[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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Available via the World Wide Web: www.govinfo.gov
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__________
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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:]
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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.
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[Whereupon, at 12:50 p.m., the subcommittee was adjourned.]
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