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26–381 2006

FUNDING RULES FOR MULTIEMPLOYER 

DEFINED BENEFIT PLANS IN H.R. 2830, 

THE ‘‘PENSION PROTECTION ACT OF 2005’’ 

HEARING 

BEFORE THE

SUBCOMMITTEE ON SELECT REVENUE MEASURES 

COMMITTEE ON WAYS AND MEANS 

U.S. HOUSE OF REPRESENTATIVES 

ONE HUNDRED NINTH CONGRESS 

FIRST SESSION 

JUNE 28, 2005 

Serial No. 109–48 

Printed for the use of the Committee on Ways and Means 

( 


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COMMITTEE ON WAYS AND MEANS 

BILL THOMAS, California, Chairman 

E. CLAY SHAW, JR., Florida 

NANCY L. JOHNSON, Connecticut 

WALLY HERGER, California 

JIM MCCRERY, Louisiana 

DAVE CAMP, Michigan 

JIM RAMSTAD, Minnesota 

JIM NUSSLE, Iowa 

SAM JOHNSON, Texas 

PHIL ENGLISH, Pennsylvania 

J.D. HAYWORTH, Arizona 

JERRY WELLER, Illinois 

KENNY C. HULSHOF, Missouri 

RON LEWIS, Kentucky 

MARK FOLEY, Florida 

KEVIN BRADY, Texas 

PAUL RYAN, Wisconsin 

ERIC CANTOR, Virginia 

JOHN LINDER, Georgia 

BOB BEAUPREZ, Colorado 

MELISSA A. HART, Pennsylvania 

CHRIS CHOCOLA, Indiana 

DEVIN NUNES, California 

CHARLES B. RANGEL, New York 

FORTNEY PETE STARK, California 

SANDER M. LEVIN, Michigan 

BENJAMIN L. CARDIN, Maryland 

JIM MCDERMOTT, Washington 

JOHN LEWIS, Georgia 

RICHARD E. NEAL, Massachusetts 

MICHAEL R. MCNULTY, New York 

WILLIAM J. JEFFERSON, Louisiana 

JOHN S. TANNER, Tennessee 

XAVIER BECERRA, California 

LLOYD DOGGETT, Texas 

EARL POMEROY, North Dakota 

STEPHANIE TUBBS JONES, Ohio 

MIKE THOMPSON, California 

JOHN B. LARSON, Connecticut 

RAHM EMANUEL, Illinois 

ALLISON H. GILES, Chief of Staff 

JANICE MAYS, Minority Chief Counsel 

SUBCOMMITTEE ON SELECT REVENUE MEASURES 

DAVE CAMP, Michigan, Chairman 

JERRY WELLER, Illinois 

MARK FOLEY, Florida 

THOMAS M. REYNOLDS, New York 

ERIC CANTOR, Virginia 

JOHN LINDER, Georgia 

MELISSA HART, Pennsylvania 

CHRIS CHOCOLA, Indiana 

MICHAEL R. MCNULTY, New York 

LLOYD DOGGETT, Texas 

STEPHANIE TUBBS JONES, Ohio 

MIKE THOMPSON, California 

JOHN B. LARSON, Connecticut 

Pursuant to clause 2(e)(4) of Rule XI of the Rules of the House, public hearing records 

of the Committee on Ways and Means are also published in electronic form. The printed 

hearing record remains the official version. Because electronic submissions are used to 

prepare both printed and electronic versions of the hearing record, the process of converting 

between various electronic formats may introduce unintentional errors or omissions. Such occurrences are inherent in the current publication process and should diminish as the process 

is further refined. 


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C O N T E N T S 

Page 

Advisory announcing the hearing ........................................................................... 2 

WITNESSES 

Congressional Budget Office, Douglas Holtz-Eakin, Director .............................. 5 

Clark Construction Company, Charles Clark ....................................................... 21 

Motor Freight Carriers Association, Timothy P. Lynch ....................................... 25 

Safeway Inc., Jim Morgan ...................................................................................... 33 

The Segal Company, Judith F. Mazo ..................................................................... 36 

SUBMISSION FOR THE RECORD 

Pignatelli-O’Neal, Joanne, Valley Steam, NY, letter ............................................ 58 


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FUNDING RULES FOR MULTIEMPLOYER 

DIFINED BENEFIT PLANS IN H.R. 2830, 

THE ‘‘PENSION PROTECTION ACT OF 2005’’ 

TUESDAY, JUNE 28, 2005 

U.S. HOUSE OF REPRESENTATIVES, COMMITTEE ON WAYS AND MEANS, SUBCOMMITTEE ON OVERSIGHT, Washington, DC. 

The Subcommittee met, pursuant to notice, at 10:02 a.m., in 

room 1100, Longworth House Office Building, Hon. Dave Camp 

(Chairman of the Subcommittee) presiding. 

[The advisory announcing the hearing follows:] 


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ADVISORY 

FROM THE COMMITTEE ON WAYS AND MEANS 

SUBCOMMITTEE ON SELECT REVENUE MEASURES 

FOR IMMEDIATE RELEASE CONTACT: (202) 226–5911 

June 28, 2005 

No. SRM–3 

Camp Announces Hearing on Funding Rules 

for Multiemployer Defined Benefit Plans 

in H.R. 2830, the ‘‘Pension Protection Act of 2005’’ 

Congressman Dave Camp (R–MI), Chairman, Subcommittee on Select Revenue 

Measures of the Committee on Ways and Means, today announced that the Subcommittee will hold a hearing on the multiemployer pension provisions of H.R. 2830, 

the ‘‘Pension Protection Act of 2005.’’ The hearing will take place on Tuesday, 

June 28, 2005, in the main Committee hearing room, 1100 Longworth House 

Office Building, beginning at 10:00 a.m. 

In view of the limited time available to hear witnesses, oral testimony at this 

hearing will be from invited witnesses only. However, any individual or organization 

not scheduled for an oral appearance may submit a written statement for consideration by the Subcommittee and for inclusion in the printed record of the hearing. 

BACKGROUND: 

More than 9.8 million workers participate in multiemployer defined benefit plans, 

which are collectively bargained pension arrangements involving unrelated employers, usually in a common industry. The Pension Benefits Guaranty Corporation 

(PBGC) estimates that multiemployer pension programs are underfunded by more 

than $150 billion; that is, these pension programs have promised $150 billion more 

in benefits than they have assets to pay according to current funding levels in the 

plans. 

To address the current underfunding in these plans, Education and Workforce 

Chairman, John A. Boehner (R–OH), Chairman Bill Thomas (R–CA) and Rep. Sam 

Johnson (R–TX) introduced H.R. 2830 on June 9, 2005. Provisions included in this 

legislation create a structure for identifying multiemployer pension plans that may 

be facing funding problems and providing quantifiable benchmarks for measuring 

efforts to improve the plan’s funding. Plans that are between 65 and 80 percent 

funded are classified as ‘‘yellow zone’’ plans that are in intermediate financial problems. Trustees of yellow zone plans would be required to adopt a program that will 

improve the health of the plan by one-third within 10 years. Trustees would be prohibited from increasing benefits that could cause the plan to fall below the 65 percent funded status. Plans that are less than 65 percent funded and face significant 

funding problems would be classified as ‘‘red zone’’ plans. Trustees would be required to develop a plan to exit the red zone funding status within 10 years, among 

other requirements. Additionally, H.R. 2830 requires increased reporting and disclosure requirements for all plans. 

