[House Hearing, 112 Congress]
[From the U.S. Government Printing Office]







      ASSESSING THE CHALLENGES FACING MULTIEMPLOYER PENSION PLANS

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

                                HEARING

                               before the

                        SUBCOMMITTEE ON HEALTH,
                     EMPLOYMENT, LABOR AND PENSIONS

                         COMMITTEE ON EDUCATION
                           AND THE WORKFORCE

                     U.S. House of Representatives

                      ONE HUNDRED TWELFTH CONGRESS

                             SECOND SESSION

                               __________

             HEARING HELD IN WASHINGTON, DC, JUNE 20, 2012

                               __________

                           Serial No. 112-63

                               __________

  Printed for the use of the Committee on Education and the Workforce





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                COMMITTEE ON EDUCATION AND THE WORKFORCE

                    JOHN KLINE, Minnesota, Chairman

Thomas E. Petri, Wisconsin           George Miller, California,
Howard P. ``Buck'' McKeon,             Senior Democratic Member
    California                       Dale E. Kildee, Michigan
Judy Biggert, Illinois               Robert E. Andrews, New Jersey
Todd Russell Platts, Pennsylvania    Robert C. ``Bobby'' Scott, 
Joe Wilson, South Carolina               Virginia
Virginia Foxx, North Carolina        Lynn C. Woolsey, California
Bob Goodlatte, Virginia              Ruben Hinojosa, Texas
Duncan Hunter, California            Carolyn McCarthy, New York
David P. Roe, Tennessee              John F. Tierney, Massachusetts
Glenn Thompson, Pennsylvania         Dennis J. Kucinich, Ohio
Tim Walberg, Michigan                Rush D. Holt, New Jersey
Scott DesJarlais, Tennessee          Susan A. Davis, California
Richard L. Hanna, New York           Raul M. Grijalva, Arizona
Todd Rokita, Indiana                 Timothy H. Bishop, New York
Larry Bucshon, Indiana               David Loebsack, Iowa
Trey Gowdy, South Carolina           Mazie K. Hirono, Hawaii
Lou Barletta, Pennsylvania           Jason Altmire, Pennsylvania
Kristi L. Noem, South Dakota         Marcia L. Fudge, Ohio
Martha Roby, Alabama
Joseph J. Heck, Nevada
Dennis A. Ross, Florida
Mike Kelly, Pennsylvania

                      Barrett Karr, Staff Director
                 Jody Calemine, Minority Staff Director

         SUBCOMMITTEE ON HEALTH, EMPLOYMENT, LABOR AND PENSIONS

                   DAVID P. ROE, Tennessee, Chairman

Joe Wilson, South Carolina           Robert E. Andrews, New Jersey
Glenn Thompson, Pennsylvania           Ranking Member
Tim Walberg, Michigan                Dennis J. Kucinich, Ohio
Scott DesJarlais, Tennessee          David Loebsack, Iowa
Richard L. Hanna, New York           Dale E. Kildee, Michigan
Todd Rokita, Indiana                 Ruben Hinojosa, Texas
Larry Bucshon, Indiana               Carolyn McCarthy, New York
Lou Barletta, Pennsylvania           John F. Tierney, Massachusetts
Kristi L. Noem, South Dakota         Rush D. Holt, New Jersey
Martha Roby, Alabama                 Robert C. ``Bobby'' Scott, 
Joseph J. Heck, Nevada                   Virginia
Dennis A. Ross, Florida              Jason Altmire, Pennsylvania














                            C O N T E N T S

                              ----------                              
                                                                   Page

Hearing held on June 20, 2012....................................     1

Statement of Members:
    Andrews, Hon. Robert E., ranking member, Subcommittee on 
      Health, Employment, Labor and Pensions.....................     3
    Roe, Hon. David P., Chairman, Subcommittee on Health, 
      Employment, Labor and Pensions.............................     1
        Prepared statement of....................................     3

Statement of Witnesses:
    Henderson, Scott, treasurer and vice president, the Kroger 
      Co.........................................................    32
        Prepared statement of....................................    33
    McReynolds, Judy, president and chief executive officer, 
      Arkansas Best Corp.........................................     6
        Prepared statement of....................................     8
    Ring, John F., partner, Morgan, Lewis & Bockius LLP..........    19
        Prepared statement of....................................    22
    Sander, Michael M., administrative manager, Western 
      Conference of Teamsters Pension Plan.......................    11
        Prepared statement of....................................    13
    Shapiro, Josh, deputy director for research and education, 
      National Coordinating Committee for Multiemployer Plans....    14
        Prepared statement of....................................    16

Additional Submissions:
    Mr. Andrews, letter, dated June 20, 2012, from Construction 
      Employers for Responsible Pension Reform caucus............    60
    Chairman Roe:
        Letter, dated July 3, 2012, from Construction Employers 
          for Responsible Pension Reform caucus..................    58
        Prepared statement of the U.S. Chamber of Commerce.......    59

 
      ASSESSING THE CHALLENGES FACING MULTIEMPLOYER PENSION PLANS

                              ----------                              


                        Wednesday, June 20, 2012

                     U.S. House of Representatives

         Subcommittee on Health, Employment, Labor and Pensions

                Committee on Education and the Workforce

                             Washington, DC

                              ----------                              

    The subcommittee met, pursuant to call, at 10:01 a.m., in 
room 2175, Rayburn House Office Building, Hon. David P. Roe 
[chairman of the subcommittee] presiding.
    Present: Representatives Roe, Wilson, Thompson, Rokita, 
Bucshon, Noem, Roby, Andrews, Kildee, McCarthy, Tierney, and 
Holt.
    Staff present: Andrew Banducci, Professional Staff Member; 
Katherine Bathgate, Deputy Press Secretary; Adam Bennot, Press 
Assistant; Casey Buboltz, Coalitions and Member Services 
Coordinator; Ed Gilroy, Director of Workforce Policy; Benjamin 
Hoog, Legislative Assistant; Marvin Kaplan, Workforce Policy 
Counsel; Brian Newell, Deputy Communications Director; Krisann 
Pearce, General Counsel; Molly McLaughlin Salmi, Deputy 
Director of Workforce Policy; Todd Spangler, Senior Health 
Policy Advisor; Linda Stevens, Chief Clerk/Assistant to the 
General Counsel; Alissa Strawcutter, Deputy Clerk; Kate 
Ahlgren, Minority Investigative Counsel; Aaron Albright, 
Minority Communications Director for Labor; Tylease Alli, 
Minority Clerk; Daniel Brown, Minority Policy Associate; John 
D'Elia, Minority Staff Assistant; Jonay Foster, Minority 
Fellow, Labor; Brian Levin, Minority New Media Press Assistant; 
Megan O'Reilly, Minority General Counsel; and Michele 
Varnhagen, Minority Chief Policy Advisor/Labor Policy Director.
    Chairman Roe. Call the meeting to order. A quorum being 
present, the Subcommittee on Health, Employment, Labor, and 
Pensions will come to order.
    Good morning, everyone. I would like to welcome our guests 
and thank our distinguished panel of witnesses for being with 
us today.
    In a recent editorial entitled the ``Union Pension Bomb'' 
the Wall Street Journal described the big trouble facing 
multiemployer pension plans. The editorial noted a study by the 
analystsat Credit Suisse which found multiemployer pension 
plans are collectively underfunded by approximately $369 
billion and only a small fraction of these plans are considered 
stable and healthy.
    It is important to note this study is based on a rate of 
return on investments not reflecting in--reflected in existing 
law. Some have argued the study makes assumptions that better 
reflect the current state of the multiemployer pension system 
and, as with any debate, others have disagreed. Regardless of 
the methodologies used, this is not the first time the 
challenges facing the multiemployer pension system have drawn 
the public's attention.
    According to an analysis by the benefits consulting firm 
Segal, more than 25 percent of plans are in ``critical status'' 
due to severe financial deficiencies. A report by the Pension 
Benefit Guaranty Corporation revealed multiemployer pensions 
are increasingly dependent upon the agency's financial 
assistance. In fact, the PBGC projects that its future 
obligations to these plans totals $4.5 billion, a 48 percent 
increase from previous estimates.
    The corporation also expects the number of insolvent plans 
to more than double over the next 5 years. Finally, there are 
warnings by plan managers and trustees who fear the pensions 
they oversee will become insolvent in the years ahead.
    While some plans have made responsible decisions to help 
ensure their long-term success, an aging workforce, weak 
economy, investment losses, and unsustainable promises are 
placing a great deal of strain on the multiemployer pension 
system. The resultant uncertainty is an ongoing source of angst 
for many workers and employers.
    Some workers have little confidence the benefits they were 
promised will be there when they retire. And employers trying 
to keep their businesses open are also trying to keep up with 
their growing pension obligations.
    Policymakers continue to struggle with this pension problem 
as well. In 1980 changes to federal pension law were adopted, 
including reforms that promote greater responsibility among 
employers and union officials for the promises they make to 
workers. More recently, the Pension Protection Act enhanced the 
accountability of the multiemployer pension system, 
establishing classifications to better identify a plan's 
financial strengths and weaknesses and requiring more detailed 
disclosure of the plan's financial status.
    Despite these well-intended efforts and past attempts to 
provide relief problems still exist. A number of provisions in 
existing law are set to expire in 2014, which means Congress 
will need to take action once again to help address the 
shortfalls of the multiemployer pension system. While some 
pension plans are financially sound and prepared to meet their 
obligations, it is becoming increasingly clear the depth and 
breadth of the challenges facing the system will demand 
significant reform.
    With a deadline of 2 years it may seem like time is on our 
side. However, we cannot ignore the impact this issue has right 
now on the health and strength of our nation's economy. 
Thousand of job-creators participate in the multiemployer 
pension system with more than 10 million Americans dependent on 
these benefits to help provide for financial security they 
deserve in retirement. We must use the months ahead to ensure 
we get this right.
    I look forward to today's discussion and expect it will 
pave the way for future conversations on this very important 
subject.
    I will now recognize my distinguished colleague, Mr. Rob 
Andrews, the senior Democratic member of the subcommittee, for 
his opening remarks?
    [The statement of Chairman Roe follows:]

           Prepared Statement of Hon. David P. Roe, Chairman,
         Subcommittee on Health, Employment, Labor and Pensions

    Good morning, everyone. I would like to welcome our guests and 
thank our distinguished panel of witnesses for being with us today.
    In a recent editorial entitled the ``Union Pension Bomb,'' the Wall 
Street Journal described the ``big trouble'' facing multiemployer 
pension plans. The editorial noted a study by analysts at Credit 
Suisse, which found multiemployer pensions are collectively underfunded 
by approximately $369 billion, and only a small fraction of these plans 
are considered stable and healthy.
    It is important to note this study is based on a rate of return on 
investments not reflected in existing law. Some have argued the study 
makes assumptions that better reflect the current state of the 
multiemployer pension system and, as with any debate, others have 
disagreed. Regardless of the methodologies used, this is not the first 
time the challenges facing the multiemployer pension system have drawn 
the public's attention.
    According to an analysis by the benefits consulting firm Segal, 
more than 25 percent of plans are in ``critical status,'' due to severe 
financial deficiencies. A report by the Pension Benefit Guaranty 
Corporation reveals multiemployer pensions are increasingly dependent 
upon the agency's financial assistance. In fact, PBGC projects that its 
future obligations to these plans total $4.5 billion--a 48 percent 
increase from previous estimates. The corporation also expects the 
number of insolvent plans to more than double over the next five years. 
Finally, there are the warnings by plan managers and trustees who fear 
the pensions they oversee will become insolvent in the years ahead.
    While some plans have made responsible decisions to help ensure 
their long-term success, an aging workforce, weak economy, investment 
losses, and unsustainable promises are placing a great deal of strain 
on the multiemployer pension system. The resultant uncertainty is an 
ongoing source of angst for many workers and employers. Some workers 
have little confidence the benefit they were promised will be there 
when they retire. And employers trying to keep their businesses open 
are also trying to keep up with their growing pension obligations.
    Policymakers continue to struggle with this pension problem as 
well. In 1980, changes to federal pension law were adopted, including 
reforms that promoted greater responsibility among employers and union 
officials for the promises they make to workers. More recently, the 
Pension Protection Act enhanced the accountability of the multiemployer 
pension system, establishing classifications to better identify a 
plan's financial strengths and weaknesses and requiring more detailed 
disclosure of the plan's financial status.
    Despite these well-intended efforts and past attempts to provide 
relief, problems still persist. A number of provisions in existing law 
are set to expire in 2014, which means Congress will need to take 
action once again to help address the shortfalls of the multiemployer 
pension system. While some pension plans are financially sound and 
prepared to meet their obligations, it is becoming increasingly clear 
the depth and breadth of the challenges facing the system will demand 
significant reform.
    With a deadline of two years, it may seem like time is on our side. 
However, we cannot ignore the impact this issue has right now on the 
health and strength of our nation's economy. Thousands of job-creators 
participate in the multiemployer pension system and more than 10 
million Americans depend on these benefits to help provide the 
financial security they deserve in retirement. We must use the months 
ahead to ensure we get this right.
    I look forward to today's discussion, and expect it will pave the 
way to future conversations on this very important subject. I will now 
recognize my distinguished colleague Rob Andrews, the senior Democratic 
member of the subcommittee, for his opening remarks.
                                 ______
                                 
    Mr. Andrews. Thank you, Mr. Chairman. Good morning. I 
appreciate you calling this hearing and I appreciate the 
preparation of today's witnesses.
    One measure in Washington of how solvable a problem is is 
the attendance at the hearing, and the higher the attendance 
the less solvable the problem----
    [Laughter.]
    And here is why: Many of our hearings--and it is true 
whether we are in the majority or the other side is in the 
majority--are rather contentious, where they are held to prove 
a political point, and everybody comes because everybody wants 
to get into the brawl. This is not a brawl this morning; this 
is a serious attempt at understanding a serious problem so we 
can work together to solve it, and I am sure that our 
colleagues on both sides will be actively engaged in helping to 
solve that problem.
    Here is the way I see the problem: It is the problem of a 
woman who runs a sheet metal contracting firm and has 21 
employees, and she has been through really tough times the last 
5 years as construction has slowed and in some cases ground to 
a halt.
    And she has got two problems here that the amount that she 
has to contribute to the pension fund in which she is a part 
keeps going up, which makes her less competitive to go get bids 
to build buildings or means that she has to pay lower wages to 
her present workers in order to do so--puts her in a real 
catch-22 situation. That problem worsens for her as other 
employers go out of business or leave the plan because every 
time one of them does the burden on her gets higher and more 
difficult to bear, and if she thinks about reducing her 
liabilities by leaving the plan it may put her out of business 
because the withdraw liability is so high.
    So this is about that small business person that builds 
hospitals, and builds schools, and builds stores around the 
country who is in real trouble to begin with, and this problem 
makes trouble worse.
    Problem is also, you know, about a 68-year-old iron worker 
who thinks that he is going to get a certain pension for as 
long as he lives. And we are here to do everything we can to 
make sure that that promise to him is kept, because he held up 
his end of the bargain. He went to work; he did his job well; 
he paid into the fund; he, you know, participated in collective 
bargaining agreements where he gave something up to get that 
pension.
    And then the third person I think about this morning is the 
taxpayer of the United States of America, that although the 
demands of multiemployer funds on the Pension Benefit Guaranty 
Corporation are qualitatively smaller than those of single 
employer plans simply because there are so many other 
guarantors. Unlike a single employer plan, where all that 
stands between the employer and the taxpayer is the PBGC, the 
multi plans there is another layer of protection for the 
taxpayer and it is that small businesswoman I just talked about 
running the sheet metal contracting firm.
    So those are the three people that I am worried about this 
morning. And I think this is a problem with a solution. These 
plans, depending upon how you measure their projected returns, 
are anywhere from 52 percent funded to something quite a bit 
higher than that, but they still have some trouble and the 
trouble really comes from two sources.
    The first is the same economic downturn that everybody else 
went through--you know, the equity investments weren't worth as 
much as they were supposed to be and the money people thought 
they had in their fund they didn't have. I think we have all 
been through that as individuals and families as well as 
businesses.
    But the second problem that the multis have that is unique 
to the multis is the problem the E.U. is having this morning, 
which is, to make a decision you need a lot of people to vote 
``yes.'' So you see, when Honeywell or General Motors has a 
problem the board of directors makes a decision, and they fix 
their plan one way or the other, and off they go. But when the 
Western States Conference has a problem, or the Central 
Pennsylvania Fund has a problem, or the Sheet Metal Contractors 
Fund has a problem, they got a lot of people who have a voice 
in that decision. They have a collectively bargained agreement 
and they have a--their word ``multi'' means they have a 
multitude of employers who get a vote.
    So I am not suggesting that that governance model doesn't 
work. I would suggest exactly the opposite. I think it works 
quite well, and I think that the multiemployer funds are an 
example of voluntary labor management cooperation that works 
very well in this country.
    But the fact of the matter is, when you have to have a lot 
of people agree on something it is a lot harder than when you 
only have to have a few. And so the multis are in a situation 
where they have suffered the same kind of economic harm that 
everybody else has in the 2008 meltdown, but making hard 
decisions about restructuring benefits or restructuring 
contributions are much harder to make when you are in that 
format where a lot of people have to make a decision.
    So I see our goal as considering ways that we can create or 
enhance a set of rules that make it possible for the trustees 
who run the multiemployer funds to make the decisions they need 
to make to make the funds stronger. Notice I said ``for them to 
make the decisions.'' I am not in favor of us supplanting their 
judgment with ours; I am not in favor of the Department of 
Labor or the PBGC or this committee micromanaging those funds.
    What I am in favor is creating an environment with the 
proper incentives and disincentives where the trustees of the 
multiemployer funds will have a better environment in which to 
make decisions that help the lady running the sheet metal 
contracting firm, the retired iron worker, and the taxpayer of 
the United States.
    I am confident we can work together, Mr. Chairman, and get 
that done. I look forward to hearing from the witnesses this 
morning.
    Chairman Roe. Thank the ranking member, and I suspect that 
you are right. The temperature in this room will be a lot lower 
than it is outside today, so--pursuant to Committee Rule 7(c), 
all members will be permitted to submit written statements to 
be included in the permanent hearing record, and without 
objection the hearing record will remain open for 14 days to 
allow such statements and other extraneous material referenced 
during the hearing to be submitted for the official hearing 
record.
    I will now introduce the witnesses. And this is a very 
distinguished panel.
    I have read all of your testimony and it--as I said, it 
laid out the problem very well, just not the solution. So I 
appreciate you doing that.
    Ms. Judy R. McReynolds is the president and CEO of Arkansas 
Best Corporation in Fort Smith, Arkansas.
    Welcome.
    Mr. Michael Sander is the administrative manager of Western 
Conference of the Teamsters Pension Trust in Seattle, 
Washington.
    Welcome.
    Josh Shapiro is the deputy executive director for research 
and education at the National Coordinating Committee for 
Multiemployer Plans in Washington, D.C.
    Welcome, Mr. Shapiro.
    John F. Ring is a partner with Morgan, Lewis, and Bockius 
LLP in Washington, D.C.
    Welcome.
    And Scott M. Henderson is the vice president and treasurer 
of the Kroger Company in Cincinnati, Ohio.
    And before I recognize you to provide your testimony let me 
briefly explain our lighting system. You have 5 minutes to 
present your testimony and when you begin the light in front of 
you will turn green. With 1 minute left the light will turn 
yellow; and when your time is expired the light will turn red, 
at which point I will ask you to wrap up your remarks. I won't 
cut you off in mid-sentence, but just wrap up your thoughts.
    And after everyone has testified members will have 5 
minutes to ask questions. And I now will begin.
    I want to thank the witnesses and begin with Ms. 
McReynolds.

