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


                                                      S. Hrg. 115-781

                     HOW THE MULTIEMPLOYER PENSION 
                      SYSTEM AFFECTS STAKEHOLDERS

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

                                HEARING

                               BEFORE THE

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

                     ONE HUNDRED FIFTEENTH CONGRESS

                             SECOND SESSION

                               __________

                             JULY 25, 2018

                               __________


 [GRAPHIC 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                    
39-994-PDF                  WASHINGTON : 2020                     
          
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                 JOINT SELECT COMMITTEE ON SOLVENCY OF 
                      MULTIEMPLOYER PENSION PLANS

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

                 Sen. SHERROD BROWN, Ohio, Co-Chairman

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

                                  (ii)
                            
                            
                            C O N T E N T S

                              ----------                              

                           OPENING STATEMENTS

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

                        CONGRESSIONAL WITNESSES

Johnson, Hon. Ron, a U.S. Senator from Wisconsin.................     5
Baldwin, Hon. Tammy, a U.S. Senator from Wisconsin...............     6

                               WITNESSES

Naughton, James P., assistant professor, Kellogg School of 
  Management, Northwestern University, Chicago, IL...............     7
Rauh, Joshua D., Ph.D., senior fellow and director of research, 
  Hoover Institution, and Ormond Family professor of finance, 
  Stanford University, Stanford, CA..............................     9
Stribling, Kenneth, retired teamster, Milwaukee, WI..............    11
Lynch, Timothy P., senior director, Government Relations Practice 
  Group, Morgan, Lewis, and Bockius LLP, Annapolis, MD...........    13

               ALPHABETICAL LISTING AND APPENDIX MATERIAL

Baldwin, Hon. Tammy:
    Testimony....................................................     6
Brown, Hon. Sherrod:
    Opening statement............................................     2
    Prepared statement...........................................    39
Hatch, Hon. Orrin G.:
    Opening statement............................................     1
    Prepared statement...........................................    40
Johnson, Hon. Ron:
    Testimony....................................................     5
Lynch, Timothy P.:
    Testimony....................................................    13
    Prepared statement...........................................    41
Manchin, Hon. Joe, III:
    Letter from the United Mine Workers of America to Senators 
      Hatch and Brown, July 24 2018..............................    44
Naughton, James P.:
    Testimony....................................................     7
    Prepared statement...........................................    46
Rauh, Joshua D., Ph.D.:
    Testimony....................................................     9
    Prepared statement...........................................    50
    Responses to questions from committee members................    73
Stribling, Kenneth:
    Testimony....................................................    11
    Prepared statement...........................................    79

                             Communications

Bozeman, Robert..................................................    81
Hiler, Lloyd I...................................................    81
Wroblewski, Leon S., Jr..........................................    83

 
                     HOW THE MULTIEMPLOYER PENSION 
                      SYSTEM AFFECTS STAKEHOLDERS

                              ----------                              


                        WEDNESDAY, JULY 25, 2018

                             U.S. Congress,
              Joint Select Committee on Solvency of
                               Multiemployer Pension Plans,
                                                    Washington, DC.
    The hearing was convened, pursuant to notice, at 10:10 
a.m., in room SD-215, Dirksen Senate Office Building, Hon. 
Orrin G. Hatch (co-chairman of the committee) presiding.
    Present: Senator Brown, 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; Julie Cameron, PBGC Detailee; and Constance 
Markakis, PBGC Detailee.

       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. Good morning and welcome to the fifth 
hearing of the Joint Select Committee on Solvency of 
Multiemployer Pension Plans.
    The committee has taken a rigorous approach to the issues 
before it, examining in public hearings the complex range of 
problems that have led to the dire financial condition of a 
significant number of multiemployer pension plans, as well as 
of the Pension Benefit Guaranty Corporation, or what we call 
the PBGC.
    According to the PBGC, here is where we stand with regard 
to funding. For 2015, the plans are underfunded by a total of 
638 billion--with a ``b''--dollars. Almost 75 percent of 
multiemployer plan participants are in plans that are less than 
50-percent funded. More than 95 percent are in plans that are 
less than 60-percent funded. But if you look at them on an 
actuarial basis, using the plans' proclaimed discount rates, 
they are 80-percent funded, and only have a $120-billion 
shortfall.
    The difference between these numbers should keep us up at 
night. Everyone knows the plans are in dire straits, but by 
using unrealistic assumptions, the true extent of the problem 
is hidden until it is too late.
    Indeed, these numbers have kept this committee properly 
busy. The committee and its staff have held dozens of meetings 
with stakeholders, and we are continuously bringing in experts 
to brief our team. This has been an intensive, time-consuming 
but worthwhile exercise. And these briefings and discussions 
will continue, because I believe it is important that the 
committee leave no stone unturned in discussing how we may 
address the conditions of the multiemployer plans.
    In addition to the great deal of work that has gone into 
understanding the system and its challenges, the committee 
staff has started to consider a range of policy ideas to 
address the challenges faced by the multiemployer system. They 
have started to crunch numbers on these ideas, reviewing them, 
and looking at the complex interactions of the legal 
requirements of the current system and the proposals for 
change. This is all complicated stuff, somewhat like playing 
three-dimensional chess.
    A lot of work still needs to be put into this process, but 
at this point, the committee is not taking anything off the 
table, nor necessarily putting anything on the table for 
consideration either. But it is necessary and prudent to begin 
conducting in-depth due diligence on these ideas.
    During this morning's hearing, we continue to work on 
understanding the current system, by hearing more from 
stakeholders in the system. We have brought in four witnesses 
today to help us. One is a retiree in an at-risk program, who 
will share his perspective as a participant.
    We have also brought in two respected academics and a 
practitioner with years of experience in the system, who will 
review for us some fundamentals of these plans and share their 
views on what does and does not work. Their perspective is 
important, because clearly the system is, in certain aspects, 
flawed.
    Our witnesses today will help us delve into some key 
questions. What is at stake here for retirees? What is the 
appropriate measurement of plan funding? Are the plans 
generally healthy or not? What major structural reforms are 
needed? And one issue in which I am most interested, are 
Federal taxpayers responsible under current law for funding any 
PBGC shortfalls?
    Let me now turn to Senator Brown, whom I am very 
appreciative of, for his opening statement.
    [The prepared statement of Co-Chairman Hatch appears in the 
appendix.]

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

    Co-Chairman Brown. Thank you, Senator Hatch.
    Mr. Chairman, I appreciate your continued work on this 
committee. I appreciate the relationship we have built over the 
years, first on the HELP Committee, then on the Finance 
Committee, and the work that we are doing jointly in this.
    And we all know how important it is that we succeed.
    I want to thank Senator Johnson and Senator Baldwin for 
joining us. They will introduce one of our witnesses, Kenny 
Stribling, who sits at the table, whom Tammy introduced me to 
one day in the hallway. And we have seen Mr. Stribling, as we 
have seen Rita Lewis and so many others, walking the halls, and 
mine workers walking the halls of Congress, fighting for 
themselves, but especially fighting for their brothers and 
sisters in the trade union movement.
    I want to thank members of the committee, a number of you 
who joined Senator Portman and me 2 weeks ago in Ohio for our 
field hearing. Mike Walden, who is sitting behind Tammy, was 
one of our witnesses at that hearing.
    It was particularly important for us to hear the 
perspectives of the workers and retirees and small-business 
owners who have the most to lose if Congress does not do its 
job.
    Roberta Dell works at Spangler Candy Company in Bryan, OH. 
She put it pretty succinctly. She said if nothing is done, a 
lot of us will go belly up; that is the bottom line.
    We know the same could be true for small businesses. Bill 
Martin, the president of Spangler Candy in northwest Ohio, 
explained, quote, ``In Central States, the vast majority of the 
1,300 contributing employers are small businesses like us. This 
issue hinders the success and growth of our businesses that 
already struggle to be competitive.''
    These businesses and their employees did everything right. 
They contributed to these pensions, in many cases over decades 
and decades. They are the ones whose lives and livelihoods will 
be devastated if Congress does not do its job.
    When I think about the responsibility the 16 of us have, I 
think about the words of Larry Ward at that hearing at the 
Statehouse in Columbus. He said, ``I do not understand how it 
is that Congress would even consider asking us to take a cut to 
my pension or see it go away entirely when it had no problem 
sending billions to the Wall Street crooks who caused this 
problem in the first place. They used that to pay themselves 
bonuses; we use our pensions to pay for medicine and food and 
heat. There is something wrong with this picture,'' he said.
    If we do not find a way to compromise and come together in 
a bipartisan solution, there will be something very wrong with 
this picture.
    I think we are going to be successful. I saw a lot of 
opportunity for bipartisan cooperation at that hearing. Senator 
Portman and I talked about how we are putting aside talking 
points, listening to all ideas, working in good faith, not wed 
to only one idea, but looking at ways to solve this. I believe 
it is not just true of Rob and me. I know of conversations that 
pretty much every one of you has had with other members of the 
committee irrespective of party.
    The staffs of all 16 members have met for more than 30 
hours, as Chairman Hatch said, of briefings by stakeholders and 
experts. We have met six times, we have held five public 
hearings. We know this is complicated. We know it is not easy.
    It is really three related issues. First and most 
importantly, we all understand the threat to participants and 
businesses in multiemployer plans that are currently on the 
path to insolvency. Current law does not contain a remedy for 
the largest of these plans.
    Second, the looming failure of these plans means the 
imminent failure of the PBGC. I was briefed yesterday by seven 
or eight PBGC or PBGC-affiliated individuals, loosely working 
with Treasury or Labor or this committee on all that this means 
with the potential collapse of PBGC on the multiemployer side.
    PBGC and the multiemployer system made a devil's bargain 
years ago, trading vastly inadequate premiums for a vastly 
inadequate benefits guarantee. Now, that bargain threatens to 
bring down the entire multiemployer system.
    We have heard over and over in this committee about the 
$67-billion deficit of PBGC. What that means is, the moment one 
of these large plans fails, it brings down not just that plan, 
but the entire multiemployer system.
    Third, finally, these impending crises mean that it is not 
enough just to fix the crisis today for these plans. We cannot 
put a Band-Aid over this; we cannot just leave the problems of 
the underlying system to fester and erupt into another crisis 5 
years or 10 years down the road.
    We need prospective changes to make sure we never find 
ourselves in this situation again. That is the jurisdiction of 
this committee.
    These are the three issues we have a mandate to solve for 
the workers like Roberta and the businesses like Spangler Candy 
and the retirees like Larry.
    Failing to address all three of these issues together would 
be abandoning the responsibility we have to our constituents 
and the reason all 16 of us wanted to serve on this committee.
    Chairman Hatch and I met last week. We are both committed 
to a solution. We must begin bipartisan meetings with all the 
members of the committee soon. We are aware of the challenges 
that lie ahead, but I believe we are going to get there. Too 
much is at stake for us to retreat back into partisan corners.
    Mr. Chairman, thank you.
    Co-Chairman Hatch. Well, thank you, Senator.
    [The prepared statement of Co-Chairman Brown appears in the 
appendix.]
    Co-Chairman Hatch. I want to thank Senators Baldwin and 
Johnson for being here with us. We appreciate them and their 
efforts.
    Our other witnesses this morning are, first, Mr. James 
Naughton, who is an assistant professor in the Accounting 
Information and Management Department at the Kellogg School of 
Management, Northwestern University.
    Mr. Naughton's research examines the economic consequences 
of financial reporting practices and how regulatory and 
technological changes shape a firm's information environment. 
He has a particular focus on issues related to employee 
benefits and pensions.
    Mr. Naughton received his doctorate in business 
administration from the Harvard Business School, his J.D. from 
Harvard Law School, and his B.S. from Worcester Polytechnic 
Institute, so he has had quite a good academic background.
    Prior to graduate school, he was a credentialed actuary at 
Hewitt Associates, where he worked on the design and 
administration of employee benefit plans and executive 
compensation agreements.
    Next we have Dr. Joshua Rauh, who is a professor of finance 
at the Stanford Graduate School of Business and a director of 
research at the Hoover Institution.
    Dr. Rauh has conducted extensive research on the financial 
structure of pension funds and their sponsors and the 
measurement of public-sector pension liabilities. He 
specializes in empirical studies of corporate investment and 
financial structure.
    Dr. Rauh is a senior fellow at the Stanford Institute for 
Economic Policy Research, SIEPR, and a research associate in 
corporate financing, public economics, and aging at the 
National Bureau of Economic Research.
    He received his doctorate in economics from the 
Massachusetts Institute of Technology and has a B.A. in 
economics from Yale University.
    We are also joined by Timothy Lynch, a senior director in 
the Government Relations Practice Group of Morgan, Lewis, and 
Bockius.
    Mr. Lynch monitors legislative and political trends and 
developments and specializes in government relations and public 
policy issues. He has 25 years of management experience in 
corporate and trade association government affairs.
    Before joining Morgan Lewis, Mr. Lynch was senior executive 
and chief lobbyist at the American Trucking Association, where 
he directed and managed the association's legislative affairs 
operations on pensions, labor and employee benefits, taxes, and 
a range of other issues.
    Mr. Lynch also served as president and CEO of the Motor 
Freight Carriers Association.
    Mr. Lynch received his M.B.A. and B.A. degrees from the 
University of Maryland.
    Well, we welcome you all to the committee.
    Co-Chairman Brown. And if I could interrupt for a moment, 
Senator Johnson and Senator Baldwin will introduce Mr. 
Stribling.
    Co-Chairman Hatch. That would be fine.
    Co-Chairman Brown. Senator Johnson?
    Co-Chairman Hatch. Okay. Senator Johnson?

                STATEMENT OF HON. RON JOHNSON, 
                 A U.S. SENATOR FROM WISCONSIN

    Senator Johnson. Thank you, Mr. Chairman.
    Co-Chairman Hatch, Co-Chairman Brown, and members of the 
committee, thank you for inviting me here today to introduce a 
fellow Wisconsinite who is here testifying before you today.
    It is my honor and privilege to introduce Mr. Kenneth 
Stribling. Kenny is a retired teamster who was born in 
Milwaukee and raised in Menomonee Falls, WI.
    After graduating from Sussex Hamilton High School, Kenny 
began working as a teamster in 1975. Over the next 35 years, 
Kenny drove trucks for multiple companies in Wisconsin before 
retiring in 2010. But of course, Kenny's really not retired. 
He's actually a RINO, retired in name only, because he 
currently works part-time as a shuttle driver when he's not 
advocating for a solution to this challenging problem.
    Kenny is a dedicated family man and a member of his 
community. He and his wife Beverly have five children and seven 
grandchildren, with two more on the way. In his free moments 
away from work and family time, Kenny has mentored young people 
in his neighborhood.
    I first met Kenny in 2015 when he came to my office with 
his concerns about the troubled multiemployer pension system. 
Kenny has been a leader on this issue since 2015. He co-chairs 
the Wisconsin Committee to Protect Pensions and received an 
award for his efforts last November.
    As co-chair, Kenny has worked tirelessly on behalf of his 
fellow workers and retirees, commuting to Washington, DC, often 
on a weekly basis, with a group of dedicated advocates for 
their cause. We have one of those, one of his buddies, Bernie 
Anderson, here behind me. And Bob Amsden was not able to 
attend. But I know they commute weekly, because we are often on 
the same flight back to Milwaukee.
    Before I conclude, I want to emphasize the importance of 
this committee. I have met with and heard from many of my 
constituents who are deeply concerned about the dismal state of 
the multiemployer pension system. Like Kenny, they have 
traveled around Wisconsin, to Washington, DC, and recently to 
Ohio for hearings and meetings to make their concerns known.
    They are asking for a transparent process and a fair 
outcome. I sincerely hope this committee can work effectively 
together to achieve those goals.
    Thank you.
    Co-Chairman Hatch. Thank you, Senator.
    Senator Baldwin, we will take any statement you would care 
to make at this point.

               STATEMENT OF HON. TAMMY BALDWIN, 
                 A U.S. SENATOR FROM WISCONSIN

    Senator Baldwin. Thank you, Co-Chairman Hatch, Co-Chairman 
Brown, and members of the committee.
    I am also honored to introduce my friend Kenny Stribling, 
retired Teamster from Menomonee Falls, WI.
    In 2015, Kenny received a letter. After working for more 
than 30 years in the trucking industry, the pension he earned 
and his family depends on could be cut by 55 percent.
    After getting a letter like that, Kenny and other Wisconsin 
retirees have made countless trips to Washington to make sure 
that families like theirs receive the full pensions that they 
have worked for and depend on.
    Last November, I was proud to stand with Kenny and other 
Wisconsin retirees who have made countless trips to introduce 
the Butch Lewis Act. I sincerely hope that this committee 
considers that legislation in your work to produce a solution 
to the multiemployer pension crisis that our country is facing.
    After 3 years, I am guessing that there are not too many 
members of Congress whom Kenny and the Wisconsin retirees have 
not met with. Who knows? But I will tell you that, as Kenny 
meets with members of Congress, he has held his personal story 
a little closer. And I am grateful to Kenny today for sharing 
his story with this committee.
    This committee has been charged with a critical task. This 
is a complicated issue with high stakes, but not acting is not 
an option, not for Kenny or the more than 25,000 workers and 
retirees in my State with Central States Pension.
    I thank you for your time this morning. And I especially 
want to thank the retirees who are in this room who have made 
many trips to Washington for this cause.
    Co-Chairman Hatch. Well, thank you so much. We appreciate 
both of you Senators taking time off to be with us. We know 
that you have other duties to perform, so you can leave at any 
time and we will fully understand.
    Mr. Naughton, we will turn to you; you will be the first to 
testify.

 STATEMENT OF JAMES P. NAUGHTON, ASSISTANT PROFESSOR, KELLOGG 
   SCHOOL OF MANAGEMENT, NORTHWESTERN UNIVERSITY, CHICAGO, IL

    Mr. Naughton. Thank you. And thank you to all the members 
of the committee for this opportunity. I sincerely hope that my 
testimony today will help move us towards a solution to this 
crisis.
    To begin, I am going to state what I think is a fairly 
obvious fact. If multiemployer plans collected actuarially 
sound contributions and purchased annuity contracts, there 
would not be a crisis. Participants would be receiving or would 
be scheduled to receive the annuities that were purchased on 
their behalf. Instead, multiemployer plans chose to collect 
contributions that were inadequate, and they made investment 
decisions that were risky.
    The reason trustees pursued such a strategy is pretty 
simple. Assuming that the overall cost per employee that an 
employer is willing to pay is fixed, a lower pension 
contribution means that employees might be able to gain higher 
non-pension compensation through the collective bargaining 
process.
    So, one thing that is important here is that these 
inadequate contributions and risky investments were a choice. 
Under the current rules, trustees could just as easily collect 
reasonable, adequate contributions and follow more conservative 
investment strategies.
    So a number of rules were developed in response to the 
freedom that trustees had with regard to contributions and 
investments. So most notably, employers who wish to exit a plan 
have to make additional contributions called withdrawal 
liability, and all employers agree to be jointly and severally 
liable for all plan promises, including those for so-called 
orphaned participants.
    You know these rules, just to sort of reiterate my earlier 
point, are not necessary if actuarially sound contributions are 
collected and invested responsibly.
    The rules further require that the PBGC, through a separate 
multiemployer system, step in if employers cannot cover 
underfunded pension promises and that participants have 
benefits curtailed further if the PBGC does not have the 
resources in the multiemployer system to cover unfunded 
benefits to the normal guaranteed amounts.
    So these rules were developed specifically to address the 
discretion that the trustees had. And these rules really have 
not changed in more than 35 years.
    Unfortunately, these rules, which were intended to 
safeguard the system, I believe have instead contributed to its 
decline. So financially healthy employers avoid multiemployer 
plans, because they are concerned with the possibility of 
withdrawal liability or the prospect that they have to fund 
benefits for orphaned participants.
    I personally witnessed this during my career as a 
consulting actuary. Even when the proposed cost of the 
multiemployer plan was only a fraction of the cost of a single-
employer plan, employers typically stayed away from the 
multiemployer plan. And this was something that was happening 
20 years ago; it is not something that just started happening 
recently.
    In addition, because withdrawal liability calculations do 
not really reflect the actual cost of settling obligations, 
there was a lot of opportunistic behavior where employers would 
leave these programs when it was financially advantageous to do 
so, leaving behind the remaining employers to pick up the 
shortfall.
    So the inevitable consequence of inadequate contributions, 
risky investment choices, and the withdrawal liability 
provisions is the crisis that we are currently facing.
    So 10 years ago when this crisis first manifested, the 
underfunding on the PBGC basis was about $200 billion. More 
recently, as Senator Hatch noted in his opening comments, the 
system is $638 billion underfunded on the same basis. So you 
can see that there has been a significant deterioration over 
the past 10 years, and this has occurred because the plans have 
continued to pay pensions and make promises without collecting 
the necessary contributions.
    You know, my testimony really focuses on providing guidance 
for prospective changes. And I have three specific 
recommendations.
    First, the multiemployer plans have to have accurate 
measurements of liabilities and strong funding rules that 
eliminate the trustee discretion. That is the source of most of 
the problems here.
    When you look at what is done for single-employer plans, I 
would argue that you need to be more conservative with 
multiemployer plans, because there is an interconnectedness 
with multiemployer plans that make, them much more risky.
    Second, the PBGC should have broad discretion to assume 
control of plans and implement necessary changes. And there 
should also be triggering events so that they can step in early 
to prevent plans from becoming more poorly funded over time.
    And third, I strongly recommend that we would amend the 
withdrawal liability provisions. So the goal of those 
provisions was to essentially collect the value of the benefits 
that have been promised. And so I would recommend doing 
something along those lines, similar to what is done for 
single-employer plans that plan to terminate: simply require 
that the exiting company pay for the purchase of annuities from 
a highly rated insurance company.
    So in closing, I want to highlight that my suggestions 
focus on improving rather than replacing the current system. A 
well-run defined benefit plan is far more effective at assuring 
retirement security for the types of workers who participate in 
these plans.
    I also want to highlight the importance of urgent action. 
Delays will inevitably lead to larger deficits and choices that 
will become more difficult.
    Thank you for this opportunity, and I look forward to 
answering any questions you may have.
    Co-Chairman Hatch. Thank you.
    [The prepared statement of Mr. Naughton appears in the 
appendix.]
    Co-Chairman Hatch. Dr. Rauh?

STATEMENT OF JOSHUA D. RAUH, Ph.D., SENIOR FELLOW AND DIRECTOR 
OF RESEARCH, HOOVER INSTITUTION, AND ORMOND FAMILY PROFESSOR OF 
           FINANCE, STANFORD UNIVERSITY, STANFORD, CA

    Dr. Rauh. Thank you, Chairman Hatch, Chairman Brown, and 
members of the committee.
    Multiemployer pension plans are private economy 
arrangements between firms and labor unions. Employees earn 
benefits through their years of work, employers make 
contributions according to plan rules, and the trustees of the 
pension plan have a fiduciary responsibility to steward the 
plan in the interests of the beneficiaries.
    Something has gone terribly wrong, and I believe much of it 
can be traced back to the systematic mismeasurement by plans of 
the costs of delivering on pension promises.
    If the PBGC is going to guarantee multiemployer pensions, 
but trustees are not going to naturally operate in a way that 
ensures the solvency of plans, then Congress must impose strong 
rules-based requirements that plans measure liabilities 
according to sound financial principles and remedy underfunding 
swiftly.
    Let me illustrate the fundamental measurement problem. 
Suppose a plan owes an employee an amount of money in 10 years, 
say $50,000, and suppose the system has just $25,000 in assets 
today. What actuarial funding ratio will the typical plan 
report? A funding ratio of just slightly over 100 percent.
    You see, if a participating employer contributed just 
$25,000 towards this promise, that employer could, in many 
cases, withdraw from the multiemployer plan without further 
obligation and without the plan having any recourse to that 
employer if the investment returns do not meet their target.
    Basing decisions on expected returns without knowing risk 
is imprudent. And the fact that the stock market has earned 
high historical returns does not justify it. Past returns are 
not a guarantee of future performance, and there is no sense in 
which just waiting long enough will bail you out.
    This logic also shows that a loan program is not what is 
needed. The loan program proposals seem to be based on the idea 
that if the plans can get a low-interest loan from the 
government and then invest the proceeds in risky assets and 
hopefully earn a high return, then the loan can be repaid in 
full and somehow free money has been created. A loan program 
would simply be doubling down on these kinds of investment 
problems.
    It should have been clear long ago to trustees that minimum 
funding requirements were insufficient. Trustees had years to 
take measures other than trying to force participants to take 
benefit cuts.
    Trustees have always had the right to gradually require 
greater contributions from participating employers, to make 
more reasonable assumptions about expected returns, and to make 
more realistic benefit promises on a prospective basis.
    Despite funding improvement plans, we have not seen much 
improvement. Plan trustees have done too little until it was 
too late.
    So when is a multiemployer plan making sufficient 
contributions? Well, one standard would be treading water, 
meaning the unfunded liability is not getting larger. Another 
would be actually paying your normal costs plus paying down 
unfunded liabilities.
    And under the actuarial measurement standard used by 
multiemployer plans, most of them are contributing at least 
enough to pay down this unfunded liability. But I calculate 
that under much more appropriate solvency standards based on 
the Treasury yield curve, that the picture looks quite 
different. Only 1.4 percent of plans are contributing the costs 
of new benefits plus a 30-year amortization of unfunded 
liabilities, and only 17 percent are treading water.
    I think a very good comparison point is the single-employer 
defined benefit pension system in the U.S., which is not in 
great shape, but it is in much better shape than either the 
multiemployer space or the public plan space. And that is 
largely a function of the contribution requirements that have 
existed historically.
    The legislation surrounding the single-employer system has 
adhered to a key principle: if a plan cannot or does not make 
required contributions, the sponsor must face an excise tax or 
terminate the plan. Plans should not get to just promise more 
benefits with a PBGC-enhanced, potentially, taxpayer backstop 
when they are not prudently funding their existing promises.
    And as you know, Congress abandoned that basic principle 
for critical red-zone plans in 2006, presumably because it felt 
that those funding rules were too burdensome. But this just 
kicks the can down the road.
    So my written testimony shows that to meet a rigorous 
funding standard, contributions would have to rise very 
substantially. Nonetheless, over time, we must approach this 
standard for all plans. And once phased in, all plans that do 
not follow funding rules should be subject to an excise tax. 
And ultimately, if the plan does not meet required 
contributions, there should be an automatic termination.
    Furthermore, to address the incentive that this could 
provide for more employers to withdraw, Congress should 
immediately act to change the withdrawal liability calculation 
to also reflect the true value of unfunded liabilities.
    I would just like to end by pointing out that Congress 
should consider carefully the impact on incentives that a loan 
program or bailout of the multiemployer system would have. And 
by the way, a loan program is a form of bailout.
    And by incentives, I mean not only those of multiemployer 
plans that take risk, but also the moral hazard that bailouts 
might create for a host of other agents in the economy who 
might come before Congress to ask for assistance, either 
because they lost money on their own investments or generally 
because private parties made flawed arrangements or trustees 
did not perform their fiduciary duties.
    And I think first and foremost among them are the State and 
local pension systems out there that, on their own accounts, 
using discount rates of 7 percent, have $1.7 trillion of 
unfunded liabilities, but on a solvency standard, they are 
actually $4 trillion underfunded. This is the same set of 
issues that we are seeing in the multiemployer system.
    And the stronger the belief by the State and local 
governments that the Federal Government will bail them out, the 
less discipline they are going to choose to impose upon 
themselves to address these problems.
    Thank you very much.
    Co-Chairman Hatch. Thank you.
    [The prepared statement of Dr. Rauh appears in the 
appendix.]
    Co-Chairman Hatch. Mr. Stribling?