In announcing the hearing, Chairman Camp stated, ‘‘This bill seeks to address 

the shortfalls in the pension funding requirements that have led to the underfunding of many of our Nation’s pensions programs. The changes will help increase 

the transparency of the funding status of multiemployer pension plans and provide 

new tools to enable troubled plans to regain their financial health.’’ 


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FOCUS OF THE HEARING: 

The hearing will focus on the funding rules for multiemployer defined benefit 

plans contained in H.R. 2830, the ‘‘Pension Protection Act of 2005.’’ 

DETAILS FOR SUBMISSION OF WRITTEN COMMENTS: 

Please Note: Any person(s) and/or organization(s) wishing to submit for the hearing record must follow the appropriate link on the hearing page of the Committee 

website and complete the informational forms. From the Committee homepage, 

http://waysandmeans.house.gov, select ‘‘109th Congress’’ from the menu entitled, 

‘‘Hearing Archives’’ (http://waysandmeans.house.gov/Hearings.asp?congress=17). Select the hearing for which you would like to submit, and click on the link entitled, 

‘‘Click here to provide a submission for the record.’’ Once you have followed the online instructions, completing all informational forms and clicking ‘‘submit’’ on the 

final page, an email will be sent to the address which you supply confirming your 

interest in providing a submission for the record. You MUST REPLY to the email 

and ATTACH your submission as a Word or WordPerfect document, in compliance 

with the formatting requirements listed below, by close of business Tuesday, July 

12, 2005. Finally, please note that due to the change in House mail policy, the U.S. 

Capitol Police will refuse sealed-package deliveries to all House Office Buildings. 

For questions, or if you encounter technical problems, please call (202) 225–1721. 

FORMATTING REQUIREMENTS: 

The Committee relies on electronic submissions for printing the official hearing record. As always, submissions will be included in the record according to the discretion of the Committee. 

The Committee will not alter the content of your submission, but we reserve the right to format 

it according to our guidelines. Any submission provided to the Committee by a witness, any supplementary materials submitted for the printed record, and any written comments in response 

to a request for written comments must conform to the guidelines listed below. Any submission 

or supplementary item not in compliance with these guidelines will not be printed, but will be 

maintained in the Committee files for review and use by the Committee. 

1. All submissions and supplementary materials must be provided in Word or WordPerfect 

format and MUST NOT exceed a total of 10 pages, including attachments. Witnesses and submitters are advised that the Committee relies on electronic submissions for printing the official 

hearing record. 

2. Copies of whole documents submitted as exhibit material will not be accepted for printing. 

Instead, exhibit material should be referenced and quoted or paraphrased. All exhibit material 

not meeting these specifications will be maintained in the Committee files for review and use 

by the Committee. 

3. All submissions must include a list of all clients, persons, and/or organizations on whose 

behalf the witness appears. A supplemental sheet must accompany each submission listing the 

name, company, address, telephone and fax numbers of each witness. 

Note: All Committee advisories and news releases are available on the World 

Wide Web at http://waysandmeans.house.gov. 

The Committee seeks to make its facilities accessible to persons with disabilities. 

If you are in need of special accommodations, please call 202–225–1721 or 202–226– 

3411 TTD/TTY in advance of the event (four business days notice is requested). 

Questions with regard to special accommodation needs in general (including availability of Committee materials in alternative formats) may be directed to the Committee as noted above. 

f 

Chairman CAMP. Good morning. The Committee on Ways and 

Means Subcommittee on Select Revenue Measures hearing on 

funding rules for multiemployer defined benefit plans will come to 

order. Today, we begin an examination of the multiemployer pension plan reforms included in H.R. 2830, the Pension Protection Act 

of 2005. Single-employer pension plans are facing serious chalVerDate Aug 31 2005 06:59 Apr 28, 2006 Jkt 026381 PO 00000 Frm 00007 Fmt 6633 Sfmt 6602 E:\HR\OC\26381.XXX 26381

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lenges. Our goal is to ensure that multiemployer plans, which 

many Americans rely upon, do not face similar problems. This 

hearing will provide Members of the Subcommittee with information on proposed reforms intended to strengthen those multiemployer plans. Some 1,600 multiemployer plans cover nearly 9.8 million working people. These plans operate under distinct rules and 

are the subject of collective bargaining agreements. They allow 

workers to move between employers while accumulating retirement 

benefits. They also rely financially on the many employers involved 

in each plan to provide resources. These employers share responsibility for the plans’ liabilities, placing companies and those they 

employ at risk if things go wrong. Most important is the obvious 

need for companies and workers to cooperate in keeping plans 

properly funded. 

Those who fund and depend on multiemployer arrangements 

have for some time been discussing ways to improves plans’ 

strength. It is promising to see mutual recognition of the need for 

change because multiemployer plans cannot be turned over to the 

Pension Benefit Guaranty Corp. (PBGC). Plan solvency and financing are of paramount concern. A weak plan can be so potentially 

burdensome that employers may be unable to survive, increasing 

the financial pressure on those who remain behind with the responsibility of funding the plans’ promises. This kind of financial 

codependence means all stakeholders—retirees, workers, and employers—can face a potential loss. To obtain a sense of the scope 

and condition of multiemployer plans, our first witness will be 

Douglas Holtz-Eakin, Director of the Congressional Budget Office 

(CBO). Our panel from the private sector will discuss business and 

professional perspectives in how current law governing operation of 

multiemployer plans should be adjusted to ensure these plans can 

deliver what is promised. Those on the panel have been part of ongoing discussions about possible improvements to H.R. 2830 and 

will undoubtedly benefit from their insights as to how plans can be 

improved. I now yield to Mr. McNulty for any opening remarks he 

may wish to make. 

Mr. MCNULTY. Thank you, Mr. Chairman, and I join you in 

welcoming all of our witnesses today, and I support the efforts of 

this Subcommittee to bring this important issue to the forefront of 

our legislative agenda. This is a time when many of our workers 

are feeling less secure about their financial future and retirement. 

They see their employers or employers of their friends and relatives renege on pension promises that were made to the workers. 

These employers are failing their workers in different ways, such 

as not adequately funding their pension promises or dumping the 

pension liabilities on the PBGC. These promises are being broken 

after employees have kept their end of the bargain and have given 

many years of faithful service. Recent developments in the retirement area make this hearing even more relevant. Today, we will 

focus on a set of funding reforms that are being advanced by the 

employers who sponsor these plans, union representatives who negotiate the workers’ benefits under the plans, and the trustees who 

manage these plans. The level of cooperation among these groups 

is admirable. I applaud the representatives who keep working to 

reach common ground among the competing interests in the group. 


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I encourage you to continue this process. I would request that the 

interests of the workers and retirees are not shortchanged in the 

process. 

Today, many of our workers believe that their retirement is 

under assault. Pension plans are being terminated without sufficient assets to pay the promised benefits. In these cases, the workers bear a significant portion of the loss. Social Security is under 

attack, and retirees can see their guaranteed benefit possibly being 

taken away under proposals supported by this administration. 

More than half our workforce currently have no work-related pension plan. Those who have this benefit are losing it. This gives us 

a strong incentive to work together to protect the benefits of those 

workers who have them, especially those workers who have a benefit under the defined benefit pension plan, such as a multiemployer plan. Multiemployer plans have been affected by what has 

been referred to as ‘‘the perfect storm’’: falling interest rates and 

a weak stock market. This has eroded funding levels in many 

plans, but there is good news. Losses in the multiemployer plans 

are not as large as the losses incurred by single-employer pension 

plans. According to the PBGC’s Pension Insurance Data Book for 

fiscal year 2004, the multiemployer program was in surplus from 

1982 to 2002. The program reported a deficit of $236 million in 

2004 compared to a deficit of $23.3 billion for single-employer 

plans. I hope we can work together to solve this problem. As we 

continue, I hope we will remain committed to balancing all the 

competing interests in order to reach an acceptable resolution. Mr. 

