates, you know, companies are already
feeling impact from that in terms of their credit lines and
creditworthiness. You are seeing problems with employee
retention because of the high contribution rates and because
those employees are not getting the accruals that are
commensurate with the contribution rates.
So we are already in a process of seeing an impact. And as
we go forward with this and as the crisis worsens, these issues
will worsen.
So we can see, as we have talked about, if people try to
withdraw from plans, their withdrawal liability is going to be
even greater. There could be mass withdrawals that they have to
contend with so that those liabilities are even greater. The
minimum funding rules and excise taxes could also be an issue.
Any one of these things, all of these things, could cause
employers to go bankrupt and definitely impact their business
in terms of their ability to expand their businesses, provide
jobs, and to continue working in the most efficient way.
Co-Chairman Brown. Mr. Langan, I understand--I just spoke
with Senator Isakson a moment ago between votes on the floor
about your testimony. And we were just talking about what you
did a decade-plus ago. And your company did the right thing,
but your liability, some of it obviously still stands. What
would be the impact on UPS, on the plans that it is still a
part of, and other businesses that participate in these plans,
if Congress does nothing?
Mr. Langan. Our concern is that the pressure that will be
put on these plans for raised contributions, not only on us,
but the remaining employers, the small employers, will start
driving them out of business. And we are in these plans
together. They can only go out of business once. And our
ownership of these plans will just continue to grow.
And there is the last man standing rule out there, and we
could eventually be the last man standing in some of these
plans. And the contribution rates that we are putting in are
very, very high, north of $20,000 per participant in every
plan, and they are not getting the benefits of those monies in
some cases.
And it is just going to be continued absorbed liability
that we are facing if we stay in these plans.
Co-Chairman Brown. Thank you.
Ms. Moorkamp, what would be the impact on your company if
this committee fails and Congress does not enact legislation?
Ms. Moorkamp. Well, I am here today and you are here today
to ensure that does not happen, because failure is not an
option.
Co-Chairman Brown. Well, I agree with that. I have said
that many times, but I do not know that Congress yet
understands and the public yet understands what failure would
mean. So can you dig a little deeper and tell me what would
happen in your company with your employees and your businesses
and your suppliers and all?
Ms. Moorkamp. I have no idea what is going to happen when a
plan of the size and scope of Central States goes insolvent. I
do not know how our lenders are going to react; I do not know
how our auditors are going to react.
But again, Senator Brown, I for one am not willing to just
wait and watch it happen.
Co-Chairman Brown. Okay; thank you. Thanks for being here
and saying that.
Mr. Blackman?
Mr. Blackman. Yes, I think I have some idea of what would
happen to us specifically. If Congress does nothing, I expect
the Boilermaker's plan will continue to decline. That is
because I believe the actuarial assumptions are not reasonable.
So what I would expect to happen is, our contribution rates
will continue to climb, our withdrawal liability will continue
to climb. So as contribution rates go up, we continue to get
less and less competitive.
At some point, we are at the point where we may not survive
the next recession, because under recessions, margins get
squeezed. If our costs are too high, we lose money. We do not
know how long it is going to last. Nobody likes to see that
much red ink with an indefinite end period.
If the withdrawal liability keeps getting bigger, then I
think at some point my bank would likely say, you know, up to
this point we have had confidence in you, but it appears as
though this is out of control, and we are now concerned that we
need to start limiting your credit.
Co-Chairman Brown. Thank you, Mr. Blackman.
Ms. Wong, last question. There have pretty much been two
proposals around this. One is the Butch Lewis Act, and there
has been some bipartisan support in the House on that, not yet
in the Senate. It is on the table. But as Senator Portman
suggests, everything should stay on the table as we discuss
this.
The other is the plan that Congress should raise PBGC
premiums, keep the agency afloat, and maintain the insured
benefit levels for participants. Is that inadequate? And if so,
why?
Ms. Wong. It is inadequate as the only solution. Not only
is it inadequate in not saving the plans, it could also push
more plans into insolvency or at least into the critical and
declining status. So we definitely do not see that as a
solution.
Co-Chairman Brown. Because of the increase in premiums.
Ms. Wong. And we would even offer that raising premiums
should not be looked at until we address really the insolvency
of the system or these issues in the system to see really the
impact that changes have and how much those premiums still need
to be increased.
Co-Chairman Brown. Thank you.
Congressman Norcross?
Representative Norcross. Thank you, Mr. Chairman.
And I want to thank the employers for trying to do the
right thing, and that is to provide for the golden years of
your employees. That is the way you say ``thank you.''
Bankruptcy has been mentioned a number of times and the
position of our pension system. Pensions are deferred wages.
They have been put aside out of the regular paycheck so you
would have that opportunity to retire with dignity.
I have a bill, along with Senator Brown and Dick Durbin, to
address this issue, because years ago it used to be in first
position with wages. I understand there will have to be a
transition, but bankruptcy has shifted that responsibility from
the employer to the employee.
And quite frankly, the conversation that you are having,
Mr. Blackman, is, in a defined benefit the risk is with the
employer. When times are great and you are getting tremendous
returns, your contribution goes way down. And conversely, when
times are bad, it goes up.
When you go to a defined contribution, you have now shifted
everything away from the experts and made every individual
employee an investment firm. This is the risk that goes in. And
that is why Dr. Roe and I have put together a hybrid plan that
is completely voluntary.
I want to address a couple of questions here.
Mr. Langan, when Central States faces their ultimate desire
to stay in business, but the numbers, because of the pension
plan which is declining rapidly, come in, I understand there
are three different options that can take place: insolvency,
which is PBGC pays in and that $12,870 is the maximum anybody
can get; mass withdrawal, which you talked about; and to go to
the question that came up, if we force them to pay, that would
just drive the employer to bankruptcy, and then they would walk
away with nothing.
This is history. And each one of these rules has a reason
for being there. This is not a red or a blue issue. This is not
a suburban or urban issue. This is an American issue.
Every one of us has retirement plans that we look forward
to one day. Take that away from us--what you earned is what
they earned. It is not only our job, it is our obligation to
try to fix this. And the only way it gets fixed is if we come
together.
So there is a term that is used to address some of the
funding issues: pension smoothing. They do it without a loan.
Would you address that issue and how we turn it into Butch
Lewis or Butch Lewis number two? Address how that takes away
the additional income and lets us, quite frankly, invest in
Americans so it keeps the plan from going under.
Mr. Langan. Well, the smoothing method I believe that you
are referring to is an actuarial method that takes the gains
and losses of a plan and smooths them out over time so that you
do not have spikes and valleys in the valuations as you are
going forward.
It is used to--because these plans are a long-term view,
they are not a tomorrow-type view--it is used to stabilize it
so that the contribution rates based on the assumed returns can
be met.
I think one of the points that you made in regards to the
PBGC and the levels that the PBGC is at--I would like to just
take one second to address that piece. Because I think the
thing we have to keep in mind is, as we are addressing the
PBGC, they have a 65-billion-plus-dollar liability out there as
well. So the question really is, do we move money over to the
PBGC or do we get it to these plans so they have the cash flow
so they can smooth their way out of this into the future?
Representative Norcross. Absolutely. When we look at the
underfunding for Central States, it is, what are they, $38.9
billion. The 10 plans or the 9 plans behind them takes it up to
$76 billion.
So this is the issue that we are dealing with.
Mr. Langan. If I could add one other thing. I do not mean
to interrupt, sir, but I wanted to add one other thing.
If we just look at the PBGC levels in regards to Central
States, they are going to go insolvent in 2025, 2026. They have
publicly said that.
The PBGC levels, in order to come in and step in and
provide that benefit, it is going to require about $700 million
to $800 million worth of cash from PBGC just to help with that
lower benefit.
Representative Norcross. How much would you have to raise
the premiums in order to cover that?
Mr. Langan. Over 800 percent at a minimum in order to solve
that.
Representative Norcross. Eight hundred percent.
Mr. Langan. Eight hundred percent in regards to what we are
paying. It is not sustainable. It is just not really a viable
option.
Representative Norcross. So the cost of doing nothing to
our great country far exceeds what we need to do.
I yield back.
Co-Chairman Brown. Senator Smith?
Senator Smith. Thank you, Mr. Chairman. And thank you so
much to all of our testifiers today.
You know, I probably have met with hundreds of Teamsters in
Minnesota and North Dakota with my colleague Senator Heitkamp.
And I have also talked with a lot employers.
And you know, just last week I met with a Minnesota
employer. It is a family business, close to a 100-year-old
business. Maybe some of you can relate to this. And they are
looking at the shadow of all of this on their balance sheet.
They are ready to pass the business on to the next generation,
and they cannot figure out what to do. And this is a really
proud family business. They are proud of what they have done as
responsible employers, and also they are proud of their family
legacy.
And I am here to say that I have talked to a lot of
employers and a lot of employees, and I have never heard
employers cast blame on the employees or vice-versa. There is a
lack of blame in that conversation. And I think that that ought
to be a motto for all of us. And I appreciate so much then the
tone that you are bringing here.
There has been a conversation here about the risks of
inaction, which I am very attuned to. And so I want to just ask
you, there has also been some discussion that some would argue
that the idea of a loan strategy that some of us on this panel
have proposed is too risky--too risky to the taxpayers, does
not share the risk.
Would anybody just like to comment on that? How would you
respond to somebody who says that the loan strategy is too
risky?
Mr. Langan. Well, I think that when you are looking at a
loan strategy, you have to look at mechanisms; first, how it is
going to be paid back. Because the definition of a loan--
obviously it has to be paid back. So that is step number one.
But there is also another thing that we can do if we draw
these loans down over time. We can create what we have referred
to as a risk reserve pool. This risk reserve pool is money put
aside over time. It can be housed either at the DOL or the
PBGC. And it can step in when the loan repayments start
occurring down the road and help backfill that if any of these
plans have a hiccup due to the markets or whatever.
So if we do both--have a lower insurance pool over to the
side to ensure these loans are paid back and have the proper
mechanism, whatever that may be be in the end, to ensure it is
paid back--I think loans are very viable.
Senator Smith. So that is a way of mitigating the risk.
Does anyone else want to comment on that?
Ms. Wong?
Ms. Wong. Yes. We have not come up with a specific
proposal.
Senator Smith. I appreciate that.
Ms. Wong. But we do appreciate the effort that UPS has
done, obviously, and are looking for something that can also be
paid back and is fair to the taxpayer.
Senator Smith. Yes. So related to that, there are some who
argue basically that, though this is maybe not anybody's fault,
this is essentially the problem of the businesses and the
employers that are in this situation, and they are kind of
questioning what is the stake of the public in solving this
problem.
How would you respond to that? I mean, what are the risks
if the public does not engage here?
Ms. Wong. So, as we are talking about employers, I think
one of the things we have left out is that a number of
employers that are participating in the multiemployer system do
not just have union employees, they also have nonunion
employees. And so the jobs we are talking about impact all
employees; it is not just one or the other.
Also, a lot of these employers also participate in single-
employer plans and 401(k) plans. So if these employers are
going bankrupt or they are having cash shortages, it can be
impacting the retirement security of those workers as well,
even outside of the multiemployer system.
And then we do have the catastrophic instances where, if
you have businesses or companies going out of business, that
impacts the economy in local communities, obviously impacts
that business itself and the jobs it creates.
Senator Smith. So there is this ripple effect that is
partly this contagion effect that we are talking about: impacts
on other pensions plans, but also the impact on local
communities.
Ms. Moorkamp, would you like to comment on this at all? I
think about your family business, the company that you run, and
what you think would be the impact to the community that you
operate in if we were not able to fix this problem.
Ms. Moorkamp. Senator Smith, I would first like to focus on
the role this contagion effect has to your question.
Senator Smith. Right.
Ms. Moorkamp. We are in eight multiemployer plans. In three
of those plans, we are at least 25 percent of the contribution
base. Two of those three are critical and declining plans. And
as Central States goes, those certainly are going to be
impacted as well--and think about the different people that
those represent.
We also are part of the Food Association. And the 15 Food
Association members contribute to 84 plans, of which 34, or 40
percent, are critical and red. And the concern is, as Central
States goes, so too will those critical and declining plans.
And as an integral member of all the communities in which
we operate, I mean, just the thought of this catastrophe, what
that is going to do not only to our teammates, but to our
communities as well----
Senator Smith. The number of people who are impacted
ultimately has a big impact on all of us. I mean certainly
morally it does, but financially it does as well because people
still need to have a way to pay the rent and buy their
groceries.
Thank you, Mr. Chairman.
Co-Chairman Brown. Congressman Dingell?
Representative Dingell. Thank you, Mr. Chairman.
Before I ask questions, I want to make a comment. Several
people here, members of Congress, have observed that taxpayers
have no interest in this issue. And I want to strongly
disagree.
I think first, retirees and employees are taxpayers; at
least last time I checked they were.
And we have heard much testimony about the impact the
failure of a large plan could have on the economy. I would
respectfully submit that every taxpayer has an interest in what
this committee is going to do, what the outcome is going to be,
and what the impact will be on the economy. So I want to make
that point.
I secondly would like to thank my colleague Representative
Buchanan for saying that I think that Republicans and Democrats
need to start talking more between themselves, because failure
is not an option. It is not an option for the retirees who are
counting on us. It is not an option for the employers who are
struggling and facing issues. And it is not an option for this
economy.
When Senator Portman emphasized that all options should be
on the table, I hope we are all taking that to heart.
So having said that, I think I am the last questioner.
I want to start with a series of quick ``yes'' or ``no''
questions so I ensure that we are all on the same page, having
had a lot of back-and-forth as we finish this. I want to get
this on the record.
So these questions are for Ms. Wong, Ms. Moorkamp, and Mr.
Langan.
Do you believe that there would be negative impacts on the
economy if we stick with the status quo and do nothing to help
declining multiemployer plans? ``Yes'' or ``no''?
Mr. Langan. Yes.
Ms. Wong. Yes.
Ms. Moorkamp. Yes.
Representative Dingell. Mr. Blackman?
Mr. Blackman. Yes.
Representative Dingell. Thank you. Do you support Congress
doing something this year and not kicking the can down the road
any longer? ``Yes'' or ``no''?
Mr. Langan. Yes.
Ms. Wong. Yes.
Ms. Moorkamp. Yes.
Mr. Blackman. Yes.
Representative Dingell. And do you support the concept of a
loan program for critical and declining multiemployer plans?
``Yes'' or ``no''?
Mr. Langan. Yes.
Ms. Wong. Yes.
Ms. Moorkamp. Yes.
Mr. Blackbman. Not without structural changes.
Representative Dingell. Okay, thank you.
Now, these questions are for Mr. Langan of UPS. Who
administers multiemployer pension plans? And what role do
employers play in this process?
Mr. Langan. Multiemployer plans are administered by a board
of trustees. A lot of them that we participate in are
jurisdictional in nature. So if you contribute in that area,
that is where you put your monies.
We are in 27 different plans. There is employer and
employee representation on those boards. And on those boards,
they have support from attorneys, investment advisers,
actuaries--and those are the folks who run the plan day to day.
Representative Dingell. So what concerns me is that--I am
going to ask you another question, and I am probably going to
run out of time, so I may submit some questions for the record.
Mr. Blackman said he had no input into the administration
of that plan, did not know who was doing it. That worries me.
And I think that there has been--well, can you help me? Who
helps the governing board of trustees carry out their duties,
such as determining the plan investment strategies, investing
plan assets, and determining accrual levels that are supported
by contributions?
Mr. Langan. Yes. There is an investment adviser on every
board that I sit on, for example, and they help you set the
allocation based on what----
Representative Dingell. Has UPS participated in those? Have
they picked the person who does it? How do people get picked
for those?
Mr. Langan. How do people get picked to be on boards?
Representative Dingell. Did you feel that you had a
fiduciary responsibility there?
Mr. Langan. When you become a member on a board of
trustees, by law you are held at the highest standard of
fiduciary responsibility. The entire board vets out and
determines who is the best investment adviser. We look at that
on a regular basis to make sure we have the right people, the
right----
Representative Dingell. So UPS did that as a company.
Mr. Langan. As a trustee sitting on the board, as a
representative on the board, yes, I have participated in that.
Representative Dingell. So, building off that, you
mentioned in your testimony that changing the actuarial
assumptions for multiemployer pension plans would only
exacerbate, not address, the underlying problem. Can you
elaborate on this point further? Why would this be so harmful?
Mr. Langan. Well, as far as the actuarial assumptions, what
I was referring to, as far as the interest rate or the discount
rate, all that does is lift up the amount of the liability. The
contributions do not support it.
It is kind of like a three-legged stool. If you raise the
liability, you either have to reduce benefits or bring in more
contributions. That pressure just continues on the remaining
employers. And if they cannot afford it today, they will not be
able to afford it tomorrow.
As a way of a quick example, every plan has to fill out a
5500 report. And on that 5500 report, their liabilities as far
as the current liability, which is the lower discount rate that
folks are referring to, is on there. In Central States alone,
that added over $15 billion of additional liability to the
obligation.
You have to double the contribution on the remaining
employers to even take a shot at reducing that liability. It is
just not feasible.
Representative Dingell. I am out of time, Mr. Chairman, but
with more questions.
Co-Chairman Brown. Thank you. Okay, thank you,
Congresswoman Dingell.
Thank you to those of you who sat through this on both
sides for this entire couple-of-hours hearing.
Thank you to the witnesses.
Members of this panel will have 1 week to submit questions
through Senator Hatch and me that we will get to the four
panelists.
Anybody in the public who is watching or interested in this
audience or anybody watching this live-streamed, feel free in
the next 2 weeks to submit questions to Senator Hatch and me.
And we will then forward those to the four of you. And please,
respond as quickly as you can to those questions.
This was very illuminating today. Thank you so much to all
of you.
Representative Scott. Mr. Chairman?
Co-Chairman Brown. Congressman Scott?
Representative Scott. I have a unanimous consent request to
introduce a letter from several bipartisan members of the House
encouraging us to get a solution quickly for fear of
devastating consequences.
Co-Chairman Brown. Okay. Without objection, so ordered.
[The letter appears in the appendix on p. 57.]
Co-Chairman Brown. The committee is adjourned. Thank you.
[Whereupon, at 4:10 p.m., the hearing was concluded.]
A P P E N D I X
Additional Material Submitted for the Record
----------
Prepared Statement of Burke Blackman,
President, Egger Steel Company
Good afternoon, Co-Chairman Hatch, Co-Chairman Brown, and members
of the Joint Select Committee on Solvency of Multiemployer Pension
Plans.
Thank you for the opportunity to speak with you today about a topic
that has significantly impacted my business. I am the president of
Egger Steel Company, a third-generation family-owned business located
in Sioux Falls, SD. We are a structural steel fabricator that services
markets in the upper Midwest. We purchase raw material from steel mills
and transform it into assemblies that are shipped to job sites to
become the structural framework for bridges and buildings.
We currently have 51 employees, 34 of whom are hourly shop workers
who belong to the International Brotherhood of Boilermakers, Iron Ship
Builders, Blacksmiths, Forgers, and Helpers. On their behalf, we
contribute to the Boilermaker-Blacksmith National Pension Trust. We
have been contributing to this pension since 1971.
historical pension performance
We first became aware that the Boilermaker-Blacksmith pension had
an unfunded liability when we were notified that our company's 2002
withdrawal liability was over $900,000. Prior to that notification, we
had never heard the term ``withdrawal liability,'' much less understood
that it could apply to us. Since 2002, our withdrawal liability has
fluctuated due to variations in overall contributions to the pension,
investment returns and actuarial assumptions, but the overall trend of
our withdrawal liability has been upward and the largest increase in a
single year was over 300 percent coinciding with the stock market crash
of 2008-2009 (see Figure 1 below). The stock market has since
recovered, but our withdrawal liability has not returned to pre-crash
levels. Our most recent valuation indicates a withdrawal liability of
approximately $2.1 million, or over $60,000 per active eligible
employee.
The pension trustees have made multiple changes since 2002 to
reduce the plan's unfunded liability, implementing a Funding
Improvement Plan, a Rehabilitation Plan and various Amendments. They
have imposed increased contribution rates, reduced benefit accrual
rates and eliminated some future benefits for active employees. They
have not cut retiree benefits. Our company's total contribution is now
2.4 times higher than the rate we negotiated with our bargaining unit.
Despite these changes, the plan's funding status has continued to
decline (see Figure 2 below).
---------------------------------------------------------------------------
\1\ Boilermaker-Blacksmith National Pension Trust, ``Withdrawal
Liability Estimate'' letters to Egger Steel Company (2003-2017).
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
There is an uptick in the funding status for 2018, but I don't take
much comfort from that because I don't believe that the pension's
accounting reflects its true liability. The Boilermaker-Blacksmith
pension makes two actuarial assumptions that I question. First, it
projects an actuarial rate of return on its investments of 7.5 percent
net of investment expenses.\3\ During the latest bull market, its
actuarial returns have averaged only 6.0 percent (see Figure 3 below),
so in my opinion the pension should be assuming an actuarial rate of
return lower than 6.0 percent in order to account for the inevitable
losses during a bear market.
---------------------------------------------------------------------------
\2\ Boilermaker-Blacksmith National Pension Trust, ``Annual Funding
Notice for Boilermaker-Blacksmith National Pension Trust'' (2010-2018).
\3\ Segal Consulting, ``Actuarial Status Certification as of
January 1, 2016 Under IRC Section 432'' (Boilermaker-Blacksmith
National Pension Trust Form 5500, 2016), 9.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Second, the pension assumes that hours worked by active
participants will continue at current levels.\5\ This assumption
ignores the historical trend of declining numbers of active
participants and declining numbers of employers who are contributing to
the plan (see Figures 4 and 5 below). Moreover, the pension recently
disclosed that hours worked in 2017 were estimated to be 4 million
hours lower than projected.\6\
---------------------------------------------------------------------------
\4\ Boilermaker-Blacksmith National Pension Trust, ``Form 5500,
Schedule MB'' (2010-2016), 3.
\5\ Segal Consulting, 9.
\6\ Boilermaker-Blacksmith National Pension Trust, ``Important
Notice Regarding Amendment 5 to the 13th Restatement of the Pension
Plan'' (December 2017).
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
impact on egger steel company
What impact does this have on my company? The short-term impact of
the multiemployer pension crisis is that it increases my shop labor
costs. In order to attract and retain employees, I have to offer
competitive take-home wages. Younger employees are cynical about the
value of their pension benefits, so they will leave my company for a
non-union competitor if their paychecks aren't equivalent to what they
could receive somewhere else. The problem is that while my non-union
competitors are offering between 3 percent and 6 percent 401(k)
contributions, the equivalent rate for my company's total pension
contribution is 14 percent. My shop labor costs are therefore 8 percent
to 11 percent higher than my non-union competitors because of the
underfunded pension. Every time the pension imposes higher contribution
rates to make up for its funding shortfall, my costs rise, it becomes
more difficult for me to compete in the marketplace and I grow more
concerned about whether or not my company will be able to survive the
next recession.
---------------------------------------------------------------------------
\7\ Boilermaker-Blacksmith National Pension Trust, ``Form 5500''
(2009-2016), 2.
\8\ Ibid. Note that the 2010 Form 5500 indicates that 1,170
employers were obligated to contribute. This data point appears to be
an error and was omitted from the chart.
The long-term impact of this crisis is related to my company's
withdrawal liability. Because I don't intend to withdraw from the
pension, it is considered a contingent liability for now, and it is
disclosed in the notes to my financial statements rather than appearing
on the balance sheet. Nevertheless, my bank is aware of this
liability--which is why I can speak about it publicly today--and I make
management decisions as if this liability does appear on my balance
sheet. While my competitors are purchasing expensive new technology to
improve their productivity, I am limited to fixing or replacing broken
equipment because at any time my withdrawal liability could skyrocket
like it did in 2008, the pension could impose steep increases in
contribution rates or if too many employers withdraw from the pension
it could fold and assess withdrawal liabilities on whichever
participating employers are left to absorb its losses. I don't know how
likely any of these scenarios is, but if this crisis is not addressed I
am assuming that at least one of them will occur during my tenure as
---------------------------------------------------------------------------
president.
While it is true that if a withdrawal liability were to be assessed
I could pay the liability at the same annual rate that I had been
making contributions, in reality I would incur the additional cost of
contributing to a new 401(k) account for those employees who would no
longer be earning a pension benefit and would otherwise leave my
company for a competitor that does offer retirement benefits. Instead
of my labor costs being 8 percent to 11 percent higher than my
competitors, they would now be 13 percent to 16 percent higher.
recommendations
The multiemployer pension crisis is serious, and it is getting
worse every day because the pension plans are still making new defined
benefit commitments without collecting enough contributions to cover
their true costs. Before we do anything else, we must recalculate the
true extent of the problem using realistic actuarial assumptions. I'm
not suggesting that all multiemployer pension plans should immediately
recast their projections. Doing so risks a cascading failure in which
weaker companies will fold under the pressure of higher contributions
or higher withdrawal liabilities and will dump their obligations onto a
shrinking number of survivors. This committee, however, should
independently determine the realistic funding status of these plans to
ensure that any solutions offered do more than just kick the can down
the road for a future Congress to address.
My second recommendation is to transition ``orphaned''
beneficiaries to the Pension Benefit Guaranty Corporation (PBGC). The
``last man standing'' provision of multiemployer pension legislation
was a mistake and correcting it would eliminate the risk of cascading
failure. The PBGC would require additional funding to support these
orphans which could come from higher premiums or from transferring
proportional assets from the orphans' former pension funds to the PBGC.
In either case, the PBGC should consider the funding status of the
affected pension plans and vary the premiums or funds collected to
avoid harming significantly underfunded plans.
My third and final recommendation is to stop making new defined
benefit commitments. In my company's example, instead of paying 14
percent of wages to the pension, I would propose to redirect 5 percent
to a defined contribution plan for all new hours worked and continue
contributing the remaining 9 percent to the pension until its unfunded
liabilities are paid off. The pension may require Federal loans to
satisfy its short term cashflow needs, but if it stops making new
commitments while continuing to collect contributions it will
eventually be able to pay back its loans. If it would take the pension
fifty years under this scenario to pay off its liability then perhaps
we need to consider current retiree benefit cuts or direct taxpayer
assistance, but before we do either of those things we need to admit
that the era of defined benefit retirement plans is over.
Thank you for giving me the opportunity to testify.
______
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 would like to welcome my colleagues and everyone in attendance to
the third hearing of the Joint Select Committee on Multiemployer
Pension Reform.
We know our job on this committee: to find a bipartisan solution to
the crisis threatening 1.3 million Americans and thousands of small
businesses across this country.
This is what Chairman Hatch and I have set out to do, and I want to
thank him for all of his work so far, and all of the members on this
committee for the seriousness with which everyone is approaching this.
Chairman Hatch and I decided from the outset to use this initial
period to educate ourselves and our colleagues about this complicated
issue and its broad impact on the people we serve.
We've made real progress already. This will be our third meeting,
and we have three more hearings scheduled. In addition, we have
assembled a committee staff made up of top people from the Pension
Benefit Guarantee Corporation and the Department of Labor.
The staff are working to provide us with the critical technical
information the members of this committee require, and deepening and
broadening their expertise on the subject. In June alone we are
convening a dozen staff briefings, half of which have already taken
place.
We've received hundreds of comments online at pensions.senate.gov.
In fact, one of our witnesses today came to our attention when he wrote
in to the committee.
As I said, we will hold two more hearings here in DC, and one more
in the field, where the workers and businesspeople and retirees will
have the chance to weigh in.
And then by the end of July, it will be time to take what we have
learned through this process, and get serious about negotiating a
bipartisan solution.
That is what it will take to address the problem. We all have to
put our talking points and biases aside and take what we are learning
to craft a bipartisan solution. Senator Hatch and I intend to do just
that.
Because, as we will hear today, not passing a solution to this
crisis is simply not an option.
It's not an option for the millions of Americans who are part of
these multiemployer pensions, it's not an option for the millions more
who will still be affected if the system falls apart, and it's not an
option for the thousands of employers whose entire business is at
stake.
We've heard a lot over the past year about the very real threat to
the retirees who paid into these pensions over a lifetime of work. Many
of us have talked with them and heard their stories. It's because of
their activism and their refusal to give up that we created this
committee in the first place.
But the threat to current workers and to small businesses--and to
our economy as a whole--is equally real. If the multiemployer pension
system collapses, it won't just be retirees who will feel the pain.
Current workers will be stuck paying into pensions they'll never
receive. Small businesses will be left drowning in pension liability
they can't afford to pay.
And that will have ripple effects throughout our economy.
Small businesses that have been in the family for generations could
face bankruptcy. Workers will lose jobs at businesses forced to close
up shop. These businesses are already feeling the effects of this
crisis. Uncertainty surrounding their future threatens their access to
credit, their ability invest in the business, and their decisions as to
whether to expand and create jobs.
That's why this issue cuts across party lines, across ideological
lines, and through every region of the country.
One of the reasons we have heard more from workers than from
businesses is that retirees are more free to speak their minds.
But we need to think about the plight of these small business
owners. If they speak publicly about fearing their business could go
bankrupt, they'll alarm their customers, their employees, and their
creditors.
So I want to thank the witnesses here today for speaking for the
thousands of small business people who can't.
You represent businesses that have, by and large, done everything
right.
They joined multiemployer pension plans to do right by their
employees--they thought they were guaranteeing their workers a secure
retirement, making their business an attractive place to work.
They followed the rules set by Congress. They kept doing the work
to make their business thrive. They kept contributing to the pension
plan. Now, these employers are being punished for succeeding where
their competitors failed, and for living up to their obligations when
so many have walked away.
Meanwhile, it was Congress that passed upside-down tax incentives
and required insufficient premium levels. Congress allowed inadequate
tools and financing for the PBGC.
It was that government regulation that allowed this crisis to
fester, and it's our responsibility to clean up the mess Congress
helped make.
And that means more than increasing PBGC premiums and marginally
improving the minuscule PBGC guarantee.
Businesses and the groups that represent them all agree, saving the
PBGC alone does not help anyone--retirees will still see dramatic cuts
to their pensions, workers will still pay into a retirement they may
never see, and businesses will face increased PBGC premiums, while a
crippling liability still hangs over their heads.
I'm confident we can find a bipartisan solution that will both
solve this current crisis, and improve and strengthen the system so
that it never happens again.
I'm willing to consider any idea that meets those goals, and I
believe Chairman Hatch agrees. 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 hearing examining employer perspectives on
multiemployer pension plans.
We have brought in business representatives to provide their
perspectives on issues with the defined benefit system in order to
better understand the realities employers face participating in the
multiemployer system.
We will delve into some fundamental questions, including why
employers entered into collective bargaining contracts to participate
in these plans; how participation affects a business's ability to
operate as a going concern; and how the financial condition of these
plans affect their ability to access credit, invest in new facilities,
equipment, expand operations, and hire new employees.
Before I proceed, I want to provide a brief update on the
activities of the Joint Select Committee. The committee is operating on
several tracks.
We have the outward-facing process of the hearings, which have been
useful to better understand the issues confronting the committee.
Committee staff have also held a number of briefings on a wide variety
of technical issues in the multiemployer area, including topics that
will be touched upon today, such as the impact of withdrawal liability
and the operation of the bankruptcy laws in the multiemployer space.
The committee is also working on a range of possible policy options
for review. And we continue to develop and evaluate these options,
working with the PBGC, our in-house experts, and other agency officials
to put some flesh on the bones of these ideas.
I remain open as to what the committee may consider later this
year, and my co-chair, Senator Brown, has similarly expressed openness.
I also know that there are members of this committee who are actively
working on proposals, which they may put forward after fully analyzing
their ideas.
But with all of that said, there remains a lot of work to do. And I
think I should be clear that I do not see our choices as being limited
to a referendum on some sort of loan program.
I bring this up because some prior comments have indicated to me
that some of my friends have become convinced that we are stuck with a
loan or nothing choice. I have a few thoughts about that.
First, some of us have genuine concerns and questions about the
nature of the proposed loan programs, which have yet to be fully
analyzed. And a major question remains: what is the limiting principle
on risk to the American taxpayer? Multiemployer plans are private
arrangements between employers and unions, covering wage compensation
and fringe benefits.
Yes, they are shaped to some degree by the tax and pension laws,
but so are defined contribution plans and other pension arrangements,
as well as a whole host of other financial arrangements in the private
sector.
It is clear that the employer and union participants entered into
these contracts with an understanding of the terms and conditions that
should have allowed them to manage these obligations in a way that
would ensure their financial viability.
And although Federal actions over the last 50 years have helped
shaped where these plans stand today, the arrangements are, at their
core, privately bargained-for contracts--negotiated without the Federal
Government's input. And, candidly, the vast majority of Federal
taxpayers have no financial interest in these plans.
So let's be diligent and methodical as we approach these issues and
negotiate solutions. I want to be sure we are mindful of all of the
consequences of our approach--intended or not--so that we can prevent
future failures, mismanagement of taxpayer dollars, and the economic
dangers of moral hazard.
We need to learn from our mistakes and do better here. Now, none of
what I am saying is to dismiss the real concerns of participants,
including active workers and retirees who face real hardship as these
plans decline and even fail.
As a former skilled union member, I understand these perspectives,
and I recognize that the difficult, but necessary choices we have to
make as this committee will affect real people with real families. But
I also know that real people, who are currently employed and paying
taxes, are also affected by the decisions these businesses have to
make.
And the difficulty businesses encounter because of the current
condition of these pension plans is sometimes bizarre, if not
ludicrous.
As just one example, it is alarming, as we will hear today, to
learn that the estimates of withdrawal liability frequently exceed the
book value of the sponsoring companies. And as some companies will
testify, there is a real fight to get out from underneath the burdens
of pension liability for employees who were never even employed, let
alone received a pay packet.
It is truly a complicated issue, one that requires us to move
thoughtfully, instead of jumping to conclusions to score political
points. That's why I look forward to exploring these issues in depth
today and beyond, and am pleased by our witnesses today, who will share
with us their views on these matters.
______
Prepared Statement of Christopher Langan,
Vice President of Finance, UPS
introduction
The multiemployer pension system is in a crisis from which it will
likely never recover if Congress does not take immediate action. The
Joint Select Committee on Solvency of Multiemployer Plans is uniquely
empowered to find a responsible solution to this issue of critical
importance for more than 10 million Americans who participate in
multiemployer pension plans, their families, and thousands of employers
that contribute to the plans to provide their employees with retirement
income. If Congress does not find a viable solution for plans like
Central States and the Mineworkers Plan, the claims for financial
assistance by these plans will quickly bankrupt the PBGC's own
multiemployer insurance program. Retirees under these plans would then
see their benefits drop to just a fraction of the already modest
benefit guarantee under the PBGC's multiemployer insurance program.
UPS began to contribute to multiemployer pension plans in the 1950s
and currently contributes nearly $2 billion per year to 27 different
plans across the country. These plans include some of the largest in
the country, such as the Western Conference of Teamsters Pension Plan,
the New England Teamsters and Trucking Industry Pension Fund, and the
I.A.M. National Pension Fund. The plans to which UPS contributes vary
in funding status. As of last year, out of the 21 plans to which UPS
makes the largest contributions, eight were in ``critical status,''
three were in ``endangered status,'' and the remaining ten were in the
``green zone.''
UPS supports a solution to this problem so that the multiemployer
pension system remains a viable method of providing retirement benefits
into the future for all participants and to avoid the catastrophic
collateral effects on our economy that would necessarily arise from a
failure of the system.
historical background
The present multiemployer pension crisis did not arise overnight or
through the fault of employers or employees. The crisis is also not
generally due to mismanagement by plan trustees, who are subject to the
strict fiduciary standards outlined below.
Multiemployer pension plans are governed by a board of trustees
with equal representation from labor and management. Labor trustees and
management trustees generally are required by law to have equal voting
power. If the trustees reach a deadlock on any issue, the issue is
resolved by arbitration. These trustees have fiduciary responsibility
for the management and administration of the plans as a whole,
including the management of the plan assets. The fiduciary standards
under ERISA require trustees to act prudently, follow plan documents,
diversify investments and act for the exclusive benefit of participants
and beneficiaries. Due to these high fiduciary standards, trustees
typically retain investment managers and delegate to them
responsibility for the day-to-day investment of plan assets. In
addition to retaining investment managers, trustees will typically also
retain investment consultants to assist in the selection and ongoing
monitoring of investment managers, asset allocation, and similar
issues. Trustees rarely make day-to-day investment decisions.
The current crisis is not the result of poor decision-making in
retaining investment professionals. It is instead the result of a
perfect storm of events that were never contemplated when the
multiemployer pension system was first created. In particular,
multiemployer pension plans have suffered from (i) macro changes to
many of the established industries in the United States with
significant multiemployer plan participation, and (ii) the 2008 market
crash--which happened while many plans were still recovering from the
earlier burst of the dot-com bubble. These macro changes and
unprecedented negative market events had a number of derivative effects
on multiemployer pension plans, including significant investment
losses, dramatic reductions in the number of contributing employers,
declines in the number of active participants, increases in the number
of retirees, an unusually low interest rate environment, and increasing
employer failures that have prevented plans from fully collecting
withdrawal liability.