                STATEMENT OF KENNETH STRIBLING, 
                RETIRED TEAMSTER, MILWAUKEE, WI

    Mr. Stribling. First of all, I would like to thank you, 
Senator Hatch, Senator Brown, Senator Portman, and other 
members of the Joint Select Committee, for inviting me here 
today and being so supportive.
    I would also like to thank my two Senators from the great 
State of Wisconsin, Senator Johnson and Senator Baldwin, for 
introducing me. I really appreciate their kind words and their 
support. They recognize as you do that fixing the multiemployer 
pension plans is a bipartisan issue.
    Let me tell you my story.
    I worked for 30 years for four different trucking companies 
that paid into Central States Pension Fund. I retired from USF 
Holland in 2010. My benefits moved with me because my employer 
paid into the same plan, assuring me that I would have a secure 
pension for life.
    I need this pension income more than ever. I am married, 
and I have five adult children, seven grandchildren, and two 
more on the way. I love my family dearly. And thanks to my 
pension, I have not been a burden to my family, but instead, my 
wife and I have been able to help out our children, our 
grandchildren with child care and support when emergencies 
happen. And you know they happen.
    I will never forget the day I received my letter from 
Central States Pension Fund with the news that they were 
applying to the Treasury Department to reduce my monthly 
benefits by 55 percent.
    Life changed that day for me.
    You have no idea what it is like to be retired on fixed 
income and suddenly be told your monthly check will be cut in 
half. I was devastated and so was my family.
    After receiving this shocking news, I felt I needed to do 
something. I joined with other retirees to stop the cuts and 
find a solution. We have been at it ever since.
    I felt compelled to become involved in this movement to 
find a solution for the pension crisis. Not only would this 
solution radically change my retirement years, but also affect 
countless households across the country.
    This involvement has also changed our lives. I have been 
through contract negotiations where we have sacrificed wage 
increases to have better health care and pension benefits. I 
believe we have done our part in shared sacrifice.
    In addition to giving up wages, we have often endured tough 
work conditions, long shifts, cold nights, unheated docks, and 
manual labor.
    And I will never forget November 17, 2017, the day my wife 
learned she was terminally ill with pancreatic cancer, stage 
four that had spread to her liver. My wife is a fighter and 
plans to outlive her current diagnosis, bless her heart. She 
also is retired after nearly 30 years as a teacher. 
Fortunately, we have a close, supportive family. They put their 
careers on hold, moved back to Milwaukee, spent time with her 
and helped me care for her, along with her sister, who also 
retired and has moved back home and been very supportive.
    With the help of all our children and extended family, I 
have been able to continue to remain active in this movement, 
which includes a lot of travel and meetings.
    My involvement has taken much of my time and energy. And at 
times, I thought I could not continue. But my wife--again, 
bless her heart--made me promise to stay committed until a 
solution was found.
    I live in a very uncertain future. My wife is dying; I know 
that. We have mounting health bills, medical bills, and the 
stress is impacting my health. I was recently diagnosed with an 
enlarged heart. This is due to high blood pressure and stress. 
My heart is working overtime just to keep up.
    My wife is worried that I may end up like brother Butch 
Lewis, one of the cofounders of this movement, who died, 
inspiring the legislation named after him.
    Let me be clear: my story is unique, but I am, like many 
other retirees, impacted by the possibility of benefit 
reductions. Life did not stop when our letters arrived.
    We also endure life's storms: death, illness, physical and 
mental health challenges. Now we also have the burden of 
traveling through our golden years with an uncertain financial 
future, a future that has been promised to us throughout our 
working years.
    I am supporting the Butch Lewis Act, which seems to be the 
right solution. I am asking you to think, pray, and do what is 
right for thousands of faithful, hardworking, active retirees 
and many who have served our country in the military.
    And also, my wife would have liked to have been here, but 
she only has a few good days between chemo cycles. However, she 
is my rock. She is my full supporter, supports me and my work. 
And I want you to know how crucial your decision will be for 
millions of Americans. Her heart is with you and always will be 
with me.
    In closing, I want to thank the Joint Select Committee 
members in agreeing to find a solution. And remember, this is 
not a partisan issue; this is an issue about fairness, keeping 
promises to working Americans who did everything right and are 
simply asking you to preserve what is due us now.
    Thank you. I would be happy to answer any questions you may 
have.
    Co-Chairman Hatch. Well, thank you for coming here today. 
Your testimony is very compelling, and we appreciate you taking 
time to be with us.
    [The prepared statement of Mr. Stribling appears in the 
appendix.]
    Co-Chairman Hatch. Mr. Lynch, you are the last one on the 
panel.

  STATEMENT OF TIMOTHY P. LYNCH, SENIOR DIRECTOR, GOVERNMENT 
   RELATIONS PRACTICE GROUP, MORGAN, LEWIS, AND BOCKIUS LLP, 
                         ANNAPOLIS, MD