Chairman, I thank you. I ask that all of the other Members of the 

Subcommittee be allowed to present statements for the record, and 

I yield my time. 

Chairman CAMP. Without objection. Thank you. Now we will 

turn to our first witness, the Director of the CBO, who has appeared before this Committee many times, Mr. Douglas HoltzEakin. You have 5 minutes. We have your written testimony. If you 

could summarize your written testimony, your full statement will 

appear in the record, and you may now proceed. Thank you for 

being here. 

STATEMENT OF DOUGLAS HOLTZ-EAKIN, DIRECTOR, 

CONGRESSIONAL BUDGET OFFICE 

Dr. HOLTZ-EAKIN. Mr. Chairman, thank you for the opportunity for the CBO to be here, Congressman McNulty and Members of the Committee. You do have our written statement. I will 

use the 5 minutes to summarize three key points: Point number 

one, that multiemployer plans face significant underfunding that 

places both firms and workers at risk, firms at risk for higher contributions in the future, and works at risk for the failure to receive 

compensation that they have earned. Number two, that the much 

larger scale of the single-employer plans and the larger scale of 

their problems need not disguise the important policy problems 

that face the multiemployer plans; in particular, the much lower 

level of exposure of the PBGC in this area is not a good indicator 

of the underlying policy dilemma. Three, that probably the key policy issue that faces the Committee is how to enhance timely disclosure of funding status and to tighten funding rules. Multiemployer 


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plans have some key features with which the Committee is familiar. The first is their collective nature, a shared structure across 

both employers and the unions with which the negotiations are 

made, and the obligation to maintain funding in that setting. Contributions are collectively bargained, and this produces different 

dynamics than are present in the single-employer plans. 

The other key feature is the low level of the PBGC guarantee. There is a very small guarantee, about $13,000, the top pension 

guarantee in this setting, as opposed to $46,000 for a single-employer plan. With that comes a much lower premium paid into the 

PBGC, and the flip side of that is that a greater fraction of the 

risks are shared by employers and workers, placing a much more 

important emphasis on funding of these plans to be able to get 

through economic distress. Another key feature of the multiemployer plans is their concentration in a relatively small number of 

industries. In particular, over 50 percent are present in the construction and trucking industries alone, and if one adds up a small 

list of areas of the economy, you quickly exhaust the location of the 

1,600 plans and 10 million workers who are affected by multiemployer plans. Now, the second points have to do with the adequacy 

of funding overall and the PBGC exposure. As was mentioned by 

Mr. McNulty, the PBGC estimates that plans in the aggregate are 

underfunded by about $150 billion at present. In contrast, the single-employer plans are short by about $450 billion. This produces 

a broad exposure to underfunding among participants in the multiemployer plans. As this slide shows, a small fraction, 11 percent, 

are actually in plans that are adequately funded at present, and a 

significant number, over a quarter, are in plans that are funded at 

under 70 percent of the required rates. 

However, very little of this underfunding would likely end up on 

the books of the PBGC. As has been true in the past, premiums 

into the PBGC have largely exceeded the loans going out. There is 

a 2004 deficit, a shortfall of assets versus liabilities of $236 million 

for the PBGC, contrasted to the $23 billion that was mentioned for 

the single-employer plans. In one expands the set to those plans 

that are not already insolvent but those which could possibly become solvent, the exposure of the PBGC is another $108 million. 

In contrast, if you do the same computation for single-employer 

plans, the PBGC’s exposure is about $96 billion. So, the order of 

magnitude of exposure of the PBGC is much smaller. Instead, the 

exposure is at the firms and the workers, and there the key policy 

issues are to find a way to adequately fund these plans so as to 

be able to survive the economic circumstances that might shift 

through time. In particular, given the concentration in different industries and the funding across those industries, you must put 

funding in place sufficient to weather shifts in profitability and 

competitiveness of industries going forward, both for the known 

problems and for those which might transpire in the future. Step 

one in doing that is to more quickly identify underfunding, make 

available such information to all stakeholders involved—the trustees, the workers, the firms, and the PBGC. Greater transparency 

helps for monitoring on the part of all parties. It is also useful to 

have forward-looking measures, not those concentrated in the 

present but those which can anticipate funding problems going forVerDate Aug 31 2005 06:59 Apr 28, 2006 Jkt 026381 PO 00000 Frm 00010 Fmt 6633 Sfmt 6602 E:\HR\OC\26381.XXX 26381

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ward and disclose future problems in a timely fashion as well. 

Then the second step is having identified these kinds of situations, 

have adequately tight rules so that funding is maintained and, 

where necessary, beefed up in order to have these plans survive 

into the future. As I said, I am pleased to have the chance to be 

here today Look forward to answering your questions. 

[The prepared statement of Mr. Holtz-Eakin follows:] 

Statement of Douglas Holtz-Eakin, Director, Congressional Budget Office 

Mr. Chairman, Ranking Democratic Member McNulty, and Members of the Subcommittee, thank you for this opportunity to discuss the financial status of and government insurance for multiemployer defined-benefit pension plans. My presentation today will focus on three general points: 

• Although multiemployer pension plans and single-employer pension plans are 

both designed to provide specified monthly benefits to workers at retirement, 

there are major differences between the two types of plans in how they are 

structured. 

• The multiemployer plans, as a group, are significantly underfunded—by an 

amount estimated by the Pension Benefit Guaranty Corporation (PBGC) to total 

$150 billion. In contrast to its responsibility for single-employer plans, PBGC 

underwrites a relatively small portion of the benefits associated with any shortfall in multiemployer plans. 

• Given the financial exposure that both workers and employers face in multiemployer plans, questions arise about whether current funding rules should be altered to better promote the long-term financial security of the plans and whether additional changes should be made to promote the availability of timely, accurate information about the financial condition of the plans. 

Characteristics of Multiemployer Pension Plans 

Given all of the recent attention on PBGC’s single-employer insurance program, 

it is sometimes easy to overlook the smaller multiemployer program. According to 

PBGC’s estimates, last year the agency provided insurance coverage to 9.8 million 

participants in about 1,600 multiemployer plans. Those participants constituted over 

20 percent of all participants in a defined-benefit plan whose pension is protected 

under the Employee Retirement Income Security Act (ERISA). 

A multiemployer plan is a pension arrangement between a labor union and a 

group of at least two unrelated employers, usually in a common industry. Like a 

single-employer pension plan, a multiemployer plan generally provides specified 

monthly benefits at retirement. But unlike participants in a single-employer plan, 

whose benefits generally are based on years of service and a measure of earnings, 

participants in a typical multiemployer plan receive benefits based on a flat dollar 

amount for each year of service in employment covered by the plan. For example, 

a worker in a plan that credits participants with $100 per month for each year of 

service who retires after 30 years of service in covered employment would be eligible 

for a monthly pension of $3,000 per month (or $36,000 per year). 

Also unlike participants in a single-employer plan, participants in a multiemployer plan generally can continue to accrue credits toward their pension when they 

change employers, as long as the new employer is a part of the plan. That portability makes such plans particularly attractive in industries such as construction, 

in which workers move from work site to work site, sometimes employed by different companies. 