Macro Changes to Established U.S. Industries
Many multiemployer pension plans primarily cover participants in
established industries that have significantly changed in the United
States over the past 30 to 40 years. An example of one of these changes
that has uniquely impacted a number of Teamster plans is the passage of
the Motor Carrier Act of 1980, which deregulated the trucking industry
and gave rise to a new breed of non-unionized trucking company with
which many established trucking companies could no longer compete.
Central States reported that out of its 50 largest contributing
employers in 1980, only three remained contributing employers by 2015,
and that over 600 of its contributing employers have gone bankrupt
since 1980.\1\ These pressures also impact non-Teamster funds. As an
example, the Western States Office and Professional Employees Pension
Fund was acutely impacted by the decline in contributions due to the
2002 bankruptcy of one of its largest contributing employers,
Consolidated Freightways--an established trucking company.\2\
---------------------------------------------------------------------------
\1\ See, e.g., Central States MPRA Application, page 18.2,
available at https://www.treasury.
gov/services/AppsExtended/
(Checklist%2018)%20All%20Reasonable%20Measures.pdf.
\2\ See, e.g., Western States MPRA Application, Checklist 2, page
9, available at https://www.
treasury.gov/services/KlineMillerApplications/
Checklist%202%208%2013%2015%2017-22%2024
%2030-33%20WSOPE%20MPRA%20Benefit%20Suspension%20Application%20-
%20pages%201-25_Redacted.pdf.
Employers in these established U.S. industries have also had to
cope with other market forces, such as increased competition from
foreign companies and the outsourcing of significant work to other
companies. For example, furniture imports began to rapidly increase in
the 1970s, which in turn harshly impacted furniture companies in the
United States. The United Furniture Workers Pension Fund reported in
its MPRA application that from 1981 to 2009, 35 of its contributing
employers alone filed for bankruptcy (or effected an assignment for the
benefit of creditors) and withdrew from that fund.\3\
---------------------------------------------------------------------------
\3\ See, e.g., United Furniture Worker Pension Fund A First MPRA
Application, page 12, available at https://www.treasury.gov/services/
KlineMillerApplications/United-Furniture-Workers-Pension-Fund-A-
Application-for-Benefit-Suspensions-1.pdf.
These changes have been compounded by the broader decline of unions
in the United States, increases in labor productivity, the emergence of
new, non-unionized industries that have begun to dominate the American
economy, and the increasing numbers of baby boomers who are retiring
and applying to commence their pension benefits.
Economic Recessions
In the past 20 years, multiemployer pension plans have suffered
from two significant economic recessions--first in 2002 with the burst
of the dot-com bubble and then in 2008 with the burst of the housing
bubble and the financial crisis that followed. These recessions
resulted in significant, unprecedented investment losses for
multiemployer pension plans. Central States experienced $7.5 billion in
investment losses in 2008 alone.\4\ However, the impact of these
recessions were not limited to investment losses. The recessions also
bankrupted many contributing employers and constrained the ability of
other employers to bear significant increases in contribution rates.
---------------------------------------------------------------------------
\4\ Government Accountability Office, GAO-18-106, ``Central States
Pension Fund--Investment Policy Decisions and Challenges Facing the
Plan,'' page 36 (2018).
Although these economic recessions followed periods of relative
prosperity in the United States, multiemployer plans were largely
unable to fully prepare for the threat of significant downturns. This
is because the Tax Reform Act of 1986 limited the ability of employers
to deduct contributions to overfunded multiemployer plans. As a result,
when plans were projected to become overfunded--particularly in the
1990s--trustees of many of the plans began to increase benefit levels
to lower the funding status of their plans and ensure that contributing
employers could continue to deduct their contributions.\5\ Until
legislation became effective in 2002 that modified this limitation on
contribution deductions, plans were effectively unable to preserve
their investment gains as a hedge against future downturns. It is
estimated that this issue impacted over 70 percent of multiemployer
plans.\6\
---------------------------------------------------------------------------
\5\ W. Thomas Reeder, testimony before the House Committee on
Education and the Workforce Subcommittee on Health, Employment, Labor,
and Pensions, November 29, 2017.
\6\ Randy DeFrehn, testimony before the House Committee on
Education and the Workforce Subcommittee on Health, Employment, Labor,
and Pensions, September 22, 2016.
---------------------------------------------------------------------------
Derivative Effects
The macro changes and economic recessions had a number of
derivative effects on multiemployer pension plans.
First, active participation in multiemployer pension plans has
declined over time. The ratio of retirees and terminated vested
participants in multiemployer pension plans increased from 48 percent
to 63 percent from 1995 to 2013 alone.\7\ As PBGC Director Reeder has
previously testified, today, the ratio of active to inactive
participants is at its lowest point in history.\8\ As a result, many
plans receive ongoing contributions for a decreasing number of
participants.
---------------------------------------------------------------------------
\7\ Jasmine Ye Han, ``Retiree-Employee Ratios Are Dooming the
Multiemployer Pension,'' Bloomberg BNA, May 9, 2017, available at
https://www.bna.com/retireeemployee-ratios-dooming-n73014450632.
\8\ W. Thomas Reeder, testimony before the House Committee on
Education and the Workforce Subcommittee on Health, Employment, Labor,
and Pensions, November 29, 2017.
Second, many plans have fewer contributing employers than ever
before due not only to withdrawals by those seeking to limit their
potential exposure but also due to the failure of contributing
employers. Specifically, a number of contributing employers have simply
proven unable to weather these macro changes and economic recessions.
These employers have ceased contributions to multiemployer pension
plans altogether--often through bankruptcy--and often failed to fully
satisfy their withdrawal liability obligations. As a recent example,
when The Great Atlantic and Pacific Tea Company filed for bankruptcy in
2015, it was a contributing employer to 12 multiemployer pension
plans.\9\ Each time a contributing employer to a multiemployer pension
plan fails, it effectively leaves the plan's remaining contributing
employers, who may themselves already be damaged from various macro
events, liable for the unfunded vested benefits of the failed
employer's participants.
---------------------------------------------------------------------------
\9\ See ``Motion of Debtors Pursuant to 11 U.S.C. Sec. Sec. 105(A),
363, and 507(A) for Interim and Final Authority, but Not Direction, to
(A) Pay Certain Prepetition Wages and Reimbursable Employee Expenses,
(B) Pay and Honor Employee Medical and Other Benefits, and (C) Continue
Employee Benefit Programs, and for Related Relief,'' in re The Great
Atlantic and Pacific Tea Company, Inc., et al. (S.D.N.Y., July 19,
2015).
The combined impact of these first two derivative effects--the
ongoing decline in contribution base and the decline in contributing
employers--is profound. Because there are fewer contributing employers
among which to spread risk, these derivative effects make the plans
more reliant on the financial fortunes of their remaining contributing
employers. These derivative effects also require the plans to demand
ever-increasing contribution rates from their remaining contributing
employers--a vicious cycle that in turn leads to even more employer
---------------------------------------------------------------------------
withdrawals.
Third, and related to the foregoing point, because many plans have
a disproportionate share of retirees relative to active participants,
these plans often pay more in annual benefits than the plans collect in
annual contributions. While this may not be financially toxic for
healthy plans, it has a disastrous effect for underfunded plans that
have shrinking asset bases from which to generate investment returns.
Rather than using their current asset base to generate the returns
needed to bring themselves back to health, these plans are forced to
sell their investment assets in order to pay benefits.
Finally, multiemployer pension plans have suffered through an
unusually low interest rate environment since the 2008 recession that
is just starting to inch back to normal levels. With yields on
treasuries and investment grade bonds at nearly historic lows, plans
have generated smaller returns than usual on their fixed income
portfolios. This has dragged investment returns for certain troubled
plans.
current problem
The current problem is that even after the recent improvements in
the economy, the most troubled underfunded multiemployer pension plans,
such as Central States, have significantly negative annual cash flow.
These plans simply pay much more in benefits each year than the plans
collect from employers and earn through investment returns--and the
annual disparity between the plans' cash inflows and outflows is only
growing as more participants retire and start benefit payments,
contributions for ongoing participants decrease, and plans are left
with shrinking asset bases from which to generate investment returns.
If large plans like Central States and the Mineworkers Plan become
insolvent and turn to the PBGC's multiemployer insurance program, the
PBGC will not be able to fully satisfy its already modest guarantee for
the participants in any insolvent plans. As of 2016, the Congressional
Budget Office estimates that out of the $35 billion in financial
assistance claims from multiemployer plans that the PBGC is projected
to receive from 2027 through 2036, the PBGC will only be able to pay $5
billion.\10\ This should not be an acceptable result to Congress for
retirees on fixed incomes who need every dollar of their pension
benefits.
---------------------------------------------------------------------------
\10\ Congressional Budget Office, ``Options to Improve the
Financial Condition of the Pension Benefit Guaranty Corporation's
Multiemployer Program,'' page 2 (2016).
---------------------------------------------------------------------------
finding a solution
The multiemployer pension system is in crisis and the problem
becomes worse each day. This committee is uniquely empowered with the
ability to develop a legislative solution that will help ensure that
multiemployer pension plan participants receive the retirement benefits
they earned through years of hard work and on which many are relying to
support themselves and their families after their working years.
Given that the failure of Central States and the Mineworkers Plan
will effectively bankrupt the PBGC's multiemployer insurance program,
UPS respectfully submits that the highest priority should be on
solutions that will work for the largest, and most critically
underfunded, multiemployer pension plans, which in turn will help save
the PBGC's multiemployer insurance program.
To that end, UPS notes as an initial matter that changing the
actuarial assumptions for multiemployer pension plans to more closely
reflect those used by single-employer plans would only exacerbate, not
address, the underlying problems. At this point, the most troubled
plans are ``mature'' plans with more retirees than active participants.
The cash flow needs for these plans are known and quantifiable and, as
required by law, the plans have generally implemented employer
contribution schedules that reflect the maximum that the trustees have
determined that they can collect from employers without impairing their
ability to remain in business and willingness to continue contributing
to the plans. Modifying the actuarial assumptions in a manner that
significantly increases the valuation of the plans' liabilities will
result in a perceived, but artificial, need for additional
contributions, but in reality will not result in additional cash flow
or otherwise solve the pressing problem. Indeed, modifying the
actuarial assumptions may make the problem worse if the revised
assumptions result in even higher withdrawal liability calculations for
employers that would already struggle to pay any withdrawal liability
assessed in accordance with current law.
Similarly, there has been much discussion recently regarding the
GROW Act and a new type of plan known as a ``composite plan.'' While
UPS does not intend to take a position on composite plans at this time
(other than to state that any composite plan legislation should be
crafted in a manner that does not undermine the viability of so-called
``legacy plans''), it is important to note that the GROW Act simply
will not fix the most pressing problem at hand for plans like Central
States and the Mineworkers Plan, and therefore will not save the PBGC
either. While the committee should determine whether the GROW Act is
still potentially beneficial for other plans, UPS urges the committee
to remain focused on the more pressing problem at hand.
In order to derive a solution to the pressing problem, UPS
encourages the committee to focus attention on the key factors that
suggest what will work. While the nuances of multiemployer pension
funding are complicated, the basic premise is quite simple. Plans'
finances depend on two things: (i) the plans' cash inflows in the form
of employer contributions and investment returns, and (ii) the plans'
cash outflows in the form of benefit payments and administrative
expenses. Put simply, troubled plans are unable to recover because they
face significant negative cash flow--an imbalance between these two
factors, and quickly exhaust their remaining assets.
For these troubled plans, increased employer contributions will not
solve the cash inflow problem. Troubled plans have been required since
the enactment of the Pension Protection Act of 2006 to create
contribution schedules that are projected to improve their financial
condition within specified timeframes. These contribution schedules
have significantly increased the contribution rates for most employers
to troubled plans. Many employers are now contributing double what they
contributed per employee before these legal changes were enacted.\11\
Troubled plans have found that increases at these levels are simply
unsustainable for contributing employers--particularly those that are
increasingly forced to compete with non-union employers in the
marketplace and that already operate on low margins. These contribution
increases have already hastened the pace at which employers have
stopped contributing to troubled plans due to either the inability to
pay these increased contributions, which further shrinks the plans'
contribution bases, or due to liquidation or bankruptcy (in which case
employers also fail to pay their full share of withdrawal liability).
In addition, employers often contribute to several multiemployer plans.
If these employers go out of business due to the unsustainable
contribution increases owed to just one of their plans, they will stop
contributing to all of their plans. The result is a shrinking
contribution base, and the financial health of an ever increasing
number of multiemployer plans is put at risk. There is simply no
workable fix that can be strictly funded through employer contributions
for plans like Central States.
---------------------------------------------------------------------------
\11\ For example, the ``default'' contribution schedule implemented
by Central States after PPA required 5 years of compounded 8-percent
annual contribution rate increases, 3 years of 6-
percent annual compounded increases, and then continuous 4-percent
compounded annual increases (without factoring in any additional
contribution increases for benefit improvements). See, e.g., Central
States MPRA Application, page 18.7. At this rate, an employer's
contribution rate doubles within 12 years after the adoption of the
schedule.
In the case of cash outflows, multiemployer pension plans generally
offer modest retirement benefits to participants who have typically
worked in blue-collar jobs. Significant benefit reductions for these
people come at a huge human cost that cannot be overlooked.
Multiemployer pension participants have planned on this income
throughout their entire working lives and taken the income into account
in planning how much, if anything, to separately set aside for
additional retirement savings. As a practical matter, for many
participants, their modest pension benefits and Social Security
benefits are the only available source of income in retirement and they
have no other meaningful source of savings. Benefit reductions also
have broader ramifications and costs for the government in the form of
lost tax revenue on the unpaid benefits and increased demand of other
government services like SNAP (food stamps) and other welfare and
social programs. For example, a retiree on a fixed income with a modest
pension of $600 per month may not be able to absorb an even $100
reduction to his or her monthly benefit. As a result, similar to the
notion of increased employer contributions, there is also no workable
fix that can be funded strictly through benefit reductions for the most
troubled plans.
loan program
UPS believes that a carefully designed loan program could save the
most troubled plans without imposing undue hardships on participants,
contributing employers, the PBGC, the Federal Government, taxpayers, or
healthy plans. As PBGC Director Reeder testified before this committee,
the most troubled plans need an infusion of cash as soon as possible to
stay viable. Each of the loan programs proposed by various parties
would provide troubled plans with this desperately needed lifeline
while still ensuring that the plans are projected to repay the loans in
full.
As you know, UPS has provided some ideas on how to structure a
successful loan program about which we are happy to provide additional
information. Generally, we think long-term, low interest rate loans to
the most troubled plans would allow them to stop selling assets to pay
benefits and provide them with the opportunity to regain their
financial strength and repay the loans in full over time. We think
there are ways to provide assurances that the loans can be repaid so
that taxpayers can be protected as well. While these assurances may
require some level of shared sacrifice among all of a borrowing plan's
stakeholders--it will avoid the significantly worse, and catastrophic,
effects of inaction.
Of course, the committee will ultimately need to decide the right
balance to strike among the important issues and considerations at
stake. More important than the specific details of any particular loan
program at this point is our demonstration as to why--short of a
government bailout--a loan program is the only solution that has been
raised to date that would help solve the current crisis. In this
regard, we note that Central States and the United States Mineworkers
Plan have confirmed that a loan program could help save the plans,
avoid insolvency, and therefore avoid the need to turn to the PBGC's
multiemployer insurance program for assistance.\12\
---------------------------------------------------------------------------
\12\ See, e.g., letter from Mr. Thomas C. Nyhan, Executive Director
of the Central States Pension Fund, dated November 13, 2017, to U.S.
Senator Sherrod Brown and Representative Richard Neal, available at
https://d3n8a8pro7vhmx.cloudfront.net/teamstersforademocraticunion/
pages/10476/attachments/original/1510782483/Central_States_-
_Letter_to_Sherrod_Brown_
and_Richard_Neal_11132017.pdf?1510782483; United Mine Workers of
America, press release, American Miners Pension Act (Oct. 3, 2017),
available at http://umwa.org/news-media/press/american-miners-
protection-act (addressing a prior loan proposal).
---------------------------------------------------------------------------
conclusion
Some have asked why the Federal Government should step in at all to
help these plans that cover just a subset of the broader American
population. The fact is that the Federal Government made a promise to
all participants in private-sector defined benefit plans with the
creation of ERISA and the PBGC. Over 40 years of literature and
pronouncements on pension benefits disseminated in the United States
have included a disclaimer that, in the worst case scenario, the PBGC--
a Federal corporation--would guarantee a certain portion of an
individual's benefits. As it stands, the PBGC will not be able to do
that much longer.
The consequences of the PBGC's failure will be extraordinary. At
the very least, it is clear that failure will result in, among other
things, participants receiving small fractions of their benefits, lost
tax revenue, higher demands on Federal, State and local government
safety nets, and a loss of confidence in our social institutions.
The loan solution described above is not intended as a bailout in
any sense, but would still allow the government to make good on its
promise. At this point, there is also no other reasonable alternative
that can save the most critically underfunded plans or our economy from
the collateral effects of their failure.
Thank you for the opportunity to testify before the committee and
to submit this written supplement. UPS stands ready to continue to help
find a solution to this important problem.
______
Prepared Statement of Mary Moorkamp, Chief Legal and
External Affairs Officer, Schnuck Markets, Inc.
Co-Chairman Hatch, Co-Chairman Brown, and members of the Joint
Select Committee (``committee''), thank you for the opportunity to
participate in today's hearing on ``Employer Perspectives on
Multiemployer Pension Plans.'' I am Mary Moorkamp, chief legal and
external affairs officer at Schnuck Markets, Inc., in St. Louis, MO. I
am appearing today on behalf of Schnuck Markets and the Association of
Food and Dairy Retailers, Wholesalers, and Manufacturers (``Food
Association''). I also hope to provide a voice to the more than 5,400
employers who contribute to multiemployer pension plans that are
projected to be insolvent in 20 years or less.\1\
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\1\ NCCMP Multiemployer Pension Facts and the National Economic
Impact, slide 3 (Jan. 5, 2018).
My message today is simple. This committee must succeed in its
mission to solve the funding crisis facing the multiemployer pension
system. We understand and fully appreciate the enormous challenges
facing this committee. But the consequences of failure are both real
and significant--not only to retirees, but to employers, employees, and
our local communities. To quote from the movie Apollo 13: ``Failure is
not an option.''
i. what is schnuck markets?
Schnuck Markets is a third-generation family-owned retail grocery
chain. It was founded in Anna Donovan Schnuck's kitchen in 1939 as a
way to feed her family and neighbors during the Depression. Back then,
as today, she was seeking a way to nourish people's lives. From those
humble beginnings, the company has grown to its current size of more
than 13,000 teammates serving 100 grocery stores in five States:
Missouri, Iowa, Indiana, Illinois and Wisconsin. More than 75 percent
of our workforce is unionized. Our CEO is Todd Schnuck--a proud
grandson of Anna Schnuck.
The Schnuck Family believes deeply not only in providing a quality
and competitive grocery experience, but also in giving back to the
community--both near and far. Three illustrations highlight this
commitment. First, we are proud to say that in each community in our
five-State region, we partner with local food banks and pantries to
ensure that the hungry in our communities are fed. In St. Louis alone,
one out of every three meals served by Operation Food Search comes from
Schnuck Markets. That is annually almost $12 million in food donations.
Second, when Hurricane Harvey devastated the Texas Gulf Coast last
year, in one day's time--and at one store alone--our teammates
collected over $23,000 in cash donations, and we filled six tractor
trailer loads with supplies, which Teamster drivers took to the Houston
hurricane victims. Just to be clear, the closest Schnuck store to
Houston, Texas is in Jefferson City, Missouri--over 750 miles away.
Finally, we are proud to partner with Folds of Honor to provide
scholarships to the children and spouses of fallen and wounded service
members. To date--and the program has only been going since Memorial
Day week--we are on pace to raise over $1 million by July 4th, which
translates to over 200 scholarships. From 1939 to present day, our
mission to nourish people's lives has been unwavering.
ii. the history of schnuck markets and central states
A. Contribution History
Schnuck Markets entered the Central States Teamsters Pension Fund
(``Central States'') in 1958. The date is important, because it was
many years before Congress enacted ERISA or the withdrawal liability
rules. There was no ``last man standing'' concept or tax deduction
limitation when we entered Central States. And there was no PBGC
multiemployer fund. We did not ``make a bad deal.'' These rules were
forced upon us after the fact. We simply wanted to provide our drivers,
mechanics, and grocery warehousemen with a retirement benefit for the
work they did for Schnuck Markets.
Since 1958, we have made all of our required pension contributions.
I want to emphasize this point, because this committee cannot get
caught in the trap of trying to place blame for the crisis. Just like
the participants who say--correctly so, I would add--that they are not
to blame, nor are the contributing employers. Schnuck Markets has done
everything we were supposed to do. No one is to blame, which is why
everyone must share in the sacrifice to solve the crisis.
In 1958, our weekly contribution rate was $3 per week. At the time,
this contribution was about 3 percent of our Teamster teammates' total
compensation package (salary, retirement, and health and welfare
benefits). There was no such thing as ``withdrawal liability,'' and our
liability was limited to funding our pension obligation for our
teammates under our Collective Bargaining Agreement.
Fast forward to our situation today. Our contribution rate to
Central States for 2018 is $342 per week. This contribution rate
amounts to between 19 percent and 21 percent of our Teamster teammates'
total compensation package. This compares to a compensation percentage
of around 4 percent to 6 percent for our non-Teamster teammates. (In
our industry, it is typical for a retirement contribution percentage to
be in a 4 to 6 percent range or less. Anything above that puts a
company at a significant competitive disadvantage.)
The $342 per week contribution level is 114 times the contribution
rate in 1958. For some historical context, in 1958, a gallon of milk
cost $1, a loaf of bread was 20 cents, and a gallon of gasoline was 25
cents. What would our customers and your constituents say today if they
were paying $114 for a gallon of milk, $22.80 for a loaf of bread, and
$28.50 for a gallon of gas? That is what has happened to our
contribution rate in a ``penny margin business.''
B. Unfunded Liabilities--the ``Last-Man Standing'' Rule
A major reason our contribution rate has increased so much is
because of the unfunded liability rules. In effect, each employer in a
multiemployer plan is jointly and severally liable for a plan's
unfunded liabilities. When an employer leaves a plan without paying its
portion of the plan's unfunded liabilities (or if a plan suffers an
investment loss following the employer's withdrawal), the
responsibility for the unfunded liabilities not paid by the exiting
employer shifts to the remaining employers. This is referred to as the
``last-man standing'' rule. The shift in unfunded liabilities drives up
our contribution rates, and employers such as Schnuck Markets are
forced to fund the retirement of workers who never worked for us--and
in fact may have worked for our competitors or, more likely, completely
outside our industry and region in which we operate. What this also
means is that prudent and responsible employers who followed all the
rules are the ones left holding the proverbial ``bag.''
This point is clearly illustrated by Central States. According to
Central States, 59 percent of the retirees are orphans, meaning that
their contributing employer is no longer paying into Central States.
Moreover, 54 percent of our contribution dollars (or $185 of the $342
we contribute) go to pay for the benefits of participants that never
worked for Schnuck Markets.
It is not as though our Teamster teammates will enjoy a retirement
benefit commensurate with our contribution rate. Given Central States'
projected insolvency in 2025, our teammates will be fortunate to
receive the maximum PBGC guarantee of $429 per year of service (or
$12,870 per year for a teammate with 30 years of service)--which is
only about one-third of the benefit they otherwise would have received.
And this is only if the PBGC multiemployer program remains in
existence--which at this point is projected to be insolvent in 2025.
When the PBGC program goes insolvent, Central States participants will
receive next to nothing.
It is for this reason that in 2017, out of concern that our
Teamster teammates would have nothing at retirement--despite years of
our pension contributions to Central States--we established a 401(k)
plan on their behalf. The 401(k) is a 100-
percent company match up to 4 percent of the teammate's salary. This is
in addition to the weekly contributions we continue to make to Central
States. We see this as a way for our Teamster teammates to accumulate
some type of retirement income, in addition to their own personal
savings--as there will be little to nothing for them once Central
States goes insolvent. This is our only bargaining unit that has a
pension (albeit a potentially insolvent one) and a match feature to
their 401(k). The Central States situation is unfair to our Teamster
teammates and to all of our other teammates--and is untenable for
Schnuck Markets in our highly competitive, penny-margin business.
C. Withdrawal Liability
The unfunded liabilities not only affect our required contribution
rate, but also create a staggering withdrawal liability.
Congress enacted the withdrawal liability rules in 1980. (As a
reminder, we had been in Central States for 22 years at this point.)
The withdrawal liability rules require employers that terminate their
participation in a plan to make payments that cover their share of any
unfunded benefits. The payments are based on each employer's
proportional share of a plan's underfunding.\2\
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\2\ By way of example, in general, if an employer's contributions
to a plan comprise 10 percent of the plan's contributions, the
employer's withdrawal liability is calculated as 10 percent of the
plan's unfunded benefits.
According to the latest estimate from Central States, our share of
the plan's unfunded vested benefits at the end of 2016 was in excess of
$281 million. We expect that this number is significantly higher today,
as the amount has nearly doubled in the last 5 years. Bear in mind that
out of our 13,000 Schnuck Markets teammates, only about 200 are covered
by Central States. For some context, our total Teamster payroll last
year was $16.8 million. Yet, the withdrawal liability attributable to
these 200 Teamster teammates is estimated at $281 million (more than 16
times last year's Teamster payroll). That averages to $1.4 million per
Teamster teammate. While we expect to pay less than this amount (the
liability is limited to 20 annual payments based on a formula that
takes into account contribution base units and contribution rates
during the 10 preceding years--referred to as the ``20-year payment
cap''), we are in unchartered waters given the magnitude of a Central
States insolvency. From a policy perspective, it makes no sense that an
employer whose contributions have increased 114-fold and has made all
of its required contributions could have a withdrawal liability that
even approaches this amount.
iii. immediate implications to schnuck markets
The combination of burdensome contribution requirements, the
withdrawal liability rules, and the projected insolvency of Central
States, has created the proverbial ``albatross'' around Schnuck
Markets' ``neck.'' And we are feeling the effects right now. This is
not a ``year 2025 problem.'' The Central States crisis already has an
impact on our current operations and strategic long-term planning
decisions. Specifically:
1. A reluctance to grow our business. If we open a new store,
we have to hire a driver to service the store. Per our
Collective Bargaining Agreement, that Teamster driver has to
become a participant in Central States. This adds to our
Central States contribution base, which increases our
withdrawal liability. By our calculations, each new Central
States participant increases our withdrawal liability amount by
approximately $200,000--which is money they will never see at
retirement.
2. Recruiting problems. The Central States crisis has created
recruiting issues for Schnuck Markets. When we inform a
prospective Teamster driver that his or her pension will come
from Central States, they lose interest in the position. They
know what's going on and don't want to depend on a withering
fund for their retirement savings.
3. Distorting business decisions. Business decisions that
otherwise make complete business sense--such as repositioning
business assets in a particular market--cannot be made because
of the impact of the withdrawal liability rules.
4. Impact on our capital structure and cost of capital. The
April 18th submission by the NCCMP (at p. 27) notes how ``the
insolvency of Central States and the liabilities that would be
imputed to employers will be a topic for the accounting
profession, including the FASB. Withdrawal liability has been a
topic that many accountants have discussed with their employer
clients, and those discussions become more real when you
actually have a plan insolvency.'' Schnuck Markets has been
required to make additional disclosures on our financial
statements. And the financial accounting concerns could impact
our capital structure. We rely on private placement debt and
bank lines of credit to augment our cash flow. As Central
States positions itself for insolvency, our lenders are
becoming increasingly concerned about the impact of the
insolvency on our financial statements. When assessing a
company's financial strength, lenders and credit rating
agencies factor potential pension withdrawal liabilities into
their analysis, which affects our credit rating and our cost of
capital. PBGC Director Reeder, in his testimony before this
committee, indicated that ``the consensus of the PBGC is that
most plans facing insolvency in the near future will not
terminate,'' implying that Central States' insolvency will not
negatively impact employers. Setting aside that Director
Reeder's ``consensus'' assumes employers such as Schnuck
Markets will continue contributing over $17,700 per year to an
insolvent plan on behalf of an employee who may receive next to
nothing, the real story is that we do not know how our lenders
and auditors will react when Central States becomes insolvent.
But I am not willing to wager the future of Schnuck Markets
based on a PBGC ``consensus view.''
In summary, Schnuck Markets is forced to continue making
contributions to a plan that is projected to be insolvent within 7
years, from which our teammates will be fortunate if they receive any
significant portion of their anticipated benefits. Already, the pending
Central States insolvency is limiting our ability to expand our
business and attract new drivers. It is distorting our strategic
business decisions and impacting our capital structure. This is
happening right now, not in year 2025.
iv. scope of the looming crisis
What I have described is the Schnuck Markets story. I know each of
your districts and States have similar compelling employer stories. The
recently released PBGC Projections Report states that there are about
130 multiemployer plans that are projected to be insolvent in 20 years
or less (``Critical and Declining Plans''); and data collected by the
NCCMP states that about 5,400 employers contribute to these plans. I
have to think that the future of many of these employers is very
uncertain if the 130 pension plans go insolvent.
In quantifying the insolvency impact of Central States and other
similar plans, it is certainly reasonable to expect there will be a
``contagion'' effect. Economists and actuaries will have differing
views as to the magnitude and extent of the effect; I can only speak
for Schnuck Markets and the Food Association. Schnuck Markets
contributes to a total of eight multiemployer plans. In three of these
plans, we account for at least 25 percent of the contribution base.
More broadly, the Food Association compiled plan information from 15 of
its companies. The 15 Food Association companies contribute to a total
of 84 multiemployer plans. Of the 84 plans, 34 plans (40 percent) are
currently ``Red Zone'' (critical) plans. If Central States goes
insolvent, no one, including the PBGC, can say with any certainty how
this will impact other Red Zone plans. I certainly can't. But it won't
be positive. And even ``Green Zone'' plans are not immune from this
phenomenon.
The 2017 PBGC Projections Report begins its overview of the
multiemployer program with the following statement: ``The current
multiemployer system, covering approximately 10 million participants in
about 1,400 plans, remains under severe stress.'' \3\ We agree. And the
stress is bound to worsen with the insolvency of the Critical and
Declining Plans.
---------------------------------------------------------------------------
\3\ At pg. 7.
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v. possible solutions
A comprehensive reform of the multiemployer system--addressing the
shortcomings of the current system--offers the greatest opportunity to
ensure the retirement benefits of participants and the continued
participation by employers. But this committee has less than 6 months
to solve the myriad of complicated issues in the multiemployer system.
In the meantime, plans such as Central States and the Mine Workers
continue their downward spiral toward insolvency, retirees are reacting
to fears of losing their retirement benefits, and contributing
employers are preparing to take desperate measures in an effort to
stave off what we consider an existential threat to our businesses.
The Food Association believes that the solution to the
multiemployer funding crisis will require multiple phases. The
fundamental rules governing multiemployer plans date back nearly 40
years and have not kept pace with the new economy, changing
demographics, and today's mobile workforce. The system needs to be
overhauled.
While a new multiemployer system is needed, this committee must
focus first and foremost on adopting measures to ``stabilize the
patient'' before undertaking reforms to ``cure the patient.'' The
committee must address the funding problems of those plans that are
heading toward insolvency. The retirees, participants and employers in
these plans face daunting and uncertain futures. These plans have the
fewest options and the least amount of time to plan for contingencies.
Immediate action is needed to stave off the funding crisis, and any
realistic solution must necessarily involve some Federal loan
structure, coupled with contributions and sacrifices by all other
stakeholders. Only after this financial crisis is addressed should the
committee address the systemic problems with the current system.
As noted by members of this committee, the Critical and Declining
Plans face a math problem that can only be solved with more assets,
fewer liabilities, or some combination thereof. On the asset side, the
contribution rates to plans such as Central States are already
straining the resources of employers such as Schnuck Markets. As to
investment returns, Central States would have to earn in excess of 14
percent per year (every year) to avoid insolvency. No realistic,
sustainable level of increased employer contributions, investment
returns, and benefit reductions can solve the funding woes of a plan
such as Central States. The math simply doesn't work.
The unavoidable reality is that solving this problem will require
some form of a long-term, low-interest rate Federal loan. To reduce the
cost associated with a loan program, it must be accompanied by
equitable and compassionate reductions in participant benefits and
increased employer costs (e.g., increased PBGC premiums). The cost of a
loan program has to be spread among all stakeholders in a fair and
equitable manner, as none of the stakeholders are to blame. The
retirees provided years of service in the workforce and did what was
asked of them. The contributing employers made the contributions
required by their collective bargaining agreements and the funds'
rehabilitation plans. Taxpayers had no involvement in these
arrangements. It is precisely because no one is to blame that all
stakeholders must share in the financial responsibility in an equitable
and compassionate manner.
At the same time, the loan program must be structured in such a
way, and include the necessary safeguards, as the committee deems
necessary to ensure that the loan is repaid.
For those who question the Federal government's participation in
the loan program, the government has a role inasmuch as the current
situation is partly the result of well-intentioned, but misguided
Federal policies. For example, from 1986 until the Pension Protection
Act of 2006, the Federal tax law deduction limitations to multiemployer
plans essentially prevented plans from establishing a financial
``cushion.'' Because these contributions were required, plans that
realized significant investment gains in the 1990s were forced to
increase benefits in order to avoid triggering an excise tax on
contributing employers. There was no mechanism to claw back the added
benefits in subsequent years following a market downturn. The tax law
never contemplated the consequences of these limitations on plans that
suffered significant declines. Moreover, the withdrawal liability rules
have discouraged new employers from entering these plans and have
motivated companies to leave the plans early without paying their full
withdrawal liability.
While we are not endorsing any specific loan program, we urge the
Joint Select Committee to develop a program that (i) allows Critical
and Declining Status plans to recover, (ii) can be implemented quickly,
(iii) ensures the continued viability of the employers that contribute
to these plans, (iv) shares the cost and sacrifice among all
stakeholders in a fair and equitable manner, and (v) includes adequate
safeguards to ensure their repayment.
Time is of the essence, I cannot stress that enough. November 30th
is less than 6 months from now, and designing and implementing a sound,
workable, and affordable loan program will take time.
The Joint Select Committee faces some very difficult challenges.
Developing a solution won't be easy, the process won't be pretty, and
if structured fairly, all of the stakeholders will dislike parts of it.
But keep in mind that failure is not an option.
Schnuck Markets and the Food Association stand ready to work with
you and do whatever we can to assist the committee. Thank you again for
the opportunity to share our views with the committee.
______
Submitted by Hon. Richard E. Neal,
a U.S. Representative From Massachusetts
Multiemployer Pension Reform Principles 2018
In 2015, the multiemployer system provided $2.2 trillion in
economic activity to the U.S. economy, generated $158 billion
in Federal taxes, $82 billion in State and local taxes,
supported 13.6 million American jobs, and contributed more than
$1 trillion to U.S. GDP. This includes $41 billion in pension
payments and $203 billion in wages to active employees.
Why a Solution Is Necessary. Over 1 million retirees in multiemployer
plans are in danger of losing benefits because the plans that pay them
will go insolvent. In addition, the Federal agency that acts as a
backstop--the Pension Benefit Guaranty Corporation--is also in danger
of insolvency. Without a resolution to this crisis, there will be
billions lost in retirement benefits.
The Multiemployer Pension Reform Act of 2014 (``MPRA'') provided
pension plan trustees with a powerful solvency restoration tool that
enabled them to ensure solvency of the plan. This was specifically
designed to protect retirees from the even larger benefit reductions
that they will see when their plans go insolvent and subject to the
Pension Benefit Guaranty Corporation (``PBGC'') guarantee. Treasury was
provided approval authority over MPRA applications. Unfortunately,
Treasury rejected the largest, most systemically important plan,
Central States Teamsters Pension Fund (``Central States''). The
insolvency of Central States threatens not only the employers in the
fund, but the PBGC and the entire multiemployer system itself.
Rescue Legislation Is Urgently Needed. Some multiemployer plans are in
imminent financial danger. Legislation to save them must be passed as
soon as possible. While these are difficult issues and we encourage
thorough consideration of the legislation, it is critical to have a
program that restores the solvency of critical and declining status
plans while protecting the U.S. economy as soon as possible.
Financial Assistance Through Loans Is a Necessary Part of Multiemployer
Reform. The financial and demographic circumstances of certain plans
will not allow them to survive without cash infusions. The loan program
should optimize solvency of the plan and provide the taxpayer with
confidence that the Federal loan will be repaid.
All Parties Should Contribute to the Resolution. It is unfair for only
one party to bear the brunt of the reform efforts. Employer
contributions and PBGC premiums have increased exponentially, while
workers have suffered reductions in accrual rates and the loss of
ancillary benefits, all in a proactive attempt to address the financial
distress of many plans. We encourage Congress to consider options that
put ``skin in the game for all.'' This may be in the form of benefit
modifications or other provisions. At the same time, these options
should provide flexibility for plans.