    Mr. Lynch. Thank you. Good morning.
    I would like to begin by thanking committee co-chairs 
Senators Hatch and Brown and all the members of the committee 
for the opportunity to participate in today's hearing.
    You all volunteered, or at least I hope you all 
volunteered, for this important assignment. And I applaud your 
willingness to tackle one of the most important issues of the 
day: retirement security.
    My testimony and any answers I provide singularly reflect 
my own views and not the view of Morgan Lewis or any of its 
individual clients.
    My name is Tim Lynch, and I am a senior director of Morgan 
Lewis's Government Relations Group. Of more relevance to 
today's hearing, I am a member of our Multiemployer Pension 
Working Group, a group that includes attorneys who have 
experience counseling both contributing employers and 
multiemployer pension plans in a wide range of industries, 
including trucking, construction, bakery, maritime, and 
supermarkets, both wholesale and retail.
    We have assisted a number of critical and declining 
multiemployer plans in navigating the MPRA process, including 
Road Carriers Local 707 Fund and the New York State Teamsters 
Conference Pensions and Retirement Fund, the latter being the 
largest fund receiving approval from the Treasury and PBGC.
    It is because of that depth of experience we were asked by 
the U.S. Chamber of Commerce to assist in the preparation of 
two recent reports, ``The Multiemployer Pension Crisis: The 
History'' and ``Businesses and Jobs at Risk.''
    My background is primarily on transportation and trucking. 
I have been involved in that industry since the enactment of 
the Motor Carrier Act of 1980, the act that deregulated the 
trucking industry.
    The Motor Carrier Act transformed the entire trucking 
industry. The 1980 MPPAA legislation dramatically impacted the 
unionized portion of the industry.
    Prior to 1980, 94 of the 100 largest freight-hauling 
companies in the United States had a collective bargaining 
agreement with the Teamsters under the National Master Freight 
Agreement. By the mid-1990s, that number was reduced to six.
    For certain, some of that reduction was due to 
consolidation, but the overwhelming majority was as a result of 
bankruptcy. And since the 1980s, not a single mid- to large-
size trucking company has entered the market with a collective 
bargaining agreement with the Teamsters to replace all of those 
other trucking companies that have exited the market; in other 
words, no new contributing employers to cover an ever-
increasing number of beneficiaries.
    Fast forward to 2014 and the Multiemployer Pension Reform 
Act. Congress gave plan trustees some powerful tools to address 
the funding crisis: the ability to adjust benefits, the ability 
to seek a partitioning of beneficiaries, assistance for 
facilitation of plan mergers, and financial support.
    MPRA was signed into law in December 2014, and plan 
trustees in critical and declining status immediately had to 
begin planning for how to utilize the new tools in the toolbox 
to address the funding crisis.
    The Treasury website for tracking applications for benefit 
suspensions identifies the Central States plan as being the 
first MPRA application, filed on September 25, 2015. 
Technically true; however, the first application filed was by 
Road Carriers 707 on December 14, 2014, the date of enactment 
of MPRA.
    The filing was in the form of a letter--I believe it was 
three sentences long--intended to dramatize the need for 
Treasury and PBGC to move expeditiously on the process, because 
time was not on the side of the Local 707 fund.
    The fund formally filed on March 15th and eventually was 
denied, the principal reason being the fund could not 
demonstrate that the proposed actions would allow the fund to 
avoid insolvency. Unfortunately, the Local 707 fund went 
insolvent in February 2017.
    Consider this: the very same week in December of 2016 that 
the notice went out to the plan participants that the fund was 
going to be terminated--or not terminated, excuse me, was 
insolvent in February--the fund was also obligated to send out 
the 13th check because they were not in a position to suspend 
any of the benefit.
    The New York State Teamsters Conference Pension and 
Retirement Fund has a better ending, but the process to obtain 
approval is nonetheless instructive. The New York fund withdrew 
its initial application and refiled. Among the issues that the 
New York fund had to deal with was a mortality table, whether 
it was appropriate for the calculation of benefit 
modifications.
    The correspondence was time-consuming and potentially 
pushed the fund into a more precarious financial position.
    These funds had unique circumstances, but one constant: 
time. A delay or, worse, a denial simply puts more plans and 
the benefits of plan beneficiaries at risk.
    That was the history, but it holds true today. Action is 
necessary sooner rather than later.
    The current framework for evaluating the financial status 
of multiemployer pension plans utilizes five categories. As the 
committee begins to consider a course of action, it might be 
useful to contemplate what it hopes to accomplish with each of 
the zones and the plans that are in them.
    The temptation for green-zone plans, undoubtedly, is simply 
to leave them alone, and that may very well be the prudent 
course of action. But you should consider, are there changes 
that could be made to help ensure that those plans remain 
healthy?
    For yellow and orange zone plans, I would suggest the goal 
should be to provide as many tools as possible and as quickly 
as possible to the plan trustees. This could include the 
additional tool of hybrid plans as outlined in the GROW Act 
legislation.
    Conversely, the committee should be cautious about adopting 
procedural changes that, while well-intentioned, could have the 
adverse impact of pushing these plans into the red zone.
    For the red-zone plans, there is no avoiding the reality 
that they need a large infusion of cash to remain solvent.
    Central States achieved a 12.74-percent rate of return in 
2017, but it does not take a mathematician to calculate the 
benefit of a 12-percent return on $15 billion in assets or $13 
billion or $11 billion or less.
    Finally, in my view, the tools given to the plan trustees 
under MPRA have been underutilized. Only five benefit 
suspension applications have been approved, only one 
application for petitioning has been approved, and I am aware 
of no efforts to fully utilize the merger language.
    Thank you for the opportunity to testify, and I look 
forward to answering any questions you may have.
    Co-Chairman Hatch. Well, thanks to each of you. You have 
been very helpful to us here today.
    [The prepared statement of Mr. Lynch appears in the 
appendix.]
    Co-Chairman Hatch. And it is mindboggling what approach we 
are going to need to take. But to the extent that you could 
help us, you have done a pretty good job.
    Let me ask you this, Mr. Naughton. I want to thank you for 
your testimony. You established a compelling case for making 
systematic improvements to the multiemployer system.
    Now, one of the key points that you raise is that trustees 
and managers of these plans have significant discretion in 
setting the inputs into the plans and how they measure and 
manage contributions and liabilities in the plans.
    You suggest that trustees have chosen to take unique risks 
in operating the plans. Given that plan trustees are drawn 
equally from management and labor, what incentives can we look 
to in order to remove the management risk in the system?
    If you could help us to understand that, I would appreciate 
it.
    Mr. Naughton. When you look at sort of the starting point 
for multiemployer plans, it was something that multiemployer 
plans themselves were actively involved in. And so the rules 
that were eventually developed, the idea, you know, pushed by 
the multiemployer plans was that they were low-risk and so they 
should have discretion with the funding rules, they should have 
discretion with the investments, they should pay a very low and 
inadequate premium to the PBGC, and it really was not necessary 
to have much in the way of guarantees.
    And so when you look at sort of the natural progression of 
what happened, the trustees themselves determined the 
contribution amounts.
    You know, Senator Hatch is absolutely right. Typically, the 
trustee board is made up of a combination of employers and 
union officials. My personal experience was that the union 
officials tended to dominate those proceedings. They were the 
majority, you know, half the board. And then the employer 
officials that they typically had were usually people who were 
quite friendly to the union position.
    And so in the end, you know, what happened was the trustees 
sort of got themselves in a cycle where they wanted to promise 
generous benefits, but they did not really want to pay for 
them.
    And so the hope that they had was that, listen, if we take 
an inadequate contribution, if we invest it sort of in 
aggressive securities, maybe we will get a good return, but if 
not, we also have the chance that maybe the system will grow, 
we will have more participants in the future, and maybe that 
will help us.
    And in the end, you know that type of logic is somewhat 
flawed when you look just 1 or 2 years into the future. If you 
look 5 years into the future, it becomes more flawed. And if 
you look at this from a sustainability standpoint--so 10 or 
more years into the future--it is incredibly problematic.
    And what happened in terms of sort of the economic shocks--
you know the specific shocks themselves are not predictable, 
but economic shocks are predictable. We know they are going to 
happen, we just do not know when they are going to happen. And 
so having a system that sort of relies on being able to collect 
in the future for past promises is deeply flawed.
    So in terms of my testimony, if there is one thing that I 
would like to see going forward, it is that you just remove 
that discretion from the trustees.
    So, going forward, if they are going to promise somebody a 
one hundred-dollar annuity, they should collect the cost of a 
hundred-dollar annuity, and they should put that money in a 
trust and then have that be there for their participant to 
collect on.
    To have a system where you can make promises and not fund 
those promises is really not sustainable in the long term.
    Co-Chairman Hatch. Right.
    Mr. Naughton. So I truly believe that, you know, these 
plans should continue. They provide valuable retirement 
security. And we should simply not be in the position where 
gentlemen like Mr. Stribling are worried about retirement. 
These plans should have been funded. Obviously, we cannot go 
back and correct that. But what we can do is make sure, at 
least going forward, they are funded appropriately.
    Co-Chairman Hatch. Okay. Let me just end with this.
    Dr. Rauh, your written testimony documents that 72 percent 
of multiemployer plan participants are in plans that are less 
than 50-percent funded. But less than 1 percent of single-
employer plan participants are in plans that are less than 50-
percent funded. Now, that is quite an astonishing difference.
    What, in your view, explains that difference?
    Dr. Rauh. Thank you, Senator Hatch.
    Co-Chairman Hatch. Sure.
    Dr. Rauh. So the statistic you are citing is that the 
multiemployer plans are just very, very poorly funded compared 
to the 
single-employer plans. Now, I believe that goes back to the 
overlay of solvency standards in 1987, in the older 1987 act, 
the overlay of solvency standards for funding on top of the 
actuarial standards that plans were already using.
    Congress recognized at the time that it was not adequate to 
leave so much discretion to the plan trustees of single-
employer plans. They did not implement something similar for 
multiemployer plans. And I believe that the funding differences 
that we are seeing really, you know, between the multiemployer 
and single-employer systems are the result of the fact that 
there have just been historically much stricter funding 
standards for the single-employer program, some funding relief 
in the last 5 or 6 years to that single-employer program 
notwithstanding.
    Co-Chairman Hatch. Okay. Thank you.
    Senator Brown?
    Co-Chairman Brown. Thank you.
    I want to be clear that no provision exists in current law 
that can help Central States or the mine workers, period. And 
if they fail, the PBGC fails. We know that.
    Mr. Lynch, you stated that sooner or later Congress will 
have to intervene. I would like to hear your case for sooner. 
Why should Congress intervene now as opposed to allowing the 
plans to fail and then supplying PBGC with the tens of billions 
of dollars it will need to remain solvent?
    Mr. Lynch. These plans are very competitive on investment 
terms now. You know, the longer the time frame that delays 
getting them an infusion of cash so that they can restore those 
revenues makes the problem just that much more difficult to 
solve.
    If I could add one thing, just consider, in 1999, the 
Central States fund was virtually 100-percent funded. I 
negotiated a labor contract to fund that in 1997 and 1998. In 
2002, we had obviously what occurred with the market. And in 
2003, we had one of the largest truck companies in the United 
States, Consolidated Freightways, close their doors.
    No one in 1997 and 1998, when we negotiated that contract, 
foresaw either of those two activities.
    Co-Chairman Brown. Thank you.
    A quick ``yes'' or ``no,'' Mr. Lynch. Would a low-interest, 
long-term loan program with strong guardrails to protect 
taxpayers be an appropriate way to intervene?
    Mr. Lynch. I believe it is the only way that you will save 
these red-zone critical and declining plans.
    Co-Chairman Brown. Okay. Thank you.
    There is no doubt, I think for most--I mean, I cannot speak 
for the rest of the committee, but there is no doubt in my mind 
that Congress will eventually act to address the problem. The 
question is whether we are able to come together this year 
before the crisis inflicts devastating damage on workers, on 
retirees, on businesses, or whether Congress will put this off 
until, well, simply put, lives have been ruined and family 
businesses have gone bankrupt.
    I want to quote one of our witnesses at the hearing that 
Senator Portman and I brought to Ohio, to the Statehouse. David 
Gardner, the CEO of Alfred Nickles Bakery in Congressman 
Regula's hometown of Navarre, OH, said, ``Because of increasing 
pension contributions, our business is in jeopardy. Every day, 
we try to figure out ways to cut costs rather than invest in 
our business and grow our business.'' It is an over 100-year-
old company.
    Is that, Mr. Lynch, indicative of other employers all over 
the country that participate in the multiemployer system? And 
what happens if Congress fails to act this year? What happens 
to them?
    Mr. Lynch. I believe the number in Central States is 
something like 9 out of 10 of the employers in Central States 
have 50 employees or less. They will be devastated, in my view, 
if something is not done sooner or later.
    As I said in reference to Local 707, they knew they were 
going insolvent, they needed help, and every day the clock 
ticked on them, it made the problem worse and frankly got to 
the point where the PBGC was incapable of even helping them.
    Co-Chairman Brown. Okay, that is the employer side.
    Mr. Stribling, tell me what happens. Explain the impact if 
Congress fails this year to do anything. Tell me about the 
impact it would have on retirees like you and active members 
who you know are in the workplace today, but planning for the 
future with this defined pension benefit.
    Mr. Stribling. For me personally, if Congress does not act, 
with what is happening in my personal life, the mounting 
medical bills, my wife passing away, I am looking at probably 
losing my house, going bankrupt, because her medical bills are 
just enormous. Her medical bills, her drugs, her 
prescriptions--I just barely can keep up right now. And that, 
again, is--I am not the only one who is having that problem. 
There are many of us who sit out here in this audience who are 
facing the same crisis.
    So if Congress does not act, I will be knocking on your 
door some other way. I will be asking for some kind of public 
assistance, because I am going to need it.
    Co-Chairman Brown. Thank you.
    Mr. Stribling. Thank you.
    Co-Chairman Brown. Mr. Stribling, tell me about--I mean, if 
you are like Teamsters I know in Ohio, you go to meetings and 
you, as a retiree, go to meetings in your Teamster hall in 
Milwaukee and you also rub shoulders with active workers, 
Teamsters. What are they telling you about this?
    Mr. Stribling. Basically the same things, Senators and 
Congressmen. It is the same message. It is really hard some 
days to have meetings. And my phone rings all day long with 
people telling sad stories. It is going to be devastating. I 
just cannot make you people understand. Well, anyway, I cannot 
make you understand just how serious this really is.
    We have our meetings monthly, and it is almost the same 
people coming up asking us, what is going to happen? Can I make 
a loan? Can I buy a car? Can I buy my home up north? Can I make 
home improvements? They are all holding off; nobody wants to 
make a major purchase. They are afraid. They are afraid.
    Co-Chairman Brown. Thank you.
    Mr. Stribling. Thank you.
    Co-Chairman Hatch. Okay. Senator Portman?
    Senator Portman. Thank you, Mr. Chairman. And thank you for 
holding this hearing today.
    We did have a good hearing in Columbus, and we got to hear 
from workers and retirees and small employers. And for those of 
you who were there, you know that. Those of you who could not 
come, it was powerful, because you heard from not just retirees 
who are seeing up to a 90-percent cut in their benefits if we 
do not do something, but also small businesses that were 
talking about the necessity of shutting down.
    We have about 200 small businesses in Ohio, by the way, 
associated with Central States alone. So it is suppressing 
wages.
    And, Mr. Lynch, I will not even ask you that question 
because it is; we will just stipulate that. It is making it 
more difficult to hire people at a time when it is tough enough 
to hire people. Who wants to come and join up with a company 
that has the kind of potential liabilities that these companies 
are facing that have stayed in?
    And in one case, we heard about a company that is paying to 
the plan about 15 grand a year per active participant, and 
about half of that is going for those who never worked for the 
company, but are orphan liabilities. And that is just an 
example of the way the system, I think, is broken.
    And you know, Mr. Naughton, Mr. Lynch, Dr. Rauh, you would 
agree with that, that the system itself has not worked with 
regard to how we deal with withdrawal liability and orphans, 
creating a disincentive for companies to stay in, which has, 
you know, exacerbated the problem, in addition to the other 
issues we talked about, the demographics, what happened to the 
market in 2008, 2009.
    So it was good to hear you all talk a little about the 
future.
    Senator Brown talked in his opening statement about needing 
to deal with the threat to businesses and beneficiaries, 
needing to deal with the PBGC, which is at risk of going under, 
which has this broader contagion effect on the economy, but 
also on how we put changes in place.
    And Representative Schweikert has talked a lot about this 
too. How do we ensure that we are not just putting a short-term 
fix in place here, but actually solving the problem?
    And that is going to require us looking at things like the 
discount rate, Dr. Rauh, that you talked about, at least 
indirectly, looking at withdrawal liability, how we deal with 
orphans, and so on.
    Kenny Stribling and I first met in the offices of Speaker 
of the House Paul Ryan. And that was in 2016, as I recall.
    Mr. Stribling. Something like that, yes.
    Senator Portman. And he came in with some other Wisconsin 
Teamsters to talk to their Congressman. And it was an important 
meeting, because I think that changed some of the dynamics of 
this issue in realizing that we are going to have to deal with 
this issue one way or the other.
    And it is not easy. There are no simple answers. And as I 
said at the meeting we had in Columbus, there are lots of 
different players here, some of whom are actively involved and 
are going to see devastating results, if we do not do 
something, to small businesses, the retirees, others--a big 
group of taxpayers out there.
    And you know, about 98 percent of taxpayers are not 
directly impacted as beneficiaries, and yet they are going to 
be asked to pick up some of the tab here. And I think we have 
to face that. And a lot of them are people I represent, we all 
represent, who may have a 401(k) that is underfunded. Almost 
half of them do not have a pension or a defined contribution 
plan at all. And so, you know, we are all trying to help on the 
retirement system in other ways, and we should, but this is not 
an easy issue to resolve. We have to acknowledge that at the 
outset.
    On the other hand, not dealing with it has tremendous 
impacts on individuals like Mr. Stribling, but also on the 
entire economy, I would argue. Small businesses are going to go 
bankrupt and create a contagion effect on other businesses.
    Mr. Naughton, you talked a lot about the liabilities. And 
you said that the aggregate underfunding has more than tripled 
since 2006 when we passed the Pension Protection Act. I was a 
conferee on that. No one would have thought at the time, would 
they? You know, we thought we had put in place some things that 
would help to maintain the multiemployer pension plans and the 
single employer plans.
    You talked about the issues, including the discount rate. 
Let me ask you a question. If the discount rate were changed 
for critical and declining status plans like Central States, in 
addition to the green zone plans, what would happen to those 
that are in critical and declining status? And wouldn't that 
risk putting contributing employers out of business altogether 
and, therefore, increase the risk to other multiemployer plans?
    Mr. Naughton. Thank you, Senator Portman. So I think, you 
know, just to back up a little bit, if you look at what is 
being promised, it is a very valuable benefit, right? So it is 
a promise, an annuity that they are going to collect for the 
rest of their life once they hit a certain age. That is a 
valuable thing to provide.
    And the problem here is that the funds were not set aside 
for that. Okay?
    If you now all of a sudden step in and say, well, listen, 
we need to all of a sudden sort of fund everything, it is 
simply not possible based on the resources that employers have.
    So if you look at the way the system is set up, it goes 
from, you know, the money in the plan. Then to the extent that 
is not enough, you hit the employers up. And then to the extent 
that is not sufficient, then you hit the PBGC up. And to the 
extent they do not have the money, then the participants 
themselves have to absorb significant cuts in their benefit. So 
that is the way that the system is set up.
    And where we are now is, you know, to the extent that we 
all of a sudden change the funding requirements, it would be 
debilitating to the employers that are currently contributing. 
They are already contributing, as you mentioned, significant 
amounts, more than perhaps the benefits that their employees 
are actually earning. But the system that they agreed to join 
is not one where they just fund their own employees.
    So back when I was a consulting actuary and we discussed 
with employers, okay, you have a union workforce, do you want 
to have your own plan or do you want to be part of the 
multiemployer plan, it was almost always the case that the 
multiemployer plan was less expensive, and sometimes 
dramatically so.
    Senator Portman. Yes. Let me just interrupt you for a 
second. And we appreciate your expert testimony and your 
background and experience, but you are talking about what 
happened in the past. You are talking about how we got into the 
problem, you are talking about the fact that it was sort of a 
moral hazard here and companies chose to go into multiemployer 
plans because it seemed like they were a better deal for them, 
and that is part of the reason we are in the situation we are 
in with multiemployers vis-a-vis, as Dr. Rauh said, the single-
employer plans. Multiemployers were not as well-funded.
    My question to you is about, what do we do now? You know, 
what do we do now? And understanding, as Senator Brown has 
said, we have to look forward and say, you know, we have to be 
sure the discount rate works, we have to be more conservative, 
probably, in our estimates.
    But what would you do now for those critical and declining 
plans to ensure that they do not go belly up and we do not have 
an even larger problem on our hands with regard to the impact 
on the broader economy?
    Mr. Naughton. Fair enough. So if we just focus on the 
critical and declining plans, what we can say is that they have 
promised benefits that far exceed the resources that they have 
available to them.
    And so what it comes down to is, who is going to pick up 
the difference? So that is not really my expertise, right? So 
my expertise is saying, going forward, if we fix the funding 
rules, at least this problem will not get worse.
    As you noted in your earlier question, it has gotten worse 
over the past 10 years. And the reason for that is, even over 
those 10 years, we still have not required that contributions 
line up with what has been promised. And so every day there is 
another promise made, and every day there is a contribution 
that does not meet that promise to collect it.
    Senator Portman. My time is way expired. I appreciate your 
indulgence, Mr. Chairman.
    We will come back to this. But again, I agree with you in 
terms of going forward, but our issue is, what do we do now to 
avoid the problem getting worse?
    Thank you, Mr. Chairman.
    Co-Chairman Hatch. Representative Neal?
    Representative Neal. Thank you very much, Mr. Chairman.
    And I want to thank the panelists.
    Senator Portman and Senator Brown would confirm that I have 
worked on retirement issues in the House for much of my career 
and spent a lot of time on these very issues. And Mr. Lynch 
would suggest that as well, because he has known me for a long 
time.
    And I want to ask you a couple of questions, Mr. Naughton, 
based on the testimony you offered. You left out the recession 
and what that did to the retirement plans. Do you wish to 
comment on that?
    Mr. Naughton. Sure, I could comment on it. So, when you 
look at economic events, they are predictable. And I think the 
root cause of why we are in the position we are in is not, you 
know, consolidations, it is not recessions, it is really the 
mismanagement of the plans.
    Representative Neal. Did you find any CDOs were used during 
the challenges, or was there any employer that took the 
retirement plan and went to Las Vegas? Did you find that?
    Mr. Naughton. So let me give you an analogy. This is 
something that I got from my father. So imagine there is a guy 
in the ocean and, you know, he is swimming away and all of a 
sudden the ocean goes out, the tide goes out, and it turns out 
he is naked. That is a problem. He should not be out there. And 
the question is, is he naked because the tide went out, or is 
he naked because he chose to be naked?
    And when you look at things like what happened here, the 
trustees made the choice. The stuff that happened in 
consolidations, the stuff that happened with the recession, 
with returns, with investments, you know, those are all the 
tide going out.
    Representative Neal. But what I am trying to get at here is 
that you do not find really malfeasance, and what worked 4 
decades ago might not work quite as well today.
    Mr. Naughton. No; I disagree with that.
    Representative Neal. But part of the argument that Mr. 
Stribling has offered here today is that, in good faith, he did 
what he was supposed to do. And I am suggesting to the 
panelists, perhaps I was not here to create the S&L problem, 
but I watched the Federal Government resolve it.
    I was here for the Wall Street fiasco, not having been a 
participant in those decisions, but we were asked to solve it.
    And I think when you hear testimony as we did today and 
yesterday and at a very good get-together in Columbus, OH just 
a couple of weeks ago, we are reminded that the rearview mirror 
might be helpful in an academic setting to provide a correction 
going forward, but the problem we have is immediate and it is 
right in front of us, and if we do not act, the PBGC has all 
sorts of problems going forward as well.
    So, Mr. Lynch----
    Mr. Naughton. Just one item. So I completely agree with 
your position that the participants did not know what was going 
on. That is not what I am arguing here. What I am arguing is, 
the trustees knew.
    Representative Neal. Okay.
    Mr. Naughton. So the trustees were the ones who made the 
promises. And what I would argue is, they knew, and that is not 
just based on a look back, that is based on my actual 
experience 20 years ago negotiating with employers and trustees 
at that time.
    Representative Neal. But you agree something has to be 
done.
    Mr. Naughton. Oh, for sure. Of course.
    Representative Neal. Okay. That is the point that I am 
trying--thank you.
    Mr. Naughton. Yes, I agree.
    Representative Neal. And I thank you for that part of the 
testimony.
    And, Mr. Lynch, I have known you for a long time. Are you 
supportive of the concept? Because it is the legislation that I 
put forward that, at the moment, seems to be the marker--the 
loan.
    Mr. Lynch. As I have said, both in the written statement 
and in answer earlier, there is no way to save these critical 
and declining plans without some infusion of cash. If that is a 
loan program, some other variation of that--but there is no way 
to save those plans without it.
    Representative Neal. Mr. Stribling, did you use any 
derivatives in your retirement plan?
    Mr. Stribling. Me personally?
    Representative Neal. Yes.
    Mr. Stribling. No, I do not think so.
    Representative Neal. How about CDOs? Did you use any 
collateralized debt obligations?
    Mr. Stribling. No, I did not.
    Representative Neal. No, you did not.
    Mr. Stribling. I did not.
    Representative Neal. You did not take a journey to Vegas to 
double your pension?
    Mr. Stribling. I have only been to Vegas one time and that 
was about 2 years ago.
    Representative Neal. All right. So the point I am trying to 
make is that the people who are being harmed by this did not do 
anything wrong. And nobody here has suggested fraud. Nobody has 
suggested across-the-board malfeasance. And I think that in the 
case of the retirees who are here and have offered sufficient 
testimony--and I want to say, from Columbus, I want to 
congratulate Senator Brown and Senator Portman. Those witnesses 
in Columbus, including the employers, were outstanding. The 
employers pointed out that they did everything they were 
supposed to do along the way, and the retirees, they said they 
have done everything they were supposed to do along the way. 
And they met the obligations that they were supposed to.
    So again, I am delighted with the witnesses here.
    But the point is that the rearview mirror could be helpful 
in a classroom--where I have spent much of my life--but it is 
not so helpful going forward on how do we do something before 
the end of the year with some recommendations so that we can 
get this back up and running and people like Mr. Stribling are 
not taking 50-percent cuts in their pensions.
    Thank you, Mr. Chairman.
    Co-Chairman Hatch. Is Senator Manchin here?
    You are next, Joe.
    Senator Manchin. Thank you.
    And thank all of you all.
    And I think most of you know I come from West Virginia, a 
wonderful little coal-mining State and extraction State, heavy-
lifting State, heavy-working State with a lot of people who 
have given everything to this country.
    They never thought at one time in 1946--the Krug-Lewis Act 
at that time was saying that for every ton of coal to be mined 
that there would be money set aside from that ton of coal that 
would take care of their pensions and retirement because of the 
difficult jobs they were doing and the need of this country to 
have the energy. They did everything they could do too.
    The average pension of miners is less than $600, and most 
of that is going to widows, because their spouses have paid the 
ultimate price. So we are not dealing with $2,000, $3,000 
pensions at all, we are dealing with survivability.
    We were asking--you know, we passed a bill called the 
Miners Protection Act. We passed half of it, and I was asking 
my colleagues and my friends on the Republican side, you know, 
at that time, please, let us pass this entire bill, because we 
had a fix. We were using AML, Abandoned Mine Land, monies that 
we had in excess that would have taken care of the cash 
infusion, and we would have been in good shape and we would not 
have been here. We would have been helping our friends in UMWA 
and Central States.
    But we are in this now. We are the first ones to go down 
the tube if ours breaks. We have basically one major employer 
paying 80 percent of the cashflow coming into the system now. 
If that person has one hiccup or something happens along the 
way, we are in severe problems and we go down much quicker, and 
then the whole thing starts to unravel.
    So you all have just said--I think Mr. Lynch, and I would 
think Mr. Naughton and Dr. Rauh--and I know, Mr. Stribling, you 
are the end result here; you are the face of what we are 
dealing with, and we have all of our miners and their families 
back here.
    But none of you disagrees--I do not think. Dr. Rauh, I have 
not even heard you. You understand we have to have some fix. It 
is going to take an infusion of cash. I think all of you have 
agreed to that.
    We could have fixed ours before, but we cannot now. So now 
we are going to need an infusion with the mine workers for 
basically a fix. So you are all in that position, right? It 
takes some sort of a fix. It cannot be fixed on its own without 
an infusion of cash.
    Dr. Rauh. An infusion of cash from where?
    Senator Manchin. I am just saying infusion of a loan. How 
do you think it can be fixed with a loan?
    Dr. Rauh. So, listen, as has been said thus far, there is 
little that can save plans that are insolvent.
    And I just want to, you know, I would like to express 
actually great admiration for you, Mr. Stribling, for a life of 
very hard work. And the American economic system is founded on 
the idea that factors of production, capital, and labor will be 
compensated when they contribute to the process of production. 
And it is clear you have personally contributed a tremendous 
amount and that the promises that have been made to you are in 
danger of not being kept.
    And I think the question is, what is the role of the 
Federal Government when agreements between employers and trade 
unions go wrong and people like Mr. Stribling are hurt? Is it 
to provide loans which are going to be tantamount to bailouts 
of the plan? Or is it primarily to ensure that the responsible 
parties are held liable for the contractual obligations?
    You know, I think employers entered these agreements, these 
arrangements; they are responsible. And so I think as a first 
pass we should be tightening the withdrawal liability rules.
    Senator Manchin. Dr. Rauh, I am sorry, I only have so much 
time, and you are taking all my time. And with that being said, 
I can tell right now you and I are in a completely different 
universe, okay, completely different.
    And with that being said, there is a responsibility. We 
have real people, real people's lives, families involved right 
now. And as I think my good friend Congressman Neal said, we 
did not hesitate, did not hesitate on the banks, did not 
hesitate on the auto industry, did not hesitate on anything 
else. When there were large corporate stockholders involved, 
all the different things that basically happened, we came to 
their aid immediately overnight.
    I was not here. I understood they worked on a 24-hour 
turnaround on some of this.
    All we are asking for is, if they would have done what we 
asked for with the mine workers, the AML money, we would have 
been out of this. We are not. We cannot fix it now unless we 
have some assistance.
    Dr. Rauh. I believe you should have hesitated on those 
corporate interests, by the way.
    Senator Manchin. Should have hesitated?
    Dr. Rauh. To bail out those corporate interests.
    Senator Manchin. I wish you would have come and testified 
at that time. I did not hear you speaking up then.
    Dr. Rauh. If I had been invited, I would have gladly done 
so.
    Senator Manchin. Yes, you can always come; this is an open 
space. Feel free.
    What we are looking for is solutions right now. And I am 
just saying that we have been talking here for, what, 6 months? 
We were created, when? And we are talking November? We have not 
gotten any closer, so we are going to have to come to agreement 
somehow. Is there some infusion of money, some sacrifices to be 
made?
    I do not know how much of a sacrifice that anybody can I 
think, in good conscience, ask the miners to say, okay, you are 
making $582, can you give us something back? That is 
ridiculous. So you are asking for sacrifices on that side.
    And we are not asking for anything other than, basically, 
stepping forward and getting this done. The quicker we get this 
done, the better we are. Every month that goes by, every year 
that goes by, we are in trouble.
    So I am asking my friends, sooner or later, we've got to 
have a bipartisan discussion, just us only, us sitting in a 
room.
    Co-Chairman Hatch. We will. We will. Let us get all the 
facts.
    Senator Manchin. Yes, I know that. And I am asking for that 
as soon as we possibly can to find out what we can agree on 
that we think is reasonable that we can move forward on, 
because we are coming down to where we are going to have to 
make a decision. We are going to run out of time and say, 
``Well, I am sorry, we have no solution.''
    Co-Chairman Hatch. Senator, your time is up.
    Representative Scott?
    Senator Manchin. Yes, I figured that would happen. Thank 
you, Mr. Chairman.
    Co-Chairman Hatch. Representative Scott?
    Representative Scott. Thank you, Mr. Chairman.
    Mr. Chairman, this select committee--this is the fifth 
committee hearing, and it is focused on how multiemployer 
pension systems affects various stakeholders.
    I appreciate all of our witnesses' testimony and believe 
they raise worthwhile points for us to consider in the weeks 
ahead.
    I look forward to the bipartisan meetings we are going to 
have and good-faith negotiations on how to address this looming 
crisis. As we proceed, we have to keep in mind what Mr. 
Stribling told us today about the fundamental fairness and 
keeping promises to working Americans front and center and how 
we have to keep in mind what the workers and retirees and 
businesses told us in Ohio 2 weeks ago. We have to keep in mind 
what our constituents are telling us every day.
    Through no fault of their own, hardworking Americans are at 
risk of losing nearly everything they have worked for and 
sacrificed for over their lifetimes.
    Let me ask Mr. Lynch a question.
    Mr. Lynch, can you tell us what problems the Federal 
Government budget will incur if we do not do anything at all?
    Mr. Lynch. Congressman, I wish I had the expertise to give 
you an answer to that. I mean, I have to think it is pretty 
severe. I mean, let us just play this out. At some point, if 
the Mine Workers and the Central States funds end up at the 
PBGC's doorstep, they do not have the resources to pay that; 
they are insolvent.
    At that point, I think that Congress will have a very, very 
more difficult decision then than they do today, as difficult 
as the decision is today.
    Representative Scott. But the PBGC received premiums with a 
promise to pay minimum benefits if the plans went broke. If the 
PBGC runs out of money, do they not still have a moral 
obligation, does not the Federal Government have a moral 
obligation to make good on its promise?
    Mr. Lynch. Personally, I would say yes.
    Representative Scott. Okay. Well, they took the premiums; 
the Federal Government took the premiums and made the promise.
    Mr. Lynch. And the PBGC is a Federal agency.
    Representative Scott. Okay. If some of the plans that are 
presently in jeopardy go broke, what effect could that have on 
other plans that are presently not in jeopardy?
    Mr. Lynch. The system is very interconnected. I mean, you 
have large employers, small employers as well, but you have 
large employers that are typically contributing into 10, 25, 30 
different plans in the same industry. I mean, that is typical 
in the trucking industry. So if one of those plans goes 
insolvent and if there is something that triggers a withdrawal 
by one of those contributing employers, that will have the 
contagion effect and a ripple effect throughout the system.
    Representative Scott. Thank you.
    Mr. Naughton, what problem occurs if we delay action?
    Mr. Naughton. So every day----
    Representative Scott. Does the problem get easier or 
harder?
    Mr. Naughton. So every day, the system becomes more 
underfunded in its current form. If you look at it from the 
government standpoint, you know, the PBGC is a separate agency; 
it does cover the benefits. And to the extent that the premium 
or the funds they have are insufficient, then the benefits get 
reduced. That is sort of how things are set up right now.
    So when you look at the decisions that will have to be 
made, they will become harder because there will be more people 
who would have to take larger benefit cuts.
    And you know, once the PBGC is involved in making those 
cuts, there is no issue of fairness, right? They just sort of 
go down the line and cut everybody's benefits, so it is a very 
difficult sort of situation to be in.
    Representative Scott. But the situation gets better or 
worse if we delay?
    Mr. Naughton. It gets much worse.
    Representative Scott. And why does it get worse?
    Mr. Naughton. It is more money. You know, again, every day 
the unfunded obligations grow, because every day contributions 
are being collected that are insufficient relative to the 
promised benefits. And every day, there are funds that are 
paying out pensions that they do not have the resources to be 
paying. And so as you delay, those things are just going to 
grow over time.
    And so, if you look at in the last 10 years, the $438-
billion increase in underfunding was somewhat predictable, you 
know, and that is just going to continue to grow into the 
future.
    Representative Scott. You know, several members have 
mentioned the fact that there are fewer businesses involved. If 
these plans were really solvent by normal definitions of 
solvency, should that make any difference at all?
    Mr. Naughton. Absolutely not. If you have a system that 
relies on getting more employers to join or getting new 
employees, it is just an indication that you are not solvent.
    So solvency means I can pay what I owe. If my credit card 
bill comes in the mail and I can pay the full balance, I am 
solvent. If I can only make the minimum payment, I am not. It 
is as simple as that.
    Representative Scott. And are you aware of how the U.S. 
code defines solvency of these plans?
    Mr. Naughton. From an actuarial standpoint or from a 
corporate standpoint?
    Representative Scott. From the statutory standpoint, where 
it says that it is insolvent if it cannot make payments.
    Mr. Naughton. Exactly, yes. So if you look at ERISA, the 
way it is defined is a little bit counterintuitive. And it 
basically says you become insolvent when you literally have no 
money left to pay benefits. Which is different, right? Because 
if I promise you $100,000 a year from now and that is a promise 
I have to pay you, and if I literally have no money today, any 
reasonable person would say you are insolvent.
    Representative Scott. Today.
    Mr. Naughton. Today. But what the ERISA code does is, it 
says you are insolvent a year from now when you actually have 
to make that payment. And yes, that is not----
    Representative Scott. And that allows us to get in the mess 
we are in today, and that is the fault of the Federal 
Government for allowing that to happen, is it not?
    Mr. Naughton. You know, I personally think that if I were a 
trustee of one of these plans and I knew I had these payments, 
that I would collect the payments.
    And if you look at the plans--obviously, I talk in 
averages--on average, the trustee did not collect sufficient 
contributions. And it does not mean they all did not, it just 
means on average they did not.
    And so the question is, who is at fault? Is it the trustee 
for not collecting the contribution, which the rules allowed? 
Or is it the government for giving that trustee the discretion 
to not collect the contribution?
    Representative Scott. Well, I think that second one puts us 
on the hook.
    Thank you, Mr. Chairman.
    Co-Chairman Hatch. Thank you, Representative.
    Senator Manchin desires 2 extra minutes. And then I will 
turn to Senator Heitkamp.
    Senator Manchin. Thank you very much. And I will just--and 
I meant to, first of all, introduce this letter from the 
president of the United Mine Workers, Cecil Roberts, and it 
concerns their concerns and also the history of how we are 
where we are with UMWA.
    And I had one question I just wanted to follow up on. I 
talked briefly about the mine workers retirement fund dating 
back to the White House, 1946. In fact, the Coal Commission led 
by then Republican Secretary of Labor Elizabeth Dole found that 
the UMWA fund, inasmuch a creature of government as the 
collective bargaining--there is a line running from the 
original report to the present system. In a way, the original 
Krug-Lewis agreement predisposed, if not predetermined, the 
system that evolved.
    When we secured an agreement to ensure the health care of 
22,600 miners last year, we made sure that everyone knew we 
were not done and we had to have a pension fix.
    So I would ask both Mr. Naughton and Dr. Rauh, are you 
familiar with the Krug-Lewis agreement? And do you know of any 
other industry-wide multiemployer health pension fund agreement 
between the private sector and the government that guaranteed 
pension benefits for life? Just a ``yes'' or ``no'' if you knew 
about that or understood that the government had any type of an 
arrangement like that.
    Mr. Naughton. On the pension side, no, I am not familiar 
with any particular arrangement like that.
    Dr. Rauh. I am likewise not familiar.
    Senator Manchin. Yes. Well, the reason why is, there is not 
another one like it. That is why we are so different. And that 
is why I wanted to make sure that got into the record.
    Thank you, Mr. Chairman.
    Co-Chairman Hatch. Thanks, Senator.
    Let us go to Senator Heitkamp now.
    Senator Heitkamp. Thank you, Mr. Chairman, and thanks to 
the ranking member for holding our hearing.
    I would like to start by making an observation. Today's 
hearing is entitled ``How the Multiemployer System Affects 
Stakeholders.''
    So I would like to know, Mr. Naughton, will your pension be 
cut if we do not solve this problem?
    Mr. Naughton. I do not have a pension.
    Senator Heitkamp. Yes. Well, but you do not have any 
personal stake in resolution of this problem beyond being a 
shareholder or a taxpayer.
    Mr. Naughton. You are correct.
    Senator Heitkamp. Okay.
    Dr. Rauh, do you have any stake in resolution of this 
beyond being a taxpayer?
    Dr. Rauh. Not beyond being a taxpayer, no, I do not.
    Senator Heitkamp. Yes.
    Mr. Lynch?
    Mr. Lynch. I do not.
    Senator Heitkamp. But you are all sitting in chairs that 
were supposed to be reserved for stakeholders. And so I am 
going to turn my attention to Mr. Stribling.
    You have worked a lot of years. You gave up wages in 
exchange for economic security, did not you?
    Mr. Stribling. Yes, I did.
    Senator Heitkamp. Yes. You were willing to work long hours. 
In fact, you have told us what a demanding job you had and four 
different employers, I think you said. And you did that because 
you thought you could retire with some dignity, right?
    Mr. Stribling. Yes, I did.
    Senator Heitkamp. Yes. And as a participant in a plan, did 
you ever make decisions about the operation of the plan? Were 
you sitting at the table trying to decide what the investments 
should be? Did you make a decision on how the premiums or the 
benefits were going to be resolved?
    Mr. Stribling. No, I did not.
    Senator Heitkamp. Okay. Good. So, sadly, your story is not 
unique. Thousands of retirees are confronting similar 
circumstances. One of my constituents, who lives in Riverdale, 
ND named George Ganje, wrote a story, wrote in to tell me that 
he worked for SuperValu for 35 years and the majority of his 
working hours were in the middle of the night. He was unable to 
attend his children's school programs, he worked hard, and now 
he has been told that his pension will have to be cut. You 
know, he does not think that is fair.
    And I think that is what this hearing is about. It is about 
the empathy and equity that we should be discussing about the 
stakeholders.
    And so this possibility has caused him many sleepless 
nights and obviously has taken a toll on his health.
    With these things in mind, I would like to ask the 
witnesses here today, the academics who are here, whether they 
believe that folks like Mr. Ganje and Mr. Stribling should have 
to take a cut. Is that the solution here, that they should have 
to have their pensions cut?
    And we will start with you, Mr. Naughton.
    Mr. Naughton. The agreement is----
    Senator Heitkamp. No. I mean, is the only way that you see 
to resolve this to cut the pensions of the people sitting at 
this table and behind you?
    Mr. Naughton. There is only so much money to go around. So, 
the employers do not have the funds. The unions do not have the 
funds. That leaves either participants or taxpayers. And so the 
question is, should taxpayers bear any costs? Yes, they should. 
Of course, they should. I think it is totally inappropriate 
that somebody closes in on----
    Senator Heitkamp. Yes. So your answer is ``maybe.''
    Mr. Naughton. Yes.
    Senator Heitkamp. Dr. Rauh, do you think that the only way 
out of this is for these stakeholders here, these pensioners, 
to take a cut?
    Dr. Rauh. You know, it is not my decision to make. But if 
you decide that you want to avoid benefit cuts, then my 
recommendation would be to try doing that through supporting 
the PBGC as opposed to a loan program. It is not my decision to 
make. And there are----
    Senator Heitkamp. But you have recommended no Federal 
intervention.
    Dr. Rauh. I recommended no loan program. And in general, I 
think you have to answer the question as to when agreements 
between employers and trade unions go wrong and people like Mr. 
Stribling are hurt, what should the Federal Government do?
    Senator Heitkamp. Well, you have answered the question for 
us. You have said ``nothing,'' the Federal Government should do 
nothing.
    Dr. Rauh. Not through a loan program. They should consider 
whether supporting the PBGC financially would be a viable way 
to go if you believe that the guarantee levels of the PBGC are 
too low and that it is underfunded.
    Senator Heitkamp. I only have a few minutes left. So after 
today's hearing, my office will be holding a Facebook Live 
event for people who have been involved and impacted by the 
collapse of our multi-pension system so they can tell their 
stories for the record.
    I invite all members of this committee and the attendees in 
the audience to stop by Dirksen 534 and share your story for 
the record on Facebook.
    And thank you, Mr. Chairman.
    Co-Chairman Hatch. Representative Norcross, you are next.
    Representative Norcross. Thank you. I am glad, first of 
all, to the chairs and to all 16 members of the committee who 
have been dealing with this issue for a number of months, but 
in particular, for the efforts that I know most of you feel.
    And certainly, thank you to the panelists. We very much 
appreciate you coming by today.
    But the realities that we are facing are daunting. It is 
not if, but when. The threats are so real, first of all to 
those retirees. Wages that were earned, but deferred--or as I 
call it, dreams deferred--for your golden years.
    And quite frankly to the employers, because so many of the 
employers that we are talking about, not the ones who have gone 
into bankruptcy but the ones who continue today to employ 
people who are those future retirees, face a very real reality 
that they will go bankrupt, they will go out of business, 
adding to this problem.
    And quite frankly, the threat to America, the loss of 
confidence in the retirement system. Your average person does 
not know the difference between a 401, 402, multiemployer 
pension. All they are going to hear is that a retirement system 
is collapsing; something that we inherently as Americans trust, 
is being ripped away from them.
    And what is the difference between trusting that and 
trusting Social Security? The loss of confidence to our country 
in its retirement system, in its ability to have those dreams, 
those golden years, is literally at stake here.
    You know, we are the greatest country on earth. We are 
viewed that way by the world, not by the way we treat those who 
have the most, but by the way we treat those who have the 
least, who are in trouble.
    And in some of the testimony that we have heard, I would 
question, why do we ever help anybody who has been in a 
hurricane? Hey, you are in Texas, you are in Florida, you 
should have known that is a hurricane area. You should have 
lifted your house 10 feet off the ground. But we are a caring 
Nation; we come to those who, through no fault of their own, 
have been devastated.
    But using some of the logic I hear today, you should have 
moved after that last hurricane. Do you know what we do in 
America, do you know what we do here in Congress? We come 
together to help those people, because we are a great Nation 
that understands this.
    I hate to believe that if I went overboard and, God forbid, 
I did not have my life jacket on, sorry, we are not going to 
save you, you did not have a life jacket on, you should have 
known. No, that is not America.
    So when I hear some of these things--and by the way, there 
are some great stories. The majority of multiemployer plans are 
in the green zone. And one of the questions that I want to 
bring up is, you as a trustee understand you get these figures 
each and every day--equally between management and labor; there 
is no majority--you suggest that somehow the unions have 
control. This is about retirees, this is not about a union 
issue. This is about literally the collapse of our system when 
people go and try to cash in and those companies now are 
dragged down by those unfunded liabilities.
    Mr. Naughton, you are a trustee; put yourself in that 
position. You have seen the numbers. You are a member of, let 
us pick a number out, a 200-company multiemployer plan. How do 
you account, how do you see bankruptcy by other companies 
coming when you are making that contribution? How would you 
know company number 249 is going to go bankrupt and leave you 
that unfunded liability?
    Mr. Naughton. So, again, the only reason they are leaving 
an unfunded liability behind is because----
    Representative Norcross. How do you know as a trustee----
    Mr. Naughton. I do not need to know. If I collect the right 
contributions----
    Representative Norcross. You do not need to know----
    Mr. Naughton. I do not care.
    Representative Norcross. Then let me ask you this question. 
Since you do not need to know and you have to fund that system, 
that is going to increase the amount of money your company has 
to put in, is it not? Is it not? If somebody goes bankrupt and 
they leave that unfunded liability to the last man standing--
correct--why don't you need to know that? Doesn't that impact 
what you have to contribute?
    Mr. Naughton. Just to clarify. So you are putting me in the 
position of the trustee.
    Representative Norcross. And you were saying it was their 
fault----
    Mr. Naughton. Clearly, their fault.
    Representative Norcross. So how would you know what to 
contribute for a potential bankruptcy by a company unrelated to 
you other than being in the system? How would you know that?
    Mr. Naughton. So, again----
    Representative Norcross. Would you know it, ``yes'' or 
``no''?
    Mr. Naughton. I do not need to know. If I collect the right 
contributions, I do not need to know.
    Representative Norcross. So, you do not need to know, even 
though that would impact your premium that you have to pay.
    Mr. Naughton. But it does not impact it. If I collect the 
right amounts, it does not impact anything.
    Representative Norcross. Whoa, whoa, whoa, whoa, whoa, 
stop. What do you mean, it does not? You are absolutely and 
factually incorrect. So the unfunded liability comes over to 
the remaining companies, the last man standing, correct? So you 
are part of the group that is left. That would change----
    Mr. Naughton. So you are talking about a plan today where I 
am already in a position where I have massive obligations----
    Representative Norcross. No, I am not saying that. I did 
not bring that up at all.
    Mr. Naughton. Okay. If I am in a plan that I am setting up 
today and I collect----
    Representative Norcross. No, you are in the midst of a 
plan----
    Mr. Naughton. I apologize.
    Representative Norcross. I am running over. We will get 
back to it in maybe the second round. Think about your answer.
    Mr. Naughton. Okay.
    Co-Chairman Hatch. Representative Dingell?
    Representative Dingell. Thank you to both of our chairmen.
    I am going to express my concern, as some others have, that 
this is our fifth hearing. I think we have 19 workdays, or the 
House members; I do not know what the Senate is going to be 
doing workwise, but all of us together. And for me, failure is 
not an option. I think failure should not be an option for any 
of us on this committee.
    I hope we are going to get together. This hearing is to 
hear from the stakeholders, but I have been hearing from the 
stakeholders every single day. And I have stories. I mean, some 
of the members have heard me talk about this. A man came to me 
during the district work period and said he had put a gun to 
his head, he did not want to live because he did not know what 
his options were. The desperation of family after family--I see 
them every weekend. They come to my front door at home and now 
they are coming and talking to me from across the country 
because they think I will listen. And I will. I never turn 
anybody away.
    So I got pretty mad today, Mr. Naughton, when you made it 
sound, whether you meant it to sound like this or not, you made 
it sound like the employees were somehow to blame or that 
people were not collecting enough.
    There were a lot of assumptions made on pensions. I think 
one of the things that we have to study in this committee is, 
how do we strengthen pension laws?
    You know, many of my colleagues talk about previous 
bailouts. There were Republicans and Democrats who did not want 
to bail out the auto industry, but if the auto industry had not 
gotten support and loans that were paid back, the entire 
economy of these United States would have collapsed. And that 
was why people who did not even want to ever do something like 
that did.
    And we are talking about what will happen to the economy, 
what will happen to communities, and what will happen to human 
beings across this country if we do not address this problem.
    Because of this, I want to just ask Mr. Stribling questions 
first so we can be very clear for everybody in this room. 
Senator Heitkamp started down this way.
    But have you made any investment decisions for the plan in 
which you participate?
    Mr. Stribling. Absolutely not.
    Representative Dingell. Did you make any of the decisions 
about the amount of contributions that employers make or 
negotiate any withdrawal liability from employers leaving the 
plan?
    Mr. Stribling. Absolutely not.
    Representative Dingell. As a multiemployer pension plan 
participant, are you simply informed of these decisions by the 
trustees of the fund?
    Mr. Stribling. No, I am not.
    Representative Dingell. You are not even informed?
    Mr. Stribling. I am not informed.
    Representative Dingell. So is there anything you could do 
as a participant in a multiemployer plan to right the course of 
your pension plan?
    Mr. Stribling. No, there is not.
    Representative Dingell. Is it correct to say the current 
state of these plans is not your fault?
    Mr. Stribling. Absolutely.
    Representative Dingell. When your union negotiated on your 
behalf, is it your understanding that you--and we talked about 
this, but I do not think people understand. How many people do 
you know who gave up pay raises, sacrificed compensation 
increases at the time, because of the promise of a safe and 
secure retirement?
    Did you?
    Mr. Stribling. Yes, I did.
    Representative Dingell. And did many of your colleagues do 
the same thing?
    Mr. Stribling. Absolutely.
    Representative Dingell. So while we have testimony in this 
room that makes it, in a very callous way, sound like people 
had something to do with it and it is people, the people who 
are being impacted by this--across the country, by the way; it 
is not some of us have States that are more impacted than 
others--what is our human responsibility to people across the 
country?
    Mr. Lynch, I want to come back to you. If I pick up one 
theme in your testimony, it is simply that Congress must act 
now. You stated that action is necessary sooner rather than 
later. Why do you believe that to be true? And do you believe 
that the cost of a solution will only go up if the committee 
fails to act and what the cost is if we do not act?
    Mr. Lynch. The cost will absolutely go up. I think there is 
no, at least in my mind, there is just no question about that.
    You have an opportunity now, if you can get yourselves to a 
position where there is an agreement on some kind of infusion 
of cash, you can have a plan like Central States that can then 
use those funds, pay back the loan, or they can use those funds 
in order to generate the investment income that keeps them 
alive and not go into insolvency.
    Representative Dingell. Mr. Chairman, I am almost out of 
time, so I am simply going to state again, failure is not an 
option. We have a moral responsibility to act for the people of 
this country.
    Co-Chairman Brown. Ms. Dingell, thank you.
    And, Mr. Chairman, I wanted to just let people know--and 
Congresswoman Dingell has talked about, so have others, about 
the urgency of this.
    Chairman Hatch and I met last week. We are asking, because 
of the House schedule and the Senate--and we are going to be, I 
think, the Senate is going to be in session 2 or maybe 3 weeks 
in August; you will not be. I guess you guys are out next week; 
we are here then and then in August.
    But we have empowered, asked, empowered our staffs, 
deputized our staffs to get serious about negotiations, the 
leadership staff of the committee, but also rank-and-file 
member staff.
    And then Chairman Hatch and I will reconvene in September a 
bipartisan member meeting, and we hope to get close to real 
solutions in September as we move into the fall when we know 
elections come and members are all over the place.
    Co-Chairman Hatch. I think that summarizes it.
    Co-Chairman Brown. So that is important.
    Co-Chairman Hatch. I think that summarizes it pretty well.
    We still have time for Mr. Schweikert and then Senator 
Smith.
    Representative Dingell. Could I say to both co-chairs 
before we go on, I will fly anyplace, anytime and be a member 
of this committee. You can count on me between now and 
November. I do not care about elections.
    Co-Chairman Brown. I know you well enough to know you will.
    Co-Chairman Hatch. I know you very well, and I know you 
will do it. Thank you.
    Representative Scott. Mr. Chairman, I think there are other 
members of the committee who would be willing to come back.
    Co-Chairman Hatch. That is right.
    Representative Scott. Including myself.
    Representative Dingell. We would. I mean, I do not want to 
speak for the Republicans, but we would come back to work with 
the Senate if we could get together, because I think it 
matters.
    Co-Chairman Hatch. We are going to solve this problem. So 
we will have----
    Representative Dingell. I trust you. I know you. You are 
right: we have known each other a long time.
    Co-Chairman Hatch. We are going to solve it. It is not 
going to be easy, and it probably is not going to please 
anybody, but we are going to solve it.
    And let us go to Representative Schweikert, and then 
Senator Smith will be the last.
    Representative Schweikert. Thank you, Mr. Chairman.
    And I want to be harmonious with my brothers and sisters 
here on the committee and so many of the people we have met 
with. But I must tell you, being someone who has tried to read 
everything--it is the joy of having a 5-hour flight to get 
home--I have grown to believe that we almost need to consider a 
revolution of redesign, that the current model, the current 
statutes, and the multiemployer system functionally, do not 
work.
    Even if we patch things up, there is going to be another 
wave. And I think we need to be honest, because there is a 
cascade effect in our society. As we are getting older very 
fast, our birth rates have collapsed. This is what the future 
looks like. Today it is multiemployer plans.
    I mean, if we are having an intellectually honest 
conversation about underfunding, can we now talk about Social 
Security and Medicare? Can we now talk about so many other 
things? At some point, we need to be intellectually credible 
here about what is going on in our society.
    Mr. Stribling, just a quick conversation.
    When you are at the union hall and you are talking with 
some of the younger workers, do you think they are prepared to 
pay higher amounts into the pension system right now, partially 
to, shall we say, deal with the unfunded liabilities of their 
brothers and sisters who are moving into retirement or are in 
retirement?
    Mr. Stribling. I would honestly say ``yes.''
    Representative Schweikert. Good. That is actually--because 
that may be what society is heading towards right now.
    For my two actuaries here, if I wanted to actually fix this 
permanently and we open up the playbook, do we take those who 
are not receiving benefits and start to build a different 
model? Do we do what Boeing did years ago, take those and 
create a defined contribution or, as you have written about, 
almost a methodology of a built annuity system? What would 
create permanent stability for the future?
    Because when our net-present value calculations are so 
radically different between individual plans and these 
multiemployer plans, we are always going to see a systematic 
underfunding, because it benefits that current negotiation but 
underfunds the future. What would you do?
    Mr. Naughton. Either approach is fine.
    So whether it is a defined contribution plan or whether it 
is a plan that sort of dictates that the contributions are 
actuarially sound--an annuity-type model--what you are doing 
is, you are sort of fixing in place something that will ensure 
that the money will be there, okay? So the funding issues go 
away with both approaches.
    An annuity-type model is, in most cases, better because it 
pools risk better. With defined contribution, sometimes 
individual participants invest poorly, sometimes individual 
participants outlive their assets. Sometimes they sort of die 
before retirement and then their assets were not really needed 
in the first place.
    And so, when you look at sort of pooling all of the risks--
--
    Representative Schweikert. So a pooled annuity model with 
sort of layered entry----
    Mr. Naughton. Correct.
    Representative Schweikert [continuing]. And then the 
blended benefit of mortality tables.
    Mr. Naughton. Correct. And that sort of is what we see from 
an economic efficiency standpoint. It ensures that everything 
is geared towards retirement security.
    Representative Schweikert. Doctor?
    Dr. Rauh. The multiemployer trustees have not acted in the 
interests of the beneficiaries as they should have. And 
furthermore, if the PBGC backstops them and if taxpayers are 
partially backing the PBGC, then to have any kind of defined 
benefit system, the rules must be very, very tight. And I 
wonder whether Congress has the desire to make them tight 
enough.
    And so that is why I believe that Congress should be 
requiring systems that are not paying contributions to stop 
making new promises, meaning to freeze these plans. Frozen 
plans themselves should be required to stabilize their funding 
levels.
    Representative Schweikert. That is a similar model we use 
right now with individual employer models, where it has to be a 
credible rate of return, because you just all saw the CalPERS, 
and those are recalculating for the future of a lower rate of 
return in the coming years. But also, if they are not meeting 
the actuarial soundness, they must shut the plan down.
    Dr. Rauh. That is right. As you mentioned CalPERS, the 
other thing that CalPERS does, by the way, on this withdrawal 
liability point is that if a public agency, local government 
wants to withdraw from CalPERS, CalPERS charges them a rate 
based on the terminated annuity pool, which is a rate of around 
3 percent. So they have a rule in place where the withdrawal 
liability must be calculated, the equivalent of the withdrawal 
liability must be calculated using rates that reflect the fact 
that these are promised benefits.
    Representative Schweikert. Mr. Chairman, I know we are up 
against time.
    Co-Chairman Hatch. We have one last questioner.
    Representative Schweikert. But I believe, actually, we need 
to be prepared to do a long list of improvements and changes so 
we are never in this room again.
    Co-Chairman Hatch. I agree.
    Representative Schweikert. And with that, I yield back.
    Co-Chairman Hatch. Thank you.
    Senator Smith, you are the last one.
    Senator Smith. Thank you, Chairman Hatch.
    And thank you, Senator Brown, for your leadership on this 
issue.
    And here is what I am taking away from this. We started 
with the idea that there really are no provisions in law that 
are going to help this situation. Senator Brown made that point 
in the very beginning.
    There maybe is one place where we have consensus here, and 
that is the longer we wait to solve this problem, the worse it 
gets, the more expensive it gets, that we might not--our 
panelists do not all agree on what the solution ought to be. I 
appreciate Senator Portman making this point.
    Mr. Stribling, you know, you point out that all policy is 
personal. One way or another, it affects people in personal 
ways. And so I want to thank you for being here and drawing our 
attention to the personal impact of inaction in this situation. 
And I know that behind you are dozens of others who each have a 
personal story to tell. I have certainly heard many of them, so 
I really appreciate that.
    It seems to me, clearly, my colleagues, that we need to use 
our imaginations and our brains to figure out this problem. If 
it were easy to figure out, somebody would have done it 
already. It is a hard problem to solve, as our panelists have 
pointed out.
    But we have shown that we can do this before with other 
really difficult problems. We have also shown that we know how 
to come together in emergencies when we need to.
    I think Representative Neal pointed out that we did that 
with the S&L crisis and we did that when the markets crashed in 
2008; we did that with the auto industry.
    So I just want to, after having all of my questions 
answered by these panelists, I want to just tell you, Senator 
Hatch and Senator Brown, how much I have faith in our ability 
to figure this out if we work together.
    I am really grateful that we are going to have a coming 
together shortly with ourselves and our staffs to figure out 
how we can come up with some solutions. We have one solution on 
the table of a loan idea. I appreciate Mr. Lynch's comments on 
this. That is what I think is the best thing, but I really look 
forward to having that conversation with all of us so that we 
can come up with a bipartisan solution.
    Co-Chairman Hatch. Well, thank you so much.
    I want to thank you all for your attendance and 
participation today.
    Did we get everybody? I think we did.
    Co-Chairman Brown. Yes. Could I have 20 seconds, Mr. 
Chairman?
    Co-Chairman Hatch. Sure.
    Co-Chairman Brown. Yes.
    Co-Chairman Hatch. Why don't you take some time?
    Co-Chairman Brown. I will just take less than half a 
minute.
    Thank you, Senator Smith.
    And I think what she said about the loan program--there are 
a lot of different views on this committee. I think we have 
seen from testimony from a whole lot of employers, including 
the U.S. Chamber representing employers and employers 
themselves, and experts like Mr. Lynch, that a loan program is 
certainly viable and can certainly work.
    We are all open--I think we are all open to everything. It 
seems that we are going in that direction.
    I wanted to say Congressman Schweikert's comments about 
never again, that we do not want to be here and do this 2 
years, 5 years, 10 years from now, how important that is.
    And I look forward to working with the staff, working in 
August with some House members coming back, and at least the 
eight Senators talking among themselves and working, but the 
staff driving this, and then in November we get really serious 
about putting finishing touches on this issue and absolutely 
figuring it out.
    So thank you, Mr. Chairman.
    Co-Chairman Hatch. Well, thank you, Senator Brown. I hope 
we can do it even before then.
    But I want to thank everybody for their attendance today 
and, of course, the participation today. This is really a 
tragedy that we are faced with these problems, but we have to 
solve them.
    And I ask that any member who wishes to submit questions 
for the record do so by the close of business on Friday, August 
10th.
    Now, I am grateful for the hard work of everybody on this 
committee. We are going to solve these problems one way or the 
other. And I hope that everybody who feels deeply about it will 
weigh in and help us to do it in the very best way we can, 
considering taxpayers, considering other organizations that 
have not had these problems as much. We are just going to have 
to face the music here and do the job.
    So with that, we are learning a lot here from the 
testimonies, and we appreciate each one of you for coming today 
and giving us the benefit of your testimony.
    With that, we will adjourn until further notice.
    [Whereupon, at 12 p.m., the hearing was concluded.]

