nation's retirement plans administration is not here today they are developing proposals on these two critical topics and we will hear from them in the future meanwhile who will hear from the private sector on these critical issues the first topic is the impact of the financial crisis on the funding rules that apply to private sector a defined benefit pension plans to day over thirty thousand private sector pension plans provide benefits to almost forty million americans the tax code contains rules that require employers to money to pension funds to make sure that promise funds and benefits are paid the impact of the global financial crisis on the level of tension funding has been very severe by some accounts private sector u s pension plans assets fell by seven hundred thirty four million dollars in two thousand and eight or twenty seven credit unions and employees are worried about the security of their retirement benefits and cuts to benefit today we will hear from private sector stakeholders on the impact of the global financial crisis on pension funding these witnesses will present that on the impact of financial crisis on pension funding and these witnesses will also provide recommendations on how  ivide believe to employers from the perspective of individuals who participate in plans unions to negotiate retirement benefits for their workers and sponsoring employers the retirement plan room should encourage employers to offer investment advice to plan participants however the rules must also ensure that investment advice is not biased by the financial interests of those who provide the case well thank you mr chairman thank you for yielding and thank you for holding this important hearing as as many know we enacted many improvements to our nation's pensions laws in two thousand  the pension protection act was a bipartisan piece of legislation that garnered the support of many current and former democrats on this committee including that of now white house chief of staff rahm emanuel i think it's important that we continue that b partisanship as we move forward on an issue that's so critical to the retirement security of working americans and earlier this year i and several of my republican colleagues on this committee introduced the savings recovery act to help americans rebuild their retirement college and savings accounts among the provisions we offered was an effort to stabilize worker pensions and help employers invest in the future by temporarily providing a softer glide path for recognizing the losses in defined benefit plans and provide two additional years to resolve pension funding shortfalls the issues surrounding the funding of future retirement benefits are complex for employers for for congress and certainly for workers given the severity of the economic downturn congress should proceed carefully in order to find the right balance between the concerns of workers retirees employers and taxpayers and while giving companies additional breathing room to meet their pension obligations may make sense on the surface we must also recognize that too much latitude could erode the likelihood of workers receiving the full benefits they were promised and could further expose taxpayers to the costs of bailing out the and the other hand a failure to provide temporary relief to these plans from the chokehold the global economic downturn and credit crisis have placed on american employers could result in more bankruptcy season and the dumping of pension plans on the pension benefit guaranty corporation which is already on precarious financial footing and could easily be pushed over the edge so clearly we have our work cut out for us and i'm sure the excellent witnesses today will help us better understand the narrow tight rope we need to walk and before we yield back i want to take just a moment to discuss the issue of investment advice access to high quality professional investment advice is crucial especially given the recent upheaval in the stock market and while proper safeguards should be maintained to protect against potential conflicts involving the compensation of participants financial advisors congress should not impose unwarranted restrictions that limit the availability of that investment advice according to some estimates the proposed restrictions on investment advice contained in the education and labor committees bill h r twenty nine eighty nine could cause as many as twenty million four hundred one k participants to lose access to investment advice these working families rely on to help them save for the future in this very unsettled economy so americans don't need less help getting through these turbulent times they need more help and it is our job to ensure americans have access to the quality financial advice that they need and with that i yield back the balance of my w very thank you very much mr chairman and thanks to the timeliness of this this hearing as well like to acknowledge mr craig rosenthal mr norman stein mr bill nudity damon silvers and mark were shocking these individuals wall i hope offer of a perspective to was that will help us in the deliberations for the months and years to come you've heard me say many times that given what happened here with the social security debate but a couple of years ago we need to be mindful of what the american people see down the road in terms of retirement security so with that i would like to recognize mr craig rosenthal thank you mr chairman and members of the committee thank you for the opportunity to discuss the findings of mercer's recently completed report on the funded status of defined benefit pension wow our i'm a principal at mercer whose advise clients on funding issues for more than twenty years our report is based on survey data from eight hundred seventy four of our clients calendar year plans and we hope that it will be useful resource to the committee as it considers pension plan funding levels we conducted the survey with an eye towards addressing two important questions first to what extent are required contributions for two thousand and nine higher than they were for two thousand and eight and second to what extent or credit balance is available to how to meet those two thousand and nine required contributions we've drawn b conclusions from the survey analysis first many calendar year pension plans are in good position to meet their two thousand and nine required contributions after taking into account the funding released already provided by congress  first many calendar your pension plans are in a good position to meet two thousand and nine re quire contributions after taking into account the funding relief already provided by congress and the i r s as well as available credit balances second rounder year plans are still facing significantly higher required contributions third the i r s provided interest rate relief will not help most non calendar year plans for two thousand and nine so many of these plans will be facing higher require contributions than calendar year pla finally looking forward to two thousand and ten sponsors of both calendar year and non calendar year plans are likely to face significant increases in their required contributions regarding the funded status of plans the rage of declines in the latter half of two thousand and two to both investment market performance and falling interest rates looking back to two thousand and eight only about three percent of surveyed plans had funded ratios below eighty percent which as you know is the funding level necessary to avoid benefit restrictions under the pension protection act without any funding relief for two thousand and nine that's three percent of plans funded below eighty percent would have instead stood at thirty nine percent however factoring in both the i r s provided relief and the relief provided by the committee in congress in the worker retiring employer recovery act of two thousand and eight our survey indicates that only seven percent instead of thirty nine percent of plans would have funded ratios below eighty percent despite these improved two thousand and nine funding ratios however sponsors of many calendar year plans are still facing significantly higher required contributions this is the case even even if sponsors take advantage of both relief provisions for example our survey shows that approximately twenty one percent of calendar year plans still face require contributions that are substantially and in many cases more than fifty percent higher than the corresponding two thousand and eight amounts so while the relief has been very helpful for many plans some calendar year plan still facebook significant and on to support of the contribution increases for two thousand and nine in addition most plans that operate on a non calendar year basis will not benefit as much from the relief in two thousand and nine while we excluded these plans from our survey because full data were not available to time we conducted the survey most of these plans will not be able to use the october two thousand and eight yield curve as october two thousand and eight is beyond the four month look back period for most non calendar y plans interest rates during two thousand and nine have been well below their october levels and until just recently asset values had been below their year end two thousand and eight levels to suggest that many of these non calendar year plans could face both benefit restrictions and sharply higher required contributions for two thousand and nine looking your credit balances as you know contributions in excess of the minimum required amounts can give rise to so called credit balances which can be used to satisfy required contributions in later years these available credit balances have declined significantly since year end two thousand and seven the plans in our survey had approximately fifty two billion dollars in credit balances that year in two thousand and seven the amount  thousand and nine will be reduced to slightly over twenty billion dollars as a result of the treatment of credit balances under p p a it is also important to note that roughly twenty five percent of surveyed plans have no credit balances remaining for use towards in two thousand  nine quire contribution amounts looking ahead to two thousand and ten we expect that many plan sponsors will face substantial increases in their require contributions while the investment return this year for most plans should be positive they haven't come close to reversing the dramatic investment losses suffered by most plans in two thousand and eight in addition interest rates are much lower than they were knocked over two thousand and eight which will drive up plan liabilities plan sponsors therefore likely to face major increases in required contribution amounts for two thousand and ten and at the same time we expect the plans will have little or no credit balance amounts of valuable to how to pay for these contributions thank you again for the opportunity to discuss these findings with the committee i'll be pleased to answer your questions thank you very much mr rosenthal the chair would recognize mr norman stein senior legislative counsel to pension rights center you're welcome to begin your testimony good morning mr chairman to members of the committee a my name is norman stein and i teach law at the university of alabama thank you for inviting me here to speak with you today on the important subject of defined benefit plan funding i'm testifying today on behalf of the pension right center a nonprofit consumer organization that has been working since nine hundred seventy six to promote and protect the retirement security of american workers and their families there is currently an ongoing discussion in the pension community and today here on capitol hill when whether to grant emergency defined benefit funding relief to some companies which companies should qualify for any such relief and what conditions should be imposed on such relief my testimony today presents or views on these issues my re testimony also touches on other topics including the p p a provisions that result in one of mattick cessation of new benefit accruals in certain defined benefit plans the inadequate p b g c taste participants and multi employer plans and the need to prohibit so called q server arrangements although i will not be further pressing these questions in my oral statement there are important issues and deserve consideration from your committee to summarize your position at the outset we support funding really for companies that maintain defined benefit plans where workers continue to earn new benefits while we are sympathetic to the financial stresses that other companies are currently facing we do not believe that blanket relief for every company with a frozen defined benefit plan is appropriate as i just noted we support funding relief for companies that sponsor defined benefit plans were employees continue to earn benefits we do so for two related reasons first as the economic recession has reminded us defined benefit plans are the best retirement vehicles for assuring a secure a source of income in retirement such plans provide retirees with a guaranteed stream of income for life and are not subject to the kind of catastrophic failures that has decimated the retirement prospect of so many americans who rely primarily on their section for one k plans it is appropriate and necessary for congress to take action to ensure the continued existence of these plans without funding relief some companies may freeze or terminate their plans second the companies who stood by their defined benefit programs while others abandon them deserve congress to stand by them now the type of relief we favor is an extended amortization period for losses attributable to the recession the risk of employers default though falls on employees and the p b j say with the support limiting funding relate to companies that first agree that participants will continue to receive benefit accruals during the extended amortization period second agree to amend their plan to prohibit reversion of excess assets if the plan becomes ever funded in the future and third secure the consent of any unions whose members participate in the plan in addition funding relief should be conditioned on the company not contributing new assets to quasi funded executive deferred compensation plans such as rabbi trusts contributions these plans no less than contributions to qualified plans result in fewer operating assets for the company more over payments from executive compensation plans strip the company of assets that could help fund the company's qualified plan with us would recommend conditioning funding relief on companies amending executive deferred compensation plans so that they cannot receive new funding or quasi deferred compensation plans so they cannot receive new funding and amending all executive deferred compensation plans so that they delay payment of benefits until the company is fully funded its qualified plan funny relief is not free it is essentially an unsecured debt forced upon participants and the p b j say if the plan is not eventually brought up to fully funded status it is the participants and p b g c who will bear the financial burden of funding relief thus we do not believe that emergency funding relief should maida vale be made available to plans simply because in which employees are no longer earning new benefits we know that some have argued that extending relief to such plans will save jobs but there is nothing in any of the proposals we have seen that would ensure that the assets freed up by new funding relief would be used for preserving jobs the assets could be used for any purpose including moving jobs overseas what imation or even executive compensation although the argument that funny relief is necessary to preserve jobs also the organs have funny relief is necessary to preserve jobs ignores the fact that pension plans invest company contribution in the capital markets creating long term investment capital that ultimately is the most effective way to expand the economy and preserve jobs and create and preserve jobs and create new jobs we also know that there are provisions in law that allow employers to request  