PBGC Premium Increases Should Be Evaluated After the Solvency
Restoration Tools Are Implemented. We understand that the proper
funding of the PBGC is important to the viability of the multiemployer
system and to ensuring that the PBGC can meet its statutory
obligations. However, this cannot be the only--or even the primary--
solution to this crisis. Premiums should be raised only as part of a
comprehensive reform plan. The PBGC's net deficit in its multiemployer
program is currently $65 billion. An effective implementation of MPRA
and the loan proposal are tools that would restore the solvency of
plans that comprise the PBGC's net deficit. These tools need to be
allowed to work in order to understand what exactly the unresolvable
net deficit at the PBGC is, which should serve as the basis for any
future premium increases inclusive of those that are already in current
law.
Composite Plan Legislation Is Necessary to Ensure Continued Viability
of Certain Plans. While the crisis focuses on plans in the critical and
declining stages, there are healthy plans that also need tools to
remain viable. Composite plans are a voluntary tool to help those
plans.
For background information on the multiemployer system, please refer to
the following references: ``The Multiemployer Pension Plan Crisis: The
History, Legislation, and What's Next?''; ``Multiemployer Pension Facts
and the National Economic Impact.''
FOR ADDITIONAL INFORMATION, PLEASE CONTACT:
Aliya Wong Michael D. Scott
Executive Director, Retirement
Policy Executive Director
U.S. Chamber of Commerce National Coordinating Committee for
Multiemployer Plans
[email protected] [email protected]
______
Submitted by Hon. Bobby Scott, a U.S. Representative From Virginia
Congress of the United States
Washington, DC 20515
May 31, 2018
The Honorable Orrin Hatch The Honorable Sherrod Brown
Co-Chairman Co-Chairman
Joint Select Committee on
Multiemployer Pension Solvency Joint Select Committee on
Multiemployer Pension Solvency
104 Hart Senate Office Building 713 Hart Senate Office Building
Washington, DC 20510 Washington, DC 20510
Dear Co-Chairmen Hatch and Brown,
Thank you for your leadership of the Joint Select Committee on
Multiemployer Pension Solvency. We are encouraged by the progress that
has already been made to advance this issue and we remain committed to
helping the Committee work toward a solution that will provide solvency
and fairness to the millions of beneficiaries and thousands of
employers impacted by underfunded plans.
As you know, those most affected are in need of a solution soon.
According to recent estimates, of the approximately 1,400 multiemployer
pension plans covered by the Pension Benefit Guaranty Corporation
(PBGC), 114 of them are categorized as severely underfunded and face
significant budget shortfalls. These 114 plans cover approximately 1.3
million Americans and are expected to go insolvent within the next 5 to
20 years without congressional intervention.Some plans have already had
to take the step of sharp benefit cuts to maintain plan solvency.
The declining fiscal condition of these benefit plans creates
tremendous uncertainty for plan participants and also threatens the
solvency of the PBGC. Systemwide, over 10 million Americans nationwide
participate in plans covered by the PBGC. An unfortunate domino effect
might be triggered should these plans become insolvent, which could
lead to devastating consequences for beneficiaries and the overall
economy.
Thank you for your commitment to a legislative solution that will
provide fairness to the millions of Americans participating in these
plans. Congress must demonstrate leadership and resolve on this issue--
the American people are counting on us.
Sincerely,
Rep. Paul Tonko Rep. Bill Johnson
Member of Congress Member of Congress
Rep. Peter King Rep. Jacky Rosen
Member of Congress Member of Congress
Rep. Jim Banks Rep. Lisa Blunt Rochester
Member of Congress Member of Congress
Rep. David A. Joyce Rep. Glenn Grothman
Member of Congress Member of Congress
Rep. Bradley S. Schneider Rep. Jeff Fortenberry
Member of Congress Member of Congress
Rep. Daniel M. Donovan Jr. Rep. Rodney Davis
Member of Congress Member of Congress
Rep. Lucille Roybal-Allard Rep. Bobby L. Rush
Member of Congress Member of Congress
Rep. Adam Kinzinger Rep. Betty McCollum
Member of Congress Member of Congress
Rep. Daniel W. Lipinski Rep. William Keating
Member of Congress Member of Congress
Rep. Michael R. Turner Rep. Bob Gibbs
Member of Congress Member of Congress
Rep. Robert E. Latta Rep. Mike Quigley
Member of Congress Member of Congress
Rep. John Katko Rep. Susan W. Brooks
Member of Congress Member of Congress
______
Prepared Statement of Aliya Wong, Executive Director
of Retirement Policy, U.S. Chamber of Commerce
The U.S. Chamber of Commerce would like to thank the Co-Chairs,
Senators Hatch and Brown, and all members of the Joint Select Committee
on Multiemployer Plans for the opportunity to participate in today's
hearing on ``Employer Perspectives on Multiemployer Pension Plans.'' I
am Aliya Wong, executive director of retirement policy for the U.S.
Chamber of Commerce. The Chamber is the world's largest business
federation, representing more than 3 million businesses and
organizations of every size, sector, and region. More than 96 percent
of the Chamber members are small businesses with fewer than 100
employees. With members that include sponsors of multiemployer pension
plans, the U.S. Chamber has been concerned about the multiemployer
system for several decades and worked with Congress on the Pension
Protection Act of 2006, the Preservation of Access to Care for Medicare
Beneficiaries and Pension Relief Act of 2010, and, most recently, the
Multiemployer Pension Reform Act of 2014. Despite the intentions of
these pieces of legislation, the multiemployer pension system remains
in crisis, and indeed, the crisis is growing worse.
background
At the end of 2017, the Chamber issued a report entitled, ``The
Multiemployer Pension Plan Crisis: The History, Legislation, and What's
Next?'', which provides an overview of the current multiemployer
crisis, an in-depth analysis of the events leading up to it, attempts
to fix it, and the current reform proposals to address the crisis.
Although many multiemployer plans were fully funded in the 1980s
and 1990s, this period of financial stability came to an end in 2000
when the price of technology stocks fell drastically. Many
multiemployer plans had ridden the wave of dot-com companies to achieve
record high asset levels, but when the market crashed, investment
returns fell precipitously. Multiemployer plans were hit twice as hard
as other investors because of declines in the contribution base due to
demographic issues. Less than a decade later, the 2008 global recession
led to further dramatic declines in funding levels. For those plans
that had not sufficiently recovered from the bursting of the dot-com
bubble, the 2008 recession proved catastrophic. National and global
events exacerbated the financial troubles of multiemployer plans that
already faced significant demographic and financial pressures.
Shrinking industries and declining union participation further
eroded the contribution base of many plans. Between 1983 and 2016, the
number of unionized workers dropped by almost half. Moreover, there has
been increased competition facing contributing employers and their
employees. Due to competition and fewer unionized workers, untenable
ratios of inactive-to-active participants were created. Many plans now
see ratios of one active worker for every two, three, or even five
retirees. As expected, industries with high inactive-to-active retiree
ratios experience the lowest average funding levels.
Due to all of these factors, certain plans will enter a ``death
spiral'' where there is no realistic chance of recovery. And although
the introduction of withdrawal liability was supposed to prevent
withdrawing employers from shifting pension obligations to remaining
employers, a major problem now is that many employers lack the
financial means to satisfy that liability.
While it is important to understand the context leading to the
current crisis, the Chamber does not believe that continuing to dwell
on the causes of the crisis are helpful. Contributing employers are
currently facing enormous burdens--and these burdens will only
increase.
the threat to businesses and jobs
This week, the Chamber is issuing a report entitled, ``The
Multiemployer Pension Plan Crisis: Businesses and Jobs at Risk.'' This
report underscores the risk to contributing employers and the economy
if a resolution to this crisis is not found.
Withdrawal Liability and High Contribution Rates Are a Current Threat
to Business.
There is understandable focus on plan insolvencies but even without
plans reaching insolvency, there is cause for concern. There are
several issues that employers are currently facing that are impacting
their ability to remain viable. As multiemployer plan liabilities have
expanded, employers are experiencing an ever-increasing threat of
withdrawal liability and continual hikes in contribution rates.
Fear of Future Withdrawal Liability Assessment Jeopardizes Current
Business Opportunities. Withdrawal liability is not ``booked'' until
there is a termination (or partial termination) of the plan. However,
as the depth of the multiemployer pension crisis is increasing,
employers are finding that ordinary business activities are being
impacted by the potential for withdrawal liability. Employers are
starting to see banks and lenders question their creditworthiness,
leading to less optimal lending rates, or even denial of credit.
Employers have lost the opportunity to expand their business operations
through mergers because other companies do not want to be associated
with the potential withdrawal liability. Furthermore, small, family
businesses are deciding not to pass the business down to heirs for fear
of leaving them to pay a future withdrawal liability. Instead of
continuing these family businesses, owners are shutting down the
businesses and selling the assets--which is a preferable outcome to
paying a withdrawal liability that could bankrupt the business. All of
these events result in lost business opportunities and fewer jobs.
Employers Are Already Impacted by Partial Withdrawal Liability
Assessments. Due to the declining number of union workers, there are
businesses that may have only one or two employees left in a business
unit. If those employees decide to leave or retire, the employer is
assessed with a partial withdrawal liability estimate. Because of the
unfunded liabilities, the partial withdrawal liability can be several
times the amount of the employee's actual benefit. Such liabilities
clearly constrain the ability of an employer to efficiently run a
business and immediately impact a business's cash flow.
High Contribution Rates Make it Difficult to Retain Employees and
Remain Competitive. As unfunded liabilities have increased, the
contributions made by remaining employers have increased. There are
some employers paying $15.00 per hour (or more) to plans for every hour
an employee works. Because of these unfunded liabilities, employees
understand that they are never going to receive a benefit that is
commensurate with the contribution rate the employer is paying. This
provides a disincentive for the employee to stay with the employer, and
this retention problem threatens an employer's competitiveness.
Plan Insolvency Will Devastate Contributing Employers.
Contributing employers face a very uncertain future. Whether
insolvent plans officially terminate or not, the consequences for
contributing employers can be dire.
Ongoing Contribution to Insolvent Plans Is Not Viable for Business.
In testimony before the Joint Select Committee, the Director of the
PBGC stated that it was the opinion of the PBGC that plans would not
terminate, but would instead continue indefinitely with employers
making ongoing contributions. However, even if this scenario is
plausible, there are still significant concerns for employers.
The contribution rates that many employers are currently paying
into multiemployer plans are exorbitantly high because the contribution
rates for the last several years have been imposed by the plan's
trustees via rehabilitation plans. While most employers would rather
absorb the higher contribution rates than incur withdrawal liability in
the near-term, the long-term effect of the high rates is that they make
the employer less competitive. For example, higher pension costs are
ultimately passed on to customers, who might look elsewhere to do
business. In addition, high contribution rates paid into an insolvent
plan exacerbates the inability to retain employees. As discussed above,
active employees already are concerned about future benefit accruals.
Once a plan is insolvent, the maximum benefit the worker can receive is
the PBGC guaranteed benefit so employees will receive even less
compared to what is being paid on their behalf, so there is no
incentive for the employee to stay with the employer.
Furthermore, while continuing to pay contributions into an
insolvent plan may save an employer from short-term economic disaster,
it is doubtful that employers can endure such high pension contribution
rates over the long-term. It is likely that plan insolvency could lead
to employers going out of business, filing for bankruptcy, or both.
Plan Termination Can Lead to Unplanned Withdrawal Liability
Assessments. There is a very real concern for employers that plans will
terminate. When that happens, employers will face withdrawal liability
assessments, minimum funding requirements, and possible excise taxes.
While continuing to contribute to an insolvent plan will generally
allow an employer to avoid the imposition of withdrawal liability,
there are scenarios where withdrawal liability can be imposed despite
the employer's intention to remain a contributing employer to the plan.
The issue is problematic for employers because in many cases they have
no control over the withdrawal.
One such instance could occur if an employer tries to negotiate
lower contribution rates--to avoid bankruptcy or to shift cash to
active employees. Attempting to negotiate lower contribution rates
could lead to unplanned withdrawal liability assessments if either the
plan trustees or the PBGC object to the decreased contribution rate. If
the trustees reject the lower contribution rate, the employer must
either continue contributing at the higher rehabilitation plan rate or
risk the plan's trustees rejecting the employer's continued
participation in the plan, which will lead to full withdrawal
liability. As a secured party in all assets of an insolvent plan, the
PBGC could take the position that a reduction in the contribution rate
constitutes a diminution in the collateral in which it is secured.
Additionally, PBGC has the authority under the insolvency provisions of
ERISA to provide financial assistance under conditions the PBGC
determines are ``equitable and are appropriate to prevent unreasonable
loss to'' the [PBGC] with respect to the Plan.\1\ While the PBGC has
not yet opined on a post-insolvency employer contribution rate
decrease, the statutory language gives the PBGC the authority to do so.
---------------------------------------------------------------------------
\1\ ERISA section 4261(b)(1).
Even if an employer makes the decision to withdraw, it could see an
unexpected spike in withdrawal liability if there is a mass withdrawal.
A ``mass withdrawal'' occurs upon withdrawal of every employer from the
plan, the cessation of the obligation of all employers to contribute to
the plan,\2\ or the withdrawal of substantially all employers pursuant
to an agreement or arrangement to withdraw from the plan.\3\ If
substantially all employers withdraw during a period of three
consecutive years, the employers are assumed to have withdrawn due to
an agreement or arrangement.\4\ This means that an employer that
intentionally withdraws from a plan and intends to pay its calculated
withdrawal liability could become part of a mass withdrawal if
substantially all of the other employers that contribute to the plan
withdraw within the 3-year period after the employer withdraws. The
employer that intends to withdraw has no control over what the other
employers do.
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\2\ ERISA section 4041A(a)(1)(2).
\3\ 29 CFR Sec. 4001.2.
\4\ The presumption can be rebutted by the employer.
The danger of being part of a mass withdrawal is that it can
require an employer to pay much more in withdrawal liability than it
would under a standard withdrawal. Certain employers are subject to
reallocation liability. Reallocation liability means that plan's full
costs of all unfunded vested benefits are allocated among all
withdrawing employers. In a mass withdrawal, the withdrawal liability
is calculated using PBGC interest rates that are often lower than the
rates used by the plan in a standard withdrawal. Reallocation liability
can significantly increase the amount of the plan's unfunded liability
that is allocated to an employer. In addition, the 20-year cap
applicable in a standard withdrawal does not apply to mass withdrawal
liability. This results in some employers having to pay withdrawal
liability for a period longer than 20 years. This unexpected and
expanded withdrawal liability could cause a business to end up in
---------------------------------------------------------------------------
bankruptcy.
Uncertainty Concerning Minimum Funding Considerations Is a
Significant Risk for Contributing Employers. Multiemployer plans are
generally subject to minimum funding standards; however, the Pension
Protection Act of 2006 (``PPA'') allowed necessary changes to these
general funding rules for multiemployer plans in critical status.\5\
Trustees of plans in critical status are required to adopt a
rehabilitation plan that is expected to put the plan on track for
making scheduled progress toward emerging from critical status. One of
the advantages of a plan's critical status designation is that if the
trustees adopt and comply with the terms of a rehabilitation plan, then
the plan is not required to satisfy the minimum funding rules.
---------------------------------------------------------------------------
\5\ A plan is in critical status if the plan: (1) is less than 65-
percent funded and will either have a minimum funding deficiency in 5
years or be insolvent in 7 years; or (2) will have a funding deficiency
in 4 years; or (3) will be insolvent within 5 years; or (4) liabilities
for inactive participants is greater than the liability for active
participants, and contributions are less than the plan's normal cost,
and there is an expected funding deficiency in 5 years.
Thus far, plans that have become insolvent have not been
terminated, and, because employers continue to contribute to the plan
in accordance with the rehabilitation plan, the minimum funding rules
do not appear to automatically apply just because a plan becomes
insolvent. However, there are situations where it appears a
contributing employer to an insolvent plan could be required to make up
a plan's minimum funding deficiency and/or be assessed an excise tax.
Although this has not happened yet, the risk of it happening increases
---------------------------------------------------------------------------
as the insolvency date of the PBGC gets closer.
One scenario that poses a risk to employers as plans and the PBGC
go insolvent is the requirement that a plan's rehabilitation plan must
satisfy certain code provisions. If a multiemployer plan fails to make
scheduled progress under the rehabilitation plan for three consecutive
plan years or fails to meet the requirements applicable to plans in
critical status by the end of the rehabilitation period, for excise tax
purposes, the plan is treated as having a funding deficiency equal to
(1) the amount of the contributions necessary to leave critical status
or make scheduled progress or (2) the plan's actual funding deficiency,
if any.\6\
---------------------------------------------------------------------------
\6\ Plans may apply for a waiver if the failure is due to
reasonable cause and not willful neglect.
It is possible that the IRS could take a more aggressive approach
in assessing excise taxes when the PBGC can no longer provide a
backstop for insolvent plans. Such an outcome would be troubling
because employers have no control over whether the rehabilitation plan
satisfies the requirements of the Code, nor do they have any control
over the actuarial certification. This means that an employer that
continues to make contributions in accordance with its rehabilitation
plan post-insolvency can still be required to make up a funding
deficiency and pay an assessed excise tax. Because the funding
deficiencies of most insolvent plans would be expected to be large,
---------------------------------------------------------------------------
this would effectively put the employer out of business.
Another complication for employers is the broad authority the PBGC
wields over an insolvent plan. As noted previously, the PBGC has the
authority under the insolvency provisions of ERISA to provide financial
assistance under conditions the PBGC determines are ``equitable and are
appropriate to prevent unreasonable loss to'' the [PBGC] with respect
to the plan. Accordingly, if the PBGC determines that the continued
operation of the plan somehow poses a financial risk to itself, the
PBGC may impose as a condition of providing financial assistance that
the plan be terminated. While ERISA states that minimum funding does
not apply to a plan that terminates by mass withdrawal, there is no
such provision relating to termination by plan amendment. Though the
PBGC has opined that insolvent plans will continue to operate, there
does appear to be at least a statutory mechanism through which a plan
can be terminated without consent of the employer or even the trustees.
If such a scenario were to arise, many employers would be forced out of
business.
The Contagion Effect Is a Serious Threat Due to the Number of
Employers That Contribute to Numerous Plans. Many employers contribute
to more than one multiemployer plan. There is a valid concern that the
failure of a multiemployer plan (particularly a large plan) could cause
other plans to go insolvent. For example, if employers were assessed
withdrawal liability, a minimum funding deficiency and/or an excise
tax, it could cause the employer to go out of business. If such an
employer contributes to one or more other plans, then it would likely
be unable to continue contributing to the other plans. If the employer
is the major contributing employer to these plans, all the plans to
which the employer contributes would be in jeopardy. While to date no
extremely large plan has gone insolvent, there are several that are
projected to go insolvent within the next 5 to 10 years.
Additionally, many Critical and Declining Status plans are
dependent on a very small number of employers to provide a
disproportionate share of the contributions being made to the plans.
For example, in the UMW 1974 Pension Plan, currently there are 10
contributing employers with approximately 97 percent of the
contributions derived from two controlled groups of signatory
companies. For the New York State Teamsters Conference Pension and
Retirement Fund, there are 156 contributing employers with
approximately 83 percent of the contributions derived from two
companies. For the Local 707 Teamster Pension Fund, there are 8
remaining contributing entities with 84 percent of the contributions
coming from 2 companies. For the Tri-State Pension Plan, there are 9
contributing employers with one controlled group entity accounting for
95 percent of the contributions.
Taken together, these factors pose a dual risk. If a large,
``systemically important,'' plan was to become insolvent, it has the
potential to adversely impact the contributing employers and their
participation in other plans. Conversely, if one of the large employers
were to exit one of the above mentioned plans, it would significantly
and negatively impact the plan, the remaining contributing employers,
and ultimately the beneficiaries.
resolving the crisis
We admit that there are no easy solutions and that finding a
comprehensive solution will be difficult. The Chamber worked with the
National Coordinating Committee on Multiemployer Plans to issue joint
principles to provide direction in reaching a solution. We have shared
these principles with the committee to aid in your work and reiterate
them here.
First, all members of the committee must recognize that
rescue legislation is urgently needed. Congress can no longer
kick the can down the road.
Second, struggling plans will need financial assistance. Our
recommendation is for long-term, low-interest loans that will
protect taxpayers from financial liability.
Third, all parties will have to be part of the solution,
including plan beneficiaries and participating employers.
Fourth, while the PBGC may ultimately need more money, in
the form of increased premiums paid by employers, these
increases must be evaluated after tools to restore the solvency
of these plans are put in place.
Finally, composite plans must be authorized so that healthy
multi-employer plans can stay that way. Composite plans are a
hybrid between traditional pension plans and individual
accounts plans that can bridge the gap between current existing
options.
We realize these principles are a start, and we look forward to
working with the committee and the administration on finding specific
and comprehensive solutions.
conclusion
These are difficult issues. The answers will not be easy. However,
the problem is not going away, and only grows worse with inaction. Put
simply, something that cannot go on forever, will not. And if we do not
find a comprehensive solution, there will be a devastating impact on
the entire multiemployer system when the day of reckoning arrives.
The Chamber is here to represent the employer voice. At the same
time, we are keenly aware that all parties are inextricably connected
in this scenario. Within the multiemployer system, businesses are
already being impacted by high contributions and potential withdrawal
liability; active workers are seeing fewer and fewer benefit accruals;
and some retirees are already experiencing reduced benefits. As the
crisis grows, the impact will be felt beyond the multiemployer system
through a significant drag on the economy, decreased tax revenues, and
possible increased reliance on social programs. A definitive solution
is needed to address a looming crisis that will affect us all.
______
The Multiemployer Pension Plan Crisis:
The History, Legislation, and What's Next?
U.S. Chamber of Commerce
December 2017
EXECUTIVE SUMMARY
There is a looming pension crisis in the U.S. that unless addressed
quickly by the federal government could jeopardize the retirement
security of hundreds of thousands--if not millions--of Americans.
Multiemployer pension plans provide pension benefits to over 10 million
Americans in industries as diverse as construction, mining, trucking,
and retail and a significant number of these plans find themselves in
seriously distressed financial condition. If these funds become
insolvent--and the timeframe for that insolvency ranges from 2 to 8
years--the results could be devastating for retirees, for current
employees, for the companies that contribute to the plans, and for the
communities in which companies and beneficiaries reside.
The financial crisis is not limited to one region or industry. It
potentially will affect companies, workers, retirees, and communities
throughout the U. S. and would include states as diverse as Ohio,
Texas, New York, Wisconsin, Kentucky, West Virginia, Kansas, and North
Carolina.
The narrative is bleak. A recent report found that 114 multiemployer
defined benefit plans (out of approximately 1,400 nationally), covering
1.3 million workers, are underfunded by $36.4 billion. Without a
solution, most of these plans will be bankrupt within the next 5 to 20
years. Moreover, the federal agency that backstops pension benefits--
the Pension Benefit Guaranty Corporation (PBGC)--is itself in financial
distress. It is projected that the PBGC could be insolvent in a mere
five years and, if that occurs, the retirement security of
multiemployer plan beneficiaries could be wiped out entirely. Action is
needed now to avert this pending crisis.
This report chronicles how the multiemployer pension plan system
arrived at this point. It provides a history of the multiemployer plan
system, the demographic issues that have plagued it, and attempts to
fix it. Additionally, the report identifies several initiatives to
resolve the crisis. Ultimately, however, the report presents a strong
case for why Congress and the Administration need to act now.
Although many multiemployer plans were fully funded in the 1980s and
1990s, this euphoria came to an end in 2000, when the price of
technology stocks fell drastically. Many multiemployer plans had ridden
the wave of these dot-com companies to historic highs in asset levels,
but when the market crashed and investment returns were disastrous,
plans were hit twice as hard because of their declining contribution
bases. Moreover, the 2008 global recession led funding levels in most
plans to plummet. For those plans that had not sufficiently recovered
from the bursting of the dot-com bubble, 2008 proved catastrophic.
National and global financial events exacerbated the financial troubles
of multiemployer plans that already faced significant demographic and
financial pressures. Shrinking industries and declining union
participation eroded the contribution base of many plans. Between 1983
and 2016, the number of unionized workers dropped by almost half.
Moreover, there has been increased competition facing contributing
employers and their employees. Due to competition and fewer unionized
workers, untenable ratios of inactive-to-active participants were
created. Many plans now see ratios of one active worker for every two,
three, or even five retirees. As expected, industries with high
inactive-to-active retiree ratios experience the lowest average funding
levels. Due to all of these factors, certain plans will enter a ``death
spiral'' where there is no realistic chance of recovery.
There have been several attempts to address the multiemployer pension
funding problem. In 1980, Congress passed the Multiemployer Pension
Plan Amendments Act (MPPAA), which was designed to discourage employers
from leaving financially troubled multiemployer plans by implementing a
withdrawal liability. Although the introduction of withdrawal liability
was supposed to prevent withdrawing employers from shifting pension
obligations to remaining employers, the biggest problem is that many
withdrawing employers do not have the financial means to satisfy their
withdrawal liability.
In 2006, Congress passed the Pension Protection Act (PPA). The purpose
of the PPA is to give plan trustees more flexibility in dealing with
funding while at the same time forcing them to identify and correct
existing and potential funding issues in time to prevent further
funding level deterioration and stabilize the plans' finances. While
PPA did provide additional tools, it was not enough for those
underfunded plans with a declining active population base and severe
negative cash-flow problems.
Recognizing that some plans could not avoid insolvency without drastic
changes in the law, Congress passed the Multiemployer Pension Reform
Act (MPRA) in 2014. MPRA created three new tools to help plans stave
off insolvency: plan mergers, plan partitioning, and benefit
suspensions. Most notably, for the first time under the Employee
Retirement Income Security Act of 1974 (ERISA), Congress allowed plans
that were in severe financial distress to reduce benefits that had
already accrued, including benefits that were in pay status.
In addition, plan trustees have also implemented strategies to solve
plans' funding issues. These strategies include; reductions to future
benefit accruals, increased employer contributions, new funding
policies, and a ``two-pool withdrawal liability method.''
While the legislation has provided benefit to some plans and some of
these strategies have been helpful, the funding issues for the most
underfunded plans remain. If these plans fail, the impact will affect
individuals, businesses, the retirement system and entire communities.
If the largest underfunded plans become insolvent, they will bankrupt
the PBGC. The subsequent benefit cuts that follow will also have deep
impacts on the communities where participants live. Retirees will see
their standard of living reduced. In addition, the insolvencies could
bankrupt employers, potentially leaving workers without income.
Reduced spending by workers and retirees will be felt by businesses,
and less money will be paid to local government in sales and other
taxes. While tax revenue decreases, the demand for social programs will
increase, because many retirees and workers could lose their homes and/
or have difficulty paying for medical costs. This will cause many to
become reliant on social programs that have to be funded by taxpayers
at a time when tax revenue will decline.
Consequently, new ideas and proposals are being discussed. Some are
purely legislative proposals, whereas others deal with new pension plan
designs. Solutions will not be easy, but they are necessary to address
the looming crisis that will affect us all.
OVERVIEW OF CURRENT MULTIEMPLOYER
PENSION PLAN FUNDING PROBLEM
Since the beginning of the last decade, many multiemployer defined
benefit pension plans have seen their funding level erode to the point
that their ability to pay pension benefits into the future is severely
threatened. While the majority of multiemployer plans are sufficiently
funded, several distressed plans are facing insolvency within the next
5 to 15 years. Some of the most underfunded plans cover hundreds of
thousands of participants. If they fail, the economic impact will be
disastrous for the U.S. economy as a whole and for certain industries.
In addition to the direct impact to contributing employer companies,
many secondary businesses will fail and retirees living on a fixed
income will see their benefits significantly reduced, resulting in
additional stresses on already strapped social service programs and
reduced revenues to state and local governments.
There are several reasons for this pending funding crisis. There have
been shifts in U.S. regulatory and trade policies over the years, which
have resulted in increased competition for businesses in certain
industries. The number of employees covered by collective bargaining
agreements (CBA) in these industries has declined precipitously. This
has resulted in a change in demographics, where many plans have two or
more retired participants receiving pension benefits for every one
active participant on whose behalf the plan is receiving contributions.
The increased ratio of retirees to active employees has led to negative
cash flow; many plans are paying significantly more in pension benefits
than they are receiving in employer contributions. This negative cash
flow can only be made up through investment returns. However, not only
can market returns not be predicted, but taking an overly aggressive
approach in investing pension plan assets in the hope that outsized
investment gains will be realized is risky and raises other potential
legal concerns.
Severe market downturns at the beginning of this century and in 2008
exacerbated the problem for many plans because they compounded the
effect of the already existing negative cash flow. Many plans have seen
their contribution base further eroded by contributing employers that
left the plan due to bankruptcy with little or no remaining assets to
pay their share of the plan's unfunded liability. The employees of
these employers are referred to as ``orphans,'' and the cost for
funding their benefits was placed on those employers who remained
behind.
Historically, there were only three ways for multiemployer pension
plans to improve their funding: (1) reduce future benefit accruals,
thus saving costs; (2) increase employer contributions; and (3) obtain
investment returns above the rate assumed by the plan actuary.
While many plans have reduced future benefit accruals, the savings
yielded from doing so have generally not been sufficient to materially
improve funding. This is because the liabilities that jeopardize
pension plans mostly relate to past service (i.e., benefits that have
already accrued and in many cases are already being paid to retirees).
Until recently, there has been a blanket prohibition against reducing
benefits already accrued, so plans reduced future accruals. Plans have
also consistently increased employer contributions. However, plans in
some industries have increased employer contribution rates to the point
that employers cannot be competitive or are on the brink of bankruptcy.
Investment returns cannot be predicted, and historically have not
provided the type of returns that would be needed to cure most plans'
underfunding.
Despite changes in the law designed to provide multiemployer plans with
greater flexibility in dealing with funding problems, there is nothing
that exists under current law that will save the multiemployer system's
most underfunded plans. The risk is not theoretical; some projections
show the Pension Benefit Guaranty Corporation (PBGC), the government
entity designed to be a backstop for multiemployer pension plans that
need financial assistance, will itself become insolvent by 2025. It has
become increasingly clear that additional legislative solutions are
necessary if the largest and most underfunded plans are to be saved. If
these plans become insolvent, the negative repercussions will be felt
throughout the U.S. economy.
Current Statistics
As of 2014, there were a total of 1,403 multiemployer defined benefit
plans, covering 10.1 million participants.\1\ Approximately 4 million
were active participants, while a little over 6 million were retired
participants. It is estimated that more than 1 million defined benefit
plan participants are in plans that have serious funding issues.\2\ The
gap between plans with severe funding issues (known as ``critical-
status plans'') and those that are not in critical status continues to
widen.\3\
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\1\ Multiemployer Defined Benefit (DB) Pension Plans: A Primer and
Analysis of Policy, Congressional Research Service report prepared for
members and committees of Congress, John J. Topoleski, November 3,
2016.
\2\ Alicia H. Munnell and Jean-Pierre Aubry, ``The Financial Status
of Private Sector Multiemployer Pension Plans,'' Center for Retirement
Research at Boston College, September 2014, Number 14-14, 3, http://
crr.bc.edu/briefs/the-financial-status-of-private-sector-multiemployer-
pension-plans/.
\3\ Kevin Campe, Rex Barker, Bob Behar, Tim Connor, Nina Lantz, and
Ladd Preppernau, Milliman Multiemployer Pension Funding Study,
Milliman, Fall 2017, http://www.milliman
.com/uploadedFiles/insight/Periodicals/multiemployer-pfs/multiemployer-
pension-funding-fall-2017.pdf.
According to an August 2017 analysis conducted by the actuarial firm
Cheiron, 114 multiemployer defined benefit plans (out of approximately
1,400 nationally), covering 1.3 million workers, are underfunded by
$36.4 billion. Participants covered by plans in the coal, trucking,
manufacturing, service, retail, and food industries are, and will
continue to be, at the center of the funding crisis. Unless a solution
is found, most of these plans will go insolvent during the next 5 to 20
years.\4\
---------------------------------------------------------------------------
\4\ ``Cheiron Study Finds 114 Multiemployer Pension Plans Projected
to Fail Within 20 Years, More Than a Million Participants Could Lose
Benefits,'' August 27, 2017, https://cheiron.us/articles/
Cheiron%20Analysis%20Critical%20and%20Declining%20Plans.pdf.
In 2016, 167 multiemployer plans filed notices with the Department of
Labor (DOL) advising that they were in ``critical status'' (critical-
status plans are sometimes referred to as being in the ``red
zone'').\5\ As of 2012, the funding ratio for plans in critical status
was 37.1% based on the market value of assets and 62.5% based on the
actuarial value of assets. The aggregate underfunding on a market value
basis was $166 billion, and on an actuarial basis $65 billion.\6\ The
difference between market value and actuarial value is explained in the
``Funding Rules'' section of this paper.
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\5\ Critical, Critical and Declining, Endangered and WRERA Status
Notices, Department of Labor, public disclosure, https://www.dol.gov/
agencies/ebsa/about-ebsa/our-activities/public-disclosure/critical-
status-notices.
\6\ Alicia H. Munnell and Jean-Pierre Aubry, ``The Financial Status
of Private Sector Multiemployer Pension Plans,'' Center for Retirement
Research at Boston College, September 2014, Number 14-14, 3 http://
crr.bc.edu/briefs/the-financial-status-of-private-sector-multiemployer-
pension-plans/.
In 2016, an additional 83 multiemployer plans filed notices with the
DOL advising they were in critical and declining status. Critical and
declining status plans are plans in critical status, but, which, have
been certified as facing impending insolvency. These plans generally
have the highest ratios of inactive-to-active participants and the most
---------------------------------------------------------------------------
severe negative cash flow.
As assets decline and money continues to flow out of these plans,
investment income is insufficient to offset the negative cash flow.
Since the market crash of 2008, plans that find themselves in critical
and declining status have not only failed to improve their funded
percentage, but have seen their funded percentage continue to decline
to the point that their only hope of survival is to reduce benefits to
retirees who are already receiving benefits (referred to as benefits in
``pay status'').
For some plans, even reductions in benefits to retirees are not enough
to stave off insolvency. Plans such as Central States, Southeast and
Southwest Areas Pension Fund (Central States) and the United Mine
Workers of America 1974 Pension Plan (UMWA Plan) are nearing the point
of no return. Sometimes referred to as the ``death spiral,'' these
plans' negative cash flow is so severe that they will have to shift
their assets away from investments that can provide long-term growth to
investments that preserve cash to pay benefits.
When this happens, insolvency is no longer a matter of ``if'' but of
``when,'' and by most accounts, ``when'' is before the end of the next
decade. Therefore, without a viable resolution, in less than 10 years
there will be significant benefit cuts for current retirees, active
participants without retirement benefits, and employers bankrupted
because of pension obligations.
The PBGC ``Backstop'' Is in Danger
The funding crisis for multiemployer plans is exacerbated because the
Pension Benefit Guaranty Corporation's multiemployer program is itself
in crisis. The PBGC is a federal agency created by Employee Retirement
Income Security Act of 1974 (ERISA) to protect the benefits of
participants in private-sector defined benefit plans. PBGC insures both
single-employer and multiemployer defined benefit plans, but under two
separate programs.
The PBGC's multiemployer program is funded from premiums paid by
multiemployer pension plans and interest income on U.S. Department of
the Treasury (Treasury) debt. There is no taxpayer funding.\7\
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\7\ John J. Topoleski, ``Multiemployer Defined Benefit (DB) Pension
Plans: A Primer and Analysis of Policy,'' July 24, 2015, Congressional
Research Service, 1, http://digitalcommons.ilr.
cornell.edu/key_workplace/1436/.
ERISA Section 4002 reads, in part, ``The U. S. is not liable for any
obligation or liability incurred by the corporation [PBGC].'' Unlike
public-sector plans that are completely financed by American taxpayers,
multiemployer plans have always paid their own way, with U.S.
businesses bearing the bulk of the cost.\8\
---------------------------------------------------------------------------
\8\ As noted in John J. Topoleski's November 3, 2016 paper, some in
Congress have expressed reluctance to even consider providing financial
assistance to the PBGC. See U.S. Congress, House Committee on Education
and the Workforce, Subcommittee on Health, Employment, Labor, and
Pensions, ``Examining the Challenges Facing the PBGC and Defined
Benefit Pension Plans,'' 112th Cong. 2nd sess., February 2, 2012, 112-
50 (Washington: GPO, 2012); and U.S. Congress, House Committee on
Education and the Workforce, Subcommittee on Health, Employment, Labor,
and Pensions, ``Strengthening the Multiemployer Pension System: What
Reforms Should Policymakers Consider?'', 113th Cong. 1st sess., June
12, 2013.
The crisis in the PBGC multiemployer program has been recent and swift.