                            A P P E N D I X

              Additional Material Submitted for the Record

                              ----------                              


               Prepared Statement of Hon. Sherrod Brown, 
                        a U.S. Senator From Ohio
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.

    Thank you, Senator Hatch, for your continued work on this 
committee. I also want to thank my colleagues Senator Baldwin and 
Senator Johnson for being here today to introduce one of our witnesses, 
Kenny Stribling.

    I also want to thank all of the members of the committee who joined 
Rob and me 2 weeks ago in Ohio for our field hearing.

    That hearing was particularly important for us to hear the 
perspectives of the workers and retirees and small business owners who 
have the most to lose if Congress doesn't do its job.

    Roberta Dell works at Spangler Candy Company in Bryan, OH, and I 
think she put it pretty succinctly. She said if nothing is done, quote, 
``a lot of us will go belly up, that's the bottom line.''

    We know the same could be true for small businesses. Bill Martin, 
the president of Spangler, explained that, quote, ``In Central States, 
the vast majority of [the] 1,335 contributing employers are small 
businesses like us. This issue hinders the success and growth of our 
businesses that already struggle to be competitive.''

    These businesses and their employees did everything right. They 
contributed to these pensions, in many cases over decades.

    And they are the ones whose lives and livelihoods will be 
devastated if Congress doesn't do its job.

    When I think about the responsibility we have, I think about the 
words of Larry Ward at that hearing. He said, ``I don't understand how 
it is that Congress would even consider asking us to take a cut to my 
pension, or see it go away entirely, when it had no problem sending 
billions to the Wall Street crooks who caused this problem in the first 
place. They used that to pay themselves bonuses. We use our pensions to 
pay for medicine and food and heat. There is something wrong with this 
picture.''

    If we do not find a way to compromise and come together on a 
bipartisan solution, he's right, there will be something very wrong 
with this picture.

    But I think we are going to be successful. I saw a lot of 
opportunity for bipartisan cooperation at that hearing. Rob and I both 
talked about how we are putting aside talking points, listening to all 
ideas, and working in good faith.

    And I believe that's true not just of the two of us, but of all of 
us on this committee.

    The staffs of all 16 members have met for more than 30 hours of 
briefings by stakeholders and experts. We have met six times with five 
public hearings.

    We know this is a complicated problem that won't have easy answers. 
It's really three related issues.

    First and most importantly, we have the threat to participants and 
businesses in multiemployer plans that are currently on the path to 
insolvency. Current law doesn't contain a remedy for the largest of 
these plans.

    Second, the looming failure of these plans means the imminent 
failure of the Pension Benefit Guaranty Corporation. The PBGC and the 
multiemployer system made a devil's bargain years ago, trading vastly 
inadequate premiums for a vastly inadequate benefits guarantee.

    Now that bargain threatens to bring down the entire multiemployer 
system. We have heard over and over on this committee about the $67 
billion deficit at the PBGC. What that means is that the moment one of 
these large plans fails, it brings down not just that plan, but the 
entire multiemployer system.

    Third and finally, these impending crises mean that it isn't enough 
just to fix the crisis today for these individual plans. We can't just 
put a Band-Aid over this, leaving the problems with the underlying 
system to fester and erupt into another crisis 5 or 10 years down the 
road.

    We need prospective changes to make sure we never find ourselves in 
this situation again.

    That's the jurisdiction of this committee. These are the three 
issues we have a mandate to solve for the workers like Roberta and the 
businesses like Spangler Candy and the retirees like Larry. Failing to 
address all three of these issues together would be abandoning the 
responsibility we have to our constituents and to this country.

    Chairman Hatch and I met last week, and we are both committed to a 
bipartisan solution. And we must begin bipartisan meetings with all the 
members of the committee soon.

    We're all aware of the challenges that still lie ahead. But I 
believe we are going to get there. Too much is at stake for us to 
retreat back into partisan corners, as we will hear today from our 
witnesses.

    I look forward to hearing from them today, and to working with all 
of my colleagues toward solution.

                                 ______
                                 
              Prepared Statement of Hon. Orrin G. Hatch, 
                        a U.S. Senator From Utah
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 to consider how the multiemployer 
pension system affects stakeholders.

    The committee has taken a rigorous approach to the issues before 
it--examining in public hearings the complex range of problems that 
have led to the dire financial condition of a significant number of 
multiemployer pension plans, as well as of the Pension Benefit Guaranty 
Corporation, or the PBGC.

    According to the PBGC, here is where we stand with regard to 
funding. For 2015, the plans are underfunded by a total of $638 
billion. Almost 75 percent of multiemployer plan participants are in 
plans that are less than 50-percent funded. More than 95 percent are in 
plans that are less than 60-percent funded.

    But if you look at them on an actuarial basis, using the plans' 
proclaimed discount rates, they are 80-percent funded, and only have a 
$120 billion shortfall. The difference between these numbers should 
keep us up at night.

    Everyone knows the plans are in dire straits, but by using 
unrealistic assumptions, the true extent of the problem is hidden until 
it's too late. Indeed, these numbers have kept this committee properly 
busy.

    The committee and its staff have held dozens of meetings with 
stakeholders, and we are continuously bringing in experts to brief our 
team. This has been an intensive, time-consuming but worthwhile 
exercise.

    And these briefings and discussions will continue, because I 
believe it is important that the committee leave no stone unturned in 
discussing how we may address the conditions of the multiemployer 
plans.

    In addition to the great deal of work that has gone into 
understanding the system and its challenges, the committee staff has 
started to consider a range of policy ideas to address the challenges 
faced by the multiemployer system.

    They have started to crunch numbers on these ideas, reviewing them, 
and looking at the complex interactions of the legal requirements of 
the current system and the proposals for change. This is complicated 
stuff--somewhat like playing three-
dimensional chess.

    A lot of work still needs to be put into this process. At this 
point, the committee is not taking anything off the table, nor 
necessarily putting anything on the table for consideration either. But 
it is necessary and prudent to begin conducting in-depth due diligence 
on these ideas.

    During this morning's hearing, we continue to work on understanding 
the current system, by hearing more from stakeholders in the system.

    We have brought in four witnesses today to help us. One is a 
retiree in an at-risk program, who will share his perspective as a 
participant.

    We have also brought in two respected academics and a practitioner 
with years of experience in the system, who will review for us some 
fundamentals of these plans, and share their views on what does and 
does not work.


    Their perspective is important, because clearly the system is, in 
certain aspects, flawed. Our witnesses today will help us delve into 
some key questions. What is at stake here for retirees? What is the 
appropriate measurement of plan funding? Are the plans generally 
healthy or not? What major structural reforms are needed? And one issue 
in which I am most interested: are Federal taxpayers responsible under 
current law for funding any PBGC shortfalls?

                                 ______
                                 
       Prepared Statement of Timothy P. Lynch, Senior Director, 
  Government Relations Practice Group, Morgan, Lewis, and Bockius, LLP
    Good morning. I'd like to begin by thanking the committee co-
chairs, Senators Hatch and Brown, and all the members of the committee 
for the opportunity to participate in today's hearing on ``How the 
Multiemployer Pension System Affects Stakeholders.'' My testimony and 
any answers I provide singularly reflect my own views and not the views 
of Morgan Lewis or any of its individual clients.

    My name is Tim Lynch, and I am the senior director of Morgan 
Lewis's Government Relations Practice Group. Of more relevance to 
today's hearing, I am a member of our Multiemployer Pension Working 
Group, a group that includes attorneys who have experience counseling 
both contributing employers and multiemployer pension plans in a wide 
range of industries, including trucking, construction, bakery, 
maritime, and supermarkets (retail and wholesale). It is because of 
that depth of experience we were asked by the U.S. Chamber of Commerce 
to assist it in the preparation of two recent reports: ``The 
Multiemployer Pension Plan Crisis: The History, Legislation, and What's 
Next'' and ``The Multiemployer Pension Plan Crisis: Businesses and Jobs 
at Risk.'' Hopefully I can provide a perspective on the impacts on 
stakeholders of the multiemployer pension system reflecting that 
experience.

    I have been involved in the multiemployer pension plan issue since 
1980. At that time, I was employed by one of the largest trucking 
companies in the United States, ANR Freight. ANR Freight was a Less-
Than-Truckload (LTL) motor carrier that like all interstate trucking 
companies was heavily regulated by the Interstate Commerce Commission 
(ICC). That regulatory regime included deciding what trucking companies 
could charge, what customers they could serve, what routes they could 
travel and what services they could offer. In short, virtually every 
aspect of a trucking company's operations. That world was about to 
change dramatically by the passage of the Motor Carrier Act of 1980, 
the law that effectively deregulated the trucking industry. In 1980, 
the debate over the Motor Carrier Act was the all-consuming focus of 
the trucking industry.

    ANR Freight was also a signatory company to the National Master 
Freight Agreement (NMFA), the collective bargaining agreement (CBA) 
between virtually the entire interstate trucking industry and the 
Teamsters Union. Because of that CBA, ANR Freight was also a 
contributing employer to all of the multiemployer pension plans under 
which it had operations. To this day, I vividly remember the phone call 
I received from the company's general counsel asking what I knew about 
the Multiemployer Pension Plan Amendment Act of 1980 (MPPAA) and 
something called ``withdrawal liability.'' I believe my response was 
along the lines of, ``nothing and why should I?''

    If the Motor Carrier Act of 1980 transformed the entire trucking 
industry, MPPAA dramatically impacted the unionized portion of the 
industry. Prior to 1980, 94 of the 100 largest freight-hauling trucking 
companies in the United States were part of the NMFA. By the mid-1990s, 
that number was reduced to 6. For certain, some that reduction was due 
to consolidation but the overwhelming majority was as a result of 
bankruptcy. And since 1980, not a single mid- to large-size trucking 
company has entered the market with a CBA with the Teamsters Union to 
replace all those other trucking companies who exited the market. In 
other words, no new contributing employers to cover an ever-increasing 
number of beneficiaries.

    In 1997 I went to work for the Motor Freight Carriers Association 
(MFCA) as president and CEO, where I oversaw the labor negotiations 
between those remaining unionized trucking companies and the Teamsters 
under the NMFA. I survived two national negotiations in 1998 and 2003. 
During that time, one of the three largest trucking companies--
Consolidated Freightways--closed its doors leaving thousands of 
employees without jobs and millions in uncollectable liabilities to the 
various Teamster pension funds. In the end, funds like Central States 
received less than 5 cents on the dollar from the CF bankruptcy.

    As president of MFCA I thought I understood labor negotiations; 
what I didn't understand was the relationship between negotiating a 
wage and benefits package and the contribution rate to the various 
multiemployer pension funds. We did not simply pick a number and inform 
the funds, ``this is what we're paying.'' The funds, primarily led by 
Central States, in essence became a third party to the negotiations--
``this is what we need''--and we had to determine how to balance that 
with the wage and other benefits package. That situation is more 
pronounced today as funds move from green zone to yellow zone to red 
zone and into critical and declining status and the attendant need for 
rehabilitation plans.

    Our firm was an active participant during the congressional debates 
over both the Pension Protection Act in 2006 and the Multiemployer 
Pension Reform Act of 2014. As the committee has been told, PPA was the 
first attempt by Congress to address the looming multiemployer pension 
crisis. If I could pick one word to describe that effort it would be 
``transparency.'' Congress wanted more information on the financial 
status of the plans and introduced the concept of green, yellow, and 
red zones to differentiate the healthy plans from the not-so-healthy 
plans.

    The Multiemployer Pension Reform Act of 2014 recognized that more 
concrete steps needed to be taken to assist plans that were facing 
significant financial challenges. Congress gave plan trustees some 
powerful tools to address the funding crisis: the ability to adjust 
benefits; the ability to seek a partitioning of beneficiaries; 
assistance for facilitating plan mergers; and financial support. I'll 
refer to these collectively as MPRA applications.

    MPRA was signed into law in December 2014 and plan trustees in 
critical and declining status immediately had to begin planning for how 
to utilize the new tools in the toolbox to address the funding crisis. 
I believe one of the great examples of a profile in courage is the 
action taken by 19 plan trustees--management and labor--voting to 
submit a MPRA application knowing that approval would result in a 
benefit cut that was desperately needed to save the plans. For union 
trustees, this meant a cut for family members, friends, and work 
colleagues. For management trustees, this meant walking back from a 
promise made to employees who contributed over the years to the success 
of the company.

    The Treasury website for tracking applications for benefit 
suspensions identifies the Central States Plan as being the first MPRA 
application filed on September 25, 2015. Technically true. The first 
``application'' filed was by the Road Carriers Local 707 Pension Fund 
on December 14, 2014 (the enactment date of MPRA). Throughout 
congressional consideration of the MPRA legislation, the Local 707 
Fund--knowing it was facing insolvency within 3 years--was a strong 
supporter of all of the tools Congress was considering but particularly 
needed authorization to modify the benefit. The December Local 707 
filing was in the form of a letter--I believe it was three sentences 
long--intended to dramatize the need for Treasury and PBGC to move 
expeditiously because time was not an ally. The fund formally filed on 
March 15, 2016 and eventually was denied, the principle reason being 
the fund could not demonstrate the proposed actions would allow the 
fund to avoid insolvency. Unfortunately, the Local 707 Fund went 
insolvent in February 2017.

    In his testimony before this committee several weeks ago, PBGC 
Director Tom Reeder provided an explanation for why Treasury/PBGC 
rejected the Local 707 application. I'd like to add one additional 
point to Mr. Reeder's summary. The last request that Local 707 made to 
the PBGC was to seek help for what are referred to as the ``protected 
classes.'' When Congress enacted MPRA and allowed for the benefit cuts, 
one of the stipulations was that there would be no benefit cuts for two 
categories of beneficiaries--those over 80 and those who were receiving 
a disability pension--and a third group of retirees between the ages of 
75 and 80 who would have a sliding scale of reduced benefit. PBGC 
determined that relief was not possible under the provisions of MPRA 
and the retirees in those protected classes join all other Local 707 
retirees at the PBGC guarantee. Or as Tom Reeder explained in his 
testimony, ``(f)or nearly one-half of all 5,000 participants in the 
plan, the guarantee covers less than 50 percent of the benefits 
earned.''

    Central States filed its MPRA application on September 25, 2015 and 
received its rejection notification on May 6, 2016. A good argument can 
be made that MPRA was developed in large measure to assist Central 
States in avoiding insolvency. And without question, the language 
regarding ``systemically important plans'' (plans the PBGC projects 
would have payments exceeding $1 billion) was clearly developed because 
of Central States. And yet, Treasury rejected the Central States 
application because the ``suspension fails to satisfy the statutory 
criteria for approval of benefit suspensions.'' As the committee 
considers recommendations, it would be useful to understand exactly 
what ``statutory criteria'' the Central States application failed to 
meet. The Central States MPRA application used a 7.5 percent investment 
rate of return assumption. In rejecting the application Treasury deemed 
that assumption ``not reasonable'' and ``significantly optimistic.'' It 
is worth noting that according to Central States filings, the 2016 rate 
of return was 8.52 percent and the 2017 rate of return was 12.74 
percent. Unfortunately, the damage has been done: in 2016 and 2017 the 
fund withdrew $2 million-plus in both years from investment assets to 
fund the cash operating deficit.