STATEMENT OF JUDY R. MCREYNOLDS, PRESIDENT & CEO, ARKANSAS BEST 
                             CORP.

    Ms. McReynolds. Chairman Roe, Ranking Member, and 
distinguished members of the subcommittee, thank you for the 
opportunity to testify regarding the impact of multiemployer 
pension plan obligations on the trucking industry.
    I am the president and chief executive officer of Arkansas 
Best Corporation. Our largest operating subsidiary, ABF Freight 
System, is based in Fort Smith, Arkansas, and has been in 
continuous operation since 1923. We are one of the largest 
less-than-truckload carriers in North America and have more 
than 10,000 employees throughout the United States, Canada, 
Puerto Rico, and Mexico.
    ABF has traditionally been profitable but was hit hard by 
the economic downturn that began in 2007. The biggest challenge 
to ABF's long-term viability is its multiemployer pension plan 
obligations. Unless the Congress acts, the ever increasing 
contribution obligations to these plans will cause more 
trucking company bankruptcies and the PBGC will ultimately have 
to take over the funding of many plans.
    ABF contributes to 25 separate multiemployer pension plans 
associated with the trucking industry. Many of the plans 
serving our industry are either already close to insolvency or 
clearly headed in that direction.
    The plans are independent of both the employers and the 
union. The plan trustees, half of whom are appointed by the 
employers, are ERISA fiduciaries who are required to act solely 
in the interest of the plan participants. If a multiemployer 
plan becomes insolvent the PBGC is responsible for providing 
the assets to pay these benefits.
    Contributions to multiemployer pension plans by ABF and 
other employers have skyrocketed in recent years for a number 
of reasons, two in particular. First, these plans were 
established prior to federal deregulation of the trucking 
industry in 1980. Deregulation caused a fundamental shift in 
the economics of the industry and thousands of trucking 
companies who were participants in the--these pension plans 
have gone out of business. Under the multiemployer system the 
remaining companies in the plan are effectively responsible for 
the continued funding of all benefits, even for individuals 
they never employed.
    Second, the Pension Protection Act of 2006 gives 
multiemployer plan trustees little flexibility to address 
changed circumstances. The act significantly increased required 
contributions to underfunded plans in the endangered yellow 
zone status and the critical red zone status, a situation 
exacerbated by historically low interest rates and investment 
losses due to the stock market crash in 2007 and 2008.
    In 2011 ABF contributed $133 million to multiemployer 
plans. Approximately 62 percent of our current contributions 
are made to critical red zone plans, including Central States 
Pension Fund, and another 12 percent to yellow zone status 
plans.
    More than half of ABF's contributions to Central States 
Pension Fund alone are used to fund benefits of retirees of 
bankrupt or defunct companies, so-called ``orphan retirees.'' 
Any other multiemployer plans that we contribute to also have 
large numbers of orphan retirees.
    Three-fourths of our employees are represented by the 
International Brotherhood of Teamsters and we are a party to 
the National Master Freight Agreement. That 5-year agreement 
expires March 31, 2013. In order to comply with the 
requirements of PPA applicable to red and yellow zone plans the 
agreement imposes a 7 percent compound annual contribution 
increase on ABF, which results in a more than 40 percent 
increase during the 5-year term of the agreement from the 
already high levels previously in effect.
    AFB operates in a highly competitive industry that consists 
predominantly of nonunion freight transportation carriers with 
much lower pension benefit costs. ABF now contributes $10.17 an 
hour for pension benefits, 257 percent higher than those for 
average union employers in the United States. These 
contributions represent 21 percent of our total compensation 
costs, compared to less than 8 percent for the average union 
employer.
    It is much worse with respect to nonunion competitors. In 
2011 our average pension plan contribution for an operational 
employee was $17,392, compared to $1,131 per employee for our 
key nonunion competitors. Thus, our retirement plan 
contributions are 1,437 percent higher than our nonunion 
competitors.
    Because of its higher pension costs a smaller portion of 
the market is available to ABF and our market share dropped 
from 5.5 percent in 2004 to 4 percent in 2011, relative to our 
competition.
    ABF is working with a number of groups to formulate 
multiemployer pension plan reforms that make sense for plans, 
active and retired employees, and contributing employers. 
Further raising of contribution rates will jeopardize the 
ability of employers to survive and continue contributing to 
the plans. Plans cannot survive without contributing employers, 
but plan trustees have few tools to make changes that are 
necessary for the long-term viability of the plans and their 
contributing employers.
    ABF strongly supports efforts to save the multiemployer 
pension plans that its active and retired employees depend on 
for their retirement income. By taking action now Congress can 
help avert a crisis that otherwise is almost certain to occur.
    And I would be pleased to answer any questions that the 
members of the subcommittee have today. Thanks.
    [The statement of Ms. McReynolds follows:]

          Prepared Statement of Judy McReynolds, President and
              Chief Executive Officer, Arkansas Best Corp.

    Chairman Roe and Ranking Member and distinguished members of the 
Subcommittee, thank you for the opportunity to testify regarding the 
impact of multiemployer pension plan obligations on the trucking 
industry.
    My name is Judy McReynolds and I am the President and Chief 
Executive Officer of Arkansas Best Corporation. I am here to discuss 
the pension challenges faced by our largest operating subsidiary, ABF 
Freight System, Inc. (ABF). ABF, which is based in Fort Smith, 
Arkansas, has been in continuous operation since 1923 and is one of the 
largest less than truckload (LTL) motor carriers in North America. ABF 
has more than 10,000 employees and provides interstate and intrastate 
direct service to more than 44,000 communities through 275 service 
centers in all 50 states, Canada, Puerto Rico and Mexico.
    ABF is a model corporate citizen. We are consistently recognized 
for excellence in safety, security and loss prevention by the American 
Trucking Association. We have been named a ``Best Company to Sell For'' 
by Selling Power magazine for ten consecutive years. We have been a 
named ``Top 125 Training Organization'' by Training magazine for the 
last three years. In addition, we currently have three America's Road 
Team Captains, and have had at least one driver representative on this 
team every year since the team was established in 1995.
    ABF has traditionally been profitable but was hit hard by the 
economic downturn that began in 2007. We are working our way back to 
profitability and last year reported a small positive operating income 
of $9.8 million on more than $1.9 billion of revenue. With an operating 
loss in the first quarter of 2012, ABF is not out of the woods, but we 
are making progress. Despite the importance of these cyclical economic 
factors, the biggest challenge to ABF's long-term viability and its 
competitiveness within the trucking industry is the current and future 
liabilities it faces under many of the multiemployer pension plans to 
which it contributes.
Multiemployer Pension Plans and the Trucking Industry
    ABF contributes to 25 multiemployer pension plans associated with 
the trucking industry. Many of these plans are in difficult financial 
straits. Multiemployer pension plans cover employees of different 
employers generally in the same industry and geographic area and are 
managed by a joint board of trustees, half of whom are appointed by the 
contributing employers and the other half by the labor union. The plans 
are independent of both the employers and the union. Neither collective 
bargaining party can exercise legal control over the plans. Rather, the 
trustees are fiduciaries who are required to act solely in the interest 
of the plan participants, and not in the interest of either the 
employers or the union. The Pension Benefit Guaranty Corporation (PBGC) 
insures benefits promised under these plans, up to a maximum guaranteed 
level set by law. If a multiemployer plan becomes insolvent, the PBGC 
is responsible for providing assets to pay these benefits. The plans 
pay annual premiums to the PBGC for this insurance coverage.
    Contributions to multiemployer pension plans by employers like ABF 
have skyrocketed in recent years for a number of reasons. First, these 
plans were established at a time when the trucking industry was heavily 
regulated by the federal government, which imposed barriers to entry 
and rate regulation. When the Congress deregulated the trucking 
industry in 1980, this caused a fundamental shift in the economics of 
the industry. Since then, the industry has become much more competitive 
and, as a result, thousands of trucking companies have gone out of 
business. Under the multiemployer system, due to changes implemented by 
the Employee Retirement Income Security Act of 1974, as amended 
(ERISA), the remaining companies in the plan are effectively 
responsible for the continued funding of all benefits under the plan, 
including benefits of participants formerly employed by bankrupt or 
defunct companies. This is a fundamental difference from single 
employer pension plans, where the employer is responsible only for the 
benefits it promised to its own employees. While the number of 
companies contributing to trucking industry multiemployer pension plans 
has been greatly reduced, the number of retirees who receive pension 
benefits has increased. Thus, an unsustainable demographic situation 
has developed where an ever-declining number of employers are 
responsible for funding the benefits of retirees with whom they have no 
connection. For example, ABF understands that more than 50 cents of 
every dollar that it contributes to the Central States, Southeast and 
Southwest Areas Pension Fund (the ``Central States Pension Fund'') goes 
to fund benefits of former employees of bankrupt or defunct trucking 
companies, so-called ``orphan'' participants.\1\
---------------------------------------------------------------------------
    \1\ On the other hand, multiemployer plans that are less dependent 
on the trucking industry and have a more diverse base of contributing 
employers, such as the Western Conference of Teamsters Pension Fund, 
are in much stronger financial positions.
---------------------------------------------------------------------------
    Second, ERISA imposes potentially catastrophic ``withdrawal 
liability'' on companies that withdraw from underfunded plans. When an 
employer withdraws from a multiemployer pension plan, it owes its 
proportional share of the plan's unfunded vested benefits. Many 
withdrawals have occurred in the bankruptcy context, and plans 
typically collect only pennies on the dollar of the withdrawal 
liabilities owed by these bankrupt or defunct companies. For example, 
when Consolidated Freightways withdrew from the Central States Pension 
Fund following its bankruptcy in 2002, the Fund collected a small 
fraction of the nominal $318 million withdrawal liability. This 
shortfall ultimately must be funded by ABF and the other remaining 
employers. Withdrawal liability has also deterred new employers from 
contributing to the plans and investors from providing additional 
capital to multiemployer plan contributing employers.
    Third, the Pension Protection Act of 2006 (PPA) significantly 
increased required contributions to underfunded plans, particularly 
those in endangered (``Yellow Zone'') and critical (``Red Zone'') 
status. When the PPA was enacted, interest rates had not dropped to 
their current historically-low levels, and the stock market decline 
following Lehman Brothers' bankruptcy had not occurred. In combination, 
those two events drove up the value of plans' liabilities, while 
reducing the value of their assets. For example, UPS withdrew from the 
Central States Pension Fund at the end of 2007 and paid the Fund $6.1 
billion in withdrawal liability. The Fund's losses from the stock 
market decline in 2008 exceeded this payment from UPS. Unfortunately, 
the PPA gives multiemployer plan trustees little flexibility to address 
changed circumstances.
ABF's Multiemployer Plan Contributions
    Based on the most recent annual funding notices ABF has received 
from the multiemployer pension plans to which it contributes, 
approximately 62% of ABF's contributions are made to plans that are in 
critical/Red Zone status (including the Central States Pension Fund). 
Close to half of ABF's total contributions are made to the Central 
States Pension Fund. Plans in endangered/Yellow Zone status represent 
12% of ABF's contributions. The remainder of ABF's contributions are 
made to ``Green Zone'' plans like the Western Conference of Teamsters 
Pension Fund.
    Approximately 75% of ABF's workforce is represented by the 
International Brotherhood of Teamsters (IBT). ABF is a party to the 
National Master Freight Agreement (NMFA) with the IBT, and the current 
five-year agreement expires March 31, 2013. In order to comply with the 
requirements of the PPA applicable to Red Zone and Yellow Zone plans, 
the current version of the NMFA has imposed a 7% annual, compound 
multiemployer pension plan contribution increase on ABF since it went 
into effect in 2008. Over the course of the five-year term of the 
current NMFA, that means a total compounded PPA-required contribution 
increase of more than 40% relative to the rate in effect before the 
NMFA became effective in 2008. ABF has contributed the following 
amounts to multiemployer pension plans in recent years: $104 million in 
2009; $120 million in 2010; and $133 million in 2011. Those 
contributions alone represent almost 8% of ABF's total revenues from 
those years.
ABF's Competitive Situation
    ABF operates in a highly competitive industry that consists 
predominantly of nonunion freight transportation motor carriers. ABF's 
nonunion competitors have much lower employee benefit cost structures, 
and some carriers also have lower wage rates for their freight-handling 
and driving personnel. In addition, wage and benefit concessions 
granted by the IBT to a key union competitor allow for a lower pension 
cost structure than that of ABF. During the recessionary economic 
conditions that began in 2007 and worsened in 2008, competitors with 
lower labor cost structures reduced freight rates, resulting in 
increased pricing competition in ABF's primary market segment.
    Furthermore, ABF's labor costs are strongly impacted by its 
contributions to multiemployer plans that are used to pay benefits to 
``orphan'' retirees who were never employed by ABF. As noted above, 
more than half of ABF's contributions to the Central States Pension 
Fund are used to fund benefits of retirees of companies that are no 
longer contributing employers. Many other multiemployer plans to which 
ABF contributes also have large numbers of orphan retirees.
    Contributions to multiemployer pension plans are the main cost item 
compromising ABF's competitiveness. For example, according to an April 
24, 2012 study prepared by Mercer/WRG's Information Research Center, 
ABF's contributions for pension benefits of $10.17 per hour worked are 
257% higher than those for average union employers. Pension 
contributions represent almost 21% of ABF's total compensation costs, 
compared to less than 8% for the average union employer. Not only are 
the levels higher for ABF, they are increasing more rapidly, with a 
growth rate of 8% per year since 2007 compared to 4.2% for the average 
union employer and 2.9% for the average nonunion employer. If ABF's 
current contribution levels were frozen at current levels, and 
contribution rates for average union employers grew at their current 
rate of approximately 4.2% annually, it would take more than 30 years 
just for those contribution levels to match ABF's current level. The 
comparable figure for the average nonunion employer is 88 years.
    The comparison is even worse with respect to ABF's nonunion 
competitors. For 2011, ABF's average pension plan contribution for its 
operational employees was $17,392 per employee. The average retirement 
plan contribution by ABF's key nonunion competitors was $1,131 per 
employee for that year. Thus, ABF's 2011 per-employee pension costs 
were 1437% higher than those competitors, who are not responsible for 
funding legacy liabilities of retirees they never employed.
    Relative to its nonunion competitors, ABF had market share of 
around 5.5% in 2004. That has dropped to below 4%. Unless multiemployer 
pension plan contribution obligations are brought under control, ABF 
will continue to lose market share. ABF's significantly higher cost 
structure that results from the multiemployer pensions plans has been 
highlighted in numerous financial analysts' reports and is reflected in 
the Company's stock price. For example:
    ``[W]e see an above-peer cost structure keeping ABF from generating 
earnings based on what the market will offer. ABF has a higher cost 
structure than union and non-union peers, which could keep the company 
at a competitive disadvantage * * * an above-peer cost structure and 
persistent challenges in the core less-than-truckload business present 
meaningful long-term risks.'' Anthony Gallo, Senior Analyst, Wells 
Fargo
    ``We believe better relative tonnage levels will not solve the 
problem of [ABF's] reduced profitability. It appears that a structural 
change in compensation and benefits to its Teamster workforce is 
necessary to better align costs with volumes * * * without material 
progress [on compensation issues] Arkansas Best has structurally higher 
costs than its peers stunting potential growth.'' Chris Wetherbee, 
Research Analyst, Citi
    ``The most prevalent risks, in our opinion, to the performance of 
ABFS' shares are the cyclical nature of LTL freight and legacy cost 
headwinds from its unionized workforce. Additional risks include the 
presence of well-capitalized integrated carriers (FedEx and UPS) in the 
LTL market and uncertainty surrounding multi-employer pension 
liabilities.'' Todd Fowler, Vice President, KeyBanc Capital Markets
    ABF's stock traded at $12.29 on June 15, 2012. The 52-week high as 
of that date was $27.44, more than double the current price. Before the 
2008 financial crisis, ABF's stock price exceeded $45 per share.
    If pension obligations are ignored, ABF's cost structure is in line 
with that of its key competitors. It is ABF's multiemployer pension 
obligations that require it to charge prices that its competitors are 
able to undercut. This creates a vicious cycle, where higher prices 
result in reduced market share, revenues drop, and ABF's ability to 
invest in its business are jeopardized.
    A solution to the multiemployer pension plan crisis is critical for 
ABF and other trucking companies.
Conclusion
    ABF is working with a number of groups to formulate multiemployer 
pension plan reforms that make sense for plans, active and retired 
employees, and contributing employers. Many multiemployer plans are in 
an untenable situation. Further raising of contribution rates will 
jeopardize the ability of employers to survive and continue 
contributing to the plans. The PPA restrains plans' abilities to accept 
reduced contribution rates for employers in financial distress. Plans 
cannot survive without contributing employers, but current legal rules 
make it difficult for plans to make changes that are necessary for the 
long-term viability of the plans and their contributing employers. Plan 
trustees currently have few tools to address the structural problems 
faced by the plans and the employers on which they depend. ABF strongly 
supports efforts to save the multiemployer pension plans that its 
active and retired employees depend on for their retirement income.
    In addition, action is required because the PBGC lacks the 
resources to fulfill the multiemployer plan obligations it expects to 
incur under current law. In its 2011 annual report, the PBGC noted that 
the financial deficit of its multiemployer program doubled in its most 
recently-completed fiscal year. The PBGC further stated that ``the 
greater challenge, however, comes from those plans that have not yet 
failed: our estimate of our reasonably possible obligations 
(obligations to participants), described in our financial statements, 
increased to $23 billion.'' Without sufficient contributing employers, 
plans will eventually become insolvent and the PBGC will have to assume 
responsibility for the benefits under those plans. Currently, all of 
the PBGC's multiemployer program revenues come from premiums charged to 
multiemployer plans themselves. However, if the PBGC cannot fulfill its 
benefit guarantee obligations, there will be great pressure on the 
federal government to provide additional funding to the PBGC from 
general revenues. By taking action now, Congress can help avert a 
crisis that otherwise is almost certain to occur.
    I would be pleased to answer any questions that the members of the 
Subcommittee may have. Thank you.
                                 ______
                                 
    Chairman Roe. Thank you.
    Mr. Sander?

