[House Hearing, 116 Congress]
[From the U.S. Government Publishing Office]


                THE COST OF INACTION: WHY CONGRESS MUST
                ADDRESS THE MULTIEMPLOYER PENSION CRISIS

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

                                HEARING

                               BEFORE THE

        SUBCOMMITTEE ON HEALTH, EMPLOYMENT, LABOR, AND PENSIONS


                         COMMITTEE ON EDUCATION
                               AND LABOR
                     U.S. HOUSE OF REPRESENTATIVES

                     ONE HUNDRED SIXTEENTH CONGRESS

                             FIRST SESSION

                               __________

             HEARING HELD IN WASHINGTON, DC, MARCH 7, 2019

                               __________

                            Serial No. 116-7

                               __________

      Printed for the use of the Committee on Education and Labor

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                    COMMITTEE ON EDUCATION AND LABOR

             ROBERT C. ``BOBBY'' SCOTT, Virginia, Chairman

Susan A. Davis, California           Virginia Foxx, North Carolina,
Raul M. Grijalva, Arizona            Ranking Member
Joe Courtney, Connecticut            David P. Roe, Tennessee
Marcia L. Fudge, Ohio                Glenn Thompson, Pennsylvania
Gregorio Kilili Camacho Sablan,      Tim Walberg, Michigan
  Northern Mariana Islands           Brett Guthrie, Kentucky
Frederica S. Wilson, Florida         Bradley Byrne, Alabama
Suzanne Bonamici, Oregon             Glenn Grothman, Wisconsin
Mark Takano, California              Elise M. Stefanik, New York
Alma S. Adams, North Carolina        Rick W. Allen, Georgia
Mark DeSaulnier, California          Francis Rooney, Florida
Donald Norcross, New Jersey          Lloyd Smucker, Pennsylvania
Pramila Jayapal, Washington          Jim Banks, Indiana
Joseph D. Morelle, New York          Mark Walker, North Carolina
Susan Wild, Pennsylvania             James Comer, Kentucky
Josh Harder, California              Ben Cline, Virginia
Lucy McBath, Georgia                 Russ Fulcher, Idaho
Kim Schrier, Washington              Van Taylor, Texas
Lauren Underwood, Illinois           Steve Watkins, Kansas
Jahana Hayes, Connecticut            Ron Wright, Texas
Donna E. Shalala, Florida            Daniel Meuser, Pennsylvania
Andy Levin, Michigan*                William R. Timmons, IV, South 
Ilhan Omar, Minnesota                    Carolina
David J. Trone, Maryland             Dusty Johnson, South Dakota
Haley M. Stevens, Michigan
Susie Lee, Nevada
Lori Trahan, Massachusetts
Joaquin Castro, Texas
* Vice-Chair

                   Veronique Pluviose, Staff Director
                 Brandon Renz, Minority Staff Director
                                 ------                                

        SUBCOMMITTEE ON HEALTH, EMPLOYMENT, LABOR, AND PENSIONS

                FREDERICA S. WILSON, Florida, Chairwoman


Donald Norcross, New Jersey          Tim Walberg, Michigan
Joseph D. Morelle, New York            Ranking Member
Susan Wild, Pennsylvania             David P. Roe, Tennessee
Lucy McBath, Georgia                 Rick W. Allen, Georgia
Lauren Underwood, Illinois           Francis Rooney, Florida
Haley M. Stevens, Michigan           Jim Banks, Indiana
Joe Courtney, Connecticut            Russ Fulcher, Idaho
Marcia L. Fudge, Ohio                Van Taylor, Texas
Josh Harder, California              Steve C. Watkins, Jr., Kansas
Donna E. Shalala, Florida            Ron Wright, Texas
Andy Levin, Michigan                 Dan Meuser, Pennsylvania
Lori Trahan, Massachusetts           Dusty Johnson, South Dakota
(VACANT)
                           
                           
                           C O N T E N T S

                              ----------                              
                                                                   Page

Hearing held on March 7, 2019....................................     1

Statement of Members:
    Walberg, Hon. Tim, Ranking Member, Subcommittee on Health, 
      Employment, Labor, and Pensions............................     5
        Prepared statement of....................................     5
    Wilson, Hon. Frederica S., Chairwoman, Subcommittee on 
      Health, Employment, Labor, and Pensions....................     1
        Prepared statement of....................................     3

Statement of Witnesses:
    Becker, Ms. Mariah, Director of Research and Education, 
      National Coordinating Committee for Multiemployer Plans 
      (NCCMP)....................................................    67
        Prepared statement of....................................    69
    Blahous, Mr. Charles P., Chair, Mercatus Center at George 
      Mason University...........................................    55
        Prepared statement of....................................    57
    Moorkamp, Ms. Mary, Chief Legal Officer Schnuck Markets, Inc.    22
        Prepared statement of....................................    24
    Morgan, Mr. James, Resident, Blue Island, IL.................    33
        Prepared statement of....................................    36
    Naughton, Mr. James P., Assistant Professor of Accounting 
      Information and Management Kellogg School of Management at 
      Northwestern University....................................    41
        Prepared statement of....................................    43
    Shapiro, Mr. Joshua, Vice President, Pensions American 
      Academy of Actuaries.......................................     7
        Prepared statement of....................................    10
    Spencer, Mr. Glenn, Senior Vice President, U.S. Chamber of 
      Commerce...................................................    49
        Prepared statement of....................................    51

Additional Submissions:
    Morelle, Hon. Joseph D., a Representative in Congress from 
      the State of New York:
        Letter from Teamsters Local 707..........................   117
    Scott, Hon. Robert C. ``Bobby'', a Representative in Congress 
      from the State of Virginia:
        Letter dated March 18, 2019, from DHL....................   118
        Prepared statement from the ERISA Industry Committee.....   120
        The Multiemployer Pension Plan Crisis: Businesses and 
          Jobs at Risk...........................................   121
    Questions submitted for the record by:
        Foxx, Hon. Virginia, a Representative in Congress from 
          the State of North Carolina 



        Chairwoman Wilson 



    Responses to questions submitted for the record by:
        Ms. Becker...............................................   144
        Mr. Blachous.............................................   159
        Mr. Naughton.............................................   161
        Mr. Shapiro..............................................   162

 
                   THE COST OF INACTION: WHY CONGRESS.
                            MUST ADDRESS THE
                      MULTIEMPLOYER PENSION CRISIS

                              ----------                              


                        Thursday, March 7, 2019

                        House of Representatives

                    Committee on Education and Labor

        Subcommittee on Health, Employment, Labor, and Pensions

                            Washington, DC.

                              ----------                              

    The Subcommittee met, pursuant to notice, at 10:16 a.m., in 
room 2175, Rayburn House Office Building. Hon. Frederica S. 
Wilson [chairwoman of the Subcommittee] presiding.
    Present: Representatives Wilson, Norcross, Morelle, Wild, 
McBath, Underwood, Stevens, Courtney, Fudge, Harder, Levin, 
Trahan, Walberg, Roe, Allen, Banks, Fulcher, Taylor, Watkins, 
Wright, Meuser, and Johnson.
    Also present: Representatives Scott and Foxx.
    Staff present: Tylease Alli, Chief Clerk; Nekea Brown, 
Deputy Clerk; Ilana Brunner, General Counsel Health and Labor; 
Emma Eatman, Press Aide; Daniel Foster, Health and Labor Policy 
Counsel; Eli Hovland, Staff Assistant; Stephanie Lalle, Deputy 
Communications Director; Kevin McDermott, Senior Labor Policy 
Advisor; Richard Miller, Director of Labor Policy; Max Moore, 
Office Aid; Veronique Pluviose, Staff Director; Banyon Vassar, 
Deputy Director of Information Technology; Katelyn Walker, 
Professional Staff; Cyrus Artz, Minority Parliamentarian, Marty 
Boughton, Minority Press Secretary; Courtney Butcher, Minority 
Coalitions and Members Services Coordinator; Rob Green, 
Minority Director of Workforce Policy; Amy Raaf Jones, Minority 
Director of Education and Human Resources Policy; Sarah Martin, 
Minority Professional Staff Member; Hannah Matesic, Minority 
Director of Operations; Kelley McNabb, Minority Communications 
Director; Alexis Murray, Minority Professional Staff Member; 
Brandon Renz, Minority Staff Director; Ben Ridder, Minority 
Legislative Assistant; Meredith Schellin, Minority Deputy Press 
Secretary and Digital Advisor; and Heather Wadyka, Minority 
Staff Assistant.
    Chairwoman WILSON. The Subcommittee on Health, Employment, 
Labor and Pensions will come to order. Welcome, everyone. I 
note that a quorum is present. The Subcommittee is meeting 
today in a legislative hearing to hear testimony on ``The Cost 
of Inaction: Why Congress Must Address the Multiemployer 
Pension Crisis.
    Pursuant to Committee Rule 7C, opening statements are 
limited to the Chair and the Ranking Member. This allows us to 
hear from our witnesses sooner and provide all members with 
adequate time to ask questions. I recognize myself now for the 
purpose of making an opening statement.
    Today we are here to discuss the multiemployer pension 
crisis and what will happen to retirees, workers, businesses, 
and our economy if Congress does not address it. This crisis is 
one of the most important and urgent issues within our 
Committee's jurisdiction and that is why Chairman Scott and I 
wanted this to be the focus of the first HELP Subcommittee 
hearing of the 116th Congress.
    More than 100 multiemployer pension plans are projected to 
run out of money in the next 20 years, if not sooner. More than 
a million people and thousands of employers participate in 
these plans. These plans over workers and retirees in every 
State and most congressional districts. For instance, more than 
900 workers and retirees in the Central States Teamsters Plan, 
which is a hugely important plan that is projected to fail in 
the next few years, are in my district.
    The plan that is at the most immediate risk is the one 
covering our mine workers. It is projected to be insolvent in 
the 2022 timeframe. Our miners put their health and safety on 
the line every day. We need to protect their pensions before it 
is too late.
    Making matters worse, the Pension Benefit Guarantee 
Corporation, the PBGC, which insures private sector pension 
plans is rapidly running out of money to backstop failed 
multiemployer plans. And if plans fail and the PBGC becomes 
insolvent, retirees will see their pensions cut by 90 percent 
or more. Essentially, they would receive pennies on the dollar.
    But retirees are not the only ones facing catastrophic 
consequences if Congress does not act. Active workers are in 
jeopardy of losing their jobs. According to one conservative 
economist, the failure of the Central States Plan would result 
in the loss of 50,000 jobs in 2025 and that is just one plan in 
1 year. Think about what could happen if scores of other plans 
fail as is currently projected.
    Participating employers are at real risk too. Employers 
tell us that their pension liabilities are hurting their 
ability to hire personnel or expand operations. They also tell 
us that some of their banks and lenders are already starting to 
question their creditworthiness. For these employers, the 
multiemployer pension crisis is not years away, it is hurting 
their businesses right now.
    Chairman Scott and I invited the U.S. Chamber of Commerce 
to be one of our witnesses here today to highlight the urgency 
of this crisis to America's businesses and their workers. The 
Chamber and others have correctly noted that if retirees see 
their pensions cut to essentially zero they will become reliant 
on social safety net programs that will have to be funded by 
taxpayers. At the same time, there also will be a loss of tax 
revenue.
    So we should be mindful of the cost to the taxpayers if 
Congress does not act to address the multiemployer pension 
crisis. According to one estimate, congressional inaction would 
cost as much as $103 billion in lost Federal tax revenue and 
$138.3 billion in increased social safety net spending over the 
next decade.
    To date, there has been just one bipartisan legislative 
solution introduced to address the multiemployer pension 
crisis. H.R. 397, The Rehabilitation for Multiemployer Pension 
Act, upholds the pension promise made to these retirees who are 
at risk of losing everything for which they worked and 
sacrificed over a lifetime. I am proud to be one of the leading 
supporters of this bill, and I believe that Congress should act 
on it.
    Today's hearing is an important opportunity to learn more 
about the multiemployer pension system, the urgency of the 
crisis confronting it and the bipartisan solution to fix it. It 
also is a reminder that the fundamental question for Congress 
to consider is not how much it costs to fix the multiemployer 
pension crisis, but how much it will cost retirees, employers, 
and tax payers if we do not act.
    I want to thank all of our witnesses for being with us 
today and I look forward to your testimony.
    I now recognize the distinguished ranking member for the 
purpose of making an opening statement. Ranking Member Walberg.
    [The statement of Chairwoman Wilson follows:]

      Prepared Statement of Hon. Frederica S. Wilson, Chairwoman, 
        Subcommittee on Health, Employment, Labor, and Pensions

    Today we are here to discuss the multiemployer pension crisis and 
what will happen to retirees, workers, businesses, and our economy if 
Congress does not address it.
    This crisis is one of the most important and urgent issues within 
our Committee's jurisdiction, and that's why Chairman Scott and I 
wanted it to be the focus of the first HELP Subcommittee hearing of the 
116th Congress.
    More than 100 multiemployer pension plans are projected to run out 
of money in the next 20 years, if not sooner.
    More than a million people and thousands of employers participate 
in these plans.
    These plans cover workers and retirees in every State and most 
congressional districts.
    For instance, more than 900 workers and retirees in the Central 
States Teamsters Plan--which is a hugely important plan that is 
projected to fail in the next few years--are in my district.
    The plan that's at the most immediate risk is the one covering our 
mine workers. It is projected to be insolvent in the 2022 timeframe.
    Our miners put their health and safety on the line every day.
    We need to protect their pensions before it's too late.
    Making matters worse, the Pension Benefit Guaranty Corporation the 
PBGC which insures private sector pension plans, is rapidly running out 
of money to backstop failed multiemployer plans.
    If plans fail and the PBGC becomes insolvent, retirees would see 
their pensions cut by 90 percent or more. Essentially, they would 
receive pennies on the dollar.
    But retirees are not the only ones facing catastrophic consequences 
if Congress does not act.
    Active workers are in jeopardy of losing their jobs.
    According to one conservative economist, the failure of the Central 
States plan would result in the loss of 50,000 jobs in 2025. And that's 
just one plan in 1 year.
    Think about what could happen if scores of other plans fail as is 
currently projected!
    Participating employers are at real risk, too.
    Employers tell us that their pension liabilities are hurting their 
ability to hire personnel or expand operations. They also tell us that 
some of their banks and lenders are already starting to question their 
creditworthiness.
    For these employers, the multiemployer pension crisis is not years 
away. It is hurting their businesses right now.
    Chairman Scott and I invited the U.S. Chamber of Commerce to be one 
of our witnesses here today to highlight the urgency of this crisis to 
America's businesses and their workers.
    The Chamber and others have correctly noted that if retirees see 
their pensions cut to essentially zero, they will become reliant on 
social safety net programs that will have to be funded by taxpayers. At 
the same time, there also will be a loss of tax revenue.
    So, we should be mindful of the cost to the taxpayers if Congress 
does not act to address the multiemployer pension crisis.
    According to one estimate, congressional inaction would cost as 
much as $103 billion in lost Federal tax revenue and $138.3 billion in 
increased social safety net spending over the next decade.
    To date, there's been just one bipartisan legislative solution 
introduced to address the multiemployer pension crisis.
    H.R. 397, the Rehabilitation for Multiemployer Pensions Act, 
upholds the pension promise made to these retirees who are at risk of 
losing everything for which they worked and sacrificed over a lifetime.
    I am proud to be one of the leading supporters of this bill, and I 
believe that Congress should act on it.
    Today's hearing is an important opportunity to learn more about the 
multiemployer pension system, the urgency of the crisis confronting it, 
and the bipartisan solution to fix it.
    It's also a reminder that the fundamental question for Congress to 
consider is NOT how much it costs to fix the multiemployer pension 
crisis, but how much it will cost retirees, employers, and taxpayers if 
we do not act.
    I want to thank all of our witnesses for being with us today and I 
look forward to your testimony.
    I now recognize the distinguished Ranking Member for the purpose of 
making an opening statement.
                                 ______
                                 