    The New York State Teamsters Conference Pension and Retirement Fund 
has a better ending but the process to obtain approval is nonetheless 
instructive. The New York Fund withdrew its initial application and 
refiled. Among the issues that the New York Fund had to deal with was 
what mortality table was appropriate for the calculation of the benefit 
modification. The correspondence on this was time-
consuming and potentially pushed the fund into a more precarious 
financial position. If the MPRA process is to work, the timeline needs 
to be addressed.

    While each of these funds had unique circumstances, the one 
constant is time. A delay--or worse a denial--simply puts more plans 
and the benefits of plan beneficiaries at risk. That was history but it 
holds true today: action is necessary sooner rather than later.

    This committee has received ample testimony on the financial 
position of the PBGC and its projected insolvency if several of the 
more financially distressed plans become insolvent. The only additional 
point I would like to make is that the PBGC is a Federal agency and is 
charged with guaranteeing the benefits of multiemployer plan failures. 
The Federal responsibility is already there; it's just a matter of time 
when the full impact of that responsibility kicks in. It's either later 
when the PBGC itself becomes insolvent or now, in the form of financial 
support. If it's later, the choices will be even more difficult and 
costly to the Federal Government.

    These are hard decisions, but consider the hard decisions that 
workers, companies, and plan trustees are making today.

          A large contributing employer that is financially distressed 
        informs all of the plans to which it contributes that it can no 
        longer pay its contractual rate of contribution. It needs to 
        significantly reduce its contribution in order to stay in 
        business. The trustees can accept that knowing full well the 
        lower contribution rate will negatively impact cash flow. Or 
        they can reject the lower contribution, undoubtedly triggering 
        a withdrawal and likely bankruptcy of the company. And thus no 
        contributions coming from that company.
          A small contributing employer in the Central States Fund (9 
        out of 10 contributing employers to Central States are small 
        businesses with fewer than 50 employees) knows there are 
        factors beyond his/her control (see above) that could trigger 
        significant increases in his/her contribution rate (to meet the 
        terms of the rehabilitation plan). Those increases likely make 
        the company non-competitive or he/she can consider a path out 
        of the fund.
          Employees and their union are entering a new round of 
        bargaining with their employer. They understand that any 
        increases in the pension fund contribution likely will result 
        in little or no pension benefit for them going forward. They 
        would like to bargain for all new contributions going to a 
        defined contribution fund. But they also know those 
        contributions are needed to shore up the current defined 
        benefit plan.

    The current framework for evaluating the financial status of 
multiemployer plans utilizes five categories: (1) Not in Distress 
(green zone); (2) Endangered (yellow zone); (3) Seriously Endangered 
(orange zone); (4) Critical (red zone); and Critical and Declining 
(more extreme red zone). As the committee begins to consider a course 
of action, it might be useful to contemplate what it hopes to 
accomplish with each of these zones and the plans that are in them. The 
temptation for green zone plans undoubtedly is to simply leave them 
alone and that very well could be the prudent course of action. But are 
there changes that could be made to help ensure these plans remain 
healthy?

    For yellow and orange zone plans, the goal should be to provide as 
many tools as possible to plan trustees to avoid falling into the red 
zone. This could include the additional tool of hybrid plans outlined 
in the GROW Act legislation. Conversely, the committee should be 
cautious about adopting procedural changes that while well intentioned, 
could have the adverse effect of pushing these plans into the red zone.

    For the red zone plans (and most importantly those red zone plans 
deemed to be critical and declining) there is no avoiding the reality 
that they need an infusion of cash to remain solvent. As mentioned 
earlier, Central States achieved a 12.74-percent return in 2017 but it 
doesn't take a mathematician to calculate the benefit of a 12-percent 
return on $15 billion in assets versus $13 billion, or $11 billion. I 
would also urge the committee to consult with Treasury and PBGC staff 
to review MPRA to determine what changes need to be made in the statute 
to make it more workable.

    The Local 707 Plan needed a benefit cut, a merger partner, 
partitioning, and financial assistance--all of the tools provided under 
MPRA--in order to survive. It got none and is now insolvent. Only one 
MPRA application that included partitioning has been approved. And 
while there may have been informal discussions between Treasury/PBGC 
and plan applicants utilizing the MPRA provisions on facilitating 
mergers, that tool remains firmly in the bottom of the tool box.

    The New York State Teamster Fund needed a benefit cut and while 
ultimately approved, it took almost 1 year to get that approval. Weeks, 
if not months, were spent debating issues like the appropriate 
mortality table to be used to calculate the benefit cut. One year may 
not seem like a long time but in the multiemployer world it's the 
difference between an asset base of $100 million versus something 
significantly less. Or the difference between survival and insolvency.

    Central States needed a benefit cut but its application was 
rejected because in the view of Treasury it failed ``to satisfy the 
statutory criteria for approval of benefit suspensions'' and its 
proposed benefit suspensions ``not reasonably estimated to allow the 
plan to avoid insolvency.'' With that rejection, Central States is now 
headed toward insolvency.

    In conclusion, these are not easy decisions and the options very 
limited. But time is not an ally and the choices get more difficult.

    Thank you for allowing me to testify, and I'm pleased to answer any 
questions the committee members may have.

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

                     United Mine Workers of America

                18354 Quantico Gateway Drive, Suite 200

                        Triangle, VA 22172-1779

                        Telephone (703) 291-2420

                           Fax (703) 291-2451

                             July 24, 2018

Hon. Orrin Hatch                    Hon. Sherrod Brown
Co-Chair                            Co-Chair
Joint Select Committee on Solvency  Joint Select Committee on Solvency
  of Multiemployer Pension Plans      of Multiemployer Pension Plans
104 Hart Senate Office Building     713 Hart Senate Office Building
Washington, DC 20510                Washington, DC 20510

Dear Co-Chairs Hatch and Brown:

    I want to first thank you for your leadership of the Joint Select 
Committee on Solvency of Multiemployer Pension Plans. You have taken on 
an immense and difficult challenge, but one that must be confronted and 
solved. Millions of retired American workers are counting on you and 
the committee to arrive at a solution that preserves the pensions that 
they earned after decades of hard work. You must not fail them.

    That is especially true of the retired members of the United Mine 
Workers of America who are covered by the UMWA 1974 Pension Plan. As 
you know, the 1974 Plan is projected to become insolvent in the 2022 
Plan year. But that projection may prove to be optimistic, as any 
further shocks to the financial markets or another sudden downturn in 
the coal industry will accelerate insolvency.

    In December 2007, before the Wall Street crash that drove the 
country into the Great Recession, the 1974 Plan was 94-percent funded 
and the actuaries projected that it would become fully funded over the 
coming decade. In April 2009, immediately after the Wall Street crash, 
the actuaries projected that instead of being fully funded, the 1974 
Plan could become insolvent in the coming decade.

    Bankruptcies in the coal industry have devastated the 1974 Plan's 
contribution base. In 2014 employers contributed over $120 million to 
the Plan; by 2017 employer contributions had plummeted to about $20 
million because of bankruptcy court actions, and about 80 percent of 
that contribution now comes from just one employer group. The 
bankruptcies have also increased the ratio of inactive to active 
participants. In 2014 there were 10.6 inactive participants for each 
active participant. Because of the withdrawal of companies in recent 
bankruptcies that ratio is now about 33-1.

    Adding insult to injury, bankruptcy courts also voided $3.1 billion 
in withdrawal liabilities from former contributing companies.

    The retirees did not create these problems. Yet here we are. 
Legislation is now the only option to prevent insolvency of the 1974 
Plan. We can't invest our way out of the problem, nor cut our way out, 
nor contribute our way out.

    Congress has had proposals before it since 2010 to bring the 1974 
Plan into the Coal Act and allow it to access the same Federal 
financial support as Congress has provided to these very same retirees 
in the Coal Act health plans. The option to allow the 1974 Plan to 
participate in Abandoned Mine Land (AML) transfers is still available 
to Congress, although the AML transfers alone will no longer prevent 
insolvency but merely delay it.

    I am aware that there are some advising the committee to do nothing 
to help pension plans, like the UMWA 1974 Plan, that are currently in 
critical and declining status. ``Just let them fail,'' these advisors 
say. In addition to ignoring the cruel outcome for the retirees and 
their communities in this scenario, this advice will inevitably lead to 
increased costs for the government than if the committee simply solved 
the problem now through passing a low-interest, long-term loan program.

    There are several proposals to provide low interest loans to 
critical and declining pension plans. All have their merits and flaws, 
but they will work, provided that Congress acts now. It is the job of 
the committee to sort through those proposals and find the best way 
forward.

    Acting now will allow troubled plans to stop the bleeding and grow 
their core assets, which can be used later to repay the loans. You will 
not only preserve much needed benefits for retirees and surviving 
spouses throughout the coalfields, you will help prevent the collapse 
of the Pension Benefit Guaranty Corporation (PBGC), which will be a 
much more expensive problem to fix. If Congress delays action, the 1974 
Plan will soon reach the point of no return.

    Action by Congress now will benefit millions of retired American 
workers who will otherwise see their pension plans become insolvent. 
These workers live in every State in America, in thousands of 
communities large and small. The loss of pension income, especially in 
rural areas, will be devastating to already struggling local economies.

    Retirees covered by the 1974 Plan do not live in luxury. They live 
in some of the most economically depressed areas of our Nation. Their 
average pension is $582 per month. They earned every penny that they 
receive by years of hard, dangerous work in the Nation's coal mines.

    They spend their pensions in their communities, providing the 
majority of whatever economic activity those communities are able to 
generate. Cutting or largely eliminating these pensions will not just 
devastate the retirees and widows, it will drive a stake through the 
heart of hundreds of struggling communities, especially in Appalachia 
and the Midwest.

    It is easy to say, ``Do nothing to help these distressed pension 
plans'' from the marbled halls of Washington, DC. But go to Madison, 
West Virginia; Cadiz, Ohio; Price, Utah; Brookwood, Alabama; or 
Carmichaels, Pennsylvania and you will see what the impact of losing 
these pensions will be on real, living American senior citizens and 
their communities.

    The retired coal miners worked hard, in often dangerous conditions, 
so that the rest of us could live in comfort. They are counting on you 
and your committee to provide a way for them to live out the rest of 
their lives in the dignity and security they were promised and have 
earned. Please do not let them down.

    Sincerely,

    Cecil E. Roberts

cc:  Members of the Joint Select Committee on Solvency of Multiemployer 
Pension Plans
   Senator Shelley Moore Capito
   Representative David McKinley

                                 ______
                                 
   Prepared Statement of James P. Naughton,\1\ Assistant Professor, 
         Kellogg School of Management, Northwestern University
---------------------------------------------------------------------------
    \1\ Jim Naughton is an assistant professor at the Kellogg School of 
Management at Northwestern University. Jim worked as an actuary for 10 
years after completing his undergraduate studies at Worcester 
Polytechnic Institute. For most of that time, he was a fellow of the 
Society of Actuaries, an enrolled actuary, and a member of the American 
Academy of Actuaries. He consulted with a variety of clients on all 
aspects of employee benefits, with a particular emphasis on defined 
benefit pension plans. He left the private sector to complete a 
concurrent degree program at Harvard University, whereby he earned a 
J.D. from Harvard Law School in 2010 and a doctorate in business 
administration from the Harvard Business School in 2011. He has been a 
member of the faculty at the Kellogg School of Management since 2011.

    I am very grateful for the opportunity to testify today and hope 
that my testimony contributes toward a workable solution to the crisis 
---------------------------------------------------------------------------
facing the multiemployer plan system.

    A multiemployer plan is a pension plan maintained through a 
collective bargaining agreement between employers and a union. The 
typical plan has numerous contributing employers, and it is quite 
common for employers to participate in several different multiemployer 
plans. For a particular multiemployer plan, the employers are usually 
in the same or related industries. Today, there are approximately 1,400 
multiemployer plans covering 10 million participants. From the 
participant's perspective, multiemployer plans provide pension 
portability, allowing them to accumulate benefits earned for service 
with different employers throughout their careers. In addition, because 
these plans offer annuity benefits, they represent an efficient source 
of retirement income due to risk pooling advantages. From the 
employer's perspective, the efficiencies of scale facilitates 
diversified investment opportunities and lessens the administrative and 
investment costs relative to the operation of numerous small single-
employer plans.

    Currently, the multiemployer system is chronically underfunded and 
the retirement benefits of many participants are at significant risk. I 
believe that the most important factor that informs the appropriate 
approach to addressing this crisis is an understanding as to whether 
the current predicament is primarily attributable to bad luck or is an 
inherent attribute of how plan trustees have run the plans.\2\ While 
luck may play some part in which individual plans are in the most 
critical condition, I firmly believe that the current crisis is a 
function of trustee choices. Even though these choices may not violate 
a clear numerical bright line test in the rules governing multiemployer 
plans, the rules, most of which were requested by the multiemployer 
plans themselves, were interpreted as leaving broad discretion over the 
making and funding of pension promises. In my testimony, I am going to 
explain how this broad discretion made the current crisis inevitable.
---------------------------------------------------------------------------
    \2\ In the case of multiemployer plans, the plan trustees are 
typically a board with equal representation from contributing employers 
and union officials.

    To begin, I'm going to state an obvious fact. If plans were 
required to collect actuarially sound contributions and purchase 
annuity contracts, there would be no crisis. Participants would be 
receiving or would be scheduled to receive the annuity benefits 
purchased with the contributions made on their behalf. In addition, the 
rules governing these plans would be far simpler. There would be little 
need for PBGC premiums, calculations of plan funding requirements, and 
---------------------------------------------------------------------------
certainly no need for withdrawal liability provisions.

    Rather than follow this type of approach, multiemployer plans 
generally choose to invest in risky equity investments and to collect 
contributions that are inadequate relative to the promised benefits. In 
effect, the plans are hoping that growth in the number of active 
participants or superior investment returns will take care of the 
shortfall. The reasons trustees pursue such a strategy are relatively 
simple--assuming that the overall cost per employee was fixed, a 
relatively low pension contribution means that employees might be able 
to receive higher non-pension compensation from their employers through 
the collective bargaining process. In addition, it encourages employers 
to join a multiemployer system rather than sponsor their own plan as 
seemingly equivalent benefits can be promised through the multiemployer 
plan at a lower cost.

    Congress enacted several rules to protect the solvency of the 
multiemployer system, most notably with the 1980 Multiemployer Pension 
Plan Amendments Act. Starting in 1980, there were four notable aspects 
of the framework governing multiemployer plans.

    First, even though employer contributions are determined as part of 
the collective bargaining process, the starting point for identifying 
the aggregate contribution is typically the present value of benefits 
determined using a discount rate based on anticipated investment 
returns. Because the plans invest in equity securities, this means that 
the present value of benefits calculation does not reflect the economic 
value of pension promises.\3\ If plans invest in annuities or in 
duration-matched bonds, there is no understatement of the plan's 
present value of benefits.
---------------------------------------------------------------------------
    \3\ Actuaries and standard-setters have long known that this 
approach understates the actual obligations of the plan. As an 
illustration, Statement of Financial Accounting Standards (SFAS) No. 
87, Employers' Accounting for Pensions, which was adopted in 1985, 
requires that the reported pension liability for financial reporting 
purposes be calculated using a discount rate that reflects the rate at 
which the obligation to pay the pension benefits can be settled rather 
than the expected investment return on the pension assets. In seeking 
these rates, SFAS87 requires that employers look to ``rates of return 
on high-quality fixed-income investments currently available and 
expected to be available during the period to maturity of the pension 
benefits.'' In practice, companies typically use zero-coupon duration-
matched Aa corporate bond rates to determine their pension liability 
for financial reporting purposes to meet the requirements of SFAS87. 
Using an Aa rate provides an estimate of the cost of extinguishing the 
pension liability through the purchase of an annuity contract from a 
highly rated insurance company.

    Second, because sufficient contributions are not required, it is 
possible for employers to withdraw from a multiemployer plan having not 
contributed adequate funds to cover the benefits promised to their own 
workers. This concern is addressed through ``withdrawal liability,'' 
whereby employers exiting a multiemployer plan are required to 
---------------------------------------------------------------------------
contribute funds intended to cover their share of plan underfunding.

    Third, because not all exiting employers pay the withdrawal 
liability (e.g., due to bankruptcy) and because plans are free to 
invest in risky securities, it is possible that the plan could face a 
shortfall due to poor experience. This concern is addressed by 
requiring that all contributing employers be jointly and severally 
liable for all plan promises, including for so-called ``orphan'' 
participants whose employers left the plans without paying for their 
share of the plan's underfunding.\4\
---------------------------------------------------------------------------
    \4\ The existence of orphan plan participants can result in a 
worsening funding situation for the multiemployer plan, because plan 
assets are commingled in a trust and are not assigned to a particular 
employer's contributions or participant's benefit. Thus, benefit 
payments for all participants draw down general plan assets.

    Fourth, in the event that the assessment of withdrawal liability 
and the application of joint and several liability do not generate 
sufficient funds to cover promised benefits, the PBGC provides benefit 
guarantees.\5\ Importantly, and at the request of the multiemployer 
plans themselves, PBGC coverage for multiemployer plans is separate 
from that for single employer plans, so that large shortfalls in 
multiemployer plans do not affect the PBGC's coverage of single 
employer plans (and vice versa).\6\
---------------------------------------------------------------------------
    \5\ PBGC guarantees benefits up to a statutory maximum level. When 
a multiemployer DB pension plan becomes insolvent, the plan must reduce 
participants' benefit to the PBGC maximum amount before the plan 
receives assistance. The statutory maximum benefit in multiemployer 
plans that receive financial assistance from PBGC is the product of a 
participant's years of service multiplied by the sum of (1) 100 percent 
of the first $11 of the monthly benefit accrual rate and (2) 75 percent 
of the next $33 of the accrual rate. For a participant with 40 years of 
service, the statutory annual maximum benefit is $17,160.
    \6\ The assets and income of PBGC's Multiemployer Program are 
currently only a small fraction of the amounts PBGC will need to 
support the guaranteed benefits of participants in plans expected to 
become insolvent during the next decade. In its FY 2017 Projections 
Report, PBGC indicated that the multiemployer insurance program has a 
90-percent chance of becoming insolvent by the end of 2025.

    In short, rather than collecting contributions reflecting the value 
of promised benefits and investing those funds appropriately, the 
trustees used the discretion in the multiemployer plan rules to provide 
for insufficient contributions and to pursue risky investment choices, 
with the understanding that employers would be required to bail out 
insolvent plans. The rules further provided that if employers were 
unable to bail out insolvent plans, the PBGC would provide benefits (up 
to guaranteed levels) as long as it had the resources in its 
multiemployer program to do so.\7\
---------------------------------------------------------------------------
    \7\ In extreme cases, participant benefits can be curtailed well 
below the stated guaranteed benefit levels, as these levels are only 
binding to the extent that the PBGC has the resources to pay these 
amounts. This isn't necessarily an event that requires that the PBGC 
run out of funds. ERISA 4022A(f) indicates that it is possible for 
benefits to be curtailed immediately to the extent that the PBGC does 
not have the resources necessary to meet its expected future 
obligations under the multiemployer system.

    It is worth noting that the problem is not that the rules prohibit 
trustees from running the plans conservatively--trustees are free to 
purchase annuities to fund the pension benefits that the plan promises. 
Even short of purchasing annuities, the rules do not prevent trustees 
from accurately measuring plan promises and investing in a more 
conservative manner, concentrating on bonds matching the duration of 
---------------------------------------------------------------------------
the liabilities.

    The trustees choose to take risk, and there is nothing necessarily 
wrong with this choice in other circumstances not presented by 
multiemployer pensions. In general, the assumption of risk is an 
appropriate course of action to the extent that one can respond to the 
inevitable volatility. Unfortunately, this is not the case with the 
multiemployer system, where there is a structural inability to respond 
to poor experience.

    Over time, there has been an inevitable decline in the number of 
participants covered by these plans, driven in part by withdrawal 
liability requirements (which, again, exist because plans do not 
collect contributions commensurate with promised benefits).\8\ This 
decline in participation has occurred, in part, because financially 
healthy employers are especially concerned with the possibility of 
withdrawal liability or the prospect that they fund the benefits of 
orphaned participants, and hence these employers are not interested in 
participating in multiemployer plans.
---------------------------------------------------------------------------
    \8\ The lack of new entrants is reflected in the increasing share 
of inactive members--over the past 30 years, the share of inactive 
participants has increased fourfold from around 17 percent to 61 
percent of total participants across multiemployer plans.

    During my career as a consulting actuary, which started in the mid-
1990s, I personally observed several clients who decided to sponsor 
their own defined benefit plan rather than participate in a 
multiemployer plan because of the withdrawal liability provisions and 
the requirement that they be joint and severally liable for plan 
underfunding. The choice to forgo membership in a multiemployer plan 
was not a difficult decision for these employers, even when the 
proposed cost of the multiemployer plan was only one-third of the cost 
---------------------------------------------------------------------------
of a single employer plan.

    The withdrawal liability provisions not only discourage new 
employers from joining the multiemployer system, but also create 
incentives for the most financially healthy employers to withdraw. 
These incentives are especially strong when the withdrawal liability is 
less than the anticipated cost of remaining in the plan. In the past, 
this was often the case because the withdrawal liability rules were 
inconsistent and oftentimes too lenient. Employer withdrawal liability 
payments typically do not capture the employer's full economic 
obligation because plans have the option to measure unfunded vested 
benefits using the plan's funding rate, typically 7.5 percent, which is 
too high for a termination liability because it doesn't reflect the 
settlement value of the promised benefits. In addition, the withdrawing 
employer's share of the unfunded vested benefits is further reduced 
based on past contributions, or based on special rules for certain 
industries.\9\
---------------------------------------------------------------------------
    \9\ There are also some special rules that allow employers in the 
construction and entertainment industries to avoid any withdrawal 
liability. For example, in the case of plans operating in the 
construction or entertainment industries, an employer is not required 
to pay a withdrawal liability if the employer is no longer obligated to 
contribute under the plan and ceases to operate within the jurisdiction 
of the collective bargaining agreement (or plan) or does not resume 
operations within 5 years without renewing its obligation to 
contribute.

    The inevitable consequence of inadequate contributions, risky 
investment choices, and the withdrawal liability provisions is a 
funding crisis. This crisis first manifested more than 10 years ago, 
and the statutory response at that time has made matters worse. While 
those statutory actions did marginally increase funding requirements, 
in most cases contributions still do not reflect the economic value of 
promised benefits. There were no changes in withdrawal liability, with 
the inevitable outcome that new employers are not joining the system 
and current employers continue to exit when it is advantageous to do 
so. In addition, the Pension Protection Act of 2006 (``PPA'') response 
included provisions that waived required contributions for the most 
troubled plans, thus ensuring that the situation would almost certainly 
deteriorate as these plans are able to promise additional benefits 
---------------------------------------------------------------------------
without setting aside the funds needed to cover these benefits.

    The system was around $200 billion underfunded at the time of the 
PPA on a PBGC rate basis. For 2015, PBGC just reported that the system 
is $638 billion underfunded on that basis. Almost 75 percent of 
participants are in plans that are less than 50-percent funded and more 
than 95 percent of participants are in plans that are less than 60-
percent funded.

    With a small base of active participants, it is cost prohibitive to 
increase contributions to a level that fully funds many of these plans. 
Moreover, with the exit of the most financially healthy employers, 
there is insufficient resources among the remaining employers to cover 
the shortfalls in many plans.

    So what can be done? There are several steps that I believe should 
be adopted to set the system on the correct path going forward.

    First and foremost, multiemployer plans need to have accurate 
measurement of liabilities and strong funding rules so that they can 
provide promised benefits.\10\ It is not enough to simply adopt the 
single employer plan rules. Multiemployer plans need to have even 
stricter rules than single employer plan because there is an 
interconnectedness across plans and contributing employers (i.e., most 
plans have several contributing employers, and most employers 
contribute to several different plans) that exacerbates the 
consequences of poor outcomes. Liabilities and contributions should 
reflect the cost of annuity products from highly rated insurance 
companies.
---------------------------------------------------------------------------
    \10\ The difference between measuring the plan liability using 
anticipated investment returns versus settlement rates is startling. A 
recent report prepared by Horizon Actuarial Services LLC finds that 
based on current funding rules, over 60 percent of all multiemployer 
plans are in the green zone (i.e., at least 80-percent funded and no 
projected funding deficiency for at least 7 years). In contrast, based 
solely on using corporate bond rates and assuming all other funding 
rules remain unchanged, the percentage of green zone plans would fall 
to just 7 percent. With corporate bond rates, 87 percent of all 
multiemployer plans are in critical or critical and declining status.

    Second, the PBGC should have broad discretion to assume control of 
troubled plans and implement necessary changes, including reductions in 
accrued benefits. Currently, the PBGC is unable to intervene, even in 
those cases where the plan's condition is continuing to deteriorate and 
there is no expectation that the condition of the plan will improve. 
The PBGC has this authority with regard to single employer plans and 
exercises it when necessary, even sometimes where a plan is meeting the 
much more stringent funding rules applicable to single employer plans. 
Similarly, it would be reasonable to have certain automatic triggering 
events, such as a funding deficiency for 2 or 3 consecutive years, that 
would require that the PBGC take control of a troubled plan. It is also 
reasonable for there to be a termination premium, similar to what is 
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required for single employer plans.

    Third, amend the withdrawal liability provisions. One suggestion 
for the withdrawal liability would be to mirror what is done in a plan 
termination for single employers--that is, the withdrawing employer 
should be required to cover the cost of purchasing annuities from 
highly rated insurance companies for each of its participants. This 
cost could be offset by prior contributions, with or without investment 
returns, and could be adjusted to incorporate some portion of the costs 
associated with orphaned participants. However, what is important is 
that the withdrawal liability reflect the actual economic cost of 
promised benefits. Congress should also consider a moratorium on 
withdrawals while it is deliberating on the legislative response to 
immediately end the opportunistic use of these provisions.\11\
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    \11\ Even with the adjustment to withdrawal liability provisions, 
the number of active participants covered by multiemployer plans is 
unlikely to return to historical levels. Over the past 30 years, the 
U.S. economy has shifted fundamentally away from unionized industries. 
According to the Bureau of Labor Statistics, union workers made up only 
12 percent of the workforce in 2009, down from 21 percent in 1983.

    While these suggestions should help set the multiemployer system on 
a sustainable path, they do not provide clear prescriptions for how 
past underfunding should be resolved. While the union and contributing 
employers almost certainly knew that contributions were insufficient 
relative to promised benefits, it seems clear that neither party has 
sufficient resources to address prior underfunding. Therefore, at least 
part of the resolution will involve concessions on the part of plan 
participants, who were unlikely to have known about the mismanagement 
of their promised pensions until the crisis began to materialize, or 
---------------------------------------------------------------------------
taxpayers.