Participation in multiemployer plans is heavily concentrated in certain sectors of 

the economy. Half of all participants are in just two industries: construction and 

trucking (see Table 1); and few workers in those industries are in single-employer 

plans. Those two industries account for less than one-tenth of all private-sector employment. 

Table 1. Participation in PBGC–Insured Multiemployer Plans, by Industry, 2003 

Insured Participants 

Number Percent 

Construction 3,542,568 37 


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Table 1. Participation in PBGC–Insured Multiemployer Plans, by Industry, 2003—Continued 

Insured Participants 

Number Percent 

Manufacturing 1,483,441 15 

Services 1,392,810 14 

Retail Trade 1,380,438 14 

Trucking 1,374,717 14 

Other 524,966 5 

Total 29,698,940 100 

Source: Congressional Budget Office based on Pension Benefit Guaranty Corporation, Pension Insurance Data Book 2004 (Spring 2005), p. 89. 

As with single-employer plans, the percentage of the nation’s private-sector wage 

and salary workers participating in multiemployer plans has been declining for over 

two decades (see Figure 1). In recent years, only about 4 percent of private-sector 

employees have been in multiemployer plans, down from almost 8 percent in 1980. 

(The comparable figures for the single-employer plans are 15 percent and 27 percent.) 

Figure 1. 

Share of Private-Sector Employees Who Participate in PBGC-Insured Pension Plans 

(Percentage of private-sector wage and salary workers) 

Source: Congressional Budget Office based on Pension Benefit Guaranty Corporation, Pension Insurance Data Book 2004 (Spring 2005), p. 58. 

Note: Data for 1981 through 1984 were unavailable. 

Moreover, in both types of plans, the percentage of participants still working has 

steadily declined, and the percentage who have retired or who are vested but have 

not yet begun receiving a pension has steadily risen. In recent years, about half of 

all participants are still working in a job covered by their plan, compared with 

three-quarters in 1980 (see Figure 2). 


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Figure 2. 

Share of Participants in PBGC-Insured Pension Plans Working in a Job 

Covered by Their Plan 

(Percentage of total participants) 

Source: Congressional Budget Office based on Pension Benefit Guaranty Corporation, Pension Insurance Data Book 2004 (Spring 2005), pp. 57 and 88. 

Note: Data for 1981 through 1984 were unavailable. 

Nearly three-quarters of participants in multiemployer plans and two-thirds of 

those in single-employer plans are in plans with more than 10,000 people. Participation in relatively small plans (those with fewer than 1,000 participants, for example) 

is more likely for people in single-employer plans; about 9 percent of participants 

in single-employer plans are in such plans, while just 3 percent of participants in 

multiemployer plans are (see Table 2). 

Table 2. Participants in PBGC–Insured Multiemployer and Single-Employer Plans, by Size of 

Plan, 2004 

Number of Participants 

in Plan 

Multiemployer Plan 

Participants 

Single-Employer Plan 

Participants 

Number 

(Thousands) Percent 

Number 

(Thousands) Percent 

10,000 or More 7,248 74 22,425 65 

15,000 to 9,999 898 9 3,619 10 

1,000 to 4,999 1,364 14 5,526 16 

Fewer Than 1,000 319 3 3,047 9 

Total 9,828 100 34,617 100 

Source: Congressional Budget Office based on Pension Benefit Guaranty Corporation, Pension Insurance Data Book 2004 (Spring 2005), pp. 55 and 86. 

Funding 

The benefits paid by multiemployer plans are financed by participating employers 

through contributions generally specified in collective bargaining agreements. Those 

contributions are typically based on the number of hours worked by employees covered by the plan. Thus, if a plan is sponsored by employers that all have 100 covVerDate Aug 31 2005 06:59 Apr 28, 2006 Jkt 026381 PO 00000 Frm 00013 Fmt 6633 Sfmt 6621 E:\HR\OC\26381.XXX 26381

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ered full-time employees, each employer pays a comparable amount into that plan, 

while a firm with 200 such workers pays twice as much. 

Like single-employer plans, multiemployer plans can become underfunded for a 

number of reasons. For example, underfunding may have resulted from plans’ 

adopting a lower discount rate, which would increase the present value of their future liabilities, or from a drop in the value of their assets. Under those conditions, 

sponsors of both types of plans are allowed to amortize the underfunding over as 

many as 30 years. 

A unique concern in the financing of multiemployer plans is the treatment of 

firms that leave them. If a plan is adequately funded—that is, it contains enough 

assets to pay the present and future vested claims that participants have already 

accrued—then a firm’s departure would not affect the plan’s financial status. But 

if the plan is underfunded, then the remaining employers would be left with the departing firm’s share of the unfunded liabilities. To address that problem ERISA established a special set of rules for firms that wish to discontinue their cosponsorship 

of a multiemployer plan. Such a sponsor owes a ‘‘withdrawal liability,’’ which represents the firm’s pro rata share of the plan’s unfunded liabilities, and must make 

payments periodically over a multiyear schedule specified in statute. However, those 

rules may not help if the firm leaves the plan because it has gone out of business. 

According to forms filed by multiemployer plans in 2002, most participants are 

in plans that appear to be underfunded (see Table 3). In 2002, 26 percent of participants were in plans with assets sufficient to cover less than 70 percent of projected 

liabilities; 51 percent were in plans with assets to cover 70 percent to 89 percent; 

and 12 percent were in plans to cover 90 percent to 99 percent. Only 11 percent 

of participants were in plans that had at least enough assets to cover projected liabilities. The average funding ratio in that year was 77 percent, and underfunded 

plans existed in every major industry (see Table 4). (According to unpublished data 

from PBGC, the average funding ratio fell to 71 percent in 2003.) 

Table 3. Participants in PBGC–Insured Multiemployer Plans, by Percentage of Plans’ 

Liabilities Funded, 2002 

Funding Ratio (Percent) 

Multiemployer Plan Participants 

Number 

(Thousands) Percent 

Less Than 70 2,511 26 

70 to 89 4,880 51 

90 to 99 1,190 12 

100 or More 1,049 11 

Total 9,630 100 

Source: Congressional Budget Office based on Pension Benefit Guaranty Corporation, Pension Insurance Data Book 2004 (Spring 2005), p. 94. 

Table 4. Funding of PBGC–Insured Multiemployer Plans, by Industry, 2002 

Average Funding Ratio 

(Percent) 

Construction 77 

Manufacturing 83 

Services 83 

Retail Trade 78 

Trucking 70 

All PBGC–Insured Multiemployer Plans 77 


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Source: Congressional Budget Office based on Pension Benefit Guaranty Corporation, Pension Insurance Data Book 2004 (Spring 2005), p. 95. 

The Role of the PBGC 

While single-employer and multiemployer pensions originally were treated similarly under ERISA, enactment of the Multiemployer Pension Plan Amendments Act 

of 1980 changed the treatment of multiemployer plans significantly. PBGC’s multiemployer program is legally distinct from its single-employer program, and crosssubsidization between the two programs, including mixing assets and receipts from 

premiums, is not permitted. 