    Mr. WALBERG. Madame Chair Wilson, thank you. And may I 
quickly congratulate you on your chairmanship and I look 
forward to working with you in the coming years. Together we 
have done this in the past on Workforce Protections 
Subcommittee in the same mode, just kind of reversed.
    Chairwoman WILSON. Yes.
    Mr. WALBERG. And I know that we can work together. And I 
appreciate the fact that you have made this your first hearing. 
This is a topic of great concern and it ought to be a topic of 
bipartisan concern.
    The looming insolvency of the Pension Benefit Guarantee 
Corporation's, PBGC, multiemployer insurance program is one of 
the greatest challenges facing American workers who participate 
in multiemployer pension plans. Collectively, 95 percent of 
multiemployer plan participants are in plans that are less than 
60 percent funded. This large-scale breakdown of the 
multiemployer pension plan system is putting immense strains on 
the PBGC which serves as the back stop for defined benefit 
plans and provides financial assistance to underfunded plans.
    The PBGC is currently facing a $54 billion deficit. The 
agency is on track to completely be wiped out in just six short 
years. Extreme levels of plan underfunding are an urgent 
concern.
    Workers and retirees must have peace of mind when it comes 
to their hard-earned retirement benefits and employers must 
have certainty when it comes to their obligations under these 
plans. It is essential that we work together to stop the 
hemorrhaging of underfunded plans and minimize losses for plan 
participants as much as humanly possible.
    The real-life implications of this problem are real and 
vast. I have met with countless retirees in my district and I 
hear the fear, and the anger, and the concern in their voices 
as they talk about the prospect of having to live on a fraction 
of the income that they were promised.
    There is nothing fair or excusable about a 75year-old 
retiree with health care concerns and medical issues standing 
in front of me finding out that the pension he was promised 
just isn't funded.
    And like most issues we talk about in this committee, the 
effects of one serious problem are felt in many quarters. I 
have had many conversations with business owners in Michigan as 
well who tell me that the unfunded pension liabilities they 
carry make it impossible to innovate or do anything other than 
maintain the business models they have with a frustration of no 
alternative for the outcome in the end.
    Republicans and Democrats have a history of bipartisan 
cooperation on this issue. In 2014, the Republican chairman of 
this committee, John Kline and Democrat Ranking Member George 
Miller put aside political differences and brought stakeholders 
to the table to craft the Multiemployer Pension Reform Act, 
which was later signed into law.
    While a decision by President Obama's Treasury Department 
limited the effectiveness of the legislation, it crossed the 
aisle of corporation that went into the legislation, acted as a 
harbinger for a future I trust bipartisan efforts on this 
issue.
    Part of the way we need to approach these solutions is to 
adopt reforms that address the structural flaws within the 
plans. When the multiemployer pension system was constructed 
decades ago, fundamental flaws were unfortunately built into 
the systems foundation. If you build a house on a weak 
foundation, no quick fixes will present that houses collapse in 
the future.
    If Congress does not reform the architecture of the 
multiemployer pension system, then it won't matter how much 
money we throw at this problem, these problems will persist and 
put future generations of workers at risk of the very same 
chronic underfunding that plagues pensioners today.
    We must also pursue every possible avenue to protect 
taxpayers from proposals that are fiscally irresponsible and 
don't work in the end. Multiemployer pension plans were always 
privately negotiated by companies and labor unions. Taxpayer 
dollars have never been sued to support or subsidize these 
commitments and it would be inappropriate for the Federal 
Government to underwrite compensation costs for a select group 
of private employers.
    I can't state emphatically enough that far-reaching reform, 
fiscal responsibility and bipartisanship must be the principles 
that guide us as we work to solve this problem. It is a human 
problem.
    I am hopeful about this committee's ability to work 
together on this issue. We are on the same side and want to 
protect workers, taxpayers, retirees, and their families. The 
way forward won't be easy but millions of Americans are 
counting on us. We owe it to them to set aside our political 
differences and come to the table to find a bipartisan solution 
to secure their future and, Madame Chairperson, I commit myself 
to that alongside of you. And I yield back.
    [The statement of Mr. Walberg follows:]

Prepared Statement of Hon. Tim Walberg, Ranking Member, Subcommittee on 
                Health, Employment, Labor, and Pensions

    Thank you for yielding.
    The looming insolvency of the Pension Benefit Guaranty 
Corporation's (PBGC) multiemployer insurance program is one of the 
greatest challenges facing American workers who participate in 
multiemployer pension plans. Collectively, 95 percent of multiemployer 
plan participants are in plans that are less than 60 percent funded. 
This large-scale breakdown of the multiemployer plan system is putting 
immense strain on the PBGC, which serves as the backstop for defined 
benefit plans and provides financial assistance to underfunded plans.
    The PBGC is currently facing a $54 billion deficit. The agency is 
on track to be completely wiped in just six short years.
    Extreme levels of plan underfunding are an urgent concern. Workers 
and retirees must have peace of mind when it comes to their hard-earned 
retirement benefits and employers must have certainty when it comes to 
their obligations under these plans. It's essential that we work 
together to stop the hemorrhaging of underfunded plans and minimize 
losses to plan participants as much as possible.
    The real-life implications of this problem are real and vast. I 
have met with countless retirees in my district, and I hear the fear 
and anger in their voices as they talk about the prospect of having to 
live on a fraction of the income they were promised. There is nothing 
fair or excusable about a 75-year-old retiree with healthcare concerns 
and medical issues finding out that the pension he was promised isn't 
funded. And like most issues we talk about at this committee, the 
effects of one serious problem are felt in many quarters. I've had many 
conversations with business owners in Michigan who tell me that the 
unfunded pension liabilities they carry make it impossible to innovate 
or do anything other than maintain the business models they have.
    Republicans and Democrats have a history of bipartisan cooperation 
on this issue. In 2014, the Republican Chairman of this Committee John 
Kline and Democrat Ranking Member George Miller put aside political 
differences and brought stakeholders to the table to craft the 
Multiemployer Pension Reform Act, which was later signed into law. 
While a decision by President Obama's Treasury Department limited the 
effectiveness of the legislation, the across-the-aisle cooperation that 
went into the legislation acted as a harbinger for future bipartisan 
efforts on this issue.
    Part of the way we need to approach these solutions is to adopt 
reforms that address the structural flaws within the plans. When the 
multiemployer pension system was constructed decades ago, fundamental 
flaws were unfortunately built into the system's foundation. If you 
build a house on a weak foundation, no quick fixes will prevent that 
house's collapse in the future. If Congress does not reform the 
architecture of the multiemployer pension system, then it won't matter 
how much money we throw at this problem. These problems will persist 
and put future generations of workers at risk of the very same chronic 
underfunding that plagues pensioners today.
    We must also pursue every possible avenue to protect taxpayers from 
proposals that are fiscally irresponsible. Multiemployer pension plans 
were always privately negotiated by companies and labor unions. 
Taxpayer dollars have never been used to support or subsidize these 
commitments, and it would be inappropriate for the Federal Government 
to underwrite compensation costs for a select group of private 
employers.
    I cannot State emphatically enough that far-reaching reform, fiscal 
responsibility, and bipartisanship must be the principles that guide us 
as we work to solve this problem.
    I am hopeful about this committee's ability to work together on 
this issue. We are on the same side and want to protect workers, 
taxpayers, retirees, and their families. The way forward won't be easy, 
but millions of Americans are counting on us. We owe it to them to set 
aside our political differences and come to the table to find a 
bipartisan solution that secures their future.
                                 ______
                                 
    Chairwoman WILSON. Thank you. Thank you. Without objection 
all other members who wish to insert written statements into 
the record may do so by submitting them to the committee clerk 
electronically in Microsoft Word format by 5 o'clock p.m. on 
March 21, 2019.
    I will now introduce our distinguished witnesses. First we 
have Mr. Josh Shapiro who serves on the board of directors of 
the American Academy of Actuaries and chairs its pension 
practice counsel. Welcome.
    Ms. Mary Moorkamp is the Chief Legal and External Affairs 
Officer at Schnuck Markets which is family owned grocery chain 
in St. Louis, Missouri. Welcome.
    Mr. James Morgan is a Bakery and Confectionery Union and 
Industrial International Pension Fund retiree. Welcome.
    Dr. James Naughton is an assistant professor at the Kellogg 
School of Management at Northwestern University. Welcome.
    Mr. Glenn Spencer is a Senior Vice President at the U.S. 
Chamber of Commerce.
    And Dr. Charles Blahous holds the J. Fish and Lillian F. 
Smith Chair at the Mercatus Center at George Mason University. 
Welcome.
    Ms. Mariah Becker, is the Director of Research and 
Education for the National Coordinating Committee for 
Multiemployer Plans. Welcome.
    We appreciate all of the witnesses for being here today and 
look forward to your testimony. Let me remind the witnesses 
that we have read your written statements and they will appear 
in full in the hearing record. Pursuant to committee rule 7D 
and committee practice, each of you is asked to limit your oral 
presentation to a 5-minute summary of your written statement.
    Let me also remind the witnesses that pursuant to Title 18 
of the U.S. Code section 1001 it is illegal to knowingly and 
willfully falsify any statement, representation, writing, 
document, or material fact presented to Congress or otherwise 
conceal or cover up a material fact.
    Before you begin your testimony, please remember to press 
the button on the microphone in front of you so that it will 
turn on and the members can hear you. As you begin to speak, 
the light in front of you will turn green. After 4 minutes, the 
light will turn yellow to signal that you have 1 minute 
remaining. When the light turns red, your 5 minutes will have 
expired and we ask that you please wrap up.
    We will let the entire panel make their presentations 
before we move to member questions. When answering a question, 
please remember to once again turn your microphone on. I will 
first recognize Mr. Shapiro.

STATEMENT OF JOSHUA SHAPIRO, VICE PRESIDENT, PENSIONS AMERICAN 
                      ACADEMY OF ACTUARIES

    Mr. SHAPIRO. Thank you. Chairwoman Wilson, Ranking Member 
Walberg, and distinguished subcommittee members. On behalf of 
the Pension Practice Council of the American Academy of 
Actuaries, I am Josh Shapiro, Vice President of Pension at the 
Academy. I am honored to have this opportunity to provide 
testimony to the Health, Employment, Labor, and Pensions 
Subcommittee of the House Education and Labor Committee.
    The Academy is a strictly nonpartisan professional 
association representing U.S. actuaries before public 
policymakers. As a member of the Academy, I am also bound by 
its qualification standards, its Code of conduct, and the 
actuarial standards of practice.
    I am here to provide a summary of how multiemployer 
pensions operate and their current funding outlook. More than 
10 million active and retired workers participate in 
approximately 1,250 active, multiemployer pension plans. These 
plans are common among collectively bargained work forces in 
industries that are characterized by small business, employee 
mobility between employers and lower wage levels. Through 
economies of scale and the pooling of risks multiemployer pans 
have succeed in providing lifetime retirement income to 
millions of workers who would otherwise not have heard access 
to effective and affordable retirement benefits.
    While the vast majority of multiemployer plans are faring 
well, unfortunately there are roughly 130 plans, covering more 
than a million participants, that are expected to fully exhaust 
their assets in the coming 20 years.
    The first decade of the 21st Century was the worst period 
on the financial markets since the great depression. The S&P 
500 Index lost 37 percent of its value in 2008 alone. And 
nearly all retirement plans including multiemployer plans 
experienced significant declines in their assets during this 
decade.
    Most multiemployer plans have been able to recover from 
these losses using the same tools they have already used 
throughout their history. Specifically they have relied upon a 
combination of higher bargained contribution rates and 
reductions to future benefit accruals. The plans that are 
expected to run out of money have generally also experienced 
significant declines in their populations of contributing 
employers and employees.
    While each situation is different, employer bankruptcies, 
technology improvements, regulatory changes and declines in 
certain industries have all contributed to these trends. For 
plans that have significantly diminished bases of active 
employees and employers, the measures available to trustees 
have been ineffective and the plans are unable to recover. 
After a multiemployer plan exhausts its assets, it receives 
financial assistance from the Pension Benefit Guarantee 
Corporation. This assistance allows a plan to continue to pay 
participant benefits but only at the level that is guaranteed 
by the PBGC.
    The maximum amount that the PBGC will guarantee for a 
participant with 30 years of service is approximately $1,100 
per month. In plans that cover middle income workers, this 
guarantee could represent a benefit cut of 50 percent or more. 
The PBGC's multiemployer insurance program is expected to run 
out of money by 2026. Because the PBGC receives all of its 
funding by premiums paid plans and is not supported by general 
revenues, if the multiemployer insurance program runs out of 
resources, a guarantee would decline to what it could afford on 
a pay as you go basis out of annual premium receipts.
    In this situation, participants in insolvent multiemployer 
plans could see their benefits cut by 90 percent or more. 
Participants affected by benefit reductions of this magnitude 
might need to rely on social safety net programs.
    The multiemployer pensions system stands at a crossroads. 
These plans have allowed millions of American workers to retire 
with reliable lifetime income that most would have been unable 
to achieve had these plans not been there. However, for a 
significant minority of plans, the system has proved not to be 
resilient enough to withstand the combination of demographic 
trends, industrial shifts and economic declines that have 
occurred in recent years.
    As a result, more than a million participants face the 
possibility of losing their retirement benefits and thousands 
of businesses are in jeopardy.
    Congress faces a dual challenge. Action is needed to 
address the looming crisis that will occur when both plans and 
the PBGC exhaust their resources and reach the point of 
insolvency. The multiemployer system also needs to be reformed 
so it can continue its invaluable mission of providing 
retirement income to people who need it while also ensuring 
that the system does not fall into crisis again.
    The Pension Practice Counsel of the American Academy of 
Actuaries looks forward to continuing to provide objective and 
unbiased actuarial analysis to lawmakers and their staffs as 
the work to address these difficult challenges.
    [The statement of Mr. Shapiro follows:]
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    Chairwoman WILSON. Thank you, Mr. Shapiro. We will now 
recognize Ms. Moorkamp.

    STATEMENT OF MARY MOORKAMP, CHIEF LEGAL OFFICER SCHNUCK 
                         MARKETS, INC.


    Ms. MOORKAMP. Madame Chair Wilson, Ranking Member Walberg 
and members of the committee, I'm Mary Moorkamp, Chief Legal 
Officer at Schnuck Markets based in St. Louis, Missouri. Thank 
you for the opportunity to testify today.
    I am here to describe how the multiemployer crisis already 
affects business today. You may hear similar testimony from 
other witnesses but this is personal for me and my thousands of 
Schnucks teammates. Schnucks is a third generation family owned 
retail grocery chain. We were founded by Anna Donovan Schnuck 
in 1939 as a way to feed her family and neighbors during the 
Depression.
    Nearly 80 years later we have almost 15,000 teammates in 
119 stores in five mid-western states. We are proud of our 
local heritage and our mission of nourishing people's lives 
goes well beyond selling groceries.
    There are roughly 5400 businesses that contribute to 
approximately 130 multiemployer funds that are going insolvent. 
For many of these businesses, a funds insolvency and more 
immediately the potential threat of insolvency is already 
affecting their business operations. For example, lenders, 
rating agencies, and auditors are increasingly concerned with 
the impact of a Central States insolvency.
    As a company's withdrawal liability becomes estimable and 
probable, and these are accounting terms, there could be 
greater pressure to record the liability on financial 
statements. Recording the liability will affect each business 
differently.
    For many small businesses their withdrawal liability could 
exceed the value of their business. So booking the liability 
will make them insolvent. Midsize employers are also at risk. 
Some lenders already have increased their borrowing changes and 
I have heard of situations in which lenders have refused to 
make business loans due to Central States pending insolvency.
    Sadly, some business owners don't even know that their 
business has withdrawal liability. And we are seeing those 
situations right now. For Schnucks, the looming Central States 
insolvency makes us reluctant to grow our business. If we open 
a store in a new market, we have to hire a driver to transport 
product to the store. If the driver is covered by our CBA with 
the Teamsters, the driver must go in Central States. We 
estimate that each new driver increases our exposure by as much 
a $268,000 per teammate.
    The current situation also limits expansion opportunities 
in our current markets. We face recruiting and retention issues 
as potential new hires are aware of the plight of Central 
States and don't want to participate in the plan.
    Some argue that these concerns reflect a worst case 
scenario. They say that Central States insolvency won't trigger 
withdrawal liability. We cannot predict the future actions of 
lenders, the accounting profession, our supplies, the IRS, and 
the PBGC but we do know that even if the insolvent fund doesn't 
trigger withdrawal liability, Schnucks and other business will 
have to continue making contributions to Central States.
    Meanwhile, our teammates will accrue a benefit that at most 
equals the paltry PBGC minimum assuming the PBGC remains 
solvent. This is a best case scenario if Congress doesn't act.
    To some extent, we are already doing this. We provide a 
401K plan to our teamster warehouse teammates in addition to 
the Central States pension. For these teammates, not only do we 
contribute $342 per teammate per week to a pension fund from 
which they may receive next to nothing, but we also contribute 
to a 401K Plan. This double retirement benefit is not 
sustainable in our penny margin business, nor is it fair to out 
other teammates.
    Simply put, if the multiemployer system is not stabilized 
quickly, the effects on businesses, workers, retirees, local 
communities and the Federal Government will be significant and 
harmful. These problems are manifesting themselves today, not 
2025.
    In my written statement, I offer six guiding principles for 
the committee's consideration. First, a solution must restore 
these plans to solvency and stabilize the system. Second, a 
solution must be bipartisan and bicameral. The--third, the 
solution must be implemented quickly. Fourth, it will 
necessarily require considerable Federal assistance. Fifth, the 
cost must be spread among stakeholders in a fair and equitable 
manner. And last, the solution must include safeguards to 
ensure this crisis never happens again.
    The pension crisis transcends party lines. This is not a 
Republican or a Democrat issue nor is it a union or employer 
issue. We are grocers. Schnucks has been in business for 80 
years and we hope to be around for another 80 year. But the 
pension crisis presents an existential threat to employers. It 
is Schnucks No. 1 threat as we look at our long term business 
plan and we stand ready to work with you and the committee in 
your efforts to solve this crisis.
    Thank you again of allowing me to testify and I'll be happy 
to answer questions.
    [The statement of Ms. Moorkamp follows:]
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    Chairwoman WILSON. Thank you, Ms. Moorkamp. We will now 
recognize Mr. Morgan.