 STATEMENT OF MICHAEL SANDER, ADMINISTRATIVE MANAGER, WESTERN 
             CONFERENCE OF TEAMSTERS PENSION TRUST

    Mr. Sander. Chairman Roe, Ranking Member Andrews, and 
members of the subcommittee, thank you for inviting me to 
testify today about the Western Conference of Teamsters Pension 
Plan. My name is Mike Sander. I am the administrative manager 
of the plan.
    The Western Conference Plan, the largest multiemployer plan 
in the country, provides secure retirement benefits to over 
500,000 active and inactive vested employees and retirees. 
Since 1955 we have provided retirement benefits to over 300,000 
additional retirees and their families.
    Plan assets today exceed $30 billion. Annual employer 
contributions total $1.3 billion. Last year we paid $2.2 
billion in benefits to plan participants in all 50 states.
    Almost 1,700 employers engaged in over 50 different 
industries participate in our plan. We continue to add new 
employers and employee groups. These large and small employers 
are engaged in a variety of industries: grocery, food 
distribution, package delivery, manufacturing, beverage 
bottling, law enforcement, waste disposal, health care, and 
many others.
    Some are brand names: United Parcel Service, Safeway, Coca-
Cola, Waste Management. But others are small businesses, like 
W.W. Clyde and Company, in Orem, Utah; McGree Contracting 
Company in Butte, Montana; and Whitewater Building Materials in 
Grand Junction, Colorado.
    Over 74 percent of employers that participate in the 
Western Conference Plan are small businesses with 50 or fewer 
employees. In fact, nearly half have 20 or fewer employees.
    The Western Conference Plan is designed to accommodate a 
mobile workforce. A recent analysis of our active workers 
reveals that over 25 percent of participants over the course of 
their career have worked for two or more contributing employers 
to the plan. Participants work in a host of occupations, 
including truck drivers, nurses, clerks, warehouse workers, 
food processors, police officers, highway maintenance workers, 
construction workers, and others.
    The plan distributes a specified, regular amount of funds 
to retirees, determined by historical employer contribution 
rates, ages, lengths of service, and other factors. Because 
retirees are guaranteed a fixed level of retirement income the 
plan provides certainty and stability to retirees even in 
unpredictable economic times. The plan limits risks to both 
participants and employers by pooling contributions from a 
variety of companies and industries.
    Our goal is full funding. The trustees have always used a 
conservative investment strategy and benefit plan design. The 
plan has been in the green zone, as that term is defined by the 
Pension Protection Act, since the law was first passed in 2006. 
At the start of 2008, just before the market crash, our plan's 
funded percentage was a robust 97.1 percent.
    The plan's management and labor trustees have a long 
history of working together to strengthen the plan and promote 
the well-being of plan participants. After the dot-com market 
slide in 2002 the trustees agreed to cut future benefits in 
half in order to get back to full funding.
    Like all institutional investors, the Western Conference 
Plan was harmed by the unprecedented collapse of the markets 
worldwide in 2008. Our asset values dropped by 20 percent, over 
$6.2 billion. Congress passed common sense legislation in 2010 
to allow plans to spread these losses over a longer period of 
time. The plans funded status for 2012 is now projected to be 
90.3 percent.
    The Western Conference Plan strongly supports transparency. 
Financial information about the plan, including our audited 
financial statements, our Form 5500s, actuarial reports, annual 
funding notices, and other documents are all readily available 
for all to see. We encourage employers, participants, and other 
stakeholders to review our financial data on our Web site.
    The trustees strive to maximize operational efficiencies. 
Through investments in technology and a streamlined processing 
system computers now automate much of daily processing.
    Employers can report their monthly hours activity over the 
Internet and send their contributions electronically to a 
clearinghouse where available funds are swept immediately into 
the plan's investment pools. The plan uses only seven cents of 
every contribution dollar to fund all plan operations, leaving 
93 cents of contributions and 100 percent of investment income 
to support funding levels.
    Thank you for your consideration of our views. The Western 
Conference Plan is a long-term enterprise. We have been 
successful for over 50 years and we intend to provide 
substantial retirement security for the next 50 years and 
beyond.
    We look forward to working with you and I would be happy to 
answer your questions.
    [The statement of Mr. Sander follows:]

    Prepared Statement of Michael M. Sander, Administrative Manager,
              Western Conference of Teamsters Pension Plan

    Chairman Roe, Ranking Member Andrews, and Members of the 
Subcommittee, thank you for inviting me to testify today about the 
Western Conference of Teamsters Pension Plan. My name is Mike Sander, 
and I am the Administrative Manager of the Plan.
    The Western Conference Plan, the largest multiemployer pension plan 
in the country, provides secure retirement benefits to over 500,000 
active and inactive vested employees and retirees. Over the life of the 
Plan since 1955, we have provided retirement benefits to over 300,000 
additional retirees and their families. The Plan covers the 13 western 
states--Alaska, Arizona, California, Colorado, Hawaii, Idaho, Montana, 
Nevada, New Mexico, Oregon, Utah, Washington and Wyoming. Plan assets 
exceed $30 billion, and annual employer contributions total $1.3 
billion. Last year, we paid $2.2 billion in benefits to plan 
participants in all 50 states and the District of Columbia.
    Almost 1,700 employers, engaged in over 50 different industries, 
participate in the Plan. We continue to add new employers and employee 
groups. These large and small employers are engaged in a variety of 
industries: grocery and food distribution, package delivery, 
manufacturing, clerical, beverage bottling, law enforcement, 
entertainment, waste disposal, health care and others. Some of them 
will be familiar to you: United Parcel Service, Safeway, Coca-Cola, and 
Waste Management. Others are not household names because they are small 
businesses, like W.W. Clyde & Company in Orem, Utah, McGree Contracting 
Company in Butte, Montana, and Whitewater Building Materials in Grand 
Junction, Colorado. Over 74 percent of employers that participate in 
the Western Conference are small businesses with 50 or fewer employees.
    The Western Conference Plan is designed to accommodate a mobile 
workforce, providing pension portability to participants who may find 
it necessary to seek employment in a different industry or elsewhere in 
the 13 western states, or even beyond. A recent analysis of our active 
workers reveals that over 25% of participants over the course of their 
career have worked for two or more contributing employers. Participants 
work in a host of occupations, including as truck drivers, nurses, 
clerks, warehouse workers, food processors, police officers, highway 
maintenance workers, and construction workers.
    The Western Conference Plan distributes a specified, regular amount 
of funds to retirees, determined by historical employer contribution 
rates, age, length of service, and other factors. Because retirees are 
guaranteed a certain level of retirement income, the Plan provides 
certainty and stability to retirees, even in unpredictable economic 
times. The Plan limits risk to both participants and employers by 
pooling contributions from a variety of companies and industries.
    Our Plan's goal is full funding. The trustees have always used a 
conservative investment strategy and benefit plan design. The Plan has 
been in the ``green zone,'' as defined by the Pension Protection Act, 
since that law was passed in 2006. At the start of 2008, just before 
the market crash, the Plan's funded percentage was a robust 97.1%.
    The Plan's management and labor trustees have a long history of 
working together to strengthen the plan and promote the well-being of 
participants. The trustees take their responsibilities for funding very 
seriously. After the dot-com market drop in 2002, for example, the 
trustees agreed to cut benefit accruals by one-half to get back to full 
funding. Over the many decades the Plan has operated, the management 
and labor trustees have worked well together, resolving differences 
through a rational decision-making process focused on how best to 
achieve the key objective of providing retirement security to the 
hundreds of thousands of employees who participate in the Plan.
    Like all institutional investors, the Western Conference Plan was 
harmed by the unprecedented collapse of the markets worldwide in 2008. 
Our asset values dropped by 20%, over $6.2 billion. Congress passed 
common sense legislation in 2010 to allow plans to spread those losses 
over a longer period of time. These important changes came at no cost 
to taxpayers or the government. Despite the 2008 crash, the Western 
Conference Plan's funded status for 2012 is projected to be 90.3%.
    The Western Conference Plan strongly supports transparency. 
Financial information about the Plan, including our audited financial 
statements, Form 5500s, actuarial reports, annual funding notices, and 
other documents, is readily available for all to see. We encourage 
employers, participants and others to review our financial data at 
http://www.wctpension.org./downloads/downloads.html.
    The trustees strive to maximize operational efficiencies. Through 
investments in technology and a streamlined processing system, 
computers now automate much of daily processing. Employers can report 
their monthly hours activity over the internet and send their 
contributions electronically to a clearing house where available funds 
are swept daily into investment vehicles. The Plan uses only seven 
cents of every contribution dollar to fund all Plan operations, leaving 
93 cents of contributions and 100% of the investment income to support 
funding levels.
    Since 1995, the Plan has provided an annual personal benefit 
statement to each active participant. The statement shows the 
participant's total accrued benefits and the amount earned in the 
previous year, an itemization of hours worked and employer 
contributions for that year, and beneficiary information. This gives 
participants an important retirement planning tool.
    The Plan investments are made in accordance with an asset 
allocation model designed to provide strong returns consistent with a 
variety of economic environments. The Trust uses indexing strategies to 
provide effective diversification within the portfolios, while keeping 
net investment costs low. The Plan leverages its asset size into 
advantageous pricing. Manager selection is done with an eye to proven 
long-term results. Strong returns from proven asset managers at low net 
cost supports the highest benefit levels prudently possible.
    Thank you for your consideration of our views. The Western 
Conference Plan is a long-term enterprise. We have been successful for 
over 50 years, and we intend to provide substantial retirement security 
for the next 50 years and beyond. We look forward to working with you, 
and I would be happy to answer your questions.
                                 ______
                                 
    Chairman Roe. Thank you, Mr. Sander.
    Mr. Shapiro?

   STATEMENT OF JOSH SHAPIRO, DEPUTY EXECUTIVE DIRECTOR FOR 
  RESEARCH AND EDUCATION, NATIONAL COORDINATING COMMITTEE FOR 
                      MULTIEMPLOYER PLANS

    Mr. Shapiro. Chairman Roe, Ranking Member Andrews, and 
members of the subcommittee, it is an honor to speak with you 
today on this important topic. My name is Josh Shapiro and I am 
the deputy director of the National Coordinating Committee for 
Multiemployer Plans.
    Multiemployer pension plans provide vital retirement income 
security to millions of working-class Americans. By serving 
workers characterized by very small employers and mobile 
workforces these plans cover individuals who simply would not 
have access to quality retirement benefits without them.
    As we discuss the challenges facing multiemployer plans a 
few features of these plans are worth noting. The first is that 
each multiemployer plan is governed by a board of trustees that 
consists of equal representation from both management and 
labor. The contributions that companies make to these plans go 
into a trust fund that is managed by the board of trustees, and 
this trust fund operates independently of either bargaining 
party.
    There are currently approximately 1,450 multiemployer plans 
in the country covering approximately 10 million workers. The 
NCCMP has estimated that the aggregate assets held by these 
plans totals approximately $450 billion.
    As you all know, the 2008 financial crisis and ensuing 
recession have had devastating effects on many sectors of our 
economy. Multiemployer plans are no exception. These plans are 
active investors in the equity markets, and just as they 
experienced tremendous asset growth during the boom years of 
the 1990s they also experienced enormous declines in their 
asset holdings in recent years. What you may not know is that 
the tax code that was in existence in the 1990s did not allow 
these plans to store those asset gains as insurance against 
future losses.
    A unique feature of multiemployer plans is the fact that 
contributions to the plans are governed by collective 
bargaining agreements. Once those contributions are negotiated 
there is no simple way to stop or reduce them when the plan is 
overfunded.
    Additionally, in the late 1990s contributions to an 
overfunded multiemployer plan were not tax deductible to 
employers, and in many cases such contributions would trigger 
excise tax penalties. This unfortunate situation meant that as 
a practical matter many plans had no choice other than to raise 
their benefit levels in order to eliminate the overfunding and 
preserve the tax deductibility of contributions. This inability 
to hold those investment gains as insurance against future 
losses left multiemployer plans especially vulnerable to 
declines in capital markets.
    The 2008 stock market crash reduced the funded position of 
multiemployer plans by an average of approximately 30 percent. 
The average plan was 90 percent funded immediately prior to the 
crash. After the crash the contributions necessary to fund 
these plans in many instances more than tripled.
    The response of the multiemployer community to this crisis 
has been profound. Across all sectors employees have accepted 
lower wages and lower benefits while employers have had to make 
larger contributions during a historically difficult business 
climate. NCCMP data indicates that over 80 percent of 
multiemployer plans have taken one or more of these steps.
    While these responses have been painful they have been 
largely successful. Recent survey data indicates that well over 
60 percent of multiemployer plans are now in the PPA--the 
Pension Protection Act--green zone, indicating a healthy funded 
position.
    While the news headlines will always focus on the small 
number of plans that are deeply troubled and may not be able to 
recover from the crisis, the fact is that the majority of plans 
will be able to fully recover and pay benefits to future 
generations of participants.
    However, this recovery has come at a steep price. Younger 
participants have had their faith in the system shaken as their 
contributions have risen and benefits have declined, while the 
sponsoring companies are concerned that they are effectively 
acting as insurers against the stock market.
    The NCCMP has convened a Retirement Security Review 
Commission consisting of both labor and management 
representatives whose mission is to study the situation facing 
the plans and to develop a comprehensive proposal for reform. 
The guiding principles of this commission are that employer 
financial risk must be mitigated while at the same time 
participant retirement income security must be preserved.
    During this time of great challenge it is tempting to 
conclude that the multiemployer pension system is broken and 
should be abandoned. It would be a great tragedy if this fate 
were to befall a system that has been so beneficial to so many 
millions of people for so many decades. The system does not 
need to go away but it does need to evolve.
    I am confident that the upcoming recommendations of the 
NNCMP commission will provide a solid foundation for a 
retirement system that will meet the needs of both the 
companies that support the plans and the employers that 
participate in them.
    Thank you very much for your kind attention, and I 
sincerely look forward to working with you and your staff 
members in the coming months as you work to implement necessary 
reforms.
    [The statement of Mr. Shapiro follows:]

 Prepared Statement of Josh Shapiro, Deputy Director for Research and 
   Education, National Coordinating Committee for Multiemployer Plans