funding waiver by showing temporary substantial business hardship on and that failure to grant a waiver would be adverse the interest the plan participants we would support providing the iris with resources to streamline the waiver process perhaps by setting up a special temporary on behalf of the american benefits council mr newt good morning my name is bill nudie on the chairman and c e o of n c r corporation chairman rangle and ranking member camp thank you for allowing me to testify today about the urgent need for a pension relief i'm here today on behalf of the american benefits council the council has over three hundred member companies representing a variety of sectors including technology retailers manufacturers energy and media and represents plans that cover or service more than one hundred million americans and c r is a one hundred twenty five year old technology company with twenty two thousand employees worldwide operating in more than one hundred companies countries we are the worldwide leader in self service solutions in the last few days you have probably withdrawn cash from one of our a t m s checked in for a flight at one of our kiosks checked out of a supermarket at one of our self service checkout systems scheduled a medical appointment at one of our medical kiosks or rented a d v d from one of our entertainment kiosks i want to state something at the outset we are fully committed to funding our pension plan and meeting our pension obligations the american benefits r categorically not requesting a bailout we are requesting a time out we need more time to deal with an unprecedented market downturn that nobody foresaw when the pension protection act was approved a downturn that has affected pension plan sponsors in every industry congressman pomeroy has put forth a legislative proposal that would allow more time to amortize losses from the financial crisis this is a reasonable solution to a difficult  rapidly approaching problem and we strongly support it it would give reasonable and responsible companies the tools that they need to support their pension funds without sacrificing current operations i want to make two important points about this legislation first this isn't just about pensions it's about jobs and investing in america second we need the legislation now why is this about jobs many companies are going to have to make catch up contributions to their pension funds in excess of one hundred million dollars a year for several years that's a major drain on any company's resources in the current economy where growth is more difficult to achieve companies don't have a lot of financial flexibility some companies are going to have to lay off employees or cancel investments that would create jobs and help our economy recover these decisions have a snowball effect if a retailer has to close stores it orders fewer goods from suppliers it orders less equipment from companies like mine and there are fewer shipping orders for trucking companies and railroads if we want the economy to grow we need a solution that allows the employers to bring their plans back to full funding without sacrificing current investments the pomeroy bill strikes the right balance why is it urgent the recent i regulations that have helped a great deal issue here however this is still very time since sent time sensitive our next round of funding obligations which are going to be very large will be locked in on january first two thousand and ten that's just three month away even though these payments won't come due until two thousand and eleven most plan sponsors are still going to be in a difficult position for instance and c r s own pension was one hundred ten percent funded at the beginning of two thousand and eight but only seventy five percent funded at the beginning of this year purely as a result of the financial downturn other companies in our coalition are in the same boat for example another company's projected contributions for the next seven years have jumped from two hundred million dollars to one point five billion due to the economic downturn an astounding increase of six hundred and fifty percent with unplanned obligations of this magnitude companies have to begin preparing now just to give you an idea of the scale we're talking about a one hundred million dollars pension obligation is equivalent to two thousand workers earning fifty thousand dollars a year these are choices nobody wants to make and the pomeroy's bill would allow us to bring our funds back to one hundred percent and make critical investments to support our businesses and our employees i'd like to close by saying a few words about something we're doing that i'm excited about and c r is creating a new manufacturing facility in the united states we're creating approximately nine hundred new jobs in columbus georgia to manufacture our next innovative generation of a t m this was a huge investment for us but it's going to help us to bring new technologies to market faster and be more responsive to our customers if we had to make a one hundred million dollars payment to our pension fund this year we probably wouldn't have been able to do this that's the kind of tradeoff we're talking about the kind of tradeoffs other companies across the country are going to have to make the pomeroy bill is a good and balance legislation that will allow us to be our pension funds back to full funding while ensuring all of us stay focused on our pension obligations that's something we're all committed to doing at the same time it will give us breathing room so we can continue to invest create jobs and generate economic growth and all the i'm sure a few c e o s come before you to recommend proposals that raise revenue i was also glad to hear that the c b o estimates that the chairman miller's bill which is quite similar to congressman pomeroy's proposal raises ten billion dollars over the next ten years on behalf of the american benefits council and all of our member companies i urge you to act on this this year thank you thank you mr nerdy chair would recognize judith mazal senior vice president director of research the siegel company mr chairman ranking member camp members of the committee i'm very happy to be here today  i am a representative of the single company which is the largest actuarial firm in this country specializing to a great extent on working with multi employer plans and i'm here on behalf of the national coordinating committee for multiemployer plans you have to take a breath between the words so we tend to say and c c m p but beyond that organization a multi employer coalition of employers employer associations unions employee benefits funds and others in the benefit community that really covers the spectrum to all of whom are united as we were in two thousand and six and in the years leading up to two thousand and six and looking for some continued solutions for our plans to give you a little bit of a preview i think we could use some of that ten billion dollars so we preach hate that my written statement goes in some detail into what a multi employer plan is that there are not many people are not familiar with the mo though again you probably run into the results of them just like in c r s products on a daily basis they are union negotiated plans covering by definition people working for at least two employers often could be twenty employ yours could be a hundred could be a thousand employers they range very dramatically in size they represent often people in very mobile employment with working for companies that are very small and without banding together to provide these benefits as a group as a pool they couldn't provide them at all particularly in the construction trades in trucking in retail trade in entertainment the actors you see on television harry and louise are covered by multiemployer plans is as well as others there are i think probably three very important ke principles about multiemployer plans to keep in mind one is they're not single employer plans they are standalone plans covering a lot of employers they're not directly hooked into any employer's database to have keep track of who the participants are and and every nickel spent on running the plants it comes from the money that is contributed by all of them all of the employers and earned when we earn it in the market to otherwise to pay benefits the second really important thing is it's collectively bargained and we say this over and over again that means it's not discriminatory there's no concern about is a lot of the money being targeted primarily to highly paid people within the group these egalitarian groups there's no tax manipulation going on no employers trying to put extra money into a trust fund that the employer will have no control over and can't get any of it back they're not trying to manipulate or increase tax deductions because by giving money to cover their union represented people they are really benefit trusts and funds designed to take care of working people they are jointly trustees they're they're run they're often called union plans but in fact they are employer union plans because the law requires that they be run by boards that are jointly employer and union so there's a lot of counterweight and and counterpoise and and check and balance going on and the design and the operation of the plan they kind of have to a great extent built in oversight going on i want to give you just a few facts about where they stand as a where multiemployer plans as a group stand as a result of the funding catastrophe or the investment catastrophe that we encountered last year and it's it's there the same investors in the same market as the single employer plans  are about eight million participants in these plans and now there are ten million of them what they did was merge the multiemployer plans kind of take care of one another and if a small plan falters it has at least in the past been able to be  taken care of in by the bigger ones and one other important number the median actual investment return for multiemployer plans based on a survey of four hundred some plans covering sixty six million people for two thousand and seven the median return was about investiture was about eight percent for two thousand eight the median was about minus twenty one percent that is really what we're here to talk about today or to answer your questions about today we can live with p p a we just need some help in two ways of getting over some of the hard places just as the single employer plans do and for some plans there may not be any recovery and without more good morning chairman rangle ranking member camp congressman neal my name is damon silvers and i'm an associate general counsel of the a f l cio our fifty five member unions and twelve million members participate in both single and multi employer plans and i obviously appreciate the opportunity to appear before the committee a defined benefit pension plans of a number of features make them particularly effective structures for providing retirement income security sic the first of all of them is significant sustained employer funding of these plans so that features in an additionally include insurance against longevity living a benefits deterrence against investment risk professional investment management and economies of scale you're going to be going to be taking up what happed the problems that are associated with plans that don't have these features in the second half of this hearing the pension protection act however as it has at its heart a fundamental misunderstanding about the nature of defined benefit pension plans that act is built on the assumption that a pension plan is like a deposit taking institution where all funds can be withdrawn at any time and thus the plan must be in a position to meet most or all of its benefit obligations at any moment the p funding regime that was based on averaging assets over time and spreading funding obligations and replaced it with one based on arbitrary snapshots now the p t a s approach adds volatility to pension funding requirements even in relatively favorable market conditions as do recent changes to the pension accounting rules by thousand be in condition such as we have seen in the last twenty four months that the other witnesses have referred to this volatility is so extreme that it's that is the very survival of what remains of the private sector pension system during market downturns p p a requires employers to radically increase their funding to make up for large unrealized market losses employers must make these seems just at the moment when employers themselves are likely to be weakest while some tighten funding requirements may be necessary to prevent a downward spiral and we called weaker plans during a market crisis judy alluded to this a moment ago funding obligation should not funding obligation should not be based on one time asset valuations or one time discount rates in this environment employers that are providing retirement for their employees retirement security responsible employers are under great pressure to cease doing so freeze single employer plans or to withdraw from multi employer plans each employer that does so creates greater pressures on the next employer to follow suit the long term implications for the provision of retirement security across our economy and the ability of retired americans to contribute to our consumer economy are very serious consequently the a f l c urges congress to address the retirement security crisis in two steps first pension funds need immediate relief from the provisions of the p p a that forced funds to behave as if they had to pay out all benefits at any one time this really should generally take the form of a return to a smoothing approach to pension valuation this return should be understood as a return to the proper approach to pence and pension valuation not as a deviation from that approach we should also recognize the extent to which interest rates which are driving the the  liability side in a negative direction against funds interest rates since two thousand and eight are in fact a product of public policy of federal reserve interventions for good reasons to protect our banking system and our housing market but they have the consequence of inflating the liability side just as the asset side is collapsing at the same time congress should consider a number of more temporary measures to ease the pro cyclicality of the current pension regulatory system to preserve active plans and prevent pension from weakness from contributing to downward pressure on the economy as a whole here as has been indicated by a prior witness congress should provide relief only to those plans where participants are accruing benefits and should require continued benefit of cruel during the period the belief is in effect however undoing the destructive aspects of the p p a will not be sufficient to stabilize america's private pension system for that congress should look in the long term to the principle of universal shared responsibility for retirement security government through social security individuals through savings and employers to a minimum retirement benefit funding obligations for all employers congress should act and act fast as a prior witnesses stated to ensure that the system of pension regulation does not act as one more headwind retarding economic recovery i hope i have given this testimony brought a context for understanding this action as part of an approach to regulating pension funds for what they are worldwide chairman rangle ranking member camp and members of the committee i appreciate the opportunity presented to moni on funding relief for single employer find benefit pension plans although single employer pension plans have declined in  years they still represent an important source of retirement benefits to millions of workers and retirees there are also a significant financial responsibility for major employers if there is to be a good chance of renewal of interest in defined benefit plans which i know supported by many committee members and here and in particular is that representative pomeroy for his leadership it is important that the be a support of public policy environment for their continuation