The insured events under the two programs are very different. For single-employer plans, PBGC insures against the termination of an underfunded plan. If a 

single-employer plan is terminated without sufficient assets to pay all current and 

future promised benefits, PBGC takes over the plan’s assets and liabilities and attempts to recover additional funds from the sponsor. PBGC then makes monthly 

benefit payments to beneficiaries, up to a limit set in law. For multiemployer plans, 

the insured event is the insolvency of a plan. A multiemployer plan is considered 

insolvent if, in a given year, it does not have sufficient funds on hand to pay promised benefits in that year. In that event, the plan’s benefit payments are limited to 

an amount guaranteed by PBGC, and the agency provides loans to the plan on a 

quarterly basis to make up for any funding shortfall. PBGC does not take over the 

plan, and the plan remains in operation. The loans continue until the plan recovers 

or until all vested benefits have been paid. If the plan recovers from insolvency, it 

is required to repay all of the outstanding loans on a commercially reasonable 

schedule in accordance with regulations. In most cases to date, however, the plans 

have not recovered, and PBGC has had to write off the loans. 

The guarantee limits on benefits in the two programs also differ substantially. In 

the single-employer program, the current limit on annual benefits for a worker retiring at age 65 with a single-life annuity is about $46,000. For the multiemployer program, the limit is lower and depends on a participant’s promised benefits and number of years of service in the plan. For example, the maximum annual guarantee 

for a worker with 30 years of covered employment is about $13,000. 

The multiemployer program is financed through a premium that is levied on plans 

according to the number of insured participants. Currently, that annual premium 

is $2.60 per participant, and in 2004, PBGC collected about $25 million in premium 

receipts. In contrast, the premium in the single-employer program is based on a perparticipant charge (currently $19 per participant) plus an additional charge (of $9 

per $1,000 of underfunding per participant) for plans that are underfunded. In 2004, 

PBGC collected a total of $1.5 billion in premiums in the single-employer program. 

As with the single-employer program, the annual cashflows of the multiemployer 

program are recorded in the federal budget. Premium collections and repayments 

of loans are shown as offsetting receipts, while benefit payments, financial assistance (loans), and administrative expenses appear as outlays. Only rarely has the 

budget recorded an annual deficit for the multiemployer program. 

In contrast to that of PBGC’s single-employer program, the financial condition of 

the multiemployer program has been generally favorable. The program was in surplus from 1985 to 2002 and fell into deficit only recently, in 2003 and 2004 (see Figure 3). At the end of fiscal year 2004, PBGC’s multiemployer account had assets 

(from premiums and investment returns) totaling about $1.1 billion. At the same 

time, it had liabilities totaling $1.3 billion. Nearly all of those liabilities represented 

the present value of nonrecoverable future financial assistance that PBGC expected 

to provide to insolvent multiemployer plans. The net position of the multiemployer 

program, the difference between assets and the present value of liabilities, was a 

deficit of $236 million. (At the same time, PBGC’s single-employer program had a 

deficit of $23.3 billion.) 


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Figure 3. 

Net Financial Position of PBGC’s Multiemployer Program 

(Millions of dollars) 

Source: Congressional Budget Office based on Pension Benefit Guaranty Corporation, Pension Insurance Data Book 2004 (Spring 2005), p. 82. 

Note: Data for 1981 through 1984 were unavailable. 

The difference between PBGC’s exposure in the single-employer and multiemployer programs is illustrated by other financial information provided by PBGC. According to the agency’s estimates, at the end of 2004, total pension underfunding 

was $150 billion in multiemployer pension plans and $450 billion in single-employer 

plans. Furthermore, by PBGC’s estimates, it was ‘‘reasonably possible’’ that multiemployer plans would require future financial assistance of about $108 million; the 

comparable liability for single-employer plans was $96 billion. 

The contrast between the financial condition of PBGC’s multiemployer program 

and its single-employer program is partly a result of the quite different responsibilities that the agency has for each. In effect, employers and their workers bear much 

more of the risks associated with underfunding in multiemployer plans than they 

do in single-employer plans. 

In a multiemployer plan that is underfunded, employers bear more of the risks 

because a firm must pay an exit fee when it withdraws. Moreover, to the extent that 

the plan remains underfunded, the remaining firms are required to increase their 

payments into the plan. Workers bear more of the risks because the level of the pension guaranteed by PBGC is much lower for multiemployer plans that are insolvent 

than it is for single-employer plans that the agency has taken over. 

Issues 

For the millions of workers who are employed in a company that participates in 

a multiemployer defined-benefit pension plan, the promised annuity is often an important part of their retirement income. Unlike most other forms of compensation, 

which workers receive when they provide their services, pension benefits may be 

paid long after they are earned. Therefore, the availability of benefits from multiemployer plans depends on the adequate funding of those benefits in advance. 

Funding rules that are strict, along with strong enforcement, lessen the need for 

(and therefore the appropriate price of) pension insurance. Conversely, looser funding requirements increase the risks to the insurance provider (in this case, PBGC) 

and raise the appropriate price of the insurance. 

PBGC’s experience over the past 25 years might lead one to conclude that the existing structure of funding requirements and pension insurance has worked much 

better in the multiemployer program than in the single-employer program. The 

agency’s financial reports show very little exposure, either historically or prospectively, resulting from multiemployer plans, whereas billions in claims have been 


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booked in the single-employer program, and tens of billions in claims are likely to 

be acquired over the next quarter century. 

However, the level of claims should not be the sole measure by which policies addressing pension funding and insurance are assessed. The overall question to ask 

is, are the goals of the pension system being achieved in the most efficient manner 

and with the least impact on the economy in general? 

Toward that end, one issue is whether current funding rules should be altered to 

better promote the long-term financial security of multiemployer plans and thereby 

lessen the chances that they will not be able to pay the promised pensions. For instance, some observers have raised concerns that limits on employers’ contributions 

(designed to prevent firms from reducing their tax liabilities by overfunding pensions) have led to underfunding and limited flexibility. Similarly, some have suggested that tax rules (both the deductibility of contributions and the applicability 

of excise taxes to overfunding) have encouraged plans’ trustees to increase benefits 

above the levels that could be safely maintained in the event of an industry downturn or a fall in the ratio of active to retired workers. 

A second issue is whether additional changes should be made to promote the 

availability of timely, accurate information about the financial condition of the 

plans. For multiemployer plans, achieving transparency is more complicated than 

it is for single-employer plans, and it may be even more important to participants 

in multiemployer plans than to those in single-employer plans because of the difference in the guaranteed amounts in the two programs. Concerns have been raised, 

for example, that firms not represented on a plan’s board of trustees are not receiving adequate information. Concerns have also been raised about whether disclosure 

rules are sufficient, although they were enhanced last year. 

f 

Chairman CAMP. Well, thank you very much. I guess my first 

question is: In your testimony you indicate that the multiemployer 

plans were in surplus until 2002 and that obviously the deficits are 

relatively recent. What happened that resulted in or led to this 

change in circumstance? 

Dr. HOLTZ-EAKIN. That part of the dynamics are similar to the 

single-employer plans. The largest impact is the falling stock market and thus the decline in the value of the assets behind the 

plans. Also, to some extent, any change in actuarial assumptions 

to reflect lower interest rates would beef up the size of the liabilities. Those two effects would put the plans into the deficit. 

Chairman CAMP. You also indicated that the PBGC has estimated underfunding in multiemployer plans could be as high as 

$150 billion. Is this concentrated in particular industries? 

Dr. HOLTZ-EAKIN. It is concentrated in the industries that 

were on the slide. The PBGC’s numbers indicate that about 45 percent of that is in construction; another nearly 30 percent is in the 

trucking industry. So, reflective of the concentration of the plans in 

those areas, the underfunding is there as well. 

Chairman CAMP. I realize those are the largest number of multiemployer plans. Is it those particular industries that have concentrations, or is it just because they have the most multiemployer 

plans? 