   STATEMENT OF JAMES MORGAN, RESIDENT, BLUE ISLAND, ILLINOIS


    Mr. MORGAN. Good morning. Thank you, Madam Chairwoman. My 
name is James Morgan and I live in Blue Island, Illinois in 
suburban Chicago. I retired after working 33 years at Hostess 
Brands' Wonder Bread Bakery. First in Chicago and then in 
Hodgkins, Illinois, a Chicago suburb. I worked at the bakery 
until the company went bankrupt and closed its doors in 2012.
    I am currently collecting my pension from the Bakery and 
Confectionery Union and Industry International Pension Fund, 
known as the B&C Fund, and working part time to help make ends 
meet.
    During my career at Wonder Bread, I was active in my union, 
the BCTGM Local Union Number 1, with nearly 3,000 members and 
several thousand retirees. I served as shop steward, chief shop 
steward and I was a member of the local union's executive 
board.
    During my 33 years in the bakery, I worked many different 
jobs including mixer and oven operator. Working in an 
industrial bakery is a very, extremely physically demanding 
job. You are on your feet at least 8 hours a day and usually we 
worked a lot of overtime.
    In the summer, the temperatures in the bakery could get to 
100 to 120 degrees. It was stifling.
    For much of my career as a mixer, I had to lift hundred 
pound bags of ingredients and hundred pound and 50 pound bags 
and pour it into the mixer every day, all day. We worked 
weekends, holidays and we never had two consecutive days off in 
a row. That's how the bakery industry is.
    Thirty 3 years in the bakery took an enormous toll on your 
body. It's very rough on your back, your neck, your feet, your 
arms, and your legs. It's very grueling. Thanks to my union and 
strong contract that we negotiated, my co-workers and I earned 
a middle-class wage and good benefits for the hard work that we 
did.
    No benefit was more important to us than our defined 
pension benefit. We negotiated and fought for our pension 
because we knew having that pension meant that we would be able 
to retire with dignity after a lifetime of very hard work.
    In fact, having a good pension was so important to us that 
we would often negotiate less in pay raises in favor of 
increasing our negotiated pension benefit level. In some years, 
many of us took a portion of all or all of our negotiated pay 
increases and purchased additional pension benefits. This was 
money out of our own pockets. That's how much we valued our 
pension.
    As chief shop steward, I knew everyone working in that 
bakery. We were proud to be making the most famous bread in the 
country, Wonder Bread. We gave it our all every day. If the 
bakery would have not closed, I probably would still be working 
there today. We were working to provide for our families and we 
were working for a decent retirement.
    It is very disturbing to me when I hear people saying that 
our pension was given to us by the company. Hostess did not 
give us a pension. We bargained for it as a part of our 
compensation package. Those benefits were a part of our 
earnings.
    In August 2011, the CEO of Hostess Brands sent a letter to 
every employee saying that the company was suspending the 
contributions it was obligated to make to the B&C Pension Fund 
according to our collective bargaining agreement. He said the 
suspension of the contributions were going to be temporary. 
That was not true. The company never resumed making payments to 
the Fund. They never intended to.
    The executives were just sucking out whatever money they 
could from the company and the bakeries. In fact, during the 
bankruptcy, a number of executives actually took huge pay 
raises, some as much as 300 percent.
    Fifteen months later, the company went out of business. Our 
bakery was closed and we were out of work. Not only were we out 
of work, we also had new fears about the future of our pension 
benefits.
    We learned shortly after the bakery closed that the Federal 
bankruptcy courts allowed Hostess just to walk away from its 
pension fund contributions and obligations. That was nearly $1 
billion dollars. The enormous financial damage done to the B&C 
Fund by Hostess Brands meant that we could lose everything we 
worked for and sacrificed for through no fault of our own. The 
Hostess executives and private equity owners who mismanaged the 
company, ran it into the ground and put it into bankruptcy 
walked away with millions of dollars.
    They left the dedicated workers who helped build the 
company and created the profits with an uncertain future in our 
retirement years.
    Would our guaranteed benefits always be there for us? Would 
our pension checks get cut as we got older? How would we pay 
our bills? Would we be able to afford our prescriptions? Would 
we be a burden on our children or other family members? These 
are the questions that have been hanging over our heads since 
the company closed its doors. We are fearful about what will 
happen to our pension. It is a very stressful time for all of 
us.
    I know that the union leaders and the pension fund are 
working as hard as they can to protect the pension benefits for 
every retiree and every active worker in the fund. My union and 
the B&C Pension Fund strongly support H.R. 397. They believe 
long-term, low-interest loans will lead to long term solvency 
of our pension fund and help the retirees like me who depend on 
our pension checks to get by.
    It is responsible, bipartisanship legislation that will 
effectively address the pension funding crisis in our country. 
My pension benefits have not made me rich. Not at all. But my 
pension check each month is the only way I know I am able to 
make ends meet.
    If I lost those benefits or those benefits were cut, it 
would be devastating. I definitely would not be able to pay my 
bills each month, afford groceries or take care of necessary 
medical needs. I don't know what I would do. I know almost all 
of my former co-workers are in the same position.
    Madame Chairwoman, we are not asking for a handout. We 
earned our pension through hard and sacrifice. We did our part 
by putting in an honest day's work under difficult conditions. 
All we are asking for is fairness.
    Madam Chairwoman, I would like to thank the Committee for 
the very important work you are doing for the retirement 
security of all American workers. Thank you for the opportunity 
to appear before you today. It has been an honor and a 
privilege.
    [The statement of Mr. Morgan follows:]
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    Chairwoman WILSON. Thank you. Thank you, Mr. Morgan. We 
will now recognize Dr. Naughton.

STATEMENT OF JAMES NAUGHTON, ASSISTANT PROFESSOR OF ACCOUNTING 
   INFORMATION & MANAGEMENT, KELLOGG SCHOOL OF MANAGEMENT AT 
                    NORTHWESTERN UNIVERSITY


    Mr. NAUGHTON. I'd like to thank Chairperson Frederica 
Wilson and Ranking Member Tim Walberg for the opportunity to 
present today.
    To begin, I would like to outline the basic framework for 
multiemployer plan contributes as that is an important driver 
of the current crisis. At a high level there are two 
components. The cost associated with newly promised benefits 
and the cost associated with funding a portion of previously 
promised, but currently unfunded benefits.
    The dramatic increase in employer costs over the past 15 
years is primarily related to the second component. In fact, 
the dollar amount of underfunding has approximately tripled to 
more than $600 billion since 2005 when legislation was first 
drafted to address the issues of multiemployer plans.
    To understand why this is happening, you need to understand 
the source of the current crisis. Consider the following simple 
thought experiments. You exchange part of your current wages 
for an annuity benefit so that you will have regular income 
during retirement.
    If this transaction is with an insurance company, your 
forgoing wages will be invested primarily in low-risk bonds 
whose payouts are chosen to match the payouts of your annuity 
benefit. The insurance company will also require that you pay 
an amount that is equivalent to the cost of your annuity, i.e., 
you get what you pay for.
    If this transaction is with your union as part of a 
multiemployer arrangement, your foregoing wages will be 
invested primarily in the stock market. In addition, the 
multiemployer plan may only collect a fraction of the value of 
your annuity benefit hoping that it can recoup the difference 
from future generations of union members or through 
extraordinary investment performance.
    This deviation by multiemployer plans from how insurance 
companies mange annuities is the driver of this entire crisis. 
And if multiemployer plans collected actuarially sound 
contributions and purchased annuity contracts, there would be 
no crisis. Each participant would be receiving or be scheduled 
to receive his or her promised benefits.
    Technology bubbles, industry deregulations, employer 
withdrawals, none of those would have any effect. For this 
reason, moving to an annuity type framework is a critical first 
step in addressing the current crisis because it will at least 
freeze the amount of the total underfunding.
    Stock market investing generates higher expected returns 
but does so with significant additional risk. Those types of 
risks should only be taken if adverse events can be managed and 
that is clearly not the case with the multiemployer plan 
system.
    In fact, that system is designed so that the volatility 
associated with stock market investing will inevitably lead to 
substantial underfunding. I am not aware of any convincing 
reason why multiemployer plans should invest primarily in the 
stock market. Multiemployer plans are essentially an 
organization that manages the contributions of its members to 
provide retirement income. Very similar to what an insurance 
company does.
    One consequence of an annuity type framework is that 
contribution requirements will be higher because they will be 
based on the use of a lower discount rate. However, the 
increased costs that comes with using the actual value of what 
is promised is not a persuasive reason to avoid using it. 
Continuing to use unreasonably low estimates of the benefit 
promises will only lead to future crises.
    In closing, I want to highlight that a well-run defined 
benefit pension plan should reflect the principle that you can 
rely on a set benefit in retirement. Moving to an annuity type 
framework is necessary for this principle to become a reality. 
A promise that is partially funded and invested in risky 
securities is a promise that is unlikely to be kept.
    I also want to highlight the importance of urgent action. 
Delays will inevitably lead to larger deficits and more 
difficult decisions as we have seen over the past 10 years. 
Thank you again for this opportunity, and I look forward to 
answering any questions you may have.
    [The statement of Mr. Naughton follows:]
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    Chairwoman WILSON. Thank you, Dr. Naughton. We will now 
recognize Mr. Spencer.

STATEMENT OF GLENN SPENCER, SENIOR VICE PRESIDENT, U.S. CHAMBER 
                          OF COMMERCE


    Mr. SPENCER. Madame Chair Wilson, Ranking Member Walberg, 
I'm Glenn Spencer, Senior Vice President for Employment Policy 
at the U.S. Chamber of Commerce and I want to thank you for 
holding this hearing today on the financial troubles facing the 
multiemployer pension system.
    For many plans and plan participants, this has indeed 
become a crisis. But it's also a crisis for the employers who 
fund these plans and the broader economy as well.
    Although many multiemployer plans were fully funded through 
the 1990's, this came to an end in 2000 when the price of 
technology stocks dropped. Many investors suffered, but 
multiemployer plans were hit twice as hard because of 
demographic issues facing these plans, particularly the decline 
in the ratio of active workers to retirees.
    The 2008 recession led to further declines in funding 
levels and only exacerbated the demographic challenges. For 
example, many multiemployer plans have ratios of 1 active 
worker for every 2, 3, or even 5 retirees. This is simply not 
the basis for a sustainable plan.
    In fact, certain plans will enter, if they are not already 
in, what one could call a death spiral, where there is no 
realistic chance of recovery regardless of investment options 
or interest rate assumptions. And this has major implications 
not just for the people in the plans but the employers who are 
part of the multiemployer system.
    Amongst the biggest problem facing employers is withdrawal 
liability. And while withdrawal liability is not booked until a 
plan actually terminates, the exposure to withdrawal liability 
is having impacts on employers now. When banks or other 
creditors know that a company is exposed to a multiemployer 
plan, a struggling multiemployer plan in particular, they begin 
to question the creditworthiness of that business which can 
lead to less than optimal lending rates or even denials of 
credit.
    Further, employers may lose the opportunity to expand 
business operations through mergers, because companies that are 
not part of the multiemployer system may not wish to expose 
themselves to withdrawal liability.
    And finally, small family businesses may decide not to pass 
that business down to their heirs to avoid passing down 
withdrawal liability. And even worse, some may find that 
selling their business to fund their own retirement has become 
impossible because withdrawal liability is higher than the 
value of the business.
    The second challenge is high contribution rates. As 
unfunded liabilities have increased, employers have faced rates 
that have doubled or even tripled. Some employers are paying as 
much as $15 or more per hour to plans for every hour that an 
employee works.
    Now while most employers would rather absorb that higher 
contribution rate than incur withdrawal liability that could 
bankrupt them, the ultimate effect is that employers become 
less competitive. And it is questionable whether employers can 
sustain ever increasing rates over the long term.
    A third significant problem is the potential contagion 
effect. Many employers contribute to more than one 
multiemployer plan. Should an employer with exposure to many 
plans face withdrawal liability from any one of those plans, it 
could go bankrupt. At that point, all the other plans in which 
it participates will face increased financial pressure, 
possibly causing them to become insolvent and triggering 
withdrawal liability for other employers in those plans, 
leading to a cascade of bankruptcies and failing plans.
    Now, while no extremely large plan has gone insolvent just 
yet, several are projected to do so within the next 5 to 10 
years. Now the Chamber recognizes there is no easy answers. 
Last year, we jointly issued principles to help guide Congress 
toward a solution.
    First, Congress must recognize that rescue legislation is 
urgently needed. This problem is only going to get worse the 
longer we take to act.
    Second, struggling plans will need financial assistance. 
Our recommendation is for long-term, low-interest loans that 
will protect taxpayers from financial liability.
    Third, all parties will have to be part of the solution, 
including plan beneficiaries and participating employers. 
Fourth, while the PBGC may ultimately need more money in the 
form of increased premiums, these increases must be evaluated 
after tools to restore the solvency of these plans are put into 
place.
    Finally, composite plans must be authorized so that healthy 
multiemployer plans can stay that way. We realize these 
principles are just a start and we look forward to working with 
Congress to find a bipartisan solution.
    Again I want to thank you for holding this hearing today 
and in addition to my statement, we are submitting for the 
record a report we released on this issue last year that goes 
into these issues in much greater detail. So thank you.
    [The statement of Mr. Spencer follows:]
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    Chairwoman WILSON. Thank you. Thank you, Mr. Spencer. We 
will now recognize Mr. Blahous.

  STATEMENT OF CHARLES BLAHOUS, J. FISH AND LILLIAN F. SMITH 
CHAIR AND SENIOR RESEARCH STRATEGIST, MERCATUS CENTER AT GEORGE 
                        MASON UNIVERSITY


    Mr. BLAHOUS. Thank you, Chairwoman Wilson, Ranking Member 
Walberg, and all of the members of the Subcommittee. I greatly 
appreciate this opportunity to discuss the challenges facing 
multiemployer pensions. I have submitted additional background 
material with my written testimony but in my spoken remarks, I 
would like to focus on three primary points.
    The first point is simply multiemployer pensions do indeed 
face a very urgent problem. And the immediate manifestation of 
that problem of course is the $54 billion deficit in the 
multiemployer pension insurance program operated by the Pension 
Benefit Guarantee Corporation. And that is projected to be 
insolvent by 2025.
    And as you have noted, Chairwoman Wilson, if this insurance 
program goes bankrupt, workers in insolvent pension plans will 
not even get the benefits that were supposedly insured because 
PBGC will not have the funds available to pay them. And yet, 
that insurance shortfall represents only the tip of the 
iceberg.
    The best available estimates are that there is more than 
$600 billion of underfunding in multiemployer pensions 
nationwide. So a failure to reform multiemployer pensions 
threatens potential costs to workers, to the insurance system, 
and under some proposals to taxpayers that are more than 10 
times larger than currently visible on PBGC's balance sheet.
    Second point is that solving this problem requires 
recognizing and addressing its causes. The multiemployer 
insurance program is facing its worsening crisis at exactly the 
same time that the single employer system is stabilizing. Now 
both systems face similar demographics and both systems have 
been through the same financial market shocks. So why the 
difference? There are two main reasons.
    One, is that the multiemployer system suffers from a number 
of specific problems including inaccurate valuations of plan 
liability and assets, lax funding rules, inadequate 
contribution and withdrawal liability requirements, and 
inadequate and poorly designed insurance premiums assessments. 
Second, the multiemployer system faces additional unfunded 
liabilities from benefits that are obligated to so called 
orphaned workers. And these are the workers whose employers 
have withdrawn from sponsoring a plan but whose benefits the 
continuing sponsors remain responsible for paying.
    Now the main valuation problem is that the law permits 
multiemployer plans to greatly understand their liabilities by 
using inflated discount rates to translate future benefit 
obligations into present value terms.
    There is a broad consensus among economists on how to 
discount pension liabilities and yet most plans actuarial 
practices and Federal funding rules simply disregard this 
consensus. The problem is very simple. If pension abilities are 
not properly recognized, they won't be funded and that is what 
has happened throughout the multiemployer system.
    Moreover, average insurance premiums per person paid by 
multiemployer plans are less than 1/6th what they are for 
single employer plans. And whereas underfunded single employer 
plans are subject to variable rate premiums, underfunded 
multiemployer plans are not. And it means that those plans' 
premium payments do not reflect PBGC's risks of insuring them.
    Now the aforementioned orphaned worker problem is driven in 
large part by flawed withdrawal liability rules. The way it is 
supposed to work is that an employer who withdraws from plan 
sponsorship, now they're supposed to make a withdrawal 
liability payment that is equal to their share of the plan's 
unfunded, vested benefits. But there is various limitations and 
exceptions that often cause actual withdrawal payments to fall 
well short of that amount which leaves other sponsors remaining 
in the plan facing a larger inherited shortfall. And research 
does confirm that the most underfunded multiemployer plans 
indeed have a much greater population of orphaned workers that 
better funded plans on average.
    So to effectively address the crisis, reforms must correct 
both problems. The flawed valuation premium and funding rules 
as well as the inadequate withdrawal liability design and the 
unfunded orphan worker obligations that have arisen from that. 
Final point, Chairwoman Wilson, is that resolving this crisis 
as I don't need to tell you is extremely difficult. But one 
mistake I would say should be avoided and that is 
procrastinating. And procrastinating could take the form of 
propping up plans with Federal subsidies whether they are 
packaged as loans or otherwise without fixing the underlying 
problems.
    This would cause plans' underfunding to continue to 
mushroom. It would render their inevitable collapse as more 
expensive and it would actually be an escalation of the policy 
failures to date and would result in lawmakers facing an even 
worse version of this crisis in the future.
    Accurate measurement of a plan's funded status is the 
irreplaceable step in that no solution is going to work without 
it. Lawmakers can craft any contribution schedule they choose 
however lenient, however stringent once the shortfalls are 
accurately measured.
    But while funding requirements are rightly a matter of 
policy discretion and legislative negotiation, pension 
liability measurements are not. Those simply reflect a reality 
that cannot be avoided and should not be obscured.
    In closing, Chairwoman Wilson, in addition to repairing 
flawed measurement funding and premium rules, creative measures 
to address troubled plans, orphan liabilities are worth 
considering. But regardless of the policy approach taken, the 
goal of any reform should be a viable and secure multiemployer 
pension system. Viable because sponsors only promise benefits 
that they can fund and secure because they fully fund the 
benefits that they promise. Thank you.
    [The statement of Mr. Blahous follows:]
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    Chairwoman WILSON. Thank you. Thank you, Mr. Blahous. We 
will now recognize Ms. Becker.