Until 2003, the PBGC multiemployer program operated with a surplus. As
of 2017, the multiemployer program has a $65 billion deficit.\9\ This
drastic increase in liabilities is directly due to the insolvency and
projected insolvency of plans in industries that have been adversely
affected by regulatory and trade policies. PBGC noted that in 2017
there were 19 plans newly classified as probable claims against the
insurance program as they either terminated or are expected to run out
of money within the next decade. The liabilities represent the present
value of $141 million in financial assistance to 72 insolvent
multiemployer plans, up from the previous year's payments of $113
million to 65 plans.\10\
---------------------------------------------------------------------------
\9\ Annual Report 2017, Pension Benefit Guaranty Corporation,
November 16, 2017, https://www.pbgc.gov/sites/default/files/pbgc-
annual-report-2017.pdf.
\10\ Id.
In addition, employers have seen a steady increase in premiums. In the
10 years starting in plan year 2007, premiums have increased $20 per
participant and are now set at $28 per participant for plan year 2018.
Despite these increases, the PBGC maximum benefit payout has remained
---------------------------------------------------------------------------
relatively low and is currently $1,251 per year.
As contributing employers to these plans failed, funding levels
plummeted. Remaining employers see their long-term viability threatened
by ever-increasing pension liability brought on by employers that went
bankrupt, liquidated, or otherwise went out of business. When employers
stop contributing to a pension fund, all remaining employers are
required to pick up the slack and assume proportionate liability for
the payments owed to the exited employer's ``orphan'' employees. As
employers leave the pool of contributors, each remaining employer's
percentage of the growing funding deficit gets larger. This is known as
the ``last man standing'' rule and was established to protect plan
participants from the consequences of employer withdrawals. The ``last
man standing'' rule has rendered multiemployer plans unstable as nobody
wants to be the last man standing. This provides incentive for even
healthy employers to leave, and puts the PBGC in the role of the
ultimate ``last man.'' \11\
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\11\ Carl Horowitz, ``New Report Shows Severe Shortfalls in
Multiemployer Union Pensions,'' National Legal and Policy Center, July
3, 2013, http://nlpc.org/2013/07/03/new-reports-show-severe-shortfalls-
multiemployer-union-pensions/.
Given the deficit between total assets and the present value of
liabilities, PBGC projects that there is a greater than 50% chance that
the multiemployer plan program will run out of money by 2025, and a
greater than 90% chance that it will run out of money by the end of
2035.\12\ Absent a dramatic increase in premiums that multiemployer
plans pay (which would further undermine many plans' funding levels and
is thus likely not feasible), or a change in how the PBGC is funded,
pension plans facing impending insolvency (or even those that are
already insolvent and receiving PBGC financial assistance) cannot rely
on assistance from PBGC beyond the next 10 years.
---------------------------------------------------------------------------
\12\ PBGC FY 2016 Annual Report, 61.
The pressure the projected plan insolvencies will place on the PBGC
will be catastrophic, absent congressional action. In 2014, the Center
for Retirement Research in Boston College delivered an ominous
---------------------------------------------------------------------------
assessment of the situation:
The actuarial model projects that it is more likely than not
that the program [PBGC] will be insolvent by 2022, with a 90-
percent chance of insolvency by 2025. Once the fund is
exhausted, the PBGC would have to rely on annual premium
receipts and would be forced to pay only a fraction of its
paltry guaranteed benefit. One estimate is that a retiree who
once received a monthly benefit of $2,000 and whose benefit was
reduced to $1,251 under the PBGC guarantee would see the
monthly benefit decline to $125. The exhaustion of the
multiemployer insurance fund could also undermine confidence in
the entire system.\13\
---------------------------------------------------------------------------
\13\ Alicia H. Munnell and Jean-Pierre Aubry, ``Can PBGC Save
Multiemployer Plans?,'' Center for Retirement Research at Boston
College, September 2014, Number 14-16, 5, http://crr.bc.edu/
uncategorized/can-pbgc-save-multiemployer-plans/.
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MULTIEMPLOYER DEFINED BENEFIT PENSION PLAN BASICS
Private-sector multiemployer defined benefit pension plans are plans
jointly sponsored by a labor union(s) and a group of employers. Such
plans usually cover employees working in a common industry such as, for
example, coal, construction, food, maritime, textile, trucking, etc.
Many multiemployer plans cover employees working at a particular craft
within an industry, such as electricians, bricklayers, and truck
drivers. While most plans are ``local plans'' and cover employees
working in a specific geographical area, there are also ``national
plans,'' which cover employees working in crafts or trades throughout
the U.S. Many of the industries in which multiemployer plans prevail
have high worker mobility and/or seasonal employment.
Due to the migratory nature of the work, employees frequently work for
more than one employer during their careers. Oftentimes, employees
would not work long enough for one employer to vest in a benefit under
that specific employer's pension plan; however, multiemployer plans
allow employees to move from employer to employer and still earn
service credit under the multiemployer plan, provided the employers for
which the employee works participate in the multiemployer plan.
Multiemployer plans are established via collective bargaining between a
union and two or more employers. Ordinarily, the union and the
employers will enter into a collective bargaining agreement which is
negotiated between local, regional, or national unions and individual
employers or an association of employers bargaining as a group. The
collective bargaining agreement establishes the employer's obligation
to contribute to the plan, identifies the bargaining unit to which the
collective bargaining agreement applies, and sets the rate and basis on
which employers pay contributions to the plan. The contribution rate is
usually a specific sum per hour or unit of time worked by or paid to
the employee.
Negotiations over pension contribution rates are not done in a vacuum.
The union and employers also must negotiate contribution rates to other
multiemployer benefit plans (health and welfare, vacation, defined
contribution pension, etc.) as well as wages. The combination of wages
and benefit plan contributions is commonly referred to as the ``wage
and benefit package'' or the ``total package.'' Thus while pension plan
funding is a factor that bargaining parties must take into account
during negotiations, they also must be cognizant of ever-increasing
medical inflation and its impact on medical costs as well as employees'
desire to receive increases in their hourly wage. As many employers
operate on thin profit margins, addressing these competing factors can
be complex. Compounding the complexity is that, once negotiated, the
pension contribution rate is often subject to review and approval by
the plan's trustees.
STATUTES GOVERNING MULTIEMPLOYER PENSION PLANS
Labor Management Relations Act
The Labor Management Relations Act (LMRA), commonly known as the Taft-
Hartley Act, requires employers to pay contributions into a trust fund
that must be jointly administered by an equal number of union and
employer representatives. The obligation to contribute must be set
forth in a written document (usually a collective bargaining
agreement), and the contributions must be used for the sole purpose of
providing benefits to employees.\14\
---------------------------------------------------------------------------
\14\ LMRA section 302 (c)(5).
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Employee Retirement Income Security Act
The union and employer representatives who manage the pension plan and
administer the trust are called trustees. As trustees of the monies
deposited into the trust, the trustees are fiduciaries to the
participants (both active employees and retirees) covered by the
pension plan. The fiduciary duties to which the trustees must adhere
are established under the Employee Retirement Income Security Act of
1974 \15\ and are enforced by the U.S. Department of Labor's Employee
Benefits Security Administration. ERISA requires the trustees to act
with the ``care, skill, prudence, and diligence under the circumstances
then prevailing that a prudent man acting in like capacity and familiar
with such matters would use in the conduct of an enterprise of a like
character and with a like aim.'' \16\ This is known as the ``prudent
expert'' rule and is the standard to which all fiduciary decisions are
held.
---------------------------------------------------------------------------
\15\ ERISA section 1001, et seq.
\16\ ERISA section 404(a)(1)(B).
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Internal Revenue Code
While a plan's trustees generally have the discretion to determine the
amount of benefits a plan will provide, there are other plan features
that must comply with the requirements of the Internal Revenue Code of
1986 (Code).\17\ One such requirement is that, in general, a plan
cannot be amended to reduce accrued benefits, optional forms of
payment, early retirement benefits, and retirement-type subsidies.\18\
This is known as the anti-cutback rule, which until recently was the
lynchpin of the federal pension system. Amendments are generally
allowed to reduce future benefit accruals, as well as optional forms of
payment, early retirement benefits, and retirement- type subsidies that
accrue after the date of the amendment.\19\
---------------------------------------------------------------------------
\17\ Some Code requirements are also found in ERISA.
\18\ Code section 411(d)(6) and ERISA section 204(g).
\19\ ``Present Law, Data, and Selected Proposals Relating to
Multiemployer Defined Benefit Plans,'' The Joint Committee on Taxation,
February 26, 2016, https://www.jct.gov/
publications.html?func=startdown&id=4872.
The anti-cutback rule, which has been a backbone of federal pension law
since ERISA's inception in 1976, has been considerably weakened by
passage of the Pension Protection Act of 2006 (PPA) and the
Multiemployer Pension Reform Act of 2014 (MPRA). The weakening of the
anti-cutback rule has been in direct response to the pending funding
crisis of certain multiemployer plans and has been helpful to many
plans trying to avoid insolvency. However, MPRA has not been entirely
successful, as there are many severely underfunded plans that are going
to need additional help from Congress to survive.
Funding Rules
ERISA's and the Code's minimum funding rules require multiemployer
plans to maintain a funding standard account. The funding standard
account gets debited for charges related to benefit accruals,
investment losses, and other negative plan experience. Credits are
given for employer contributions, investment gains, and other positive
plan experience. The minimum required contribution to a multiemployer
plan is the amount needed, if any, to balance the accumulated credits
and accumulated debits to the funding standard account. If the debits
exceed the credits, there is a negative balance, and contributing
employers must pay the amount necessary to balance the account. The
liability is allocated to all of the plan's contributing employers.
If participating employers do not make the contribution necessary to
balance the funding standard account, the plan has a minimum funding
deficiency and contributing employers can be assessed excise taxes on
top of having to make up the deficiency. On the other hand, if the plan
was overfunded, it would have to increase benefits in order to prevent
paying an excise tax on the overfunding.
The calculations related to determining the amount in a multiemployer
plan's funding standard account are performed by an actuary. The plan
must use a specific funding method to determine the elements included
in its funding standard account for a given year. Such elements include
the plan's normal cost and the supplemental cost. Normal cost is the
cost of future benefits allocated to the year under the plan's funding
method. Supplemental cost is generally the costs attributable to past
service liability or to investment returns that were less than those
assumed by the actuary. The supplemental costs are amortized over a
specified period of years by debiting the funding standard account over
that period. If experience is good, there can also be actuarial gains
that result in credits being made to the funding standard account.\20\
When calculating debits and credits to the funding standard account,
the plan actuary must use reasonable actuarial assumptions.
---------------------------------------------------------------------------
\20\ Id.
Actuaries calculate plan funding using both actuarial values and market
values. Actuarial values are computed by the plan's actuary to predict
how much money a plan needs to set aside to pay future retirees.
Actuaries cannot use market values for this prediction, because market
values fluctuate from day to day as the stock market rises and falls.
An actuary predicts the long-term performance of the plan's investments
by using mathematics to smooth out year-to-year market variations. This
means that when investment performance is bad for a given year, the
actuary will not recognize the entire loss in the year it occurs, but
rather will ``smooth'' the loss by recognizing a portion each year for
---------------------------------------------------------------------------
a period of years. Investment gains are treated similarly.
The actuary uses this smoothing method to create an actuarial value of
the plan's assets, which is the likely value of the investments based
on typical long-term investment results. Market value is the actual
value of the plan's assets on any given day without regard to any
smoothing and provides a more realistic view of a plan's financial
condition.
As of 2012, the funding ratio for plans in critical status was 62.5%
based on the actuarial value of plan assets. Under normal
circumstances, such a ratio would not be disastrous; if the plan's
investment earnings matched or exceeded its actuarial assumed rate of
return and if the trustees made changes to benefits, a plan in critical
status could be expected to right itself. The actuarial assumed rate of
return is the rate the actuary assumes the plan's investment will earn
annually, and generally ranges from 7% to 8%. Unfortunately, many plans
have seen their contribution bases erode to the point where their cash
flow is so negative they cannot earn their way out of critical status.
As of June 30, 2017, the aggregate funding percentage of plans in
critical status fell to 60%, whereas the funded percentage of non-
critical status plans was almost 90%.\21\
---------------------------------------------------------------------------
\21\ Kevin Campe, Rex Barker, Bob Behar, Tim Connor, Nina Lantz,
and Ladd Preppernau, Milliman Multiemployer Pension Funding Study,
Milliman, Fall 2017, http://www.milliman.
com/uploadedFiles/insight/Periodicals/multiemployer-pfs/multiemployer-
pension-funding-fall-2017.pdf.
---------------------------------------------------------------------------
THE CURRENT FUNDING CRISIS IS BEING DRIVEN BY A SMALL PERCENTAGE OF
PLANS WITH COMMON CHARACTERISTICS
Multiemployer defined benefit pension plans are not a monolith. The
most recent surveys illustrate that, as of today, many plans are
structurally stable and well managed. In fact, a Milliman study
recently reported that ``in the first six months of 2017, the aggregate
funding percentage for all multiemployer pensions climbed from 77% to
81%, reducing the system's shortfall by $21 billion--an improvement
driven largely by favorable investment returns.'' \22\ According to the
study, the estimated investment returns have outpaced actuarial
assumptions, reflecting the strong performance of the U.S. stock
market.
---------------------------------------------------------------------------
\22\ Id.
During the 1980s and 1990s, many plans were fully funded.\23\ This was
primarily due to a soaring stock market. While most multiemployer
plans' actuaries assume that annual investment returns will be in the
7% to 8% range, investment returns were well above those percentages
for many plans in the 1990s. The surging stock market seemed like a
blessing at the time. However, the outsized investment returns masked a
significant problem.
---------------------------------------------------------------------------
\23\ Alicia H. Munnell and Jean-Pierre Aubry, ``Private Sector
Multiemployer Pension Plans--A Primer,'' Center for Retirement Research
at Boston College, August 2014, No. 14-13, http://crr.bc.edu/briefs/
private-sector-multiemployer-pension-plans-a-primer/.
While pension assets increased at historical rates, union membership
nationally was in a steady decline. Private-sector union membership in
1983 was 12 million. By 2015, that number had fallen to 7.6
million.\24\ Thus, while pension plans assets were increasing thanks to
the stock market, many plans' contribution bases were declining. With
fewer contributions coming in, plans relied more heavily on investment
returns to keep assets growing.
---------------------------------------------------------------------------
\24\ Megan Dunn and James Walker, ``Union Membership in the United
States,'' Bureau of Labor Statistics, September 2016, https://
www.bls.gov/spotlight/2016/union-membership-in-the-united-states/
home.htm.
Today, almost half of all union members are between 45 and 64 years
old.\25\ As these workers age into retirement, there are not enough
younger union workers to replace them. This exacerbates negative cash
flow and essentially requires some plans to earn annual investment
returns that are likely unrealistic based on the investment markets'
cyclical nature. Moreover, as mentioned above, funds were not able to
``bank'' these extra returns because they would be subject to an excise
tax.
---------------------------------------------------------------------------
\25\ Id.
The euphoria of the 1990s came to an end in 2000, when the price of
technology stocks fell drastically. Many multiemployer plans had ridden
the wave of these dot-com companies to historic highs in asset levels,
but when the market crashed and investment returns were disastrous,
plans were hit twice as hard because of their declining contribution
bases. By the mid-2000s, most plans had recovered, but several plans
remained in dire straits. While very few industries were immune from
funding issues, certain plans in industries that had seen a significant
decline in active participants, such as trucking, or in industries with
cyclical work, like construction, did not recover. In 2008, a global
recession rocked the investment markets, causing funding levels in most
plans to plummet. For those plans that had not sufficiently recovered
from the dot-com bubble burst a few years earlier, 2008 was
---------------------------------------------------------------------------
catastrophic.
Although the investment markets have had favorable returns in recent
years, many plans' funding levels have continued to deteriorate. Since
passage of MPRA in December 2014, 15 multiemployer defined benefit
plans have filed applications with the Treasury Department to reduce
benefits to avoid insolvency. As of December 2017, Treasury has
approved only 4 of the 15 applications. These 15 applicants currently
account for only 1.35% of multiemployer defined benefits plans, but
cover roughly 5% of all multiemployer defined benefits plan
participants. These plans represent a segment of multiemployer pension
plans that are failing and that, although in the minority, could cause
the entire multiemployer pension system to crumble if additional
legislative action is not taken.
What does a plan facing impending solvency look like? By looking
broadly at the plans and industries they are in we can identify many of
the conditions and events that lead a plan down the path to critical
and declining status, and eventual insolvency.
Shrinking Industries and Declining Union Roles
The Bureau of Labor Statistics (BLS) reports that in 1983, there were
approximately 12 million American workers covered by a collective
bargaining agreement, which represented 16.8% of the American
workforce. By 2016, the number had fallen to about 7.6 million, or 6.4%
of the workforce.\26\
---------------------------------------------------------------------------
\26\ Id.
From 2000 to 2015, union membership in the transportation sector,
alone, declined by 6.7 percentage points. Union membership rates in
construction, manufacturing, and wholesale and retail trade also
declined over that period.\27\
---------------------------------------------------------------------------
\27\ Id.
Unionized workers on average are older than nonunion workers. In 2015,
nearly half of union members were between 45 and 64 years old, but only
about one-third of nonunion members belonged in this age group. Workers
aged 45 to 64 were heavily represented in the manufacturing and
transportation industries, which also had relatively high unionization
rates. Furthermore, the lowest union membership rate is among workers
aged 16 to 24 (4.4 %), which makes the systemic replacement of older
union members with younger members impracticable.\28\
---------------------------------------------------------------------------
\28\ Id.
---------------------------------------------------------------------------
Competition and Economic Factors Impacting Contributing Employers
Increased competition facing contributing employers and their employees
is another factor leading to declining pension plan funding levels.
There has been an onslaught of new competition in the last half century
caused in part by changes in U.S. regulatory and trade policy. These
policy changes have contributed to the hollowing out of entire
industries and their associated retirement plans.
For example, the United Furniture Workers Pension Fund A (Furniture
Workers Fund) was crippled by an influx of imported goods. In 1999, the
furniture and related products industry had 537,000 workers. By 2010,
the industry had only 251,000 workers.\29\ Some of this attrition was
caused by the 2008 financial crisis, but not all of it. Between 1981
and 2009, a period that coincides with significant increases in
importation by foreign manufacturers, 35 contributing employers to the
Furniture Workers Fund filed for bankruptcy protection and withdrew
from the plan.
---------------------------------------------------------------------------
\29\ United Furniture Workers Pension Fund A--Second Application
for Approval of Suspension of Benefits (File 1), 12.
In the trucking industry, the competition was domestic in origin, but
similarly dramatic. In 1980, Congress deregulated the trucking
industry, allowing companies to compete in a free and open market.
While the deregulation of the trucking industry has been beneficial for
economy and the American consumer, deregulation has significantly
---------------------------------------------------------------------------
impacted trucking companies that participate in multiemployer plans.
Researchers at the Center of Retirement Research at Boston College
summarized the effects, noting ``of the 50 largest employers that
participated in the Central States Fund in 1980, only four remain in
business today. More than 600 trucking companies have gone bankrupt and
thousands have gone out of business without filing for bankruptcy. As a
result, roughly 50 cents of every benefit dollar goes to pay benefits
to `orphaned' participants, those left behind when employers exit.''
\30\ Even though an employer leaves, the fund--meaning the remaining
employers--is still responsible for paying the benefits due to all
participants in the plan. The orphan participants constitute a
significant share of total multiemployer participants and are much
likelier to participate in severely underfunded plans.
---------------------------------------------------------------------------
\30\ Alicia H. Munnell, Jean-Pierre Aubry, Wenliang Hou, and
Anthony Webb, ``Multiemployer Plans--A Proposal to Spread the Pain,''
Center for Retirement Research at Boston College, October 2014, 8,
http://crr.bc.edu/wp-content/uploads/2014/10/IB_14-17.pdf.
---------------------------------------------------------------------------
Plan Demographics--The Inactive-to-Active Participant Ratio
As competition and demographic shifts reduced the participant
populations in plans, untenable ratios of inactive-to-active
participants were created. New York State Teamsters Conference Pension
and Retirement Fund (New York State Fund) provides a vivid
illustration.
In 1990, the New York State Fund had 23,883 active participants and
10,150 retired participants, for a ratio of more than two active
participants for every one retired participant. By 2000, the ratio was
reduced to almost one to one, as the number of active participants
declined to 16,827, and the number of retired participants increased to
14,198. As of January 1, 2016, there were 11,576 active participants,
compared to 15,936 retired participants, reversing the ratio of active
to retired participants in a single career span.\31\
---------------------------------------------------------------------------
\31\ New York State Teamsters Conference Pension and Retirement
Fund Treasury Application, 24.
According to a survey of multiemployer plans, 87% of beneficiaries in
critical and declining plans were inactive (either already retired or
entitled to a benefit at some time in the future but are no longer
working), compared with 63% in non-critical and declining plans.\32\
---------------------------------------------------------------------------
\32\ Summer 2017 Survey of Plans' Zone Status, Segal Consulting,
Summer 2017, 4.
The survey also found some correlation between average plan funding
levels by industry and inactive-to-active retiree ratios. Plans from
the manufacturing sector had the lowest average funding levels at 79%
and the highest inactive-to-active ratio at 5.8 retirees per active
employee. Transportation sector plans fared a little better with
funding levels averaging 81% but with a much more manageable inactive
to retiree ratio of 2.9:1. Compared to those plans, construction sector
plans are 89% funded on average and have an average ratio of 1.6:1.\33\
As ratios worsen, and the rate of negative cash flow grows, employer
contribution rate increases have little overall effect on plan funding.
Instead plans must rely more heavily on investment returns.
---------------------------------------------------------------------------
\33\ Id., 6.
---------------------------------------------------------------------------
Financial Pressure
Plans with negative cash flow can survive only if the investment return
outpaces the benefit payments. During the 1980s and 1990s many
multiemployer pension plans rode the bull market gains, thereby masking
ominous trends in the growing retiree population. When the tech bubble
burst in 2000, many plans, which had been relying on investment returns
to cover negative cash flows, had to pay benefits directly from plan
assets. As they did so, plan funding levels dropped, and plans had a
lower asset base with which to invest. Since the negative cash flow
problems for many plans did not improve, they were forced to seek
higher investment returns to bridge the gap between the amount of money
coming into the plan and the amount going out.
As a plan's assets dwindle, however, trustees are forced to shift
investments out of equities and into more conservative investment
vehicles to preserve cash to pay benefits for as long as possible. Such
investments generally provide for little growth, so there is no
opportunity for the asset base to grow. If the trustees were to
continue to leave assets invested in equities, a sharp downturn in
equity markets could cause a plan to go insolvent much sooner than
anticipated and to provide trustees with little time for corrective
action or to request the PBGC's assistance. In such circumstances,
trustees are at risk of a fiduciary breach claim for imprudently
investing the assets of the plan. Accordingly, trustees will almost
always err on the side of making assets last longer to avoid potential
legal liability. This approach generally leads a plan to enter the
death spiral where there is no realistic chance of recovery.
The 2008 financial crisis was a disaster for multiemployer plans. Just
prior to 2008, 80% of plans had funding levels in excess of 80%
(referred to as the ``green zone''), whereas only 9% of plans were in
critical status, or the ``red zone.'' By 2009, in the wake of the
market collapse, the percentage of green zone plans plummeted to 38%,
while the percentage of plans in the red zone increased to 30%. Over
time, as the investment markets rebounded, many plans were able to claw
their way back into the green zone. While some plans are just now
returning to their pre-2008 funding levels, virtually all funding
improvements have come exclusively from positive investment
performance. This suggests that nothing has changed demographically,
and that these plans will remain vulnerable to investment market
conditions, which are unpredictable.
ATTEMPTS TO FIX THE MULTIEMPLOYER PENSION PLAN FUNDING PROBLEM
Given the negative cash flow and diminishing contribution bases of
plans that are facing impending insolvency and the PBGC's precarious
financial condition, finding a solution to the funding woes of many
plans will not be easy. Congress and trustees of pension plans have
attempted to address multiemployer funding issues in the past,
especially within the last several years. These attempts have helped
some plans, but additional measures will be needed to save some of the
most underfunded plans.
Multiemployer Pension Plan Amendment Act
In 1980, Congress passed the Multiemployer Pension Plan Amendments Act
(MPPAA).\34\ MPPAA amended ERISA and was designed to discourage
employers from exiting financially troubled multiemployer plans.
Congress recognized that when a contributing employer stopped
contributing to an underfunded multiemployer plan, the unfunded
liability related to the departing employer was absorbed by the plan's
remaining contributing employers. Although in 1980 most multiemployer
pension plans were not facing funding issues as severe as those today,
withdrawing employers increased pension costs for employers that
remained, and in many cases threatened their financial viability.
Withdrawing employers also caused multiemployer plans' contribution
bases to erode.
---------------------------------------------------------------------------
\34\ See ERISA sections 4201-4225.
Prior to MPPAA, an employer that withdrew from a multiemployer plan did
not have to pay anything to the plan unless the plan was terminated
within 5 years of the employer's withdrawal. Even then, the employer's
liability was limited to no more than 30% of the employer's net worth.
Under MPPAA, an employer that totally or partially withdraws from a
multiemployer pension plan must pay ``withdrawal liability.'' \35\ An
employer's withdrawal liability is the amount of the employer's
proportionate share of the plan's unfunded vested benefits or
liabilities, or UVBs (i.e., the withdrawing employer's proportionate
share of the deficit between the amount of the plan's vested benefits
and the plan's assets).
---------------------------------------------------------------------------
\35\ Not only is the contributing employer to the plan responsible
for paying withdrawal liability, but also MPPAA provides that all
trades or businesses under common control (as defined in section 414 of
the Code) are jointly and severally liable for a withdrawing employer's
withdrawal liability. See ERISA section 4001(b)(1).
When an employer withdraws from an underfunded multiemployer plan,
MPPAA requires the plan's trustees to (1) determine the amount of
withdrawal liability, (2) notify the employer of the amount of that
liability, and (3) collect that liability. Generally, in order to
determine an employer's withdrawal liability, a portion of the plan's
UVBs is first allocated to the employer, generally in proportion to the
employer's share of plan contributions for a previous period. The
amount of UVBs allocable to the employer is then subject to various
---------------------------------------------------------------------------
reductions and adjustments.
ERISA sets forth the amount of annual withdrawal liability payments the
employer must make directly to the plan. Generally speaking, ERISA
calls for annual payments to continue until the employer pays the
liability in full, but caps the annual payments at 20 years. Thus, it
is possible for an employer that does pay withdrawal liability for 20
years to still not pay off all of its unfunded liability. When this
happens, other employers must make up the difference.
An employer's annual withdrawal liability payment amount is generally
structured to approximate the employer's annual contributions to the
plan. The amount is equal to the employer's highest recent average
number of contribution base units, or CBUs (essentially, the amount of
contribution paid to the plan) multiplied by the employer's highest
contribution rate in the past 10 years. An employer can prepay its
liability or attempt to negotiate the amount with the plan. There are
additional withdrawal liability rules applicable to certain industries,
exemptions for certain sales of assets, employer and plan disputes, and
plan terminations following mass employer withdrawals.
Although the introduction of withdrawal liability was supposed to
prevent withdrawing employers from shifting pension obligations to the
remaining employers, MPPAA has not always worked as intended. The
biggest problem is that many withdrawing employers do not have the
financial means to satisfy their withdrawal liability. Employers often
withdraw when they are going out of business or when they file for
bankruptcy. When this happens, it is difficult, if not impossible, for
the plan to collect the employer's withdrawal liability. As a result,
some plan participants with vested benefits may have worked for an
employer that no longer participates in the plan. The liability for
these ``orphaned'' participants has devastating effects on plan funding
and is a major contributor to the funding issues that many plans face
today.
Pension Protection Act of 2006
In 2006, Congress passed the Pension Protection Act. The PPA amended
ERISA and the Code to make certain changes to multiemployer funding
rules. These changes were designed to give plan trustees more
flexibility in dealing with funding while at the same time forcing them
to identify and correct existing and potential funding issues in time
to prevent further funding level deterioration and stabilize the plans'
finances.\36\ The PPA requires a multiemployer plan's actuary to
provide an annual certification to the Internal Revenue Service of the
plan's funded status. The certification specifies that the plan falls
into one of three categories: endangered status, critical status, or
neither.
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\36\ Segal Consulting, Segal Bulletin, August 2006.
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Endangered-Status Plans
A plan is generally in endangered status, also known as the ``yellow
zone,'' if the plan's funded percentage is less than 80%, or the plan
has an accumulated funding deficiency for the plan year or is projected
to have an accumulated funding deficiency in any of the six succeeding
plan years. A plan's funded percentage for purposes of the PPA
certification is determined by dividing the value of plan assets by the
accrued liability of the plan. The trustees of a plan in endangered
status are required to adopt a funding improvement plan.
A funding improvement plan consists of a list of options, or range of
options, for the trustees to propose to the union and the employers
(the bargaining parties). The funding improvement plan is formulated to
provide, based on anticipated experience and reasonable actuarial
assumptions, for the plan to attain ``applicable benchmarks'' by the
end of the funding improvement period. The range of options generally
is a combination of contribution rate increases or reductions in future
benefit accruals that would allow the plan to obtain a statutorily
specified increase in the funded percentage and not have an accumulated
funded percentage by the end of the funding improvement period, which
is generally 10 years.
Many plans certified as endangered in the early years of the PPA were
able to fix their funding problems and now are in neither endangered
nor critical status (known as the ``green zone''). Other plans were not
so fortunate, and their status deteriorated from endangered to
critical. It should be noted that the PPA did not allow plans in
endangered status to make any changes to benefits that were not already
allowed under pre-PPA rules. In other words, trustees of endangered
plans are not allowed to violate the anti-cutback rule of ERISA and the
Code, and can only reduce future accruals and eliminate other protected
benefits on a prospective basis. This led some trustees to take the
counterintuitive action of allowing their plans to fall into critical
status, because there was more statutory flexibility under the critical
status rules to address funding problems.
Critical-Status Plans
A plan is in critical status if the plan:
(1) Is less than 65% funded and will either have a minimum funding
deficiency in 5 years or be insolvent in 7 years; or
(2) Will have a funding deficiency in 4 years; or
(3) Will be insolvent within 5 years; or
(4) The liability for inactive participants is greater than the
liability for active participants, and contributions are less than the
plan's normal cost, and there is an expected funding deficiency in 5
years.
Trustees of plans in critical status are required to adopt a
rehabilitation plan. Unlike endangered plans, critical-status plans
whose trustees adopt and follow a rehabilitation plan generally do not
have to meet the minimum funding rules of ERISA and the Code.
A rehabilitation plan is a plan that consists of a range of options for
the trustees to propose to the bargaining parties, formulated to
provide (based on anticipated experience and reasonable actuarial
assumptions) for the plan to cease to be in critical status by the end
of the rehabilitation period, which is generally 10 years. Options
include reductions in plan expenditures, reductions in future benefit
accruals, increases in contributions, or any combination of such
actions. The rehabilitation plan must be updated annually, and the plan
must show that it is making scheduled progress toward emerging from
critical status.
If the trustees determine that, based on reasonable actuarial
assumptions, the plan cannot reasonably be expected to emerge from
critical status by the end of the rehabilitation period, the plan must
include reasonable measures to emerge from critical status at a later
time or to forestall possible insolvency. If a multiemployer plan fails
to make scheduled progress under the rehabilitation plan for three
consecutive plan years or fails to meet the requirements applicable to
plans in critical status by the end of the rehabilitation period, for
excise tax purposes the plan is treated as having a funding deficiency
equal either to the amount of the contributions necessary to leave
critical status or make scheduled progress or to the plan's actual
funding deficiency, if any. Plans may apply for a funding waiver if the
case failure is due to reasonable cause and not willful neglect.
The PPA allows trustees of critical-status plans to make changes to
benefits that endangered-plan trustees cannot. They are allowed to
reduce or eliminate benefits that were previously protected by the
anti-cutback rule. Critical-status plans can be amended to reduce or
eliminate certain adjustable benefits, including post-retirement
benefits, subsidized optional forms of payment, disability benefits not
yet in pay status, early retirement benefits or retirement subsidies
and benefit increases adopted less than 60 months before the plan
entered critical status. In addition, critical-status plans that
provide for payment of benefits in the form of a lump sum are required
to cease paying lump-sum benefits on the date they enter critical
status.
The ability to eliminate or reduce previously protected benefits was
heretofore unprecedented, and many plans in critical status have taken
advantage of these new rules and are projected to emerge from critical
status or to forestall possible insolvency because of them. However,
for those underfunded plans with a declining active population base and
severe negative cash-flow problems, the savings generated by
eliminating these adjustable benefits were not great enough to improve
the plans' funded percentages.
Compounding the problem is that after cutting benefits to the maximum
extent possible, there was little else that could be done to reduce
costs. That left employer contribution rate increases as the only
viable option to improve funding. Over the years, however, many plans
have found that annual increases in employer contribution rates are not
so viable because employers cannot absorb the costs. Out-of-
control pension costs threaten employers' very survival.
Multiemployer Pension Reform Act of 2014
Although the investment markets have had favorable returns in recent
years, many plans' funding levels continue to deteriorate. Under the
PPA, a prohibition against reducing accrued benefits on a retroactive
basis remained. Recognizing that some plans could not avoid insolvency
without drastic changes in the law, Congress passed the Multiemployer
Pension Reform Act in 2014.\37\ MPRA changed the multiemployer defined
benefit plan landscape.
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\37\ The Multiemployer Pension Reform Act of 2014, Pub. L. No. 113-
235, Division O (2014).
The law created three new tools to help plans stave off insolvency.
Most notably, for the first time under ERISA, Congress allowed plans
that were in severe financial distress to reduce benefits that had
already accrued, including benefits that were in pay status (these
reductions are referred to as ``benefit suspensions'' under MPRA). This
was a landmark change and a radical departure from what was previously
allowed. MPRA also revised ERISA's existing merger and partition rules.
Critical and Declining Status
MPRA created a new funding status called ``critical and declining'' for
those plans that were the most deeply troubled. A ``critical and
declining'' plan is one that meets one of the statutory requirements
for critical status and is actuarially projected to become insolvent
within 14 years (or within 19 years if more than two-thirds of its
participants are inactive or retired). A plan that is in ``critical and
declining'' status can file an application with Treasury to reduce or
suspend benefits that have already accrued and that are in pay status
(i.e., are already being paid to retirees and beneficiaries). MPRA
provides for the following three mechanisms to help critical and
declining plans avoid insolvency:
PBGC-Facilitated Plan Mergers
Mergers can improve a financially troubled plan's funding issues. By
transferring its assets to a more financially stable plan, the weaker
plan can lessen or eliminate the effect of negative cash flow while
gaining a larger asset base with which to invest. Generally, however, a
trustee's decision to merge is subject to the fiduciary duty provisions
of ERISA.\38\ These fiduciary duties are applied to the trustees of
both plans involved in a contemplated merger. The trustees of both
plans have to determine that a merger would be in the best interest of
their respective participants. Both plans' trustees have to examine the
financial condition of their respective plans before and after the
merger, as well as the viability of the surviving plan post-merger.
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\38\ Merging a plan is arguably a settlor function that would not
be subject to ERISA's fiduciary rules. The DOL has offered the opinion
that certain actions taken by trustees of multiemployer plans that
would ordinarily be settlor functions will be treated as fiduciary
functions if the plan's trust agreement provides that the trustees act
as fiduciaries when engaging in what otherwise would be settlor
functions. If the governing plan documents are silent, activities
generally considered settlor functions in a non-multiemployer setting
will be considered as settlor functions with respect to the
multiemployer plan. DOL Field Assistance Bulletin 2002-2.
Because generally one of the plans in the proposed merger is in worse
financial condition than the other, finding a good merger partner was
and is sometimes difficult. For example, the trustees of a financially
sound plan will likely not want to merge with a plan that is projected
to become insolvent because of the affect the poorly funded plan would
have on the funded level of the financially sound plan. Traditionally,
a merger between a stronger plan and a weaker plan--but not one facing
insolvency--would have the benefit of a larger asset base in which to
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obtain investment gains.
Under MPRA, the PBGC can facilitate mergers between two or more plans,
including providing financial assistance. By providing financial
assistance, the PBGC can alleviate the healthier plan's financial/
fiduciary concerns, which might make the healthier plans more willing
to merge. Upon a plan's request, the PBGC may facilitate a merger if
PBGC determines the merger is in the interests of the participants and
beneficiaries of at least one of the plans, and the merger is not
reasonably expected to be adverse to the overall interests of the
participants and beneficiaries of any of the plans. The PBGC may
provide assistance to a plan such as training, technical assistance,
mediation, communication with stakeholders, and support with related
requests to other governmental agencies. MPRA allows trustees of plans
in ``critical and declining'' status to apply for both a facilitated
merger and a benefit suspension.