Dr. HOLTZ-EAKIN. It is a little bit of both. I think the dominant 

fact that comes out of looking at the numbers is that the multiemployer plans as a whole are underfunded. They look very similar 

in their overall funding to the list of single-employer plans that are 

declared underfunded by the PBGC. So, essentially the multiemployer universe is underfunded, and the level of underfunding is 

comparable. 


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Chairman CAMP. Are there any special considerations in those 

particular industries that would make funding for those plans particularly difficult to achieve? 

Dr. HOLTZ-EAKIN. I think on a going-forward basis there are 

no special considerations that probably apply. There is the legacy 

of underfunding from the past and a set of transitions to any new 

rules that would have to be—you would have to take into consideration the financial condition of those industries. But I do not think 

that there is anything that looking forward singles out particular 

industries. Indeed, it would be desirable not to, to make sure that 

regardless of the industry in which the plan is located, there are 

adequate funding rules put in place so that workers will receive the 

compensation they have already earned, regardless of what happens in that industry over time. 

Chairman CAMP. All right. Thank you very much. Mr. McNulty 

may inquire. 

Mr. MCNULTY. Thank you, Mr. Chairman. Thank you, Mr. Director, for being here today and for your service to the country. In 

your testimony, you kind of pretty clearly stated what the problems 

are for us to look at, and toward the end of your oral testimony, 

you mentioned in general terms some of the solutions that we 

should be looking at. But could you be a little bit more specific in 

that regard about improving the system and where we go from 

here so that we could get more specific about what we might be 

able to do in the form of legislation? 

Dr. HOLTZ-EAKIN. Let me start by what appear to be things to 

take off the table. In contrast to the single-employer plans where 

it appears that the insurance itself is underpriced, that does not 

appear to be the case here. This is not a PBGC issue. It is about 

the funding rules that apply within these plans. There—— 

Mr. MCNULTY. You mentioned tightening the rules. Can you expand on that? 

Dr. HOLTZ-EAKIN. I think you want to focus on two things. 

First, there is a self-enforcement mechanism built into multiemployer plans because of the multiple stakeholders, allowing them to 

see more clearly the actual status of the plan at a point in time. 

So, quick disclosure using things that are close to market value so 

that you can see the status at any point in time provides automatic 

incentives for employers to not get stuck with the bill and for workers to make sure they are going to get their pension. So, there is 

an information component to this which augments the natural incentives of these kinds of plans. The second is rules. Make the 

funding tighter. There I think that singling out significantly underfunded plans and putting in place a mechanism to ensure that they 

become adequately funded, regardless of future collective bargaining agreements, making sure that that is a binding commitment is important. 

Mr. MCNULTY. Thank you, Mr. Director. I yield back my time, 

Mr. Chairman. 

Chairman CAMP. Thank you. The gentleman from Illinois, Mr. 

Weller, may inquire. 

Mr. WELLER. Thank you, Mr. Chairman. This is an important 

hearing, and, Dr. Holtz-Eakin, I appreciate your participation this 

morning. When I think of the multiemployer pension funds in the 


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district I represent in the south suburbs and rural areas outside 

the city of Chicago, I think of a lot of building trades people, those 

that we see working on the roads, those we see working on the construction of commercial and residential projects in my area, which 

is growing rapidly. So, when we talk about pensions, multiemployer pensions, those are the people I think of because they are 

my neighbors and they all have concerns. It is my understanding 

there are about 16,000 multiemployer pension funds, there are 

about 65,000 employers that participate in these multiemployer 

pensions funds, and there are just less than 10 million workers 

that are directly affected. Are those numbers accurate, Dr. HoltzEakin? 

Dr. HOLTZ-EAKIN. I think the plans are closer to 1,600, but the 

rest is on the mark. 

Mr. WELLER. From the standpoint of the PBGC, can you talk 

about how the PBGC treats single-employer pension funds versus 

multiemployer funds, the difference between those two when it 

comes to PBGC? 

Dr. HOLTZ-EAKIN. Probably the key difference is with a singleemployer plan, the PBGC, ultimately the key act is termination of 

the plan and the PBGC taking over control of the plan and having 

to use the assets available to meet the benefit commitments. In the 

multiemployer context, the triggering issue is insolvency, the inability of the plan to meet this year’s retirement payments with the 

resources on hand. At that point the PBGC does not take over ownership. Instead, it provides loans so as to be able to meet at least 

the minimum promised retirement benefit for that year and for 

subsequent periods as necessary. Ideally, one might imagine those 

loans would be repaid as the plan is restored to health, but in practice they typically are not. So, the PBGC services on an ongoing 

basis the benefit promises. 

Mr. WELLER. You had noted in your statement that the PBGC 

estimates it may be required to provide $108 million in financial 

assistance to multiemployer pension plans while the potential 

PBGC exposure for single-employer plans could be nearly $100 billion. Think about that, $108 million versus $100 billion. Is the difference in PBGC exposure a sign that multiemployer pension funds 

are in better shape? Or does it reflect multiemployer plans placing 

funding burdens on every employer who participates? How do you 

differentiate that projected need for financial assistance? 

Dr. HOLTZ-EAKIN. It is certainly not the case that it indicates 

they are in better shape. As I mentioned to the Chairman, if you 

look at the underfunded single-employer plans, the funding ratios 

are comparable to the typical funding ratio in the entire multiemployer plan universe. So, there is significant underfunding of the 

multiemployer plans as a whole. The PBGC is simply less exposed. 

It has a smaller benefit guarantee, and more of the risk is shifted 

as a result of the other stakeholders, firms in the form of making 

up the underfundings or workers in the form of lower pension benefits than they anticipated. So, the small exposure of the PBGC 

does not adequately measure the size of the policy problem, particularly if you are a participant in this particular system. 


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Mr. WELLER. One statistic there, you know, I said there were 

1,600 multiemployer pension funds. How many single-employer 

pension plans are there? 

Dr. HOLTZ-EAKIN. There are about 44 million workers covered, 

and we can get that number for you for the record. I do not know 

it off the top of my head. 

Mr. WELLER. Thank you. Thank you, Mr. Chairman, for the opportunity to question. 

Chairman CAMP. Thank you. The gentleman from California, 

Mr. Thompson, may inquire. 

Mr. THOMPSON. Thank you, Mr. Chairman. Just to pick up on 

that last question, should we be more concerned—one underfunding problem, should that be of greater concern to us than the 

underfunding problem in the other plan? 

Dr. HOLTZ-EAKIN. There are different kinds of concerns. I 

would say that for workers in either a single-employer or multiemployer plans, concerns are comparable. If you are underfunded, you 

are underfunded, and your pension promise is at risk. The threshold question in single-employer plans is whether the large exposure 

of the PBGC will be allowed to spill over into the budget as a whole 

and require more taxpayer resources to shore it up. At the moment, 

there is no statutory authority or requirement for the budget as a 

whole to cover any of the large PBGC exposures. There may, however, be obvious pressure to come up with some money. That is the 

real difference in this circumstance. 

Mr. THOMPSON. Thank you. I think in your opening statement 

or maybe in response to somebody’s question, you talked about how 

we got into this deficit problem. I apologize if I am causing you to 

explain something that I should already know. But do we have 

some means by which we can adjust this as problems happen? You 

talked about the downturn in the stock market. Is there an ongoing 

means where this kind of self-adjusts, or do we have to play catchup once a problem occurs? 