STATEMENT OF MARIAH BECKER, DIRECTOR OF RESEARCH AND EDUCATION, 
NATIONAL COORDINATING COMMITTEE FOR MULTIEMPLOYER PLANS (NCCMP)


    Ms. BECKER. Chairwoman Wilson, Ranking Member Walberg and 
members of the committee, my name is Mariah Becker. I am the 
Director of Research and Education for the National 
Coordinating Committee for Multiemployer Plans or the NCCMP. 
Thank you for the opportunity to appear before you today as you 
consider the crisis facing the multiemployer system, its plans, 
participants, employers, and the Nation as a whole. The 
multiemployer system plays a substantial role in supporting the 
finances of the U.S. Government, state and local governments, 
households, and the economy of the United States.
    In 2015 alone, the multiemployer system provided 158 
billion in taxes to the U.S. Government. We provided 41 billion 
in pension income to our retirees and paid more than 203 
billion in wages to our 3.8 million active workers. Combined, 
that pension and wage income supported 13.6 million American 
jobs and generated 1 trillion in GDP.
    The vast majority of multiemployer plans today are in good 
shape but there is a significant crisis looming without 
congressional action and it is critically important that 
Congress act this year.
    If Congress does not act, around 10 percent to 
multiemployer pension plans covering 1.5 million participants 
will inevitably run out of money to pay benefits within the 
next 20 years.
    As you work to decide how to avert this crisis, it is 
incredibly important to preserve and protect the majority of 
plans that are currently in solid final health. Multiemployer 
plans play a vital role in providing the modest but essential 
lifetime retirement income to around 10.4 million participants 
that allows these working class Americans to retire with 
dignity.
    Mr. Morgan spoke earlier about the personal impact of this 
crisis for retirees. I would like some--I would like to add 
some numbers to that just to give you a sense of the scale that 
we are talking about.
    Take an example participant who currently earns $27,300 a 
year in retirement. These aren't golden parachute benefits. 
When his plan becomes insolvent, this retire would get $12,870 
a year assuming he worked a full 30 year career. This is a life 
altering reduction.
    But we know that the PBGC will be insolvent in 2025. At 
that point, this retiree who had planned his retirement in 
savings based on $27,300 a year from his plan will get around 
$1,365 a year or $114 a month. Life altering doesn't begin to 
describe it.
    On the employer side, there will be further challenges for 
all employers in the system when a systemically important plan 
like the Central States Pension Fund fails. We have already 
seen the beginning of market based responses as there is a 
greater understanding of the upcoming insolvency of Central 
States including higher costs for bank credit or restricted 
credit for the plans employers.
    These market based responses will expand at the insolvency 
of Central States including the Financial Accounting Standards 
Board of FASB which is likely to revisit its multiemployer 
pension accounting standards. This will impact the availability 
of credit and capital for all contributing employers in every 
multiemployer plan.
    But just as there are severe costs for plan participants 
and employers, tax payers at the Federal, state and local level 
will all bear an enormous burden if Congress does not intervene 
to prevent the multiemployer solvency crisis. NCCMP worked with 
the National Institute on Retirement Security or NIRS and the 
Segal Group to develop an economic impact model of the failure 
of the plans currently facing insolvency.
    For only the plans that are currently in critical and 
declining status, we estimate that the U.S. Government will 
lose between 32 billion and 103 billion in tax revenue over the 
10 year budget window from the lost pension and wage income and 
economic output depending on the level of employment losses 
that occur.
    In addition to the lost tax revenue, we estimate that the 
U.S. Government will have new safety net spending over the 10 
year budget window of 138 billion for a combined total 10 year 
cost to the U.S. Government of not finding a solution to the 
multiemployer pension crisis of somewhere between $170 billion 
and $240 billion.
    It's important to note that these costs will continue for 
decades after the first 10 year window and so may the cost of 
any solution. Because one proposal to address this crisis 
includes a 30 year Federal loan program. We estimated the net 
present value of the 30 year economic costs. The lost Federal 
tax revenue had a net present value between 68 billion and 215 
billion. And the net present value of new safety net spending 
was 264 billion.
    This brings the combined 30 years costs to somewhere 
between $332 billion and $479 billion. The actual costs are 
likely to be higher. Maybe significantly if there are more 
critical and declining status plans in the future, if the 
broader contagion of employers is substantial, and depending on 
the scale of the market based responses of FASB, the banks and 
the capital markets.
    The costs of inaction are substantial and increase 
dramatically for all skaters--stakeholders in the system, the 
longer we wait.
    Thank you for the opportunity to share these thoughts with 
you today and I look forward to your questions.
    [The statement of Ms. Becker follows:]
    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
    