The PBGC may also provide financial assistance to facilitate a merger
if one or more of the plans in the merger is in ``critical and
declining status''; the PBGC reasonably expects that financial
assistance will reduce it's expected long-term loss with respect to the
plans involved and, the PBGC reasonably expects that the financial
assistance is necessary for the merged plan to become or remain
solvent; the PBGC certifies its ability to meet existing financial
obligations will not be impaired by providing the financial assistance;
and the assistance is paid from the PBGC's fund for basic benefits
guaranteed for multiemployer plans.
PBGC Plan Partitions
MPRA also expanded ERISA's partition rules, which previously allowed
only the PBGC to partition plans that suffered significant contribution
losses as a result of employer bankruptcies. In a partition, PBGC gives
approval to divide a severely underfunded plan into two plans.
Generally, the liability for orphaned participants is transferred to a
new plan, which is technically insolvent from inception. The PBGC pays
the orphan benefits up to the PBGC guaranteed amount. The original plan
remains as is, and the goal is to restore its financial health.
A plan in critical and declining status may submit coordinated
applications to the PBGC for a partition and to Treasury for a benefit
suspension.
The PBGC may order a partition if the following conditions are
satisfied:
(1) The plan is in critical and declining status;
(2) The PBGC determines that the plan has taken all reasonable
measures to avoid insolvency, including the maximum benefit suspensions
as discussed above;
(3) The PBGC reasonably expects that the partition will reduce its
expected long-term loss with respect to the plan and partition is
necessary for the plan to remain solvent;
(4) The PBGC certifies to Congress that its ability to meet existing
financial assistance obligations to other plans will not be impaired by
such partition; and
(5) The cost arising from such partition is paid exclusively from the
PBGC's fund for basic benefits guaranteed for multiemployer plans.
Suspension of Benefits
MPRA allows trustees of plans in critical and declining status to apply
to Treasury to suspend (temporarily or permanently) participants'
accrued pension benefits, including those already in pay status. MPRA
defines ``suspension of benefits'' as the ``the temporary or permanent
reduction of any current or future payment obligation of the plan to
any participant or beneficiary under the plan, whether or not in pay
status at the time of the suspension of benefits.''
A plan may suspend benefits only if the plan's actuary certifies that
the plan is projected to avoid insolvency if the benefit suspensions
are implemented.
Benefit suspensions are subject to the following limitations:
(1) A participant or beneficiary's monthly benefit cannot be reduced
below 110% of the PBGC-guaranteed amount;
(2) Participants and beneficiaries aged 75 and older at the date of
suspension have limitations on the suspension;
(3) Participants and beneficiaries aged 80 and older at the date of
suspension are exempt from suspensions;
(4) Disability pensions are exempt from suspensions; and
(5) Benefit suspensions must be reasonably implemented to avoid plan
insolvency.
MPRA also includes a list of factors the plan may consider to ensure
the benefit suspensions are equitably distributed among the
participants and beneficiaries, including age, number of years to
retirement, and the participants' benefit history.
MPRA requires plans with 10,000 or more participants to select a
retiree representative to act as an advocate for the interests of the
retirees and inactive participants during the suspension application
process. The plan must pay for all reasonable legal, actuarial, and
other costs the representative incurs.
Benefit Suspension Application Rules
In order to suspend benefits, the trustees must submit a detailed
application to Treasury and demonstrate that the plan meets the
statutory requirements. Once Treasury accepts the application for
review, it has 225 days to render a decision or the application is
automatically deemed approved. Treasury will generally request
additional information and pose questions to the plan's attorneys and
actuaries regarding the application.
If Treasury rejects a plan's application, the plan may challenge the
denial in court. If Treasury approves a plan's application, the
suspension is subject to a participant and beneficiary vote within 30
days of the approval. If a majority of all participants and
beneficiaries (not simply a majority of those who vote) do not actively
vote to reject the suspensions, the suspensions are approved.
Suspensions may not take effect until after the vote, and Treasury
issues final authorization. If the participants and beneficiaries vote
to reject the suspensions, Treasury, in consultation with the DOL and
PBGC, must determine whether the plan is ``systemically important.'' A
plan is ``systemically important'' if the plan's insolvency will result
in $1 billion or more in projected PBGC liabilities. If a plan is
deemed systemically important and suspensions were not approved by the
participants, Treasury has the discretion either to accept the terms of
the proposal or to modify the benefit suspensions in some other manner
projected to avoid plan insolvency.
Since the passage of MPRA, 15 multiemployer defined benefit plans have
filed applications with the Treasury Department to reduce benefits to
avoid insolvency. As of December 2017, Treasury has approved only 4 of
the 15 applications. These 15 applicants currently account for only
1.35% of multiemployer defined benefits plans, but cover roughly 5% of
all multiemployer defined benefits plan participants. These plans
represent a segment of failing multiemployer pension plans that,
although in the minority, could cause the entire multiemployer pension
system to crumble if additional legislative action is not taken.
Details on these applications are provided in ``MPRA Suspension
Applications to Date'' in this paper.
Individual Plan Initiatives
Over the past 15 years, trustees of financially troubled plans have
employed numerous strategies to solve plans' funding issues. While some
of these strategies have been helpful, most of these plans' funding
issues remain.
Reductions to Future Benefit Accruals and Increased Employer
Contributions
The PPA requires trustees to take an active and forward-looking
approach in managing their plans. Plans in critical and endangered
status have to take corrective action. As part of that corrective
action, plans can continue to reduce future benefit accruals and
increase contributions. Critical-status plans can also reduce and
eliminate adjustable benefits for those participants that have not
retired.
Prior to the PPA, trustees had limited options to combat underfunding
issues. Most plans had to solve funding problems by: (1) reducing the
future benefit accruals of the active participants; and/or (2)
requiring employers to increase their contributions.\39\ While these
strategies were sometimes successful, for employers in industries like
coal, trucking, manufacturing, and bakery, continued contribution
increases became unsustainable.
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\39\ In general terms, a participant's accrued benefit represents
the benefit that the participant has earned or ``accrued'' under the
plan as of a given time. For example, if a participant terminated
covered employment before reaching normal retirement age under a plan's
rules, the benefit to which the participant is entitled to receive on
reaching normal retirement age is the accrued benefit. The plan usually
specifies the accrual method used to determine a participant's accrued
benefit.
Many trustees now recognize that they can no longer feasibly cut
benefits for active employees and raise employer contributions.
Employers and bargaining unit groups have left plans at alarming rates
over the last decade as contribution rates have steadily increased and
plans have repeatedly reduced benefits for active participants.
Additional contribution increases are not sustainable in many
industries, and threaten the employers' competitiveness, and in some
cases, their existence. Losing employers would further erode the stream
of contribution revenue on which a plan relies and exacerbate the
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negative cash flow problem for severely underfunded plans.
For example, in 1980 the Central States Pension Fund had approximately
12,000 employers; by July 2015 the number was down to 1,800.\40\
Between 2010 and 2014, Central States experienced approximately 260
involuntary employer withdrawals as a result of employer bankruptcies.
During this same period, the New York State Fund also had a significant
number of employers leave, negatively affecting its funding level.\41\
In December 2013, the New England Teamsters and Trucking Industry
Pension Fund (New England Teamsters Fund) reported that in order to
avoid filing bankruptcy, one of its 10 largest employers negotiated an
agreement with the International Brotherhood of Teamsters to
temporarily cease pension contributions, with a subsequent resumption
at a significantly reduced level. Another large employer emerged from
bankruptcy and notified the Fund that it was unable to pay its current
contributions.\42\
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\40\ Central States, Southeast and Southwest Areas Pension Fund's
MPRA Suspension of Benefits Application, dated September 25, 2015,
section 19.8.4.
\41\ New York State Teamsters Conference Pension and Retirement
Fund's MPRA suspension of benefits application, dated May 15, 2017,
section 5.
\42\ New England Teamsters and Trucking Industry Pension Fund 2013
Review of the Rehabilitation Plan.
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Funding Policies
Some trustees have adopted policies with strict rules on the acceptance
of employer contributions to ensure that the bargaining parties, i.e.,
the union and the employer, do not negotiate a CBA containing pension
provisions that would adversely affect plan funding. These trustees
have drafted policies or included rules in the plans' governing
documents explicitly reserving sole discretion to reject a particular
CBA if it is not in compliance with the policy or if it is deemed
economically bad for the plan. While some plans have had such policies
for many years, others are now just implementing them.
For example, the Board of Trustees of the Western Conference of
Teamsters Pension Trust Fund does not allow CBAs that permit or require
pension contributions for non-bargaining unit members or CBAs that
limit the employees on whose behalf contributions are to be made.
The Trustees of the Central States Pension Fund have taken a similar
but more aggressive position. They reserved discretion in the Fund's
trust agreement to reject any CBA it determines to be unlawful or would
``threaten to cause economic harm to, and/or impairment of the
actuarial soundness of, the Fund, and/or that continued participation
by the Employer is not in the best interest of the Fund.'' \43\
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\43\ ``Trust Agreement of the Central States, Southeast and
Southwest Areas Pension Fund as amended through April 1, 2016,'' 9,
https://mycentralstatespension.org/-/media/Pension/PDFs/Legal/
pension_fund_trust_agreement_as_amended_april_2016.pdf?la=en&hash=1A7964
61
E51C6BB84ED3111B62C59A326D881686.
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Two-Pool Withdrawal Liability Method
Some trustees have requested approval from the PBGC to adopt an
alternative method to calculate withdrawal liability called the ``two-
pool withdrawal liability method'' (the two-pool method). Under the
two-pool method, the plan maintains two withdrawal liability pools for
contributing employers: one new pool for new employers and current
employers that elect to pay off their existing withdrawal liability and
transition over; and a second old pool for existing employers who, for
a variety of reasons, decide not to trigger a withdrawal and remain in
the plan.
Usually, an employer that is not contributing or does not owe
withdrawal liability to the plan can qualify to be in the new pool. If
a new employer enters the plan, it would automatically enter the new
pool. When an already contributing employer moves from the old pool to
the new pool, it generally agrees to withdraw from the existing
withdrawal liability pool, to adhere to a withdrawal liability payment
schedule, and to reenter the plan through the new pool for
contributions made and benefits earned after that date.
Over the past few years, PBGC has received a number of requests from
plans looking to implement the two-pool method.\44\ The Central States
Pension Fund, the New England Teamsters Fund, the New York State Fund,
and the Bakery and Confectionery Union and Industry International
Pension Fund have received PBGC approval to use the two-pool method. In
order to encourage employer participation in the new pool, the trustees
offer favorable settlement terms to satisfy withdrawal liability, but
the extent of the relief is related to the employer's sustained
commitment and continued contributions to the Fund.
---------------------------------------------------------------------------
\44\ ``Retirement Matters, Request for Information: Two Pool
Withdrawal Liability,'' PBGC Blog, January 4, 2017, https://
www.pbgc.gov/about-pbgc/who-we-are/retirement-matters/request-
information-two-pool-withdrawal-liability.
The Western Pennsylvania Teamsters and Employers Pension Fund has
implemented the two-pool method but is still waiting for the PBGC's
official approval. See Plan Document of the Western Pennsylvania
Teamsters and Employers Pension Fund.
The two-pool method has the potential to provide significant benefits
to some plans. Trustees that have implemented the two-pool method
believe it helps retain contributing employers that might otherwise
withdraw.\45\ A plan's long-term funding is affected by the strength of
its base of contributing employers. Often times, a plan's more
financially stable employers become frustrated as other employers
withdraw from the plan. These withdrawals transfer costs and liability
to the remaining employers over time in the form of higher
contributions and increased reallocated withdrawal liability. This
trend encourages healthy employers to withdraw before additional
financial responsibility shifts to them, which ultimately places
financial stress on the plan. The two-pool method offers an opportunity
for healthy employers to remain in a plan while insulating them from
the less financially stable employers.\46\
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\45\ ``Response to Request for Information on Alternative Two-Pool
Withdrawal Liability Methods,'' American Academy of Actuaries, February
21, 2017; see also PBGC letter to the Bakery Confectionery Union and
Industry International Pension Fund, January 19, 2017.
\46\ ``Response to Request for Information on Alternative Two-Pool
Withdrawal Liability Methods,'' American Academy of Actuaries, February
21, 2017.
Despite its potential benefits, to date the two-pool method has not
attracted new employers. It is a relatively new concept, however, and
may be helpful in conjunction with other strategies, such as mergers
and partitions.
DEVELOPMENTS UNDER THE MULTIEMPLOYER PENSION REFORM ACT OF 2014
Since its passage almost three years ago, MPRA has been criticized in
part because of the manner in which it was enacted but more
substantively because of the law's allowance for reductions to accrued
benefits, including benefits already in pay status. Additionally,
critics claim that implementation of MPRA failed to provide relief to
the one plan that arguably was the primary focus of Congressional
concern: the Central States Fund. Supporters assert, however, that
absent benefit reductions, there are some plans that cannot avoid
insolvency and thus will result in benefit reductions for most
participants far greater than proposed under the rescue plan, since
participants' benefits will be reduced to the PBGC guarantees. That the
PBGC itself is projected to become insolvent only complicates things.
MPRA Suspension Applications to Date
As of December 2017, 15 plans covering a variety of industries,
including transportation, furniture, machinery, and bricklaying, have
applied to Treasury to suspend benefits, while four of those same plans
submitted coordinating partition applications to the PBGC.\47\
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\47\ Applications for Benefit Suspension, U.S. Department of the
Treasury, October 26, 2017, https://www.treasury.gov/services/Pages/
Plan-Applications.aspx.
See also Partition Requests, Pension Benefit Guaranty Corporation,
October 26, 2017, https://www.pbgc.gov/prac/pg/mpra/multiemployer-
plans-and-partition.
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Treasury has denied the following MPRA applications:
Automotive Industries Pension Plan;
Central States, Southeast and Southwest Areas Pension Fund
(Central States);
Iron Workers Local Union 16 Pension Fund;
Road Carriers Local 707 Pension Fund (Local 707 Pension Fund);
and
Teamsters Local 469 Pension Plan.
The following plans withdrew their applications prior to Treasury's
issuance of a ruling:
Alaska Ironworkers Pension Plan;
Bricklayers and Allied Craftsmen Local No. 7 Pension Plan;
Bricklayers and Allied Craftsmen Local No. 5 Pension Plan
(Bricklayers Local 5 Pension Plan);
Local 805 Pension and Retirement Plan (Local 805 Pension Fund);
and
Southwest Ohio Regional Council of Carpenters Pension Plan.
The following application is under review:
Western States Office and Professional Employees Pension Fund.
Treasury has approved the following applications:
Iron Workers Local 17 Pension Fund;
United Furniture Workers Pension Fund A (Furniture Workers
Fund);
New York State Teamsters Conference Pension & Retirement Fund
(New York State Fund); and
International Association of Machinists Motor City Pension Fund
(Motor City Fund).
MPRA Application Denials
Central States Pension Fund
Treasury denied Central States Pension Fund's suspension application in
May 2016. The Central States Pension Fund's application was the first
application submitted under MPRA. Central States, the largest
multiemployer pension plan in the country with close to 400,000 total
participants, roughly half of whom currently receive annual benefits
totaling close to $3 billion,\48\ has been reeling from investment
losses stemming from the 2008 financial crisis. When Central States
submitted its MPRA application, it had $16.8 billion in assets against
$35 billion in liabilities. In 2015, the Fund was certified to be in
critical and declining status, at 47.7% funded and projected to go
insolvent by 2026.
---------------------------------------------------------------------------
\48\ Central States, Southeast and Southwest Areas Pension Fund's
MPRA suspension of benefits application, September 25, 2015, section
5.1.9, https://www.treasury.gov/services/AppsExtended/
(Checklist%205)%20Critical%20and%20Declining%20Status%20Certification.pd
f.
Decades ago, the Fund had four active workers for every retiree or
inactive member. But, like many other Teamster plans, that ratio
reversed to approximately five retirees for every one active worker, as
a decline in membership due to the deregulation of the trucking
industry and two economic catastrophes in the 2000s resulted in far
fewer active workers paying into the plan than receiving benefits. The
Fund's retirees currently earn $1,128 per month on average, although
that total includes workers with tenures of all different lengths. The
---------------------------------------------------------------------------
longest-tenured workers receive about $2,400 a month.
Treasury rejected the Central States Pension Fund's application because
it failed to satisfy several MPRA technical requirements.\49\
---------------------------------------------------------------------------
\49\ Kenneth R. Feinberg, U.S. Department of the Treasury's MPRA
suspension application denial letter to the Board of Trustees of the
Central States, Southeast and Southwest Areas Pension Plan, May 6,
2016, https://www.treasury.gov/services/Responses2/Central%20States
%20Notification%20Letter.pdf.
According to Treasury, the Fund did not meet the following statutory
---------------------------------------------------------------------------
requirements:
(1) To use reasonable investment return assumptions;
(2) To use a reasonable entry age assumption;
(3) To equitably distribute the suspensions; or
(4) To draft its suspension notices to be understandable by the
average plan participant.
Many commentators were shocked that Treasury denied the Central States
application, because it is one of the largest and most financially
troubled plans in the multiemployer system. Many believe MPRA was
passed specifically to save Central States, on the grounds that if the
plan went insolvent it would effectively bankrupt the PBGC's
multiemployer plan insurance program. On the same day that Treasury
rejected Central States' application, Treasury Secretary Jacob J. Lew
sent a letter to Congress wherein he advised that the larger funding
issues facing Central States and other multiemployer plans remain
unsolved, especially as the PBGC is simultaneously heading toward
insolvency. Secretary Lew's letter explained that Treasury's rejection
of the application may have provided participants with some short-term
relief but pointed out that even larger cuts may be required in the
future for the Fund to meet MPRA's requirements.\50\
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\50\ Jacob J. Lew, Secretary of the U.S. Department of the
Treasury, letter to Congress, May 6, 2016, https://www.treasury.gov/
services/Documents/MPRA%20SecLew%20Letter%20to%20
Congress%20050616.pdf.
Central States' executive director, Thomas Nyhan, said the decision was
disappointing because the trustees believed ``the rescue plan provided
the only realistic solution to avoiding insolvency.'' Nyhan said the
Fund's retirees would have been better off with the cuts than they
would be if the plan became insolvent. Given PBGC's looming insolvency,
Nyhan noted that without the PBGC safety net, the Fund's participants
could see their pension benefits reduced to ``virtually nothing.'' \51\
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\51\ Thomas Nyhan, Executive Director and General Counsel of the
Central States, Southeast and Southwest Area Pension Plan letter to
participants, May 20, 2016, https://my
centralstatespension.org/-/media/Pension/PDFs/cspf-letter-to-
participants-05-20-16.pdf?la=en&
hash=5A9F9CCFF4AD8A48781D30CDD684B02092531264.
As of this writing, the Fund has posted the following sobering message
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on its website:
Although the decision to request approval of a pension rescue
plan was very difficult for the Fund's Trustees, we are
disappointed in Treasury's decision and strongly disagree with
the reasons expressed by Treasury for denying our rescue plan
application. Central States' proposed rescue plan was a
proposal of last resort, and clearly not an option that the
Trustees preferred. It was, however, based on a realistic
assessment that benefit reductions under a rescue plan were the
only available, practical way to avoid the hardship and
countless personal tragedies that will result if the Pension
Fund runs out of money.
Since the Central States Pension Fund submitted its application, its
funding percentage has decreased to approximately 42.1%, with an
estimated insolvency date of 2025. Its liabilities have increased to
approximately $39 billion, and its assets have decreased to $16.1
billion.\52\
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\52\ 2017 Notice of Critical and Declining Status of the Central
States, Southeast and Southwest Area Pension Plan, https://www.dol.gov/
sites/default/files/ebsa/about-ebsa/our-activities/public-disclosure/
status-notices/declining/2017/central-states-southeast-and-southwest-
areas-pension-plan.pdf.
Central States, Southeast and Southwest Area Pension Plan 2016
Annual Form 5500, Schedule MB, October 6, 2017.
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Road Carriers Local 707 Pension Fund
Treasury and the PBGC denied the Road Carriers Local 707 Pension Fund's
coordinated partition and suspension applications in June 2016.\53\ The
Fund, a Teamster plan based in Hempstead, New York, is currently
insolvent and receives financial support from the PBGC in the amount of
$1.7 million per month to pay benefits.\54\
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\53\ Kenneth R. Feinberg, U.S. Department of the Treasury's MPRA
suspension application denial letter to the Board of Trustees of the
Road Carriers Local 707 Pension Fund, June 24, 2016, https://
www.treasury.gov/services/Responses2/
Local%20707%20Notification%20Letter.pdf.
See also PBGC letter to the Board of Trustees of the Road Carriers
Local 707 Pension Fund, June 2016, https://www.pbgc.gov/documents/PBGC-
Letter-June-2016.pdf.
\54\ Notice of Insolvency Benefit Level of the Road Carriers Local
707 Pension Fund, dated December 2016, https://www.pbgc.gov/news/other/
res/road-carriers-local-707-faqs (October 29, 2017).
At the time the Fund submitted its applications in February and March
2016, it was less than 5% funded and had only $24.5 million in assets,
a 2:1 retiree-to-active participant ratio, and only nine remaining
contributing employers.\55\
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\55\ Road Carriers Local 707 Pension Fund Coordinated Application
for Approval of Suspension of Benefits Under MPRA, Exhibits 2-3, March
15, 2016, https://www.treasury.gov/services/KlineMillerApplications/
Redacted%20Files%20Local%20707%20application_001.pdf.
The trustees had already reduced benefit levels for those in pay status
and filed the Fund's notice of insolvency with the PBGC, informing the
Corporation that it would become insolvent and require financial
support beginning in February 2017. Like many other Teamster plans,
this Fund has never been able to recover from a combination of trucking
deregulation, little to no growth in the trucking industry, an
increasing retiree population, bankrupt employers failing to pay their
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withdrawal liability, and the two financial crises in the 2000s.
In its denial of the partition request, PBGC concluded that the Fund
failed to demonstrate that it would remain solvent following a
partition, and that its application was based on unreasonably
optimistic assumptions related to active participants and future
contribution levels, including those of the Fund's dominant employer,
YRC Worldwide.\56\ Treasury also denied the Fund's suspension
application, mainly because the projection of solvency in the
application was based on the implementation of a partition, which the
PBGC denied.\57\
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\56\ PBGC letter to Board of Trustees of the Road Carriers Local
707 Pension Fund, June 10, 2016, https://www.pbgc.gov/documents/PBGC-
Letter-June-2016.pdf.
\57\ Kenneth R. Feinberg, U.S. Department of the Treasury's MPRA
suspension application denial letter to the Board of Trustees of the
Road Carriers Local 707 Pension Fund, June 24, 2016, https://
www.treasury.gov/services/Responses2/
Local%20707%20Notification%20Letter.pdf.
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Other MPRA Application Denials and Withdrawals
The applications of the Automotive Industries Pension Plan, the
Ironworkers Local Union 16 Pension Fund, and the Teamsters Local 469
Pension Plan were all rejected, because they did not meet MPRA's
technical requirements. According to Treasury's denial letters, these
plans' applications were denied because the proposed suspensions were
not reasonably estimated to avoid insolvency, the actuarial assumptions
and methods (i.e., assumptions about mortality rates, hours of service,
and spousal survivor benefits) were unreasonable, and/or assumptions
about the return on investment were unreasonable.\58\
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\58\ See U.S. Department of the Treasury letter to Board of
Trustees of the Automotive Industries Pension Plan, May 9, 2017; U.S.
Department of the Treasury letter to Board of Trustees of the
Ironworkers Local 16 Pension Fund, November 3, 2016; U.S. Department of
the Treasury letter to Board of Trustees of the Teamsters Local 469
Pension Fund.
On the other hand, a few plans, such as the Alaska Ironworkers Pension
Plan and the Bricklayers and Allied Craftsmen Local No. 5 and No. 7
Pension Plans, made the strategic decision to withdraw their
applications from Treasury consideration before the Department could
issue its decision.\59\ These plans likely withdrew their applications
based on discussions with Treasury. To date, three of the four plans
that received Treasury's approval withdrew their initial applications
and resubmitted revised applications after consultation with
Treasury.\60\ The recent approvals may give these plans hope that
Treasury will approve a refiled application.
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\59\ See Applications for Benefit Suspensions, U.S. Department of
the Treasury, October 31, 2017, https://www.treasury.gov/services/
Pages/Plan-Applications.aspx.
\60\ Id.
---------------------------------------------------------------------------
MPRA Application Approvals
Treasury has now approved four plans' applications to suspend benefits
under MPRA. Three of these approvals have occurred under President
Donald Trump's administration and may indicate a changing trend in the
review and approval process at Treasury.
Iron Workers Local 17 Pension Fund
On December 16, 2016, Treasury issued its first MPRA suspension
application approval to the Iron Workers Local 17 Pension Fund based in
Cleveland, Ohio.\61\ At the time the Fund submitted its application, it
was 44.3% funded with approximately $84 million in assets and $263
million in liabilities and was projected to become insolvent in
2024.\62\ This Fund was one of the smaller plans to submit an
application, with a little fewer than 2,000 participants and a 1:2
active-to-retired-worker population ratio.
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\61\ Letter to the Board of Trustees of the Ironworkers Local 17
Pension Fund, U.S. Department of the Treasury, December 16, 2016.
\62\ Iron Workers Local 17 Pension Fund's Application to Suspend
Benefits, July 29, 2016.
The Fund's proposed suspensions generally involved reducing accrued
benefits and eliminating early retirement subsidies and extra benefit
credits indefinitely. Benefits were generally estimated to be reduced
between 20% and 60%. Under the proposed suspensions, 52%, or 1,029 of
the plan's 1,995 participants, will not have their retirement benefits
cut. More than 30% of participants will see benefits cut by at least
20%. Specifically, 30 participants will see extreme cuts between 50%
and 60%; 115 participants will see cuts between 40% and 50%; 191 will
see cuts between 30% and 40%; and 265 will see cuts between 20% and
30%. Another 168 participants will see benefits cut by 10% or less. The
suspension will reduce the average monthly benefit for all participants
by 20%, from $1,401 to $1,120. With these proposed suspensions, the
Fund's actuaries estimated that the Fund will remain solvent through
April 2055.
United Furniture Workers Pension Fund A
In July 2017, the Furniture Workers Pension Fund A, based in Nashville,
Tennessee, became the second plan to receive Treasury's approval to
suspend benefits.\63\ The Fund has approximately 10,000 participants
and also received approval for a partition from the PBGC effective in
September 2017.\64\ At the time the Fund submitted its suspension plan,
it had assets of approximately $55 million and almost $200 million in
liabilities, was approximately 30.6% funded, and was projected to
become insolvent by 2021.\65\ As with other plans facing insolvency,
the plan's funding had slowly deteriorated over the years due to its
inability to recover from the market downturns in 2000 and 2008 and to
competitive pressures caused by increased furniture imports from
overseas, the loss of some of its larger contributing employers, the
further decline of its active participant base, and its inability to
attract new contributing employers in the industry.
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\63\ Letter to Board of Trustees of the United Furniture Workers
Pension Fund A, U.S. Department of the Treasury, August 31, 2017,
https://www.treasury.gov/services/Responses2/
UFW_Final_Approval_Letter.pdf.
\64\ Letter to Board of Trustees of the United Furniture Workers
Pension Fund A, U.S. Department of the Treasury, August 31, 2017,
https://www.treasury.gov/services/Responses2/
UFW_Final_Approval_Letter.pdf.
See also PBGC FAQs on the United Furniture Workers Pension Fund,
https://www.pbgc.gov/about/faq/ufw-partition-faqs.
\65\ United Furniture Workers Pension Fund A's Second Application
to Suspend Benefits Under MPRA, Exhibit 3, U.S. Department of the
Treasury, March 15, 2017, https://www.treasury.gov/services/
KlineMillerApplications/
United%20Furniture%20Workers%20Pension%20Fund%20A%
20-
%20Second%20Application%20for%20Approval%20of%20Suspension%20of%20Benefi
ts%20-%20File%202a%20of%203_Redacted.pdf.
In the Fund's application, its trustees estimated that 2,800
participants would receive on average a reduction of 12.7%, and 7,100
participants would receive no reductions because they were protected
under MPRA (i.e., they were over age 80, disabled, etc.).\66\ The
reductions were estimated to range from 0% to 62%.\67\
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\66\ Letter from the United Furniture Workers Pension Fund A to
Participants, March 15, 2017.
\67\ Id.
In the Fund's partition application, the trustees proposed to partition
to the successor plan 100% of the liability associated with the
terminated vested participants and 56% of the liability associated with
those in paid status (retirees, beneficiaries, and disabled
participants).\68\ The PBGC generally would become responsible for
paying the partitioned liabilities in the successor plan. The trustees
estimated that this would be the minimum amount of liability necessary
to transfer to the PBGC to relieve some of the financial burden and to
remain solvent for the 30-year period required under MPRA.
---------------------------------------------------------------------------
\68\ United Furniture Workers Pension Fund A's Second Application
to Suspend Benefits Under MPRA, U.S. Department of the Treasury, March
15, 2017, https://www.treasury.gov/services/KlineMillerApplications/
United%20Furniture%20Workers%20Pension%20Fund%20A%20-%20Se
cond%20Application%20for%20Approval%20of%20Suspension%20of%20Benefits%20
-%20File201
%%20of%203_Redacted.pdf.
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New York State Teamsters Conference Pension and Retirement Fund
The New York State Teamsters Conference Pension and Retirement Fund was
the third and largest plan to receive Treasury approval.\69\ Like the
other two successful plans before it, this plan withdrew its original
application and submitted a new one.
---------------------------------------------------------------------------
\69\ Letter to Board of Trustees of the New York State Teamsters
Conference Pension and Retirement Fund, U.S. Department of the
Treasury, September 13, 2017, https://www.treasury.
gov/services/Documents/NYST%20final%20approval%20letter.pdf.
Over the past 35 years, this Fund faced a significant deterioration in
its contribution base. In 1990, the Fund had 37,953 total participants,
with an active population of approximately 23,883 workers and a retiree
and terminated vested population of 14,070.\70\ The Fund had almost 500
contributing employers and received $60 million in annual
contributions, while paying about $46.9 million in annual benefits.
---------------------------------------------------------------------------
\70\ New York State Teamsters Conference Pension and Retirement
Fund Second Application to Suspend Benefits, U.S. Department of the
Treasury, May 15, 2017, https://www.treasury.
gov/services/KlineMillerApplications/
01a%20NYSTPF%20MPRA%20App%20C%20Exhibits%20
01%20to%2016_Redacted.pdf.
At the time the Fund submitted its revised application to Treasury in
May 2017, it had almost the same number of participants (34,459);
however, it now had two retirees for every active worker, and only 184
contributing employers. The Fund was receiving $118.7 million in annual
contributions but paying approximately $280.1 million in annual retiree
benefits. While almost fully funded in 2000, as of January 1, 2017, the
plan was 37.8% funded, with $1.28 billion in assets and $3.39 billion
---------------------------------------------------------------------------
in liabilities.
In its application, the trustees proposed a 19% reduction for all
active participants and a 29% benefit reduction for all inactive
participants. It was estimated that nearly 28% of participants would
not see any cuts due to MPRA's protections.
International Association of Machinists
Motor City Pension Fund
On November 6, 2017, the Troy, Michigan-based International Association
of Machinists Motor City Pension Fund (Motor City Fund) became the
fourth plan to receive Treasury's approval to suspend benefits.\71\
This Fund became the first one to receive Treasury's approval without
undergoing a resubmission process.
---------------------------------------------------------------------------
\71\ Letter to the Board of Trustees of the International
Association of Machinists Motor City Pension Plan, U.S. Department of
the Treasury, November 6, 2017, https://www.treasury.gov/services/
Pages/Benefit-Suspensions.aspx.
Over the last 15-plus years, the Motor City Fund's finances have been
affected by the same factors plaguing other plans seeking MPRA relief--
loss of contributing employers, a decrease in active participants, and
an inability to recover from the economic catastrophes of the
2000s.\72\ In 2006, the Fund was 74% funded with a market value of
assets of approximately $84 million and about $111 million in
liabilities.
---------------------------------------------------------------------------
\72\ Board of Trustees of the International Association of
Machinists Motor City Pension Plan Application to Suspend Benefits,
U.S. Department of the Treasury, March 29, 2017, https://
www.treasury.gov/services/Pages/International-Association-of-
Machinists-Motor-City-Pension-Fund.aspx.
Since then, the Fund's demographics and asset base have declined. The
Fund has experienced numerous employer withdrawals over the years. The
Fund had 20 contributing employers in 2012, 16 in 2015, and 11 in 2016,
and is currently down to five. As of June 30, 2016, the Fund was about
58% funded with only $51 million in assets and about $101 million in
liabilities. It pays out $8.69 million in benefits to its retirees
annually, while receiving only $1.6 million in employer contributions.
Unbelievably, it has almost eight inactive participants receiving
benefits per every one active worker. Without the benefit suspensions,
---------------------------------------------------------------------------
the Fund is projected to be insolvent by the end of the 2026 plan year.
Under the Fund's suspension plan, monthly benefits payable to
participants in pay status as of January 1, 2018, would be reduced to
110% of the PBGC-guaranteed amount, which is the maximum reduction
allowed under MPRA. The reduction applies to benefits earned up to
January 1, 2018. Accruals after January 1, 2018, will return to 0.5% of
credited contributions. As of December 2017, the Fund was in the
process of submitting its proposal to its 1,134 members for voting.
IS MPRA WORKING?
MPRA has been neither an unmitigated disaster nor a panacea for
multiemployer pension plans. Many commentators and, without a doubt,
most plan participants are unhappy with MPRA because it allows plan
trustees to violate the most basic tenet of ERISA: that once a benefit
is earned, it cannot be taken away. There is little doubt, however,
that prior to MPRA there was nothing some plans could do to avoid
insolvency given the anti-cutback rule and the unsustainability of
employer contribution increases. For plans that have recently reduced
benefits, there is now hope that they will provide benefits for at
least the next 30 years and perhaps in perpetuity. For other plans like
Central States and the UMWA Pension Plan to survive, additional
legislative action will need to be taken.
Yes
MPRA now allows plans to reduce accrued benefits, which are by far the
highest expense most plans have. It is virtually impossible for a plan
with severe funding issues to reduce costs sufficiently when reductions
are limited to future accruals. While there is a cost to providing
future service credit, it is the past liabilities, many of which are
unfunded but still owed, that normally sink a pension plan. With
limited cost-cutting measures available pre-MPRA, plan trustees looked
to employers to pay more and more every year. Now that well has run dry
and the ability to cut accrued benefits is the last tool available for
some plans to avoid insolvency.
The MPRA application process also appears to be getting more
streamlined. The first several MPRA applications were denied because
Treasury was not comfortable with the actuarial and investment
assumptions that plans were making in proposing their benefit
suspensions. Treasury has since issued new regulations governing
suspension applications and has demonstrated a willingness to engage
plan advisors during Treasury's review process. This allows for the
exchange of information and the tweaking of certain assumptions that
make it easier for the plan to demonstrate that suspensions will avoid
insolvency for at least 30 years, which is what is required for
Treasury to approve an application.
Treasury has now approved four MPRA applications, with the Motor City
Pension Fund being the first plan to obtain an approval on its initial
application. This could possibly bode well for future applications.
No
Although Treasury seems to have implemented a process that may
ultimately result in more suspension application approvals, the process
is still lengthy and expensive. This is partly attributable to
Treasury's use of its own actuarial and investment assumptions when
reviewing and evaluating a plan's suspension application. By
substituting its own assumptions for those of the plans' actuaries,
Treasury adds a layer of complexity that slows the process and makes it
more expensive.
MPRA's statutory text does not require (or authorize) Treasury to make
such a detailed review of suspension applications. The statute
authorizes Treasury to review applications to determine if the plan is
eligible for the suspension and has satisfied the requirements of MPRA.
In fact, the statute specifically says that when evaluating an
application, Treasury must accept the trustees' determinations unless
the plan's determinations are clearly erroneous.
While MPRA allows plans to make drastic reductions in costs by reducing
accrued benefits, nothing in MPRA helps to infuse new money into the
plans. Ultimately, some of the larger and most underfunded plans will
need a new income stream in addition to benefit cuts to avoid
insolvency. A combination of new money and benefit reductions could
stop the bleeding from negative cash flow and allow a plan to earn its
way out of critical and declining status. There is nothing in MPRA that
helps on the income side of the equation.
Benefit cuts alone do not appear to be sufficient to address the
payment of the orphan liability some plans have. MPRA has been unable
to save two of the largest and most underfunded plans: Central States
and the UMWA Plan. Central States' application was denied, and the UMWA
Plan's benefit levels do not seem to make it a candidate for benefit
suspensions under MPRA because it is already paying out benefits in
many cases that are below the minimum amount allowed under MPRA. PBGC's
projected insolvency is in part based on the liabilities it sees coming
from these two plans. Although other legislative proposals have been
made to provide relief to the UMWA Plan, nothing has been passed to
date.
MPRA has been helpful to some plans and may prove helpful to others.