Dr. HOLTZ-EAKIN. In general, if one thinks of the way the 

funding schemes work, number one is you would like to have it be 

as forward-looking as possible so you can anticipate the future and 

the liabilities and assets that you will have available. I think that 

is a beneficial part of any reform, thinking about looking ahead instead of just focusing on this year’s insolvency. Number two, it is 

useful to quickly revalue both assets Liabilities. The big action in 

the multiemployer plans will be on the asset side. The stock market goes down, it should be recognized right away that there are 

fewer resources available to meet pension commitments. At that 

point, a new plan should be put in place which brings the funding 

up to an adequate level. So, it doesn’t mean you have to have dramatic shifts in the amount of payments that people make, but you 

should recognize dramatic shifts in the underlying funding status. 

Rules that smooth the underlying funding status disguise that and 

make it harder to recognize problems as they develop. 

Mr. THOMPSON. Thank you. Mr. Chairman, I yield back. 

Chairman CAMP. Thank you. The gentleman from Indiana, Mr. 

Chocola, may inquire. 

Mr. CHOCOLA. Thank you, Mr. Chairman. Dr. Holtz-Eakin, 

thanks for being here today. Just quickly, I keep trying to figure 


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out why there is such a significant level of underfunding in multiemployer and single-employer, and you were asked that earlier, 

and I keep trying to figure out: Is it bad behavior by the employers? Are they not living up to their funding obligations? Is it bad 

formulas that drive the funding? One of the things that is offered 

is the stock market has declined. At 10,300, the stock market is at 

a historically high level. Is there a timing issue? Are we going to 

see that the funding levels are going to increase because the stock 

market recently has performed better? It is a lot different than at 

9,000 to have it at 10,300. 

Dr. HOLTZ-EAKIN. I think that there is no quicker way for me 

to get into trouble than to forecast the stock market. 

Mr. CHOCOLA. No, I am not asking you—— 

Dr. HOLTZ-EAKIN. I will do that anyway. 

Mr. CHOCOLA. I am just saying today, because the stock market is historically at pretty high levels. 

Dr. HOLTZ-EAKIN. It will help if the market rises, but I do not 

think anyone would anticipate a return to the levels in the late 

nineties and thus solve the funding problem through that mechanism. Instead, I think at the core of the broad exposure is a fact 

that even though in following the rules—I mean, there is no evidence anyone did not follow the rules. The rules permit very slow 

recognition of the decline in the asset values. So, for years after the 

assets actually go down in value, there does not appear on the 

books to be any problem. There is no requirement to make aboveaverage payments to increase funding, and that is at the root of the 

impact of the stock market decline on the funding status in both 

systems at the moment. 

Mr. CHOCOLA. I think your third point was to enhance disclosure of the funding status and also to tighten the funding obligations. So, would that help if you—does the disclosure aspects and 

obligations fix some of the timing of the value of the underfunded 

levels? 

Dr. HOLTZ-EAKIN. I think that you do three steps. Step one is 

quickly recognize that the plan has become underfunded, so you do 

that. Then step two, disclose it to workers, firms, and all the participants in a multiemployer plan. At that point you have clear incentives in a collective bargaining setting to get more funding in 

to honor the promise. Then step three, support that with a set of 

funding rules which require that to take place as well so as not to 

have this end up being a PBGC problem. 

Mr. CHOCOLA. Isn’t there a bit of a catch-22 in some of the proposed reforms with the yellow zone and red zone plans? If you require underfunded plans to accelerate their funding, aren’t you 

placing a burden on some of the companies that are part of the 

plan that may ultimately result in their demise, and then putting 

more pressure on the other employers and actually making the 

health of the multiemployer plan in worse shape than in better 

shape? Do you see a catch-22 there, and is that a concern or not 

for you? 

Dr. HOLTZ-EAKIN. It is a question of magnitude. I think that 

as a de novo starting strategy, it is a perfectly good one. Picking 

up some of these problems in midstream raises the concerns that 

you mentioned. However, because there is a look-ahead provision— 


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you are looking ahead over, you know, 7 years or so—you can anticipate problems and not have abrupt changes in the requirements 

for payments that would place these firms in a really tough position of coming up with the cash. So, I think by having it put in a 

forward-looking framework, it alleviates that concern to some extent. 

Mr. CHOCOLA. Thank you. Thank you, Mr. Chairman. I yield 

back. 

Chairman CAMP. Dr. Holtz-Eakin, just to follow up the disclosure point that you made that employers would then be able to address that in collective bargaining agreements, those often are 

multiyear contracts. So, are you suggesting they would go in and 

open those up again and make those changes immediately? 

Dr. HOLTZ-EAKIN. No. My point was concentrated on the sort 

of economic incentives that that would embed in the system. By 

recognizing this as quickly as possible at the next available moment, both firms and workers would have an incentive to come to 

terms with this. 

Chairman CAMP. All right. The gentlewoman from Ohio, Ms. 

Tubbs Jones, is recognized for 5 minutes. 

Ms. TUBBS JONES. Mr. Chairman, thank you very much for the 

recognition. Dr. Holtz-Eakin, it is nice to see you again. I am going 

to pass on questioning this morning. I know you all do not believe 

it, but I am. Thanks. 

Chairman CAMP. The gentlewoman from Pennsylvania, Ms. 

Hart, is recognized for 5 minutes. 

Ms. HART. Thank you, Mr. Chairman. My colleague from Indiana asked as part of his question about the cause for underfunding, 

and I did not hear you answer that. So, aside from the fact that 

it might be the performance of the markets, is there something 

else? 

Dr. HOLTZ-EAKIN. Well, the performance of the markets took 

place within a set of rules that, A, allows the decline in asset values to be masked to some extent, and, B, may not provide sufficiently strong funding requirements. So, the markets is a mechanism explanation after the fact. Where did the asset values go? You 

can see that. There is the different issue, which is how should a 

system recognize that assets are going to change in value, that that 

is inevitable, and make sure that there are incentives to fully fund 

pensions regardless of that. 

Ms. HART. So, then would you support some changes to the 

rules that would actually be more—I did not read through all your 

testimony. Do you actually suggest certain changes in your testimony? 

Dr. HOLTZ-EAKIN. We really focused on the broad areas that 

I mentioned. We do not have specific legislative recommendations. 

However, the folks who will be on the panel after this are part of 

groups that have worked very hard and are focused in those areas, 

recognition of plans that have moderate or even extreme degrees 

of underfunding and forward-looking attempts to address that as 

part of new funding rules. So, I think that would be a good place 

for that discussion. 

Ms. HART. One of your slides broke down the sections of industry that actually have multiemployer plans, and I am wondering if 


hmoore on PROD1PC68 with HMRPT
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in that analysis you discovered if a higher percent of, for example, 

the constructions ones are underfunded versus maybe the ones that 

are retail trade. Did you notice that the underfunding is focused 

more toward a certain particular industry? 

Dr. HOLTZ-EAKIN. One of the slides—the last one I showed— 

shows the typical funding ratio by industry, so construction about 

77 percent, manufacturing 83, service 83, retail trades 78, and 

trucking 70 percent. That is not a fraction of plans that are underfunded, but that is the overall funding ratios. We can get more detail to you if you are interested in those questions. 

Ms. HART. Yes, I am. I am trying to determine if maybe there 

is some problem, for example, with the downturn in manufacturing, 

but it does not look like that is the problem. I am trying to figure 

out maybe if there is some issue with our economy in those particular industries that might have been contributing to the problem. 