    Chairwoman WILSON. Thank you, Ms. Becker. We will now 
proceed to member questions. Under committee rule 8A, we will 
now question witnesses under the 5 minute rule. I will now 
yield myself 5 minutes.
    Mr. Morgan, it is clear from you testimony how much pride 
you took in your work as a mixer and oven operator. Can you 
please describe the different jobs you worked in the bakery?
    Mr. MORGAN. Besides mixer and oven operator, I worked in 
the sanitation department. I worked in the wrapping room at the 
end of the production line. I worked in the middle of the 
production line as divider operator after we cut the bread up. 
I worked in the molding department where we mold the bread. All 
this was part of an assembly line. The mixing room started the 
process and then it went through the different stages of 
processing. Dividing, molding, proofing, and then final 
wrapping room production.
    I worked every part of the line even sanitation, even 
receiving. My 33 year career at Wonder Bread I did almost every 
job in the bakery.
    Chairwoman WILSON. Mr. Morgan, can you please tell us why 
you and your fellow union members sacrificed wage increases 
during contract negotiations for increasing your pension 
benefit level and why was that important to all of you?
    Mr. MORGAN. Well, as I think back on that, when I first 
started at the bakery I was 19 years old and I used to go to 
all the union negotiation meetings. And a lot of the senior 
members that's what they were doing. They were putting more 
money into their pension. I was young and I didn't know 
anything but they drew me--they drawed me along and said hey, 
you are going to need a pension 1 day when you retire and when 
you get older.
    I never wanted to put my extra money or my wage increases 
into the pension. But they guided me through this, the senior 
members guided me through this and said you are going to need 
that money. And quite literally I did need it after the bakery 
closed.
    So it was always the good--and I taught that to the other 
members. As new members came in, they were young, I taught that 
to them. I said it is always good to put some of this money 
that we get in wage increases into the pension and they argued 
just like I argued. Oh no, no, I need my money now. I got bills 
now. I have children now.
    But I said you are going to really need that money at the 
end. You never know when you are going to retire. You might 
work till 60, 65 and that money will be there for you. And you 
always going to--you will be able to use that money in 
retirement.
    Chairwoman WILSON. My last question is can you tell us what 
your pension means to you and what would happen if Congress 
does not act to protect it? What do you stand to lose?
    Mr. MORGAN. Well, I stand to lose being able to be 
independent and taking care of my family. I pay all my bills 
with my pension. If I lost it, I don't think I could go into 
another bakery and get a job at this point in my life. I'm 57, 
if the pension failed at 60, there is not too many people 
hiring 60 year olds who walk into a bakery nowadays.
    So I probably would be out of work. I probably would have 
to go on social programs to make ends meet. It would be 
devastating to me and my family. So I need my pension to get by 
every day and then do the things that I do. For medical 
supplies, for medical prescriptions. That's another story all 
together but without that pension check I would be devastated.
    Chairwoman WILSON. Mr. Morgan, we all knew--we all know 
Wonder Bread all across the country. And I want to thank you 
for being here today and telling us your story. It is 
heartwarming.
    Mr. MORGAN. Thank you, Madame Chair.
    Chairwoman WILSON. So I open up for all of us and the 
committee and the people in the audience and all of our guests 
here today. And I want you to know that we are going to fight 
for you and the many others who are at risk of losing their 
pensions due to this crisis. And we as a Congress will not stop 
until we get a solution. We promise you that.
    Mr. MORGAN. Thank you so much.
    Chairwoman WILSON. Mr. Walberg and I are hand in hand, 
promise you that. I now recognize the Ranking Member Walberg 
for his round of questions.
    Mr. WALBERG. Thank you, Madame Chairwoman. And thanks to 
the panel for being here. It is worthy it's a worthy discussion 
we have today with no simple answers. I was hoping one of you 
would give that answer.
    Mr. Blahous, the most recent PBGC data shows that for 2016, 
less than 2 percent of participants are in multiemployer plans 
that are more than 70 percent funded. On the other hand, 75 
percent of multiemployer plan participants are in plans that 
are less than 50 percent funded. And 95 percent are in plans 
that are less than 60 percent funded.
    Do these statistics raise the possibility that even plans 
not projected to run out of money in the next decade or two we 
will be unable to pay promised benefits over the long run?
    Mr. BLAHOUS. I would say absolutely yes. And I think this 
is very important to understand because we throw around this 
figure of a $54 billion projection, projected deficit in the 
PBGC insurance fund and that's based on the projection 
methodology that they use. But there is a lot more underfunding 
over the horizon beyond what is reflected in the $54 billion 
figure.
    So, no one should be laboring under the illusion that if we 
sort of stitch up and patch together a few particularly 
prominent or immediate problems in specific plans--
    Mr. WALBERG. Central States specifically.
    Mr. BLAHOUS. What--I don't like to talk about specific 
plans but right. I mean, there are certain large plans out 
there--
    Mr. WALBERG. It is beyond that.
    Mr. BLAHOUS [continuing]. right now that are focuses of 
immediate concern. But the story is not going to end there 
unless you fix the underlying structural problems in the 
multiemployer pension system. That other $600 billion worth of 
underfunding, that is going to come to roost.
    And so this is not just a matter of patching things up and 
moving on. There is a fundamental, structural, worsening 
problem that has to be addressed.
    Mr. WALBERG. So, if we fix Mr. Morgan's issue, which we 
want to, you are saying that doesn't do it for many others as 
well if we don't structurally do some significant changing?
    Mr. BLAHOUS. That's exactly what I'm saying.
    Mr. WALBERG. OK, thank you. Professor Naughton, according 
to the most recently available PBG data, multiemployer plans 
are underfunded by $638 billion. That is a large number even 
around here putting benefits for over a million planned 
participants at risk. This is of course unacceptable.
    As we all know, the first rule of holes is to stop digging. 
As such, is new underfunding being created in these plans each 
year and if so, is this new underfunding limited to yellow zone 
and red zone plans?
    Mr. NAUGHTON. No. So, every year there is new underfunding 
but it is not restricted just to those plans. So, the way the 
system is set up, the contribution requirements don't reflect 
the full economic value of what is being promised.
    So every year when a new benefit is promised to a current 
participant, there is some amount of just structural 
underfunding that goes along with that. And that's obviously, 
you know, creates a bigger problem because when you sort of 
project things forward, where if you look at the last several 
years, every year the level of underfunding has gone up in the 
system.
    So it's not like if you look back a couple years ago it was 
800 billion and now it's down to 600. It's been going up every 
year. And the reason it has been going up is because the 
participants that are collecting are getting closer to 
retirement. Their benefits are being promised to people that 
are not being funded and this is sort of the cycle that we are 
on.
    That is going to continue unless there is a complete change 
in how they're funded. And then, you know, the other related 
point is imagine there is another recession next year, what 
that would do to the funded situation and those plans. And 
that's why it's also important to take a look at how they are 
investing their assets to at least limit the damage that would 
come from these other types of external events.
    Mr. WALBERG. OK. Additionally, Professor, when 
multiemployer pension plans fail, are union and employer 
trustees personally liable?
    Mr. NAUGHTON. Currently they are not personally liable. So 
the trustees are fiduciaries and there are situations where 
those fiduciaries have been sued by participants for not 
fulfilling their duties by making very risky investments by not 
collecting sufficient funding but those have not moved their 
way through the court system yet. And at least statutorily 
there is no official rule that would hold.
    Mr. WALBERG. That they are liable. Do businesses and unions 
who jointly sponsor these plans, both have liability?
    Mr. NAUGHTON. They have potential liability. So there is 
no, again there is no statutory rule that says they're 
responsible for things. When you look at the businesses, what 
they have agreed to being part of the plan is to be joint and 
severally liable for all of the underfunding. And so we have 
heard other people testify about withdrawal liability but that 
it really means is you're the last firm standing.
    And so to the extent that it gets to that point where a 
fund goes insolvent, the employer is obligated to contribute 
toward the plan. And to the extent that they don't have the 
resources to actually cover the insolvency and they're simply 
forced into bankruptcy.
    The example that Mr. Morgan presented, when Hostess Brands 
is a case where there was a company that was liable and, you 
know, owed close to a billion dollars. It simply didn't have 
the resources to actually do that. There was no money left. The 
people had already taken the money out of the company.
    So that's sort of what it--so when you look at sort of the 
structure of what could happen, the employers that are part of 
these plans could be forced into bankruptcy.
    Mr. WALBERG. Thank you. I yield back.
    Chairwoman WILSON. Thank you. I now recognize Mr. Norcross 
for 5 minutes.
    Mr. NORCROSS. Thank you, Madame Chairwoman, and thank you 
for putting together this incredibly important hearing today 
and to Ranking Member Walberg and Dr. Roe who I have been 
working on a number of these issues for 2 years and certainly 
to Bobby Scott who we served together on the joint committee. 
Pensions. That promise of a retirement that you put on hold 
through wages. Mr. Morgan, it is absolutely--these are wages, 
these are your dreams that you put on hold. We certainly 
understand that.
    $12,870 a year. What do you do with that after you are 
making 30,000? Because this is money. There are so many issues 
surrounding this and it can become complicated. But a couple 
facts we know are going to happen. If we do nothing, the system 
crashes and it takes down virtually everyone with it sooner or 
later.
    We don't have an option to do nothing. This is a disaster. 
We literally spend hundreds of billions of dollars a year when 
a hurricane strikes a state, an island, or elsewhere. It is not 
their fault, but we do that. This is what we do in America.
    When the banks were going under, what did we do? We saved 
them because it is good for all of us. When the auto industry--
these are peoples wages and through no fault of their own, 
they're being left out to dry. This impacts all of us. We need 
to level the playing field.
    So we have heard from a variety of you and I want to thank 
you for your testimony today. If it was as simple as some 
people are suggesting, this would have been done already. You 
can't just change assumptions and have those health plans pay 
of everything else. This is a natural disaster that hits our 
country and it needs a national answer.
    So as we go through this, there is a couple of things that 
are on the table. And I would like to submit for unanimous 
consent, enter into the record, compilation of the materials 
and a memo describing our work with the Joint Select Committee 
on the Solvency of Multiemployer Pension Plans.
    Chairwoman WILSON. Without objection, so ordered.
    Mr. NORCROSS. Thank you. So, we know if we do nothing this 
crashes and burns. The Butch Lewis Act is the one that we are 
talking about. I equate it to a person who is being rushed into 
the emergency ward. Unless we take care of him immediately, he 
dies. But we also want the system to continue to grow and get 
stronger and that is what we had the GROW Act was a composite 
plan.
    Because unless we fix the underlying issue as many of you 
testified, we are going to be back here and none of us want 
this. We want to fix it for the once and for all.
    So for Mr. Spencer, why should government get involved 
here?
    Mr. SPENCER. Well, I appreciate the question because it is 
one we hear frequently and I think the simple fact is that 
these plans are--some of these plans are in such a condition 
that they're not coming back.
    As I said in my testimony, regardless of what interest rate 
assumptions they use, regardless of what investment options 
they make, they're not going to be able to recover without 
funding and as you noted, there is really not a lot of great 
options here. We are sort of debating over the least worst 
option.
    There is always risks with these types of loans to plans. 
There is always the risk of a default. But you compare that to 
the risk of doing nothing and I think as we have heard today 
that risk is substantial and it is very real.
    Mr. NORCROSS. Because it will take down the private side, 
those employers who are there potentially are going under. And 
when they do, they do shed their liability which is one of the 
structural issues. If you can walk away, first position in 
bankruptcy are wages. So they get their last paycheck. But if 
you turn that in, wages into pension, they are in third 
position. This is why none of the money ever gets there once 
somebody goes out. They shed their entire liability.
    If we concerned it as wages it would be up front and we 
wouldn't be here today. It is one of the most major problems. I 
understand bankruptcy is a very difficult issue for companies 
because they want a return. But in exchange for their return 
they left all the people behind you. They didn't start their 
life over as a company. The people behind them have to pick up 
the pieces.
    And fundamentally I just want to leave you with one 
thought. We are all in this together. Everybody is in this 
together. All 50 states have companies, have people on this 
system. We owe it to them because we made the rules that 
they're investing by.
    With that, I yield back the balance of my time.
    Chairwoman WILSON. Thank you. I recognize Dr. Roe.
    Mr. ROE. Thank you.
    Chairwoman WILSON. For 5 minutes.
    Mr. ROE. Thank you very much. And I am going to start, Mr. 
Morgan, by telling you a story. When I was in the Army in 
Southeast Asia in 1973, my dad's company, he was a union 
member, worked for BF Goodrich. His company moved south of the 
border. Thirty years after World War II he got a $10,000 buyout 
for his pension for 30 years worked, that is it. My family has 
been down this road.
    The problem that we have right here, it is basically an 
arithmetic problem. You have got more liabilities than you have 
benefits and the structure of the plan, I was on the Committee 
with the Chairman and with Congressman Norcross. We have worked 
hard on this issue. I understand it probably as well as anybody 
in the Congress.
    You had a plan set up with multiple companies went in. It 
was a last man standing rule. The assumptions made on returns 
were way too high for many of them. At 8 percent on paper they 
look pretty good but that just wasn't reality. And so those 
assumptions are too hard. There actually are probably are more 
plans in the red zone than we know of right now. I think 
probably there are.
    And because of these assumptions that have been made and 
you can make, if you can get an 8 or 10 percent return, you can 
make your balance sheet look pretty good. Except that is not 
reality. And there is no question going forward. We missed an 
opportunity in 2014 to put a composite plan or a hybrid plan 
out there to begin to allow companies to heal.
    I look at Schnucks and I see what a situation there in and 
it is a very solid company. There are other people out here in 
this audience I know that are representing companies that are 
very solid companies but have an incredible last man standing 
liability that is exceeds the value of their company.
    And we--I just--I may have heard this wrong but we got 3.8 
million workers and 10 million retirees. The idea is you were 
going to continue to put more and more people in, sort of like 
Social Security was except that what Mr. Morgan should have had 
was what he put in all these years, should have been there just 
for him when he got out. And that is not how these plans were 
designed and that is why we have to redo it.
    And before I forget it, I want to thank the NCCMP. They 
have been very helpful in educating me on this extremely 
complicated issue.
    So my question to you guys is this. If we have got a plan 
out here with the issue. I have heard all the assumptions about 
what will happen if we don't do something. There has been one 
plan or maybe two, I heard in a testimony on the Senate side, 
that have ever paid a loan back. So how does it make it better 
when the Federal Government loans money to a plan that can't 
pay it back? If you can't pay your liabilities now, how does 
giving more money allow you to pay this back? And somebody, 
anybody can take that one.
    Mr. SPENCER. Well, thank you for the question. I think the 
answer is that it's not just the loan, OK. So we have got five 
principles in our package that we put forward which includes 
some other tools to help plans restructure, to help plans deal 
with some of the funding deficiencies to help when they were in 
the plan.
    Mr. ROE. But, Mr. Spencer, help me, right here. When you 
say restructure, put that in English. Is that to lower what you 
are going to pay Mr. Morgan? That is what he wants to know at 
the end of the day. Am I going to get paid what I thought I was 
going to get paid when I put it in and is that what you are 
saying? Because that was one of the tools we gave in the 2014 
plan.
    Mr. SPENCER. Right. Under MPRA, there were provisions for 
benefit suspensions and there were also provisions to allow 
plans to merge. There were provisions in there for partitions 
so I think all of those tools need to be given some time to 
work in conjunction with loans. I think that is a better way to 
look at whether or not those plans would be able to repay the--
there is always a risk of default. I mean, that's a given. We 
can't get around that completely but there are ways to make it 
less risky for the taxpayers who after all are putting, would 
be putting the money in.
    Mr. ROE. Well, what are they? Because again I am trying to 
figure out a plan that is six, I mean, these plans that are 
probably more than 600 plus billions. And that money is loaned 
at say 60, well at 30 billion a year over 20 years. How do you 
pay it back when you can't pay your bills now because as Dr. 
Naughton said, we haven't rejected the economic cycle. There 
will be another recession. It will come at some point. Maybe 
not in the next year or two but at some point in time there 
will be.
    Mr. SPENCER. Right. These--the way that we have envisioned 
this with very lower interest loans that, you know, hopefully 
the plans will be able to make some of that back but I think 
Mr. Blahous in particular, talked about things like orphans. 
You have got to deal with that question of the folks who are in 
the plans that aren't receiving any employer contributions--
    Mr. ROE. So what you are saying you will take this money 
but let's say we give a plan a billion dollars. And they pay 
benefits with that. Then they invest that money and hope to 
earn a higher rate than what they are supposed to pay back? Is 
that what I am hearing you say?
    Mr. SPENCER. Well, some of that would be invested. Of 
course some of it has to be paid in benefits as well. But 
again, I think combined with the other tools that MPRA provided 
and that we would envision as part of the plan going forward, 
you would be, there would be less of a risk of plans defaulting 
on those loans. But it is a risk that's there.
    Mr. ROE. Well, I thank you very much. And I appreciate the 
panel. You all were excellent. I yield back.
    Mr. SHAPIRO. I realize the time is up.
    Chairwoman WILSON. Thank you. Thank you very much.
    Mr. SHAPIRO. I'm sorry.
    Chairwoman WILSON. I now recognize representative wild for 
5 minutes.
    Ms. WILD. Thank you, Madame Chair. Good morning to all of 
you and I echo my colleagues' sentiments. Thank you for 
shedding so much light on this very important subject that 
affects workers across our country, certainly in my district 
and I know in all of my colleagues' districts. I wish Congress 
didn't have to get involved in this problem.
    I wish employers across the country would honor their 
obligation to employees as Ms. Moorkamp, Schnucks Markets has 
over the years. I understand from what you have told us that 
Schnucks has faithfully paid its pension obligations 
consistently since 1958 I believe.
    I wish all employers would do that rather than executives 
essentially stealing from their employees by granting 
themselves big pay raises at the expense of their employees' 
futures and their retirement.
    And I know that is what happened, Mr. Morgan, at Hostess. 
Your written testimony was very compelling on that regard. It 
is my understanding, sir, that you were 33 years with Hostess 
and that in 2012, it closed its doors. During all that time, 
you worked on a full time basis, sir?
    Mr. MORGAN. Yes, I did.
    Ms. WILD. And it was a physically demanding job, is that 
correct?
    Mr. MORGAN. Every day. Every day.
    Ms. WILD. And you--did you--did you personally get involved 
in discussions about negotiating pay raises in favor of pension 
contributions?
    Mr. MORGAN. Yes, I did. I was also a member of the 
negotiation team and every negotiation that we had, we would 
talk about pay raises and then we would go right to pension 
benefits. You know, some of the pay raises would be 35, 40 
cents. Out of that money we would take probably 12 to 13 cents 
and buy additional pension money.
    Ms. WILD. And that was--those additional purchases of 
pension money were done by the employees themselves, correct?
    Mr. MORGAN. Absolutely.
    Ms. WILD. That wasn't by the employer?
    Mr. MORGAN. No.
    Ms. WILD. Because of the--
    Mr. MORGAN. No, that came out of our pockets.
    Ms. WILD. Because of your interest in securing your 
retirement future.
    Mr. MORGAN. And making the levels higher.
    Ms. WILD. Understood. And did I understand you correctly 
that with the pension that you currently get, Mr. Morgan, you 
are able to pay your bills?
    Mr. MORGAN. Yes.
    Ms. WILD. You are not getting rich, is that fair to say?
    Mr. MORGAN. Not getting rich.
    Ms. WILD. But you are able to pay your bills.
    Mr. MORGAN. Yes.
    Ms. WILD. And if you were to lose your pension, would you 
need to rely on government assistance?
    Mr. MORGAN. Absolutely. Absolutely. I would, you know, I 
would try to get more jobs, I would try to apply for jobs but 
when you are in your late 50's, early 60's, how many employers 
are going to hire you? You know, you struggle with that. But 
every day I have to pay bills.
    Ms. WILD. And are you currently working part time or 