But MPRA will not save Central States, the UMWA Pension Plan, and the
other most severely underfunded plans because it provides no additional
funding mechanism, which these plans will require. For these plans, and
the more than 1 million participants in them, additional legislation is
needed in short order.
WHAT HAPPENS IF NOTHING HAPPENS?
Central States, the UMWA Plan, and other plans approaching insolvency
are not in a position to impose additional benefit cuts or employer
contribution increases. These plans generally have no realistic
expectation that any new employers will enter the plan. As assets
dwindle, the trustees' fiduciary duty limits their ability to diversify
the plan's investments.\73\ Now begins the death spiral, the inexorable
slow march that will see the assets depleted while benefits are still
due and owing.
---------------------------------------------------------------------------
\73\ As mentioned earlier, as a plan's assets dwindle, trustees are
obligated by their fiduciary duties to shift a plan's investments out
of equities and into more conservative investment vehicles to preserve
cash to pay benefits for as long as possible. Such investments
generally provide for little growth, so there is no opportunity for the
asset base to grow. If the trustees continued to leave assets invested
in equities, a sharp downtown in equity markets could cause a plan to
go insolvent much sooner than otherwise anticipated.
If insolvency occurs, participants will receive significant cuts in
payments, because PBGC insurance covers only a fraction of the promised
pension benefit payment. For example, a Local 707 Pension Fund
participant with 30 years of service once received approximately
$48,000 a year from the plan. Since the plan's insolvency, that
participant receives only $12,870 per year from the PBGC, which is the
maximum guaranteed amount. This reduction obviously puts participants
---------------------------------------------------------------------------
in a difficult position.
Many cannot return to work because of age and health issues, not to
mention potential skill and certification gaps. As a result, they will
have to find other ways to make up for the reduction, including
liquidating their assets, relying on family members, and looking to the
government, and by extension the taxpayer, through the use of Medicare,
Medicaid, Social Security, Supplemental Nutrition Assistance Program
benefits, and other social safety net programs.
The failure of the largest and most underfunded plans will ultimately
bankrupt the PBGC. In its FY 2016 Projections report, the PBGC stated
that the multiemployer insurance program is likely to run out of money
by the end of 2025. The PBGC Multiemployer Program's 2016 deficit of
$59 billion increased to $65.1 billion in 2017 and is expected to
explode to $80 billion by 2026.\74\ Once the multiemployer program is
bankrupt, participant payments will be cut even further and may even
cease. As such, the scenario described above will become even direr.
---------------------------------------------------------------------------
\74\ ``PBGC Projections: Multiemployer Program Likely Insolvent by
the End of 2025; Single-Employer Program Likely to Eliminate Deficit by
2022,'' press release, Pension Benefit Guaranty Corporation, August 3,
2017, https://www.pbgc.gov/news/press/releases/pr17-04.
A failure of this magnitude in the multiemployer system will damage the
entire economy--not just employers in the multiemployer plan system.
Insolvencies and the subsequent benefit cuts that follow also have deep
impacts on the communities where participants live. Retirees will see
their standard of living reduced. At a minimum, they will have less
income to spend in local economies. The reduced spending will be felt
by businesses, especially in small communities. Less money spent by
retirees also means less paid to local government in sales and other
taxes. When tax revenue decreases, the demand for social programs will
increase, because many retirees will likely lose their homes and/or
have difficulty paying for medical expenses. This will cause many to
become reliant on social programs that have to be funded by taxpayers
at a time when tax revenue will be declining. Simply put, pension plan
insolvencies and a PBGC collapse will have a cumulative negative effect
on entire communities. Individuals, government, and businesses will all
suffer unless a solution is found.
POTENTIAL SOLUTIONS
Several proposals have been designed to address the multiemployer
pension plan funding problem. Some are purely legislative proposals,
whereas others deal with new pension plan designs. The most widely
considered of the proposals are discussed below.
PBGC Takeover of Critical and Declining Status Plans
The prospect of the PBGC taking over all plans that are classified as
critical and declining has some appeal. After all, the PBGC was
established in 1974 to provide insurance to private pension plans,
including multiemployer plans. If the PBGC's mission is to provide
assistance to financially troubled multiemployer plans, the plans in
the worse shape should look to PBGC to not only help pay benefits if
necessary, but to operate the plan as well.
Proponents of a complete PBGC takeover of critical and declining plans
cite these primary reasons for their position--PBGC-operated plans will
save money by reducing administrative expenses; or the threat of a PBGC
takeover will provide an incentive for trustees to ensure adequate
funding, because their jobs will be at risk otherwise.\75\
---------------------------------------------------------------------------
\75\ Rachel Grezler, ``Congress Needs to Address the PBGC's
Multiemployer Program Deficit Now,'' The Heritage Foundation Issue
Brief, September 13, 2016, 2.
When a single-employer defined benefit pension plan goes insolvent, the
PBGC takes over the operation of the plan. When a multiemployer plan
goes insolvent, the PBGC offers financial assistance in the form of a
loan. Not only are these loans almost never repaid, but the plan
continues to operate under the pre-insolvency structure. This means
that there remains a board of trustees comprised of an equal number of
union and employer representatives who are charged with administering
the plan in accordance with the fiduciary requirements of ERISA and the
tax-qualification requirements of the Code. The trustees hire
actuaries, attorneys, accountants, investment consultants, and
investment managers to help comply with the various legal requirements.
These professional advisors cost money, and therefore even an insolvent
plan receiving financial assistance from PBGC has continuing
---------------------------------------------------------------------------
administrative costs.
A PBGC takeover of critical and declining multiemployer plans would
likely reduce administrative costs. The costs would not be eliminated,
because the PBGC would still need the same actuarial, legal,
accounting, and investment advisory services that the plan's trustees
use. Nevertheless, many of the advisors would either already be on
staff at PBGC, or the services could be provided in a less costly
manner due to economies of scale.
However, the PBGC is not currently funded well enough itself to offer
any meaningful long-term financial relief to multiemployer plans under
its current structure of offering only loans. If the PBGC were to take
over the administration of critical and declining plans, PBGC's costs
would increase, even if only slightly. More important, plans that are
in critical and declining status are not in that condition because of
their administrative expenses; rather, they are in critical and
declining status primarily because of massive negative cash flow issues
brought on by having to pay millions more in benefits to retirees than
they receive in contributions for active employees. While a PBGC
takeover would most assuredly reduce administrative expenses, a
reduction in administrative expenses alone, without shoring up the
PBGC's financial condition, would not provide a long-term solution.
Another reason frequently cited by those advocating for PBGC takeovers
is that the threat of a takeover will incentivize plan officials to
more closely monitor a plan's funding level. This line of thinking
assumes that once a plan becomes critical and declining, the PBGC
takeover of the plan will cost people their jobs, and therefore, for
self-preservation purposes, plan officials will do everything possible
to prevent a plan from becoming critical and declining. While it is
true that a plan's professional advisors and in-house administration
(if any) would not be needed after a PBGC takeover, professional
advisors and administrative staff do not have the authority to make
decisions for the plan that affect funding.
Those decisions are made by the plan's trustees, who generally are not
fulltime plan employees. Being a trustee of a multiemployer plan is
often one of the duties of a union official or employer-appointed
trustee, but it is not a job in and of itself. Therefore, it is
doubtful that very many plan trustees will lose their jobs if the PBGC
were to take over a plan; the professional advisors whose jobs would be
at risk are already incentivized to help keep a plan out of critical
and declining status, because if their advice is shoddy, the trustees
will terminate them. Finally, the PBGC ``takeover as incentive/threat''
position assumes that critical and declining plans are in that
condition because plan officials were not diligent or were asleep at
the wheel. This is rarely the case, as changing demographics and stock
market returns have been more influenced by government policy and
market forces than by trustees' decisions.
PBGC Funding
There are limited tools available to improve the PBGC's funded status.
Historically, the PBGC multiemployer program has been funded solely
through annual premiums that multiemployer plans are required to pay,
and not by individual tax payers. Broadening the PBGC's funding
mechanisms to include taxpayer dollars from the general treasury is
appealing to some but anathema to others.\76\ Some pundits believe that
the federal government has been complicit in the downfall of some
multiemployer plans by imposing strict funding rules and deregulating
certain industries.\77\ These pundits believe that the government
should help fund the PBGC to make up for prior policies that have put
the plans at risk. Others believe that American taxpayers, the majority
of whom do not participate in multiemployer pension plans, should not
be asked to sacrifice for others when they have their own retirements
to fund.\78\
---------------------------------------------------------------------------
\76\ Id., 2.
\77\ Mary Sanchez, ``The Federal Government's Little Known Pension
Heist,'' Baltimore Sun, February 17, 2015.
\78\ Rachel Grezler, ``Congress Needs to Address the PBGC's
Multiemployer Program Deficit Now,'' The Heritage Foundation Issue
Brief, September 13, 2016.
Another way to improve PBGC funding is to increase the annual premiums
that multiemployer plans pay. This has already been done in recent
years, but increases have not been large enough to solve the PBGC's
funding deficit. In 2014, multiemployer plans paid an annual flat rate
premium of $12 per participant. In 2018, multiemployer premiums will be
$28 per participant. Despite more than doubling the premium, the PBGC
still projects that there is a 90% chance it will be insolvent by 2035.
Even more disturbing is that the PBGC estimates that if premiums were
increased to $120 per participant, its deficit in 2022 would still
increase by $15 billion.\79\
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\79\ Alicia H. Munnell and Jean-Pierre Aubry, ``Can PBGC Save
Multiemployer Plans?,'' Center for Retirement Research at Boston
College, September 2014, Number 14-16, 5, http://crr.bc.edu/
uncategorized/can-pbgc-save-multiemployer-plans/.
According to the Congressional Budget Office, PBGC premiums would have
to be increased to $232 per participant to achieve a 90% probability of
covering its deficit by 2036.\80\ Based on the fair-value estimated
deficit of $101 billion, a $232 premium increase would cover only 36%
of the PBGC's deficit.\81\ Furthermore, raising premiums eightfold
would require increasing employer contributions. As many plans are in
critical and declining status because employers could not afford the
contribution increases required under their rehabilitation plans, it
seems unlikely that employers would be able to pay the increases
necessary to increase PBGC premiums to a level that would cure the
PBGC's deficit.
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\80\ Rachel Grezler, ``Congress Needs to Address the PBGC's
Multiemployer Program Deficit Now,'' The Heritage Foundation Issue
Brief, September 13, 2016, 2.
\81\ Alicia H. Munnell and Jean-Pierre Aubry, ``Can PBGC Save
Multiemployer Plans?,'' Center for Retirement Research at Boston
College, September 2014, Number 14-16, 5, http://crr.bc.edu/
uncategorized/can-pbgc-save-multiemployer-plans/.
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Partitioning of Orphans
Orphan participants constitute a significant portion of total
multiemployer participants. Approximately 1.6 million of the 10.7
million multiemployer plan participants are orphans.\82\ To relieve
severely underfunded plans of the burden of unfunded orphan liability,
many practitioners suggest that the liability be transferred to the
PBGC via a partition. Once a partition is approved, and the original
plan transfers liabilities to the PBGC, the PBGC becomes responsible
for paying benefits to the partitioned participants at the PBGC
guaranteed level.
---------------------------------------------------------------------------
\82\ Alicia H. Munnell, Jean-Pierre Aubry, and Caroline V.
Crawford, ``Multiemployer Pension Plans: Current Status and Future
Trends,'' Center for Retirement Research at Boston College, November
2017, 170.
Since MPRA's enactment, only the Furniture Workers Fund has
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successfully applied for a partition.
While partitions can help reduce a plan's underfunding, they are far
from a panacea because they rely on the PBGC to pay the partitioned
participants' benefits. PBGC is simply not funded well enough to pay
all orphaned liabilities for all critical and declining plans. The PBGC
funding issue is actually exacerbated in a partition, because PBGC
starts paying the partitioned benefits immediately, unlike when the
plan as a whole goes insolvent. Absent additional funding, this move
would likely accelerate PBGC's projected insolvency.\83\ Assuming the
funding issue could be resolved, the value of partitioning would be to
help plans to focus on maximizing contributions to pay for current
costs.
---------------------------------------------------------------------------
\83\ Alicia H. Munnell and Jean-Pierre Aubry, ``Can PBGC Save
Multiemployer Plans?'', 5.
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Plan Mergers
As discussed previously, MPRA provides the PBGC with the authority to
facilitate mergers. Some commentators believe that, with PBGC-assisted
mergers or partitions, many plans will be able to recover using
contributions from the remaining active employers and employees, which
might help preserve plans covering some 800,000 people.\84\ However, it
does not appear that many plans have sought PBGC assistance in
effectuating mergers under MPRA. This could be because trustees of
critical and declining plans have been focused on determining whether a
benefit suspension and/or partition application would solve their
plans' solvency issues rather than on investigating potential mergers.
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\84\ ``What Can Congress Do to Help People in Multiemployer Pension
Plans: Testimony by Hon. Joshua Gotbaum Before the Senate Committee on
Finance,'' March 1, 2016, https://www.
finance.senate.gov/imo/media/doc/
03012016%20Gotbaum%20SFC%20Gotbaum%20Multiem
ployer%20Pensions%20Testimony.pdf.
The MPRA application process is labor intensive, time consuming, and
expensive and requires only the involvement of one board of trustees.
It would thus be difficult and time consuming to explore potential
mergers or perform a merger study and to prepare a MPRA application at
the same time. It is possible that those plans that have had their MPRA
applications rejected, or who have withdrawn their applications, may
investigate whether a PBGC-facilitated merger with another plan is
feasible. However, any solution that requires PBGC funding is not
necessarily going to permanently resolve a plan's funding issues
because of PBGC's own precarious financial condition. To make plan
mergers a viable tool for critical and declining plans, more guidance
is needed from Treasury/PBGC and/or Congress.
Benefit Modifications
While the PPA has allowed many plans to make benefit modifications to
future accruals and other adjustable benefits, and MPRA now authorizes
reductions to benefits in pay status, some are calling for even more
flexibility to allow financially troubled plans to make benefit
modifications. It is possible that for some deeply troubled plans that
are nearing the death spiral, benefit reductions that go beyond those
allowed by MPRA may be necessary.
The more time that elapses without a workable solution, the bigger the
cuts will have to be. These plans' plights are exacerbated by PBGC's
underfunded status. It is estimated that if the PBGC becomes insolvent,
ongoing premiums that multiemployer plans pay would cover only about
10% of the benefits for which Central State is responsible. This would
require participants to take a 90% reduction in their benefits.\85\
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\85\ Id.
In an article for the Heritage Foundation, Rachel Grezler proposed
several ideas to improve multiemployer plan funding. First, she
suggested creating special rules for critical and declining plans that
``have no hope of becoming solvent.'' Under the proposal, critical and
declining plans would not be allowed to continue adding new
liabilities. Instead, they would be required to freeze new benefits and
reduce existing benefits, including to those in pay status, similar to
MPRA.\86\ The paper also advocates for rules making it easier for plans
to reduce benefits prior to becoming insolvent as doing so would
prevent older workers in underfunded plans from continuing to receive
full benefits, while younger worker accrue very little. The authors
suggest that plans looking to make MPRA reductions be able to do so
without demonstrating that the reductions will result in the plan's
long-term solvency.\87\ Another concept is to allow the PBGC, on its
initiative, to reduce benefits within a plan prior to the plan going
insolvent, or to reduce the PBGC guaranty after insolvency. The
Heritage Foundation recognizes however, that reductions in the PBGC
guaranty alone would not be enough to prevent PBGC insolvency, and that
other changes are necessary.
---------------------------------------------------------------------------
\86\ Rachel Grezler, ``Congress Needs to Address the PBGC's
Multiemployer Program Deficit Now,'' The Heritage Foundation, September
13, 2016, 3.
\87\ Id.
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Variable Defined Benefit Plans
While technically a defined benefit plan, a variable defined benefit
plan has characteristics of both defined benefit and defined
contribution plans. Interestingly, the variable defined benefit plan
has been used by multiemployer defined benefit plans with severe
funding issues (like the Sheet Metal Workers' National Pension Fund) to
allocate part of the investment risk to employees, as well as by
multiemployer 401(k) plans (like the UNITE HERE Local 26 Pension Plan)
to shift some investment risk to employers.
Variable defined benefit plans can be designed to be 100% funded.\88\
They are similar to traditional defined benefit plans in that the
contributing employers bear the financial obligation and the plan's
assets are invested in a pooled account. They are unlike defined
benefit plans in that they spread investment risk among contributing
employers and participants and rely on less risky investment
assumptions.\89\ The benefit the plan pays is ``variable,'' because the
amount varies depending on actual investment performance.
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\88\ David B. Brandolph, ``Hotel Industry Trust That Left 401(k)
for Pension Gets IRS OK,'' August 2017, Bloomberg BNA, https://
www.bna.com/hotel-industry-trust-n73014462612/.
\89\ Gene Kalwarski, ``The Variable Defined Benefit Plan,''
Cheiron, accessed December 13, 2017, https://www.cheiron.us/
cheironHome/doc/Retirement_USAv1.pdf.
Basically, the variable defined benefit plan pays the greater of a
floor defined benefit and a variable benefit. After taking into account
contribution levels, the plan actuary will determine the floor benefit
based on plan demographics and a conservative interest assumption (for
example 4% to 5%). The floor benefit would also be converted into
investment units in the plan's collective assets, which would be
professionally managed. These investment units fluctuate in value
annually, increasing in value if the plan's investment return exceeded
the conservative interest assumption (plus a reserve factor) and
decline in value if the plan's investment return falls below the
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assumption.
At retirement, the employee would receive the greater of the sum of his
or her floor benefits or the sum of his or her investment units.\90\
The floor benefit is thus designed to be the minimum that a participant
might receive at retirement, but the variable component allows the
benefit to increase (within certain specified limits) when investment
returns are higher. Extraordinarily high investment returns above those
specified in the plan are placed into reserve to protect against the
inevitable negative investment return years.
---------------------------------------------------------------------------
\90\ Gene Kalwarski, ``Re-Envisioning Retirement Security: Variable
Defined Benefit Plan,'' Retirement USA, October 21, 2009, http://
www.retirement-usa.org/re-envisioning-retirement-security-variable-
defined-benefit-plan.
Proponents of the variable defined benefit plan laud the design's
ability to pay an adequate benefit in the form of a life annuity, while
at the same time allocating the investment risk among contributing
employers and participants. The conservative investment assumption is
lower than the traditional 7% to 8% that most defined benefit plans
assume, which provides a higher probability that the promised floor
benefit will never have to be adjusted because the lower return is more
likely to be achieved.\91\
---------------------------------------------------------------------------
\91\ David B. Brandolph, ``Hotel Industry Trust That Left 401(k)
for Pension Gets IRS OK,'' August 2017, Bloomberg BNA, https://
www.bna.com/hotel-industry-trust-n73014462612/.
Variable defined benefit plans are of recent vintage in the
multiemployer arena. While there appear to be benefits to all
stakeholders, these plans might be more helpful for younger workers and
could possibly become the defined benefit plan of the future. The
variable defined benefit plan does not do anything to solve the funding
issues of plans that face insolvency today and that jeopardize the
retirement security of those near or in retirement.
Composite Plans
Another plan design that has gained traction among multiemployer plan
stakeholders and practitioners is the composite plan. The concept of
the composite plan was first introduced in 2013 by the National
Coordinating Committee for Multiemployer Plans (NCCMP).\92\ Draft
legislation language was released by the House Education and Workforce
Committee in September 2016, but to date no legislation has been
enacted.
---------------------------------------------------------------------------
\92\ See NCCMP 2013 Retirement Security Review Commission Report,
Solutions not Bailouts.
Like variable defined benefit plans, composite plans are designed to
allocate investment risk to both employers and participants. A
composite plan is neither a defined benefit nor a defined contribution
plan, but has characteristics of each. Like multiemployer defined
benefit plans, the trustees would determine the rate at which benefits
accrue and benefits would be paid in the form of an annuity. However,
unlike defined benefit plans, the ultimate benefit paid would be
variable and depend on the market value of assets.\93\ Benefit amounts
would be adjusted on an annual basis to mitigate the frequency and
impact of market fluctuations, projected for a 15-year period.\94\
Composite plans would not have any withdrawal liability and would not
be subject to PBGC guarantees. The employers' contribution obligation
would be limited to the rates negotiated with the union.\95\
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\93\ The United States House of Representatives Committee on
Education and the Workforce Subcommittee on Health, Employment, Labor,
and Pensions, ``Examining Reforms to Modernize the Multiemployer
Pension System,'' testimony of Randy G. DeFrehn, April 29, 2015.
\94\ Id.
\95\ Id.
Those advocating for composite plans note that composite plans no
longer place the risk of ensuring performance of the investment markets
solely on employers, while at the same time providing a mechanism for
union workers to receive retirement income for life.\96\ The composite
plan design also has its critics. International Brotherhood of
Teamsters President James Hoffa believes the composite plans would not
be adequately funded under the proposed legislation and the net result
would be two underfunded plans.\97\ The Pension Rights Center describes
the proposed legislation as a bill that would allow ``relatively
healthy multiemployer plans with secure adequate benefit structure to
transition to two inferior plans.'' \98\
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\96\ ``Examining Reforms to Modernize the Multiemployer Pension
System,'' testimony of Randy G. DeFrehn, April 29, 2015.
\97\ ``Teamsters Strongly Oppose New House `Composite' Pension
Legislation,'' Teamsters, September 22, 2016, https://teamster.org/
news/2016/09/teamsters-strongly-oppose-new-house-composite-pension-
legislation.
\98\ ``Composite Bill Legislative Summary,'' Pension Rights Center,
November 10, 2016, http://www.pensionrights.org/issues/legislation/
composite-bill-legislative-summary.
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Loan Program Proposals
In recent months, stakeholders representing both union and management
have put forth potential legislative solutions they believe could solve
even the most severely underfunded plans' funding problems. Recognizing
the uphill political battle procuring a pure tax payer bailout of
multiemployer plans would entail, these proposals involve providing
loans to pension plans that would be paid back to the U.S. government
over time.
Butch Lewis Act
In November 2017, Senator Sherrod Brown (D-OH) and Representative
Richard Neal (D-MA) introduced the Butch Lewis Act (S. 2147 and H.R.
4444, respectively), which would allow struggling multiemployer pension
plans to borrow money from Treasury to remain solvent.
The bill would create a new office within Treasury, known as the
Pension Rehabilitation Administration (PRA). The PRA would allow
financially troubled plans to borrow money for up to 30 years at low
interest rates. The PRA would raise money for the loan program through
the sale of Treasury-issued bonds to financial institutions. The 30-
year period is supposed to give the borrowing plans ample time to repay
the loan, while simultaneously incentivizing it to make smart long-term
investments. The legislation would also prohibit the plans from making
certain ``risky'' investments during the loan period. Every 3 years,
the plans will have to report back to the PRA and demonstrate they are
rehabilitating themselves and avoiding insolvency. The PBGC would also
share some responsibility in financing the loan program by providing a
plan the funds it requires beyond the loan program to pay benefits.\99\
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\99\ ``Brown Announces Plan to Protect Ohio Pensions, Keep Promises
to Ohio Workers,'' press release, Sherrod Brown Senator for Ohio,
November 12, 2017, https://www.brown.senate.gov/newsroom/press/release/
brown-announces-plan-to-protect-ohio-pensions-keep-promises-to-ohio-
workers.
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Curing Troubled Multiemployer Pension Plans: Proposal
A stakeholder group made up of employers and unions has been proactive
in formulating its own legislative proposal, and has been actively
marketing the proposal to multiemployer plans, the NCCMP, and members
of Congress. The proposal is titled ``Curing Troubled Multiemployer
Pension Plans'' and the theme is that saving multiemployer plans will
require shared sacrifices. Under this proposal, multiemployer plans
will be saved from impending insolvency through a combination of
federal loans, benefit reductions, and surcharges to plan participants.
Under the proposal, any plan that is in critical and declining status
would be eligible for a federal loan. The plan would submit an
application to the Department of Treasury, together with an actuarial
certification that the plan is critical and declining and that the loan
proceeds would be sufficient to cure the plan's funding issues and that
the plan could repay the loan. The loan proceeds would cover the plan's
negative cash flow (i.e., the difference between the amount the plan
pays in benefits each month, plus administrative expenses and the
amount the plan receives in employer contributions).
A plan would be able to take up to three loans. The total amount of the
loan would be calculated by the plan's actuary, and would be sufficient
to pay five times the projected contribution income and earnings minus
benefit payments and administrative expenses. The proposal refers to
this amount as the ``shortfall.'' The interest rate on the loan would
be 1% and would be paid over 30 years, with interest-only payments
during the first 5 years (or 10 years if two loans are necessary, and
15 years if three are needed).
The proposal also requires plans to reduce all benefit payments by 20%
within 60 days after the loan application is approved. These benefit
reductions would apply to all participants and there would be no
protected classes. The reductions would apply even if they resulted in
a participant receiving less than the PBGC guarantee. The 20% reduction
would also apply to those participants who are not yet receiving
benefits. Proponents of the proposal assert that because the loan will
cover the shortfall, and the shortfall is calculated using the
unreduced benefit amounts, plans will have an opportunity to improve
its funded status through investment performance.
After the initial 5-year loan period, the plan's actuary will determine
whether the plan is still in critical and declining status. If the plan
is still critical and declining, the shortfall is recalculated (again
without including benefit reductions) and a new loan amount is
calculated and paid in monthly installments. If the plan is no longer
in critical and declining status, repayment of the loan principal
begins. Benefit reductions would remain in place until the plan is
neither in critical or endangered as defined in the PPA.
The Curing Troubled Multiemployer Pension Plans proposal estimates that
approximately $30 billion in loans might be necessary to save
underfunded multiemployer plans. In order to reduce the risk of default
on the loans (the plans will be paying interest only for 5 to 15
years), a multiemployer plan risk reserve pool (MRRP) would be
established. The MRRP would be funded by imposing monthly surcharges on
participants and employers, and by increasing PBGC premiums that
multiemployer plans pay. PBGC would administer the MRRP and would
invest the money in a trust separate from PBGC's other assets.
Draft Federal Credit Proposal
The NCCMP has put forth its own proposal. The NCCMP was instrumental in
designing and lobbying for the passage of MPRA and firmly believes that
Central States' funding issues would have been resolved if Treasury had
approved Central States MPRA application.\100\
---------------------------------------------------------------------------
\100\ Michael D. Scott, Multiemployer Pension Facts and the Draft
Emergency Multiemployer Pension Loan Proposal, September 20, 2017, 8.
The NCCMP proposal is similar to the shared sacrifices proposal. The
NCCMP's Draft Credit Proposal (DCP) also contemplates federally
subsidized 30-year loans at a 1% interest rate. According to NCCMP, it
has modeled its program using data from five plans and that each plan
demonstrated that it would maintain solvency and be able to repay the
loan. The DCP provides for three alternatives to be presented to
---------------------------------------------------------------------------
Congress.
Alternative 1 would require no benefit reductions and the federal
government would pay all credit subsidy costs. The credit subsidy cost
is the estimated long-term cost to the government of a direct loan or
loan guarantee, calculated on a net present value basis and excluding
administrative costs. The NCCMP concedes that there is no precedent for
any federal credit program that did not require the recipients to
restructure their obligations and governance.\101\ It is thus hard to
imagine that Alternative 1 would be adopted given the current political
climate.
---------------------------------------------------------------------------
\101\ Id., 11.
Alternative 2 requires the same 20% across the board reduction in
benefits that the shared sacrifices proposal calls for. Unlike the 20%
UPS reductions, which would be used to provide plans with the ability
to earn their way back to solvency, the reductions under the DCP would
be paid to the government to reduce the cost of the government subsidy.
The government would pay any remaining subsidy costs. The NCCMP is on
record that it will not support any tax or other payment on the
multiemployer plan system to pay for or credit-enhance the loan program
because the structure is consistent with the Federal Credit Reform
Act.\102\
---------------------------------------------------------------------------
\102\ Id.
Alternative 3 also requires a 20% across-the-board benefit reduction,
and then requires any additional amounts needed to achieve a zero
credit subsidy to the government.\103\
---------------------------------------------------------------------------
\103\ Id.
The NCCMP recognizes that for plans like Central States and the UMWA
Plan, time is of the essence in passing a solution. Each day that goes
by brings both plans closer to the death spiral from which there would
likely be no return. The NCCMP believes that its proposal maximizes the
probability of success and would be palatable to the government, which
makes implementation more likely.
CONCLUSION
Although most multiemployer pension plans are not in endangered or
critical status, a significant crisis is looming in the multiemployer
system. Most plans have survived last decade's two financial crises and
absorbed the impact of a dwindling ratio of active participants to
retirees. These plans survived primarily due to a combination of
benefit reductions and contribution increases allowed by the Pension
Protection Act of 2006, as well as an improving economy. Some plans
might be able to survive if they make significant Multiemployer Pension
Reform Act of 2014 reductions to benefits in pay status. Those appear
to be the fortunate plans.
Unfortunately, some plans are nearing the death spiral, where even
maximum reductions under the Multiemployer Pension Reform Act of 2014
will not be sufficient to stave off insolvency. At the same time, the
gap between those critical and declining plans and healthier funds
continues to widen, while the Pension Benefit Guaranty Corporation's
insolvency is quickly approaching. If these plans fail, the negative
effects will be felt by the participants and their families, local
economies, and U.S. taxpayers as a whole.
______
The Multiemployer Pension Plan Crisis: Businesses and Jobs at Risk
U.S. Chamber of Commerce
EXECUTIVE SUMMARY
Employers that are contributing to multiemployer pension plans
entered into these agreements with the goal of providing competitive
benefits and a secure retirement to their workers. However, many of
these plans are now in jeopardy, with insufficient resources to pay
promised benefits. This is a threat both to retirees and employers.
At the end of 2017, the U.S. Chamber of Commerce issued a report
detailing the many factors that have led to the current multiemployer
pension plan crisis.\1\ With the Joint Select Committee on Solvency of
Multiemployer Pension Plans now considering solutions, the Chamber is
issuing this new report to inform the Committee, and others, of the
issues facing contributing employers and the potential consequences
likely to befall these businesses should the plans they are funding
become insolvent.
---------------------------------------------------------------------------
\1\ U.S. Chamber of Commerce, ``The Multiemployer Pension Plan
Crisis: The History, Legislation, and What's Next?'', December 19,
2017, https://www.uschamber.com/report/the-multiemployer-pension-plan-
crisis-the-history-legislation-and-whats-next.
In many ways, this crisis has put the multiemployer system into
uncharted waters. Although 72 multiemployer plans have gone insolvent
to date, the sheer number and size of plans headed toward this fate
during the next decade present the system with challenges of a size and
---------------------------------------------------------------------------
scope never seen before.
But the threat to businesses has already begun to hit home. The
potential fate of the multiemployer system has already begun to impact
how they operate. As the financial conditions of multiemployer plans
have deteriorated, required contributions have increased--often
doubling or tripling within a space of only a couple of years. Despite
these increased contributions, active workers are seeing a decrease in
the accrual of benefits, which reduces the ability of a business to
retain talent. Some employers who may wish to exit the multiemployer
system are trapped, because withdrawal liability exceeds the value of
their business. In addition, the potential for withdrawal liability is
beginning to impact the ability of some employers to get and maintain
credit.
Plan insolvency will obviously exacerbate the problems faced by
contributing employers. If a plan goes insolvent but does not
terminate, businesses could be required to pay contributions in
perpetuity--meaning a permanent strain on their finances. However, if
an insolvent plan does terminate, the financial situation for employers
becomes even more drastic. Contributing employers could be assessed
with immediate withdrawal liability; could be part of a mass
termination; and/or could be subjected to minimum funding rules which
would require even higher contributions and possible excise taxes. Any
one of these scenarios could drive an employer into bankruptcy.
In addition to the threat of an individual plan becoming insolvent,
there is a significant concern that such an outcome will cause other
plans to fail--what is known as the ``Contagion Effect.'' The financial
solvency of a number of multiemployer plans is dependent upon only one
or two contributing employers, and these businesses also contribute to
several other plans. If one plan failure causes a major contributing
employer to be unable to make continued contributions to other plans,
those plans could fail as well. Again, this is uncharted territory;
however, it is reasonable to foresee that if a contributing employer
becomes financially distressed by one plan failure, it would have a
detrimental effect on the other plans to which that employer
contributes.
It is important for those charged with finding a solution for the
multiemployer funding crisis to understand the very real threats facing
employers as well as retirees and taxpayers. The U.S. Chamber presents
this report to help all interested parties understand the serious risks
that the multiemployer pension crisis present to businesses, jobs, and
retirement security.
INTRODUCTION
The multiemployer pension plan system is in crisis and its
potential collapse will have a catastrophic effect on participants and
beneficiaries of multiemployer pension plans, contributing employers to
such plans, and the U.S. economy in general. Retirees face the prospect
of severely reduced benefits; current workers face the prospect of
accruing little or no benefit for the contributions being made on their
behalf; and many contributing employers face liabilities that far
exceed the net worth of their companies. Making matters worse, the
Pension Benefit Guarantee Corporation (PBGC), the federal corporation
that insures private multiemployer plans, is itself projected to go
insolvent by 2025.
According to the PBGC, approximately 130 multiemployer pension
plans--including two of the largest plans--are in Critical and
Declining Status, which means that they are projected to become
insolvent within 15 years.\2\ While it is true that the vast majority
of multiemployer pension plans are Green Zone plans--meaning they are
not in distress status--it is equally true that the contributing
employers to those plans are often the same contributing employers to
the 130 Critical and Declining plans. If only a handful of those 130
plans become insolvent within the next 3-5 years--a very likely
scenario--the contributing employers will face severe consequences,
including the ultimate price of bankruptcy.
---------------------------------------------------------------------------
\2\ Pension Benefit Guarantee Corporation, ``FY 2017 Projections
Report,'' https://www.pbgc.
gov/sites/default/files/fy-2017-projections-report.pdf.
In enacting the Multiemployer Pension Reform Act of 2014 (MPRA),
Congress focused on providing tools to plan trustees to avoid
insolvency. Left unanswered was the question of what happens when there
are large-scale plan insolvencies. Multiemployer plans, participants,
and contributing employers are in uncharted waters when it comes to the
issues confronting them today. The funding problems that currently
exist are unprecedented in the more than 70 years that these plans have
been in existence. While most of the focus, and rightly so, has been on
the catastrophic effect pension plan insolvencies will have on plan
participants and the communities in which they live, the employers that
employ these participants (and in many cases, that employ many more
people than just the plan participants) are at extreme risk of being
put out of business. Whether they are required to contribute at
exorbitantly high contribution rates in perpetuity to stave off
withdrawal liability or plan termination, or whether they are forced to
withdrawal by trustees and/or the PBGC, or whether they become required
to make up a minimum funding deficiency, American business are in a
precarious position.
CRITICAL ISSUES CURRENTLY FACING EMPLOYERS
Even before a plan reaches insolvency, there are critical issues
that can plague contributing employers--many of which are adversely
affecting the ability of employers to grow their businesses, expand
their workforces, or pass on businesses to family.
Potential Withdrawal Liability Negatively Impacts Business
Decisions. Withdrawal liability is not ``booked'' until there is a
termination, or partial termination, of the plan. However, the
Financial Accounting Standards Board (FASB) requires contributing
employers to disclose certain information about the multiemployer
pension plans in which they participate.\3\ As the depth of the
multiemployer pension crisis is increasing, employers are finding that
ordinary business activities are being affected by the fear of the
potential for withdrawal liability. Even though the employers have not
been assessed a withdrawal liability, some banks and lenders are
questioning these employers creditworthiness, leading to less optimal
lending rates or even denial of credit.
---------------------------------------------------------------------------
\3\ FASB requires the following disclosures: (1) The amount of
employer contributions made to each significant plan and to all plans
in the aggregate; (2) An indication of whether the employer's
contributions represent more than five percent of total contributions
to the plan; (3) An indication of which plans, if any, are subject to a
funding improvement plan; (4) The expiration date(s) of collective
bargaining agreement(s) and any minimum funding arrangements; (5) The
most recent certified funded status of the plan, as determined by the
plan's so-called ``zone status,'' which is required by the Pension
Protection Act of 2006; and (6) A description of the nature and effect
of any changes affecting comparability for each period in which a
statement of income is presented. ``Financial Accounting Standards
Board Accounting Standards Update No. 2011-09'' (the Update), https://
www.fasb.org/jsp/FASB/FASBContent_C/ProjectUpdatePage&cid=
1176156724606.
In other situations, certain employers have lost the opportunity to
expand their business operations through mergers because other
companies do not want to be associated with the potential for future
withdrawal liability. Small family businesses are deciding to shut
their doors, rather than pass the business down to heirs for fear of
leaving them to pay a future withdrawal liability. All of these events
---------------------------------------------------------------------------
results in lost business opportunities and fewer jobs.
Employers Are Facing Unexpected Partial Withdrawal Liability. To
ensure employers that gradually reduce their contributions to a
multiemployer plan do not escape withdrawal liability, ERISA has rules
under which a partial cessation of the employer's obligation to
contribute could trigger liability. A partial withdrawal occurs when
there is:
A decline of 70% or more in the employer's contribution base
units; or
A partial cessation of the employer's obligation to
contribute.