and creation perhaps of more immediate impact at this sensitive time in the economic cycle when weakness is still widespread particularly in the job market and the recovery apparently is just coming forth we must be sense of to the broad economic implications of the timing and amount of pension funding requirements from two pension protection act although not perfect and somewhat incomplete we believe that p p a is an important proven over a lot many ways in particular to lead to fuller plan funding and more accurate measurement p p a provided plan sponsors with some of the tools and incentives to ultimately better manage their funding risks either to go with a liability directed investment approach and smaller exposure to equities or to build an asset acid cushion to reduce the need to make sudden large contributions and pay increase p b c premiums these are good ideas and in more normal times will improve benefits security for workers and retirees and also reduce risk exposure at the p b g c yet at the exact time that the somewhat stricter funding regime of p p a was coming on line we experienced enormous and president funny on president financial meltdown and deep recession if the financial troubles had come later i believe that corporate plans would have been in a better position with new investment policies or perhaps larger assoc and the questions about the timing credit hardly been worse and huge funding contributions would have been required when corporate cash flows were low and capital markets closed so it is appropriate entirely that congress passed last year on a bipartisan basis the worker retirement employer recovery act and the dire us and treasury provided this year some pieces of guidance that reduce the funding burden for the two thousand and nine plan year our estimate is that for the two thousand and eight plan year the average regulatory funded status was about ninety six percent and we're quite finding payments for all to find out if it single employer defined benefit plans was just under forty billion dollars with no change inches the average funding status would have declined to seventy five percent and required funding payments would have increased to one hundred ten billion dollars for the two thousand and nine plan year but because of the combined legislative and regulatory relief through just through september twenty fifth we now estimate that the funding status will be nearly ninety four percent and we're quired funding payments of about thirty two billion dollars for the two thousand year plan year that required funding will decline in two thousand and nine from two thousand and eight as a good result for the economy giving plan sponsors some breathing room that the two thousand and ten plan year upon us and corporate plan sponsors are considering its implications our estimate even including some recovery in the stock market thus far this year is that the funding status will decline to eighty four percent and require payment funding payments will increase to almost ninety billion dollars in two thousand and ten under current law and the twenty eleven plan year looks worse even assuming some positive returns as the funding status is projected to decline to seventy seven percent and the choir funding payments will increase two hundred forty six billion dollars a heavy burden by any measure in consideration so it is again appropriate and important that congress are considering further relief in my written testimony we have some details about our estimates of modeling the three legislative proposals which are before congress represent of millersville provide educational labor committee key aspects of representative pomeroy's bill circulated and draft discussion form and house minority leader represent although they employed different funding technical mechanisms each of the bills would reduce required funding payments somewhat and both for two thousand and nine and two thousand and ten and two thousand and eleven  over the three years represented banners bill gives the most relief but overall the overall approach in all three bills is increasing the requirements over time is reasonable as a simple suggestion in the spirit of all three bills but with the intent to give more relieve a cap could be imposed on current law required funding payments for the two thousand and ten and two thousand and eleven plan years of progressively increasing percentage is based on the two thousand and nine require contributions in closing we believe that further law the slate of relief for single employer defined benefit plans is both good economic and retirement plan policy in particular we want to emphasize that funding relief is not just a pension issue with cash flow still tight and borrowing difficult for many plan sponsors as a matter of jobs and even survival i'll be happy to answer your questions and also behalf of watson wyatt worldwide i offer our technical assistance to the committee if you do funding with and that regard the committee the next and c r is approximately a billion dollars underfunded today based on the market downturn the third worst market downturn in the last nearly one hundred years that we've suffered over the last twelve months that billion dollars if you just use straight line amortization would be applied proximate one hundred fifty million dollars a year of a dish cash we would need to use to fund the plan over that time period that breaks down for us using the simple math i used before fifty thousand dollars per employee to about three thousand employees that we may need to lay off as a result of that issue alone so that gives you a sense of the magnitude and if you look at the other companies in the a b c that we're talking about some are significantly larger and have even larger burdens than our own significant burden i just discussed you thank you very much mr wrangle the chair would now recognize ski as we think about relief are defined benefit plans ideas the balancing the competing interests we've heard other people mention today you know workers retirees and employers and taxpayers we need to a make sure pension plans are fully funded so they can workers can be confident they get the benefits they're entitled to but we also know and we need to protect the financial h but at the same time with this lingering recession and the credit crisis decline in stock prices and other items it is appropriate to provide some temporary relief from the stricter funding rules congress and act in two thousand and six how can congress best strike this balance mr camp i believe the best way of striking the balance is to give temporary a leave in the context of preservation of p p a i think that's the right balance in terms of the competing interests which two correctly noted so your view is that  given that some relief should be necessary that it makes more sense to provide temporary relief from those two thousand and six rules as opposed to permanently changing the rules themselves yes and  i would note that we probably will need relief some of the bills indicate the relief as applied to the two thousand and nine and two thousand and ten plan years but unfortunately the depth of the problem indicates that it might be necessary to include the two thousand and eleven plan year as well last friday the treasury department announced that it will be providing guidance regarding interest rates as plans that plans may use going forward can you discuss the significance of the treasury's announcement plan funding requirements for the treasury has been very helpful in this area both earlier in the year in march and  recently and in particular it relates to the use of interest rates that are used to measure the liabilities for plans and both for two thousand and two thousand and ten they provided flexibility within the adjusting those values in a particular range can you describe for the committee in layman's terms how each of the major proposals boehner miller and palmer i deal with that issue of smoothing and the merits of each approach for right now on memory so all right thank you thank you thank you very much thank you mr kant mr shockey let me drill down a bit with you on some of the assumptions that you discussed in your study if we were sitting here two years ago  jones would have been very different than the assumptions that you would offer for the next two years i want to talk a little bit about the assumptions in your study for the next couple of market advance through september fifteenth and no further advance through the remainder of the year and then for two thousand and ten and two thousand and eleven we assume basically about an eight to nine percent positive return so not not getting buster returns but neither a decline sort of a middle of the road approach an on on interest rates we assumed a gradual decline in interest rates that are used to value liabilities so  conditions as the economy settles settles down so those are middle of the road assumptions i think it would be very valuable if you have an interest to sort of do a little bit of sensitivity in the past as well and mr rosenthal you've indicated in your testimony that the i r s relief provided earlier this year has been fairly helpful i understand that businesses have flexibility in selecting the relevant discount rate which can impact the present value of their liabilities does that mean that the true financial picture of private pension plans in the united states could be worse than your testimony suggested the i r s relief allowed companies to look back to interest rates that were in effect in october two thousand and eight which are substantially higher and therefore derive lower liabilities scuse me than interest rates in effect at the beginning of two thousand and nine so that look back was very helpful for plans did reduce plan liabilities by if you're not simply ten to twenty percent based on our study  let me recognize the gentleman from michigan mr levin to inquire i think thank you very much you know as we read the material it's and now hearing your testimony it did bring back some memories of a debate of a few years ago and involved really technical issues and you know i think the bottom line in some of the subjective to our parts of the legislation is being too stringent and i take it from the testimony of most if not all of you it's turning out that in retrospect what was written then is not working now perfect and there's a serious problem  was better than what was replaced but we face a basic issue today and i think all of you agree we have to do something to anybody think we should do nothing i know there's disagreement as to under what conditions but i think all of you agree we need to act is that true when you know yes ok ok so in other words what was done several years ago isn't meeting the requirements of today show cake it's then it but none of the bill which at least what we have before us doesn't make a basic change in the structure mr pomeroy's bill which is still in in process of being worked out i think more effectively addresses some of these issues  important issue as to what should be done with plans that have frozen benefits reduced benefits or frozen out people from being covered is that true so to try to boil this down in this important but somewhat technical area what we're facing is not whether how much and under what conditions so i have just a couple minutes mr stein you take the position that there are conditions that should apply here right relating to frozen plans and that's where your disagreement is if you show over here you talked about some of the basic issues so spend a couple minutes telling us what you think the disagreements are in terms of what we do right now not redoing this in i think the administration is taking some time because it faces this dilemma of a bill that is not adequate for yesterday today and near tomorrow so they're trying to wrestle with this so mr silver's in the minute or two i have why don't you because i think you talk about something a little more basic congressman i think there are there are two longer term agendas and then there's the immediate and you asked what the disagreement was here i think that the disagreement is was there or not we ought to craft the relief to in coverage of the not just the  just not just to put to prevent a catastrophe immediately but to ensure the continued health of the actual bennett actual provision of benefits to employees the business community would like to believe to be unconditional to any plan regardless of whether the plan continues to be a living plan i think to put the position of the advocates for for american workers and for ben and for pension participants is that there needs to is that we should not be giving relief to companies who are who are essentially withdrawing from retreating from the obligation to provide retirement security their employees that i think is that that is the disagreement now more longer term i think there's a disagreement about whether or not there needs to be ongoing change to the pension protection act and if and finally i'm sure that would be a disagreement if we got into it as to whether or not employers really ought to be responsible in part for the retirement security of their employees i hope t much disagreement about that that we have enough to disagree about him and my time is so i think it would be helpful as we proceed that we try to flush out where we are what the issues are in terms of immediate action so that we can act since all of you agree we need to act we need to act in the administration i think they're going to come forth with some recommendations in the near future thank you thank you mr levin consistent with that suggestion this committee has received a letter signed by almost two hundred companies and trade organizations representing employers asking for immediate relief on the pension  i would like to enter it into the record at this point without objection and ask that the staff continue to distribute a copy to the members of the committee with that i would like to recognize the gentleman from california mr herder to inquire thank or certain limitations on executive compensation i understand that employer groups view additional funding relief as absolutely imperative so much so that some of them are willing to accept these kinds of conditions in exchange for this relief but is it possible that some employers might be unwilling to accept relief tied to these kinds of conditions effectively limiting the breadth of relief that congress is considering and are you concerned at linking these kinds of conditions to funding relief for the first time may set a precedent for the future possibly undermining the voluntary nature of employer sponsored retirement plans mr herder i i am concerned on both accounts first of all of the maintenance of efforts maintenance massive number and would have very bad implications for brought the broad economy when we talk about relief you know in general terms certainly in the stimulus package earlier in the year generally we don't do a lot of conditioning because we don't want to we were interested in the economic impact and if that's the main purpose here which i believe it should be there really should not be a lot of conditioning the second point relates  more of a pension policy issue which of course takes time to consider and therefore in and of itself i think delays the immediacy of what the relief is needed i think the quicker we act on this the stronger signal it sends and therefore doing a lot of conditioning i think unnecessarily delays and and also represents a very significant policy change again m i believe that as we consider defined benefit funding relief we need to carefully balance a number of competing interests those of workers retirees employers and taxpayers on the one hand it's important for congress to ensure that pension plans are fully funded so that workers and retirees can be confident that they were receive their promised retirement benefits it's also important to protect the financial health of the p b g c which insurers private pension plans to avoid a situation where american taxpayers are forced to bail out the p b g c at the same giving the lingering recession the ongoing credit crisis