otherwise?
    Mr. MORGAN. Yes, I work part time job at a school.
    Ms. WILD. OK. Is that to supplement your pension income?
    Mr. MORGAN. Yes.
    Ms. WILD. Would that part time income that you have at 
school suffice to pay your bills if you--
    Mr. MORGAN. Oh absolutely. Absolutely.
    Ms. WILD. If you were to lose your pension?
    Mr. MORGAN. That can pay my bills.
    Ms. WILD. OK. And would you just describe for us what your 
employer told you in 2011 about an interruption to pension 
contributions that was happening?
    Mr. MORGAN. Well, they wanted a break from paying the money 
into the fund. And our union decided, you know, let's try to 
help this company the best way we can by giving them some kind 
of a break in payments. But when they did that, you know, 
Hostess was never interested in repaying that money. And then 
they filed Federal bankruptcy and then they walked away. They 
didn't have to pay it anymore after that.
    Ms. WILD. And--
    Mr. MORGAN. We worked 2 years before the plant closed 
without them contributing to the pension fund.
    Ms. WILD. Thank you, Mr. Morgan. Dr. Naughton, I just want 
to address the situation that Mr. Morgan just described. In the 
case of--you had mentioned in your testimony before that when 
this happens the people have already taken the money out of the 
company. You weren't specifically referring to Hostess but 
companies in general that were not able to meet their pension 
contributions, correct?
    Mr. NAUGHTON. Correct. If you are going to end up in 
bankruptcy, it is usually because there is no money left in the 
company.
    Ms. WILD. And when you say the people, you are not talking 
about the workers took money out of the company, are you?
    Mr. NAUGHTON. You--
    Ms. WILD. You are talking about the people who bail on the 
company when its, the times get tough, right?
    Mr. NAUGHTON. So I don't know who the exact person is in 
each situation but in general, when a company runs out of 
money, everybody suffers.
    Ms. WILD. And this is something that can repeat itself over 
and over and over again?
    Mr. NAUGHTON. Absolutely.
    Ms. WILD. In the future.
    Mr. NAUGHTON. Yes.
    Ms. WILD. Is that right?
    Mr. NAUGHTON. And you can guarantee that there will be 
companies over the next several years that are in these plans 
that are going to go bankrupt and have these same series of 
events occur.
    Ms. WILD. Thank you. I yield back.
    Chairwoman WILSON. Thank you. I now recognize Mr. Allen for 
5 minutes.
    Mr. ALLEN. Thank you, Chairwoman, and thank you for sharing 
this information with us. This is my third term. I was here I 
think my fist year 4 years ago. We set, you know, in a similar 
meeting and, you know, it looks like we have made little or no 
progress and a lot of promises were made and not kept.
    Obviously Congress, you know, we are here today to listen, 
and learn and be a part of trying to solve this crisis. I 
believe any proposal must have, you know, some structural 
reforms that in rather, you know, this--a band aid approach is 
just not going to fix a hemorrhaging problem.
    You know, and of course we have got other issues. I mean, 
we have $22 trillion dollars in Federal debt. So for us to sit 
here and we are managing that supposedly. And for us to sit 
here and say we are going to solve your problem is, it is 
troublesome because some people say it might take 400 million 
years to pay off that debt.
    So whatever we do to fund these retirement programs, how 
many generations is that down the road that are going to pay 
for it? Amazing to think about it, isn't it? In other words, 
our children's, children's, children's, children's, children's, 
children will pay for whatever we do to try to fix this. And I 
don't think they are going to be real happy with us.
    But, Dr. Naughton, and Dr. Blahous, did any of the 
solutions that are on the table today or have been discussed 
over the past few years actually do anything to solve the 
pending pension crisis? And have these proposals included any 
structural reforms? In other words, we know this, we have got a 
problem. Has there been anything done to fix it?
    Mr. BLAHOUS. I do think there are some positive models out 
there for reform. One of them is the 2006 Pension Protection 
Act, what was done on the single employer side. That was very 
tough and difficult, arduously negotiated legislation. But it 
did succeed in stabilizing what was then a burgeoning problem 
in the single employer system. And I think there are a lot of 
important lessons that could be drawn from that to address the 
multiemployer system.
    If you are asking whether I have seen specific legislative 
proposals over the last year that would fix the multiemployer 
problem, I have not. I mean, there were various outlines that 
were floated around. I don't think they would have succeeded in 
solving the problem. But then again, this is a very difficult 
problem to solve. And I--go ahead.
    Mr. ALLEN. Without legislative, I mean, in other words, we 
know companies come and go. And we know that people move from 
company to company. You know, we are in a, thank goodness we 
are in a growing economy right now. One of the best, maybe the 
best economy in the world which is one of the ways we are going 
to get out of this mess.
    But given the current situation in knowing that companies 
are going to come and go, that you still have multiemployer 
pension plans, what are we doing right now to fix this going 
forward without anything that Congress would do?
    Mr. BLAHOUS. You know, I think the hard truth is it is not 
going to be fixed without legislative action. I just--I do not 
think the crisis can be diverted without legislation, without 
Federal legislation. I think the problem too large and too 
immediate and the problems are too vast. Problems with the 
funding rules, problems with measurement inaccuracy, problems 
with the orphan workers. I do not see the system righting 
itself without Federal legislation.
    Mr. ALLEN. Any kind of idea on the impact? Obviously we 
are, you know, growing at 3 percent maybe right now. We would 
like to see greater economic growth. Every time, I mean, when I 
get up in the morning I think about economic growth and 
creating jobs. Because again, that is the only way we are going 
to get out of this mess we are in.
    What is going to be the impact? Anybody have any idea what 
the impact on the economy is?
    Mr. BLAHOUS. Well, I would say economic growth helps.
    Mr. ALLEN. Yes.
    Mr. BLAHOUS. But you have to bear in mind--
    Mr. ALLEN. But if something is not done what is going to be 
the hit to the economy? Do you have any idea?
    Mr. BLAHOUS. I'm sorry?
    Mr. ALLEN. What would be the actual hit to the economy if 
we said hey, this is your problem--
    Mr. BLAHOUS. Right.
    Mr. ALLEN. We have got other problems we have to deal with.
    Mr. BLAHOUS. I would--
    Mr. ALLEN. What is going to be the hit?
    Mr. BLAHOUS [continuing]. be loath to try to quantify if. 
It would be, I think it would be very substantial. I think the 
point I would make is that a growing economy by itself is not 
going to fix this problem.
    Mr. ALLEN. Right.
    Mr. BLAHOUS. Without legislation.
    Mr. ALLEN. It helps. You got more people--
    Mr. BLAHOUS. It helps.
    Mr. ALLEN [continuing]. paying in. OK.
    Mr. BLAHOUS. We have had recovering financial markets for 
the last several years and yet the funding ratios in 
multiemployer plans have actually declined.
    Mr. ALLEN. Right.
    Mr. BLAHOUS. We have gone from 50 percent in 2011 down to 
43 percent in 2015 and that was with the financial markets 
recovering. So we need to do more.
    Mr. ALLEN. I am out of time. But Mr. Morgan--
    Chairwoman WILSON. We have to--
    Mr. ALLEN. Mr. Morgan, you are a great American. Thank you 
for your years of service.
    Chairwoman WILSON. Yield back your time.
    Mr. ALLEN. Sir.
    Chairwoman WILSON. Thank you. I recognize Representative 
Stevens for 5 minutes.
    Ms. STEVENS. Thank you, Madame Chairwoman. I wish to enter 
3 letters into the record. Two are from AARP and the Teamsters 
which has a significant presence in my district in support of 
H.R. 397.
    And the other letter is from the Council for Citizens 
Against Government Waste which, while we don't agree on 
everything, highlights the critical importance of solving the 
impending multiemployer pension crisis in a bipartisan way. 
Something that I believe this subcommittee under Madame 
Chairwoman's leadership can achieve.
    Chairwoman WILSON. Without objection, so ordered.
    Ms. STEVENS. Thank you. Thank you. I would like to note 
that this issue hits extremely close to home for me. Central 
States which as we all know is about to be insolvent covers 
tens of thousands of workers in my state including almost 3,000 
people in my district alone who are covered by 102 employers.
    I would like to also just recognize the tremendous 
leadership of the Teamsters and their friendship to many on 
this committee and throughout southeastern Michigan. And I 
would like to recognize every labor union tuning in today as we 
as a committee seek to bring your issues to the fore and as we 
project a vision of the future and value of work vis a vis a 
21st century labor movement.
    We find ourselves in a new movement, in a new Congress in 
this committee. Doing nothing means plans will fail. Businesses 
will fail. Employees will get zero of what they have earned and 
tax payers will end up paying for it. Insolvency is not an 
option and it doesn't have to be.
    I am a proud cosponsor of H.R. 397 the Butch Lewis Act. 
This bipartisan legislation would shore up pensions that are 
facing insolvency already and those that aren't facing 
insolvency in the very near future. CBO as we know has 
estimated that this will cost between $34 billion to $100 
billion.
    So, Ms. Becker, I would like turn to you and just ask what 
would be the total cost to tax payers over the next 10 years 
accounting for both lost tax revenue and social safety net 
programs if the multiemployer pension crisis is not addressed?
    Ms. BECKER. So absolutely, thank you. That's a great 
question. And as we were talking about before, you know, when 
these plans fail there will be a cost to the government and it 
will encompass both the lost tax revenue and the social safety 
net spending that will happen when these, the participants in 
these plans lose their benefits.
    So on a--the 10 year window, it sort of depends on how much 
you expect these participants to be able to recover those jobs 
and those wages that they will lose when the employers, you 
know, go bust. But it is somewhere between--somewhere between--
oh, I apologize. I flipped my page. Is somewhere between 170 
billion and 240 billion in total between the tax loss revenue 
and the increased social safety net spending.
    Ms. STEVENS. Thank you. and, Ms. Becker, by your 
organization's nonpartisan data informed estimations, wouldn't 
the overall cost of doing nothing be far greater to tax payers 
than the cost to implement H.R. 397?
    Ms. BECKER. So the cost of doing nothing is likely to far 
outweigh the cost of any action that they government takes to 
avert this crisis. The faster you can act, the less expensive 
this is going to be to fix the problem.
    Ms. STEVENS. Thank you. I yield back the remainder of my 
time.
    Chairwoman WILSON. Thank you. I now recognize 
Representative Taylor for 5 minutes.
    Mr. TAYLOR. Thank you, Madame Chair, appreciate that. This 
is clearly a very serious problem and I appreciate the 
testimony we have heard here today. One thing I do understand 
is if you charge an actuarially unsound premium for an 
insurance product, eventually its actuarial unsoundness will 
come to roost, right. So if you charge $100 for something that 
costs $600, you are not putting enough money away to actually 
cover the risk that you are trying to cover and then we are in 
this hearing, right.
    And, so Dr. Blahous, could you just expand on that in your 
testimony? Because I think you spoke to that and I think, I got 
the number right, 1 to 6 but.
    Mr. BLAHOUS. Well, that's right. In fact, I think the 1/6th 
premium, the fact that premiums per capita on the multiemployer 
side are 1/6th per participant what they are in the single 
employer side. Actually I think that understates the problem 
that you're talking about which is that in order to be 
actuarially fair, an insurance premium has to recognize the 
risk of payment risk, the risk of failure.
    Mr. TAYLOR. Sure.
    Mr. BLAHOUS. And right now, we have a single employer 
system that is basically stable. The last PBGC report found no 
net deficit in the single employer insurance program but there 
is a $54 billion projected deficit in the multiemployer system.
    And yet, the multiemployer system is charging premiums that 
are much, much lower than they are in the single employer side. 
So there's the magnitude issue but there is also the design 
issue.
    On the single employer side, there is a flat rate premiums 
but there is also a variable rate premium. The variable rate 
premium is assessed on underfunded plans.
    Mr. TAYLOR. Got it.
    Mr. BLAHOUS. That recognize the additional risks they pose 
to the insurance system. You don't have a similar animal on the 
multiemployer side. And so in effect, sponsors of funded plans 
are basically subsidizing the risk to the system that is caused 
by underfunded plans and the insurance system is not able to 
charge anything close to the appropriate premium that 
recognizes that risk of underfunding.
    Mr. TAYLOR. Sure. So just to restate what I think you just 
said is that if you are not charging the actuarially sound 
premium, it will be actuarially unsound. I am, that is just, 
that is almost tautological in a sentence but I think it is 
just factually correct.
    Mr. BLAHOUS. Right.
    Mr. TAYLOR. And then in terms of the--you are talking about 
a risk premium. So if an employer is underfunding their 
payments into their pension fund, there is not a penalty 
assessed in terms of the risk premium.
    In other words you know, if you think about auto insurance, 
a riskier driver, someone who has had many accidents is going 
to pay a higher premium than someone that has never had an 
accident because the insurance company adjusts based on risk. 
So in this case, you have a pension plan which is underfunded. 
There is no additional premium on the multi side but there is 
on the single side.
    Mr. BLAHOUS. That's correct. And I think this speaks to a 
larger question of moral hazard in the system which is we have 
had a lot of very good discussion here about, you know, this is 
basically compensation for workers, right. Like wages, or in 
lieu of wages. These are benefits that workers have earned. But 
at the same time, it is a lot more pleasant situation for 
employers and union representatives alike if there are 
additional dollars on the table available for wages rather than 
having to put that money in the pension plan.
    Mr. TAYLOR. Sure.
    Mr. BLAHOUS. And so that creates a lot of moral hazard to 
shift the risks of underfunding to the insurance system to 
other employers and other workers. And the only way to 
counterbalance that moral hazard is to make sure that there are 
rigorous enough standards for funding, rigorous enough 
insurance assessments, and rigorous enough safeguards against 
digging the underfunding hole deeper. Otherwise, you see the 
incentives that lead to the grossly underfunded situation that 
we have today.
    Mr. TAYLOR. And just to state the obvious, the sooner that 
Congress acts to make an actuality sound premium set up, the 
sooner--the less damage there will be to actually have to dig 
out for the future. Is that a fair statement?
    Mr. BLAHOUS. Right. I think, I mean, I think there are two 
levels here. One is the solvency of the PBGC insurance fund and 
the premiums speak directly to that.
    Now you have a larger underfunding problem out there beyond 
that. And so there are risks to workers whose benefits have 
been promised in excess of the PBGC insurance guarantee that 
arise from larger underfunding in the system.
    But the first order of business if you interpret that as a 
stabilizing the PBGC insurance fund certainly requires a 
reformed premium structure.
    Mr. TAYLOR. All right. Thank you. Madame Chair, I yield 
back the balance of my time.
    Chairwoman WILSON. Thank you. I now recognize 
Representative Fudge for 5 minutes.
    Ms. FUDGE. Thank you very much, Madame Chair, and I thank 
my colleagues for allowing me to go out of turn. Thank you so 
much. I will be very brief.
    First, I would like to ask unanimous consent to enter into 
the record a letter from the Bakery and Confectionery Union and 
Industrial International Pension Fund which proposes a long 
term low interest loan solution as has been discussed here.
    Chairwoman WILSON. Without objection. So ordered.
    Ms. FUDGE. Thank you. And I just want to say two things. It 
is interesting that for people who have worked 30 years, 
whether it be for a pension or Social Security or Medicare, we 
always have a problem with trying to find a way to find a 
solution for these people. If we make them a promise, we ought 
to keep it.
    I think sometimes we forget as members that our real job 
here is to take care of the people we serve. It is not to save 
money. It is to take care of the people who sent us here. And 
so I would suggest very strongly that instead of spending $5 
billion on a wall, we put it into the pension fund. Let's put 
it into PBGC. I think it's important that we do that. Because 
it is more important to me to take care of the people who work 
for this country than it is to build an unnecessary wall. 
Madame Chair, I yield back.
    Chairwoman WILSON. Thank you. I now recognize Mr. Watkins 
for 5 minutes.
    Mr. WATKINS. Thank you, Madame Chair. And also thanks to 
Republican Leader Walberg. My question is for Dr. Blahous.
    Now it seems to me that many of our workers particularly 
our millennials are paying into pension plans that will become 
bankrupt. So perhaps an alternative solution could be that they 
receive less of what they have accrued in the pension plan and 
be allowed to contribute to a 401K or an IRA, something that 
they would own. What are your comments on that?
    Mr. BLAHOUS. Well, I certainly agree with the point that 
the sort of historical defined benefit structure in many 
systems is not serving the interests of younger Americans very 
well.
    Andrews Biggs has done some excellent research on this for 
us at the Mercatus Center but basically sort of surveyed the 
denied benefit landscape. And you'll fund underfunding wherever 
you look. You will find it in the multiemployer system, you 
will find it in state and local pension plans. You will find it 
in Social Security.
    In comparison, the defined contribution system while it has 
its shortcomings, is preforming comparatively better. And it 
also is less sensitive to demographic shocks because if were in 
a sense prefunding your own future retirement benefits that 
type of system is less sensitive to a change in the ratio of 
contributing workers to retirees.
    So I certainly take your point. I think there have been 
proposals that have been put forward by Rachel Greszler, that 
basically to sort of let people buy out of the system in a way. 
Now they would get less than they are currently being promised 
by the multiemployer pension systems and you wouldn't be able 
to give them everything that they were currently promised but 
if people were willing to take a haircut on that benefit in 
order to receive a certain form of it, you could transition 
them to a defined contribution type of system.
    Mr. WATKINS. Thank you, doctor. Thank you, Madame Chair. I 
yield back.
    Chairwoman WILSON. I now recognize Mr. Levin for 5 minutes.
    Mr. LEVIN. Thank you, Madame Chairwoman. I would like to 
start by thanking all the witnesses for your testimony and 
participation today and, in particular, it is enlightening to 
hear the real live experience of companies and workers from Ms. 
Moorkamp and Mr. Morgan. It is extremely helpful to us. And I 
notice a lot of folks in the room here too, I know brother 
David Durkee from BCTGM is here. I saw mine workers, steel 
workers, Teamsters and others and I really appreciate you folks 
being here.
    The fundamental point about pensions is that they are not 
charity, they are not a donation, they are money that workers 
put aside themselves in cooperation with their employers so 
they could have a dignified retirement. They own it, it belongs 
to them and shame on us if we don't help them have that in 
their retirement.
    Madame Chairman, I would like unanimous consent to 
introduce 4 documents into the record. A letter to the chairman 
of our committee from Anthony Perrone, the president of UFCW. A 
letter from Robert Martinez, the president of IAM. A letter 
from Leo Gerard the president of the Steel Workers and a 
statement from the steelworkers on the pension crisis.
    Chairwoman WILSON. Without objection. So ordered.
    Mr. LEVIN. Thank you very much. Thank you. I would like to 
ask you a question, Mr. Blahous, about the use of corporate 
bond rates. I need to understand this better. I believe you 
advocate using corporate bond rates to discount multiemployer 
pension liabilities. And currently those discount rates are 
very low because we are in a fairly low interest rate 
environment still.
    But would you also support discounting those liabilities at 
9 percent or 10 percent when interest rates rise as happened in 
the 80's?
    Mr. BLAHOUS. I do think they should float, yes. The--
wherever corporate bond rates go--
    Mr. LEVIN. Wherever they go.
    Mr. BLAHOUS. Wherever they go.
    Mr. LEVIN. And do you acknowledge that there is year over 
year volatility in the corporate bond market so the problem may 
get worse if and when interest rates rise?
    Mr. BLAHOUS. Great question. The volatility question is 
really important and I appreciate your asking it because this 
was a sticking point in 2006 when we were debating correct 
discounting for the single employer system.
    And the concern predictably was that using accurate 
discounting would lead to unwanted volatility and contribution 
requirements. And my strong recommendation is I think it is 
important to dampen required contribution volatility but I 
would not do it by distorting the measurements, by distorting 
the discount rates.
    I would do it by brute force limitations on annual 
contribution volatility because of the funding rules, the 
contribution rules, that is something that you might need to 
massage to get to where you want to go in terms of policy. But 
I would not try to dampen volatility by distorting the 
measurements because the liability is simply--
    Mr. LEVIN. All right. Well, let me ask you a question then, 
Ms. Becker. What impact do you think changes in the funding 
rules would have on healthy plans? That is a concern of mine.
    Ms. BECKER. So if we change the discount rates or the 
funding rules that apply to the healthy plans right now, it 
would have really dramatic consequences both on the 
participants in those plans and on the employers that 
participate in them.
    Mr. LEVIN. Positive or negative consequences?
    Ms. BECKER. Absolutely negative consequences.
    Mr. LEVIN. So can you explain a bit?
    Ms. BECKER. Yes, please. When we looked at this previously, 
we took a look at a couple of different example plans for what 
might happen if you go ahead and change the discount rates.
    The most immediate and obvious consequence which I think 
was referenced a little bit earlier is that the contribution 