    My suggestions also focus on improving rather than replacing the 
current system, as I believe that the correct approach is to develop a 
sustainable defined benefit program rather than switching to a defined 
contribution plan. A conversion, by definition, will hurt those 
employees closest to retirement.\12\ More importantly, a well-run 
defined benefit plan is far more effective at ensuring retirement 
security for the types of workers who participate in these plans.
---------------------------------------------------------------------------
    \12\ The rate of benefit accruals vary by age across defined 
benefit and defined contribution plans, with accruals becoming much 
more valuable in defined benefit plans as participants age. As a 
result, the accumulation of benefits in a defined benefit plan accrue 
much more rapidly in later years (sometimes referred to as ``golden 
handcuffs''). Therefore, if participants are switched mid-career, then 
over their full career they receive lower accumulations from the time 
before the plan change (when the DB accruals are worth less than DC 
accruals) and lower accumulations after the plan change (when the DC 
accruals are worth less than DB accruals), which combine to ensure that 
the participant has lower retirement income.

    No matter how prior underfunding is addressed, I strongly advocate 
for urgent changes to the rules governing multiemployer plans. I 
believe the rule changes I suggest can be implemented without a final 
framework for how to handle the allocation of past underfunding, and so 
delays, which will inevitably lead to larger deficits and choices that 
---------------------------------------------------------------------------
are more difficult, can and should be avoided at all costs.

                                 ______
                                 
Prepared Statement of Joshua D. Rauh, Ph.D., Senior Fellow and Director 
    of Research, Hoover Institution, and Ormond Family Professor of 
                    Finance, Stanford University \1\
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    \1\ I am very grateful to Yanqiu (Alice) Wang and Rohan Sonecha for 
outstanding research assistance in the preparation of this testimony.
---------------------------------------------------------------------------
    Chairman Hatch, Chairman Brown, and members of the committee, thank 
you for the opportunity to appear before you today on the topic of the 
solvency of multiemployer pension plans. I would like to begin with an 
executive summary of 8 points that I will make in my testimony.

    (1)  The logic of financial economics is very clear that measuring 
the value of a pension promise requires using the yields on bonds that 
match the risk and duration of that promise. Therefore, to reflect the 
present value cost of actually delivering on a benefit promise requires 
the use of a default-free yield curve, such as the Treasury yield 
curve. Financial economists have spoken in near unison on this point. 
The fact that the stock market, whose performance drives that of most 
pension plan investments, has earned high historical returns does not 
justify the use of these historical returns as a discount rate for 
measuring pension liabilities.
    (2)  Most of the justifications of a loan program to rescue the 
multiemployer system are built on the false logic that plans can get 
something for free if they receive low-cost subsidized government loans 
and invest the money in risky assets.
    (3)  On an actuarial basis, which as of the 2016 plan year uses an 
average discount rate of 7.3 percent, there are $155 billion of total 
unfunded liabilities in the multiemployer system. Measured properly 
using the appropriate Treasury yield curve, there are $722 billion of 
unfunded liabilities in the multiemployer system.
    (4)  I emphasize two standards for when a plan is making sufficient 
contributions. One standard, which I call ``treading water,'' is when 
the contributions at least meet the cost of new benefits (``normal 
cost'') plus interest on the unfunded liability. A more stringent 
standard would be contributing the cost of new benefits, plus progress 
towards paying down the unfunded liability. Under actuarial liability 
measurements, the latter is what the majority (71 percent as of 2016) 
of plans could claim they are doing. But under the correct risk-free 
standards, the picture looks quite different: less than 2 percent of 
plans are contributing service cost plus 30-year amortization, and only 
17 percent are treading water.
    (5)  Minimum funding requirements for multiemployer plans have not 
been sufficient to keep multiemployer plans in good health, as they 
depend heavily on expected rates of return. Rules for single-employer 
plans have been comparatively stringent, depending at least in part on 
high-grade corporate or Treasury bond yields since 1987. More 
generally, Congress has adhered in the 
single-employer program to the basic principle of imposing strict 
consequences including an excise tax and PBGC-induced termination if 
plans do not contribute the normal cost plus amortization of unfunded 
liabilities. In contrast, Congress relieved multiemployer red zone 
plans of their obligations to continue to pay normal costs plus 
amortization of unfunded liabilities in the Pension Protection Act of 
2006. Furthermore, since the law treats insolvency as the insurable 
event, and as a practical matter there is nothing that requires a 
failing plan to terminate, the PBGC cannot under current law limit its 
exposure to unfunded liabilities.
    (6)  Trustees had decades to undertake voluntary, remedial measures 
before resorting to trying to force participants to take cuts against 
promised benefits under the Multiemployer Pension Reform Act of 2014 
(MPRA). Before reaching this point, they failed to use the many options 
that were at their disposal to ensure the solvency of plans. They have 
always had the right to gradually require greater contributions from 
employers, to make more realistic assumptions about investment returns, 
and to make more affordable benefit promises on a prospective basis. In 
fact, statute requires the plan trustees to use reasonable assumptions, 
and the trustees who budgeted to pay pensions using excessively high 
discount rates violated that statute by using unreasonable assumptions. 
Trustees have fiduciary obligations to plan participants, which many 
have broken by making unrealistic pension promises on which the plans 
had little chance of making good.
    (7)  As of 2016, I estimate that there were between 960,000 and 
990,00 individuals in multiemployer plans with less than 5 years of 
service. These individuals have accrued low levels of benefits, but 
their employers are paying in substantial contributions on their behalf 
and in many cases relying on their contributions to forestall 
insolvency of multiemployer plans.
    (8)  To meet a rigorous funding standard, contributions would have 
to rise substantially. Incrementally over time, the multiemployer 
system must approach this standard to protect the interests of plan 
participants and taxpayers. Once phased in, all plans that do not 
follow funding rules should be subject to an excise tax, which was the 
rule before the Pension Protection Act of 2006; the employers and union 
would then be faced with the choice of funding the plan or terminating 
the plan in order to avoid the excise tax. In other words, if the plan 
does not meet required contributions, then termination should be 
automatic. To address the incentives that employer trustees might have 
to give up and terminate the plan, the rigorous funding standard should 
be phased in slowly, with near-term contributions initially limited to 
some measure of affordability for employers, such as by capping the 
growth in their contributions. Further, Congress should act immediately 
to change the withdrawal liability rules so that they reflect the true 
value of unfunded liabilities.
                i. measuring pension obligations: logic
    The basic challenge in measuring a pension benefit is how to 
convert the promise of a pre-specified stream of payments in the future 
into one value today. For example, imagine a payment of $50,000 that is 
to be made in 10 years. What is the present value of that payment 
today? This conversion, called discounting, is critical because it 
allows the consumers of financial statements, the trustees of pension 
plans, and other stakeholders to understand what the promise to pay a 
given pension is worth in today's dollars. That is, discounting allows 
for a measurement of the cost of new benefit promises, and it allows 
for a measurement of the total value of promises that have been accrued 
to date. Along with information about the available resources to pay 
benefits, a measurement of the total value of pension promises is vital 
for establishing the financial condition of a pension plan.

    When faced with this problem, there are a number of issues to be 
addressed. One must first specify the goal for the measurement. One 
clear goal would be to know how much money a pension plan would need 
today to be certain that the promised payment would be met. If a 
pension plan needs to meet a $50,000 obligation in 10 years, it can buy 
a zero-coupon default-free bond, such as a 10-year Treasury STRIP. Such 
a security would yield around 3 percent in today's markets, meaning 
that the pension plan would need around $37,200 today to be sure of 
meeting the promise, since $37,200 growing at 3 percent for 10 years 
will result in a payoff of $50,000 which could then be used to pay the 
pension. The Society of Actuaries (2006) Pension Actuary's Guide to 
Financial Economics calls this measurement a Solvency Liability. It is 
the value of a portfolio of bonds that would defease the promise.

    While the Solvency Liability concept relies on the measurement of 
the cost of guaranteeing the pension payments, an alternative measure 
of interest is the so-called Market Liability, also described in 
Society of Actuaries (2006). The Market Liability can be thought of as 
what a rational and financially unconstrained individual who was 
expecting to receive the $50,000 would accept today in exchange for 
giving up the promise of the $50,000 in 10 years. Why might this differ 
from the $37,200 calculated in the Solvency Liability? If the sponsor 
of the pension plan promising the liability were at high risk of 
insolvency over the next 10 years, the individual hoping to receive the 
$50,000 might be willing to settle for a payment today of less than 
$37,200, knowing that if they do not take the payment today, they might 
end up with less than $50,000 in 10 years time due to a default by the 
sponsor. The Market Liability would use a discount rate higher than the 
3 percent to reflect this risk of default.

    The final concept, also described in Society of Actuaries (2006), 
is the Budget Liability. This is the ``traditional actuarial accrued 
liability used to budget cash contributions over a period of years.'' 
The Budget Liability in the case of the $50,000 payment guaranteed in 
10 years would use a discount rate derived from an expected return on 
plan assets. If that expected return is, say, 7.3 percent, which is 
what I calculate as the weighted-average discount rate that U.S. 
multiemployer pension plans are using for their budgeting and planning 
purposes in the latest plan year, the liability would only be marked at 
around $24,700.

    There is much debate about the proper way to measure a pension 
obligation. Pension actuaries generally support the use of the Budget 
Liability on the grounds that if actuaries are prudent and accurate in 
their budgeting and forecasting, the plan will be fully funded when it 
needs to be. A large number of finance economists have criticized this 
approach on the grounds that the value of a pension promise should be 
measured independently of the assets used to fund the promise. In the 
above example, a discount rate of 10 percent would take the liability 
down to below $20,000, and 12 percent would take it down to $16,000. 
Giving the plan actuary or trustee discretion over the selection of the 
return they believe the portfolio will earn opens up the possibility of 
arbitrary selection of discount rates. In the worst case, actuaries 
might tell their clients what those clients want to hear, which might 
be that the cost of deferred promises is cheaper than it actually is. 
Or as the late Jeremy Gold wrote:

        The pension actuarial model is broken. Excessive discounting 
        and deferral of costs have often led to unaffordable promises. 
        . . . The degree to which this overhang exists has been 
        downplayed by vested interests, including, too often, actuaries 
        who, arguably, should know better. (Gold (2015))

    In contrast to the actuarial view, in which the expected return is 
supposed to be the actuary's best estimate of what a portfolio will 
earn, finance fundamentally conceives of the future as consisting of 
``states of the world.'' \2\ The finance view recognizes that past 
performance is no guarantee of future performance. If past returns on 
the stock market were high, it is because those investments were risky, 
and not in ways that just smooth out over time. Specifically, if there 
is uncertainty about the underlying drivers of stock returns, or if 
there is some probability of a large stock market crash without 
recovery--one that we may not have observed in the U.S. in recent 
history--then the high returns we observed in recent decades were 
compensation for these risks, as opposed to a free lunch. Investors 
have been fortunate that good financial market outcomes (``states of 
the world'') occurred, as opposed to the bad ones that could have 
occurred instead.
---------------------------------------------------------------------------
    \2\ This idea is originally attributed to Arrow and Debreu (1954).

    By discounting a fixed, promised liability at a targeted return on 
a portfolio of risky assets, one is ignoring the risk that the assets 
will not earn that targeted return. A chief investment officer of an 
investment fund can assemble a portfolio of securities that has a 
targeted return of 7 percent, or 10 percent, or even 12 percent per 
year. The CIO will call that targeted return their ``expected return.'' 
However, the higher the targeted or ``expected'' return, the lower the 
probability that that target will be met. Discounting using an expected 
return ignores that probability. Furthermore, there is no sense in 
which just waiting long enough ensures good performance. Otherwise 
every investor with a ``long horizon'' and relatively low borrowing 
costs, should be willing to borrow as much money as they can and invest 
---------------------------------------------------------------------------
in the stock market.

    Among economists, these issues are not controversial, and in fact 
the inappropriateness of the Budget Liability as a measurement standard 
is widely agreed. As a Vice-Chair of the U.S. Federal Reserve said in 
2008 in speaking about public pensions:

        [M]ost public pension funds calculate the present value of 
        their liabilities using the projected rate of return on the 
        portfolio of assets as the discount rate. This practice makes 
        little sense from an economic perspective. If they shift their 
        portfolio into even riskier assets, does the value of the 
        liabilities [. . .] go down? Financial economists would say no, 
        but the conventional approach to pension accounting says 
        yes.\3\
---------------------------------------------------------------------------
    \3\ Kohn, Donald L. 2008. Remarks at the National Conference on 
Public Employee Retirement Systems Annual Conference, New Orleans, LA. 
May 20.

    Evidence of the views of a range of economists on pension discount 
rates came in 2012 from the IGM survey of economic experts conducted at 
the University of Chicago. This survey poses weekly questions to an 
invited panel of 40 senior faculty at top U.S. research universities. 
While the relevant question was about public sector pensions as opposed 
to multiemployer private sector pensions, the issues are very similar. 
Indeed, the liability-weighted average discount rate used in public 
pension plans has been around 7.5 percent during this time period, and 
the liability-weighted average actuarial rate used in multiemployer 
plans in 2016 was 7.3 percent. The panel was asked to express an 
---------------------------------------------------------------------------
opinion about the following statement:

        By discounting pension liabilities at high interest rates under 
        government accounting standards, many U.S. State and local 
        governments understate their pension liabilities and the costs 
        of providing pensions to public-sector workers. (University of 
        Chicago (2012)) Strongly Agree | Agree | Uncertain | Disagree | 
        No Opinion

    In this survey, a full 49 percent of the respondents selected 
``Strongly Agree,'' including Nobel Laureate and MIT professor Bengt 
Holmstrom, Nobel Laureate and University of Chicago professor Richard 
Thaler, and University of Chicago professor Austan Goolsbee, who served 
as the Chairman of the Council of Economic Advisors under President 
Obama from September 2010 to August 2011. A further 49 percent of 
respondents selected ``Agree.'' Two percent (one respondent) selected 
Uncertain, and none disagreed.

    The university professors in the IGM panel have displayed a wide 
range of views in other IGM surveys on topics such as balanced budgets, 
deficits, and tax reform. As such, it seems likely that they would have 
heterogeneous views on how to pay for unfunded pension liabilities. But 
on this one point, that measuring liabilities using these kinds of 
rates understates pension liabilities and costs, the profession has 
been nearly unanimous.

    The basic point that financial economists have long argued is that 
liabilities should be discounted at a rate that reflects the 
fundamental risk of the liabilities that one wants to build into the 
measurement. If a sponsor--whether a government or a corporation or the 
trustees of a multiemployer pension plan--wants to measure the cost of 
a guaranteed pension payment under the assumption that this payment 
will not be raised or lowered depending on future events (a ``non-
contingent'' payment), the sponsor must discount the promised payment 
using the yield on a 
default-free fixed-income security (``Solvency Liability'').\4\ Put 
simply: if from a policy perspective, one wants to value pension 
promises as though they will be kept, the Solvency Liability should be 
used.
---------------------------------------------------------------------------
    \4\ The primary reason to use a higher discount rate would be if 
one wanted to mark down the liability to reflect a possible default 
(``Market Liability''), which could be useful to employees if they want 
to know the value of pension benefits being offered by different 
employers, but would be inappropriate as a funding standard. Novy-Marx 
and Rauh (2011) and Brown and Pennachi (2016) provide discussions of 
these issues.

    In contrast, the Budget Liability does not reflect the true present 
value cost of delivering on pension promises. Furthermore, if used as a 
funding standard, it gives trustees and actuaries very substantial 
discretion over appropriate levels of funding. As I will detail below, 
one of the main reasons that the corporate single employer system is in 
better financial condition than both the State and local plan sector 
and the multiemployer sector is that legislation (beginning with OBRA 
'87) laid a partial Solvency Liability standard on top of the Budget 
Liability standard selected by plan sponsors. While single-employer 
plans are still free to invest in risky assets and maintain a funding 
standard account based on actuarial valuations, they have also had to 
measure and remedy funding shortfalls on something closer to a solvency 
standard. Requiring single-employer plan sponsors to bear the costs of 
shortfalls leads to more prudent decisions about benefits and 
---------------------------------------------------------------------------
investment strategies.

    An additional complication that often arises is whether a present-
value liability is designed to measure only the pension that has been 
earned through service up to the present day, or whether it is designed 
to reflect some or even all of the pension that an employee expects to 
earn over their entire working career. For an employee who has only 
worked for an employer for several years, this could make quite a large 
difference. An employee who has worked for, say, 5 years, might be 
entitled to only a very small pension if he or she quit work today, yet 
the employer might be expecting that the employee will likely work for 
many more years and will ultimately receive a larger pension.

    The selection of a so-called Actuarial Cost Method will impact how 
much of the expected future liability is reflected in today's accrued 
liabilities. One of the more common methods, the Entry Age Normal 
standard, aims to calculate the cost of the pension as a fixed percent 
of salary over the worker's lifetime. This then smoothes the earning of 
pension credits, which otherwise would be low when a worker is young 
and high when he or she is older. One implication of this smoothing is 
that an Entry Age Normal liability reflects some costs that have not 
yet been earned yet, and will only be made if some future contributions 
come into the plan. In contrast, economists have long recognized that 
if one considers only benefits that have been promised up to a certain 
date (the ``accumulated benefit obligation'' or ABO in actuarial 
language), the present value of liabilities can be directly compared to 
the value of a firm's assets as a measure of funding (Bulow (1982), 
Brown and Wilcox (2009)).

            ii. measuring multiemployer pension obligations
    In this section, I provide estimates of the total multiemployer 
pension obligations, as well as their funding ratios. I examine the 
most recent plan year, as well as historical years, and I consider how 
these funding levels and ratios vary by plan code (green, yellow, red, 
and critical/declining). The main data source is the public IRS Form 
5500 datasets available from the Department of Labor for 2009-2016. 
There are three main funding standards that I consider.

    (1)  The Actuarial funding status, defined as the market value of 
plan assets minus actuarial liability from Schedule MB.\5\ This measure 
uses the actuarial valuation rate to discount the benefit cash flows. 
The actuarial valuation rate had a liability-weighted average of 7.3 
percent in 2016, and hence is conceptually equivalent to the Budget 
Liability described in Section I above. Most commonly, this liability 
measurement uses an Entry Age Normal standard.
---------------------------------------------------------------------------
    \5\ I use the Unit Credit statement where available, otherwise the 
Immediate Gain Method disclosure.
---------------------------------------------------------------------------
    (2)  The Current Liability funding status from Schedule MB, defined 
as the market value of plan assets minus the current liability form 
Schedule MB. The Current Liability must be calculated using a discount 
rate within a range of the 30-year Treasury rate averaged over the 
previous 4 years, and must reflect accumulated benefits only (and 
therefore it is close to the ABO as described in the previous 
section).\6\ This rate had a liability-weighted average of 3.3 percent 
in 2016. The Current Liability moves in the direction of a Solvency 
Liability, but there is no specific economic reason to use a 30-year 
Treasury rate, which generally has a duration substantially longer than 
the duration of pension cash flows.
---------------------------------------------------------------------------
    \6\ Specifically, according to instructions, filers of the Schedule 
MB must report a current liability using a discount rate which 
``pursuant to the Pension Protection Act of 2006 (PPA), must not be 
more than 5 percent above and must not be more than 10 percent below 
the weighted average of the rates of interest, as set forth by the 
Treasury Department, on 30-year Treasury securities during the 4-year 
period ending on the last day before the beginning of the 2016 plan 
year.'' Furthermore, this current liability must be computed ``taking 
into account only credited service through the end of the prior plan 
year. No salary scale projections should be used in these 
computations.''
---------------------------------------------------------------------------
    (3)  A funding status based on the Treasury yield curve, which is a 
true Solvency Liability. To calculate this measure, I collect zero-
coupon Treasury yields from Bloomberg. According to the PBGC (2016), 
the average maturity of retiree obligations in the multiemployer system 
is 8 years, and the average maturity of active employee obligations is 
14 years. So the reported retiree current liability is rediscounted 
using an 8-year zero-coupon yield, and the reported non-retiree 
liability is rediscounted using a 14-year zero-coupon yield. This 
corresponds to an effective liability-weighted average rate of 2.3 
percent in 2016.

    How have these rates evolved over time? Figure 1 shows the 
liability-weighted averages of these three rate series by year from 
2009-2016. The actuarial rate (1) has fallen by 15 basis points or 0.15 
percentage points, while the current liability rate (2) has fallen by 
ten times as much or 1.5 percentage points. The fact that the current 
liability discount rate is so much lower reflects that fact that 
providing annuitized streams of income for plan participants is much 
more expensive in the low interest rate environment that has taken hold 
in recent years--and yet there has been essentially no movement in the 
actuarial discount rate that plan sponsors are using for budgeting and 
planning purposes. The solvency liability discount rate based on the 
Treasury yield curve in (3) shows this decline even more starkly.

    It is instructive to compare the actuarial discount rate to the 
actual return earned by multiemployer plans over the past two decades. 
This is possible with information on the IRS Form 5500 Schedule H and 
Schedule MB for 2009-2016, plus supplemental data on Schedule H and 
Schedule B for 1996-2008. I define the realized investment return for 
each year generally as Investment Income divided by Beginning of Year 
Assets at Market Value. However, practices may differ as to whether to 
include Other Income (Schedule MB Section II, line 2(c)) as income, and 
which expenses from Schedule MB Section II, line 2(i) to include as 
expenses.

    On average, the closest calculation to plans' own disclosures 
seemed to be a broad definition of income which included line 2(c) 
``Other Income,'' but a narrow definition of expenses which included 
only investment management expenses. Assuming that is appropriate, 
Figure 2 shows realized returns on this measure, as well as arithmetic 
and geometric average returns. I focus on the geometric average, as the 
use of a discount rate requires the compound annualized return on 
assets to equal the discount rate for full funding. The geometric 
average return is the actual annualized return an investor earns over a 
multiple time periods, while the arithmetic average is not.\7\
---------------------------------------------------------------------------
    \7\ To give a stark example, imagine that in period 1 the stock 
market fell by 50 percent and in period 2 it rose by 50 percent. The 
arithmetic average return would be 0 percent (break even). But an 
investor who invested, say, $100 in the market through both periods 
would not break even--they would end up with $75. The geometric average 
return reflects the annualized return (or loss) that the investor 
actually faces.

    Over 1996-2016, the geometric average returns were 6.2 percent, 6.6 
percent, and 5.9 percent, for the equally weighted, asset-weighted, and 
median series respectively. Excluding Other Income, on the grounds that 
some of it might have only been earnable with the incursion of expenses 
other than investment management expenses, would lower the geometric 
average returns to 6.0 percent, 6.5 percent, and 5.8 percent for the 
equally weighted, asset-weighted, and median series respectively. The 
fact that the asset-weighted returns are higher reflects relatively 
---------------------------------------------------------------------------
better performance by larger plans.

    In sum, I estimate that the average plan realized returns of 5.8-
6.2 percent over the period 1996-2016, and that the multiemployer space 
overall realized returns of 6.5-6.6 percent over the period. Thus, my 
analysis of the returns in the Schedule MB filings reveals that over 
the past 2 decades, compound annualized returns have fallen short of 
the current average level of the actuarial discount rate (7.3 percent), 
despite the fact that the period in question was part of a multi-decade 
bull market in stocks and other risky assets.

    Unfunded liabilities are very different when measured on the 
different funding standards. Table 1 shows total unfunded liabilities 
for 2009-2016. Looking at the entire multiemployer space, on an 
actuarial basis there was $155 billion of underfunding in 2016. On a 
current liability basis, this underfunding rises to $582 billion, and 
on a solvency basis it rises to $722 billion. It is notable that 
underfunding on the current liability and solvency liability standards 
have not improved since 2009, the near-trough of asset markets in the 
financial crisis; in fact the funding condition has deteriorated.

    The overall 2016 actuarial funding ratio is 74 percent, the overall 
current liability funding ratio is 44 percent, and the overall solvency 
standard funding ratio is 38 percent. Figure 3 illustrates this funding 
ratio under the three standards, plus under an arbitrary 10 percent 
discount rate and 12 percent discount rate to illustrate that given 
discretion to choose the rate, funding ratios can be made arbitrarily 
high. If actuaries chose a 10 percent discount rate, the funding ratio 
would be 87 percent. If they chose a 12 percent discount rate, it would 
be 105 percent.\8\
---------------------------------------------------------------------------
    \8\ In a sense, given the discrepancy between the realized and 
expected returns documented above and the fact that an expected return 
is simply the wrong statistic to use as a discount rate, the expected 
returns that plans are using as their chosen discount rate are just as 
arbitrary.

    Although plans on average achieved their targeted returns during 
the 2009-2016 period (one during which the S&P 500 index roughly 
doubled) funding ratios did not materially improve on any of the 
measures. Figure 4 shows in three separate graphs the evolution of 
funding ratios for plans in the different zones under the three 
different funding standards. This suggests that multiemployer plan 
funding may be quite vulnerable to a period in which markets do not 
continue the rapid increases seen over the sample period, and also that 
neither the minimum funding requirements followed by non-critical plans 
nor the funding improvement plans (FIPs) or rehabilitation plans (RPs) 
implemented by the endangered and critical plans have led to tangible 
progress in funding ratio improvement.
            iii. funding and minimum funding requirements: 
                  multiemployer versus single employer
    Both the single and multiemployer programs were initially under 
ERISA marked by requirements to maintain an annual funding standard 
account in which firms were charged with paying the present value cost 
of new benefits plus an amortization of unfunded liabilities. However, 
Congress strengthened implementation of this principle over time in the 
single-employer program (despite some recent funding relief measures), 
while essentially removing it for multiemployer plans in weaker 
condition in the Pension Protection Act of 2006.

    The impacts of these divergent policies can be seen in the data. 
The PBGC also computes a funding ratio on the basis of ``the cost to 
purchase an annuity at the beginning of the plan year'' to cover vested 
benefits, a measure much closer to a solvency ratio. The top panel of 
Figure 5 compares the percent of employees in multiemployer versus 
single employer plans covered by defined benefit plans with different 
levels of this funding ratio.

    As of 2015, 39 percent of employees in the multiemployer program 
are covered by plans with less than a 40-percent funding ratio, and 33 
percent of employees are covered by plans with a funding ratio between 
40 percent and 50 percent, so that 72 percent of participants in the 
multiemployer plan are covered by plans that have less than half of the 
liabilities necessary to meet the PBGC's standard based on the PBGC 
rate (which is essentially a solvency standard).\9\ In contrast, as of 
2016, less than 1 percent of employees in single-employer DB plans are 
covered by plans with less than 50-percent funding ratios on the PBGC 
solvency basis and approximately three-quarters of employees in single-
employer DB plans are covered by plans with funding ratios of over 70 
percent.
---------------------------------------------------------------------------
    \9\ Adding participants in plans that the PBGC has taken over or 
has booked but not yet taken over, this rises further to 74 percent.

    By international standards, the single-employer DB pension system 
in the U.S. would not be considered well-funded (see Rauh (2018)), but 
the fact that it is in much better financial condition than either the 
multiemployer system or the public plan system is largely a function of 
contribution requirements, or at least the ones that existed 
historically when Deficit Reduction Contributions (DRCs) were linked to 
Treasury yields. Specifically, between 1987 and the early 2000s, firms 
with underfunded pension plans operating under the PBGC's single-
employer pension program were required to make DRCs that would close 
---------------------------------------------------------------------------
the funding gap in the current liability, based on 30-year bond yields.

    This standard was gradually relaxed over time for single-employer 
pension plans. The Pension Funding Equity Act of 2004 formally changed 
the required interest rate to a weighted average of yields on a 
composite of corporate bond rates for 2003-2006. The Pension Protection 
Act of 2006 extended that corporate interest rate for DRCs to 2006-
2007, and then for years beginning with 2008 eliminated the dual 
funding standard (funding standard account and DRC) and replaced it 
with a ``segment rate'' corporate bond yield standard funding targets, 
with those segment rates based on a 24-month average of investment-
grade corporate bonds. Further funding relief for single-employer plans 
came in the WRERA (2009), PRA (2010), and MAP-21 (2012), the last of 
which implemented 25-year smoothing of PPA segment rates.\10\
---------------------------------------------------------------------------
    \10\ IRS-5500 Schedule SB Instructions: ``Generally (except for 
certain plans under sections 104, 105, and 402 of the Pension 
Protection Act of 2006 and CSEC plans under section 414(y)), for 
funding purposes, single-employer plans are required to use the 24-
month average segment rates determined under section 430(h)(2) of the 
code, as amended by the Moving Ahead for Progress in the 21st Century 
Act (MAP-21), the Highway and Transportation Funding Act of 2014 
(HATFA), and the Bipartisan Budget Act of 2015 (BBA).''