and the decline in stock prices as compared to prerecession levels it may be appropriate to provide employers some temporary relief from the stricter funding rules congress enacted in two thousand and six can you please share your thoughts about how congress should strike this balance mr herder is necessary i think even with as large a decline as what we saw if we had had more years in the development of response to p p a either in terms of investment changes or development funding questions by employers we would have been a much better position to deal with with this this event thank you thank you mr chairman thank you mr herder the gentleman from georgia mr lewis is recognized to inquire well thank you very much one of the main reason companies offer a pension plan is to stay competitive and attract employees but for many employers it is more than just the business reasons can you tell us more about tomorrow obligation of an employer to offer retirement benefits to their workers interview may respond mr chairman i'd like to talk a little bit from the perspective of the multi employer community that i'm representing first of all to take the time to just point out that the issues that we're raising about funding and the temporary assistance that we're asking for is quite different than what the single employer community needs and in part that's because p p a was in some ways more adaptable for the multi employer plans and it was for the single employer plans but the multi employer plans represent a commitment by the employers and the unions that represent the workers to put they are part of a package typically their private package that health benefits and retirement benefits and sometimes other benefits where because these promises are being made by everybody in the industry they do represent a moral commitment by the entire industry to take care of the people that have been generating the wealth within that industry these plans are remaining just this these groups are remaining committed to defined benefit committed to ongoing defined benefit not to freezing the plans if they can possibly afford not to and committed to keeping the employers viable to not having plans in their pension and health commitments be so so strenuous that they strangle the employers who are the lifeblood of the industry the jobs and the future of the goes into this in some detail we inherited in the post war world the pension system that provided coverage to defined benefit plans that leveraged employers capacity to be able to manage money expertly and that involved substantial employer contributions we had defined benefit pension funds covering fifty percent of the american workforce since one thousand nine hundred with that that that number in the private sector has declined under twenty percent the consequence of that decline has been the wholesale deterioration of retirement security for american workers such that the typical defined contribution balance for families in their fifty's right is around sixty thousand dollars it was that before the collapse of two thousand and eight that represents a societal moral failing we are here today on the ground the the substance of the disagreement that exists between the employee advocates and the employers here is a disagreement about whether or not there is a moral obligation on the part of the congress to ensure that in the course of providing the relief we bolster pension plans that act that can actually provide retirement security or while there we essentially provide relief to employers who are running away from that moral obligation that is the fundamental issue facing the congress thank you and congressman lewis i'll be short but i want to be clear as well with you with regard to how we at n c r and and candidly the members of the american benefits council view pensions we view them as a moral obligation and very important over the last ten years my company has paid in benefits of one point five billion dollars into our pension plan and we were fully funded as of the first of january two thousand and eight the primary bill also holds us accountable to fully funding that plan on schedule and on time and maintaining our commitments to our employees our pensioners and that moral obligation and the two and seven method that's being that's being recommended what it does is recognize that over the past year to a year and a half there has been an incredible event in the marketplace that's occurred and with respect to the global economic crisis and the impact it's had on our return on assets in our pension portfolios and allows us simply to recover but does not allow us to disregard our commitment in that same time period to fully funding the pension plan which we intend to do and all of the members of our council intend to do thank you very much thank you mr lewis let me advise our members and witnesses that we have three votes on the house floor the committee will recess until after the last vote and i think that we can speed this up so that we can resume testimony very quickly with that the gentleman from texas mr johnson is recognized to inquire and mr chairman mr rosenthal you wake i'll even turn my microphone on in your testimony you claim any divine benefit plans are going to face significant higher required contributions in twenty thousand and absent any legislative relief would you know what percentage would be able to meet their requirements and why did not i do not know sir i do know that interest rates are well below they were where they were not to over two thousand and eight which will still make liabilities significantly higher for plans come tw in your testimony you contin many calendar year defined benefit bands playing during a good position to meet their required contributions for do that in terms of the investment return and legislated them and regulatory relief what is help these plans and most in being in a good position mostly the ability to use that october two thousand and eight full yield curve where interest rates in a sense peak during two thousand and eight back in october so the ability to look back which came from the i r s guidance provided in march of this year help for most of those plans and not withstanding the extra percentage we gave them of course  and peace of mind to retirees and workers during a recent turned down turn with that mind do you have any suggestions or ideas in terms of what can be done to provide a more secure retirement for workers who have defined contribution plans more effective one is the steady stream of contributions over workers life i think that's that's an important element i think certainly important aspect of it is  investment strategies that workers use and also as worker approaches retirement they need to consider that that money that they've accumulated is not just  sound a lump sum but it's something that will they will need to support them in retirement as an income flow so although you know a lot of people have talked about a new it is a show and i think it's a lot more sophisticated and that basically they need help in getting strategies for distributing assets in an irregular and steady way into their retirement so those are all elements of a package which i think need to be added to define contribution plans it's also the products and services that are offered to both the individual participants and the plan sponsors thank you thank you mr jim thank you mr johnson the chair would recognize the gentleman from north dakota mr pomeroy to inquire for this chairman thank you i want to begin by saying how much i am enjoying this hearing i believe that the issue of pensions is urgently important and i just think the panel has been terrific relative to bringing in important information about the need for funding relief to this too to our ways and means committee i want to begin i think with mister nudie pronounce it correctly i want to thank you for being here you know often we have the h r departments represented or some other departments represented but to have the c e o of  global company come to talk about the importance of pension funding issues relative to employment ran a mammoth occasions across your firm or cross the marketplace this is extremely valuable information and because it's been a while since your initial testimony i would like to get you back to essentially what you've already covered so well but that's emphasise it's a or this is a jobs issue mr newt is  isn't it's a very serious jobs issue and i think it's important that we understand the implications of your decisions relative to jobs the the reality is and i said this before if we don't move forward with pension reform we and hundreds of other companies are going to have to cut jobs let me be very clear on that that there is no other way for us to cover the cost of providing the pension benefits will need to which by the way i want to be clear on this will be amortized over thirty years  the money we're putting into a pension today or next year or the year after is to pay benefits for over a thirty year period while now we sit here today making a very critical decision on this  knowing full well with the stimulus sending in two thousand and ten coming to a halt at a time when jobs will be a much more important issue to our country we have a very uncertain economy we're still navigating all of our c e o s are navigating through that this has to be of paramount concern to you because you will see jobs eliminated and you will see investment eliminated in this country which impacts our competitiveness u s competitiveness in the marketplace importantly right across the panel seems to be agreement that some funding relief is appropriate we've got different ways of doing it's somewhat revised a bit the provisions of the pension protection act some give temporary relief there seems to be agreement across the panel that some relief is appropriate and mr you've spoken to that very clearly i want my friends on the other side of the dyess to hear you clearly some pension funding relief is appropriate under these extraordinary circumstances is that correct yes mr palmer because of the extraordinary circumstances and asset markets thank you that we have to take that agreement and really internalize it we've got some work to do it's a committee and jobs and retirement security are at stake the for purposes of argument not only don't see the world entirely similarly mr was just he would have temporary relief that's better than nothing but i believe the prospect is if you do temporary relief well maybe you have to do temporary relief again and maybe have to do temporary relief again and pretty soon you've got companies that face extraordinary funding it's mosher and they don't know whether the temporary relief is going to come or not they really need to know what the rules are in a permanent going forward basis mr newdow as a c e o what is your comment on th predictability is critical to us we must have it and if i can just divert your attention to another important matter that's similar in scope it's the issue of whether or not because i think this is on the table whether or not you do this for companies who have a defined benefits program in place today or what has been frozen and i think to make that choice is a difficult one for us of all i don't think would be prudent and terms of your decision because the impact it would have on the supply chain on an overall basis would be massive to penalize those companies who have frozen defined benefit programs penalizes those employees those companies and those companies supply chains let me give an example if you froze if you chose as an example to not give pension relief to a company who is frozen their defined benefits plan as a retailer let's remember that retailer also buy clothing garments and general merchandise from a supply chain they also have a truckers working for them that truck this supply around the world they have employees who work for the company that will be greatly impacted and there are hundreds of companies who have chosen this is a method to control costs particularly at a time when this economy is so uncertain and has damaged our companies and let's not forget that while profits over the course of the last few quarters have improved they've improved based on cost cutting not based on growth further cost cutting would only damage this economy further in my view and that's exactly where we're headed if pension reform isn't isn't passed if i hear you correctly with credit remaining tight if you take cash out of the business to fund under an extraordinarily conservative funding regimen the pension plan there are consequences he would estimate in a business layoff of existing workforce and that occurs relative to the plan a still present or whether the plan is frozen now i did notice that even though you indicated you had to freeze your plan and then c r as you took that step you also froze the accruals for the exempt plan for the executive suites plan that's correct we did we froze our senior executive retirement plans at the same time another area and i know my time is up mr chairman i'll just conclude with the statement we can ponder this in the future whether or not some maintenance of effort provisions would be appropriate i would think that  representing best practices said out of their executive suite what are employees live with the executive suite lives with and i think that's just a matter of fundamental fairness thank you mr chairman i yield back we thank you gentlem for his many years of good work on this issue as i told him earlier this morning congressman pomeroy is the only member of congress i know that can excite a crowd of actua with that i'd like to recognize the gentle lady from florida ms jenny brown wait thank you very much first of all mr nudie i would say he was very refreshing to hear you start off your statement by saying you're not here for  bailout that was a very very refreshing and believe me having served on the financial services committee prior to ways and means it was like oh yes i heard that six years i served financial services  i appreciate each and every one of you who came here today to testify i do have a question however for mismatch so by the way this mezzo i find when there is a group of males testify a female very seldom gets asked any questions so i'm going to ask you a question at a may two thousand and seven education labor hearing you stated that a major achievement of the p p a was the recognition of the special of the special context of multi employer places in accommodating the collectively bargained framework in which the plans operate the distinctive funding rules that were established by p p a will we think allow our plans to flourish and that's the end of your quote where we all know that the economy has changed a whole lot since may of two thousand and seven but could you provide any additional insight as to why multi employer plays continue to struggle rather than flourish even as compared to a single employer devi plans that are facing the same very tough economy thank you ma'am and it's a pleasure with the committee largely full of men to have a question for both the the answers is very simple the money that they thought would be there isn't there because it was disappeared somewhere in the market they didn't nobody could flourish when they've lost twenty percent of their assets nobody who's who is made up of just being a big fund full of invested money to be paid out to people in the future  survive can flourish readily by losing that amount of money but the one thing that was was really as i said and i completely believe and i think i emphasized it here too that recognizing the special collectively bargained context for the multiemployer plans was crucial we're hearing how fundamental it is for single employer plans whether the plan year begins or ends in time to take advantage of interest rates in october one months difference three months difference could make all the difference in terms of what the cost could be for a company what we what p p a did for multi employer plans was to a very great extent allowed them to avoid that sort of you'll pardon the expression but arbitrary and abrupt sudden involved whole demand on funding so