    Chairman Roe, Ranking Member Andrews and Members of the Committee, 
it is an honor to speak with you today on this important topic. My name 
is Josh Shapiro. I am the Deputy Director of the National Coordinating 
Committee for Multiemployer Plans (the ``NCCMP''). The NCCMP is a non-
partisan, non-profit advocacy corporation created in 1974 under Section 
501(c)(4) of the Internal Revenue Code. It is the only organization 
created for the exclusive purpose of representing the interests of 
multiemployer plans, their participants and sponsoring organizations. 
In addition to my role at the NCCMP, I am also a Fellow of the Society 
of Actuaries, a Member of the American Academy of Actuaries, and an 
Enrolled Actuary under ERISA. I serve on the American Academy of 
Actuaries Pension Committee, and on its Multiemployer Subcommittee.
    The sponsors of multiemployer pension plans are predominately small 
businesses that operate in industries characterized by highly fluid 
employment patterns. For over 60 years multiemployer plans have made it 
possible for these companies to provide their employees with modest and 
reliable retirement income. Both the small size of the sponsoring 
employers and the mobility of their workforces make it impractical for 
them to achieve this objective with single-employer pension plans. For 
this reason, millions of middle class Americans have financial security 
in retirement that is entirely attributable to the existence of 
multiemployer pension plans. According to the 2011 PBGC Annual Report, 
there are currently approximately 1,450 multiemployer plans in the 
country covering over 10 million participants. While precise figures 
are difficult to obtain, the NCCMP has estimated that the aggregate 
assets held by these plans totals approximately $450 billion.
    Multiemployer plans are the product of collective bargaining 
between one or more unions and at least two unrelated employers. The 
collective bargaining process establishes the rate at which employers 
will contribute to the plan, frequently expressed as a dollar amount 
per hour of work. The contributions go into a trust fund that is 
independent of either bargaining party. By law, the trustees of this 
fund consist of equal representation from both management and labor. 
With input from their professional advisors, the trustees determine the 
benefit provisions of the pension plan, oversee the investment of the 
assets, and administer the collection of contributions and the payment 
of benefits. As trustees, the representatives of both sides of the 
bargaining table have fiduciary responsibility to manage the plan for 
the sole and exclusive benefit of the plan participants.
    While most often associated with the construction and trucking 
industries, multiemployer plans are pervasive throughout the economy 
including the agricultural; airline; automobile sales, service and 
distribution; building, office and professional services; chemical, 
paper and nuclear energy; entertainment; food production, distribution 
and retail sales; health care; hospitality; longshore; manufacturing; 
maritime; mining; retail, wholesale and department store; steel; and 
textile and apparel production industries. These plans provide coverage 
on a local, regional, or national basis, and cover populations that 
range from as small as a few hundred participants to as large as 
several hundred thousand participants.
The Experience of Multiemployer Plans in the 1990's
    Since the establishment of ERISA's pre-funding requirements, 
multiemployer plans have typically been very well funded. This was 
especially true in the late 1990's when exceptionally strong stock 
market returns resulted in many plans having assets that were 
significantly larger than their liabilities. While on the surface this 
is a highly desirable result, it is ironic that this period actually 
set the stage for the challenges that the plans face today. To see why 
this is the case, it is first necessary understand how actuaries 
calculate the funding needs of multiemployer plans through the use of 
long-term assumptions and methods.
    Long-term actuarial funding rests on the idea that the financial 
markets will experience periods of strong investment returns and 
periods of poor investment returns. The actuary determines the funding 
requirements using an assumed rate of return on plan assets that 
represents his or her best estimate of the long-term average, with the 
understanding that over short periods of time the assets may perform 
significantly better or worse than this average. The core idea is the 
notion that short-term fluctuations will tend to offset each other, and 
the plan can achieve stable long-term funding through the use of level 
and predictable contributions. In order for this funding approach to 
function properly, it is necessary for plans to maintain surplus 
positions during periods of unusually strong asset returns, as these 
surpluses will serve to offset the losses that the plans incur during 
periods of unusually poor returns.
    During the late 1990's, very strong investment returns resulted in 
the majority of multiemployer plans having assets that exceeded their 
liabilities. While the long-term approach to funding dictates that 
plans need to preserve this overfunding to offset future investment 
losses, two unique features of multiemployer plans prevented them from 
remaining in a surplus position. The first of these features is the 
fact that contributions to multiemployer pension plans are specified in 
collective bargaining agreements. There is no simple mechanism for 
stopping or reducing these contributions when the plan is overfunded. 
The second unique feature of multiemployer plans is the fact that 
during the 1990's, contributions to an overfunded multiemployer pension 
plan were not tax deductible to the employers. In many cases, not only 
would contributions to these plans have been non-deductible, they would 
also trigger excise tax penalties.
    The combination of these two features placed the trustees of 
multiemployer pension plans in a very difficult position. The employers 
were obligated by the collective bargaining agreements to contribute to 
the plans, but due to the overfunding of the plans, these contributions 
would not be tax deductible, and might trigger excise tax penalties. As 
a practical matter, the trustees had no choice but to raise the level 
of benefits that the plans provided so that the plan assets would no 
longer exceed the liabilities. Essentially, they were forced to spend 
the funding surpluses instead of being able to preserve them as 
insurance against a market downturn. The NCCMP has estimated that 
upwards of 70% of all multiemployer plans found themselves in this 
position leading up to the millennium. The Pension Protection Act of 
2006 (PPA) addressed this shortcoming in the tax code, but 
unfortunately this change was too late to help most plans.
    It is worth noting that the situation facing single-employer 
pension plans was very different. The most obvious difference was the 
fact that the sponsors of these plans had the option to simply stop 
contributing to the plans during periods of overfunding. Many plan 
sponsors took advantage of this option, and it was not uncommon for 
these companies to go ten or more years without making any 
contributions to the plans at all. At the same time, there was no need 
for these plans to raise their benefit levels to eliminate the 
overfunding, so many of them remained significantly overfunded year 
after year. Some observers have noted that single-employer plans have 
historically had higher funding levels than multiemployer plans. This 
observation is true, but most authors either miss, or choose to ignore, 
the fact that the ability of single-employer plans to effectively 
maintain a surplus position gave them an inherent funding advantage 
over multiemployer pension plans.
Market Turmoil of the 2000's
    Having been unable to maintain a surplus position during the late 
1990's, multiemployer pension plans were extremely vulnerable to the 
market turmoil that characterized the decade between 2000 and 2010. 
Despite the downturn that occurred in the years 2000 to 2003, by the 
beginning of 2008 multiemployer plans were very much back on track. 
NCCMP survey data indicates that at the beginning of that year, the 
average plan was approximately 90% funded. The Pension Protection Act 
of 2006 (PPA) established criteria for determining when a multiemployer 
plan should be considered in `endangered status' or `critical status'. 
NCCMP survey data shows that at the beginning of 2008, only 9% of plans 
were considered to be `critical', with an additional 15% classified as 
`endangered'.
    The 2008 financial market crash and ensuing recession had a 
profound impact on the funding position of multiemployer plans. The S&P 
500 Index lost 37% that year, and the average multiemployer plan 
experienced a decline of approximately 30% in its funded level 
(determined using the market value of assets). For many plans with 
funding ratios of 90% or better prior to the crash, the level of 
contributions needed to responsibly fund the liabilities more than 
tripled. This situation placed enormous burdens on companies that were 
already contending with a historically difficult economic climate in 
the years following the 2008 crisis. The recession also presented a 
separate challenge for he plans themselves, as they depend on 
employment levels to generate contribution income. As an analogy, the 
2008 crash gave the plans a hole from which they need to dig out, and 
the subsequent recession substantially reduced the size of their 
shovel.
    It is critical to note that the funding challenges currently facing 
multiemployer plans are not the result of reckless investing, 
aggressive assumptions, or unreasonably large benefits. NCCMP survey 
data clearly documents this conclusion. This data indicated that at the 
beginning of 2008, the average multiemployer plan held approximately 
57% of its assets in equities, 27% in bonds, 6% in real estate, and the 
remaining 10% spread across cash, hedge funds, private equity, and 
other investments. This asset mix is in line with the portfolios of 
pension funds in other sectors, and is also consistent with the 
strategy that investment professionals recommend to individuals who 
need to manage their own retirement savings through defined 
contribution plans.
    Regarding actuarial assumptions, the vast majority of multiemployer 
pension plans budget for average returns of 7.5% or less on their 
investments. This figure represents a reasonable estimate of the asset 
returns that are attainable to investors with very long-term time 
horizons. NCCMP survey data indicates that the median benefit that a 
multiemployer plan pays to a retiree is approximately $900 per month, 
which is just under $11,000 per year. As most retirees have been 
receiving their benefits for many years, a better measure of the 
benefits that the plans are currently promising is to look at the 
median amount paid to a recent retiree. This figure is approximately 
$1,400 per month, or just under $17,000 per year. By any measure, these 
are modest retirement benefits that, when combined with Social Security 
and personal savings, are just enough to allow retired participants to 
have a decent standard of living.
The Road to Recovery
    When a multiemployer plan encounters adverse experience, the 
trustees and bargaining parties have two main tools at their disposal 
to improve the funded position of the plan. The first tool is to 
allocate additional contributions to the plan. When this tool is used, 
it has a direct effect on both the employees and the employers. For the 
employees, it serves to reduce their overall compensation, since absent 
the funding challenges of the pension plan, these dollars would have 
been available for other purposes. In fact, in many severely troubled 
plans employees have accepted reductions in their paycheck wages in 
order to allocate more money to the pension plan. For the employers the 
additional contributions make it more difficult for them to compete in 
the market place, often against competitors that have not chosen to 
provide comparable retirement benefits to their employees. NCCMP survey 
data indicates that more than 70% of multiemployer plans have responded 
to the 2008 funding crisis with increased contributions.
    The second tool available for the purpose of improving the funded 
position of a multiemployer pension plan is to reduce the rate of 
future benefit accrual. This action has minimal immediate effect on the 
plan as it does not affect benefits that participants have already 
earned. What it does do is allow a larger portion of the ongoing 
contribution income to pay for the funding shortfall, as a lesser 
portion of these contributions is required to cover the cost of 
participants' benefit growth. In contrast to the first tool that 
impacts both the employees and the employers, reducing the rate of 
benefit accrual only has a direct impact on the employees. NCCMP survey 
data indicates that approximately 40% of multiemployer plans have 
responded to their funding challenges by reducing the rate of benefit 
accrual.
    The actions that multiemployer boards of trustees and sponsoring 
employers have taken in response to the financial crisis have been 
difficult for all stakeholders. However, these actions have not only 
been necessary, they have been effective. While NCCMP survey data 
indicates that only 20% of plans were in the PPA `green zone' 
immediately following the 2008 crash, current data indicates that this 
figure now exceeds 60%. An occasional, and particularly ill informed, 
criticism of multiemployer plans is that they have ignored their 
problems. Regardless of how someone feels about multiemployer pension 
plans, any thorough analysis of their recent history will demonstrate 
the commitment that both the employees and employers have to the plans, 
and the sacrifices they have made to support them.
    Despite the efforts of the sponsors to take the measures necessary 
for recovery, a small number of plans have suffered more damage than 
they will be able to endure. Primarily these plans come from industries 
in which economic shifts have greatly hindered their ability to raise 
the necessary contribution income. In particular, there are two 
specific very large plans that have suffered from the unintended 
consequences of unrelated public policy decisions. In one of these 
plans, the deregulation of the trucking industry in 1980 resulted in 
the decline and demise of virtually all of the major contributing 
commercial carriers. In the other plan, the Clean Air Act caused the 
cessation of a large portion of the bituminous coal mining industry 
that previously contributed to the plan, resulting in an active 
employee population that is a small fraction of the previous number. In 
both instances, the plans had managed to remain well funded until the 
unprecedented market collapse imposed irrevocable harm on the plans' 
investments. While these two plans represent major challenges to the 
multiemployer community, and they are the subject of frequent media 
attention, their unique circumstances are not representative of the 
vast majority of multiemployer plans.
NCCMP Retirement Security Review Commission
    The multiemployer funding provisions of the Pension Protection Act 
of 2006 (PPA) will sunset at the end of 2014. The challenges currently 
facing multiemployer plans make it clear that in order to survive and 
grow in the future, the system requires a greater degree of flexibility 
than is currently available. We have welcomed the interest shown by 
your Committee staff and that of the other Committees of jurisdiction, 
as well as the regulatory agencies in learning how PPA could be 
modified to better meet the needs of plan participants, sponsors and 
the plans themselves. In the course of reviewing proposals for 
modifications, we have come to the conclusion that now is an 
appropriate time to consider taking a more fundamental assessment of 
the rules governing the multiemployer defined benefit system.
    In order to ensure that the interests of all stakeholders are 
reflected in this evaluation, the NCCMP has convened a ``Retirement 
Security Review Commission'' comprised of representatives from over 40 
labor and management groups from the industries which rely on 
multiemployer plans to provide retirement security to their workers. 
The group began its deliberations in August of 2011 and meets monthly 
to evaluate their collective experience with current laws and 
regulations and develop ideas for reform and improvement.
    The group has identified the following key objectives:
     Ensure that any proposed changes to the law or regulations 
will allow the plans to continue to provide regular and reliable 
retirement income to participants.
     Reduce the financial risks to employers so that these 
risks do not encourage companies to leave the system or prevent new 
companies from joining the system.
    The Commission has established an ambitious time table for its 
deliberations with a target of developing legislative recommendations 
later this summer. We look forward to keeping your Committee staff 
apprised of our progress, and to discussing our recommendations when 
they are available. We are confident that labor, management, and 
government will be able to work together to achieve the necessary 
enhancements that will enable multiemployer plans to survive and 
continue to provide affordable, reliable and secure retirement income 
to future generations of Americans.
                                 ______
                                 
    Chairman Roe. Thank you, Mr. Shapiro.
    Mr. Ring?

              STATEMENT OF JOHN F. RING, PARTNER,
                  MORGAN, LEWIS & BOCKIUS LLP

    Mr. Ring. Chairman Roe, Ranking Member Andrews, and members 
of the subcommittee, thank you for the opportunity to 
participate in this hearing today. I am a partner with the law 
firm of Morgan, Lewis, and Bockius, and as part of my practice 
I am--I serve as management co-counsel to a number of 
multiemployer pension plans, and our firm represents dozens of 
multiemployer plans in traditionally unionized industries.
    In addition, I have negotiated on behalf of employers 
numerous collective bargaining agreements which set for the 
terms of and companies--the terms of companies' participation 
in and contributions to multiemployer plans. So I have had the 
benefit of seeing multiemployer plan issues both from the 
bargaining table and the trustees table.
    For more than 50 years multiemployer plans have played an 
important role in the overall retirement scheme of this 
country. In many unionized industries they are the retirement 
system for millions of Americans. And while many of these plans 
may be in good shape, like Mr. Sanders, the--there are 
significant numbers that are not and they are headed towards 
insolvency.
    Before discussing the plans themselves I would like to 
briefly talk about the companies that contribute to these 
plans. There is a tendency to focus exclusively on the plans 
and their beneficiaries, but consideration also needs to be 
paid to the companies that participate in and pay for these 
multiemployer plans. Without them the plans would be history. 
And if the financial burden to sustain these plans becomes too 
great then we run the risk of even more employers who provide 
good jobs with good benefits going out of business.
    Unfortunately, the number of companies that contribute to 
these plans has dwindled significantly in the past several 
decades. This has resulted in an ever increasing and in some 
cases unsustainable burden on those companies that remain.
    In some industries, increasing employer contributions to 
multiemployer plans is simply not a viable option. In order to 
comply with requirements of current law some plans would 
require--or set employer contribution rates at upwards of $20 
per hour. That is $20 per hour of each hour worked by their 
active employees. It is obviously unsustainable.
    So why, then, are some of the multiemployer plans in 
trouble now and how bad is it? I think boiled down to its 
simplest explanation the problem has been caused by a 
combination of four things: one, investment loss; two, rising 
liabilities due to low interest rates; three, serious 
demographic issues; and fourth, spiraling liabilities left by 
withdrawing employers.
    These four things have put some multiemployer plans on an 
irreversible path towards insolvency, and for some plans the 
collapse is closing in quickly and they are projected to run 
out of money within 5 years.
    Investment returns and interest rates over the last decade 
have ravaged most defined benefit pension plans, and 
multiemployer plans were no exception. I would point out that 
many of these plans now facing insolvency were in very good 
shape--some upwards of 100 percent funded--more than a decade 
ago.
    The economic downturn only exacerbated the significant 
demographic issues facing multiemployer plans. As the size of 
the country's unionized workforce in a number of industries has 
shrunk and continues to do so the ratio of retirees to active 
participants also continues to grow greater. And many of these 
retirees worked for companies who are gone or have withdrawn 
and are no longer contributing. And as such, the benefits of 
these retirees must be paid for by the remaining employers.
    What this has meant is higher employer contributions, which 
further threaten the financial viability of these last 
remaining contributing employers, many of which are already 
struggling because of the economy and because of the 
significant cost disadvantages they face vis-a-vis their 
nonunion competition. It has become a vicious cycle.
    Situations like the one playing out in the current Hostess 
bankruptcy will only make matters worse. There, the bankruptcy 
judge may allow that company to walk away from all of the 
multiemployer pension plans in which it previously contributed, 
and to do so with no withdraw liability. For a number of 
smaller bakery funds this will mean certain insolvency and will 
leave the remaining employers with substantial liability.
    So it is not a pretty picture for some of these 
multiemployer plans. And what is worse, for plans in critical 
status that have reduced future benefits to the maximum extent 
possible and have raised contributions to the maximum extent 
possible, there are simply no tools left that trustees can use 
to avoid the slide towards insolvency. And regrettably, there 
is nothing in the current law that gives responsible government 
agencies--the IRS, the PBGC, or the DOL--any ability to provide 
meaningful assistance to these plans prior to them running out 
of money.
    So looking forward what is the answer? With the sunset of 
the PPA provisions in 2014, failure to address the problem in a 
timely legislative solution will mean that these insolvent 
plans will end up at the PBGC sooner rather than later. That is 
the current law. This means that the status quo will result in 
the government taking on a portion of these liabilities when 
these plans become insolvent.
    Mr. Chairman, thank you for giving me the opportunity to 
testify and I look forward to answering any questions you may 
have.
    [The statement of Mr. Ring follows:]



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    Chairman Roe. Thank you, Mr. Ring.
    Mr. Henderson?

 STATEMENT OF SCOTT M. HENDERSON, VICE PRESIDENT & TREASURER, 
                         THE KROGER CO.

    Mr. Henderson. Chairman Roe, Ranking Member Andrews, and 
members of the subcommittee, thank you for this opportunity to 
testify today. My name is Scott Henderson. I am vice president 
and treasurer of the Kroger Company. I have responsibility for 
Kroger's pension investments and I serve as a trustee for one 
of the 33 multiemployer pension plans in which Kroger 
participates.
    Kroger is one of the largest retailers in the world, with 
total annual sales exceeding $90 billion. Kroger is also one of 
the largest unionized employers in the United States. Two-
thirds of our 339,000 associates are represented by labor 
unions.
    Kroger appreciates the funding discipline Congress imposed 
under the Pension Protection Act. We look forward to discussing 
ways to build upon those rules and ways Congress could make 
broader structural changes to the multiemployer system.
    Mr. Chairman, there are three points I would like to make 
today. My first point is to note that multiemployer plans are 
funded only by those employers that participate in these plans. 
That is why we often stress that this is an employer issue.
    It is sometimes believed that multiemployer plans are union 
pension plans and, hence, a union issue. While it is true that 
participants work under collective bargaining agreements, those 
who fund these plans are employers--businesses large and 
small--that employ millions of working Americans. As Congress 
considers legislation that would address multiemployer plans it 
is important to remember that a key objective is to help 
employers better manage their financial exposure to these 
plans.
    My second point relates to Kroger's obligations to fund 
retirement benefits of workers and retirees who never worked 
for Kroger. Kroger has promised to fund the retirement benefits 
that our associates have earned and we have kept this promise. 
But Kroger, along with other employers that contribute to 
multiemployer plans, should not be forced to fund or guarantee 
the pension benefits of workers and retirees who never worked 
for us.
    Under the current system, employers that remain in a 
multiemployer plan are financially responsible for the unpaid 
obligations of an employer that leaves the plan without funding 
its pension promises. Even if an employer pays everything it 
owes before leaving a plan the remaining employers are still 
financially responsible for the pension benefits of the exiting 
employer.
    This shifting of liabilities to remaining contributing 
employers is referred to as the ``last man standing rule.'' In 
those plans where the employer base has considerable declined 
the liabilities being absorbed by remaining employers are 
placing an unfair burden on these employers. In Kroger's case 
it is one of the main reasons why we could be required to 
contribute an additional $2.3 billion to fund pension benefits 
over the long term.
    This leads to my final point. The current multiemployer 
rules are ill-suited for today's economy. The rules limit 
companies such as Kroger from taking steps that would 
strengthen these plans.
    Despite these limitations Kroger has been innovative and 
forward thinking in our approach to multiemployer funding 
issues. Case in point: In 2011 we addressed some of our 
exposure by negotiating with our union counterparts to merge 
four multiemployer plans into a single new plan. Kroger 
contributed $650 million to accelerate funding of the merged 
plan, which increased its funded percentage from 73 percent to 
91 percent. These efforts have long-term benefits for both our 
shareholders and our retirees.
    While Kroger would like to be more proactive, the current 
rules limit our ability to take similar action with respect to 
other multiemployer plans. Admittedly, it is easy to identify 
problems with the current system. Coming up with workable and 
equitable ways to reform these rules, however, is difficult.
    But here are four broad concepts that Congress could 
consider: One, continue the funding discipline imposed in 2006 
by requiring bargaining parties and trustees to establish 
benefits based on available contribution levels and to 
eliminate current underfunding over a reasonable period of 
time. Two, give plans and bargaining parties more tools to 
address the current underfunding situation. Three, encourage 
the consolidation of multiemployer plans. And four, make plan 
information more accessible and transparent to contributing 
employers and participants.
    In closing, employers compete for the talent we need by 
providing competitive compensation packages that include a 
reasonable retirement benefit for long service employees. We 
can best keep that commitment by remaining a financially strong 
and growing company.
    Mr. Chairman, we look forward to working with this 
subcommittee and hope that you will view Kroger as a resource 
as Congress takes on these complicated issues. Thank you for 
the opportunity to testify and I look forward to answering your 
questions.
    [The statement of Mr. Henderson follows:]

          Prepared Statement of Scott Henderson, Treasurer and
                     Vice President, the Kroger Co.