    In addition, starting with MAP-21, Congress has significantly 
increased Variable Rate Premiums for single-employer plans. These 
premiums will be 4.2 percent of underfunding annually starting in 2019 
and linked to inflation. This provides a further incentive for single-
---------------------------------------------------------------------------
employer plans to remain well-funded.

    Nonetheless, despite this relaxation of funding rules since OBRA 
'87, the legislation surrounding the single-employer program has 
adhered to a key principle: if a plan cannot or does not make required 
contributions, the sponsor must face an excise tax or terminate the 
plan. Furthermore, a firm participating in the single-
employer DB program knows that it will bear the costs of unfunded 
liabilities unless the firm goes bankrupt. The multiemployer system 
began with that principle in place, at least under actuarial discount 
rates, but the principle was substantially eroded over time in several 
ways. In general, funding standards in the multiemployer program are 
much looser and the responsibility for paying down unfunded liabilities 
considerably more dispersed.

    The single-employer system also has several additional built-in 
protective measures limiting system-wide damage and taxpayer exposure 
should plans become troubled. Notably, single employer plans are 
subject to an excise tax when they fail to meet required contributions, 
which forces plans that are digging themselves into a deeper hole to 
terminate. This was the rule for multiemployer plans before the Pension 
Protection Act legislation of 2006. The removal of this rule has led to 
a situation where there is no practical way to require a failing 
multiemployer plan to terminate. As such, multiemployer plans under 
current law can become insolvent, receive PBGC assistance, and continue 
to promise new benefits. Furthermore, the PBGC has additional 
protection through its authority to terminate single-employer plans 
that are meeting the normally applicable funding rules if PBGC believes 
such plans pose a threat to PBGC's finances.

    In a single-employer plan, benefits are both frozen and statutorily 
cut to the PBGC level immediately upon termination. This was the case 
for multiemployer plans before the Multiemployer Pension Plan 
Amendments Act of 1980, but that legislation made insolvency (running 
out of money to pay benefits) the insurable event instead of the 
termination itself. So while a multiemployer plan that terminates is no 
longer allowed to promise new benefits, accrued benefits in 
multiemployer are not cut to the PBGC-insured level until the plan runs 
out of resources, creating additional taxpayer liability even for 
terminated plans.

    The CBO has concluded the rules that govern how multiemployer plans 
are funded expose the PBGC to the risk of large losses (CBO 
(2016)).\11\ The CBO specifically highlights three sources of risk 
factors in the multiemployer contribution requirements. First, the fact 
that starting with the PPA of 2006, employers participating in plans 
that were deemed critically underfunded were allowed to contribute less 
than the minimum required contribution, with RPs that are apparently 
inadequate replacements. The CBO's conclusion:
---------------------------------------------------------------------------
    \11\ See page 2 of that report.

        The effects of the exception to the rules governing minimum 
        contributions can be seen in the contribution rates of plans 
        with a funding ratio of less than 65 percent, almost all of 
        which are following rehabilitation plans. More than half of 
        those pension plans (weighted by liabilities) will be unable to 
        eliminate their underfunding if they do not increase 
---------------------------------------------------------------------------
        contributions or negotiate cuts in benefits. CBO (2016)

    It therefore seems clear that the rehabilitation plans are not 
sufficient to restore the funding to that extent that would have been 
possible had it been possible to continue minimum contribution levels.

    The second aspect of funding rules identified by the CBO as leading 
to inadequate funding is the framework for employer withdrawals from 
multiemployer plans. Some employers have testified before the Joint 
Select Committee that the withdrawal liability may be quite large in 
comparison to the employer's total assets or income. However, the size 
of withdrawal liability for remaining employers is in part so large 
because of the terms under which prior employer participants were 
allowed to withdraw from the plans. The withdrawal rules are complex 
(see Wolf and Spangler (2015)), but there are many ways in which they 
usually underestimate the true cost of withdrawing from a plan. 
Specifically:

          Regardless of an employer's attributable share of plan 
        underfunding (and except in cases of mass withdrawal) an 
        employer's withdrawal liability is limited to 20 annual 
        payments, each of which is capped by the highest contribution 
        rate of the employer in the 10 years prior to withdrawal 
        multiplied by the average contribution base of the employer in 
        the three consecutive years with the highest contribution bases 
        over those 10 years. The 20-year limit applies regardless of 
        what percentage of the employer's attributable share of the 
        underfunding is met by the 20 annual payments.
          There is no interest on these payments.
          The allowable withdrawal liability is generally based on the 
        share of contributions an employer has made during a specified 
        number of previous years, not its share of the unfunded vested 
        liability. Employers choosing to withdraw are likely to be ones 
        for whom this comparison (share of recent contributions versus 
        share of liability) is likely to be favorable.
          The total unfunded liability for purposes of computing the 
        employer's attributable share is calculated using a discount 
        rate close to the actuarial rate, and the plan has no recourse 
        to the employer if investment returns do not achieve their 
        target.\12\
---------------------------------------------------------------------------
    \12\ This is an issue being litigated. A recent case ruled that the 
plan in that case could not use a rate lower than the actuarial 
discount rate but left open room that plans might be allowed to use a 
somewhat lower rate in some circumstances. The New York Times Co. v. 
Newspapers and Mail Deliverers'-Publishers' Pension Fund, No. 1:17-cv-
06178-RWS (S.D.N.Y. March 26, 2018)]

---------------------------------------------------------------------------
    Regarding the last of these bullet points, the CBO explains:

        Even if the withdrawing employer makes withdrawal liability 
        payments to cover the entire liabilities of orphan 
        participants, the fact of those participants' promised benefits 
        raises the risk of future underfunding, because a withdrawing 
        employer is not obligated to reimburse the plan for any 
        investment losses on its withdrawal liability payments. CBO 
        (2016)

    The mismeasurement of the withdrawal liability is therefore another 
channel through which understatement of the liability through actuarial 
discount rates has had grave consequences for multiemployer funding. A 
further issue with regard to withdrawal liability is that the 
contribution rate increases as part of a funding improvement plan or 
funding rehabilitation plan are disregarded for purposes of calculating 
the contribution rate used in determining the 20 years of annual 
payments. Many plans who wish to raise rates to deal with underfunding 
must also consider whether rate increases will lead to employers 
withdrawing and locking in older, lower rates.

    The third factor that the CBO argues has contributed to inadequate 
funding and risk of insolvency is what it deems ``Industry and 
Demographic Factors,'' highlighting the decline of the manufacturing 
and construction sectors. As the CBO explains, the relevance of the 
industry declines for the solvency of plans is a cash flow issue.

        That decline has reduced the ability of underfunded plans to 
        forestall insolvency because, with fewer active participants, 
        plans have less cash coming in from normal cost contributions 
        that could be used to pay current benefits. CBO (2016)

    That is, the industry decline is primarily relevant only if one 
believes that a pension plan should be allowed to pay retirees using 
the contributions of current workers.

    Despite the slowdown in these industries, there are nonetheless 
many active participants who have joined multiemployer plans in the 
past 5 years. This statement highlights the risks faced by these more 
recent hires, whose contributions are being used to pay retirement 
benefits of current retirees. I calculate that in the largest 20 
multiemployer plans alone, there were 369,000 employees in 2016 with 
less than 5 years of accumulated service. Extrapolating this to the 
universe of multiemployer plans would imply 960,000-990,000 of these 
individuals in the universe. That is, there are 1 million individuals 
who have begun to participate in a multiemployer plan in the past 5 
years, and on whose behalf employers are contributing to a system that 
on standardized measures is in grave danger of failure. By allowing 
plans at risk of insolvency--or even already insolvent plans--to 
continue to take contributions from new employees, without a correction 
of these funding rules, the system is placing younger plan members at 
even greater risk than more senior members of the plans.

    In sum, the funding rules for multiemployer plans have long been 
inadequate. The sources of this inadequacy are mismeasured costs 
through the use of actuarial discount rates; the failure to lay 
solvency-based funding requirements on top of the actuarial standard as 
was done in the single-employer plans; and the withdrawal liability 
calculations which allowed employers to leave multiemployer plans 
without paying the true present value of unfunded vested benefits.
    iv. standards for when plans are making sufficient contributions
    When is a multiemployer plan making sufficient contributions? One 
standard would be when the contributions exceed the cost of new 
benefits plus interest on the unfunded liability. That's essentially a 
``treading water'' standard--it means that the unfunded liability isn't 
getting larger. Another standard would be contributing the cost of new 
benefits, plus progress towards paying down (or ``amortizing'') the 
unfunded liability. Whether a plan is achieving either standard will 
depend on the chosen liability measurement. Plans that appear to be 
treading water or amortizing the unfunded liability under the actuarial 
liability measure may not be doing so under a solvency measure.

    To what extent is the system as a whole meeting these standards? 
Figure 6 shows total multiemployer plan contributions relative to the 
cost of new benefits, the cost of new benefits plus interest on the 
unfunded liability, and the cost of new benefits plus amortization. The 
three panels show these comparisons under the three different 
measurements in Section II: the actuarial measurement, the current 
liability measurement, and the solvency liability measurement.\13\ 
Contributions are the same in all three graphs--they totaled $18.20 
billion in 2009 and rose to $27.41 billion in 2016. As shown in the top 
graph, these are more than both the treading water standard and the 
amortization standard based on actuarial measurement. The middle and 
bottom graphs show that contributions are substantially below both the 
treading water standard and the amortization standard on the current 
liability and solvency liability measurements. Specifically:
---------------------------------------------------------------------------
    \13\ Normal costs are presented in the Schedule MB of the 5,500 
filings on an actuarial discounting basis. The current liability normal 
cost is also provided as the plan's expected increase in current 
liability during the plan year. The solvency liability normal cost is 
calculated under the assumption that the duration of the newly accrued 
pension promises is 17.5 years.

          To meet the treading water and amortization standards under 
        the current liability, plans would respectively have had to 
        contribute $42.26 billion and $43.98 billion in 2016, increases 
        of 54 percent and 60 percent respectively.
          To meet the treading water and amortization standards under 
        the current liability, plans would respectively have had to 
        contribute $42.23 billion and $59.15 billion in 2016, increases 
        of 54 percent and 216 percent respectively.

    What percentage of plans are meeting these standards? Figure 7 
shows for green zone, endangered, critical, and critical-declining 
plans respectively the percent of plans that are contributing at least 
the normal cost plus a 30-year amortization of the unfunded liability. 
As of 2016, 86 percent of green zone, 77 percent of yellow/orange zone, 
and 46 percent of non-declining red zone were meeting this standard on 
an actuarial liability basis. These figures drop to 7 percent, 11 
percent and 2 percent on the current liability basis; and 1 percent, 4 
percent, and 2 percent on the solvency liability basis. Unsurprisingly, 
very few plans that are critical and declining are meeting the standard 
of contributing at least the normal cost plus a 30-year amortization of 
the unfunded liability on any measure.

    Figure 8 shows that somewhat more plans were meeting the ``treading 
water'' standard as of 2016. As of 2016, 89 percent of green zone, 88 
percent of yellow/
orange zone, and 55 percent of non-declining red zone were meeting this 
standard on an actuarial liability basis. These figures drop to 16 
percent, 34 percent and 17 percent on the current liability basis; and 
they are 15 percent, 35 percent, and 15 percent on the solvency 
liability basis.

    Overall as of 2016, 71 percent of all multiemployer plans are 
contributing at least the normal cost plus a 30-year amortization of 
the unfunded liability, and 75 percent are at least ``treading water'' 
under the actuarial measurement. But under the much more appropriate 
Treasury yield curve solvency basis, the picture looks quite different. 
Only 1.4 percent of multiemployer are contributing service cost plus 
30-year amortization, and only 17 percent are treading water.
                   v. loan programs and pension math
    Several proposals have been made to create loan programs for 
multiemployer plans. Notably, S. 2147 (Butch Lewis Act of 2017) would 
``amend the Internal Revenue Code of 1986 to create a Pension 
Rehabilitation Trust Fund, to establish a Pension Rehabilitation 
Administration within the Department of the Treasury to make loans to 
multiemployer defined benefit plans,'' and S. 1911 (American Miners 
Pension Act of 2017) would ``transfer certain funds [from the Abandoned 
Mine Reclamation Fund] and provide loans to the 1974 United Mine 
Workers of America (UMWA) Pension Plan in order to provide pension 
benefits for retired coal miners.''

    The logic behind a loan program is generally based on the same 
fallacies that underlie the measurement of pension obligations using 
expected return on assets. The proposals are often sold as a win for 
taxpayers under the idea that the plan will pay a low fixed rate of 
interest to the Federal Government, and then invest the proceeds in its 
portfolio of risk assets which it hopes will earn the actuarial 
expected rate of return. But if this were clearly a good policy, then 
voters would want to urge the Federal Government to borrow far greater 
amounts of money and invest it in the stock market on its own behalf.

    For example, consider the Federal Government's projected budget 
deficit for the current fiscal year. The CBO has projected an $804-
billion budget deficit for fiscal year 2018. Federal budget deficits 
generally must be covered through additional borrowing. So an FY18 
budget deficit of $804 billion would add $804 billion to the Federal 
debt until the time that it could be paid back. Without a plan to pay 
it back, that addition to the Federal debt would be assumed to be 
indefinite, and would certainly appear on the horizon of a standard 10-
year budget window.

    According to the same flawed logic behind the loan program, 
however, the Federal government could solve its problem of creating 
debt over a 10-year budget window in the following way. Instead of 
borrowing just $804 billion today, it could borrow $1.608 trillion 
today (twice the budget deficit) from taxpayers. Of the $1.608 trillion 
it borrowed, half of that ($804 billion) could go to pay for the 
unfunded expenditures this year, and the other half ($804 billion) 
could be invested in a portfolio of assets similar to that of a pension 
fund.

    If these funds are assumed to have a return of 7.2 percent per 
year, the entire $1.608 trillion could be assumed to be paid off in 10 
years, as the $804 billion growing at 7.2 percent per year would double 
in 10 years, appearing to eliminate the debt. Of course, the Federal 
Government would have to pay around 3 percent annual interest on the 
borrowing, so this program would cost $24.1 billion per year over each 
of the next 10 years--but that $241 billion spread over 10 years would 
be a comparatively small price to pay for apparently ``eliminating'' an 
$804 billion current budget deficit. The government would essentially 
be assuming that it could book as profit the spread between the 3 
percent borrowing rate and the 7.2 percent investment return.

    Furthermore, the problem of the interest costs could be ``solved'' 
by investing more aggressively. Many institutional investors have 
return targets of 8 percent or even more. If the government could 
assume an 8.9 percent rate of return, the $804 billion portfolio would 
grow enough to pay off the $1.608 trillion borrowing plus all accrued 
interest at the end of the 10 years. Assuming the 2.9 percent June 2018 
year-on-year CPI-U inflation rate persists for 10 years, this 
assumption could be disclosed as a ``real return assumption'' of just 6 
percent. By borrowing more than necessary to fund the deficit and 
investing the balance in risky assets that it assumes will earn high 
enough returns to repay all the debt, the Federal Government could 
assume its budget deficit away.

    The clear flaw in this logic is that it ignores the risk that the 
asset pool will not achieve the expected return. Loans to multiemployer 
plans, which those plans would then invest in portfolios of assets, are 
analogous. The fact that the Federal Government would not undertake 
such transactions on its own account reflects that fact that it would 
be concerned about the inherent risk in doing so. By loaning money to 
the multiemployer plans to invest in their portfolios, the Federal 
Government would be acting in a way similar to the buyers of pension 
obligation bonds (POBs) issued by some State and local governments. The 
Federal Government would thus be placing taxpayer money at risk if the 
loans were not able to be repaid in full due to investment returns that 
fall short of the target.
              vi. concluding remarks and policy proposals
    To protect the interests of all stakeholders, it is critical in the 
management and regulation of pension plans to ensure proper measurement 
of costs and liabilities. While there is hardly any disagreement among 
financial economists as to the appropriate way to measure pension 
liabilities for the purposes of determining solvency, the pension 
actuarial community has largely rejected the financial economics view. 
One source of the disagreement seems to be the fact that disclosure 
requirements and funding requirements are often linked (Lucas (2017)). 
Simply reporting the appropriate solvency-based defeasement measure of 
a pension promise reveals its true cost in today's dollars. The mere 
disclosure of the number that the finance profession agrees is the 
right way to measure the solvency of a pension system should not be 
controversial. While multiemployer plans are required to disclose the 
``current liability,'' which is considerably closer to a true solvency 
standard than the actuarial rate, a true solvency number based on the 
Treasury yield curve, with very limited or preferably no smoothing, 
should be required for multiemployer plans.

    The optimal approach to funding a pension plan, particularly one 
that is already as underwater as the typical multiemployer plan is on a 
solvency basis, is a more difficult challenge. In order to protect the 
interests of both plan participants and taxpayers in the multiemployer 
system, it is important to move (gradually) to a funding standard that 
ensures that underfunded plans take real steps to remediate unfunded 
liabilities as measured on an intellectually solid basis, as opposed to 
one based on wishful thinking. This is the logic that supported the 
introduction of deficit reduction contributions to the single-employer 
system in 1987, as well as the provisions of the Pension Protection Act 
of 2006 that required single-employer plan sponsors to use segment 
yield curves as a funding standard measure.

    To address the incentive that employer might have to withdraw, the 
rigorous funding standard should be phased in slowly, with near-term 
contributions initially limited to some measure of affordability for 
employers, such as by capping the growth in employer contributions for 
a period of years. Further, Congress should act immediately to change 
the withdrawal liability to reflect the true value of unfunded 
liabilities.

    In sum, the approach to fixing the multiemployer system has focused 
on funding relief for troubled plans and opening the door for trustee 
boards to cut benefits (MPRA 2014). This has been the wrong approach, 
and it hurts employees, retirees and taxpayers. The correct approach is 
to stop digging the hole.

    Specifically, given the risk that plan participants face, Congress 
should require multiemployer systems not paying the normal cost plus 
long-term amortization to stop making new promises (freeze the plan). 
Frozen plans should be required to stabilize the funding level by 
contributing interest on unfunded liabilities plus any additional 
contributions that might be necessary to ensure that they do not run 
out of money in the next several decades. Plans that do not follow 
these rules should be subject to an excise tax in the amount of the 
missed contributions, which was the rule before the Pension Protection 
Act of 2006. Knowing that the consequences of not meeting required 
contributions is the excise tax, the employers and union would then 
decide on their own to either come up with the required contributions, 
or if they are unable or unwilling to do so they would choose to 
terminate the plan rather than pay the excise tax. Termination should 
be automatic rather than discretionary so that PBGC is not subject to 
political pressure not to terminate plans on a case-by-case basis.

    The PBGC under current law is backed solely by the premiums paid by 
the plans, not by Federal taxpayers. It is therefore important that 
PBGC be shored up through risk-based premiums, so that PBGC will be 
able to provide the statutory guarantee to retirees in any plans that 
should fail. It is equally important that the PBGC has the authority to 
protect its own financial condition by initiating terminations if plans 
are putting unreasonable risk on the insurance program, and by reducing 
benefits to the PBGC level upon termination. This was the rule for 
multiemployer plans before the Multiemployer Pension Plan Amendments 
Act of 1980, and is still the rule for single employer plans today. 
These principles remain the same even if Congress were to vote to 
extend funding for the PBGC, as they would be essential to protect the 
interest of taxpayers as well as plan participants.

References

Arrow, K., and Debreu, G., 1954, ``Existence of an Equilibrium for a 
Competitive Economy,'' Econometrica 22(3), 265-290.

CBO, 2016, ``Options to Improve the Financial Condition of the Pension 
Benefit Guaranty Corporation's Multiemployer Program,'' CBO.

Bulow, J., 1982, ``What Are Corporate Pension Liabilities?'', Quarterly 
Journal of Economics 97(3), 435-452.

Brown, J., and Wilcox, D., 2009, ``Discounting State and Local Pension 
Liabilities,'' American Economic Review 99(2), 538-842.

Brown, J., and Pennachi, G., 2016, ``Discounting Pension Liabilities: 
Funding Versus Value,'' Journal of Pension Economics and Finance 15(3), 
254-284.

Gold, J., 2015, ``Public Pension Crisis: Role of the Actuarial 
Profession,'' working paper.

Lucas, D., 2017, ``Towards Fair Value Accounting for Public Pensions: 
The Case for Delinking Disclosure and Funding Requirements,'' MIT Sloan 
working paper, 5399-17.

Novy-Marx, R., and Rauh, J., 2011, ``Public Pension Promises: How Big 
Are They and What Are They Worth?'', Journal of Finance 66(4), 1211-
1249.

Pension Benefit Guaranty Corporation, 2016, ``Data Tables,'' https://
www.pbgc.gov/sites/default/files/2016_pension_data_tables.pdf.

Rauh, J., 2017, ``Hidden Debt, Hidden Deficits: 2017 Edition,'' Hoover 
Institution essay.

Rauh, J., 2018, ``Fiscal Implications of Pension Underfunding,'' 
working paper.

Society of Actuaries, 2006, ``Pension Actuary's Guide to Financial 
Economics,'' Joint AAA/SOA Task Force on Financial Economics and the 
Actuarial Model.

Wolf, C., and Spangler, P., 2015, ``Withdrawal Liability to Multi-
Employer Pension Plans Under ERISA,'' Vedder Price.

 [GRAPHIC] [TIFF OMITTED] T2518.001



                   Table 1: Total Unfunded Liabilities Under Different Standards ($ billions)
 This table shows the total unfunded liabilities under three different standards--actuarial, current liability,
   and solvency--as of the beginning of the plan year, from 2009 to 2016. The actuarial and current liability
     measures are from the IRS 5500 Form MB datasets from the Department of Labor. The solvency liability is
                      calculated using duration-matched points on the Treasury yield curve.
----------------------------------------------------------------------------------------------------------------
                                               (1)                       (2)                       (3)
                                   -----------------------------------------------------------------------------
                                            Actuarial             Current Liability        Solvency Liability
----------------------------------------------------------------------------------------------------------------
2009                                                (175.3)                   (398.9)                   (538.0)
2010                                                (154.1)                   (405.0)                   (490.6)
2011                                                (144.8)                   (406.3)                   (546.8)
2012                                                (170.0)                   (474.2)                   (719.0)
2013                                                (152.6)                   (539.7)                   (769.2)
2014                                                (129.6)                   (525.5)                   (627.0)
2015                                                (138.3)                   (561.2)                   (722.3)
2016                                                (154.6)                   (581.9)                   (721.7)
----------------------------------------------------------------------------------------------------------------


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----------------------------------------------------------------------------------------------------------------
                                                     Mean Investment
                                                     Return  (Equally     Mean Investment     Median Investment
                                                        Weighted)        Return  (Weighted)         Return
----------------------------------------------------------------------------------------------------------------
Baseline
    Arithmetic Average                                          6.52%                7.00%                6.31%
    Geometric Average                                           6.17%                6.61%                5.94%
 
Excluding ``Other Income''
    Arithmetic Average                                          6.34%                6.86%                6.19%
    Geometric Average                                           6.00%                6.47%                5.83%
----------------------------------------------------------------------------------------------------------------


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                                 ______
                                 
      Questions Submitted for the Record to Joshua D. Rauh, Ph.D.
               Question Submitted by Hon. Orrin G. Hatch
    Question. How does the condition of the multiemployer pension 
system compare to the State and local pension systems? Do you believe 
that the way Congress handles the multiemployer pension crisis will set 
a precedent that will affect how challenges facing State and local 
pension systems will be dealt with? Please provide graphical and other 
data relevant to your response.

    Answer. How Congress decides to address the multiemployer pension 
crisis may well set a precedent for how legislators will deal with the 
possibility that they will face similar calls for bailouts of State and 
local pension systems. In response to your question, I present here an 
update of analysis in my paper ``Hidden Debt, Hidden Deficits: 2017 
Edition'' (Rauh (2017)), which calculates stated and solvency-based 
measures of unfunded pension liabilities for State and local 
governments for plan year 2015. The methodology is based on Novy-Marx 
and Rauh (2011a). The update in this section presents statistics using 
the same methodology for plan year 2016.

    The study is conducted in a sample of 269 State pension plans and 
387 local pension plans, for a total of 656 plans. The State plans 
consist of all primary plans sponsored by U.S. States. The local plans 
consisted of all municipal plans in the top 170 cities by population 
according to the U.S. Census, and the top 100 counties by population. I 
estimate that this covers over 95 percent of the public plan universe 
by assets.

    As of 2016, unfunded liabilities had reached $1.74 trillion under 
recently implemented governmental accounting standards (GASB 67); 
however, they amount to $3.78 trillion under solvency valuation 
techniques that use the Treasury yield curve as of December 2016 to 
value the liability. As I explained in my testimony, to measure the 
cost of a guaranteed pension payment under the assumption that this 
payment will not be raised or lowered depending on future events (a 
``non-contingent'' payment), the sponsor must discount the promised 
payment using the yield on a 
default-free fixed-income security, as this solvency valuation 
technique does. This solvency valuation considers only a narrow 
definition of the liability as the present value of payments already 
promised based on current service and salary levels, and it assumes 
employees will not start taking benefits until their retirement date 
(as opposed to the earliest advantageous date). This calculation is 
known as an Accumulated Benefit Obligation (ABO). If there are legal 
restrictions on changes in benefits to current employees then the ABO 
understates the liability.

    The GASB 67 standards first implemented for plan year 2014 
preserved the basic flaw in governmental pension accounting: the 
fallacy that liabilities can be measured by choosing an expected return 
on plan assets. As with the multiemployer actuarial liability, this 
procedure uses as inputs the forecasts of investment returns on 
fundamentally risky assets and ignores the risk necessary to target 
hoped-for returns. The GASB 67 accounting standards tempered the 
effects of this assumption slightly by requiring some systems (58 plans 
or 8 percent of the sample) to use somewhat lower rates in their 
liability measurement for GASB 67 purposes.

    The liability-weighted average discount rate that plans in my study 
chose as of 2016 for the purposes of their GASB 67 disclosures was 7.1 
percent, in contrast to a weighted-average expected return of 7.5 
percent. Funding decisions are still generally made with respect to the 
expected-return benchmark, not the GASB 67 rate. The solvency standard 
I calculate using the Treasury yield curve selects the point on the 
Treasury yield curve closest to the duration of the liabilities, which 
is implied by the GASB 67 disclosure on rate sensitivity. The average 
rate used for the solvency yield based on the December 2016 yield curve 
is 2.7 percent.

    The table below summarizes further results. Panels (I) and (II) 
show assets, liabilities, and discount rates. Panel (III) shows cash 
flows into and out of State and local plans. Total State and local 
employer contributions were $114.2 billion in 2016, plus supplemental 
State government contributions of $14.7 billion. These plus the $46.9 
billion in member contributions total $175.9 billion in total 
contributions against $278.6 billion in payouts. For plan asset levels 
to remain stable, the difference must be made up for with investment 
returns.