that they could negotiate out work out  the the needs for benefits and and the need for assets and one of the things p p a does for multi employer plans if they're in serious trouble is it allows them to cut benefits more deeply than they would ever be allowed to before or they would under any other circumstances to take away vested benefit rights of people that's something nobody wants to do if they can possibly avoid it but they have that as a tool to the problem was as in many plans who were working their way towards a really kind of hopeful solution all of a sudden they design very careful recovery plans based on assuming they would make maybe six or seven percent per year something conservative all of a sudden they lost twenty percent and when you lose twenty percent and you've built a a long term plan assume you're going to make seven what you've lost is twenty seven percent that you have to make up so it was basically they got knocked down not that con their heels that it was not p p a fault but we are  looking at now is is some adaptations to p p a to give the plans the chance in the chain under the changed circumstances to bring themselves back to rights as they can continue on that so really is it because you have all of these differing years that you are working with and contracts as opposed to a single employer exact identity for helping me clarify that it is because the the employers contribute what they've agreed to contribute in their bargaining agreement they negotiate an amount that's their deal and one of the things p p a did was enable the employers in the union to live up to their deal if there was a big crash if we couldn't live up to that an employer that had built their business plan around a promise to the union to pay two dollars an hour suddenly the somebody calls up and says oh it's going to have to be forty dollars an hour even if they come up and say it's going to be two fifty that's not the basis that the employer made other contracts built their business plans made bids and contracts and cetera we're talking about small employers here and i think you know in listening to the concern about jobs and mr newbie's explanation of how this translates in a very large company something like in the construction trades that these plans cover eighty percent or more of the employers have left less than fifteen employees they would not lose jobs they wouldn't have to lay people off if the funding had to increase dramatically they just go out of business so workers would lose their jobs owners would lose their jobs families with lose their businesses if they had to quickly adapt to the kind of even if congress does decide to grant the very substantial and somewhat precedent relief the meet that the muties i'm sorry that the multimeter are requested does this crisis suggest that maybe the multiroom ought to be thoroughly reviewed as we move forward well that was another actually very good thing that p p a recognized the law calls for a start the answer is i think that the whole pension system deserves a very careful and thorough examination because i share the goals of a number of us here that we can find a way to keep the defined benefit system going p p a calls on the i r s p v c and labor department to conduct a thorough study the thorough study that that is worthwhile and that will develop useful information for all of us about what we really need to carry it forward thank you very gentle lady gentleman from north situation we find ourselves in in the in this economy and the nervousness that people have as relates to not only their income but their retirement income and depending on their age the intensity goes up obviously because you're closer to retirement snit let me follow up on the line of and i'll just have one question that mr pomeroy touchstone because think it's critical we really are talking about a system that we want to keep healthy oh yes but at the same time make sure that we have help in the business sector because i bump into people every day my neighbors when i just talked over the weekend he's still working but his hours have been cut back which means his income's been cut back tells me that business has got same prop if i understood you correctly and i think i understand that the bill mr pomeroy has in this is a temporary fix to a long term problem is that correct that's correct it think about it as a time out not a bailout i think that's important for folks to understand that we are you really asking not to be taken out of the game indeed if it's like you're playing a basketball game w do their part but they need those revenues now to employ people and spend this economy and get it going congressman etheridge let me just give you a little more perspective because i think you've hit the nail right squarely on the head on this issue none of us want to find ourselves in a position where we're not obligating our pensions we intend to fully fund our pensions in the same timeframe we originally intended to fully fund them the differences over the course of the first few years given the unprecedented drop in the markets and one other item we didn't discuss which were interest rates which have a more material impact on our cash flows and those adjusting giving us time to adjust to the realities of what's happened in this unprecedented market downfall and giving interest rates an opportunity to adjust allows us to put ourselves in a and effect to smooth somewhat that cash exposure we all have and hence the impact it has on our ability to fund new investments and most importantly fund the creation of new jobs thank you i think we all understand what you're doing is trying to take despotic out of it and do it over the long haul thank you know you thank the gentleman the gentleman from nevada mr heller is recognize d i'll be brief just going through some of your testimony and a comment that you made that that as an organization you guys pressed for the most employer funding rules that were adopted in the  two thousand and six because we know that benefits series rests on rules the demand responsible funding and discipline and promising benefits yes are you aware of that let's talk about green zone plants because you have some more tie employer pension plans like a western conference plan that is considered a green zone plan based on there to better ratios whereas there are other groups but i believe it's a central states are the central conference multiroom employer pension plan that does not meet the criteria classification of a green zone plan can you explain to us how one can be so successful while the others are not basically a red flag if you're heading towards trouble you your call endangered are in the yellow zone and you have to start doing certain things and if you had further into trouble you're in the red zone which this is based on homeland security and you have to do more dramatic things i think the from what i understand about the those two different plans they've had different sorts of governance over the years but the central states fund has lost a much like again i don't know as much about the western countries but a large number of their employers have gone out of business and the ones that they started with with the risk from what i gather of their seventy largest hundred eighty there's only one such companies still left and it was due in part to trucking the regulation which also of course affected the trucking industry in the west as it did in the  b said the things to truck that come from the manufacturers the auto manufacturers in michigan and whatever that that the whole economy i suspect in that area just declined for their market they built up central states built up a very large fund of assets and for during the ninety's as i believe it certainly by around two thousand the central states in the western conference were kind of one year one was the largest of the pension funds by assets another year the next the other one was they both had very large twenty twenty four billion dollars sort of worth of assets the central states as investments are run by independent sherry's who are appointed by a court and overseen by a court so to the extent there is any difference in investment philosophy it's i suppose we have to put blame the federal courts in illinois but the the as they lost employers and as they lost active workers they needed and they were very well funded until just a few years ago but like a number of multi employer funds not just them they needed their earnings on their assets in order to pay benefits any they're like a giant retirees anybody who is no longer earning enough money but has a lot of savings put aside they need that savings to live on and then the because they were so heavily dependent on the on their earnings the big asset losses knock them much harder than i gather than the western conference i don't i don't know enough as much about western conference because frankly their fortunes over the past fifteen years or so hasn't been as colorful and so they just haven't gotten quite as much attention shores of the walsall participating groups in that region or was it or was it the loss of assets and earning power well the loss of participating groups in that region led to a severe dependence on we don't have employers to come up with the money if we have a hole so we better build up as much in terms of our assets in this much in terms of earnings as we can because they have a very i think they have i i can't say this for sure but they have something like now they have seventy thousand active workers and they may have one hundred  fifty or two hundred thousand retirees they just there's no way they can increase contributions on the employer's left and the employees to make up the hole that they need from their investments and i gather just the  the western conference among other things services goods that are coming in from from over the pacific and they just have head i assume other opportunities to replenish what's going on i don't know that life is happy for them but it's are just not as stressful this measure thank you thank you ben we thank the gentleman with the cooperation of the members of the committee and with our witnesses we can given the fact that there are three votes coming up on the house for testimony mr meek is recognized to acquire thank you mr chairman and i'm glad that you're holding this hearing being from florida i have a number of constituents that are very concerning and worried about the future  he kind of really boiled down while we're here and what you're asking for and i feel that you know with me being baptists i feel like to sing a pastor generated deliver the message and the minister got up and talked about the scripture before i even hit the podium let me just say very quickly and i would miss rose and all i have a question for you as we start to look at this do you feel extending the period time period of time in a single employer pension plan can make up any shortfalls you think that's the solution to what we're dealing with here today and on the second part of that since we're crunched for time and i want these other members t question you are aware of the time period being extended from seven to nine that i believe education labor looking at right now want to get your feelings on that piece of legislation shall we i do think an extension a period of time would be one of appropriate measures to help plan to meet their obligations starting this year or even in two thousand and ten we have not measured the impact on the particular bills and what they would mean to individual plans so i cannot really say that we've quantified anything with regards to the impact that that would have do you well let me just ask you this the extension of time from seven to nine talk to me a little bit about how you will that help or will it was not here only would help and it would be very helpful in that the first two years as i understand the bills would be an interest only amortization so the payments rather than being level over a period of seven years normally under p p a there would be two years of interest only but no principal and then the full armor to zation would be the remaining seven year period so yes it would be very helpful most helpful the first two years but the payments would return to their i'll say apre relief levels starting in year three does anyone on the panel have a and opposite of opposing view i just want to kind of get a feel for it because i'm paying attention to that legislation i've miss r seven twenty one is dealing with public workers and firefighters and their pension plan and i've been looking at all of this but i'm paying very close attention to what education labor is doing and i want to make sure that when we find is quote unquote a solution or a response to the present situation that we're talking about here today that it's actually a solution and not creating a bigger problem or issue with that mr chairman i yield back my time we thank the gentleman the  thank you very much mr tiberi is not here mr camp has asked that he might take his time mr de paris time for the purpose of inquiry just quickly ms maso the and your testimony on page ten one of the relief proposals you suggest is to turn the existing concept of plan partition into an active vehicle for saving multi employer plans that are in sharp decline because the employer bankruptcies in uncompensated withdrawals by giving those plans a right to transfer the liabilities  those departed employers left behind the p b g c and if i understand this correctly it would put liability for the departed plans on the p v g c but then in footnote number four on the bottom of page ten you state that because partitioning these plans off to the p b g c in turn taking the burden off the other companies remaining in the mill time player plan would have a large cost this would need to be financed with funds outside the premiums paid by the multi employer plans and where in your mind with these funds come from well that's something that we are working on looking at i was encouraged to hear that the single employer changes might save just about enough or more money for the federal government which would then translate into all of this being a package that could help the actually maybe support what we're talking about thank you thank you very very much mr chairman thank you mr camp before we close on this panel i want to note for the record that the nonprofit community has filed testimony today with their concerns about pension funding rules mr lewis and i share those concerns and with that i want to thank our panelists for their very thoughtful commentary today there are three four three vote scheduled on the house floor and we will recess until the completion of those votes and i would hope that members of the committee would return quickly so that we can move on to the next panel again thanks to our panel who is a member of the national policy council and a r p marquis davis was a vice president of cap trust financial advisors on behalf of the national association of independent retirement plan advisors robert g chambers a partner mcguire woods on behalf of the american benefits council christopher jones executive vice president of investment management and chief investment officer financial engines edmund f murphy managing director putnam investments boston massachusetts and jim mccarthy managing director of morgan stanley on behalf of the securities industry and financial markets association two to the members of our committee into our panelists we're going have one more vote in about an hour a major priority for a are key is to assist americans in accumulating and effectively managing adequate assets in addition to to supplement their social security benefits because of the girls of the four one k plans places significant responsibility on individuals to make appropriate investment choices their p shares a goal of increasing access to investment advice so that participants may achieve those goals to that end we have consistently asserted that such advice must be subject to the ploys retirement income securities act or risk as you know fiduciary rules based on sound investment simples and protected from conflicts of interest the recent