rates are going to go through the roof for the same level of 
benefits. So an example plan where contributions were right 
around 22 percent of pay that is, you know, a substantial 
contribution that is going--
    Mr. LEVIN. Indeed.
    Ms. BECKER [continuing]. in to fund retirement benefits. 
Those would at least double. So you would be looking at 
somewhere between 46 percent of pay and 60 percent of pay to 
fund the same benefits into those plans. I don't know perhaps 
the employers on the panel can speak to whether a 60 percent of 
pay contribution rate to fund benefits would be bearable or not 
but my impression is that would be strenuous.
    When you look at that, that is not even resolvable. It 
would be easy to say well, OK. So these plans noted to stop 
offering benefits going forward and that will resolve those 
contribution requirements. You won't have to pay for more 
benefits, you just have to pay for what you already put into 
the plan.
    For these plans, you know, a--that is not a possible 
solution here. Even if you were to freeze accruals going 
forward, you are still looking at contribution requirements 
that are somewhere between 30 and 40 percent of pay.
    Mr. LEVIN. All right.
    Ms. BECKER. Again, I would turn to the employers and ask 
whether that is bearable.
    Mr. LEVIN. Well, thank you. My time is up but I would just 
make the point that we need to solve this crisis now as you 
have all said but I just want to make sure that our solution 
solves it and doesn't make it worse down the road. Than you, 
Madame Chairwoman, I yield back.
    Chairwoman WILSON. I recognize Representative Johnson for 5 
minutes.
    Mr. JOHNSON. Thank you, Madame Chair. Dr. Naughton, you 
mentioned in your testimony you used the annuity analogy 
talking about I think that these plans in general need a lower 
risk profile. I was a little surprised by that. I am, used to 
be Chief of Staff to the Governor in South Dakota and we would 
take a lot of pride in our--in state employee retirement 
system.
    And that doesn't have that kind of exceptionally low-risk 
profile, of course it has got a broad based and mixed 
portfolio, but quite heavy in equities. I mean, our plan is 
more than 100 percent funded and I think weathered the 
recession reasonably well compared to most.
    So maybe flush out your comments a little bit. I would 
think it would be very hard to deliver any kind of a real 
return with an ultra-low risk approach.
    Mr. NAUGHTON. That's a great point. So when you look at 
pensions generally there is sort of this belief that we should 
have a diversified portfolio and the idea of following an 
approach where you can take equity risk, a requirement is that 
you can absorb the downside of that equity risk.
    So if you're a state that has a lot of sources of revenue, 
you could increase tax receipts in the future, whatever is to 
fund it if there is a negative period, you can respond to it. 
If you look at the single employer system, you know, a good 
example there would be General Motors where in 2003 they issued 
$10 billion worth of bonds and put the money in the pension 
plan. So they were investing in equity through some down years 
and they responded by putting more money in the plan.
    What's unique about multiemployer plans, is they don't 
really have the same ability to go back and get contributions. 
Because there's a, there's many, many participating employers 
and over time, those participating employers come and go. You 
know, one of the ideas that has been raised today is when you 
look at the plans that are in the worst condition, it is the 
ones with orphan employees. Because those are the ones that are 
in, you know, amongst all of them, these are the ones that are 
least able to go back and get additional contributions. So when 
you look at that multiemployer plan system the way it is set 
up, if you were to ask Mr. Morgan what he thought he was 
getting, he would say I was promised a retirement benefit. When 
someone promises you something they don't put the money in the 
stock market, they put it in sort of a low-risk annuity type 
set up.
    And so that's sort of is the final disconnect here is the 
trustees of the fund should have sort of recognized that there 
is a lot of inability to go back to get more funding, there is 
a lot of inability to weather the downside. If we happen to 
have a really good year, what the multiemployer plans tend to 
do is they increase benefits. They couldn't be overfunded. And 
so structurally there was no way to respond to equity risk. And 
so if you think about it logically, they shouldn't have been 
taking it in the first place.
    Mr. JOHNSON. I mean, isn't this just a math problem? And we 
have had a lot of discussion about discount rates and that all 
makes sense to me but we know it seems like if you really want 
to be actuarially sound, you are going to estimate that a 
certain number go bankrupt and you are going to estimate that 
there will be down years because there are always down years. 
And that you should be able to weather those storms if you make 
reasonable and conservative assumptions. Isn't that right?
    Mr. NAUGHTON. Yes, that's correct. But that's not what 
these plans do. I mean, what they do, I mean, if you look at 
your own individual retirement, all of us, you know, when you 
were young we invested in equities in our own 401k's and when 
we get older we switch it to low-risk fixed because we are 
concerned. When you look at the multiemployer plans, the vast 
majority of participants are older and that by itself will tell 
you they shouldn't be investing in these risky securities.
    Mr. JOHNSON. Yes, that makes a ton of sense to me. So now, 
Dr. Blahous, you mentioned a statistic. You said 1/6th of 
something and I tried to catch it and then I tried to look in 
your written testimony but I wanted, I thought I heard it right 
but it seemed hard to imagine. So can you repeat that?
    Mr. BLAHOUS. The average premium payment on the 
multiemployer side is 1/6th per capita what it is on the single 
employer side. Although the insurance program deficit on the 
multiemployer side is much, much larger.
    In fact, if I could dramatize it still further, last year--
    Mr. JOHNSON. That is pretty dramatic though.
    Mr. BLAHOUS. That's pretty dramatic. About $5.5 billion in 
premium revenues were collected from single employer sponsors 
last year. There were about 300 million for multiemployer 
sponsors. And yet the single employer system is not in defect 
but the multiemployer insurance program if facing a $54 billion 
deficit.
    Mr. JOHNSON. So that is a pretty substantial policy 
failure?
    Mr. BLAHOUS. It's a very--
    Mr. JOHNSON. For the premiums to be set that low.
    Mr. BLAHOUS. Not only the magnitude of the premiums but the 
design. The fact that there is no variable rate premium for 
underfunded plans on the multiemployer side.
    Mr. JOHNSON. I mean, I understand what these, some of these 
contribution things are set through collective bargaining 
arrangements. I assume that the infrequent nature of 
renegotiation complicates how nimble these plans can be and 
adjusting to actuarially liabilities.
    Mr. BLAHOUS. Well, I would say that the problem is even 
more severe than that. Because remember how these plans are 
designed in ways that are different from the single employer 
system. In the single employer system might have a set of 
benefits promises and then if you make actuarial assumptions 
that are too aggressive, you might not put as much funding in 
as you should.
    With the multiemployer side as you said, it's built around 
a collectively bargained contribution rate. So if the trustees 
then go out and use unrealistic assumptions to build the 
benefit structure, the benefit promises themselves are inflated 
because of the use of aggressive discount rate assumptions.
    So you have a situation where the board of trustees is 
making more benefit promises than the contributions can fund, 
and then getting in trouble and wanting assistance.
    Mr. JOHNSON. Thank you, Madame Chair, for your additional 
courtesy.
    Chairwoman WILSON. Thank you. I now recognize 
Representative McBath for 5 minutes.
    Ms. MCBATH. Thank you, Madame Chair. And thank you so much 
for convening this hearing. And thank you to the witnesses that 
are here this afternoon.
    In my district, UPS has its world headquarters. That is the 
6th congressional District of Georgia. And they employ around 
15,000 people across Georgia and roughly 399,000 people across 
the United States. UPS also contributes nearly 2 billion per 
year to 27 different multiemployer pension plans. So I know how 
important this issue is to a major employer in my district.
    Last year, UPS testified at a hearing conducted by the 
Joint Select Committees on the Solvency of Multiemployer 
Pension Plans. Madame Chair, I would like to ask unanimous 
consent to enter UPS's testimony into the hearing record.
    Chairwoman WILSON. Without objection.
    Ms. MCBATH. Thank you. I note for the record that UPS made 
a similar point that I am hearing today from many of our 
witnesses. The cost of PBGC's failure will be extraordinary and 
will result in a loss of tax revenue and higher demands on 
Federal, state and local government safety nets.
    UPS also makes the point that changing the actuarial 
assumptions used by multiemployer plans to be closer to what 
the single employer plans use would make the crisis even worse.
    I would like to ask Ms. Becker, do you agree with UPS that 
changing the actuarial assumptions would make the multiemployer 
pension problem worse?
    Ms. BECKER. Absolutely. So if you go ahead and change the 
discount rates, you are going to drive many of the plans that 
are currently in good financial health into one of the zones 
and into poor financial health.
    Ms. MCBATH. Thank you. And can you please explain how it 
would get worse?
    Ms. BECKER. So when you change the discount rate, you are 
forcing plans to rather than taking a very long term look at 
how these benefits are earned and how they are going to be paid 
out, you take them--you force them to take a look at--look only 
at what they expect to happen over the very short term in the 
markets.
    And when you do that, when you drive plans into the zones, 
which is what you will do there, you are going to force 
dramatic increases in the contribution rates onto employers or 
you're going to force dramatic reductions in benefits on the 
participants or some combination of those two.
    Ms. MCBATH. So could this change--could this change 
increase UPS's contributions and potentially impact other plans 
in which UPS contributes?
    Ms. BECKER. Absolutely. So that's something that we 
mentioned a little bit earlier. That's something that Mr. 
Spencer mentioned as well, is the idea that multiemployer plans 
are very interconnected. Employers that participate in 
multiemployer plans don't just participate in one multiemployer 
plan. They participate in 2 or 3 or 5 or 10. So when there is 
something that impacts the financial health of one other 
employers that participates in those plans, that is going to, 
you know, depending on the financial health of the employer and 
where it starts, that is going to make it harder for them to 
continue to contribute to other multiemployer plans that are 
out there.
    So as you impact the financial health of a given employer 
or a given plan, you are going to impact the financial health 
of many other multiemployer plans in the system.
    Ms. MCBATH. Thank you very much. And, Ms. Becker, I really 
do look forward to being able to work with my colleagues in 
advancing a bipartisan solution that is so well needed. This is 
a crisis and I hope that we are able to work together in a 
bipartisan way to manage this crisis going forward and I yield 
back the balance of my time.
    Chairwoman WILSON. Thank you. I now recognize 
Representative Meuser for 5 minutes.
    Ms. MEUSER. Thank you, Madame Chairwoman. Good afternoon. 
The plan participants that we have here, the workers, the Mr. 
Morgan's of the world, certainly deserve none of the blame for 
this grossly underfunded pension plan problem that exists. Yet 
they are the ones facing the dire consequences which is an 
unacceptable outcome.
    This, in my view is another example of the false promises 
of defined benefit pension programs. Mr. Shapiro a little 
earlier mentioned as he was defending the plan that there were 
only 1 million people that could lose everything. Well, 1 
million people is a catastrophe.
    And blaming 2008 market crash to be the core of all this, 
the market has recovered as we all know over 80 percent from 
its highs before the crash. So that well exceeds the 7 percent 
or so annual growth actuarial rate that is used to determine 
where the fund should be.
    So all that being said, Mr. Spencer, you outlined in your 
principles of reform in your testimony the last two you wrote 
while the PBGC may ultimately need more money in the form of 
increased premiums, these increases must be evaluated after 
tools to restore the solvency of these plans are put in place. 
And you followed that with composite plans must be authorized 
so that healthy multiemployer plans can stay that way. Can you 
be specific and offer some ideas here?
    Mr. SPENCER. Sure, thank you. With regard to the healthy 
plans, our objective is to help them stay that way so that we 
are not back here again in a couple years talking about the 
same issue.
    So with a composite plan, the idea is that you would take 
the fools that are in the existing DB plan, free of accruals 
and kind of wall that off and then allow other employees, well, 
those same employees too that are in the current plan, to be 
part of the composite plan and the plans must be funded at 100 
percent.
    Some of the tools that were in MPRA would also be applied 
to those plans so that the plans would not find themselves in 
an underfunding situation. But key is that they're also 
privately managed, right. There is no need for the PBGC to 
backstop the composite plan.
    So some of those types of tools, some of the other tools 
that are in MPRA, particularly partitions, mergers, where 
needed, benefit suspensions ought to be applied to these plans 
going forward so that again we don't wind up back here in two 
or 3 years talking about some of the plans that are now healthy 
and that would find themselves in an unhealthy condition.
    Ms. MEUSER. All right. Well, thank you. Well, I certainly 
look forward to working with our colleagues and coming up with 
some solutions for the people. Madame Chair, I yield back my 
time.
    Chairwoman WILSON. Thank you. I now recognize 
Representative Trahan for 5 minutes.
    Ms. TRAHAN. Thank you, Madame Chairwoman. Thank you. Thank 
you all for coming. Mr. Morgan, I don't actually need to ask 
you anything because when I look at you, I see my dad. A 
retired union iron worker, someone who like you worked 
physically hard every single day. He is battling MS right now 
in retirement and I often think especially when I am sitting on 
this committee that if his pension and his benefits were not in 
place for him that it would bankrupt our entire family.
    So I understand this hearing is to address the cost to 
people like you if Congress, if we do nothing. And I can only 
imagine the anxiety, the economic anxiety that you have 
thinking about or calculating the consequences of us doing 
nothing.
    I appreciate all of the prescriptions that have been 
recommended to us today for the future on how we might 
restructure defined benefit programs going forward. But 
protecting Mr. Morgan's dignity and the 10 million others like 
him, requires immediate action.
    Would everyone agree with that comment? OK. Is--I guess I 
am curious because I--well, is there anyone on the panel who 
does not think that Federal assistance is required right now to 
stabilize the PBGC? Terrific. Everyone agrees that inaction is 
not an option. So that is, that is helpful.
    I did want to ask a question to Mr. Shapiro. Because you 
mentioned a number of factors as contributing to the decline of 
multiemployer plans. Maturing of plans, the lopsided ratio of 
retirees to workers, deregulation of trucking and other 
industries has added to this decline. Union rights have been 
under attack, the rights to organize, the collective bargaining 
rights that across our country they play out in state 
legislature and in our Supreme Court.
    What impact has declining union membership had on the 
system?
    Mr. SHAPIRO. Well, thank you for the question. It has made 
it harder for plans to recover from other factors that cause 
downturns.
    And I just want to go back to a comment that Professor 
Naughton made earlier which is you take risks when they can be 
properly managed. I can paraphrase that but that's how I wrote 
it down, which I couldn't agree with more.
    And, you know, if you look back at the past 15 years at the 
tremendous declines that have occurred in the stock market, in 
the earlier years, the fact that, you know, the majority of 
plans have been able to get through that reasonably unscathed 
speaks to the fact that the system is pretty resilient when it 
comes to managing risks.
    But clearly for an important and a large segment of the 
population those risk absorption mechanisms were insufficient 
and that's why we are in the boat that we are in. So those 
trends that you mentioned, are those that have kind of led to 
these plans being less able to absorb that risk.
    And as we look to go forward, I think the focus should be 
on making sure that balance is restored. That the risks that 
are taken and the ability to absorb risks are realigned because 
at the moment they are not. And that's what led us to this 
current situation.
    Ms. TRAHAN. Thank you. That is helpful. And, Ms. Becker, 
there is certainly structurally going forward we are going--
this is a tough issue, it is a complicated issue and I think it 
is one where we are going to think hard about the prescriptions 
going forward.
    I am wondering if you can share your analysis on why some 
multiemployer plans are healthier than other plans. And what, 
you know, characteristics or features do some of these 
healthier plans share beyond what has been proposed at the 
table today?
    Ms. BECKER. Sure, thank you. So I think Mr. Shapiro touched 
on many of them much earlier, a little bit earlier which are, 
you know, the decline in the membership in the plans is tilting 
toward an imbalance between retired participants in the plan or 
inactive participants in the plan and active participants who 
are continuing to contribute to the plan.
    That tilt in that imbalance there is, you know, a result of 
some of the things that you had mentioned in terms of the 
decline in union membership but there is, you know, also things 
that the government has done that has forced the hand in terms 
of driving that imbalance as part of the participants who are 
here to contribute to the plan itself.
    So, you know, that's and, you know, they're the things that 
you hear, you know, fairly often. So trucking deregulation or, 
you know, the decline in the active participants or driving 
employers out of the system. All of those things make it much 
harder for these plans to recover going forward.
    Ms. TRAHAN. Great. Thank you. I am almost out of time but 
it does seem to be that, you know, we are going to talk about 
the, you know, financially how defined benefits programs can 
be, should be set up so that it mitigates that risk.
    But in my observation, we have done more to hurt the 
membership of the unions that has been a contributor to this 
problem. You know, as someone who grew up in a family that 
benefited from those union values, from the fact that it is the 
backbone of our middle class, I think we should be doing more 
to strengthen that unionship. Certainly not inhibiting it. So 
thank you all, I appreciate it.
    Chairwoman WILSON. I now recognize Dr. Foxx for 5 minutes, 
the esteemed Dr. Foxx.
    Mrs. FOXX. Thank you, Chairwoman Wilson, I appreciate that 
very much. Professor--and thanks to all the witnesses for being 
here by the way.
    Professor Naughton, when determining contribution amounts 
to a multiemployer plan, do unions and employers aim to fully 
fund the plans? Or do they instead aim to meet the minimum 
contributions required by their respective collective 
bargaining agreements? And do you believe contribution levels 
are sufficient to provide plan stability?
    Mr. NAUGHTON. In general, those negotiations focus on the 
minimum contribution. So just like a credit card, if all you 
ever do is make the minimum payment, eventually that balance is 
going to get out of control.
    When you look at sort of, you know, how it should work, you 
know, ideally you give companies the latitude to make the 
minimum so that during certain times they can make smaller 
contributions and during certain times they can make larger 
contributions. And that's one of the great benefits of defined 
benefit plans as you can kind of adjust the contributions to 
match the economic cycle and what is available.
    But in this case, that's not what happened. What happened 
is it's simply been the minimum almost every single time.
    Mrs. FOXX. Yes. That is very unfortunate. And your analogy 
to a credit card bill is excellent.
    Dr. Blahous, factors such as industry innovation, shrinking 
numbers of active workers, and economic downturns might 
negatively affect the multiemployer plans funding level. Are 
these factors predictable and what can plans do to prevent 
their negative impacts so that pension promises which are made 
to workers can be pension promises which are kept?
    Mr. BLAHOUS. Well, I would say that some of these factors 
are more predicable than others. Certainly the, sort of the 
long-term demographic and aging trends are relatively 
predictable. The fact that there will be at some unforeseen 
time financial market shocks is predictable and prudent pension 
management would anticipate this.
    I think this is very important because it is undoubtedly 
true that industry changes, changes, declines in the percentage 
of active workers, all those things have been negative 
stressors for the multiemployer plan universe. But they are not 
what has led to its uniquely underfund condition relative to 
the single employer system.
    If you look at the percentage of active workers among total 
plan participants, it is just as low in the single employer 
system. That system has undergone the same financial market 
shocks. The differences are two.
    One is the set funding rules and measurement rules that 
apply to the two systems and the premium rules. They are just 
simply inadequate on the multiemployer side.
    And the other is the unique phenomenon of the orphaned 
workers. Single employer plans don't have to deal with that 
orphan worker problem and there is where I think the strongest 
case for Federal intervention because Federal policy is to some 
degree responsible for that.
    But those are the two main factors. This has not been 
driven by, primarily by financial market shocks or changes in 
the industry.
    Mrs. FOXX. And I am glad you mentioned this, the issue of 
Federal intervention that my colleague asked about. I 
interpret--I believe probably different people interpret that 
phrase, Federal intervention different ways. You talk about 
policy and the way we can change the laws.
    I believe that my colleagues believe bailout when they talk 
about Federal intervention. And while you all said yes, OK, 
we--Federal intervention can help, I believe we need to get on 
the record, and we will talk some more about that after the 
hearing, that it is not just a bailout of these plans that 