    Thank you Chairman Roe, Ranking Member Andrews, and members of the 
Subcommittee for the opportunity to testify today. My name is Scott 
Henderson. I am the Vice President and Treasurer for The Kroger Co. 
(``Kroger''). I have responsibility for Kroger's pension investments, 
and I serve as a Trustee for one of the 33 multiemployer pension plans 
in which Kroger participates.
I. About the Kroger Co.
    Kroger is one of the largest retailers in the world, operating 
2,425 supermarkets, 789 convenience stores, 337 fine jewelry stores and 
37 food processing facilities. We have operations in more than 35 
states and sales of more than $90 billion. Kroger's net earnings margin 
is just over 1%, reflecting the highly competitive nature of the retail 
food industry.
    Kroger ranks 23rd on the list of Fortune 100 companies and has been 
recognized by Forbes as the most generous company in America. We 
support numerous charities and more than 30,000 schools and grassroots 
organizations in the communities it serves. Kroger contributes food and 
funds equal to 160 million meals each year through more than 80 Feeding 
America food bank partners.
    Kroger employs 339,000 associates. Approximately two-thirds of our 
associates are covered by roughly 300 collective bargaining agreements 
(``CBAs''), making Kroger one of the largest unionized employers in the 
United States. Kroger's primary union is the United Food and Commercial 
Workers International Union (``UFCW''), which represents almost 96% of 
our unionized workforce. Kroger's other unions include the Bakery, 
Confectionary, Tobacco, Grain Millers International Union (``BCTGM''), 
the International Brotherhood of Teamsters (``IBT''), the International 
Union of Operating Engineers (``IUOE''), the International Association 
of Machinists (``IAM''), the Service Employees International Union 
(``SEIU''), the United Steel, Paper and Forestry, Rubber, 
Manufacturing, Energy, Allied Industrial and Service Workers 
International Union (``USW''), and the National Conference of Fireman & 
Oilers (``NCFO'').
    Kroger contributes to 33 multiemployer defined benefit pension 
plans. In 10 of these plans, we account for 5% or more of the plan's 
total contributions. On average, Kroger contributes approximately $250 
million per year to these plans. However, as described in greater 
detail below, Kroger could be required to contribute an additional $2.3 
billion over the long-term (in addition to its contributions to cover 
current accruals) to fund pension benefits previously accrued under 
these plans.
II. What is a multiemployer defined benefit pension plan?
            A. General Overview
    A multiemployer defined benefit pension plan is a retirement plan 
to which more than one employer contributes. These plans are jointly 
managed by a board of trustees and funded pursuant to a CBA. 
Multiemployer plans were designed to serve as retirement vehicles for 
smaller employers and employers with mobile workforces, where 
employment patterns prevented employees from accruing adequate 
retirement benefits under traditional defined benefit pension plan 
sponsored by a single company. In other words, multiemployer plans were 
established so that workers' pensions could be portable as they moved 
from job-to-job within the same industry.
    Multiemployer plans are subject to the Labor Management Relations 
Act of 1947, otherwise known as the Taft-Hartley Act. These plans are 
also subject to the Employee Retirement Income Security Act of 1974 
(``ERISA'') and the relevant provisions of the Internal Revenue Code of 
1986. These plans are required to have equal employer and union 
representation on the governing board of trustees. In general, the 
bargaining parties (i.e., the employer and the union) negotiate the 
terms under which employer sponsors contribute to the multiemployer 
plan. The board of trustees determines the benefits to be provided by 
the plan, based on the level of plan contributions and actuarial 
assumptions. Although the trustees are selected by management and 
labor, they are required by law to act solely in the interests of plan 
participants.
            B. Withdrawal Liability
    Prior to the enactment of ERISA and the Multiemployer Pension Plan 
Amendments Act (``MPPAA''), an employer's obligation to a multiemployer 
plan was generally limited to the contribution obligation established 
in its CBA. In other words, a contributing employer's exposure to these 
plans was limited to the contribution it was required to make during 
the term of the CBA. Once it made the agreed-upon contribution, the 
employer had no further liability. Thus, if it terminated participation 
in a multiemployer plan following the expiration of its CBA, it did not 
have any further liability to the plan.
    In 1980, Congress enacted MPPAA. MPPAA was designed to address 
perceived problems with the multiemployer pension plan rules, including 
the possibility that an employer could terminate participation in a 
plan without having fully funded its share of plan benefits.
    MPPAA, in turn, strengthened the manner in which pension benefits 
were protected by requiring contributing employers that terminated 
their participation in a plan to make payments to cover their share of 
any unfunded benefits. This is known as ``withdrawal liability.''
            C. ``Last-Man Standing'' Rule
    When a withdrawing employer fails to pay its portion of the plan's 
unfunded liabilities--as is commonly the case with employers that 
become bankrupt or simply go out of business--responsibility for 
funding these unfunded liabilities is shifted to the remaining 
contributing employers. This is referred to as the ``last-man 
standing'' rule.
    Even in those cases where an employer exits a plan and fully pays 
its withdrawal liability, the remaining employers are still responsible 
for ensuring that there is adequate funding in the future to cover plan 
liabilities attributable to the exiting employer. Thus, if the plan has 
adverse investment experience, the remaining employers must ultimately 
fund the benefits of the workers and retirees of the withdrawn 
employer. For example, assume an employer leaves a plan and pays $100 
million in withdrawal liability (representing 100% of the amount it 
owes) but the plan suffers a 25% investment loss in the following year 
(as many plans did in 2008). Unless the plan experiences future 
``excess'' investment returns that make up the loss, the ``last-man 
standing'' rule requires the remaining employers to make up the $25 
million shortfall. In other words, the remaining employers bear the 
investment (and mortality) risk for benefits attributable to the 
workers and retirees of the employer that exited the plan 
(notwithstanding the fact that the employer paid its withdrawal 
liability).
            D. Implications of Withdrawal Liability and the ``Last-Man 
                    Standing'' Rule
    It is important to emphasize that the ``last man standing'' rule 
effectively saddles employers that remain in a multiemployer plan with 
potential liability for pension obligations of workers and retirees 
that never worked for the remaining employers, worked for a competitor 
of the employers, or who worked in a completely different industry than 
the employers. This shifting of risk to the remaining employers places 
an unfair burden on these employers, and depending on their financial 
condition, could threaten the continued viability of these companies.
    Not surprisingly, the ``last-man standing'' rule has effectively 
discouraged the entry of new employers into these plans. New employers 
do not want to join a multiemployer plan that could expose them to 
future withdrawal liability on benefits earned by employees of other 
employers, including benefits earned long before the new employer 
joined the plan.
            E. Multiemployer Plans and the Pension Benefit Guaranty 
                    Corporation
    Unlike single-employer defined benefit plans, the remaining 
employers in a multiemployer plan effectively guarantee plan benefits 
and the Pension Benefit Guaranty Corporation (``PBGC'') plays a 
secondary role. Thus, unlike troubled single-employer defined benefit 
pension plans--where the PBGC receives the plan's assets, assumes the 
pension liabilities, and pays out benefits in the case of a distressed 
plan--in the case of a multiemployer plan, the PBGC loans money to the 
plan to pay benefits when the plan becomes insolvent. If this occurs, 
the pension payments must be reduced to the extent they exceed the PBGC 
statutory maximum. Currently, the maximum PBGC multiemployer guarantee 
is $12,870 per year for a retiree with 30 years of service at normal 
retirement age.
III. Kroger's participation in multiemployer defined benefit plans
    Like many retail food employers, Kroger began participating in 
multiemployer plans in the 1960s--in an era during which its exposure 
to these plans was limited to the contribution it was required to make 
during the term of its CBAs. Thus, its decision to participate in these 
plans was made well before the transformational changes made by ERISA 
and MPPAA.
    Employers in the retail food industry operate distribution centers 
and food processing facilities and transport goods between these 
facilities and store locations. As a result of its transit operations, 
Kroger, like a number of food employers, became contributing employers 
to trucking industry multiemployer plans during the 1960s--at a time 
when trucking companies dominated participation in these plans. As a 
result of the dramatic consolidation in the trucking industry since the 
1980s, some of these plans have ceased to be trucking plans, and food 
and beverage employers--like Kroger--now represent the majority of 
contributing employers.
    The effects of the market consolidation in the retail food and 
trucking industry was keenly felt when the 2001 tech bubble burst. The 
combined effect of the market consolidation and those losses were 
exacerbated by the 2008 stock market crash. These market events, 
together with the dramatic consolidation that has occurred in the 
trucking and food industries and the structural problems inherent in 
the multiemployer rules that have discouraged new entrants into the 
plans, have led to the current funding concerns.
    As described in our annual report, Kroger could be required to make 
future contributions of an additional $2.3 billion (in addition to its 
contributions to cover current accruals) to fund previously accrued 
pension benefits under the multiemployer plans in which it 
participates. Approximately 70% of this exposure is attributable to 
five of these plans. Importantly, a large portion of the $2.3 billion 
that Kroger could have to contribute is attributable to workers and 
retirees who never worked for Kroger.
IV. Kroger as an industry leader
            A. Kroger's Proactive Actions to Address Underfunding
    Kroger has been innovative and forward-thinking in its approach to 
multiemployer pension funding issues. For example, in response to 
funding concerns, union and Kroger trustees have worked together to 
address the funding of the 11 multiemployer plans with a Kroger trustee 
through a combination of contribution increases and benefit 
adjustments. In addition, Kroger is a long-time proponent of 
multiemployer funding reform including increased transparency. Since 
2005, Kroger has made disclosures in its Annual Report with respect to 
its participation in multiemployer plans, including the theoretical 
estimate of its aggregated exposure to the underfunding in such 
multiemployer plans. Kroger supported the efforts of the Financial 
Accounting Standards Board for greater financial statement disclosure 
of multiemployer plan exposure.
    In 2011, Kroger acted to address underfunding of four UFCW 
multiemployer plans, in which it was effectively the ``last man 
standing,'' by negotiating the merger of these four plans into one, new 
plan. In this case, Kroger associates accounted for over 90% of the 
active participants in these plans (which covered almost 30% of 
Kroger's represented workforce). Together, the four plans had a current 
market value funded ratio of about 73% and over $900 million of 
unfunded liabilities, about $200 million of which was attributable to 
workers and retirees who had never worked for Kroger (i.e., amounts 
that were shifted to Kroger on account of the ``last-man standing'' 
rule).
    As part of the merger, Kroger agreed to accelerate its share of 
funding to the plan and fund the liabilities attributable to workers 
and retirees of employers that previously exited the plans. Kroger also 
made a long-term commitment (until 2021) to a defined benefit plan that 
is designed to provide competitive retirement benefits for career 
Kroger associates covered by the new consolidated plan. In January, 
2012, Kroger contributed $650 million to facilitate the merger of the 
four plans and to eliminate most of the current underfunding. As a 
result of this contribution, the new consolidated plan's current market 
value funded ratio rose from approximately 73% to 91%.
            B. Structural Impediments Prevent Faster Funding of 
                    Underfunded Plans
    Notwithstanding these efforts, Kroger still faces significant 
exposure from underfunded plans, as do hundreds of other employers. The 
current funding structure of multiemployer plans discourages companies 
like Kroger from addressing those plans in which Kroger is not the 
dominant contributing employer. This is because the current funding 
rules effectively prevent employers like Kroger from eliminating their 
share of plan underfunding, unless the other contributing employers can 
be persuaded to take similar action (or the plan attempts to address 
the issue through special withdrawal liability rules and contribution 
agreements).
    For example, the actions Kroger took last year to address 
underfunding in four of its multiemployer plans would be difficult to 
replicate for plans in which Kroger is a significant, but not dominant, 
employer. Special contributions--such as the $650 million contribution 
Kroger made to the new consolidated plan--would improve the overall 
funding of the plan but would effectively benefit all contributing 
employers. However, unless other contributing employers can be 
persuaded to make special contributions, there is little reason for 
Kroger to unilaterally fund these plans. To illustrate, if Kroger is an 
equal participant in a multiemployer plan with four other employers, 80 
cents of every additional dollar Kroger contributes towards the current 
underfunding would serve to reduce the overall plan liability of other 
contributing employers, and would actually increase Kroger's share of 
the plan's remaining unfunded benefits if Kroger were to withdraw.
    In the case of the new consolidated plan, Kroger took action only 
after concluding that because it was already the ``last man standing,'' 
the advantages of plan consolidation outweighed the cost of the 
additional contribution dollars. While special withdrawal liability 
rules and contribution agreements could be fashioned to encourage 
others contributors to follow Kroger's example, these steps would have 
to be voluntarily adopted by the plan trustees and cannot completely 
address all of the impediments to accelerated funding under current 
law. Unless other contributing employers can be persuaded to make a 
similar contribution, the current system effectively discourages 
employers from committing significant dollars to address underfunding 
in these plans.
V. Suggested concepts Congress may consider
            A. Continue Funding Discipline Inherent in PPA Rules
    The Pension Protection Act of 2006 (``PPA'') was designed to impose 
discipline on pension funds and bargaining parties to ensure that the 
bargaining parties and plan trustees acted responsibly and established 
reasonable benefit and contribution levels. The PPA also provided 
needed transparency for multiemployer plans. Prior to PPA, even large 
employers like Kroger had difficulty securing information about the 
plans to which they were contributing. Although the PPA included rules 
requiring funding discipline and additional transparency, it did not 
change the basic structure of the multiemployer pension plan rules 
(e.g., withdrawal liability or the ``last-man standing'' rule).
    The PPA rules applicable to multiemployer pension plans are 
scheduled to sunset at the end of 2014. Congress should act to continue 
the funding discipline imposed by the PPA by requiring bargaining 
parties and plan trustees to establish benefits based on available 
contribution levels, and to eliminate current underfunding over a 
reasonable period of time. However, the tools currently available to 
plan trustees, employers and unions wishing to responsibly address plan 
underfunding issues have proven to be insufficient. The parties will 
need greater flexibility in order to develop and implement the 
necessary measures to address the underfunding issue in a mutually 
satisfactory manner.
            B. Greater Flexibility
    Multiemployer plans, labor unions and employers are working 
together to develop policy recommendations that would address the 
current underfunding of multiemployer plans. Because such a substantial 
proportion of our workforce relies on these plans to secure their 
retirement, and because Kroger has had to devote significant resources 
to fund the benefits of other workers in these plans, Kroger is deeply 
invested in finding a solution to these challenges. Kroger is committed 
to being part of the problem-solving process.
    What is clear is that multiemployer plans and bargaining parties 
must be provided with greater flexibility to address the underfunding 
situation. Given the unique circumstances of each plan, the parties 
should be afforded as much flexibility as possible. For example, the 
fortunes of some plans could be improved by encouraging consolidation 
as a means of promoting greater efficiencies and reducing expenses.
    Plan trustees, unions and employers should be encouraged to take 
responsible steps to place underfunded plans on solid footing. The 
parties need support and flexibility so they can determine the best 
course of action to improve their funding situation. There is no easy 
solution to this problem, and the way forward is unclear. But solutions 
exist, and by working together, we can secure the retirement benefits 
our employees are counting on.
            VI. Conclusion
    Kroger applauds this Subcommittee for its leadership in holding 
this hearing and beginning the process of addressing the structural 
problems facing the multiemployer system. We are grateful for the 
opportunity to tell our story, and we look forward to working with you, 
the multiemployer plans and labor on a solution that will ensure the 
continued viability of the multiemployer system.
                                 ______
                                 