    A better measure of stability, however, is not whether 
contributions plus investment returns meet the level of payouts, but 
rather whether they meet the true level of costs, which as explained in 
the testimony is normal cost plus interest on the unfunded liability. 
The first line of Panel (IV) shows that under the expected return 
actuarial standard, State and local governments in total fell $8.4 
billion short of meeting the ``treading water'' standard of normal cost 
plus interest on the unfunded liability. Under the solvency standard, 
$130.7 billion of additional contributions would be required to tread 
water and prevent negative amortization.

    As with the measures of unfunded liabilities for multiemployer 
systems, the total unfunded liabilities of public systems have not 
improved substantially in the past 5 years. In response to my estimate 
in 2012 that public pension liabilities were approaching $4 trillion, 
Robert Merton, an economics professor at MIT and Nobel Laureate was 
quoted in The Financial Times: `` `This $4tn figure is a lower bound,' 
argues Robert Merton, economics professor at MIT.'' This is relevant 
for the multiemployer private plan discussion for several reasons. 
First, many of the issues are parallel. Second, the stronger the belief 
by State and local governments that the Federal Government will bail 
them out, the less discipline they will choose to impose upon 
themselves to address the funding problems on their own.


        Table: State and Local Government Pension Funding (2016)
This table shows the 2016 summary totals for all public pension plans in
 the United States, including assets, liabilities, discount rates, flows
 into and out of State and local plans, and the additional contributions
 necessary to meet normal cost plus interest on unfunded liability under
    the expected return actuarial standard and the solvency standard.
                    (Amounts in billions of dollars)
------------------------------------------------------------------------
                                                          State & Local
                        State Pensions   Local Pensions      Pensions
                           (N=269)          (N=387)          (N=656)
------------------------------------------------------------------------
I. Assets and
 Liabilities
    GASB 67 Standards
        Total Pension           4,401              841            5,242
         Liability
         (TPL)
        Assets                  2,961              547            3,508
        Net Pension             1,439              294            1,733
         Liability
         (NPL)
        GASB 67                 67.3%            65.1%            66.9%
         Funding
         Ratio
 
    Solvency
     Standards
        Solvency                6,073            1,211            7,284
         Liability *
        Assets                  2,953              547            3,508
        Unfunded                3,112              664            3,776
         Solvency
         Liability
        Solvency                48.6%            45.2%            48.2%
         Funding
         Ratio
------------------------------------------------------------------------
II. Discount Rates
    GASB 67 Standards
        Average
         Discount
         Rate
            Liability           7.09%            7.05%            7.11%
             Weighted
            Unweighte           7.01%            7.17%            7.11%
             d
 
        Expected
         Return
            Liability           7.47%            7.23%            7.45%
             Weighted
            Unweighte           7.34%            7.24%            7.28%
             d
 
    Market Value
     Standards
        Average
         Discount
         Rate
            Liability           2.72%            2.73%            2.72%
             Weighted
            Unweighte           2.70%            2.67%            2.68%
             d
        Average
         Duration
            Liability           10.28            11.18            10.42
             Weighted
            Unweighte           11.33            10.60            10.91
             d
------------------------------------------------------------------------
III. Flows
    Benefits and                235.1             43.5            278.6
     Refunds
    Employer                     87.3             26.9            114.2
     Contributions
    Member                       40.5              6.4             46.9
     Contributions
    State                        14.4              0.3             14.7
     Contributions
    Total                       142.3             33.6            175.9
     Contributions
------------------------------------------------------------------------
IV. Accrual Basis:
 Necessary Additional
 Contributions
    Additional
     Necessary
     Contributions
        To prevent                9.5             -1.1              8.4
         rise in
         unfunded
         actuarial
         liability
        To prevent              112.7             18.0            130.7
         rise in
         solvency
         liability
------------------------------------------------------------------------
* Accumulated Benefit Obligation using the December 2016 Treasury yield
  curve.
 Necessary Additional Contributions to meet normal cost plus interest
  on unfunded liability.


                                 ______
                                 
               Questions Submitted by Hon. Sherrod Brown
    Question. In your written testimony, you observe that plan trustees 
are required to use reasonable assumptions and that trustees who 
budgeted to pay pensions using excessively high discount rates violated 
that statute by using unreasonable assumptions. Please identify the 
specific rate threshold for each of the last 10 years above which a 
trustee would violate ERISA's fiduciary rules by using that rate to 
value pension liabilities for minimum funding purposes.

    Answer. The fiduciary obligation is generally understood to require 
trustees to act using care and loyalty. These terms are open to 
interpretation, but in my opinion acting with care and loyalty has a 
few clear implications: trustees should only act in the best interests 
of plan participants, and they should make prudent choices with respect 
to contributions and investment selections. In addition, trustees must 
use assumptions, each of which must be reasonable under the tax code 
and ERISA, including the discount rates for liabilities.

    In my view, fiduciary duties are not definable by one specific rate 
threshold that prevails for all plans. Actions that satisfy the 
requirements of care and loyalty may differ for a fully funded plan 
versus an underfunded plan. The more underfunded a plan, the higher the 
stakes are if not enough is contributed in any given year and 
investments or future contributions fall short of projections, as 
participants run the increasing risk of not receiving benefits.

    It is indisputable that many plans are in poor financial condition. 
The reason these hearings are occurring is that large numbers of 
beneficiaries are at risk of not receiving their full pensions. There 
are only two possible explanations. The first is that trustees 
satisfied all fiduciary duties, acting with care and loyalty, but 
simply suffered several strokes of bad luck. The second is that 
trustees did not satisfy their fiduciary duties.

    Those who favor the ``bad luck'' explanation often point to the 
impact of the Great Recession on the stock market. But this cannot be 
an explanation. The pre-crisis peak close of the S&P 500 index was 
1,565 in October 2007. As of August 31, 2018, the S&P 500 closed above 
2,901. So even an investor who had placed all their money in the stock 
market on the eve of the crisis would have approximately doubled their 
money between then and the present time. The investment performance of 
multiemployer plans is highly correlated with that of the stock market. 
As such, this period must be seen as primarily one of very good luck in 
markets, not very bad. Alternatively, those who favor the ``bad luck'' 
explanation point to declines in the industries in which firms that 
offered multiemployer plans were operating. But trustees had years to 
increase contribution rates gradually and to support sustainable 
benefit levels. Trustees evidently were not willing to recognize that 
the price of an annuity can change over time and that the contribution 
needed to provide a certain level of benefits in one year may be 
woefully insufficient in another year. Pensions must be funded as the 
pensions are earned. It is not reasonable to count on future workers to 
pay the benefits earned by today's workers.

    The discount rate used to measure liabilities must be linked to the 
market price of annuities. Furthermore, to the extent plan trustees 
believe that contributions cannot be significantly raised over a short 
period of time in response to investment losses or other events, they 
are under a fiduciary obligation to fund liabilities using a standard 
that is close to this one, and to invest conservatively so that 
dramatic increases in contributions are not needed to make good on the 
promises the trustees made. This need to fund and invest based on more 
conservative assumptions is even stronger when the plan has already 
reached poor funding levels, as the plan beneficiaries are increasingly 
at risk.

    In sum, there is no specific rate threshold specified for each year 
that would be a cutoff for all plans and could be used as a litmus test 
for whether action was consistent with the care and loyalty standard. 
But I cannot see how--given the many tools available at the disposal of 
plan trustees--the current woeful condition of many multiemployer plans 
is consistent with the idea that plan trustees acted with care and 
loyalty as far as the protection of beneficiary interest is concerned.

    Question. Your testimony is primarily focused on discount rates for 
present value determinations. Are there other assumptions that plans 
routinely make that you believe are problematic? Please explain fully.

    Answer. Other key assumptions that plans routinely make include 
assumptions about plan participant retirement behavior, plan 
participant longevity, future employer withdrawal, and the future 
contribution base. I have not conducted a study of these factors and 
their effects on plan finances, but would argue that they should be 
investigated. In particular, the fact that many plans currently report 
that they are stressed by employer withdrawal indicates that their 
prior assumptions about which employers would remain with the plan and 
which would withdraw under conditions that left the plan short of 
necessary resources were too optimistic.

    Question. You authored a paper in 2010 (``Are State Public Pension 
Plans Sustainable? Why the Federal Government Should Worry About State 
Pension Liabilities''). The paper includes projections on when public 
pensions might exhaust their funds, with several States running out of 
funds in 2018-2020; specifically, Illinois in 2018, Connecticut, 
Indiana, and New Jersey in 2019, and Hawaii, Louisiana, and Oklahoma in 
2020. Have actual events to date borne out the projections in the paper 
for these States? Are there particular assumptions made in the paper 
that have not proved to be true, and if so, why not? Please fully 
explain your answer.

    Answer. A number of the States in question apparently heeded the 
warning that if nothing were done many pensions would be at risk of 
insolvency. State and local governments as a whole have increased 
contributions to pensions from their general fund budgets very 
substantially which has delayed the exhaustion of the funds.

    According to Census Bureau figures, annual contributions to State 
and local government pension plans were $119.6 billion in the year 
2008, the latest year for which plan data was available at the time. In 
2016, the latest year for which data are available, they were $191.6 
billion, or a 60-percent increase over those 8 years. Those individuals 
who are receiving fewer public services than they otherwise would, or 
paid increased taxes or contributions to fund public employee pensions, 
have paid the price of postponing the exhaustion of the pension funds.

    The second factor was the stock market. In June 2010, the S&P 500 
index ended the month at 1,031, while as noted above it is currently 
over 2,900, an almost three-fold increase. Despite this historic bull 
market, and burdensome contribution increases, the unfunded liabilities 
in State and local government pension systems are no smaller than they 
were in at the end of 2008 when the stock market was near a trough. The 
$3.78 trillion cited above is in fact extremely close to the earliest 
post-crisis estimates I gave of unfunded pension liabilities.\1\ Had 
the market not had the good fortunate of generating this torrid pace of 
growth in equity market valuations, many systems would indeed have 
become insolvent.
---------------------------------------------------------------------------
    \1\ Novy-Marx and Rauh (2009) found State unfunded liabilities of 
$3.23 trillion, and Novy-Marx and Rauh (2011b) found $0.68 trillion, 
for a total of $3.91 trillion.

    Question. Your testimony notes that the average plan realized 
returns of 5.8 percent to 6.2 percent over the period 1996-2016. Please 
explain why 1996 was selected as the beginning year for this analysis 
of investment returns? How does the analysis change if the beginning 
---------------------------------------------------------------------------
year was 5, 10, or 20 years earlier?

    Answer. It was selected as the beginning year for the analysis 
because those were the years for which the data were downloadable from 
the United States Department of Labor website: https://www.dol.gov/
agencies/ebsa/employers-and-advisers/plan-administration-and-
compliance/reporting-and-filing/form-5500.

    I would be happy to consider further analyses of risk and return if 
more data were made available.

    Question. The analysis also appears to exclude returns from ``Other 
Income.''

    Answer. That statement is incorrect. The estimates I emphasize 
(Baseline) include ``Other Income.'' Allow me to quote directly from my 
report and annotate it to be very clear:

        Over 1996-2016, the geometric average returns were 6.2 percent, 
        6.6 percent, and 5.9 percent, for the equally weighted, asset-
        weighted, and median series respectively [NOTE: and these 
        estimates include Other Income]. Excluding Other Income, on the 
        grounds that some of it might have only been earnable with the 
        incursion of expenses other than investment management 
        expenses, would lower the geometric average returns to 6.0 
        percent, 6.5 percent, and 5.8 percent for the equally weighted, 
        asset-weighted, and median series respectively.

    So the first point to make is that the estimates I emphasized 
include ``Other Income.'' The second point is that inclusion or 
exclusion of ``Other Income'' doesn't seem to matter very much in this 
aggregate analysis, as it has an effect of 10-20 basis points on the 
overall conclusions.

    Question. Please fully explain what Other Income is and why it is 
appropriate to exclude it from the analysis.

    Answer. It is arguable whether it is appropriate to include it or 
exclude it, and in situations where reasonable arguments can be made in 
both cases, the general best practice is to show the calculations both 
ways, which is what I do. And I also emphasize the results that include 
Other Income, not the results that exclude Other Income.

    Other Income includes plan income that is not directly related to 
the investments but that may have an indirect link. For example, a fee 
rebate or restorative payments (money refunded to the trust because it 
was determined that a fee should not have been paid out of the trust) 
might fall into Other Income.

    Question. Your testimony includes a quote from an official at the 
Federal Reserve who notes that ``[calculating the present value of 
liabilities using the projected rate of return] makes little sense from 
an economic perspective. If they shift their portfolio into even 
riskier assets, does the value of the liabilities . . . go down?'' 
Please explain whether trustees subject to ERISA have unfettered 
discretion in the selection of a plan's investment strategy or any 
specific plan asset. Are there limits to the degree of risk that 
trustees may undertake when investing plan assets?

    Answer. Trustees are subject to ERISA's fiduciary rules. As stated 
above, the fiduciary obligation is generally understood to require 
trustees to act using care and loyalty. The duty of care is generally 
tied to the standard of prudence, or to quote from the law: ``with the 
care, skill, prudence, and diligence under the circumstances then 
prevailing that a prudent man acting in a like capacity and familiar 
with such matters would use in the conduct of an enterprise of a like 
character and with like aims.''

    According to the principles of financial economics, the present 
value of a pension liability has nothing to do with the investment 
strategy implemented with the assets. This is true regardless of 
whether the trustees are meeting the fiduciary standard or not with 
their investment strategies.

                                 ______
                                 
              Questions Submitted by Hon. Virginia Foxx, 
               a U.S. Representative From North Carolina
    Question. For what reasons might the trustees of a multiemployer 
defined benefit pension plan decide to increase investment risks, and 
what consequences might these decisions have on plan participants? Do 
you believe a pension plan structure that relies on large investment 
returns to make up for insufficient contributions is sustainable?

    Answer. Under the current law and governance of multiemployer 
pension systems, the more investment risk that a plan takes, the higher 
will be the actuarial discount rate and the lower will be current 
contributions. This reduces the contribution burden on currently 
participating employers and employees in the plan, but it increases the 
burden on whoever must pay or suffer if the targeted investment returns 
are not achieved. In the multiemployer context, the first ones who 
suffer are the employers who do not withdraw from the plan (to the 
benefit of employers who do), and the generation of employees who must 
pay higher contributions (to the benefit of current retirees who are 
relying more on current contributions of their younger colleagues). 
Once those sources are exhausted, the next group that suffers are the 
current and future retirees at risk of seeing their benefits cut, and 
the taxpayers if called on to bail out the program.

    The more risk plans take, the greater their reliance on future 
investment returns to pay benefits. Thus, as risk increases, plan 
participants who expect to receive pensions in the future are 
increasingly at risk of not receiving their pensions. Any system that 
relies on increasing contributions of new entrants or employers 
remaining in the plan in order to meet promises to those already 
retired and/or not paid for by employers remaining in the plan is 
unsustainable.

    Question. There has been discussion in this committee and in other 
forums about which parties would be affected by multiemployer plan 
insolvencies and similarly, which parties would be impacted by a loan 
program to support financially unstable multiemployer plans. How might 
taxpayers be affected if no action were taken by Congress to correct 
the inadequate funding of multiemployer pension plans? How might 
taxpayers be impacted if proposed Federal loan programs were enacted?

    Answer. Without changes, funding of multiemployer plans will 
continue to deteriorate and I predict that ultimately taxpayers will 
find that the plans will request even larger bailouts from Congress to 
prevent benefit cuts. As such, Congress must take action that both 
protects Federal taxpayers against even greater liability and creates 
private-sector incentives to shore up the plans. The need to achieve 
these goals is the basis for the policy proposals in my written 
testimony. The enactment of a Federal loan program would also likely 
increase taxpayer liability over the long term, as without structural 
changes to the plans, I predict that they will continue to accrue 
unfunded liabilities as they have in the past. An additional effect of 
a Federal loan program for multiemployer plans would likely be more 
reckless behavior by public pension plans in expectation that they 
would also be granted Federal loans if risky assets underperform 
expectations.

References

Novy-Marx, Robert, and Joshua Rauh, 2009, ``The Liabilities and Risks 
of State-Sponsored Pension Plans,'' Journal of Economics Perspectives 
23(4).

Novy-Marx, Robert, and Joshua Rauh, 2011a, ``Public Pension Promises: 
How Big Are They and What Are They Worth?'', Journal of Finance 66(4), 
1207-1245.

Novy-Marx, Robert, and Joshua Rauh, 2011b, ``The Crisis in Local 
Government Pensions in the United States,'' in Growing Old: Paying for 
Retirement and Institutional Money Management After the Financial 
Crisis, Robert Litan and Richard Herring, eds., Brookings Institution, 
Washington DC.

Rauh, Joshua, 2017, ``Hidden Debt, Hidden Deficits: 2017 Edition,'' 
Hoover Institution essay.

                                 ______
                                 
       Prepared Statement of Kenneth Stribling, Retired Teamster
    Thank you, Senator Johnson, for your kind words. I am humbled and 
appreciate your support.

    Good morning. My name is Kenneth Stribling. I am a retired Teamster 
from Local 200 in Milwaukee, WI. I am also co-chair of the Milwaukee 
Committee to Protect Pensions, which is one of many committees across 
the country that are part of the National United Committee to Protect 
Pensions, the NUCPP.

    First, I want to thank you, Senator Hatch and Senator Brown, 
Senator Portman, Congressman Neal, and the other members of the Joint 
Select Committee, for inviting me to be here today and being so 
supportive. Also, I am very honored that my Senator, Ron Johnson, 
introduced me. Thank you again, Senator, for those kind words. He and 
Senator Baldwin from the great State of Wisconsin have been very 
supportive of our efforts to save our pensions. They recognize, as you 
do, that fixing underfunded pension plans is a bipartisan issue.

    Let me tell you my story. I worked for 30 years for four different 
trucking companies that paid into the Central States Pension Fund. I 
retired from USF Holland in 2010. My benefits moved with me because my 
employers paid into the same plan, ensuring that I'd have a secure 
pension for life.

    I need this pension income more than ever. I am married with five 
adult children, seven grandchildren, and two more on the way. I love my 
family dearly, and thanks to my pension, I'm not a financial burden to 
them but instead my wife and I have been able to help out our kids and 
grandkids with child care and support when life's emergencies happen.

    I will never forget the day I received my letter from the Central 
States Pension Fund with the news that they were applying to the 
Treasury Department to reduce my monthly pension benefit by 55 percent. 
Life changed that day. You have no idea what it's like to be retired on 
a fixed income and suddenly be told your monthly check would be cut in 
half. I was devastated and so was my family.

    After receiving this shocking news, I felt something needed to be 
done. I joined with other retirees to stop cuts and find solutions, and 
we have been at it ever since. I felt compelled to become involved in 
the movement to find a solution to the pension crisis. Not only would a 
reduction radically change my retirement years but also affect 
countless households across the country. This involvement has also 
changed our lives.

    I have been through contract negotiations when we have sacrificed 
wage increases to have better health and pension benefits. I believe we 
have done our part with shared sacrifice. In addition to giving up wage 
increases, we often endured tough work conditions, long shifts and cold 
nights on unheated docks, and manual labor.

    Another day I will never forget is November 17, 2017, the day we 
learned my wife Beverly has terminal pancreatic cancer, stage 4 cancer 
that has spread to her liver. My wife is a fighter and plans on 
outliving her current diagnosis. She also is retired, after working 
nearly 30 years as a teacher. Fortunately we have a close and 
supportive family. Beverly's son and daughter-in-law put their careers 
on hold and moved back to Milwaukee to spend time with her and help 
with her care. Bev's sister retired and also moved home. And with the 
help of all our children and extended family I have been able to 
continue to remain active in this movement, which includes travel and 
meetings. My involvement has taken much of my time and energy, and at 
times I thought I couldn't continue. But my wife made me promise to 
stay committed until a solution was found.

    I live with a very uncertain future. My wife is dying, we have 
mounting medical bills, and the stress is now impacting my health. I 
was recently diagnosed with an enlarged heart. This is due to high 
blood pressure and stress. My heart is working overtime just to keep 
up. My wife is worried I may end up like Butch Lewis, one of the co-
founders of this movement, whose death inspired the legislation named 
after him.

    Let me be clear: my story is unique, but I am like any other 
retiree impacted by the possibility of a benefit reduction. Life didn't 
stop when our letters arrived. We all endure life's storms: illness, 
deaths, and physical and mental health challenges. Now we all have the 
added burden of traveling through our golden years with an uncertain 
financial future: a future that had been promised to us throughout our 
working years.

    I am supporting the Butch Lewis Act, which seems like the right 
solution. I am asking you today to think and pray on what is the right 
thing to do for thousands of faithful, hard-working actives and 
retirees, many of whom have served our country in the military.

    My wife would have liked to be here today but she only has a few 
good days between chemo cycles. She is however my rock, she fully 
supports me in this work, and wants you to know how crucial your 
decision will be for millions of Americans. Her heart is here with me 
and will be forever.

    In closing, I want to thank the Joint Select Committee members for 
agreeing to find a solution to this pension crisis. This is not a 
partisan issue. This is an issue of fairness, of keeping promises to 
working Americans who did everything right and are simply asking you to 
preserve what is due to us. Thank you. I will be happy to answer any 
questions you may have.

                             Communications

                              ----------                              


                   Letter Submitted by Robert Bozeman
August 10, 2018

To the Committee,

I want to ask you all, please do what you can to save my pension. My 
pension is with the Central States Pension Fund, and they tell us that 
it will be insolvent in 8 years or less.

I have worked in the trucking industry for 41 years doing hard, 
physical work. Every day I go to work in pain. The pain in my hands, 
joints, and muscles is getting worse each week. I am going to try to 
work one more year, but I don't believe I can go any longer. My wife is 
unable to work because of her health, and the Central States Pension is 
the only pension that we have.

I know that my story is the same as thousands of other men and women. 
Our youth is gone. Because of our hard jobs, our bodies are broken 
down. Many of us who are still working can't go on much longer, and 
many of those who have retired aren't able to return to work. We have 
given our lives for these companies and to help keep America strong, 
prosperous, and free, especially those of us in the trucking industry. 
If trucks were to stop, in a very short time, store shelves would be 
empty. Because we are old now and less productive, will we be thrown 
aside? Will our hard work and sacrifice be forgotten?

I am not asking for something that is not mine. I only ask for what I 
was promised. I only ask for what I have worked for. This issue should 
not be about politics or some group over here against some group over 
there. It should be about real, live human beings, fellow American 
citizens, whose health is failing and in need of a pension that they 
can live on. This pension is all that we have. We have no other means 
of support.

Because of our age, because of mismanagement of our pension fund, 
because of things beyond our control, will we have to struggle to live 
on half of a pension at a time in our life when we can't do any better, 
especially when there is a solution?

I understand that there is a plan, the Butch Lewis Act, introduced by 
Senator Sherrod Brown and Representative Richard Neal, that has a 
solution to this pension crisis. It will save my fund, the Central 
States Fund, as well as other funds. I realize that you as a committee 
have to look at all sides of this issue, but if this Butch Lewis Act 
will work without an increase in taxes and will save the pensions of us 
real live American human beings, then why can't it be done? Please help 
us!

Thank you for taking the time to read this.

Robert Bozeman

                                 ______
                                 
                   Letter Submitted by Lloyd I. Hiler
Joint Select Committee on Solvency of Multiemployer Pension Plans
219 Dirksen Senate Office Building
Washington, DC 20510

July 23, 2018

RE:  Southwest Ohio Regional Council of Carpenter's Pension Recovery 
    Plan Submitted: June 29, 2018
Dear Sir or Madam:

In June 2005, I retired from the Southwest Ohio Regional Council of 
Carpenters Union. At that time your years of service and age had to 
equal 80 or above. I qualified for unreduced early retirement benefits 
that were figured at that time. I took the joint and survivors 50-
percent benefit (see attached).

My problem is, 13 years later through the Recovery Plan, they have 
refigured my benefits to be 110 percent of the PBGC Guaranteed 
Benefits. At the age of 67, that is over a 57-percent cut. Being able 
to go back and refigure your benefit when you met what was offered at 
that time, I feel is wrong! Attached is my new proposed benefit under 
the recovery plan.

The only ones being cut this drastically are the 200-plus early 
retirees. Everyone else is being cut 8 percent or less. I realize we 
need to make some reductions to save the plan, but you need to make it 
less of a burden on the early retirees.

Another thing about the recovery plan is, if it passes the Treasury 
Department, it comes back to us for a vote. There are only 200-plus 
early retirees. All members are allowed to vote on the plan (active and 
retired). If someone doesn't cast a vote, it becomes an automatic 
``yes'' for the plan.

With these kinds of rules, the early retirees don't have a chance of 
defeating the recovery plan proposed by the S.W.O.R.C.C. The early 
retirees should not be singled out, but only cut 8 percent, the same as 
all others.

I would appreciate any help anyone could give.

Sincerely,

Lloyd I. Hiler

                                 ______
                                 

       Southwest Ohio Regional Council of Carpenters Pension Fund

                           33 Fitch Boulevard

                         Austintown, Ohio 44515

                       Telephone: l-800-435-2388

                          Fax: (330) 270-0912

December 29, 2004

Dear Mr. Hiler:

Your application for unreduced early retirement benefits has been 
approved effective January 1, 2005, in the amount of $2,670.29 per 
month. The enclosed check in the gross amount of $2,670.29 represents 
payment for the month of January, 2005. Future payments in the amount 
of $2,670.29 will be made on the first day of each month hereafter.

According to our records, you have selected the Joint and Survivor 50-
percent benefit option. This benefit is payable to you monthly during 
your lifetime, and if your beneficiary is alive at the time of your 
death, 50 percent of your monthly benefit will continue to be paid to 
said beneficiary for her remaining lifetime. Our records indicate that 
you have designated Jacqueline Jean Hiler, your wife, as your 
beneficiary. Our records further indicate that her date of birth is 
November 19, 1954. You have 30 days from the date of this letter to 
change your benefit option.

Based upon this information, the benefit as stated above ($2,670.29) is 
payable to you monthly during your lifetime, and a monthy benefit in 
the amount of $1,335.15 will become payable to Jacqueline Hiler, upon 
your death, for her remaining lifetime.

If you have any questions regarding this matter, please feel free to 
contact me.

Sincerely.

Susan Cunningham
Pension Department

Enclosure

This estimate of the effect of the proposed reduction of benefits has 
been prepared for:

Lloyd Hiler

HOW YOUR MONTHLY PAYMENTS WILL BE AFFECTED--RETIRED MEMBERS--EARLY 
UNREDUCED

Your current monthly benefit is $2,599.71. Under the proposed reduction 
your monthly benefit will be reduced to $1,101.10 beginning on March 
31, 2019.

The proposed reduction is permanent.

This estimate is based on the following information from Plan records:

      You have 28.0 years of credited service under the Plan.
      You will be 67 years, 11 months as of April 30, 2019.
      The portion of your benefit that is based on disability is 
$0.00.

PBGC Guaranteed Benefits

If the Plan does not have enough money to pay benefits, your monthly 
benefit would be no larger than the amount guaranteed by PBGC. The 
amount of your monthly benefit guaranteed by PBGC is estimated to be 
$1,001.00.

                                 ______
                                 
              Letter Submitted by Leon S. Wroblewski, Jr.
U.S. Senate
U.S. House of Representatives
Joint Select Committee on Solvency of Multiemployer Pension Plans
219 Dirksen Senate Office Building
Washington, DC 20510

Dear Senators Orrin Hatch, Sherrod Brown, Lamar Alexander, Mike Crapo, 
Rob Portman, Heidi Heitkamp, Joe Manchin, and Tina Smith; and 
Representatives Virginia Foxx, Phil Roe, Vern Buchanan, David 
Schweikert, Richard E. Neal, Bobby Scott, Donald Norcross, and 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,

Leon S. Wroblewski, Jr.

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