financial turmoil scandals on wall street underscore once again the imperative that such investment advice be independent and not conflicted as a result of the bill to shift it individually directed accounts more to the individuals and before we are responsible for investment decisions that will ultimately determine whether they have accumulated the savings necessary to ensure an adequate level of retirement benefits unfortunately many individuals are simply not prepared to handle this investment responsibility and risk many plans there for provide investment education to plan participants including asset allocation examples to inform them of available investment strategies in general and under the particular plan however this information is falling short for many participants to address this problem some plans have begun to make it available independent investment advice to the plan participants in this regard e r p is consistently believe that two important goals are necessary first the advisor should be qualified to provide the investment advice and equally as important divisor should be independent that is free from financial conflict recess long recognize that financial conflict that investment advice will not be based on the sole interest of the participant this is particularly relevant in the current uncertain financial environment where a financial advisors may feel greatest pressure to act soley in the best interest of individuals indeed at the very heart of the financial scandals that have now rocketed the nation scandals that began with the enron and worldcom and have penetrated through much of wall street today our conflicts of interest of those arrested generally prohibits transactions between plans and parties there are inherent conflicts of interest the pension protection act unfortunately carbon exemption to permit plan for a dish raised to other conflicted investment advice arrangements under certain circumstances a a r p consistently argued that this exemption was unnecessary and under  actually in the interest of plan participants conflicts of interest are particularly serving on the impact the participants retirement account every view of the recent market up people and scandal should make it obvious that conflict driven advice should be avoided and common sense compels that far more substantial and significant for participant protection than a risk then p p a provides that p p a leads us down the road of conflict of interest remedy as a financial planner standards of conduct states individual consumers possess substantial barriers resulting from behavioral biases to the provision of informed consent even after full disclosure moreover not only marketeers marketers who are familiar with behavioral research manipulate consumers by taking advantage of weaknesses in human comprehension and competitive pressures almost guarantee that they will do so much of the led lit literature suggests that investment advisors off often push investments that may be suitable and risky for it basters and even sophisticated investors purchase investments which claim that under the definition of an investment advisor only independent non conflict advice may be provided to the participants in conclusion a a r p looks towards forward to continuing to work with congress to promote investment advice independent investment advice in a way that insurance participants and beneficiaries are adequately protected from conflicts of interest re prefer an approach that encourages plant pots plant sponsors to provide quality investment advice without the potential for conflict of interest or increase the likelihood that plan participants have adequate income to fund their retirement years mr chairman i want to thank you again for this opportunity for us to test thank you mr gilbert's and mr davis is recognize the offer testimony thank you mr chairman and members of the committee for the opportunity to speak with you today my name is mark davis i'm from los angeles and i'm vice president financial advisor with cap trust financial advisors which is headquartered in raleigh north carolina cap trust is an r a we're fiduciary to over four hundred fifty plans twenty two billion dollars in assets something over eight hundred thousand participants in our care we provide for the share investment advisory services both the sponsors of qualified plans and to many participants within those plans were fully independent we fully disclose all of these i speak to you today on behalf of the national association of independent retirement plan advisors are never put in association of independent registered investment advisors who focus on delivering independent conflict free advice both at the plant sponsor and participant levels it means our fees are the same regardless of the investments that are selected our members provide advice to plans covering millions of participants i personally a practical experience on both sides of the independent investment advice issue having worked as an education specialist for both a major mutual fund company and a major broker dealer and i also have served and independent advisor for ten years now while most companies are highly ethical and most education specialists are true professionals it's not wise to arrive rely on a regulatory or legislative framework that presumes that these employees will always separate themselves completely from doing what's in the best interest of their employers that's contrary to human nature it's asking for i'm a strong supporter of independent investment advice one of the basic problems with the current state of advice is that there really is not a clear set of laws and regulations what we have are advisory opinions prohibited transaction exemptions information bulletins leave room for practices i think should be concerned to members of this committee we have advice deliverers who are subject to multiple and very different compliance regimens and oversight an example of the current confusion is the difference between the services plan sponsors think they're being provided to their participants and what the delivers of those services say they're giving based on the results of the two thousand and seven annual survey of the profit sharing council of america more than forty percent of small business retirement plan sponsors think advice services are being delivered to their participants as quote one on one counseling in person close quote in reality most of this counseling is provided by brokers who are not permitted to give advice because they're not independent the brokers are meeting with participants relying on v o i p ninety six one that permits education or guidance to be provided without violating the fiduciary rules even though they cannot legally give advice whatever the reason the outcome is that plan sponsors think participants are being advised participants think they're being advised but the vendor is responsible for the service denied that advice is being provided many participants do receive investment vice get get it through a computer model based on the sun america opinion independent computer model providers such as financial engines which is here today provide cost effective and conflicted advice to plan participants and the availability of this kind of service should be encouraged however the rules are sometimes stretched to the limit and that combined with a lack of clear guidance leads to some questionable practices in the name of sun america we've heard of situations where all the funds available under a plan are not included in the advice provided by a computer model when it's applied to the plan the argument is that this limited set of funds in a model is permitted by some american to me it seems obvious that when the funds that are included are proprietary in the excluded funds or not or when included funds pay for shelf space and omitted funds do not the advice produced by the model is not independent there's clearly a conflict in the selection of the funds and that conflict carries through to the output of the model and of course it's the participant is harmed by the conflict simply that should not be permitted the investment advice provisions in p p a did not help bring order to the chaos of rules and regs governing the provision of investment advice if anything it may have added to the confusion the prohibited transaction exemption that was included in the p p a advice regulation would permit conflicts that even the authors of the regulation acknowledged went beyond p p a with the new administration in this new congress were hopeful that now is the time for new policy to be made this congress has a great opportunity to protect the interests of the american retirement investor we need a set of clear rules that can't be bent too far rules that protect not a resupply hands like some four zero three b and four fifty seven plans as well as a researcher arrangements never put urges this committee to act in support of conflict free investment advice thank you mr davis mr chambers is recognized to offer testimony thank you my name is robert chambers and i am a partner in the international law firm of mcguire woods while i've advised sponsors and financial service providers with respect for one k issues since section four  one k became law in one thousand nine hundred seventy eight i'm also testifying today as a plan sponsor mcguire would sponsors a defined contribution plan for about two thousand six hundred participants and is provided them with access to investment advice since two thousand and five and again i appreciate the opportunity to testify today the events of the past year of highlighted the importance of increasing the availability of sound investment advice to the millions of america as who rely on their defined contribution plans for their retirement security there has been an active public policy discussion of the investment advice provisions in acted in the pension protection act of two thousand and six the department of labor has issued regulations under those provisions and a corellas of class exemption more recently the house education and labor committee approved a bill that would have a powerful impact on both p p a and pre p p a an conflicted advice arrangements interestingly the p p a investment advice provision and the education and labor committees bill seem to share the same goal the need to broaden availability of an conflicted investment advice to participants but the approaches that they took are dramatically different other members of this panel are going to speak on the preservation of investment advice of those provisions in the p p a but my focus today is different i'm going to make six pretty simple points regarding the preservation of pre p p a investment advice alternatives and here they are number one plan participants need investment advice now more than ever to all investment advice programs must avoid conflicts of interest and also must adhere to the primitive transaction rules developed by the department of labor and the s third pre p p a rules that have been approved by the department of labor are not conflicted they provide valuable assistance for millions of americans for if legislation isn't acted with respect to the p investment advice propose a provision it's crucial that the legislation neither changing or eliminate the pre p p a rules fifty our plan sponsor members have made things very clear if the legislation invalidates existing pre a advice programs or as materially to their cost plan sponsors will abandon their programs rather than revise them they currently have neither the resources nor the inclination to engage in expensive redesign terry programs millions of americans will lose access to investment advice at a very inopportune time and finally the bill extends its reach to the provision of investment advice to plans and this was very surprising it's a significant issue but it was not addressed by either the p p a or the two thousand and nine class exemption it has not been the ex the subject of extensive public policy debate so we believe that additional constraints should not be added under these circumstances the pre p p a rules were carefully drafted to avoid conflicts of interest and to ensure that all advice programs operate in the interests of participants and as i mentioned they're highly utilized we understand that approximately twenty million participants in defined contribution plans are offered advice products based on the sun america advisory opinion alone unfortunately in the context of repealing the p p a investment advice provisions the education and labor committee approved a bill that goes much further the bill's broad reach would reduce sponsor's ability to provide sound on conflicted advice by invalidating the pre p p a arrangements and this of course will harm plan participants the bill would prevent would prohibit or make much expensive several different types of pre p p a investment advice it's important to preserve all of them and we discussed the impact on the bill on each of the individual ones in our written materials but please remember this without them there will be more expense or less advice with no corresponding benefit to employees one way to gauge the soundness of any proposed changes to list the winners and the losers here is our assessment of the results of the education and labor committees bill if it's passed with the current provisions regarding p p p pre p p advice here the winners investment advisors are currently have a small enough footprint to avoid disqualification as the term plan investment providers under the advisers in one nine hundred forty second those firms that provide that with it will provide the newly mandated audits and certifications and of course and i speak personally as to this lawyers who are going to be drafting copious disclosure materials but more important here are the losers under this bill number one purchase a pen sues employers discontinue access to investment advice under a pre p p a method of whom there will be many number t participants whose employers discontinue access to investment advice under p p a of whom there are currently rather few third investment advisors who are displaced under the final interpretation of that term plan investment provider and finally and maybe most important plan sponsors investment advisors and participants who have relied on thirty years of well reasons deal well exemptions and advisory opinions so please consider the winners and losers our congressman camp and members of the committee my name is christopher jones and on the chief investment officer with the national engines on behalf of my fellow employees at the national engines we greatly appreciate the continuing efforts of you to make quality independent investment advice broadly available to those who need it most and to protect plan participants from conflicts of interest today i'd like to make three simple points in my remarks first of its innovative and powerful technology financial engines has made personalized independent investment advice broadly accessible to millions of people in the united states our company was founded on the belief that the best practices from modern economic theory and institutional money management should be available to all investors even those with a few thousand dollars in their accounts not merely the affluent and the privileged this is critical to the success of for a one k participants whose median account balance today is only about thirty two thousand dollars without expert help most of these people are unlikely to achieve retirement security today financial engines provides independent advisory services to more than seven point six million employees at over one hundred fifteen fortune five hundred companies we give individual specific recommendations on what to do with their retirement accounts and we recommend the best combinations of funds for them selecting from the investment choices available from their employer my second point is that from the beginning we have carefully structured our business to ensure that we have no conflicts of interest which could compromise the objectivity of our investment advice under a risk and the investment advisors act we have a strict to do sherri obligation to