Due to the declining number of union workers, there are businesses
that have a dwindling union workforce. If the number of those employees
declines by 70% or more or if an employer ceases to contribute for
those employees at a facility that continues to operate, the employer
can be assessed a partial withdrawal liability. The amount of liability
for a partial withdrawal is based on the liability for a complete
withdrawal liability, calculated under a formula in the law.\4\ Because
of the amount of some plans' unfunded liabilities, the partial
withdrawal liability can be high enough to impact the ability of an
employer to efficiently run a business and can put a small employer out
of business completely.
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\4\ ERISA Sec. 4205, 4206, and 4208.
High Contribution Rates Thwart Employee Retention. Owing to
increased liabilities, employer are faced with increasing
contributions. There are some employers paying $15.00 or more per hour
to plans for every hour an employee works. Because of the unfunded
liabilities associated with bankrupted contributing employers,
employees understand that they are never going to receive a benefit
that is commensurate with the contribution rate the employer is paying.
This provides a disincentive for the employee to stay with the
employer. Employee retention problems threaten an employer's
competitiveness. Furthermore, if enough employees leave, and the
employer cannot replace them, it can lead to a partial or complete
withdrawal.
CRITICAL ISSUES FACING EMPLOYERS DURING A PLAN INSOLVENCY
Most of the discussion involving the consequences of multiemployer
pension plan insolvency has focused on what will happen to retirees
when some of the larger multiemployer plans become insolvent and can no
longer pay promised benefits.\5\ While there is no doubt that
widespread multiemployer pension plan insolvencies will have disastrous
consequences for retirees and will negatively affect the communities in
which they live, insolvencies also pose severe risks to the continued
viability of contributing employers. Skyrocketing pension costs have
already made it difficult for employers in some industries to compete.
An onslaught of pension plan insolvencies would likely lead to
employers filing bankruptcy and/or dissolving. Many of these companies
employ union and nonunion workforces. When these employers shut down
because of multiemployer pension plan costs, all employees' jobs are
threatened--not just those employees who participate in multiemployer
pension plans.
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\5\ According to a study by the Society of Actuaries, there are
approximately 1.4 million participants currently covered by
multiemployer plans that are in danger of becoming insolvent in the
very near future, 719,000 of whom are retirees currently receiving
annual benefits totaling more than $7.4 billion. ``Multiemployer
Pension Funding a Big Challenge for PBGC, Wider Economy,''
www.planadvisor.com/multiemployer-pension-funding-big-challenge-pbgc-
wider-econmy, John Manganaro.
The Credit of Employers, Particularly Small Employers, Could Be
Impacted by the Insolvency of a Systemically Important Plan. There are
current consequences, short of bankruptcy, that contributing employers
could face. Of primary concern are the consequences of the insolvency
of a systemically important plan. For purposes of approving a benefit
suspension, MPRA established a new category of multiemployer plans--
systemically important--that was formally defined as those plans the
PBGC determines as having a present value of projected financial
assistance payments exceeding $1 billion if benefit suspensions were
not implemented.\6\
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\6\ IRC Sec. 432.
Less formally, a systemically important plan is viewed as a plan
that poses a system-wide risk if allowed to become insolvent. Since
passage of MPRA, no systemically important plan has gone insolvent. Yet
several plans--including Central States--are in Critical and Declining
status, meaning that they are projected to become insolvent within 15
years. The financial markets and other lenders may be willing to accept
withdrawal liability risk from relatively small multiemployer plans
that are currently insolvent, but it is highly unlikely they will
accept such risk from an insolvent systemically important plan like
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Central States.
Nine out of 10 contributing employers to Central States are small
businesses with fewer than 50 employees. It is highly probable that the
overwhelming majority of these businesses have lines of credit or other
capital debt predicated on maintaining asset/liability ratios that
would be violated following a Central States insolvency.
Ongoing Contributions to an Insolvent Pension Plan Can Impose
Insurmountable Financial Burdens on Contributing Employers. A
misconception exists on the part of some that when a multiemployer plan
becomes insolvent, the PBGC takes over administration of the plan or
that the plan is terminated. While the PBGC does take over insolvent
single employer plans, it does not take over the administration of
multiemployer plans. When a multiemployer plan becomes insolvent, the
plan continues to operate and be administered by the plan's trustees.
If the plan is not terminated,\7\ it continues collecting employer
contributions and paying pension benefits at a reduced level. After
insolvency, employers will continue to have an obligation to contribute
to the plan at the collectively bargained rate, consistent with the
rehabilitation plan. Active employees of contributing employers will
continue to earn pension credit. The PBGC provides financial assistance
to the multiemployer plan in the form of a loan. The plan's trustees
are required to sign a promissory note and a security agreement giving
the PBGC a security interest in all plan assets, which generally
includes all employer contributions.
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\7\ A discussion of plan termination upon insolvency is discussed
later in the paper.
The continuation of employer contributions allows the employer to
avoid paying withdrawal liability. Additionally, the contributions are
usually being made consistent with the terms of the plan's
rehabilitation plan. This is important because so long as the plan's
trustees continue to comply with the rehabilitation plan, the minimum
funding requirements of ERISA and the Internal Revenue Code (Code) do
not apply.\8\ Avoiding minimum funding and withdrawal liability is
critical for most employers if they have any hope of staying in
business.
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\8\ Although the general funding rules do not apply to plans that
have adopted and comply with the terms of a rehabilitation plan, there
are differing interpretations of how insolvency affects the ability to
comply with a rehabilitation plan.
Nevertheless, the contribution rates that many employers are paying
into multiemployer plans are exorbitantly high because the contribution
rates for the last several years have been imposed by the plan's
trustees via rehabilitation plans. Rehabilitation plans are designed to
have the plan emerge from critical status or forestall possible
insolvency and therefore require significantly higher contributions
than what had previously been required. Most current contribution rates
for plans facing impending insolvency have not been established through
traditional collective bargaining between the union and the employer.
While most employers would rather absorb the higher contribution rates
than incur withdrawal liability in the near term, the long-term effect
of the high rates is that they make the employer less competitive. For
example, higher pension costs are ultimately passed on to customers,
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who may look elsewhere to do business.
Another problem for employers that contribute to insolvent plans is
that the exorbitantly high contribution rates make it harder to retain
employees. Employees know what the contribution rates are, and they
know they are not receiving any additional benefit accruals because of
those rates. In fact, the exorbitant pension contribution rates cause
wage stagnation, or even reduction, because the employer cannot afford
to pay both pension and wage increases. While active employees already
are concerned about future benefit accruals, once a plan is insolvent,
the maximum benefit the worker can receive is the PBGC guaranteed
benefit. Employers are essentially paying contributions into a ``black
hole.'' Employees understand that they are never going to receive a
benefit that is commensurate with the contribution rate the employer is
paying. Consequently, there is no incentive for the employee to stay
with the employer.
While continuing to pay contributions in an insolvent plan may save
an employer from short-term economic disaster, it is doubtful that
employers can endure such high pension contribution rates over the long
term. It is likely that plan insolvency will lead to employers going
out of business, filing for bankruptcy, or both. It is just a matter of
time.
Employers May Not Be Able to Avoid Withdrawal Liability. While
continuing to contribute to an insolvent plan will generally allow an
employer to avoid the imposition of withdrawal liability, there are
scenarios where withdrawal liability can be imposed despite the
employer's intention to remain a contributing employer to the plan. The
issue is problematic for employers because they have no control over
the withdrawal.
To avoid bankruptcy and continue to retain and pay their employees,
employers may try to negotiate lower contribution rates after the PBGC
has begun to provide financial assistance. This would allow the
employer to potentially reduce its pension costs and/or pay a portion
of what otherwise would be paid into a ``black hole'' into another
benefit plan for its employees or directly to the employee in the form
of wages.\9\
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\9\ Negotiating lower contribution rates is not always possible
because doing so would likely require the approval of entities other
than the employer and the union.
Since employers are generally paying contributions pursuant to a
rehabilitation plan even post-insolvency (complying with the terms of a
rehabilitation plan likely prevents the employer from being subject to
the minimum funding requirements), employers would have to get the
plan's trustees to agree to accept the lower rate. This would require
the trustees to amend the rehabilitation plan in most cases. If the
trustees reject the lower contribution rate, the employer must either
continue contributing at the higher rehabilitation plan rate or risk
the plan's trustees rejecting the employer's continued participation in
the plan. If the trustees reject the employer's continued
participation, the employer will incur withdrawal liability. Given the
choice between a forced withdrawal and the assessment of withdrawal
liability, most employers will choose to continue to pay the higher
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contribution rate.
Even if the plan's trustees are inclined to accept a lower
contribution rate, it is possible that the PBGC would object to a
decrease in the contribution rate. Although the PBGC does not get
involved or weigh in on labor-management negotiations, the PBGC is a
secured party in all assets of an insolvent plan. Because employer
contributions are part of the plan's assets, the PBGC could take the
position that a reduction in the contribution rate constitutes a
diminution in the collateral in which it is secured. Additionally, the
PBGC has the authority under the insolvency provisions of ERISA to
provide financial assistance under conditions the PBGC determines are
``equitable and are appropriate to prevent unreasonable loss to'' the
[PBGC] with respect to the Plan. \10\ Although the PBGC has not yet
opined on a post-insolvency employer contribution rate decrease, the
statutory language arguably gives the PBGC the authority to do so. If
the PBGC advises plan trustees that PBGC-provided financial assistance
will be withheld if the trustees accept a lower contribution rate, it
is an absolute certainty that the trustees will reject the lower rate.
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\10\ ERISA Sec. 4261(b)(1).
If an employer cannot negotiate a lower contribution rate but
agrees to continue paying at whatever exorbitant rate is in effect, the
employer can still find itself subject to a withdrawal liability
assessment. As discussed earlier, an employer that is contributing to
an insolvent multiemployer plan is generally paying a fairly high
contribution rate. The employees on whom the employer is contributing
are not earning any benefit or at least will not accrue more than the
PBGC guarantee. Employees who know that their employers are paying
$15.00 or more per hour into a pension plan for which the employee
perceives they are not receiving any benefit is likely to leave that
employer. It will be hard for the employer to attract new employees to
replace the departing employee for the same reasons. If all the
employees working under the collective bargaining agreement leave, the
employer will have essentially ceased operations under the plan, and
withdrawal liability, or at least a partial withdrawal liability, could
be assessed.\11\
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\11\ ERISA Sec. 4203(a)(2).
A Mass Withdrawal Substantially Increases Expected Withdrawal
Liability and Can Push an Employer Into Bankruptcy. The previous
examples in this report describe scenarios where an employer wants to
stay in the plan but still incurs an unwanted or unplanned withdrawal.
Some employers may do a cost-
benefit analysis and determine that exiting an insolvent plan and
paying their current withdrawal liability is less risky than remaining
in the plan and continuing to pay exorbitant contribution rates in
perpetuity. However, employers that leave an insolvent plan are exposed
to a greater risk of unintentionally being part of a mass withdrawal.
In general, withdrawal liability payments are limited to 20 years;
however, this cap does not apply to mass withdrawal liability. And
employers with mass withdrawal liability are often required to pay
withdrawal liability over a period that is longer than 20 years.\12\
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\12\ ERISA Sec. 4219.
A mass withdrawal occurs upon withdrawal of every employer from the
plan, the cessation of the obligation of all employers to contribute to
the plan,\13\ or the withdrawal of substantially all employers pursuant
to an agreement or arrangement to withdraw from the plan.\14\ Employers
that withdraw during a period of three consecutive years within which
substantially all employers that have an obligation to contribute to
the plan are presumed to have withdrawn due to an agreement or
arrangement.\15\ Therefore, an employer that intentionally withdraws
from a plan and intends to pay its calculated withdrawal liability
could become part of a mass withdrawal if substantially all of the
other employers that contribute to the plan withdraw within the three-
year period before or after the employer withdraws. The employer that
intends to withdraw has no control over what other employers do. The
fact that the plan is insolvent and participants are not receiving any
benefit beyond the PBGC guaranteed amount makes it more likely that a
mass withdrawal may occur than if a planned withdrawal is made from a
financially healthy plan.
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\13\ ERISA Sec. 4041A(a)(1)(2).
\14\ 29 CFR Sec. 4001.2.
\15\ The presumption can be rebutted by the employer.
The danger of being part of a mass withdrawal is that it can
require an employer to pay much more in withdrawal liability than it
would under a standard withdrawal. In a mass withdrawal, employers are
subject to reallocation liability. Reallocation liability means that
the plan's full cost of all unfunded vested benefits is allocated among
all withdrawing employers. In a mass withdrawal, the withdrawal
liability is calculated using PBGC interest rates that are often lower
than the rates used by the plan in a standard withdrawal, which results
in a higher liability.\16\
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\16\ ERISA Sec. 4219.
Reallocation liability can significantly increase the amount of the
plan's unfunded liability that is allocated to an employer. In
addition, the 20-year cap applicable in a standard withdrawal does not
apply to mass withdrawal liability. This could result in some employers
having to pay withdrawal liability for a period longer than 20 years.
In situations where an employer's annual payments are not high enough
to amortize the full liability, the employer theoretically has to pay
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forever.
An employer that makes a business decision to withdraw from a plan
and pay its withdrawal liability could end up in bankruptcy if a mass
withdrawal occurs within the three-year period after the employer
withdraws. For employers that make up a large percentage of a plan's
contribution base, the risk of a mass withdrawal occurring is greater
because once smaller employers find out that the largest employer is
leaving, the smaller employers might be incentivized to leave too so
that they are not the ``last man standing.'' \17\
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\17\ Every employer in a multiemployer pension plan is responsible
for all pension liabilities of every other employer in the plan. Thus,
employers that withdraw from the plan without paying their withdrawal
liability leave their liabilities behind for those still left in the
plan--thus, this is referred to as the ``last man standing.''
Plan Termination Could Result in the Reinstatement of Minimum
Funding Rules and Excise Taxes. Multiemployer plans are generally
subject to minimum funding standards.\18\ If the employers do not make
the contribution necessary to balance the funding standard account, the
plan has a minimum funding deficiency, and contributing employers can
be assessed excise taxes on top of having to make up the deficiency.
The initial tax is 5% of the funding deficiency.\19\ If the funding
deficiency is not cured within the taxable period, the excise tax is
100% of the funding deficiency.\20\
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\18\ ERISA and the Code's minimum funding rules require
multiemployer plans to maintain a funding standard account. The funding
standard account gets debited for charges related to benefit accruals,
investment losses, and other negative plan experience. Credits are
given for employer contributions, investment gains, and other positive
plan experience. The minimum required contribution to a multiemployer
plan is the amount needed, if any, to balance the accumulated credits
and accumulated debits to the funding standard account. If the debits
exceed the credits, there is a negative balance, and contributing
employers must pay the amount necessary to balance the account. ERISA
Sec. Sec. 302 and 304; IRC Sec. Sec. 412 and 431.
\19\ IRC Sec. 4971(a)(2).
\20\ IRC Sec. 4971(b)(2). A multiemployer plan can apply for a
minimum funding waiver from the IRS. However, the IRS cannot waive the
minimum funding standard for more than 5 of any 15 consecutive plan
years. There are also procedures for employers to apply for a waiver of
the 100% excise tax, but the IRS will not appear to waive the 5% excise
tax. ERISA Sec. 302(c).
The Pension Protection Act of 2006 (PPA) changed the general
funding rules for financially troubled multiemployer plans. Plans that
are certified as being in critical status are allowed to have minimum
funding deficiencies without the employers having to make up the
deficiency within the taxable year or paying excise taxes if certain
conditions are satisfied.\21\ One such condition is that trustees of
plans in critical status are required to adopt a rehabilitation plan. A
rehabilitation plan is one that consists of a list of options, or range
of options, for the trustees to propose to the bargaining parties,
formulated to provide, based on anticipated experience and reasonable
actuarial assumptions, for the plan to cease to be in critical status
by the end of the rehabilitation period (generally 10 years). The
rehabilitation plan may include reductions in plan expenditures,
reductions in future benefit accruals, or increases in contributions,
or any combination of such actions. The rehabilitation plan must be
updated annually and the plan must show that it is making scheduled
progress toward emerging from critical status. If the trustees
determine that, based on reasonable actuarial assumptions, the plan
cannot reasonably be expected to emerge from critical status by the end
of the rehabilitation period, the plan must include reasonable measures
to emerge from critical status at a later time or to forestall possible
insolvency.\22\
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\21\ ERISA Sec. 302(a)(3). A plan is in critical status if it (1)
is less than 65% funded and will either have a minimum funding
deficiency in 5 years or be insolvent in 7 years; or (2) will have a
funding deficiency in 4 years; or (3) will be insolvent in 5 years; or
(4) liabilities for inactive participants is greater than the liability
for active participants, contributions are less than the plan's normal
cost, and there is an expected funding deficiency in 5 years. ERISA
Sec. 305(b)(2).
\22\ IRC Sec. 432.
Thus far, plans that have become insolvent have not terminated, and
because employers continue to contribute to the plan in accordance with
the rehabilitation plan, the minimum funding rules do not appear to
automatically apply just because a plan becomes insolvent. There are
situations, nonetheless, where it appears that a contributing employer
to an insolvent plan could be required to make up a plan's minimum
funding deficiency and/or be assessed an excise tax. Although this has
not happened yet, the risk of it happening increases as the insolvency
date of the PBGC gets closer. An insolvent PBGC leaves insolvent plans
with no other funding source other than contributing employers. When
the PBGC can no longer pay the guaranteed benefit, employers could be
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required to fund the benefits that PBGC previously paid.
One scenario that poses a risk to employers as plans and the PBGC
go insolvent is the requirement that a plan's rehabilitation plan must
satisfy certain Code provisions. If a multiemployer plan fails to make
scheduled progress under the rehabilitation plan for three consecutive
plan years or fails to meet the requirements applicable to plans in
critical status by the end of the rehabilitation period, for excise tax
purposes, the plan is treated as having a funding deficiency equal to
(1) the amount of the contributions necessary to leave critical status
or make scheduled progress or (2) the plan's actual funding deficiency
if any.\23\
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\23\ Plans may apply for a waiver if the failure is due to
reasonable cause and not willful neglect.
It is possible that the IRS could take a more aggressive approach
in assessing excise taxes when the PBGC can no longer provide a
backstop for insolvent plans. This is troubling because employers have
no control over whether the rehabilitation plan satisfies the
requirements of the Internal Revenue Code. Nor do they have any control
over the actuarial certification. This means that an employer that
continues to make contributions in accordance with its rehabilitation
plan post-insolvency can still be required to make up a funding
deficiency and pay an assessed excise tax. Because the funding
deficiencies of most insolvent plans are large, this requirement would
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effectively put the employer out of business.
Another complication for employers is the broad authority that the
PBGC wields over an insolvent plan. As noted previously, PBGC has the
authority under the insolvency provisions of ERISA to provide financial
assistance under conditions that the PBGC determines are ``equitable
and are appropriate to prevent unreasonable loss to'' the [PBGC] with
respect to the plan.\24\ Accordingly, if the PBGC determines that the
continued operation of the plan somehow poses a financial risk to it,
the PBGC could impose as a condition of providing financial assistance
that the plan be terminated. There are three ways a multiemployer plan
can be terminated: (1) by mass withdrawal, (2) by converting the plan
to an individual account plan, (3) or by amending the plan to provide
that participants will not receive credit for any purpose under the
plan for service with any employer after the date specified in the
amendment. While ERISA provides that minimum funding does not apply to
a plan that terminates by mass withdrawal, there is no such provision
relating to termination by plan amendment. While the PBGC has opined
that insolvent plans will continue to operate, there appears to be at
least a statutory mechanism through which a plan can be terminated
without consent of the employer or even the trustees. If such a
scenario were to arise, many employers would be forced out of business.
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\24\ ERISA Sec. 4261(b).
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THE CONTAGION EFFECT
Many employers contribute to more than one multiemployer plan. That
is because they have regional or national operations, or because they
employ people who work in multiple industries or trades. There is a
valid concern that the failure of a multiemployer plan, particularly a
large plan, could cause other plans to go insolvent. For example, if
any of the scenarios described in this paper were to come to fruition,
and employers were assessed withdrawal liability, a minimum funding
deficiency and/or an excise tax, it could cause the employer to go out
of business. If such an employer contributes to one or more other
plans, then it would likely be unable to continue contributing to the
other plans. If the employer is the major contributing employer to
these plans, all the plans to which the employer contributes would be
in jeopardy. To date, no extremely large plan has gone insolvent, but
there are several that are projected to go insolvent within the next 5
to 10 years.
Moreover, many Critical and Declining Status plans are dependent on
a very small number of employers to provide a disproportionate share of
the contributions being made to the plans. For instance, in the UMW
1974 Pension Plan, there are currently 10 contributing employers with
approximately 97% of the contributions derived from two controlled
groups of signatory companies. For the New York State Teamsters
Conference Pension and Retirement Fund, there are 156 contributing
employers with approximately 83% of the contributions derived from two
companies. For the Local 707 Teamster Pension Fund, there are 8
remaining contributing entities with 84% of the contributions coming
from 2 companies. For the Tri-State Pension Plan, there are 9
contributing employers with one controlled group entity accounting for
95% of the contributions.
Taken together, these factors pose a dual risk. If a large,
systemically important plan were to become insolvent, it has the
potential to adversely impact the contributing employers and their
participation in other plans. Conversely, if one of the large employers
were to exit one of the plans mentioned here, it would significantly
and negatively impact the plan, the remaining contributing employers,
and ultimately the beneficiaries.
CONCLUSION
The multiemployer pension plan crisis puts businesses and jobs at
significant risk. Under current rules, employers cannot leave these
plans without paying large sums or claiming bankruptcy. At the same
time, ongoing contributions to plans that are not able to provide
promised benefits is an untenable financial situation for many
employers, and plan terminations threaten to bankrupt many contributing
employers. All these situations negatively impact the ability to
provide jobs, make capital investments, and increase salaries. Congress
must find a solution to avoid the most devastating effects of this
multiemployer pension crisis.
______
Communications
----------
American Bakers Association
601 Pennsylvania Avenue, Suite 230
Washington, DC 20004
Testimony of Robb Mackie, President and CEO
Chairmen Hatch and Brown, and Members of the Committee:
Thank you very much for the opportunity to submit testimony to the
Committee today as it hears from the employer community on the unique
challenges facing multiemployer plans. The American Bakers Association
(``ABA'') is the Washington D.C.-based voice of the wholesale baking
industry. Since 1897, ABA has represented the interests of bakers
before the U.S. Congress, federal agencies, and international
regulatory authorities. ABA advocates on behalf of more than 1,000
baking facilities and baking company suppliers. ABA members produce
bread, rolls, crackers, bagels, sweet goods, tortillas and many other
wholesome, nutritious, baked products for America's families. The
baking industry generates more than $153 billion in economic activity
annually and employs more than 799,500 highly skilled people.
Many of those people participate in multiemployer pension plans
sponsored jointly by ABA member companies and the labor organizations
that represent their employees in collective bargaining. ABA member
companies that participate in these plans have much invested in them--
hundreds of millions of dollars in contributions; countless hours
serving--with labor representatives--on boards of trustees that oversee
the operation of these plans; and--most importantly--the retirement
security of our employees and associates.
Consequently, it is critical that one point be clear from the
outset. This is not--as some have portrayed it--a ``union problem.''
This is an employer problem; an industry problem; a national problem.
Indeed, this is our collective problem--a challenge that we can and
must meet to secure the retirements of many employees and former
employees in our industry. The ABA therefore believes it is critical
that all stakeholders--employers, plan participants, labor
organizations, and the government and regulatory agencies responsible
for pension plan oversight--be open to creative solutions as this
Committee, and the entire multiemployer plan community, work to solve
this issue in the days and weeks to come.
A Problem With a Number of Causes
The challenge facing the multiemployer plan community did not arise
overnight; it developed over decades and was caused by numerous forces.
Multiemployer plans have been in existence since at least the 1950s and
have provided secure and relatively inexpensive retirement income to
countless Americans. For years, these plans were financially healthy,
enjoying relatively steady rates of return and with many more active
participants than retirees.
Over time, demographic, financial and other challenges all took
their toll. Many of these plans were well-funded into the last decade
of the 20th century- enjoying very strong market returns for several
years in a row. Indeed, due to artificially low limits on funding
levels imposed by the tax code, many of these plans found themselves
not only ``fully funded'' for withdrawal liability purposes (meaning
that an employer could withdraw from the plan in those years with
little or no withdrawal liability), but also having to adopt benefit
increases to participants and/or give ``contribution holidays'' to
contributing employers in order to maintain the tax deductibility of
contributions for those employers. Ironically, while these changes
benefitted all parties in the short term, these benefit increases
contributed to longer term costs for these plans with which many are
still contending today. In short, these artificially low limits on
funding levels prevented many multiemployer plans from building up
reserves in the good years that they could desperately use today.
In addition, many of the industries that historically supported
these plans were shrinking. The deregulation of the trucking industry
in the 1980s saw many smaller trucking companies exit the industry.
Many manufacturing jobs were downsized or moved overseas. As the active
base of these plans shrank, their retirement rolls increased. Plans
that previously had many more actives than retirees saw those ratios
shrink, approach even, and--in many instances--``flip'' so that many
such plans now have more retirees than actives, in some cases more than
double the amount.
Finally, economic and legal factors played a role. The ``Great
Recession'' of 2008 and 2009 hit many of these plans particularly hard.
A plan that already has more retirees than actives is often using
earnings on accrued assets (in addition to operating income from
contributions) to pay benefits. While that is expected for a ``mature''
multiemployer plan, if such a plan suffers a dramatic and unexpected
drop in asset values, it can be difficult for such a plan to
recover.Because earnings and contributions are no longer sufficient to
pay benefits, the plan has to dip into reserves to pay its ongoing
benefit obligations, and the reserves are not there to support future
earnings.
In addition, the nation's bankruptcy laws have often left these
plans--and their participants--without sufficient protection in the
wake of employer bankruptcies. When employers withdraw in bankruptcy,
multiemployer plans are treated as unsecured creditors--resulting in
little or in some cases no recovery. The withdrawing employer's share
of the plan's underfunding remains with the plan, to be borne by the
remaining employers in the event they ever withdraw.
Impact on the Baking Industry
The baking industry and ABA members have been directly confronted
with these issues. Many ABA member companies participate in the Bakery
and Confectionery Industry Union and Industry Pension Fund, one of the
nation's largest multiemployer plans. This plan, historically well-
funded, suffered losses similar to many other plans in the Great
Recession. Shortly thereafter, its largest contributing employer
withdrew in bankruptcy. Not only did this plan lose its single largest
contributor, but the company utilized the bankruptcy laws to avoid
paying any withdrawal liability to the plan--a loss to the plan of
almost $1 billion.
Another plan to which ABA member companies contribute is the
Central States Teamsters Plan, which has publicly projected insolvency
in the 2025 plan year. Once the plan becomes insolvent, participant
benefits will be reduced to levels guaranteed by the PBGC--if the PBGC
multiemployer program still exists. PBGC's own multiemployer program is
likewise projecting insolvency in 2025.
All of this uncertainty has a detrimental impact on our industry.
Employers that remain active in these plans are seeing their potential
withdrawal liability grow year after year. Moreover, many of these
plans have funding improvement or rehabilitation plans in place that
require annual increases in contributions. For example, one member
company that participates in a multiemployer plan for its
transportation employees reports that, in 2007, it was paying $3.49 per
hour ($7,259 per year) for its transport drivers to participate in a
multiemployer plan. Today, that contribution has increased to $8.55 per
hour ($17,784 per year) and is projected to increase to $11.63 per hour
($24,169 per year) by 2022.
Such increases are simply not sustainable. They divert money that
could otherwise be used for wage and health care contributions.
Moreover, these increasing costs make it very difficult to devote
capital to needed equipment improvement, or to attract investment for
future growth. Indeed, the presence of these obligations on company
balance sheets and the uncertainty they create imposes very real
barriers to the acquisition of capital to fund future growth. And,
perhaps most unfortunate of all, many of our smaller member companies--
family-owned bakeries that have contributed to the cultural and social
fabric of their communities for generations--are faced with no
alternative other than bankruptcy because they can no longer bear the
ever-increasing cost of these benefits.
The Quest for a Solution
The challenge is great; the solution will not come easily.
Fundamentally, there are only three ways to rectify an underfunded
multiemployer pension plan: (i) more time; (ii) reduced benefits; and
(iii) more money. Time is in short supply. Many of the multiemployer
funds in which our member companies participate are in ``critical and
declining'' status, which means they have a projected insolvency date.
Moreover, the ``safety net'' for these plans, the PBGC's multiemployer
program, is itself projecting insolvency in 2025. Clearly we are out of
time, which is why it is so important that this Committee find a
workable solution that can be enacted this year.
Reducing benefits poses similar challenges. Many of these plans
already pay relatively modest benefits. Reducing those benefits will
move some recipients from impoverished to destitute. Many recipients of
these benefits are at a point in their lives where they cannot--through
work or otherwise--replace the income that is lost. Due to their
advanced age, these retirees are simply unable to return to work in the
industry--or in any job--to replace lost pension income. Finally, some
of these plans have already reduced or eliminated so-called
``adjustable benefits'' under the Pension Protection Act of 2006
(``PPA''). Additional benefit reductions would compound those already
(in some cases) significant cuts.
And finally, money. As noted above, many of the plans to which our
member companies contribute have in place so-called ``funding
improvement plans'' or ``rehabilitation plans'' required by PPA that
impose percentage increases in employer contributions year after year.
As detailed above, these increases are already driving member companies
that cannot afford them out of the industry and into bankruptcy. Even
employers who can afford them are diverting capital needed for
improvements or that could be used for other employment needs to these
ever increasing contributions, which are buying the same or--in some
cases--reduced benefits.
If the money cannot come from the industry, where can it come from?
One potential solution that is common to several proposals being
discussed in the multiemployer plan community is the notion of low-
interest loans to these plans, funded by debt instruments issued by--or
guaranteed by--the federal government. Such a solution could give these
troubled plans the short-te1m capital infusion they need to recover
their funded status while continuing to pay benefits.
Obviously there are many issues that would need to be discussed and
many questions that would need to be answered before such a proposal
could be implemented: (i) What would be the conditions for receiving
such a loan? (ii) What rules would govern repayment, including interest
rate and term of the loan? (iii) Would loan proceeds need to be
segregated from general plan assets? (iv) Would plans be required to
reduce benefits in order to qualify for loans? If so, by how much?
These are but a few of the myriad of questions and issues that would
need to be addressed.
Concluding Thoughts
The multiemployer plan system does not need a federal ``bail out,''
nor does the ABA support one. We do, however, support the quest for a
solution that addresses the challenge before us--that restores
retirement security to the more than 10 million Americans participating
in 1,400 multiemployer plans. Low-interest loans to these plans could
form the cornerstone of a plan that would restore these plans to
solvency. Clearly, there could be other solutions that would similarly
protect the interests of our members, their employees and former
employees, and the communities in which they live. We encourage the
Committee to keep an open mind and to work in a bipartisan spirit as it
seeks a long-term solution to this problem. The ABA and its member
companies stand ready to assist you through further dialogue, providing
additional information specific to our industry, or in any other way
that we can.
Thank you for the opportunity to submit these comments to the
record of the Committee's deliberations.
______
ArcBest Corporation
8401 McClure Drive
Fort Smith, AR 72916
Statement of Judy McReynolds, Chairman,
President, and Chief Executive Officer
Co-Chairs Hatch and Brown, and other distinguished members of the
Committee, thank you for the opportunity to submit this statement
regarding the impact of potential multiemployer pension plan reforms on
employers generally and on the trucking industry specifically.
I am the Chairman, President, and Chief Executive Officer of
ArcBest Corporation. Our largest operating subsidiary, ABF Freight
System, Inc. (ABF), currently contributes to 24 multiemployer pension
plans. ABF, which is based in Fort Smith, Arkansas, has been in
continuous operation since 1923 and is one of the largest less than
truckload (LTL) motor carriers in North America. ABF has more than
10,000 employees and provides interstate and intrastate direct service
to more than 44,000 communities through 275 service centers in all 50
states, Canada, Puerto Rico, and Mexico.
ABF is a well-run company that has continued in business while
competing in an industry now dominated by non-union carriers. We are at
or near the top of the industry in all cost efficiency measures other
than employee benefits. We are consistently recognized for excellence
in safety, security and loss prevention. We are an eight-time winner of
the American Trucking Association's Excellence in Security Award, a
seven-time winner of the President's Trophy for Safety, and a seven-
time winner of the Excellence in Claims & Loss Prevention Award. In
January 2016, we were named to Chief Executive Magazine's ``2016 Best
Companies for Leaders List,'' and also received the Circle of
Excellence award from the National Business Research Institute for our
efforts in increasing employee engagement. We were named to Forbes'
``America's Best Employers'' list for 2016 and has been ranked on
Fortune magazine's ``Fortune 1000'' list annually since 2013.
We have also done the right thing by funding lifetime retirement
benefits for our employees. We have consistently made timely
contributions to the 24 different multiemployer plans in which we
participate. Over the last ten years, ABF has contributed more than
$1.3 billion to multiemployer pension plans. Just since 2008, more than
half of ABF's contributions have been to fund pensions of ``orphan''
participants, who were never employed by ABF. Due primarily to the
bankruptcies of other participating employers, ABF has been forced to
shoulder an increasing load as the plans have required increased
contribution rates. The wave of bankruptcies in our industry was the
result of trucking deregulation that was enacted in 1980. Since that
time, the number of unionized trucking companies with which we compete
has shrunk from more than 1,000 to a handful.
Despite our relatively small size, we are now the largest
contributor to the deeply troubled Central States Teamsters Pension
Fund (close to $80 million in 2017, compared to $32 million for the
second largest contributor). The Teamsters, who represent about 83% of
our workforce, have recognized the risk that these obligations place on
ABF's viability. In our recently concluded bargaining of the National
Master Freight Agreement, the Teamsters agreed to a contribution freeze
for all of the plans to which we contribute because they were convinced
ABF could not afford any increases in pension costs. ABF's retirement
plan obligations have made it less competitive; hurt its market share
due to higher costs that must be passed through to customers; and
constricted future growth by reducing cash flow. If these costs
increase further, they could jeopardize the financial viability of ABF.
A comparison of our retirement plan costs compared to those of our
closest competitors is jarring. Our contributions to multiemployer
pension plans average more than $18,000 per employee each year. For
some plans, the contributions far exceed the average. For example,
ABF's per-employee contribution to the New York State Teamsters Pension
Fund was $33,221 in 2017. This compares to average contributions of
$3,640-$4,576 per employee per year by YRCW, one of ABF's largest
competitors, with other competitors far below even YRCW's level. In
fact, ABF's retirement plans costs for its drivers are 10 to 20 times
higher than those of its closest competitors that do not have
multiemployer plan obligations. In addition, ABF's hourly pension and
health plan costs now represent more than 75% of employees' wage rates,
compared to around 30% in 1990.
There has been and will continue to be a lot of talk about ``shared
sacrifice.'' However, ABF has already made that sacrifice through its
outsized pension contributions. ABF simply cannot afford any more
direct or indirect increases in its pension-related costs. We care
deeply about our active and retired employees. We want to be able to
continue contributing to these plans and to ensure that our employees
and retirees receive the promised benefits that we have so steadfastly
funded.
ABF has been working since 2009 with other interested parties on
possible legislative solutions to the multiemployer plan crisis. Our
engagement has included proposals by Representatives Pomeroy and
Tiberi; the Kline-Miller Multiemployer Pension Reform Act of the 2014;
and the present, federal loan proposals. Despite the efforts of so
many, the crisis has continued unabated, with many plans a decade or
less away from insolvency. As the members of the Committee are well
aware, the Pension Benefit Guaranty Corporation's Projection Report
that was released on May 31, 2018 concluded that the multiemployer
program will almost certainly run out of money by the end of fiscal
year 2026, if not sooner.
The system needs to be fixed as quickly as possible. However, the
details, mechanics, and funding of the reforms are up to the Congress.
ABF is open to a program that saves plans from insolvency. However, as
outlined in Exhibit B, there are three critical issues that ABF needs
to be included in any reform program:
First, there must be no direct or indirect cost increases
for ABF and other struggling employers. We need to make sure
that the cure does not kill the patient. ABF and other
employers simply cannot afford any more increases. The loss of
contributing employers is what has put so many multiemployer
plans in their current predicaments. Imposing additional costs
on struggling employers through, for example, contribution
increases, surcharges and increased PBGC premiums (which are
generally passed through to employers), would jeopardize the
viability of these companies and further harm plans'
contribution bases. In addition to the loss of thousands of
jobs, it would compromise the ability of the plans to repay any
loans they may have received if that is the approach the
Congress chooses, and would make it more likely that the PBGC
would ultimately have to step in.