    Chairman Roe. I thank the panel. As I said, you all laid 
out the problem very well.
    It is the solution that is going to be the problem, as you 
said, Mr. Henderson, and I want to tell you, you have my full 
attention, and that we will--that you have my promise to work 
with you all as best we can to help find some solutions here.
    So let me start by saying that I started out my career in a 
defined benefit program, and we changed to defined contribution 
program 25 years ago because we saw we couldn't fund it. And I 
served on the pension committee in my practice, which has 100 
providers and 450 employees. So I do have some experience 
there.
    I was also mayor of our local city, and what I noticed was 
that we were--when I started in 2003 as a city commissioner we 
were paying 12 percent of payroll in retirement, and when I 
left in 2008 it was up to 19 percent to come to Congress. And 
Ms. McReynolds has laid it out, and I want to start--we 
realized we could not continue that. The tax--future obligation 
to taxpayers was unsustainable.
    So now our city--actually two cities in my district--have 
changed to a defined contribution plan and capped those 
liabilities. So that may be something you have to look forward. 
I realize these are contractually done in a--in union 
contracts, and you have to--obviously to sustain those.
    Ms. McReynolds, I was fascinated by your comments and how 
much--$10.17 an hour in pension costs and $17,000--that is an 
astonishing amount of money, and quite frankly, it is to make 
up a previous liability. If you put $17,000 per employee they 
would--everybody in your business would retire multiple 
wealthy.
    So how do we--I am going to start with you and then, Mr. 
Henderson, I want you to chime in, because you are out there 
trying right now to run your businesses and not go broke. So I 
am going to start with you. What suggestions do you have? And I 
heard Mr. Henderson's four ways.
    Ms. McReynolds. Well, I think, you know, you heard a 
variety of comments, you know, across the witnesses that are 
testifying here today, Mr. Chairman, and, you know, I 
appreciate the perspective of others and other plans. You know, 
our specific issues relate to the trucking industry, and, you 
know, really what you had in 1980 when these rules came into 
place--you know, the deregulation of the industry and then the 
ERISA rules that caused us to have responsibility for employees 
who never worked for us, you know, the industry was much 
different.
    Over time we have had the failure of a number of companies 
that were former contributors to these plans, and the current 
situation is that we are acting as the PBGC for the trucking 
industry. Our primary solution, you know, needs to involve 
eliminating an obligation for orphaned retirees who never 
worked for our company.
    Chairman Roe. What percent of your--you may have said it; 
you had a lot--what percent of your contributions are for 
orphaned employees?
    Ms. McReynolds. We believe that it is between 40 and 50 
percent. We know 50 percent of our contributions go to Central 
States. We have had factual information come from them that 
suggests that 50 percent of our payments are for orphaned 
retirees. The other funds have not given us the direct facts, 
but we believe across the board it is similar, so I would say 
between 40 and 50 percent of what we pay----
    Chairman Roe. Significant amount.
    Ms. McReynolds [continuing]. A significant amount. It is 
north of $60 million a year for people who never worked for our 
company. So our best solution is going to involve a solution 
for those retirees of defunct employers----
    Chairman Roe. So here your business is. You are trying to 
compete in this market----
    Ms. McReynolds. Right.
    Chairman Roe [continuing]. With a huge disadvantage 
financially to try to go out and get a contract.
    Ms. McReynolds. That is right.
    Chairman Roe. Mr. Henderson, I would like you to comment.
    Mr. Henderson. Well, to the last point, we also compete in 
a highly competitive industry and many of the new entrants in 
our industry are not--do not work under collective bargaining 
agreements, which adds additional pressure to our business.
    I guess the best way for me to answer that question is 
probably from my experience as a trustee on these multiemployer 
plans. First comment I would make is that I appreciated as a 
trustee the provisions of the Pension Protection Act. When a 
plan goes in the red zone status and that clock starts running 
it puts the necessary pressure on trustees to collectively 
cooperate and come up with solutions, which I think we have 
done.
    And in the case that we are talking about here it is clear 
that the last man standing, or the implication of orphans, is a 
major problem in these plans, and in fact, in our case the four 
plans that we consolidated last--well, January 1st of this 
year, they collectively had approximately $3.5 billion worth of 
liability, and almost $1 billion of that liability came from 
orphans in those plans.
    Chairman Roe. My time is expired.
    I am going to ask a question later, Mr. Sander, why you 
believe that plan--your plan is financially solvent. You can't 
answer it right now because my time is expired, but I am going 
to come back.
    Mr. Andrews?
    Mr. Andrews. Thank you.
    This is a refreshing panel because not only did you lay out 
the problem but many of you started to talk about the solution. 
I would like to follow up on that.
    Do we have a consensus here this morning that court 
decisions or law that would let companies walk away from their 
liability in bankruptcy--that is, discharge those liabilities 
in bankruptcies--is undesirable and should not be the law? Does 
everybody agree with that?
    Mr. Sander. Think so.
    Mr. Andrews. You should not be able to discharge these 
departure liabilities in bankruptcy. Does anybody disagree with 
that?
    Okay. That doesn't make the present problem any better but 
at least it keeps it from getting a lot worse. It would be 
catastrophically bad, in my opinion, if that happened.
    Number two: Mr. Shapiro outlined that we had 20 percent of 
the plans in the green zone I guess the beginning of 2009. That 
has migrated to about over 60. So something is working.
    Does everybody agree at least thematically that we should 
take the incentives in the 2006 law that helped make that 
happen and reconsider those and maybe strengthen them some? 
Everybody agree with that, at least conceptually? Okay.
    Here is the hard one: I think there are some plans for whom 
those incentives don't work because they have a huge cash flow 
problem, and I think really that is what Ms. McReynolds is 
talking about. We could say that, you know, you have 2 years to 
get from red to yellow and 2 years to get from yellow to green 
and I think that might put your trucking company out of 
business, and it would hurt Krogers big time.
    So what we don't want to do is kill the goose that is 
laying the golden egg. So I think there are some plans for 
which there is a cash flow problem here that the present 
contributors are just not going to be able to handle on their 
own. Does everybody agree with that presumption?
    Ms. McReynolds. Yes.
    Mr. Andrews. Okay.
    Would it help solve that cash flow problem if there were a 
credit facility available that would help the fund--in effect, 
literally put cash into the fund, borrow it, put it in, and 
amortize that cash over the future in order to reduce present 
contributions? Would that be a good thing?
    Yes. I don't think your mike is----
    Ms. McReynolds. Yes. I would like to speak to that.
    The way that additional funding could help is if it does 
result in reduced contribution levels for employers.
    Mr. Andrews. Let's say that----
    Ms. McReynolds. I mean, you have to have the----
    Mr. Andrews. Let's say that we wrote a rule that said that 
is the only way you could borrow the money, that the only way 
that you could borrow it would be if the proceeds went 
exclusively to buy down the contribution for present 
employees--or employers, rather. Would that work?
    Ms. McReynolds. Again, if it resulted in us no longer 
having to bear the burden of employees that never worked for 
us----
    Mr. Andrews. What would a----
    Ms. McReynolds [continuing]. That would be a good----
    Mr. Andrews. You have estimated that as maybe 40 percent of 
your contributions?
    Ms. McReynolds. Yes.
    Mr. Andrews. Let's say purely hypothetically we were able 
to knock that 40 percent down to 10 by taking some of the 
pressure off in cash flow. What would that do for your trucking 
company?
    Ms. McReynolds. That would be a substantial improvement 
from where we are today.
    Mr. Andrews. What would that do for Krogers?
    Mr. Henderson. Well, in our case--the best example I 
suppose I can give is the consolidation that we achieved in 
late 2011. In the four plans that we consolidated those plans--
we were the overwhelming contributor. We were, in fact, the 
last man standing.
    Under the rules of PPA all those plans were in the red 
zone, so we had enacted--the trustees had enacted certified 
rehabilitation plans.
    Mr. Andrews. Right.
    Mr. Henderson. And if you added them all together Kroger 
was, over the course of 7, 8, 9 years, largely responsible for 
funding all of the unfunded liability. Realizing we had that 
liability and realizing that as one of the last remaining 
conventional retailers--grocery retailers in the United States, 
given our strong balance sheet, we actually concluded that we 
could go to the regular capital markets and borrow money at a 
rate that was very favorable to us.
    Mr. Andrews. So I think we have a sort of three-tier issue 
here. We have got some plans like the ones that you are in, Mr. 
Henderson, where the capital markets, of their own volition, 
might put up some of that money. There would be a second tier 
where they wouldn't but perhaps consideration of a--some 
guarantee would draw them into that marketplace.
    And there is a third level where they wouldn't at all 
because they are in such trouble, and that suggests that we at 
least consider some kind of publicly provided credit facility 
that might get you out from under this. And I would just 
outline this as an analytical way of looking at this.
    I would also say this to you: I don't think anybody should 
have--any plan should have access to either the guaranty 
facility or the direct loan facility unless it makes the kind 
of reforms that you are all talking about here, unless it maxes 
out internally on what it can do. But I think it might be a way 
to go after that group that is the--that is really hurting and 
find a way to get them over the hump, and I would be interested 
in exploring that idea with you.
    Thank you.
    Chairman Roe. I thank the gentleman for yielding.
    Mr. Rokita?
    Mr. Rokita. Thank you, Mr. Chairman. I would like to yield 
as much time as you would like to consume to you, sir, so you 
can follow up your questioning.
    Chairman Roe. Mr. Sander, obviously your--the plan you 
represent is relatively healthy, and obviously what would make 
all these plans relatively healthier would be about a 10 or a 
15 percent improvement in the stock market, and interest rates 
changing would help a lot.
    But what is the difference between yours--I think I 
understand it, but for the record I want you to explain the 
difference between what Ms. McReynolds is experiencing and 
maybe Mr. Henderson, and what you have experienced.
    Mr. Sander. Sure. First of all, I would like to thank Ms. 
McReynolds for the footnote in her testimony which referenced 
our plan and was very complimentary about the funding levels 
that our trustees have maintained.
    I really don't have the experience or the knowledge to 
speak to other plans other than the Western Conference, but I 
can give you an idea about, having been in this position since 
1992, the steps that our trustees have taken. Maintaining 
strong funding has always been the guiding principle of the 
Western Conference Plan, and the trustees have always, if you 
will, lived within their means when it came to using reasonable 
actuarial assumptions and investments assumptions and then 
structuring the plan of benefits so that if we received 
reasonable investment returns they were not going to be 
creating unfunded liability for employers.
    I think the other thing that is so critical is our 
trustees--labor and management, working together--have always 
made hard decisions about the structure of the plan when it was 
necessary. The dot-com bust, frankly, was a really difficult 
time for plans. Not as difficult as 2008, but difficult. And 
out trustees, actually at the union's suggestion--union 
trustees' suggestion--met and cut the accrual rate for future 
benefits, the earnings formula, proactively so that the plan 
could return back to full funding as quickly as possible.
    So that level of cooperation has always been a real 
trademark of the Western Conference Plan.
    We are fortunate to have a diversity of employer industries 
so that if, for instance, construction falls on hard times for 
a year or 2 we will find another industry--food--that is very 
steady or is growing, and this has really provided a cushion 
for us and it is a real strength for our plan, and other plans 
lack it. And we have been very open with our employers; we are 
very open with the local unions. We are very, very transparent.
    We have always taken the position that we want to be the 
plan of choice. You mentioned, Mr. Chairman, your own personal 
experience. We have a lot of small employers in our plan. We 
have gone out, met with these employers at their request, we 
have said, ``Look, this defined benefit formula is the best 
place for your employees to be. If you bargain this rate of 
contribution, we stay well funded, then that is all we are 
going to be asking of you. Pay it accurately, pay it timely, 
and we will take care, on the trustee end, of producing a good 
family of benefits for your employees.'' And that has really 
worked successfully for us.
    Chairman Roe. I think one of the things that has happened 
is when the actuaries have assumed a 7 percent accrual rate, 
and that is just not--certainly in the last 10 to 12 years it 
hasn't been. The 1990s, yes, but the last 10 or 12 years--now, 
Mr. Shapiro pointed out, I think, the perfect storm, when the--
the 1990s, when things were going along just great, when you go 
over 100 percent funded then the employer was punished if they 
put more in, and that created a perfect storm where you 
couldn't get it--there are going to be peaks and valleys and we 
haven't rejected the economic cycle. It will go up again; it 
will go down again. So we have to be able to get through those 
times, and I think that is something I am going to look 
strongly at is to allow those deductibilities to go to be 
overfunded for a little while. I mean, some plans went years 
without putting any money in there.
    I am going to yield back to Mr. Rokita. I didn't mean to 
use all of his time.
    Mr. Rokita. Thank you, Mr. Chairman.
    Appreciate everyone's testimony.
    Mr. Henderson, I particularly appreciate you being here. My 
father-in-law was a Kroger union truck driver for 30-some 
years, although I think I botched that number exactly. So 
really appreciate--I learned a lot through him and I learned a 
lot through all your testimony here today.
    If I can get this question in really quick to Mr. Ring, 
however: Your testimony painted a sober picture of the 
situation facing PBGC. Program has a deficit of $2.8 billion 
and you say it is reasonably possible that it will take an 
additional $23 billion in obligations to multiemployer plan 
participants.
    Can you explain how and when PBGC provides financial 
assistance to insolvent plans?
    Mr. Ring. Yes. As a plan becomes insolvent it is actually a 
pretty orderly transition. Notice is provided to the 
participants, benefits are cut to what is known as the PBGC 
minimum, and the plan then starts paying benefits at a lower 
rate, so there is an automatic benefit reduction. And then the 
plan trustees petition for essentially what the law refers to 
as a loan from the PBGC, and the PBGC picks up payment for all 
those pension benefits going forward.
    Mr. Rokita. Thank you. Time is out.
    Chairman Roe. I thank--Mr. Rokita.
    Mr. Kildee?
    Mr. Kildee. Thank you, Mr. Chairman.
    Mr. Shapiro, can you discuss how more investment in 
international markets would affect the long-term stability of 
multiemployer pension plans. There has been discussion of 
broadening out the investments. Have you done any looking at 
that or how that may affect it? We are living in a global 
economy. Does that pose too many dangers or might it have some 
opportunities?
    Mr. Shapiro. That question actually has come up a fair bit 
in our Retirement Security Review Commission. One of the steps 
that we took early on in that process was to invite several 
investment experts from various firms to talk to us about what 
they see happening in the equity markets in the coming decades 
with the particular question that we put to them, which is, 
many of our funds are assuming or looking forward to, in their 
budgets, 7 or 7.5 percent return and we wanted them to tell us 
if they felt that that was reasonable going forward. Certainly 
historically it has been very reasonable over the long term, 
but that is not the same question. Is it reasonable going 
forward?
    And all of them, you know, gave us the answer. They felt 
that it was but they all caveated the answer with some 
qualifications, as investment people tend to do, and what they 
said was that in order to achieve that going forward you really 
need to be looking, you know, more globally than you have been 
historically, that there is a need to diversify assets outside 
of traditional U.S. equity markets and to look for more 
innovative strategies that involve foreign countries and also 
innovative strategies domestically.
    So it is certainly our belief that if our plans are going 
to achieve those levels of return going forward that it would 
help them to embrace a more global approach to investing. And 
plans have already been doing that. If you look back over the 
past 5 or 10 years, multiemployer plans have absolutely been 
gradually increasing their investments internationally. I think 
that is a good trend and one that I see continuing.
    Mr. Kildee. You at the table down there, you have an 
enormous responsibility. We have an enormous responsibility. I 
have been on this subcommittee for 36 years and I am leaving 
this subcommittee--leaving Congress--at the end of this year. 
And how well or not well have we done?
    What are some of the good things--what are some of----
    Mr. Andrews. Has the gentleman's time expired? I worry 
about that answer.
    Mr. Kildee. They can answer my question, can't they?
    Anything good that you say we--yes, Mr. Shapiro?
    Mr. Shapiro. I think PPA was in large part a very good 
thing. The Pension Protection Act--I wish I could remember who 
said this, because I quote it all the time and I feel like I am 
not giving proper credit, but in the multiemployer world the 
Pension Protection Act, in many ways, legislated good practice. 
It didn't really create new ideas that plans should have been 
doing--we felt that plans always should have a long-term 
focus--but under the rules prior to PPA there was effectively 
an option for plans to kind of look very short-term at their 
picture and not look ahead.
    PPA put in place rules that said, ``You can't do that 
anymore. You must look forward.'' And that, I think, is the 
strongest thing about PPA, and I regard that as being a 
tremendous improvement to our system.
    Mr. Kildee. Well you give me some comfort, then, as I leave 
Congress. We did do something well there. Thank you.
    Mr. Sander. I could speak to that, too. Thirty-six years 
brings you almost back to the passage of ERISA itself, and 
Congress has taken a focus on retirement security and 
recognized it as a very important objective. The PPA--I agree 
with Mr. Shapiro--was a necessary and a good framework to carry 
us forward into this century and the needs.
    One of the real privileges I get in this job is to meet 
with some of our plan participants who are--who have been in 
this plan and receiving benefits sometimes for decades. We have 
over a dozen that are 100 years old and older, and I--we have a 
large group that are in the 90s and heading toward that 100 
year old.
    When you meet with these folks again the universal comments 
that we get is they are grateful for the security of the plan, 
they are grateful for the structure, they are grateful for the 
fact that the plans are built in a way to provide real 
retirement security. And all of this, of course, on the defined 
benefit end comes from the work of ERISA and from the 
subsequent legislation, and we certainly see it every day in 
our work.
    Mr. Ring. I don't want to be--if you don't mind--I don't 
want to be a downer on that, but the one area where I think 
Congress, and frankly, the industry has not addressed the 
problem is really dealing with these particular industries 
where the demographics have left the plans with a substantial 
number of what has been referred to as orphans. And it is an 
issue that really needs to be addressed. There are many funds 
that are--have a diverse population, many employers, but there 
are a number of funds that don't, and the current employers are 
saddled with the burden of really, as Ms. McReynolds says, 
being the PBGC for the rest of the industry.
    Mr. Kildee. Thank you very much.
    Thank you, Mr. Chairman.
    Chairman Roe. I thank the gentleman for yielding and for 
his 36 years of service.
    Dr. Bucshon?
    Mr. Bucshon. Thank you, Mr. Chairman.
    Ms. McReynolds, your testimony noted several quotes from 
the financial analysts who are concerned about ABF's exposure 
to multiemployer plans. A recent Credit Suisse analysis painted 
a stark picture for these plans.
    Regardless of whether you agree with the report or not, is 
it fair to say that financial analysts and eventually the 
financial markets take these liabilities into account when 
looking at your stock prices, determining stock prices?
    Ms. McReynolds. Absolutely fair. It is the case that they 
do. You know, there are times when it is a higher profile 
issue, and obviously, you know, upon the heels of the Wall 
Street Journal article and, you know, the time after that, you 
know, there are, you know, many more questions about it, but 
one thing that it does in terms of our company--I meet with 
shareholders often--is it is a complexity. It is a nonsensical 
result that we have that we have to pay for people who never 
worked for us, and that it is a tremendous difficulty for 
someone who is trying to understand the direction of the 
company, you know, what impact that can have on the company 
going forward.
    And I believe our company has done a tremendous job over 
the years in addressing that, but going forward, an increasing 
burden there, or a continuing burden there, is going to, you 
know, have an impact on our company that I think others in the 
industry and the shippers don't want it to have because our 
company is a high-quality carrier and wants to remain that.
    Mr. Bucshon. Mr. Henderson, are most of the people in the--
your competitors--do they have defined contribution plans or 
defined benefit plans? I mean, what are the new people getting 
into this type--I am assuming there are always businesses 
coming into and out of your industry. What is the trend? 
Because it seems to me nationally the trend is defined 
contribution plans. Is that true?
    Mr. Henderson. Yes. That would be the trend among newer 
entrants into our industry.
    Mr. Bucshon. I yield back.
    Chairman Roe. I thank the gentleman for yielding.
    Mrs. McCarthy?
    Mrs. McCarthy. Thank you.
    And I appreciate everybody's testimony, and it is very 
refreshing to have everybody at the table agreeing that we need 
to look at something. I actually had voted for the--in 2006, 
the passage of the Pension Protection Act. One of the things, 
unfortunately, that we couldn't get into it was making it more 
flexible that if you were having good years to be able to put 
more money into it.
    Most of us kind of look that way when we are saving for our 
future, ``Hey, it is a good month. I can put another $50 
away,'' or something like that. I hope that we are able to look 
at that, because I do believe that we will come back and we 
will see, possibly--interest rates going back to 7 to 8 
percent, but that is going to be down the road, so it is 
unrealistic for anybody to expect. I am hoping that I get 4 to 
4.5, to be very honest with you, especially at my age.
    One question I would like to ask, because I have a 
curiosity--and I know you all--and I am not talking about what 
everybody gets, but the average retiree that retires today, 
what would their average pension be when they retire, if they 
retire at 65?
    Mr. Shapiro?
    Mr. Shapiro. I brought with me my book just in case such a 
question might come up. We have some survey data that I don't 
have memorized but I can certainly reference for you.
    The NCCMP started about 3 years ago a survey that we send 
to all multiemployer plans asking them some very basic 
questions about what is going on in their plan and we compile 
the results annually in a report. The first year we did this 
was in 2009. We got a spectacular response that year. We had 
nearly 400 plans respond out of a universe of about 1,400 
plans, which exceeded our wildest expectations.
    And if you give me just a moment to find the right page I 
will quote the number for you. From that report the median 
benefit paid to a multiemployer plan participant from those 400 
plans, which we believe is representative of the whole 
universe, was approximately $900 per month.
    Mrs. McCarthy. $900 a month.
    Mr. Shapiro. $900. So the point there being that by and 
large, you know, these plans are paying very modest benefits to 
people; they are not exorbitant.
    Another measure to look at is, you know, obviously a large 
portion of the retiree population is older, retired many 
decades ago, so we also asked the question, ``What is the 
average benefit you are paying to someone who retired in the 
past year,'' to get a better sense of current benefit levels. 
And there the answer was approximately $1,400 per month. So 
certainly more of a reasonable amount, but by no means 
exorbitant.
    And with that--Mike, do you have some numbers----
    Mr. Sander. Yes. I speak specifically to the----
    Mrs. McCarthy. Mr. Sander, I know you are going to answer 
that question, but I also want to say that I am very impressed 
on the Western Conference Plan. You seem very realistic.
    What I am asking is, when you--let's go back to 2008. What 
were you basically projecting as a possible interest rate? Were 
you looking at the 7 or 8 percent or were you----
    Mr. Sander. In 2008?
    Mrs. McCarthy. Yes.
    Mr. Sander. Seven percent has been our assumption for a 
period of time.
    Mrs. McCarthy. Okay. Go ahead and, you can finish the other 
part of the question.
    Mr. Sander. I was just going to mention that from our 
plan's standpoint it--our average benefit for a normal retiree 
at age 65--and it does range--ranges because of the 
contribution rate, which can be, obviously, a factor in driving 
it----
    Mrs. McCarthy. Sure.
    Mr. Sander [continuing]. Is closer to $1,200 to $1,300 a 
month. We have some that are quite a bit higher due to higher 
contribution rates and longer lengths of service.
    We also have a food processing component, which has been a 
history in our plan for--almost since its inception, where the 
contribution rate is very low but individuals still receive a 
regular monthly benefit, albeit lower, out of that industry, 
which is very valuable to them.
    Mrs. McCarthy. And the other question I would like to ask 
is, obviously there are certain--depending on how you are 
working--we work in Congress--I worked as a nurse for over 32 
years before I came here; I probably wouldn't be working as a 
nurse at this particular time in my life because of my age, but 
being that you work with unions, because unions are in all your 
plans, from what I understand, and if they are construction or 
whatever--physical hard work--what is the average age of those 
people actually going in to look for retirement?
    Mr. Sander. To our plan specifically, again, the age is 
about 61 years is the average retirement age--the people draw 
their benefit.
    Mrs. McCarthy. Because I am only thinking of my two kid 
brothers who are about ready--one has retired and he is 6 years 
younger than me, and the other one will probably retire by at 
least 62, only because physically their legs are gone, their 
hips are gone, their knees are gone. Both of them just had 
their knees done in the last 2 weeks. So that is a 
consideration, too, isn't it, as far as having a defined--as 
far as having to make sure that they have some sort of 
insurance before they can start collecting, going on Medicare, 
going into--collecting Social Security, even?
    Mr. Ring. In many of the transportation funds--or plans, 
the retirement age--eligibility for retirement age is much 
lower, and you have people retiring, you know, early 50s, 
sometimes earlier. And that is largely because it is a very, 
very physically demanding job, but that means somebody is going 
to be receiving a pension for the next 40, 50 years.
    Mrs. McCarthy. Police officers, too.
    Mr. Ring. Correct.
    Mrs. McCarthy. It is mandatory that they retire at a much 
earlier age than most people do. But you are right, these are 
things to be considered, but I definitely am interested in the 
Western Conference Plan to look at as a model and the 
flexibility that obviously we are going to need.
    Thank you. I yield back my balance of my time.
    Chairman Roe. I thank you for yielding.
    And, Ms. Noem?
    Mrs. Noem. Thank you, Mr. Chairman.
    And my question would be for Mr. Sander. I know that you 
are tasked with the responsibility of not only representing the 
employees and the employer trustees, but also the labor and 
union trustees, as well, when you make management decisions, 
and I was wondering if you would briefly describe that for us, 
how you strike that balance in making those decisions about the 
plan, how you represent management and labor at the same time, 
and also how you represent the plan's participants?
    Mr. Sander. One of the privileges of working on this plan 
for a long as I have is to watch this board of trustees in 
operation. As I mentioned before the funding integrity of the 
plan has always been job one, principle one for this board. And 
as a result of that I think it has really engendered a pride in 
what this plan has accomplished over the years and what it is 
accomplishing.
    So we have an employer chairman, who represents the 
management side of the board; we have a union chairman that 
represents the union side. They work together every day in 
trying to strike balance in the various interests of moving the 
plan forward.
    And then we have a variety of committees. We have a very 
intensive committee structure that has delegated authorities 
from the board to investment committee, plan design committee.
    These types of committees work together. They are equal 
number of employer and union trustees on the committee. They 
make recommendations up to the full board. And this has worked 
very effectively for us.
    As far as the participant end, I cannot remember a time 
when some decision was in front of this board and the question 
was raised, ``Remember, we act in the best interest of the 
participants. Let's be sure we have got that covered first 
before we go to the secondary considerations.'' So that really 
has always been the touchstone for this plan.
    Mrs. Noem. Okay. Well, thank you. Just as a quick follow 
up, then, having access to plan financial information is 
important, but also not only to multiemployer plan participants 
but also to employers who are deciding whether to participate 
in that plan. So what steps--what action steps does the Western 
Conference Plan--have you taken to ensure that its financial 
information is transparent, that it is open and accessible to 
both the employees and the participants that are effected?
    Mr. Sander. We have taken a number of steps. Transparency 
is something we feel very strongly about. As I mentioned 
before, we always feel the more you look at this plan--
employer, union, participant--the better you are going to like 
it.
    So our main source of disseminating information right now 
is our Web site, which receives several thousand hits a month. 
And we have posted on there the last 3 or 4 years of audited 
financial statements, actuarial reports, Form 5500s, and 
contact information if the interested party wants to inquire 
further.
    We also put our annual funding notices and any other 
information which becomes available. It is on there the next 
day, as soon as it is published by the appropriate party.
    We also do a variety of meetings. When an employer is--
fact, I just offered Ms. McReynolds a meeting in Fort Smith, 
Arkansas. We are ready to come out and lay out what this plan 
is about--our objectives, our history, how our funding is 
structured--meet with the employer community, as we do with the 
union community and participants, to be sure they understand 
what is going on with the plan and their confidence in the plan 
can remain strong.
    Mrs. Noem. Well, thank you. I appreciate that.
    Mr. Chairman, I yield back.
    Chairman Roe. I am going to take a prerogative of having 
a--if anyone has anymore questions--a second round of 
questions, this is such an important issue.
    And you have taken your time to come so I want to be sure 
that we get all--extract all the information we can.
    I certainly understand this problem from a personal 
standpoint. I had a father that was a factory worker who at 50 
his job went offshore--went to Mexico. He actually ended up, 
after 30 years, after World War II with this plan, with 
essentially no pension plan. So I know what it is like as a 
family to be left out in the cold like that, and when you make 
a promise to people you ought to keep your promise.
    But the other side of that, and also, Mr. Sander, one of 
the things I found being on our pension committee at work, I 
was very interested in it doing well because that is how I was 
going to retire. So I had a vested interest in that plan doing 
well, as I am sure you have a vested interest in your plan 
doing well.
    I think the problems that I can see--and I think--the 
ranking member and I have been talking about some solutions up 
here, is the commitment to a defined benefit. That is a safety 
net, and certainly these payments are not overly generous. They 
are to keep you out of poverty when you retire and you worked 
somewhere for many years.
    I know I felt an obligation to my employees to provide them 
retirement. If you work for me for 30 years I want you to be 
able to retire and have a comfortable retirement in your 
future. I felt a moral responsibility to do that. So we do 
agree with we want to make sure we keep those promises.
    It looks like some of the problems is with the orphan 
employees you have got more people now receiving benefits than 
are paying in, as Ms. McReynolds clearly pointed out. I think 
the rate of return assumptions ought to be actuarially looked 
at, not so generous.
    I think that you have got the remaining companies, like Ms. 
McReynolds or maybe less so with Kroger, but they can't stay 
competitive under this--there is no way you can when--we always 
hear about health care costs exceeding--or forcing us not to be 
competitive, well this is exceeding anybody's health care 
costs, what you pointed out. So I think the downturn in the 
economy--I do believe the economy will turn around and get 
better. I think this will look better, hopefully, in 2 or 3 
years. And right now no government agency really has a way to 
do anything. Actually, the law actually hurt in the 1990s, it 
actually caused part of this problem.
    And I think another problem is the PBGC--I mean, we are 
talking about $9 per participant per year with 10 million 
people, I mean, that is two lattes at the airport at Starbucks, 
so that is definitely got to be looked at.
    Have I pretty much touched on all the problems? I am going 
to open it up now for you all to give us the solution.
    So if somebody--I don't see anybody jumping out of their 
chair, but----
    Mr. Shapiro. I will talk----
    Chairman Roe. Go ahead, Mr. Shapiro.
    Mr. Shapiro. You know, I definitely don't have the solution 
at this point, so I can't truly answer your question as it was 
asked, but I can certainly give some thoughts on the directions 
that we have been thinking. You know, our commission really has 
been asking the exact same questions that you just asked for 
the past 8 or 9 months. We don't have the answers yet but we 
are working very close to a final proposal.
    But in terms of, you know, you mentioned earlier defined 
benefit plans and defined contribution plans as being the two 
ways to go, and in today's environment that is correct. And I 
think it is pretty clear to us at this point that defined 
benefit plans are posing a problem for employers, as we have 
seen here and thousands more, where the risks that they are 
taking in these plans is more than they can deal with.
    From our perspective, defined contribution plans have a 
different problem, which is that there really is no guarantee 
of--or not even anything close to a guarantee of lifetime 
income for participants. And my personal feeling is that the 
recent move we have seen to combined contribution plans in the 
past decades is setting us up for a real problem of an entire 
generation of completely broke 75-year-olds, and that troubles 
me.
    But if you look at, you know, defined benefit plans on one 
side and defined contribution on the other, there is an ocean 
of space that exists between those two plans but you can 
combine features of both in such a way that you, you know, 
really mitigate and reduce the risk to the employers and at the 
same time, you know, provide some real income security to 
participants. You know, the whole focus of our commission has 
been exploring that space and trying to find how we can find 
ways to really capture the best features of both worlds and put 
it into a model that, as of today, doesn't exist, but we hope 
will exist when we are done. So that is my quick perspectives 
on where we can go.
    Chairman Roe. Thank you.
    I yield to the ranking member.
    Mr. Andrews. Thank you.
    I do think we have had discussion about solutions this 
morning, led by the chairman and certainly helped by the panel, 
and I wanted to explore two of the success stories I think that 
we heard.
    Mr. Sander, after the crash of 2008 your fund went down to 
what percentage funded?
    Mr. Sander. Mr. Chairman, our PPA percentage was at 85 
percent in 2009, which was the lowest point.
    Mr. Andrews. Okay. And where are you now?
    Mr. Sander. 90.3.
    Mr. Andrews. And what changes have you made to get that 
progress?
    Mr. Sander. Well the trustees--actually, after the dot-com 
bust the trustees took the action that I mentioned earlier and 
they were able to improve funding to the point where they were 
able to actually improve benefits on temporary basis in 2006 
and 2007. Those temporary improvements were rolled back 
beginning in 2009 to, again, to balance the books, if you will.
    Trustees have also taken action with the investment 
portfolio to take a look at some alternative forms of 
investment. We are looking at timberlands and farmland, things 
which may not return immediately but over the longer term are 
exceptional opportunities for long-term growth. So----
    Mr. Andrews. And these really--I know the decisions were 
made in the context of the PPA, but you weren't really under 
any gun or deadline. These were voluntary decisions that were 
consistent with your fiduciary duty, right?
    Mr. Sander. That is correct. The trustees, I think, felt 
that they needed to take some steps in order to get back to 
their historic funding level goals.
    Mr. Andrews. Now, Mr. Henderson, you have mentioned 
consolidation as one of the ways--and Kroger certainly put its 
money where its ideas were by in effect prefunding some of the 
benefits of that consolidation. You should be commended for 
that.
    What other reforms did Kroger participate in, in some of 
those multiple multi-plans that you are in. What worked?
    Mr. Henderson. The situation we found ourselves in was that 
we had become the dominant contributing employer to these four 
plans, and they ranged anywhere from a $50 million plan, the 
administrative expenses of which were eating up about 25 cents 
of every contribution dollar simply because it was a small 
plan, all the way to a $2 billion plan. And when we looked at 
the underlying investments in those plans we discovered that 
there were roughly 100 individual asset allocations that were 
managing--I hate to use the word, but only about $2.5 billion 
worth of assets.
    And so working with labor and coming up with the solution 
to this issue we were able to consolidate the plans. The 
benefits of that should be significantly lower administrative 
expenses to run the plan, lower asset management fees--when you 
make larger asset allocations you----
    Mr. Andrews. Better net returns.
    Mr. Henderson [continuing]. Do enjoy lower fees.
    Mr. Andrews. Yes.
    Mr. Henderson. And then I guess it goes without saying that 
when you allocate significantly larger numbers to folks like 
FIMCO you do get a higher level of attention to your account.
    Mr. Andrews. FIMCO would certainly agree with that.
    Mr. Henderson. They would agree with that. And so we 
thought there were a number of advantages to the plan, and 
also, with interest rate structures being what they are, we 
were able to take advantage of capital markets----
    Mr. Andrews. Now, what has happened to the funding levels 
of some of those plans? Where did they start before these 
reforms and where are they now?
    Mr. Henderson. Before the consolidation all four of them 
were in the red zone and had enacted certified rehabilitation 
plans. After the contribution that we made the combined plan is 
now 91 percent funded. And we were able to actually improve and 
secure the benefits of those participants.
    Mr. Andrews. See I think the stories we just heard give us 
some guiding principles for what we ought to do here. This was 
a combination of subtle and gentle incentives to make very hard 
decisions about benefits and consolidation. I am sure those 
were not easy things to do. Coupled with an infusion of cash--
in this case from Krogers--I am not sure we are going to be 
fortunate enough to have a Kroger in every one of those 
situations.
    And where we are not I think we need to explore a rational 
and fair situation where we can either entice private capital 
to play that role in a balanced and fair way or perhaps, under 
certain circumstances, provide for more direct loan functions 
that would help others. Because what I am hearing from Ms. 
McReynolds is that even if the fund she is involved in made all 
of those reforms the fact that there just aren't enough men and 
women left standing that are prosperous to solve the problem. 
Is that a fair characterization?
    Ms. McReynolds. That is absolutely fair.
    Mr. Andrews. Yes. And----
    Ms. McReynolds. Well, and, you know, one of the things that 
hasn't been mentioned yet that I am very concerned about--I 
guess it has been mentioned on the positive side by Mr. 
Sander--is, you know, whenever I meet with our employees I have 
to interact with them, not necessarily respond because I am not 
totally responsible for, you know, the red zone funds, but they 
are aware of the troubled funds.
    $80 million a year is the number we contribute to red zone 
funds. And I have to be able to look back and our employees, 
you know, who are concerned about whether they are going to 
have a retirement benefit and we are contributing such 
tremendous dollars to funds that need to be improved, and I 
think your point is right----
    Mr. Andrews. I realize my time is up, but I think that 
employers like yours are--like you are in a situation here 
where you are not in any way culpable or responsible for this 
problem but it is a huge business problem for you and your 
employees, and I think we ought to find some more fair way to 
address that.
    Ms. McReynolds. Yes. Thank you.
    Chairman Roe. Thank the gentleman for yielding.
    Mr. Rokita?
    Mr. Rokita. Thank you, Mr. Chairman.
    Hello again, everyone.
    Following up on a conversation between Mr. Andrews and Ms. 
McReynolds, do the other witnesses have anything to add or take 
away from that? Do you agree, disagree?
    Mr. Shapiro?
    Mr. Shapiro. I would like to add one thing, which is, you 
know, when you look at the multiemployer plan universe, the 
actual--the largest sector of multiemployer plans by a healthy 
margin is actually the construction industry. That is where 
most of the plans are.
    And they have a somewhat different problem, by and large. 
They don't really generally have an orphan problem, per se, but 
they have a work level problem. You know, the construction 
industry right now is down--in the union areas--numbers vary, 
but easily in excess of 20 percent, and in some parts of the 
country it is more like 50 percent. And much of the problems 
facing those plans would be repaired simply by some economic 
recovery and get some construction going on. I think the vast 
majority of construction industry plans, even the ones that 
have some troubles, if they can get their work levels even 
halfway back to where they were, you know, 5 years ago those 
troubles would go away pretty quickly.
    So their perspective is a little different than what has 
been discussed here on this panel.
    Mr. Rokita. Thank you, Mr. Shapiro.
    Anyone else?
    Seeing none, I wanted to follow up with Mr. Ring again, 
along the same lines we were discussing earlier. On page eight 
of your testimony, at the last paragraph there you say, ``What 
is important to understand is that in certain sectors of the 
economy and industries the extent of the multiemployer pension 
plan problem is much worse than has widely been reported.'' Can 
you get any more specific on that, what you wrote or what has 
been said here today? What exactly do you mean and how 
extensive is this?
    Mr. Ring. Yes. I would be happy to.
    You know, we talked earlier about the fact that some 
reports say red zone plans are 27 percent of the overall plans 
and--multiemployer plans in the country. But of those 27 
percent there are a number of those that are facing insolvency, 
and----
    Mr. Rokita. How many?
    Mr. Ring. What is that?
    Mr. Rokita. How many? Roughly how many?
    Mr. Ring. I don't know if you have a number on----
    Mr. Rokita. Mr. Shapiro?
    Mr. Shapiro. I do. It is impossible to come up with a 
precise figure, and we have tried. Right now we have been 
estimating somewhere in the neighborhood of 5 percent of all 
plans have a danger of insolvency.
    Mr. Rokita. Thank you.
    Mr. Shapiro. It is not a precise number at all, but that is 
a ballpark figure of what we are looking at.
    Mr. Rokita. Thank you, Mr. Shapiro.
    Mr. Ring?
    Mr. Ring. Well, and, you know, at our firm we have a number 
of multiemployer plans and we meet regularly to talk about 
issues facing the plans. I am familiar with about a dozen plans 
with enough participants that it will not take the--take long 
to deplete the PBGC's current funding. So, you now, while we 
could say, well, there are a lot of plans that are doing fine 
and it is just a small number of plans that are insolvent, 
those small number can really wreak havoc relatively quickly.
    Mr. Rokita. Thank you.
    Same question to the other witnesses. Anything to add 
there?
    Hearing none, I yield back. Thank you, Mr. Chairman.
    Chairman Roe. I thank the gentleman for yielding.
    Mr. Kildee?
    Mr. Kildee. Just briefly, between the Americans--United 
States system and the Canadian system--we have many companies 
that operate in both the countries, and their economies are 
similar--are there elements of the Canadian system--I will 
address this to Mr. Sander--that perhaps we could emulate, 
embrace, or are there some elements that we should avoid? 
Anything we could learn from looking at our neighbor to the 
north?
    Mr. Sander. I have really been focused so much more on the 
Western Conference side, I think maybe Mr. Shapiro has some 
ideas in that regard.
    Mr. Kildee. I defer to Mr. Shapiro.
    Mr. Shapiro. Another aspect of our commission that, again, 
that has been going on for many months now is we actually had 
people come and talk to us from other countries to ask the 
questions of, how do your plans work? You know, what do you 
think of them? What are the strengths and what are the 
weaknesses?
    And we had a fellow come and speak to us a few months ago 
from Canada and he gave us a very excellent presentation on how 
their plans work. There are some similarities and some 
differences. You know, on the surface they look--their 
multiemployer plans look much like ours. The benefit structures 
I think are similar; the way they are managed is fairly 
similar.
    But one thing which is fairly different is in most of the 
provinces--and they actually have different rules that vary by 
province--but in most of the provinces there is no concept of 
withdraw liability. So if an employer chooses to leave they 
leave and the plan has to make due as best it can.
    And in some ways--it is interesting because a lot of the 
employers that we have that want to leave the system, you know, 
they don't leave because of withdraw liability but they also 
want to leave because of withdraw liability. Once you take it 
away there is not as much reason to leave in the first place.
    So it is sort of--it is hard to say what the true impact is 
of that concept, but in Canada that concept is absent. What 
that means is ultimately if the assets of the plan are 
insufficient to pay benefits because of a crisis or because of 
whatever reason their benefits, in contrast to ours, are not 
guaranteed. So what would happen then is if the fund does not 
have enough money to pay benefits the trustees ultimately, 
after they have exhausted all of their other options of trying 
to negotiate more money, of trying to fix things perspectively, 
do have the authority to lower benefits. That is a power that 
by and large our trustees do not have.
    That concept has certainly gotten a lot of discussion with 
our commission and I think at this point I can't really comment 
on, you know, to what degree we feel like we would be 
interested in that, but I can certainly say that we have 
discussed it extensively.
    Mr. Kildee. Thank you very much.
    Thank you, Mr. Chairman.
    Chairman Roe. Thank the gentleman for yielding.
    Mrs. Roby?
    Mrs. Roby. Thank you, Mr. Chairman.
    Thank you all for being here today. We really appreciate 
it. In the short time I have been here you have already given 
me a lot of insight and I look forward to reviewing the first 
round of questions that were asked today.
    Mr. Ring, can you discuss some of the well-intentioned but 
possibly constraining legal boundaries limiting plan trustees 
as they consider changing the benefits under the law? And I 
think the perfect example is the anti-cutback rules, but could 
you expand on that?
    Mr. Ring. Well, as was said, the PPA put in place some 
very, very good requirements and tools for trustees of plans, 
and in a number of the plans that are well-funded and have a 
broad base of employers those type of tools are very useful and 
have kept the plans in good shape.
    The plans that are of real concern are the ones that are 
facing insolvency. And in those places, in those plans those 
tools and restrictions of the PPA actually tie the hands of the 
trustees to a certain extent.
    I serve as counsel to a number of trustees, boards, and 
they are incredibly frustrated that they have nothing to do--
nothing that they can really do except watch the plan slide 
towards insolvency. They have cut benefits to the absolute bare 
minimum. They really can't cut any further. And they have 
raised contributions to a place where they know they are going 
to bankrupt their contributing employers.
    We know of plans that have actually just capped the highest 
contribution rates because they know and they have gone out and 
got studies to show that if they raise the contribution rates 
any higher they will put their golden gooses out of business. 
So those are--there are no other tools, and that is the thing 
I--and Congressman Andrews mentioned it earlier, they are--I 
think trustees in particularly in those type of plans need to 
have some tools to be able to address these type of funding 
issues.
    Mrs. Roby. In your experience, I mean, how can plan funding 
concerns have affected business or legal decisions made by your 
clients?
    Mr. Ring. Well, the--so many contributing employers these 
days are fixated on this pension problem. Collective bargaining 
is absolutely focused on the pension problem. When unionized 
employers look at their overall labor costs most of the time 
the wages and other cost structures are probably in line with 
their competitors; it is the pension cost that is just 
completely off the mark.
    And so, you know, in collective bargaining that is a--it is 
a huge issue. It affects the contributing employers in their 
ability to attract investors, to get any type of financing. And 
so it really limits and constrains employers in these plans and 
their ability to compete in the marketplace.
    Mrs. Roby. Can we just go back for 1 second--the potential 
tools--and you may have discussed this already, but going back 
to my first question, can you give some examples of what some 
of, you know, the best tools would be that we could provide to 
deal with this limiting structure that is in place now?
    Mr. Ring. Well, Mr. Shapiro mentioned it, it is something 
that I think is going to have to be looked at, and that is, 
there may be certain financial benchmarks where trustees are 
going to have to be able to look at reducing accrued benefits 
for retirees. It is a kind of the third rail of pension 
discussions because no one wants to address that, but--and I 
understand, you know, the sensitivities because these promises 
were made to the pensioners.
    On the other hand, their benefits are going to be cut to 
PBGC minimums if nothing is done and it will be an even greater 
cut. And in many ways these pensioners, while they continue to 
receive their full pensions, the active employees are receiving 
very little accruals on their pension; they are receiving even 
less, you know--I have been involved in negotiations for 
concessions where employees are making 15 percent--or they have 
taken 15 percent wage concessions, currently.
    So, you know, in terms of the shared sacrifice in this 
economy maybe looking at some type of benefit modifications for 
pensioners is going to be necessary.
    Mrs. Roby. Thank you.
    My time is expired.
    Chairman Roe. Thank the gentlelady for yielding.
    Mr. Thompson?
    Mr. Thompson. Thank you, Chairman. Thanks for hosting this 
subcommittee hearing. A very important issue. When I came to 
Congress along with the chairman here in January 2009 some of 
the first businesses that I visited this was an issue. These 
were obviously economic tough times at that point, but some of 
these were very solvent, strong companies doing well and the 
only potential financial threat was trying to deal with these 
pension programs.
    And in fact, the potential program--the pension programs at 
that point--and I think it--some of it was an unintended 
consequence of the Pension Protection Act of 2006. It was the 
pension program and those funding requirements that had almost 
the potential to put them out of business, whereas they were 
solvent, going well even in tough economic times.
    And so I want to come back to the whole issue of 
competitiveness. Ms. McReynolds, I know you touched on that. 
You talked about, you know, the significant differences in 
terms of pension costs. Looking at your testimony, you know, 
talk about 257 percent higher for those average nonunion 
employers and it was an astronomical number, your 2011 per 
employee pension costs were 1,437 percent higher than those 
competitors--one or two for nonunion competitors.
    I wanted to look at the broader implications of that. What 
is the broader implications in terms of competitiveness, 
solvency on your business as a result of that issue?
    Ms. McReynolds. If we had the orphan retiree problem 
solved--in other words, we didn't have to bear the--the cost 
for people that never worked for us, our company would be much 
more competitive in the marketplace. By that I mean, you know, 
there is a certain--we are in the less-than-truckload business. 
There is a market for that, okay? There is a variety of types 
of customers and they require a variety of service levels and 
will pay certain prices. Some of those customers are more price 
sensitive than others.
    What happens to us as we have to deal with this cost is 
that we more and more have a smaller slice of that market that 
is available to us. It is like the very most premium, where we 
give, you know, the highest level of service because we have 
higher prices, we are worth it, you know, when you get right 
down to it, and I wouldn't suggest that we are not, but if we 
were more competitive we would have a broader part of the less-
than-truckload market available to us and that would allow us 
to grow our company and add jobs to our company.
    And, you know, let me say, you know, again, we are very 
comfortable paying the retirement benefits for our own 
employees. We are very concerned about them having benefits 
when they retire. Our basic problem is having to pay for people 
who never worked for us.
    Mr. Thompson. Just as a follow up, you know, one way to 
ensure plan solvency is to continually raise contributions. Can 
you explain whether these problems can be solved simply by 
requiring larger contributions?
    Ms. McReynolds. We have experienced that. I think in my 
testimony I also reference in our last collective agreement 
that began in 2008, because of PPA and the requirements for red 
zone and yellow zone plans we had a 7 percent increase in our 
pension cost every year that actually resulted in 40 percent 
higher pension costs, you know, from 2008 until 2013. That was 
a period of time where no one was able to increase pension 
costs because of what was going on with the economy, yet we had 
to deal with that.
    And so, you know, we are in a situation where because of 
the requirements under PPA kind of the normal collective 
bargaining process can't function the way that it needs to, and 
I think Mr. Ring commented about this earlier. We need the 
tools to be able to address our costs in a way that make sense 
at the collective bargaining table rather than having to have 
ever increasing contributions that just are a burden and make 
us less competitive.
    Mr. Thompson. Thank you very much.
    Chairman, I yield back.
    Chairman Roe. I thank the gentleman for yielding.
    And I want to thank the panel today, the witnesses, for 
taking your time to testify in front of the committee. It has 
been an extremely informative committee--subcommittee hearing, 
and I will yield now to the ranking member for closing remarks.
    Mr. Andrews. Well, thank you, Mr. Chairman, for--and your 
staff and our staff for working hard to put together an 
excellent panel. I think the members have been educated by this 
and we thank the panel for all their preparation.
    Again, I think it is both welcome and refreshing that there 
have been ideas put forward here about how to address this 
problem, and I am not suggesting that these are universally 
agreed to or that they are all right, but I am hearing some 
things I think sound good. One is, with respect to plans that 
are burdened because of a lot of orphaned retirees there ought 
to be some credit facility available that helps that plan get 
through the present situation so it can see the light at the 
end of the tunnel, at least reduce those costs. Where the 
private sector can provide that credit facility, great; where 
it can't, I think we need to look at some other mechanism.
    I also think that any such credit facility that is made 
available should carry with it the obligation to enact some of 
the reforms we have heard about this morning so the plan can 
strengthen itself internally. I think it shouldn't be a blank 
check; I think it should be a quid pro quo where if you do your 
part, if there is truly shared sacrifice there is a benefit for 
that shared sacrifice.
    I certainly think there should be no discharge in 
bankruptcy of a withdraw liability. I think this would be a 
catastrophic result for this whole sector and I think working 
with our friends on the Judiciary Committee we need to address 
that if, in fact, there is an adverse court decision.
    And then finally, for those who are in the enviable 
position of being able to choose to overfund their plans, I 
don't think there should be any retardation of that at all. I 
think such overfunding should be completely deductible. My 
personal view is that if the money--if the employer or the 
trustees want to they ought to be able to transfer that money 
into another ERISA trust, like for health care, if they want 
to. I think that we ought to encourage people to put money away 
to help their employees in an ERISA trust under just about any 
circumstances.
    And I think we have learned a lot today, and I am sure some 
of those ideas would work, some wouldn't. We would welcome 
additional ideas, certainly, from the community.
    But as I said at the very outset, this is a problem that 
has a solution. It doesn't require the parties to fight each 
other, and we heard none of that this morning. It does require 
us to listen and learn, and I think we learned a lot from you 
this morning.
    And, Chairman, I commend you for your leadership on this 
and promise you that our side will work in good faith very hard 
to try to get this problem fixed. Thank you.
    Chairman Roe. I thank the gentleman for yielding.
    And I want to thank the committee once again, and learned--
I learned a lot today and certainly am committed to try to 
help--be of any assistance that we can be to help solve this 
problem. And certainly I think Ms. McReynolds' statement is 
that we don't mind paying for our employees is one of the most 
reasonable things I have ever heard, but for people that have 
never worked for our company we have a little bit of a problem 
with that, and I certainly get that. I put myself as a 
fiduciary in a single-employer system and think, ``What if I 
were asked to pay for the pension benefits of my competitors 
across town?'' That is exactly what you are asked--have been 
asked to do with this through the way it is set up.
    I agree with Mr. Andrews. I think there are solutions here, 
and we are certainly committed to trying to find those, and I 
think we need to get on with it, because 18 months is not--that 
is how long it is between now and 2014.
    So I thank you all, and we look forward to working with 
you.
    And being no further business, the subcommittee stands 
adjourned.
    [Additional submissions of Chairman Roe follow:]