the employees we serve our independence is critically important to the employers who hire us to provide advice to their employees what does independence mean specifically we do not sell any investment products of any kind we do not receive differential compensation based on the investments we recommend we do not receive commissions on any of the investments that we recommend we do not very our investment methodology across any of our customers we are not affiliated with or controlled by any bank broker dealer or any other type of company and we play no role in the selection of a particular retirement plan upon lineup nor do we accept any kind of compensation to recommend funds to prospective employers what we do provide is personalized independent and consistent investment advice to millions of individuals of modest means who would otherwise not receive it in fact i've described this consistent methodology in great detail in the book i authored which was published by john wiley and sons in two thousand and eight titled the investment portfolio practical wisdom on personal investing from financial engines my third and final point is that getting effective investment advice into the hands of those who need it requires convenient and cost effective access for employees today financial engines reaches its customers in two different ways in the first method financial engines is directly hired by the employer the plan sponsor to advise its employee population for example we have been hired by such companies as delta airlines i b m motorola and p g and e under the structure in the second method financial engines is hired as a sub advisor working with planned record keepers such as vanguard or j p morgan we provide our services under the criteria defined by the department of labor's two thousand and one s advisory opinion this ruling permits the provision of investment advice based on an objective computer model developed and maintained by an independent financial expert the sun america ruling is important because run record keepers  the four one k in play an important role in reaching plan participants employees benefit when investment advice is fully integrated into their four one k plan communications more than five million employees particularly those working for smaller organizations have access to or independent advisory services through the sun america model it is important to emphasize that under either structure our investment advice is truly independent and completely consistent we understand that some questions have been raised regarding the sun america model however the sun america structure provide substantial protections against conflicts of interest and we strongly support the rigorous enforcement of these protections it is important to preserve the ability to provide independent investment advice under the sun american structure and accordingly we do not support passage of h r twenty nine eighty nine in its current form because it would eliminate this important method of providing independent investment advice to those who need it the most without the sun america structure and we believe that employees will have fewer options for cost effective personalized investment advice to help them reach their return i mean goals we thank you for your time murphy managing director and head of defined contributions at putnam investments a leading global money management firm with one hundred ten billion in assets under management prior to joining putnam i spent seventeen years with ability investments in a variety of senior management roles in the defined contribution business putnam has long been a leader in the business of retirement through investment products to help individuals prepare for retirement through bundled open architecture for one k plans that offer investments from putnam and other fun complexes and through services we provide to plan sponsors and independent advisers today i'd like to offer my views on the provision of investment advice to participants in defined contribution plans a service which we believe is vitally needed with traditional pension plans and social security likely to provide to the climbing share of post retirement income for america's workers in the future it's critical that defined contribution plans be able to make up the difference to do so workers must make a lifetime of sound investment decisions many if not most workers require judicious unbiased and professional advice and guidance to make such decisions investment managers service providers and others can and do provide such unbiased advice today notably under the kinds of arrangements made possible by the sun america advisory opinion in our view that model has provided a large number of plan participants with robust proven protection against conflicted advice however some proposals currently under discussion intended to ensure that investment advice is unbiased could have the unintended effect of ending many such existing advice arrangements more over by restricting who can provide professional investment advice they might also have the effect of raising costs and limiting expansion of coverage in the future the proposals under consideration would restrict the provision of advice t participants to fee based financial advisors they would bar asset managers and service providers who might offer cost effective in scalable advice and package solutions to workplace savers and less that advice is sole generated by a computer program meeting detailed and potentially costly requirements blocking access to well qualified and capable competitors is apt to raise cost in any market workplace savings is unlikely to be an exception among the surely unintended results could be to actually curb the rate of adoption services for advice to plan sponsors and lower the share a plan participants who have access to professional advice some of the language currently under discussion in fact would be a step backwards and that it could prevent the kinds of advice that had been available before the passage of p p a we have puttnam believe the sufficient safeguards already exist in the p p a and other laws and regulations rigorously enforced they can provide workers with the protection they need we do not believe that privileging a specific advice model and excluding whole classes of firms from the advice market are necessary to ensure unbiased and vice instead we believe that any new legislation or regulations should number one reaffirm the pre pre p p a level advice rule which by definition is not conflicted to reaffirm the use of non conflicted managed accounts in a way to provide advice three permit the use of outside computer models support the sun america opinion which provides an able service providers to offer advice to plan participants to an affiliated advisor if the investment advisors using independently developed computer model the sun america opinion could be bolstered to rigorous disclosure auditing and monitoring developed in concert with the industry for enable appropriate use of in house computer models permit asset managers and service providers to continue offering advice based on in house computer models independently certified as unbiased in accordance with the key pension protection act requirements five avoid any blank at the smithsonian of existing department of labor class individual exemptions letting the department review exemptions on a case by case basis if it is so inclined and finally to avoid any new limitations on non conflicted advice to plans we believe these measures taken together could provide adequate protection to investors while expanding access to affordable unbiased professional advice that america's workplace savers so clearly need we would also be receptive to other proposals to protect participants interests provided they serve to expand competition and access to advice not contract it i have submitted a written statement which extended my remarks i want to thank the committee for letting us your views thank you mr murphy mr mccarthy is recognized to offer testimony thank you chairman neal ranking member camp members committee i'm jim carthy the managing director of retirement services at morgan stanley smith barney and i'm testifying on behalf of the securities industry and financial markets systems member firms engage in every aspect of the retirement plan industry including plan creation investment management record keeping and advice in education morgan stanley smith barney is a global financial services firm providing brokerage custodial and investment related services to approximately three point four million retirement accounts and approximately three hundred seventy billion dollars in assets like many firms morgan stanley smith barney advisors are actively engaged in helping plan sponsors select monitor retirement plans as well as assist our five million individual clients with their savings and investment concerns we do not manufacture recordkeeping but rather we use a consultation approach to market the services of a parent of approximately thirty manufacturers of retirement platforms let me say at the outset that not a single for one k program that we sell has a proprietary fund requirement in favor of one of our affiliated  policy proposals being discussed today would have a significant effect on four one k plan sponsors plan participants and potentially ira owners and how their and how they access professional advice to establish plans for their employees help their employees navigate those plans and tane obtain investment guides the need for advice is well documented individuals should do not have access to advice or to risk aversion when they're young and take too much risk when they're nearing retirement studies have indicated that workers with access to investment advice earn higher returns and tend to save more and hope we can agree that access to more investment advice and getting into the hands of more workers is an important goal pension protection act in the d l l guidance would increase the number of people who are getting investment advice i would also encourage all types of financial services firms to offer personalized investment advice with appropriate safeguards and accountability and  controls to make sure the advice is competent and focused on the client's needs many participants seek in person advice rather than just web based delivery systems which work well for a portion of the population but not for everyone the p p a was a step in the right direction it allowed a flexible system for not only for one k plans but i raised and carried with it a significant safeguard disclosure and accountability to protect plan participants it puts the line sharing the burden of the burden of ensur compliance where it belongs on the shoulders of the advisor seeking to provide advice not on the employers who want to do it best for their employees by hiring advisors and impose significant penalties on those entities f failures the deal has been thorough in its consideration of the perspectives and open to the views during the comment period it's carefully calibrated to minimize conflict disclosed potential conflict and audit conflict as an added protection repealing the p p a provisions before they've been given a chance to work and test it in practice is misguided we think this is bad policy in specially in light of the record and the need for participants to have greater availability to the policy makers should not rush to discard the p p a the regulations or the class exemption out of a belief that stamping out all conflicts even potential conflicts is warranted absent finding that the advice coverage ratio is not growing as we're confident it will under p p a and the related regulations or finding the conflicts have moved beyond the theoretical possibility and are in fact manifesting themselves so with twenty nine eighty moves forward what gets thrown out in the process as others have mentioned not just the p p a but the possibility of having tens of thousands of trained devices actually take the accountability and provide specific advice in the setting sought by the participants with proper compliance safeguards if this is adopted our own eighteen thousand financial advisors working can usually train backed up by system for compliance lawyers overseen by auditors risk managers and other control personnel and are the subject of over thirty million dollars a year in professional development spending are effectively stopped him from providing any advice to protest sense and ironic it's also limited is the protection that employers want in hiring a competent automatically disqualify hundreds of firms from providing advice even those that had no financial conflicts banks for example would be categorically disqualified as a result plan sponsors instead of a competitive market may only be able to select from advisors from thinly capitalized companies which don't have the capacity in personnel and geographic diversity let alone the resources to address problems when they occur the p p a included a significant number of safeguards the deal added six additional safeguards as part of its regulatory process yet these provisions have not allowed to have not been allowed to take effect and we have not seen the positive result that would have been delivered are concerned that the provisions of twenty nine eighty nine would vastly reduced the number of professionals able to provide what i want to investment advice and to discourage plan sponsors from delivering any advice at all surely this will not create more educated and confident plain protests pence nor will it strengthen workers retirement security we urge the committee to reject the approach taken twenty nine eighty nine and carefully monitor the actions that the deal will take in the coming weeks with respect to the final regulations in the class exemption which would expand advice to millions more workers thank you to the committee for inviting us to testify today thank you mr hart the i thank our panelists mr murphy you stated in your testimony that pending legislation on investment advice may have the unintended effect of ensuring no investment advice is provided at all why is this is that the complexity or the cost of the rules contemplated by the legislation or perhaps the time lag in transitioning to a new system of regulating advice i would say it's both congressman i certainly believe that with the with the requirement requirements that would be placed on the plan to do sherry and with the added burdens that would come back to providers to provide advice i just think it's one of those situations where you're going to have less advice players or participants in the marketplace to give advice at a time when clearly right now we need more advice being given in the marketplace not less as you know that was the answer i was looking for m gilbertson you mentioned in your testimony that an investment adviser chosen by an employer assumes an air of credibility for the employee a some advocate disclosure of any conflicts cures the conflict what do you think the average participant reaction would be to such a disclosure when the participant is coming to the advisor for expertise in an area that the participant may not fully understand in the first place i think most employees will see you know plan participants appreciate any investment advice that they can get but it they have to have some confidence that that in vises coming first of all from someone that has is qualified to give that advice and then secondly to make sure that there's no conflict of interest going on between the person giving advice and what the advice that is being given so i think overall you know that the more advice that you can give do plan participants the better off in the long run they're going to be but it's like i said it has to be unbiased  albertson as you're aware health care is a major component of retirement security for senior citizens and those nearing retirement many seniors in my district have expressed to me their concern that a r p is not advocating for their interest in the health care legislation currently being debated in congress let me ask you about some of the positions included in a r p s policy book for two thousand and nine and two