Second, struggling employers should be permitted to
negotiate reductions in their pension contribution rates. If
there is another economic downturn, ABF and other struggling
employers may need to seek a reduction in their contribution
rates in order to survive. The failure to allow such a
reduction could result in the loss of thousands of jobs and
further shrink the contribution bases of plans. It would be
better to have a company reduce contributions rather than have
the plan receive no contributions at all because the employer
has been driven into bankruptcy. Of course, any contribution
rate reduction could occur only if the labor union agreed to
it.
Third, there should not be any changes to statutory
withdrawal liability calculation rules that would increase the
costs of struggling employers that negotiate withdrawals from
multiemployer plans. It may be in the best interests of active
employees, the plan and the employer if the employer withdrew
from the plan; paid its full withdrawal liability; and provided
retirement benefits to active employees through a different
mechanism. Because these withdrawals would be negotiated with
the union, employees' interests would be protected. In
addition, the plan would be protected because it would receive
the withdrawal liability payments, determined in the normal
manner, which is very protective of plans' interests.
Thank you for the opportunity to present our views on these
critical issues. I would be pleased to answer any questions that the
members of the Committee may have.
______
Letter Submitted by James E. Johnson
To: Congresswomen Debbie Dingell (D-MI)
This letter is to ask you to take a look at the Butch Lewis Act and
vote for it to help my other 1.4 million workers and retirees and
myself.
I have worked in the trucking industry for over 40 years as a
mechanic. This retirement is very important to all of us. We worked
hard for it. When I started work I was only making $1.65 an hour, which
did not buy very much then, and it is also about that now.
I am a veteran of the Navy from 1960 to 1964. When I signed up for
VA benefits, they told me I did not qualify for anything.
Please take a look at the Butch Lewis Act and vote for it. We would
appreciate it very much.
Thank you,
James E. Johnson
______
Letter Submitted by David Nadolinski
June 20, 2018
Joint Select Committee on Solvency of Multiemployer Pension Plans
219 Dirksen Senate Office Building
To the Attention of: Mr. Chris Langan, Vice President of Finance, UPS,
Atlanta, GA
Subject: Comments on Mr. Lagan's testimony on June 14, 2018
Dear Mr. Langan,
This is a rebuttal to your testimony in front of the Joint Select
Committee.
I am a retired 31-year United Parcel Service employee from Buffalo, NY
Teamsters local 449.
I challenge your testimony and am sickened by it.
You were in the position to give an objective opinion and
representation of facts in the presence of that committee who are not
as well informed as you are. Instead you chose to express the slanted
corporate view with focus on the profits that you and other major
stakeholders have in the outcome of this multiemployer pension crisis.
For the purpose of this rebuttal and commentary, I will focus on the
New York State Teamsters Pension Fund which you coyly are strongly
attempting to bundle into the demise of declining and critical status
funds, most mentioned was the Central States Pension Fund.
I was very disappointed that there was no mention of NYS Teamsters
Pension Fund (NYSTF) and the cuts sustained to our fund under the
Multi-employer Pension Reform Act, also known as MPRA.
Roughly 34K Teamsters are affected by these cuts, of which 4K to 5K are
UPS retirees.
Be assured there will be those that will not stand by and accept
quietly your proposal for a 20% cut in our retiree's pensions for
stated reasons that follow:
Pensions that were promised the day a new hire was spoken to by
an HR member of Corporate UPS.
Pensions earned by collective bargaining by both employee and
Corporate UPS of what is approaching $17/hr. This amounts to
approximately $35k per employee per year. Of which less than $100 per
month is benefit bearing for the UPS employee; the remaining going
towards the unfunded liability of NYSTF. Would it be correct to assume
the tax write-offs that UPS receives on its pension contributions are
more advantageous to corporate UPS and their shareholders than the
consideration of those who made this a Fortune 500 company, the men and
women in ``Brown'' who gave the best 30 plus years of their lives?
Would it be accurate to state that OSHA created a special label
referred to as ``Industrial Athlete'' due to the harsh job requirements
of the UPS employee?
Is it a stretch to state that the life expectancy is reduced due
to the many injuries sustained that are common due to the volume of
heavy repetitive weight bearing activity required for employment at UPS
in comparison to the population norm. Associated with these injuries
are significant decreased options for future employment.
How is it that UPS can give Stocks and Bonuses of up to 34% and
beyond of annual wages to management?
Woe to the downtrodden employee, the UPS representative, of this
vastly successful company. Cough up the cash, you should be ashamed of
what this company is asking in concessions! Is there the need to cite
the many various recent news articles on the popularity of the UPS
driver? How ignorant is UPS to the value of these men and women in the
success of this company OR is the truth they consider these faithful
employees just throw away commodities more interested in corporate
profits? It is becoming common knowledge to the general public what
value corporate UPS puts on their employees and especially so in these
current contract negotiations. This will be reflective on the quality
of service the company will get from current and future employees.
Where did those company signs stating the expected behavior, attitude,
and presentation of the UPS driver go? This image conveyed respect for
the UPS label and the public responded. Show these men and women the
dignity they earned. Give them back their earned and promised pensions
as UPS did in the New England Pension Fund 2012, where UPS paid and
negotiated the terms of their liability and partitioned their
employees; those employees mostly kept their full earned and promised
pensions. Return to NYSTF the concessions of Schedule E! Of which my
understanding is less than 2K affected employees. Why should these
roughly 2K suffer that additional reduction under that sham of a
rehabilitation plan? I have a reasonable question to ask you, a man of
your knowledge and stature. Why would UPS allow its continual
contributions to a pension fund under scrutiny for adopting an
extraordinarily risky investment portfolio and unrealistic investment
assumption rates? $85 million paid out annually! It would be fair to
assume this does not appear to be prudent business practice. Yet you
suggest 20% cuts plus what actives and recent retirees have already
taken of nearly 15% under the adopted rehabilitation plan in 2010
without concern of where did the money go . . . OUR MONEY! Our future
survival in our last decades of our lives is dependent on this income.
Not to mention the many with permanent injuries and poor prognosis.
Shameful! Why is it there is NO UPS representation on our Board of
Trustees? Mostly Trustees of orphan companies and a soon to be orphan
company. When you look in the mirror where did the human component
disappear to? Where did feelings of respect, admiration, dignity and a
respectful work ethic go? Do those of you who think a 20% cut is
equitable and fair fail to distinguish these are people no less
deserving to live in dignity than the reflection you see in the mirror
on a daily basis? These ``downtrodden in Brown'' are representative of
those that built this great nation. Shame on anyone to be dismissive of
these UPS employees and retirees. It is shameful to allow corporate
greed, mismanagement and government malfeasance to victimize the United
Parcel Service Employees and Retirees in the New York State Teamsters
Pension Fund.
Once again, why are you not considering UPS money for UPS people?
The current Butch Lewis proposal as written was found to be not
feasible by the authors of it, as many plans would not be able to repay
the loans. Inherent investment returns as written would not be
sufficient for repayment, and further rehabilitation cuts could be
necessary. There was discussion of self-funding surcharge proposal, or
banking surplus add-on to eliminate the deficiency. Are all options
being considered? Worth mentioning, in 2017 both Ken Hall and James
Hoffa supported the UPS proposal (the 20% cut proposal). Shameful!
UPS is the largest stakeholder in this multiemployer pension debacle.
They are only looking out for corporate interests and not those who
made the company the financial success it ensues. Their 20% reduction
is unacceptable when other more respectable and viable options are
presented.
To the Joint Select Committee, please do not disregard what is
happening to us in NYSTF. The Central States Pension Fund by sheer
volume is getting most attention. Yet we here in New York have been
delivered the MPRA cuts which in reality range from 29% to 42%.
Once again UPS has become the successful company it is by those being
delivered this travesty in the latter years of their life.
Thank you for your attention to the content of this letter. The
following undersigned have read and are of same mind in what is
presented in here.
Respectfully,
David Nadolinski
Retired UPS, Buffalo, NY
Thirty-one years
______
Letter Submitted by Thomas A. Noon
U.S. Senate
U.S. House of Representatives
Joint Select Committee on Solvency of Multiemployer Pension Plans
219 Dirksen Senate 0ffice Building
Washington, DC 20510
Dear Senators Orrin Hatch, Sherrod Brown, Lamar Alexander, Michael
Crapo, Rob Portman, Heidi Heitkamp, Joe Manchin, Tina Smith, and
Representatives Virginia Foxx, Phil Roe, Vern Buchanan, David
Schweikert, Richard E. Neal, Bobby Scott, Donald Narcross, Debbie
Dingell.
Thank you for serving on the Joint Select Committee on Solvency of
Multiemployer Pension Plans. The work this committee performs and the
legislative solution it ultimately chooses will have an immense impact
on the lives of millions of retirees, their families, and the country.
The economic impact of cuts and/or loss of these pensions is both
personally and nationally enormous. According to a study by the
National Institute on Retirement Security, in 2015 alone the
Multiemployer System provided $2.2 trillion in economic activity to the
U.S. economy, generated $158 billion in federal taxes, supported 13.6
million American jobs, and contributed more than $1 trillion to the
U.S. GDP.
As you begin your work in considering the best plan to solve the
multiemployer pension crisis that this country is currently facing, I
urge you to give your support to the Butch Lewis Act (H.R. 4444/S.
2147). The Butch Lewis Act is the only proposed solution that will
provide a path to financial health for troubled pension plans,
alleviate pressure on the Pension Benefit Guaranty Corporation, and
ensure that retirees and active Teamster members receive all of the
benefits that they earned.
I know the Committee has a difficult mission, but the Butch Lewis Act
is the best solution to the multiemployer pension crisis, and I
sincerely hope that it will be the legislation that you ultimately
adopt.
Sincerely,
Thomas A. Noon
______
June 23, 2018
In October of 2017 the Teamsters Local 292 took a 29 percent cut on
our pension. To me that is $700.00 per month or $8,400 a year; that is
a big loss.
When we went to sign up for the pension they promised it was
guaranteed, we never had to worry.
Now I am 71 years old and still working with no end in sight. My
wife is 62 years old, and still working also, with no end in sight.
When it comes time when either one of us can no longer work anymore, or
if we get sick, our hardship will begin. I have worked very hard my
whole life thinking I will be okay in my later years with my pension.
Now that they made the cut in October of 2017 everything has changed.
If something happens to me, my wife is not set with the survivor's
package. She will have to keep working until she can't anymore.
Please consider the Butch Lewis Act; my wife and I would be very
grateful.
Thank you,
Thomas A. Noon
Shirley Noon
______
Letter Submitted by Mary Lynn Skrabacz
June 20, 2018
Joint Select Committee on Solvency of Multiemployer Pension Plans
219 Dirksen Senate Office Building
To the Attention of: Mr. Chris Langan, Vice President of Finance, UPS,
Atlanta, GA
Subject: Comments on Mr. Lagan's testimony on June 14, 2018
Dear Mr. Langan,
This is a rebuttal to your testimony in front of the Joint Select
Committee.
I am a retired 31-year United Parcel Service employee from Buffalo, NY
Teamsters local 449.
I challenge your testimony and am sickened by it.
You were in the position to give an objective opinion and
representation of facts in the presence of that committee who are not
as well informed as you are. Instead you chose to express the slanted
corporate view with focus on the profits that you and other major
stakeholders have in the outcome of this multiemployer pension crisis.
For the purpose of this rebuttal and commentary I will focus on the New
York State Teamsters Pension Fund which you coyly are strongly
attempting to bundle into the demise of declining and critical status
funds, most mentioned was the Central States Pension Fund.
I was very disappointed that there was no mention of NYS Teamsters
Pension Fund (NYSTF) and the cuts sustained to our fund under the
Multi-employer Pension Reform Act, also known as MPRA.
Roughly 34K Teamsters are affected by these cuts, of which 4K to 5K are
UPS retirees.
Be assured there will be those that will not stand by and accept
quietly your proposal for a 20% cut in our retiree's pensions for
stated reasons that follow:
Pensions that were promised the day a new hire was spoken to by
an HR member of Corporate UPS.
Pensions earned by collective bargaining by both employee and
Corporate UPS of what is approaching $17/hr. This amounts to
approximately $35k per employee per year . Of which less than $100 per
month is benefit bearing for the UPS employee; the remaining going
towards the unfunded liability of NYSTF. Would it be correct to assume
the tax write-offs that UPS receives on its pension contributions are
more advantageous to corporate UPS and their shareholders than the
consideration of those who made this a Fortune 500 company, the men and
women in ``Brown'' who gave the best 30 plus years of their lives?
Would it be accurate to state that OSHA created a special label
referred to as ``Industrial Athlete'' due to the harsh job requirements
of the UPS employee?
Is it a stretch to state that the life expectancy is reduced due
to the many injuries sustained that are common due to the volume of
heavy repetitive weight bearing activity required for employment at UPS
in comparison to the population norm. Associated with these injuries
are significant decreased options for future employment.
How is it that UPS can give Stocks and Bonuses of up to 34% and
beyond of annual wages to management?
Woe to the downtrodden employee, the UPS representative, of this
vastly successful company. Cough up the cash, you should be ashamed of
what this company is asking in concessions! Is there the need to cite
the many various recent news articles on the popularity of the UPS
driver? How ignorant is UPS to the value of these men and women in the
success of this company OR is the truth they consider these faithful
employees just throw away commodities more interested in corporate
profits? It is becoming common knowledge to the general public what
value corporate UPS puts on their employees and especially so in these
current contract negotiations. This will be reflective on the quality
of service the company will get from current and future employees.
Where did those company signs stating the expected behavior, attitude,
and presentation of the UPS driver go? This image conveyed respect for
the UPS label and the public responded. Show these men and women the
dignity they earned. Give them back their earned and promised pensions
as UPS did in the New England Pension Fund 2012, where UPS paid and
negotiated the terms of their liability and partitioned their
employees; those employees mostly kept their full earned and promised
pensions. Return to NYSTF the concessions of Schedule E! Of which my
understanding is less than 2K affected employees. Why should these
roughly 2K suffer that additional reduction under that sham of a
rehabilitation plan? I have a reasonable question to ask you, a man of
your knowledge and stature. Why would UPS allow its continual
contributions to a pension fund under scrutiny for adopting an
extraordinarily risky investment portfolio and unrealistic investment
assumption rates? $85 million paid out annually! It would be fair to
assume this does not appear to be prudent business practice. Yet you
suggest 20% cuts plus what actives and recent retirees have already
taken of nearly 15% under the adopted rehabilitation plan in 2010
without concern of where did the money go . . . OUR MONEY! Our future
survival in our last decades of our lives is dependent on this income.
Not to mention the many with permanent injuries and poor prognosis.
Shameful! Why is it there is NO UPS representation on our Board of
Trustees? Mostly Trustees of orphan companies and a soon to be orphan
company. When you look in the mirror where did the human component
disappear to? Where did feelings of respect, admiration, dignity and a
respectful work ethic go? Do those of you who think a 20% cut is
equitable and fair fail to distinguish these are people no less
deserving to live in dignity than the reflection you see in the mirror
on a daily basis? These ``downtrodden in Brown'' are representative of
those that built this great nation. Shame on anyone to be dismissive of
these UPS employees and retirees. It is shameful to allow corporate
greed, mismanagement and government malfeasance to victimize the United
Parcel Service Employees and Retirees in the New York State Teamsters
Pension Fund.
Once again, why are you not considering UPS money for UPS people?
The current Butch Lewis proposal as written was found to be not
feasible by the authors of it, as many plans would not be able to repay
the loans. Inherent investment returns as written would not be
sufficient for repayment, and further rehabilitation cuts could be
necessary. There was discussion of self-funding surcharge proposal, or
banking surplus add-on to eliminate the deficiency. Are all options
being considered? Worth mentioning, in 2017 both Ken Hall and James
Hoffa supported the UPS proposal (the 20% cut Proposal) Shameful!
UPS is the largest stakeholder in this multiemployer pension debacle.
They are only looking out for corporate interests and not those who
made the company the financial success it ensues. Their 20% reduction
is unacceptable when other more respectable and viable options are
presented.
To the Joint Select Committee, please do not disregard what is
happening to us in NYSTF. The Central States Pension Fund by sheer
volume is getting most attention. Yet we here in New York have been
delivered the MPRA cuts which in reality range from 29% to 42%.
Once again UPS has become the successful company it is by those being
delivered this travesty in the latter years of their life.
Thank you for your attention to the content of this letter. The
following undersigned have read and are of same mind in what is
presented in here.
Respectfully,
Mary Lynn Skrabacz
Retired UPS employee, Buffalo, NY
Thirty-one years
______
Letter Submitted by Michael R. Strebe
June 11, 2018
Dear members of The Joint Select Committee on Solvency of Multiemployer
Pension Plans, you take on the task of making right a situation that
affects the lives of millions of Americans, now, and in the future.
This task has no easy solution and will not be perfect. I pray that the
end result will not be putting a band aid on it and kicking the can
down the road for future legislators! A MAJOR TIDAL WAVE OF FAILING
PENSIONS, INCLUDING STATE RUN PENSIONS, WHICH ARE CURRENTLY \1/3\
UNDERFUNDED, ARE GOING TO THROW OUR SOCIETY INTO CHAOS!
Life isn't fair! Never has been, never will be! But this pension issue
isn't about fairness at all! The pensions' terrible financial situation
shouldn't be where it is now! There is plenty of blame to go around! By
not correcting the system that led to the downfall and just throwing
money at it, history will repeat itself! THE SYSTEM HAS TO CHANGE OR
THE PEOPLE THAT STOLE AND MISMANAGED THE PENSION WILL CONTINUE TO DO
SO!
I have completely watched the two sessions your committee has had and I
am hopeful something beneficial can be done. I've come away with the
feeling from the two meetings that the situation is being completely
looked into and members are understanding there needs to be a
bipartisan solution. I sense that your committee realizes the magnitude
of the problem, the terrible negative economic impact and hardships
that will result, and the fact that employer pension fund systems
cannot reasonably sustain themselves over a long period of time given
too many unpredictable factors!
Two of your experts testifying, Mr. Reeder and Mr. Goldman, stated
there are ``structural problems'' that need to be changed.
PBGC was never set up correctly by trustees and government,
guaranteeing multiemployer participants a maximum of $12,800 if their
pension fails. That is only 30% of my pension! Plus the PBGC is so far
under water it can't possibly recover!
And what about the millions of Americans still working and
contributing? With the last man standing situation, more companies will
go out of business and the workers that had been contributing all those
years will be left with nothing!
Giving a loan to pension funds is only a band aid which we all know
will never get repaid!
A statement by Congressman Norcross, and confirmed by Mr. Goldman and
Mr. Barthold, was, ``Pensions are for the exclusive use of
pensioners!'' Trustees of pensions are ``fudiciaries,'' which means, in
the best and only interest of the worker! In 2015 an investigation by a
Washington, DC-based independent review board reported September 25,
2015 that Cincinnati-based Teamsters misused member funds. The
President of that conference, William Lichtenwald, is (or was at the
time) also a trustee of the Central States Pension Fund!
There are too many fingers in the Pension Pie! Goldman Sachs lost
billions investing our funds at the same time making record profits!
Trustees of our pension get their salaries (head trustee Tom Nyhan
makes close to $700,000), health insurance, raises and their pensions
from our plan. Six hundred thirty Central States Pension Fund employees
get all their benefits from our fund. TOO MANY LAYERS, TOO MANY FINGERS
IN THE PIE!
MORE RETIREES THAN WORKERS! This system will not survive!
It was pointed out at your meetings that the government bailed out the
banks, automakers, etc., so they can surely bail out the backbone of
American workers! Absolute perfect logic! BUT . . . where does the
government get the funds from? My sons, my friends, my grandchildren
for the rest of their lives! I was against all government bailouts and
still am. My solution is to get rid of the pensions and divide the
money prorated equally among active and retired workers. The funds
could be put in a retirement fund such as a 401(k) plan. The problem is
many pensioners rely on every penny of their pension check which may be
quite small already and would be devastating to them.
This is our Teamster problem! The problem facing the state-funded
pensions will be catastrophic, much worse if that's possible, because
of the greater magnitude of the numbers!
I could go on forever but your time is valuable and short! I would
gladly come and testify if you wish, at my expense.
I've included a few of my many, many articles on the severity of this
issue. May God bless you all and grant you wisdom!
Sincerely,
Michael R. Strebe
______
Pension Crisis
(From the Associated Press)
CHERRY HILL, N.J.--A public employee pension crisis for state
governments has deepened to a record level even after nearly 9 years of
economic recovery for the nation, according to a study released
Thursday, leaving many states vulnerable if the economy hits a
downturn.
The massive unfunded pension liabilities are becoming a real problem
not just for public-sector retirees and workers concerned about their
future but also for everyone else. As states try to prop up their
pension funds, it means less money is available for core government
services such as education, public safety and parks.
The annual report from the Pew Charitable Trusts finds that public
worker pension funds with heavy state government involvement owed
retirees and current workers $4 trillion as of 2016. They had about
$2.6 trillion in assets, creating a gap of about one-third, or a record
$1.4 trillion.
While the study looks only at pension funds with major state-government
involvement, systems run by cities, counties, school districts and
other local entities have had similar problems. Just this week, the
Chicago suburb of Harvey, a city with a history of underpaying its
pension obligations, announced deep layoffs in its police and fire
departments. Officials blamed their rising pension obligations.
Larger cities and school districts across the country also have had
service cuts or freezes over the years to pay for rising costs for
their retirees.
Pew says that pension funds were well-funded until about 2000. Around
that time, many states increased pension benefits without a way to pay
for them. In some states, such as California and Illinois, courts
usually find that the government must honor those commitments.
Also in the early 2000s, the tech stock bubble burst, spiraling
investment returns downward. Some states, such as New Jersey, made
things worse by skimping on their contributions.
Many pension funds had not recovered from the dot-com bust by the time
the Great Recession hit less than a decade later. And many haven't
recovered from that, either.
``When the next downturn comes, there will be additional pressures,''
David Draine, a senior officer at Pew, told The Associated Press.
Colorado, Connecticut, Illinois, Kentucky and New Jersey had less than
half the assets they needed to meet their pension obligations,
according to the report. Kentucky and New Jersey have the largest gaps,
with just 31 percent of the needed funding.
Kentucky has been roiled by weeks of protests over a bill passed by the
Republican-dominated Legislature and signed by the Republican governor
that makes changes to the state's teacher retirement system in an
attempt to close the funding gap. Teachers have packed the state
Capitol by the thousands to protest the changes. On Wednesday, they
joined the state's attorney general, a Democrat, in filing a lawsuit
seeking to overturn the law.
Just four states--New York, South Dakota, Tennessee and Wisconsin--had
at least 90 percent funding. Draine said those states and some others
that have repaired pension shortfalls since the Great Recession will be
in better shape the next time the economy slides.
The Pew report found that lackluster investment returns in 2016
explained most of why the condition of pensions declined from the
previous year. Pension administrators were counting on median returns
of 7.5 percent that year. Instead, they made just 1 percent.
But the study says that even if the investments had met expectations,
the overall position of pension funds still would have declined because
state governments were not contributing enough. Only Kansas contributed
more to its pension system in 2016 than it paid out, Pew found.
In New Jersey, actuaries say it will take around $6 billion a year in
contributions from the state to shore up its pension system. It's taken
years to get to less than half that amount in the current budget.
Maintaining that progress makes it difficult to pay for other
priorities, such as boosting school funding.
The study finds that states increasingly rely on investment returns in
an attempt to stabilize their finances, which makes them more
vulnerable to market fluctuations.
Because of a strong market last year, next year's report, which will
assess the state of pensions as of 2017, is expected to look better.
But market slides so far this year have not been encouraging, Draine
said.
______
GE's $31 Billion Pension Nightmare
(By CNN Wire Service)
January 18, 2018
John Flannery, the man hired to fix General Electric, inherited a $31
billion ticking time bomb when he replaced longtime CEO Jeff Immelt
last year.
Like other companies, GE has accumulated a significantly underfunded
pension. But like most things lately at GE, its pension shortfall is
much worse.
Not only does GE have the largest pension deficit among S&P 500
companies, that deficit is $11 billion worse than the next closest
company, according to Dow Jones S&P Indices. (The $31 billion figure is
from the end of 2016. Fresher numbers haven't been released.)
GE's pension nightmare is the result of years of inattention, and of
historically low interest rates that have driven up pension liabilities
around the world.
This is not just a math problem: More than 600,000 current and former
GE employees are relying on these crucial retirement benefits.
The pension shortfall is yet more evidence of GE's financial troubles,
which forced the iconic company to slash its dividend last year for
just the second time since the Great Depression. GE shares closed below
$17 on Thursday for the first time in 6 years.
``GE's balance sheet is a mess;'' said Gautam Khanna, an analyst for
Cowen and Co. ``They don't generate a lot of cash, and they have a
severely underfunded pension plan.''
GE doesn't owe the $31 billion immediately. Instead, the company is
required to make pension payments over time.
Under Flannery, GE announced plans in November to tackle the pension
problem by taking advantage of cheap borrowing costs. GE said it will
borrow $6 billion in 2018 to cover mandatory pension payments through
2020.
But that doesn't fix the problem: It's just swapping one IOU for
another. ``It just buys you time,'' said Deutsche Bank analyst John
Inch.
Related: GE could break itself apart as cash crisis deepens
Immelt inherited a huge pension surplus
GE's pension shortfall is even more glaring when you consider that the
company was sitting on a pension surplus of $14.6 billion in 2001, when
Immelt replaced Jack Welch as CEO.
Then GE decided to put money into mergers and acquisitions instead of
socking it away for what it owed its employees, Inch said. Many of
those deals were poorly timed, contributing greatly to GE's current
cash crunch.
By the end of 2008, GE's pension was running a deficit of $7 billion,
and it exploded from there. Despite that shortfall, Immelt rewarded
shareholders with stock buybacks, which are aimed at boosting the share
price. Between 2010 and 2016, GE spent about $40 billion to buy back
its own stock, according to FactSet.
``The company was debatably mismanaged,'' Inch said. ``It didn't fund
the pension properly, and now you've got a massively unfunded
pension.''
Immelt declined to comment, directing questions to GE. The company
declined to comment.
Related: How decades of bad decisions broke GE
Low rates pose pension risk
To be sure, other major companies have large pension shortfalls. Boeing
listed a $20 billion pension deficit at the end of 2016, and General
Motors faces an $18 billion liability.
Corporate pension funds typically invest 40% or more of their assets in
bonds like low-yielding government debt, according to the OECD. And a
decade of near-zero interest rates has forced companies to assume lower
returns.
In an SEC filing last year, GE said the increase in its pension deficit
is ``primarily attributable to lower discount rates'' as well as higher
liabilities.
GE warned that one financial risk it faces is ``sustained increases in
pension'' costs caused by market turbulence or a ``continued
environment of low interest rates.'' Yet GE also said that its pension
liabilities could go down significantly if rates rise.
GE has a huge family of current and former workers to support. The
company's various pension plans support about 619,000 people: about
298,000 retirees and beneficiaries, 227,000 vested former employees and
94,000 active workers.
GE also sponsors post-retirement health and life insurance benefit
plans that cover about 187,000 people. The company tried to ease its
pension liabilities by closing the pension plan in 2011 to new salaried
workers.
But the problem still hangs over GE as it considers a radical shift in
the coming months. Flannery confirmed on Tuesday that GE is
contemplating what was once unthinkable: breaking the conglomerate up
into smaller pieces.
But analysts warned that GE's pension liabilities are so large that it
could make dismantling the company very messy, if not impossible.
``It only makes sense if you ignore GE's pretty massive liabilities--
like the underfunded pensions,'' said Cowen's Khanna.
______
Infrastructure Costs: States Can Afford More of it if
They Reduce Pensions
(From The National Review)
Two hundred billion dollars in federal funding is especially inadequate
when one considers these numbers against the state and local crisis
that could define the next generation: pension and health-care costs.
As of 2015, the last full year for which complete data are available,
states had funded only 72 percent of their future obligations to
government workers, according to the Pew Charitable Trusts. That leaves
a $1.1 trillion deficit. On health care for public-sector retirees,
states owe $646 billion.
In states from New Jersey to Kentucky, these numbers mean real, looming
cash calls of billions of dollars a year. New Jersey, for example, has
set aside just 30 percent of the money it needs to fund pension
payments, according to a new Manhattan Institute study. New Jersey
taxpayers face a grave risk. A mild recession could mean that in a few
years it would have to triple, or more, its current $2 billion annual
pension contribution just to pay current retirees, let alone set aside
money to grow for the future tab. This is a state that, along with New
York, is supposed to come up with new revenues, under Trump's proposal,
to fund the Hudson Tunnel. And it's not just blue states that are
distressed by retirement liabilities: Kentucky, for example, has funded
just 38 percent of its pension obligations, and South Carolina, 58
percent. States that have funded their pensions in the range of two-
thirds or so--Alabama, Alaska, Indiana, Louisiana, and New Hampshire
among them--could benefit from some modest shoring up.
There is a way, though, for the White House and Congress to ease, if
not solve, this crunch: Offer states credit, in the form of more
federal infrastructure money, if they pare back their pension and
health-care obligations to future retirees. States that gradually move
newer workers to 401(k)-style accounts with low-fee investment options,
for example, should get some percentage of that money now, to invest in
projects that will pay off in the future. States that pare back future
health-care liabilities would receive a similar reward.
Of course, paring back future health-care costs over time is easier
than cutting pension costs. America already has a public-sector health-
care program for people deemed too old to participate in the workplace:
Medicare. Most private-sector retirees are happy with it. There's no
justification for those who pay state and local taxes to subsidize
private health care for government workers who choose to retire before
65, a big driver of future liabilities. And there's no justification
for some states and cities to force their taxpayers to pay for private
health care for older retirees when the federal government set up
Medicare for just that purpose.
When it comes to retirement income, though, private-sector efforts to
supplement Social Security are a mess. As AARP reports, half of
American workers don't have a workplace retirement plan, even a 401(k).
Only 22 percent of Americans with such access have saved $100,000 or
more, according to the Employee Benefit Research Institute.
To address this problem, Washington should return to an old idea:
creating a way for workers and spouses to create voluntary private
savings accounts alongside their Social Security contributions, via an
extra payroll deduction. A good start would be to give people the
option of diverting the extra money most will soon see in their
paychecks thanks to the Christmas tax cut. Private-sector managers
could invest such money broadly, on a low-fee basis, in a range of
stocks and physical assets--including infrastructure--designed to track
the larger economy. With such savings plans, state and local unions
would have no reason to use their political power to insist on a
separate and unequal system for their workers: Why isn't what taxpayers
get good enough for them, too?
The climate in Washington is hardly ripe for bipartisan, big-picture
thinking. But a real possibility exists here. Blue states with some of
the worst pension woes--Connecticut and Illinois, in addition to New
Jersey--need a constructive way to reduce their obligations before they
run out of money to provide even basic public services. Some supporters
of the tax law's elimination of the federal deduction for state and
local taxes above $10,000 annually claim that cutting off the money is
how to do it. But that radical change did nothing to address the long-
term nature of these entrenched liabilities.
______
Letter Submitted by Dr. Irene Trzybinski
June 20, 2018
Joint Select Committee on Solvency of Multiemployer Pension Plans
219 Dirksen Senate Office Building
To the Attention of: Mr. Chris Langan, Vice President of Finance, UPS,
Atlanta, GA.
Subject: Comments on Mr. Lagan's testimony on June 14, 2018
Dear Mr. Langan,
This is a rebuttal to your testimony in front of the Joint Select
Committee.
I am the wife of a 31-year United Parcel Service employee from Buffalo,
NY Teamsters local 449.
I challenge your testimony and am sickened by it.
You were in the position to give an objective opinion and
representation of facts in the presence of that committee who are not
as well informed as you are. Instead you chose to express the slanted
corporate view with focus on the profits that you and other major
stakeholders have in the outcome of this multiemployer pension crisis.
For the purpose of this rebuttal and commentary, I will focus on the
New York State Teamsters Pension Fund which you coyly are strongly
attempting to bundle into the demise of declining and critical status
funds, most mentioned was the Central States Pension Fund.
I was very disappointed that there was no mention of NYS Teamsters
Pension Fund (NYSTF) and the cuts sustained to our fund under the
Multi-employer Pension Reform Act, also known as MPRA.
Roughly 34K Teamsters are affected by these cuts, of which 4K to 5K are
UPS retirees.
Be assured there will be those that will not stand by and accept
quietly your proposal for a 20% cut in our retiree's pensions for
stated reasons that follow:
Pensions that were promised the day a new hire was spoken to by
an HR member of Corporate UPS.
Pensions earned by collective bargaining by both employee and
Corporate UPS of what is approaching $17/hr. This amounts to
approximately $3Sk per employee per year. Of which less than $100 per
month is benefit bearing for the UPS employee; the remaining going
towards the unfunded liability of NYSTF. Would it be correct to assume
the tax write-offs that UPS receives on its pension contributions are
more advantageous to corporate UPS and their shareholders than the
consideration of those who made this a Fortune 500 company, the men and
women in ``Brown'' who gave the best 30 plus years of their lives?
Would it be accurate to state that OSHA created a special label
referred to as ``Industrial Athlete'' due to the harsh job requirements
of the UPS employee?
Is it a stretch to state that the life expectancy is reduced due
to the many injuries sustained that are common due to the volume of
heavy repetitive weight bearing activity required for employment at UPS
in comparison to the population norm. Associated with these injuries
are significant decreased options for future employment.
How is it that UPS can give Stocks and Bonuses of up to 34% and
beyond of annual wages to management?
Woe to the downtrodden employee, the UPS representative, of this
vastly successful company. Cough up the cash, you should be ashamed of
what this company is asking in concessions! Is there the need to cite
the many various recent news articles on the popularity of the UPS
driver? How ignorant is UPS to the value of these men and women in the
success of this company OR is the truth they consider these faithful
employees just throw away commodities more interested in corporate
profits? It is becoming common knowledge to the general public what
value corporate UPS puts on their employees and especially so in these
current contract negotiations. This will be reflective on the quality
of service the company will get from current and future employees.
Where did those company signs stating the expected behavior, attitude,
and presentation of the UPS driver go? This image conveyed respect for
the UPS label and the public responded. Show these men and women the
dignity they earned. Give them back their earned and promised pensions
as UPS did in the New England Pension Fund 2012, where UPS paid and
negotiated the terms of their liability and partitioned their
employees; those employees mostly kept their full earned and promised
pensions. Return to NYSTF the concessions of Schedule El Of which my
understanding is less than 2K affected employees. Why should these
roughly 2K suffer that additional reduction under that sham of a
rehabilitation plan? I have a reasonable question to ask you, a man of
your knowledge and stature. Why would UPS allow its continual
contributions to a pension fund under scrutiny for adopting an
extraordinarily risky investment portfolio and unrealistic investment
assumption rates? $85 million paid out annually! It would be fair to
assume this does not appear to be prudent business practice. Yet you
suggest 20% cuts plus what actives and recent retirees have already
taken of nearly 15% under the adopted rehabilitation plan in 2010
without concern of where did the money go . . . OUR MONEY! Our future
survival in our last decades of our lives is dependent on this income.
Not to mention the many with permanent injuries and poor prognosis.
Shameful! Why is it there is NO UPS representation on our Board of
Trustees? Mostly Trustees of orphan companies and a soon to be orphan
company. When you look in the mirror where did the human component
disappear to? Where did feelings of respect, admiration, dignity and a
respectful work ethic go? Do those of you who think a 20 cut is
equitable and fair fail to distinguish these are people no less
deserving to live in dignity than the reflection you see in the mirror
on a daily basis? These "downtrodden in Brown" are representative of
those that built this great nation. Shame on anyone to be dismissive of
these UPS employees and retirees. It is shameful to allow corporate
greed, mismanagement and government malfeasance to victimize the United
Parcel Service Employees and Retirees in the New York State Teamsters
Pension Fund.
Once again, why are you not considering UPS money for UPS people?
The current Butch Lewis proposal as written was found to be not
feasible by the authors of it, as many plans would not be able to repay
the loans. Inherent investment returns as written would not be
sufficient for repayment, and further rehabilitation cuts could be
necessary. There was discussion of self-funding surcharge proposal, or
banking surplus add-on to eliminate the deficiency. Are all options
being considered? Worth mentioning, in 2017 both Ken Hall and James
Hoffa supported the UPS proposal (the 20% cut Proposal). Shameful!
UPS is the largest stakeholder in this multiemployer pension debacle.
They are only looking out for corporate interests and not those who
made the company the financial success it ensues. Their 20% reduction
is unacceptable when other more respectable and viable options are
presented.
To the Joint Select Committee, please do not disregard what is
happening to us in NYSTF. The Central States Pension Fund by sheer
volume is getting most attention. Yet we here in New York have been
delivered the MPRA cuts which in reality range from 29% to 42%.
Once again UPS has become the successful company it is by those being
delivered this travesty in the latter years of their life.
Thank you for your attention in the content of this letter. The
following undersigned have read and are of same mind in what is
presented in here.
Respectfully,
Dr. Irene Trzybinski
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