                                                      July 3, 2012.
Hon. Phil Roe,
U.S. House of Representatives, Washington, DC 20515.
    Dear Chairman Roe: As members of the Construction Employers for 
Responsible Pension Reform, a coalition of trade associations 
representing thousands of construction companies that contribute to 
multiemployer defined benefit pension plans (``MEPPs''), wish to 
express our concern with a statement made by Mr. Josh Shapiro, Deputy 
Director for Research and Education, National Coordinating Committee 
for Multiemployer Plans. Mr. Shapiro spoke during the June 20, 2012, 
hearing on Assessing the Challenges Facing Multiemployer Pension Plans 
before the Education and Workforce Subcommittee on Health, Employment, 
Labor and Pensions. Mr. Shapiro properly acknowledged that recent 
reductions in industry activity is a significant problem for 
construction employers that contribute to MEPPs, but his response in 
answer to a question that ``if the work levels get even halfway back, 
their problems will go away'' vastly understates the multiple 
challenges construction industry plans are facing nationwide.
    Construction industry employers contributing to MEPPs are in a 
particularly precarious position at this time. It is true the economic 
recession has affected the construction industry to a far greater 
degree than most industries, and the decline in demand for construction 
services has led to an extraordinary decline in work hours for 
construction workers. At the same time, however, severe investment 
losses have devastated plan assets, and rigid Pension Protection Act 
(PPA) funding rules and anti-cutback restrictions have put pressure on 
contributing employers. Bankruptcy and abandonment by other 
contributing employers brings even more pressure to those remaining 
employers. Unfortunately, the collapse/insolvency of defined benefit 
pension plans is a real and immediate problem. Even for plans not 
currently in a precarious funding position, collapse/insolvency is a 
highly predictable outcome.
    It is clear that recovery of the construction economy alone will 
not solve the MEPP crisis plaguing contributing employers. While plans 
may be able to improve their funded status as the construction economy 
improves, the level of improvement would likely be insufficient to 
overcome the combined effects of the economic downturn, decline in 
competitive market share, withdrawal of contributing employers, and an 
aging workforce. The reasons include:
     Current and future construction industry economic 
contractions will lower contribution income, which is based on hours 
worked; while, at the same time, contribution rates are going up and 
competition for business is great.
     Stock market instability for the foreseeable future. Under 
the best of circumstances, plans would take 15 years or more to recover 
from 25 percent-plus market losses incurred in 2008 and 2009.
     Shrinking contribution base causing a progressively 
unfavorable active-participants-to-retired-participants ratio--i.e., 
fewer and fewer construction employers are contributing to MEPPs, and 
those remaining have a shrinking market share, causing a decline in 
hour-based contributions for active participants (workers) while plans 
are facing benefit pay-outs to ever-increasing numbers of baby-boomer 
retirees.
     Ironic position of successful employers ultimately at risk 
because pension fund and withdrawal liability rules leave the last 
surviving company with all the liability for pension fund solvency.
     Instability of plans in other industries, such as the 
trucking industry, affecting the viability of construction employers 
that contribute, or previously contributed, to those plans.
    The risk, even for employers contributing to plans not in immediate 
danger, is unsustainable. It is an unstable system with very real and 
foreseeable dire consequences. The industry cannot rely on market 
growth alone as a solution for these plans' recovery. According to 
Segal, in 2001 construction industry plans had an average funded ratio 
of 98 percent; however in 2006, the year construction industry 
employment and man hours peaked, plans were only funded at an 80 
percent ratio.
    As you know, we are committed to developing constructive solutions 
to the problems facing multiemployer pension plans. We continue to work 
diligently with a broad coalition of labor and management from affected 
industries to jointly present ideas to Congress. Congress and the 
agencies have a coming window of opportunity to make needed structural 
changes to ERISA that will ensure the long-term viability of 
multiemployer pension plans. We look forward to working closely with 
you on that critical project.
            Sincerely,
                 Associated General Contractors of America,
              Association of the Wall and Ceiling Industry,
                     Eastern Contractors Association, Inc.,
International Council of Employer of Bricklayers and Allied 
                                                Craftworks,
             Mechanical Contractors Association of America,
               National Electrical Contractors Association,
     Sheet Metal and Air Conditioning Contractors National 
                                               Association,
                     The Association of Union Constructors.
                                 ______
                                 