thousand and ten it's my understanding that a a r p uses the policy book recommendations as a guide for staff and as advocacy efforts page thirty nine chapter seven states that quote congress should limit increases in out of pocket costs including increases in medicare's overall car sharing requirements and premiums for current benefits close quote the congressional budget office estimates that under h r thirty two hundred seniors medicare part d premiums will increase by twenty percent and their part b premiums will increase by twenty five billion dollars mr gilbertson do you view these significant premium increases as violating  limiting increases in premiums for current benefits and based on your background and pensions do you think such increases would be viewed as significant for seniors on fixed income and a third component that deals with community living and saw so i i'm not prepared to answer your question because i i have been placed on the economic council to give that kind of area that you feel you don't have the expertise i would appreciate maybe in writing an answer if we could from a r p my next question is a r p s policy book scuse me when analyzing medicare advantage cuts found in the house democrats bill h r thirty two hundred the c b o's stated that the cuts quote could lead many plans to limit the benefits they offer raise their premiums or withdraw from the program close quote similarly med pac stated that these medicare advantage cuts would rob one in five seniors of the choice to receive medicare benefits through an medicare advantage plan and at the value of additional benefits seniors receive through medicare advantage will be c by two hundred fifty two dollars per year yet again a a r p s website claims that it's a mess not a health care reform or her medicare and that is say fact that quote none of the health care reform proposals being considered by congress would cut medicare benefits or increase your out of pocket costs for medicare services close quote mr gilbertson is a a r p suggesting that c b s show and med pac are spreading false hoods or lies about the democrats health care reform bill congressman once again i was selected to testify on investment related issues investment advice and i don't feel qualified to even attempt to answer your question but i will will relay your concerns to  to the board a r p board and staff to get back to you with answers and in writing thank you very much mr gilbertson thank you mr chairman thank you mr herder with that i would like to recognize pomeroy thank you mr chairman for this very interesting hearing the i want to acknowledge mr gilbertson who was the director of the state investment funds back when i was on the state investment board  a long long time ago back in the state of north dakota we haven't seen one another for more than a decade it's good to see you again lee roy i believe that you are p has not appropriately reflected upon the that attaches in the providing of investment advice under the p p a language now in that situation i believe there is a clear legal obligation to provide advice only in the interest of planned participant and a means to take action against someone that would not do that i would encourage a a r p to reflect upon that language and would love to visit further with you and  personnel if they find that language wanting it seems to me and i want to be polite about this that the ed and labor bill is a solution in desperate search of a problem i simply have not seen from this panel including advocates of repeal of p p a language relative to investment advice a demonstration of massive abuses occurring and mr davis let's talk specifically about your testimony you indicate that economic self interest inherently is going to school if you would vice well i might observe that there's an economic interest to you and the members of your  is not completely honest as you see the world but it certainly reflects the standard as you note those standards would apply otherwise in your testimony you note that there's been rules proposed by the labor department that may have gone beyond what was invasion by the a language those rules pulled back now by the existing labor department indicate that's trouble with the statute i believe it's a natural part of administration one of ministration was stretching they didn't get dimensions so let's really get down to the crux of it under defined contribution retirement savings people have been given an awful lot of responsibility for their own fate but i don't believe we've taken sufficient steps to make sure they have the information so they can exercise that new responsibility well this is a very important point in time today's u s news and world report captures the cover yes you can still retire your portfolio took a hit here's how you could get back on track i believe the cover of this major news magazine reflects we are in a major national teachable moment my for a one k took a hit a hellish hit i read balanced someone ignorantly i'm now i'm wondering want to do i need help this is the cry of millions across the marketplace and wouldn't it be on fortune if in the means of protecting in the for the for the goal and sincere goal by advocates of the open label legislation the goal of protecting people were to snatch away the very advice they need to figure out what they do and i know what the seem probably filibustered most of my time here to have to be brief about it will move ing forward with the kind of legislation proposed by ed in labor dramatically impact the vice the availability of advice that the marketplace presently offers to plan participants and what do you think would be the consequence if that would occur to me thank you for the question in the interest of time i think that there will be a significant adverse effect if this legislation with it in its current form goes through and i see the progression in the following way as i mentioned in my oral testimony and also in the written testimony our advice from our members of all three organizations who i'm representing today is that there will be a significant number of employers who will decide to back off providing access to investment advice for their participants there's just too much else going on in their world you heard that in the first panel today from the c e o of n c r there's just too much going on this is not something that frankly is high on their agendas so so what's the result of that it seems to me that as employers back away the natural sort of there are two choices you have a participant who once again is back being responsible for investing his or her own  assets among a panorama of different investments without any investment advice or they have to go out and they have to find someone on their own which by the way they're free to do today but they're going to have to go out and find someone of their own who also will be subject to all of the fairly draconian rules that the proposed legislation would provide now if you're really concerned in my view if you're really concerned about confliction conflicted advice and if there are people here who think that every rock has people under it who have nefarious intentions of of harming participants these are people from the employer's perspective who have been vetted there are presumably sophisticated people at the employer who have been vetting one provider version have a responsibility to his or fiduciaries and have a responsibility to monitor that but if you put the individual out on his or her own who's going to be in the marketplace and who you know in my case you know would go to my brother in law all right god help me what would what would happen now my brother in law is in theory supposed to be subject to the same rules and i guarantee you there's going to be a lot more conflict under those circumstances than there is today one final point if i may which is this which is we have an existing set of rules and we've heard we've heard discussions today from other people on this panel that say well there you know we hear rumors of conflicts out there well you know we also have a department of labor that is very interested in hearing about those conflicts my suggestion is that rather than create a whole new series of additional  layers of compliance let's try to focus on what we already have and get compliance from that perspective if there is somebody who is out there who is stretching beyond this they are they they are outside of the bounds of the exam bring them to the attention of the department of labor and then other people who might be similarly inclined are not going to be following that course so i would just add a couple of points i would agree with like oh panelists on many of the major points there we do believe that if this legislation were to proceed in its current form that it would have a negative impact on the availability of advice one of the things that we are very concerned about in the current environment is the lack of legislative and regulatory clarity on hiring investment advisors whether they're conflicted on of the p p a model or an conflicted is causing paralysis amongst plan sponsors even large ones where people are saying you know we know we're just not sure how the world's going to turn out we're going to pause and see what happens that clearly is restricting the availability of advice to feed folks who really need it and as you point out the current point in time is very very important in terms of getting advice into him and for those folks i would say that  on the margin the people that are likely to suffer the most are likely to be individuals that were personal or organizations the big sophisticated plan sponsors have been hiring independent advisers for many years i would say it's unlikely that they will choose not to do so even if  legislation were to proceed however there are many plans sponsors that receive advice under the sun america model if that were to go away i think the net effect would be a substantial reduction in the amount of advice available mr chairman thank you for the law in the extensive time basically as i see it the sun america model allows a platform for the delivery of independent advice comporting with the do c arry standards to the plan participant and those with an understanding of the marketplace know this is simply the cheapest way to get a lot of advice out there now some would prefer a one to one sit down model much more expensive and then awful lot of employers are not going to do it so is sun america better than no advice to like kind of chambers i think you know clearly you said we don't want to back off investment advice we certainly want to make sure that people have an opportunity to get to get and receive investment advice correct and i think i think hear testimony say that today more than ever participants need advice to get them back on course toward retirement security and i think from what i hear from your testimony your your opinion is on basically with advice can you just elaborate why you think that is the case sure as as i mentioned a few minutes ago i think that the problem with this particular legislation as drafted and remember i'm here focusing really exclusively on the pre pension protection act yes sun america and other level fee issues that are out there i believe that this is going to cause a lot of employers to draw back from providing the opportunity for their employees for from vetting providers of that advice and therefore that's going to put people in a position where they will either not be getting advice or they'll be you know that we doing it on their own furthermore for those employers who do decide that this is a very significant for the thing for them to do i actually think that it's going to limit the number of people that are out there who they can actually bring in to provide advice for their plans thank you and mr mccarthy you i think at some place in your testimony you say that as many as twenty million participants in for a one k plans could lose their access to professional investment advice if the at and labor bill were to become law and why do you think that's a cause for concern given the recent upheaval in the stock market the twenty million number comes from a p s c a profit sharing council america study about the number of people covered on currently under sun america arrangements so our belief is as has been echoed by others that with the invalidation of sun america you will create a freeze in the marketplace where people will not be willing to move forward employers will say i've got many more things on my plate and i will  you know i'll put this off at a time where volatility it's not just that markets are down they've recovered somewhat but volatility and the demography that we're facing right the age wave needs to be dealt with right the the number of people who's decision making needs to be good because they've got less runway to make corrective action before they leave the workforce and have to be entirely reliant on their accumulated savings is is growing the last point i would make is to echo mr chambers comments if the belief is that all of the conflicts right and i'm not saying that the conflicts are not potential conflicts and they don't exist but if the belief is that those conflicts are resulting in some could be conspiratorial plan that's manifesting itself in harm the harm that mr pomeroy does not say i would agree with mr palmer so mr murphy to my providers who are actually doing worse right so his four hundred s isn't even the bottom of the list right so if we were running this conspiracy you should sleep tight because we're incredibly inept at is a critically important issue and a lot of people depend on this and as you heard today employees really do need access the help of investment advice you've heard that from a member of congress but yes maybe a member congress they probably said they needed to it be helpful at what we've been through but we need to make sure that advice that they receive is unbiased i think we can all agree with that so mr davis let me ask you question for a good place could you elaborate on your testimony regarding plans sponsors who may think they are receiving advice but actually are not the question is could this issue be addressed by requiring a planned service provider to disclose in plain english to the average person generally whether their actin as a for this year and to the plan sponsor when given investment options thank you sir that would absolutely be a positive step f a broker in a typical situation dealing with a participant doing education is incented to recommend one thing rather than another so by definition the broker dealer for whom that broker works is missing we're not giving advice what the the employer hired that person thinking that's exactly what they're doing that dysfunctionality is simply a picture of the of the of the cloudiness of the regulatory and legislative environment in which we function today i certainly agree that we need more investment advice and you're right mr pomeroy nothing would feed my family better than to have more of that be delivered by independent advice provider such as our firm that being said i would rather see the rules in the light regulatory and legislative enormous incent the behavior that you want which is independence across in investment advice if everyone is self motivated or self interested hopefully that self interest is in lightened and we will reward those who are doing the thing that you want done which is independent investment advice rather than accept some iteration of investment advice simply because the best we can do given the construct that we have we have a new retirement system for the twenty first century funded through defined contribution instead of defined benefit we need a new education advice delivery mechanism to reach those needs thank you mr davis at your back as champ thank you mr etheridge i want to thank our panelists for their good testimony today we may have follow up for questions and i hope you will answer us promptly in addition you can note that this issue is not going to die in the media future and i hope that will remain vigilant as we continue this conversation are no further comments the hearing stands