requires Federal action.
    Dr. Blahous, I would like to ask you another question. For 
2019, annual PBGC multiemployer program premiums, which are set 
by Congress, are $29 participant. Historically, these premiums 
have been much lower than $29 per year. In its 2018 Annual 
Report, PBGC stated as a deficit of $54 billion.
    In your opinion, are PBGC premiums set at appropriate 
levels when compared to the risk PBGC assumes when it insures 
multiemployer pension plans?
    Mr. BLAHOUS. Well, if I could preface my answer by first 
expressing may agreement with your previous point. But I do not 
believe that just the injection of Federal subsidization of a 
system whether it is packages, loans or otherwise is going to 
fix that problem. So I want to be very clear about that.
    But I do think the premium structure is inadequate both in 
magnitude and in design. The premium assessments are not 
sufficient in amount to finance the potential claims on 
insurance coverage and they're poorly designed in that they do 
not recognize the risks of underfunding.
    Mrs. FOXX. Thank you very much. Thank you, Madame 
Chairwoman.
    Chairwoman WILSON. Thank you. I recognize Representative 
Morelle for 5 minutes.
    Mr. MORELLE. Good afternoon. Thank you, Chairwoman Wilson, 
for holding this very, very important hearing and to all the 
witnesses for being here today. I had a chance to review the 
submitted testimony. I am grateful we are taking time to 
understand the causes of the multiemployer pension crisis and 
meaningful solutions.
    I have heard from many constituents and other stakeholders 
throughout the last several months and recognize the severity 
of the situation. There has been much discussion. I note that 
like the gentlewoman from Massachusetts, my father was a member 
of the pipefitters union and so a multiemployer pension system 
has been very important to him. He passed and it is very 
important to my mom.
    There has been a lot of discussion in recent years about 
retirement security and how we ensure hardworking Americans can 
retire confidently and with the peace of mind that they don't 
need to have a part time job to get by once they retire. And 
amidst the heightened awareness of retirement security, growing 
concern and shifting of responsibility, an undeniable fact is 
that we have made a promise to American workers about the 
sustainably of their retirement and they have the most to lose 
if we do not find a viable solution here.
    I want to thank Mr. Morgan particularly for taking time to 
share your story. I have read your testimony and was stuck by 
your statement that you negotiated and fought for your pension 
because it meant you would be able to retire with dignity after 
a lifetime of very hard work. And I know from my dad's 
experience how hard he worked every single day of his life. At 
the end of the day that is what we all want. We pay into a 
system with the promise that we can retire with dignity and we 
deserve what we have earned. So I appreciate your testimony. 
And I believe it would be our utmost goal to protect the 
employees who paid into the plans. Obviously also for the 
employer groups who have contributed as well. And I hope this 
hearing brings heighted awareness and attention to the severity 
of the situation.
    I would also like to acknowledge that as we find solutions 
we should safeguard healthy and well managed plans that are 
doing right by their employees and I know this is a complicated 
subject. I dealt with a number of issues as the chair of the 
New York State Assembly's insurance committee for a number of 
years so these are challenging issues.
    But I wanted to ask Ms. Becker, I had a couple of quick 
questions if I might. There are clearly structural issues in 
certain industries that have created challenge here. But that 
aside, if you could sort of isolate that and put that to the 
side as though that were possible, there are features of the 
healthier plans that I would like to ask if you could identify 
those and help us take that into consideration throughout our 
deliberations. Have you sort of identified what sets them apart 
I would be grateful.
    Ms. BECKER. Sure. So the strong plans right now are very 
well funded, they are well managed. They have trustees who, you 
know, are representative of trustees throughout the 
multiemployer system who have taken proactive action to keep 
their plan in a healthy funded status, you know, as they have, 
you know, suffered market shocks or what the case is.
    They also, you know, typically have a very strong, active 
work force where they are, you know, strong and growing and 
they, you know, participants are continuing to contribute to 
the plans and earn retirements benefits that provide, you know, 
secure benefits going forward.
    Mr. MORELLE. And that, you know, when it comes to some of 
those structural challenges in certain industries, those 
factors however, separate out the healthier plans from those 
that are struggling despite the structural changes. I wonder if 
you could just comment briefly on the effect there would be in 
lowering the assumptions on the interest rate used to value 
plan liabilities.
    Ms. BECKER. So that would be incredibly detrimental to all 
of the healthy plans that are out there right now. It would 
have an immediate impact on both the required contributions to 
these plans and to the benefits that they can pay out.
    We did--we took a look at an example plan last year and 
what we found was that, you know, if you take--if you 
immediately adjust the discount rates, you are looking at least 
a doubling of the contributions required to fund the same 
benefits.
    Or if you flip that around, you would need to take a 
dramatic reduction in the benefits that people have earned in 
order to keep the plan in a healthy situation.
    Mr. MORELLE. Perfect. Thank you. Again, thank you to 
Chairwoman Wilson. I ask unanimous consent to submit the 
following letter into the record. It's a letter on behalf of 
the Multiemployer Pension Alliance, it discusses the importance 
of ensuring that any plan that addresses the pension crisis 
does not impose undue costs on healthy multiemployer plans.
    Chairwoman WILSON. Without objection.
    Mr. MORELLE. I yield back my time.
    Chairwoman WILSON. So ordered. I now recognize Mr. Fulcher 
for 5 minutes.
    Mr. FULCHER. Thank you, Madame Chair. And first of all to 
the panel, you probably know this but apologies for not being 
able to be here for the whole thing. There is this thing called 
scheduling and being, needing to be at two committee things at 
the same time. But just know that you are appreciated and your 
testimony is appreciated. I have been able to stay on top a 
little bit of the content. And we are getting close to wrapping 
things up.
    But just a brief question and this would go to Dr. Blahous. 
You know, some have said obviously that the financial downturn 
in 1901 and 1902 followed by the recession in 1908 is the 
primary reason that multiemployer plan funding levels are in 
the status that they are in. And those are tough to predict, 
those swing.
    And so I would just ask just to kind of summarize, what--
what do you think can be done in order to best safeguard 
workers retirement funding? Just moving forward? What is the 
summary advice here?
    Mr. BLAHOUS. Well, I would start by saying that with 
respect to those who point the finger at the financial market 
shocks explaining the underfunding of the multiemployer plan 
universe, I respectfully but very strongly disagree with that 
assessment. Again, the single employer system has been through 
exactly the same financial market shocks but it is in much 
better condition. And so that is not the set of factors that 
has caused the multiemployer system to be in much worse shape.
    What has happened is that you had the multiemployer 
pensions plans were less well funded to begin with. They're not 
properly measuring their abilities or their assets for that 
matter. The funding rules do not work very well. The premium 
assessments don't work very well and importantly, during 
financial market recovery years, they have not rebuilt their 
funding position.
    You are going to have periods where your funding ratios are 
going to decline if the financial markets go down. What 
happened in the single employer plan universe is that in fact 
they actually took an even bigger hit in both financial market 
shocks. But in the recovery years they rebuilt their financial 
position. So in 2007, you had much higher funding percentages 
in the single employer plans than you had in say 2001 right 
after the dot com bubble burst.
    You haven't seen that in the multiemployer plan university. 
In fact the funding percentages in the multiemployer plan 
universe have continued to decline even during the last several 
years of financial market recovery.
    So if the multiemployer plans are not now in well-funded 
condition despite a decade that has been generally very, very 
good for the stock market that is clearly not the problem.
    So I think it is very important that plans again they have 
to maintain an adequate funding position coming into, you know, 
during boom years, during bubble years so that they can 
withstand the downturns. And then when there were downturns and 
during periods of market recovery, they have to rebuild their 
funding position which is not what has happened.
    Mr. FULCHER. And if I may, as you look at this current 
circumstances through your lens, what is the trend?
    Mr. BLAHOUS. Dire. It's very dire. I think--I agree with 
the other panelists here that this is an urgent problem verging 
on a crisis and has to be dealt with quickly. But I think in 
some ways the data coming forward from PBGC understates the 
problem.
    There has been discussion of, you know, the relative health 
of better managed, better funded plans. But again, a lot of 
that is illusory. A lot of that is based on actuarial 
assumptions that are not accurate.
    And so there is a lot of potential damage to the insurance 
system and to the security of worker pensions beyond what is 
contained in that $54 billion deficit.
    So I would say the outlook is very dire. I respectfully 
disagree with those who are saying throw money in now and do 
structural reforms later. I think that is an escalation, a 
continuation of current policy that has failed to date and I 
can virtually assure everyone on this committee that they will 
be back here looking at a bigger crisis down the road if we put 
money in first and leave structural reforms for later.
    Mr. FULCHER. Doctor, thank you. Panel, thank you. And 
Madame Chair, I yield back
    Chairwoman WILSON. Thank you. I now recognize the esteemed 
Chairman Scott for 5 minutes.
    Mr. SCOTT. Thank you, thank you, Madame Chair, and thank 
you for convening the hearing. And I want to thank you and the 
witnesses for pointing out that this is not just a problem for 
the workers and businesses, this is a problem for the Federal 
Government because if we don't do anything, the Federal 
Government budget will take a significant hit and that has been 
quantified a number of times.
    And I also want to recognize and welcome David Durkee who 
is the International President of the Bakery and Confectionery 
Union as well as chairman of their pension fund who is dealing 
with this problem personally.
    I want to thank the Chamber of Commerce for your report in 
2017. That report noted that this is not only a problem for 
businesses that can go bankrupt but also for many of the 
workers who will end up on safety net programs.
    And I also want to thank you for pointing out as your No. 1 
concern, urgency as the important thing we have to look at.
    Madame Chair, I ask you unanimous consent to put that 
report into the record.
    Chairwoman WILSON. Without objection.
    Mr. SCOTT. Now I want to thank Ms. Becker for quantifying 
the problem we have got and pointing out that between $170 and 
$240 billion is what we are on the hook for right now if we 
don't do anything. And point out that all of the legislative 
responses to the problem are a lot cheaper than that. So that 
the worse thing we can do from the Federal Government point of 
view is nothing.
    We ought to do something to address the problem and that we 
are on the hook for those hundreds of billions of dollars over 
the course of time.
    As we consider the so-called bailout, we have to recognize 
that we are on the hook, that the Butch Lewis bill that has 
been--hasn't been formally, completely scored yet, but the 
guess is no more than 30 to 100 billion which is significantly 
less than the cost of doing nothing.
    Madame Chair, I noted that a previous witness, Douglas 
Holtz-Eakin of the American Action Forum has written and I 
quote that ``it is not simply a choice of committing Federal or 
funds or not. For Congress, it is one of those pay me now or 
pay me later moments,'' and I would ask that his article from 
December 2018 be placed in the record.
    Chairwoman WILSON. Without objection. So ordered.
    Mr. SCOTT. Thank you. Mr. Blahous, you have talked about 
the premium being insufficient and I want to put that, try to 
get that in context. You said it is only 1/6th of the private 
sector. About how much per person is the premium now?
    Mr. BLAHOUS. It's $29 per participant on the multiemployer 
side. Its 80--
    Mr. SCOTT. Per what? $29 per what?
    Mr. BLAHOUS. I'm sorry?
    Mr. SCOTT. $29 per what?
    Mr. BLAHOUS. Per participant.
    Mr. SCOTT. Per what time period?
    Mr. BLAHOUS. This is an annual.
    Mr. SCOTT. $29 a year?
    Mr. BLAHOUS. Right.
    Mr. SCOTT. Now we have heard Ms. Moorkamp said that for new 
employees are you putting $15 a hour into the pension 
contribution for new employees?
    Ms. MOORKAMP. If we are required to, yes, we are. But we 
are also paying $342 a week per teammate into our pension fund.
    Mr. SCOTT. OK. And that is the contribution. We have had a 
little, we tend to conflate the premium to the PBGC and the 
contribution to the fund.
    And so, Mr. Blahous, if you are putting, they are putting 
$300 some dollars a week, going from $29 to $2 or $300 a year 
for the premium shouldn't--doesn't seem like a problem, as big 
a problem as a sixfold increase would suggest, is that right?
    Mr. BLAHOUS. Well, I think you make a very important point 
which is a distinction to be drawn between premium payments and 
funding requirements. And those are two different animals.
    The premium assessments are what is required to keep the 
PBGC system solvent. The funding contributions are what is 
required to fund benefit payments to your workers.
    Mr. SCOTT. But we can fix the premium, I mean, the cost to 
the employer would be negligible fixing the premium problem, 
compared to what they have to--what they are putting in?
    Mr. BLAHOUS. I think this is such an important point that I 
would like to elaborate on it which is that you're right that 
we could stabilize the PBGC insurance fund, that's still going 
to leave a lot of workers with benefits that have been promised 
to them beyond the level PBGC guarantees that wouldn't be 
funded.
    Mr. SCOTT. Well, if I could get one more question then, 
Madame Chair? Because we have heard Mr. Naughton, you have 
heard the back and forth over the impact of changing the 
discount rate.
    It seems to me that changing the discount rate to one that 
may be overly optimistic to one that is realistic or whatever, 
however you change it, doesn't change the amount of money you 
have in bank and the amount of promises you have made.
    What would be the effect of not going to a more realistic 
discount rate even though it may trigger additional 
contributions? What would happen if you don't have a realistic 
discount rate?
    Mr. NAUGHTON. If you don't have a realistic discount rate, 
then what you are essentially building into the system is the 
ability to promise new benefits that you do not fund. And to 
have the growth in existing benefits grow more rapidly than 
what you have on hand.
    So if you look at the last 10 years, we have had a couple 
hundred billion dollar increase in the deficit. If we were to 
leave the contributions as is, base them on an unrealistic 
rate, then I would expect that trend would continue.
    So, you know, it's obviously, you know, very important that 
we protect the Mr. Morgan's of today but if we don't change the 
discount rate, we are essentially going to have more people in 
this situation 10 years from now.
    Chairwoman WILSON. Thank you. I remind my colleagues that 
pursuant to committee practice, materials for submission for 
the hearing record must be submitted to the committee clerk 
within 14 days following the last day of the hearing, 
preferably in Microsoft Word format.
    The material submitted must address the subject matter of 
the hearing. Only a member of the committee or an invited 
witness may submit materials for inclusion in the hearing 
record. Documents are limited to 50 pages each. Documents 
longer than 50 pages will be incorporated into the record via 
an internet link that you must provide to the committee clerk 
within the required timeframe. But please recognize that years 
from now, that link may no longer work.
    Again, I want to thank the witnesses for their 
participation today. Thank you so very much. What we have heard 
is very valuable. Members of the committee may have some 
additional questions for you and we ask the witnesses to please 
respond to those questions in writing. The hearing record will 
be open for 14 days in order to receive those responses.
    I remind my colleagues that pursuant to committee 
practices, witness questions for the hearing record must be 
submitted to the majority committee staff or committee clerk 
within 7 days. The questions submitted must address the subject 
matter of the hearing.
    Before recognizing the ranking member for his closing 
statement, I ask unanimous consent to enter the following 
materials into the record. A letter from the Horizon Actuarial 
Services, a letter from several construction employers, a 
statement from a participant in the Western Conference of 
Teamsters Plan, a letter from the Multiemployer Pension 
Alliance. A letter from several labor unions and retiree 
organizations, a letter from the Pension Rights Center, a 
report from CRS on the cost of inaction. Another report from 
CRS on selected histories of government assistance to private 
companies. Without objection so ordered.
    I now recognize the distinguished ranking remember for his 
closing statement. Mr. Walberg.
    Mr. WALBERG. I thank you, Madame Chairman, and thank you 
for scheduling and holding this hearing as the, as I said 
before, the first one of this subcommittee. It is extremely 
important.
    I remember going back to 2007 and talking to leadership of 
this committee about what I was hearing from my district, from 
Teamsters and other workers as well as small business people 
concerned about this very issue of multiemployer pension 
problem. I didn't know what it was back then.
    Subsequent to looking into it, I began to see that this 
indeed was a ticking time bomb. I was told back then oh, we 
will get to it. It is not a real problem for 15, 20 years. 
Well, we are there. We are there.
    And while I applaud the efforts that we undertook in 2014 
and what was done, it was not complete. And we have seen that. 
And we know that there are some other things we should have 
done but that is water under the bridge or seeping out of the 
hole that we have dug.
    But what we have now is a challenge. So I am glad that we 
had this hearing. And I would hope that it would be only one of 
many meetings that we have that are substantial on this issue. 
I also hope that it will include all hands on deck, and thank 
you to the panel for being here.
    You have been very helpful with practical experience as 
well as practical advice and realistic depression producing 
comments as well. But that ought to indicate that we need to 
get down to work. And so I would hope that all hands would be 
on deck from the industry that looks into this, oversees it, as 
well as the business community that is involved with it and is 
ultimately being hurt by it. And certainly the employees that 
see at this point in time little reason for expecting much for 
the future and the retirees who don't have much chance or 
choice to make something different for their expectations.
    I would also ask that officials like a number of union 
officials who aren't on the same pension plan that their 
membership is on that they engage as well for the best 
interests of the membership.
    And I certainly ask, Madame Chairperson, that we as members 
of this subcommittee and Members of Congress deal with this in 
a realistic fashion.
    And so I would end it by saying that in all of our 
deliberations, I hope we will promote reality. No pie in the 
sky stuff. Actual figures. Actuarials will do their job, get 
that information to us as realistic as possible that will have 
reality in what the deficit truly is. What the funding 
necessary for premium as well as benefit payments, what the 
reality is for the liabilities that are out there and who is 
liable, including the tax payer. The reality for the shared 
pain needed. Because I don't think we can talk about this 
without assuming there will be shared pain in getting this 
done. And then also, Madame Chairperson, reality about the 
urgency of proper action.
    And I think you and I understand that is not defined as 
political posturing. But proper urgent action to not let this 
thing go because of turf, because of jurisdiction, you name it. 
But this is something that is important to people. We are 
talking about people. Numbers are connected but we were talking 
about people.
    And so I thank you again for this hearing and you have my 
commitment to do whatever is possible to achieve success for 
the people that we represent. I yield back.
    Chairwoman WILSON. Thank you, Mr. Walberg. I appreciate all 
of your remarks and I am sure that the audience does and 
especially our witnesses. I now recognize myself for the 
purpose of making my closing statement.
    Thank you again to all of our witnesses for your 
testimonies today. Thank you very much. Today we heard how 
Congress's failure to address the multiemployer pension crisis 
will cause millions of retirees like Mr. Morgan to lose nearly 
all of their hard-earned pensions.
    It will also harm active workers and cost the Federal 
Government hundreds of billions in lost tax revenue and added 
social safety net spending. We heard from Ms. Moorkamp and Mr. 
Spencer that this is a crisis that is not years in the future, 
it's impacting businesses right now.
    As our witnesses have made clear, Congress cannot afford to 
wait any longer. We must put aside our differences and act on a 
bipartisan solution to this crisis. A bipartisan solution like 
H.R. 397, The Rehabilitation for Multiemployer Pensions Act, 
which would help rescue failing multiemployer pension plans 
without cutting back benefits that retirees earned. Workers, 
retirees, employers and taxpayers deserve action on this issue 
and we must deliver for them in the weeks and months ahead.
    The price tag on any legislative solution is likely to be 
significantly less than the cost of doing nothing.
    I thank my colleague for a constructive first HELP 
Subcommittee hearing and I yield back my time. And thank you 
for participating.
    If there is no further business, without objection, the 
committee stands adjourned.
    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
    [Whereupon, at 12:50 p.m., the subcommittee was adjourned.]

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