           Prepared Statement of the U.S. Chamber of Commerce

    The U.S. Chamber of Commerce would like to thank Chairman Roe, 
Ranking Member Andrews, and members of the Subcommittee for the 
opportunity to provide a statement for the record. The topic of today's 
hearing--challenges facing multiemployer pension plans--is of 
significant concern to our membership.
    As sponsors of multiemployer defined benefit plans, a number of 
Chamber members have a substantial interest in the viability of the 
multiemployer plan system. Funding for multiemployer plans comes 
entirely from employers, who are at financial risk when a plan faces 
funding problems. Therefore, funding and accounting issues create 
substantial challenges not just in maintaining the plan but also for 
the employers' business.
    While all defined benefit plans have been negatively impacted by 
the financial crisis, certain multiemployer plans have been 
particularly hard hit as the current financial crisis exacerbates long-
term funding problems resulting from shifting demographic trends and 
financial problems within certain industries. While current law 
requires insolvent employers to pay their share of liability upon 
withdrawal from the plan, most bankrupt employers are unable to 
realistically meet that liability. Therefore, the remaining employers 
become financially responsible for the retirement liabilities of the 
``orphaned'' retirees. This system results in untenable contribution 
levels for the remaining employers, which can force them into 
insolvency as well.
    Moreover, in a multiemployer plan, there is joint and several 
financial liability between all employers in the plan. Therefore, when 
one employer goes bankrupt, the remaining employers in the plan are 
responsible for paying the accrued benefits of the workers of the 
bankrupt employer. Because of this liability, there is the fear of an 
employer being ``the last man standing'' or the last remaining employer 
in the multiemployer plan.
    Reform of the Multiemployer Plan System is Necessary. The Chamber 
supports multiemployer funding reform. Without such reform, many 
employers--including many small, family-owned businesses--are in danger 
of bankruptcy.
    In April, the Chamber released a white paper entitled ``Private 
Retirement Benefits in the 21st Century: A Path Forward.'' The paper 
makes recommendations for all retirement plans and includes a special 
section for multiemployer plans to address the unique challenges faced 
by them. In that paper, we offered the solutions detailed below.
    Withdrawal liability is a great burden that may force employers to 
stay in multiemployer plans even when it is not economically feasible. 
The Chamber feels that a comprehensive solution must be sought to allow 
for a more robust multiemployer plan system and to maintain equity 
among contributing employers.
    Another problem arises from the nature of multiemployer plan 
funding. Benefit increases are not anticipated in funding but are often 
granted at contract renewal. These increases often apply not only to 
active workers, but also to retirees. This practice may put the plan 
into an underfunded situation because the benefit increases cause a 
``loss'' for the year. This loss is generally funded over a long 
amortization period, such as 20 years. While this additional expense 
may be projected by the plan to be affordable for active employers that 
are contributing a negotiated contribution rate (usually dollars per 
hour or a percentage of pay), a withdrawing employer may be immediately 
liable for its share of the underfunding.
    In order to prevent bankruptcy among remaining employers in 
multiemployer plans and unanticipated bankruptcy on withdrawing 
employers, comprehensive funding reform should focus on allowing plans 
to be financially solvent on an ongoing basis. Examples of such 
provisions include, but are not limited to, additional tools for 
trustees to maintain solvency, partitioning plans and promoting mergers 
and acquisitions between certain plans.
    Even for plans that are not at financial risk, changes could ensure 
that they remain financially viable. For instance, the assumptions used 
to determine withdrawal liability should be consistent with those used 
to determine contribution requirements. They should not be more 
conservative, forcing the withdrawing employer to subsidize active 
employers. In addition, benefit increases should be moderated. In the 
past, benefits were increased if the plan became overfunded and, as 
noted above, granted even when the benefit increase would make the plan 
underfunded. This prevented plans from being able to fall back on extra 
contributions in later years. As a result, any future underfunding 
would require additional contributions by current employers. Reform 
efforts should focus on moderating benefit increases so that they are 
not made simply because the plan is overfunded. One way to do this 
would be to require disclosure of the amount of liability associated 
with benefit increases--not just contribution increases.
    Finally, the procedural rules that allow employers to arbitrate 
disputes over the amount of withdrawal liability require change, at 
least with respect to small employers. For example, the time frame for 
requesting arbitration is very short, and a small employer, who may not 
have significant administrative resources, is likely to miss it.
    The suggestions above are just examples of steps that policymakers 
can take. The Chamber is committed to addressing multiemployer funding 
issues and is willing to discuss any viable ideas that allow 
participating employers to remain financially solvent.
    Reform of the Multiemployer System is NOT a Union Bailout. As 
mentioned above, contributions to multiemployer plans are funded 
entirely by employers, not unions. Therefore, it is employers at 
financial risk, not unions and reforms to multiemployer plans have no 
financial impact on unions or their activities. Misleading 
characterizations, such as this, hinders progress that is essential to 
implement much-needed reform.
    Without a real reform to the multiemployer system and resolutions 
to the underlying problems, more employers will be forced into 
bankruptcy and more workers will be left without a secure retirement. 
We stand ready to work with Congress and all interested parties to 
resolve these issues as soon as possible. Thank you for your 
consideration of this statement.
                                 ______
                                 
    [Additional submission of Mr. Andrews follows:]

                                                     June 20, 2012.
Hon. Phil Roe,
U.S. House of Representatives, Washington, DC 20515.
    Dear Representative Roe: As employers in the construction industry, 
the Construction Employers for Responsible Pension Reform, we would 
like to express our fundamental components for multiemployer pension 
plan reform that will create long-term viability for employers. The 
group of 8 leading construction trade associations represents more than 
34,000 construction employers, the vast majority of which are small 
family-owned business.
    Multiemployer pension plans are common in the unionized sector of 
the construction industry and provide employers the opportunity to 
provide their employees with a defined benefit plan that gives them 
``portability'' to earn continuous benefits as they go from job to job 
within the same industry. Of the 10 million participants in 
multiemployer defined benefit plans, nearly 54 percent are construction 
industry plans.
    The majority of multiemployer plans suffered significant losses as 
a result of the financial crisis. Recently enacted relief legislation 
and some improvements in investment returns have helped some plans, but 
the current rules, long-term demographics, and market conditions 
continue to put at risk the viability of the plans and their 
contributing employers. This is particularly true for the construction 
industry, which has been affected by the economic recession to a far 
greater degree than most industries. In short, further legislative 
reform is needed and, with the Pension Protection Act nearing sunset, 
the process must begin now.
    We believe that Congress should enact reforms that will:
     Recognize the unique relationship between the employer and 
workers in the construction industry
     Promote a reasonable and sustainable retirement benefit 
through shared risk
     Provide flexible rules to allow trustees of plans facing 
financial instability to adapt to changing economic and market 
conditions as they occur
     Mitigate the unintended consequences of the ``last man 
standing'' rule enacted in the Multiemployer Pension Amendments Act
     Guarantee transparency and reporting by plans to all 
affected parties
    These principles are needed to help the tens of thousands of small 
employers that contribute to the plans and to protect the retirement 
security of their hardworking employees.
            Sincerely,
                 Associated General Contractors of America,
              Association of the Wall and Ceiling Industry,
                         Finishing Contractors Association,
International Council of Employer of Bricklayers and Allied 
                                                Craftworks,
             Mechanical Contractors Association of America,
               National Electrical Contractors Association,
     Sheet Metal and Air Conditioning Contractors National 
                                               Association,
                     The Association of Union Constructors.
                                 ______
                                 
    [Whereupon, at 11:43 a.m., the subcommittee was adjourned.]