Dr. HOLTZ-EAKIN. I think the presence of the plans fits the 

labor markets of those industries, and those labor market incentives are very important. The portability of this pension across 

work sites and across employers explains the concentration in 

those industries. The adequacy of the funding rules is the central 

issue in making sure that those pensions would survive any industry booms or busts, as the case may be. The economy will ultimately always change its structure over time, and the key is to 

make sure that the pension plan promises are honored regardless 

of that. So, I do not think it is an industry problem. 

Ms. HART. Okay. 

Dr. HOLTZ-EAKIN. I think the plans are in those industries because those are the right incentives for those industries, and then 

the funding rules are meant to make sure it survives any industry 

dynamics. 

Ms. HART. Okay. Just one final musing, and I am not sure how 

much time you spent on some of the State pension plans for State 

teachers organizations and those kinds of organizations, but a lot 

of them have been over the last 10 years or so well overfunded because they have these pretty high requirements and that sort of 

thing. I am worried about us going to the point with our requirements that we end up significantly overfunding these plans, because you don’t to have all that tie-up, you know, you want to have 

people to have control over more of their money if you can, that 

sort of thing. Do you think we are in danger of that if we make 

significant changes to the funding rules? 

Dr. HOLTZ-EAKIN. There are really two instruments that would 

be available to address that concern. The simplest is, you know, 

just raise the amount that one could overfund the plan and still 

have tax deductibility. That is a clear consideration here, particularly given the collective bargaining agreements. I think that is important to think about. The second way to address that is to more 

closely match the risks on the assets and the liabilities, and in this 

case, since the liabilities do not shift much through time, you have 

to have fairly safe assets to match up in the same way. If they are 

all moving up and down at the same time, you will stay properly 

funded even without overfunding them in the aggregate. Those are 

two different strategies for dealing with that issue. 


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Ms. HART. Thank you. I yield back, Mr. Chairman. 

Chairman CAMP. Thank you. Dr. Holtz-Eakin, in response to 

Ms. Hart’s question, though, there is joint and several liability in 

the multiemployer plans, which, to the extent industries have had 

financial difficulties, there is going to be a cascading burden of pension liability, and I think that is the point that she was sort of getting at. Did you see that in any of your research? 

Dr. HOLTZ-EAKIN. Well, certainly the history has been that 

while the rules allow for this withdrawal of liability and the idea 

is to keep the plan funded, if there is an economic shift and downturn in that industry and there is large withdrawals, that is not 

a mechanism that will be adequate to take care of that. You will 

have to go to something else in that case. 

Chairman CAMP. All right. Thank you. The gentleman from 

Texas, Mr. Doggett, may inquire. 

Mr. DOGGETT. Thank you, Mr. Chairman. Thank you for your 

testimony. The last issue that you address in your written testimony concerns transparency and the availability of accurate information to participants, an issue that I have been concerned with 

and have had legislation with Congressman George Miller and a 

number of our colleagues the last two sessions. Our language has 

basically been included within Congressman Boehner’s measure. 

Have you done any evaluation—you have indicated in your written 

testimony the importance of getting information to participants, 

but have you attempted any kind of evaluation of the adequacy of 

that language in accomplishing that task? 

Dr. HOLTZ-EAKIN. We have not yet done a specific evaluation 

of Mr. Boehner’s bill, but it does, upon reading, appear to be concentrated in the areas that we highlighted in the testimony. In that 

respect, it is certainly on track, and we can work with you further 

in looking at the details about the magnitudes. 

Mr. DOGGETT. I believe the data indicates that while multiemployer plans have done better the single-employer plans, still about 

one in four participants is in a plan that is funded only to about 

the 70-percent level. 

Dr. HOLTZ-EAKIN. I think you have to be careful in saying that 

one has done better than the other. I think that most multiemployer plans are underfunded; only 11 percent are fully funded. 

Given that they are underfunded and given that single-employer 

plans are underfunded, they look about the same. So, I do not 

think in terms of funding either has a large advantage over the 

other. It is the case that there are a significant number of workers 

who are in plans that show substantial underfunding. It is a pervasive phenomenon. 

Mr. DOGGETT. As to those significant number of workers in underfunded plans, it would be likely that a significant number of 

them are not aware of whether their plan is underfunded or how 

underfunded it is under current conditions. 

Dr. HOLTZ-EAKIN. It is certainly the case that it would improve 

their ability or their representative’s ability to take appropriate 

steps if they knew quickly the pension status. 

Mr. DOGGETT. As you are well aware, on a different aspect of 

this, there is considerable concern that if too many changes are 

made, employers will drop plans. Again, do you have any observaVerDate Aug 31 2005 06:59 Apr 28, 2006 Jkt 026381 PO 00000 Frm 00024 Fmt 6633 Sfmt 6602 E:\HR\OC\26381.XXX 26381

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tions as relates to the Boehner bill, particularly with reference to 

those companies that are in the endangered or yellow zone, as to 

what the likelihood is that employers will drop plans if those 

changes are made? 

Dr. HOLTZ-EAKIN. We do not have that, and it is something 

that we would be happy to work with you on. I think it is an important issue. It has come up in both the multiemployer and the 

single-employer context, and the instruments are different, premiums on the single employers, and here funding rules, but the 

same issues arise. 

Mr. DOGGETT. Have there been any attempts in previous Congresses to mandate that certain types of employers have pension 

plans? 

Dr. HOLTZ-EAKIN. I am sorry? 

Mr. DOGGETT. Have there been any attempts in previous Congresses to mandate that certain types of employers have pension 

plans in contrast with the voluntary system that has been our tradition? 

Dr. HOLTZ-EAKIN. Not to my knowledge, but we should go 

check. That is not my area of expertise. 

Mr. DOGGETT. Thank you for your testimony. 

Chairman CAMP. Thank you. Thank you, Dr. Holtz-Eakin. We 

very much appreciate your testimony Look forward to working with 

you in the weeks and months ahead. Thank you. 

Dr. HOLTZ-EAKIN. Thank you. 

Chairman CAMP. And now our panel, please come to the dais: 

Charles Clark, President of Clark Construction Co. from the great 

State of Michigan; Timothy P. Lynch, President and chief executive 

officer of the Motor Freight Carriers Association; James Morgan, 

Vice President of the Collectively-Bargained Benefits, Safeway, 

from Pleasanton, California; and Judith F. Mazo, Senior Vice President and Director of Research, The Segal Company. I want to welcome our panel. Thank you all for coming and testifying. We will 

start with Mr. Clark. We do have your written statement. You have 

5 minutes to summarize your testimony. Thank you for being here, 

and you may proceed. 

STATEMENT OF CHARLES CLARK, PRESIDENT, CLARK 

CONSTRUCTION COMPANY, LANSING, MICHIGAN 

Mr. CLARK. Thank you, Mr. Chairman. I am very happy to be 

here. This is a unique experience for me, and I am sitting in a 

place I don’t think I really imagined myself being. So, it is a great 

treat. We and the organizations that I represent are supportive of 

this proposed legislation. I represent the Associated General Contractors of America, its 32,000 members, especially its 7,000 general contractors and 12,000 specialty trade contractors. The AGC 

represents both union and open-shop contractors, and more than 50 

percent of our 98 chapters across the country have members that 

participate in the collective bargaining process, and they are represented on Taft-Hartley pension funds. Forty percent of the multiemployer funds across the country are construction related. I also 

represent Clark Construction Company. We are based in Michigan. 

We have annual revenues of about $250 million. We were founded 

60 years ago by my father, and we have been run by myself and 


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my brother, John, since 1981. Both John and I hope that one or 

more of our three active children will take on the responsibility of 

running this company at some time. 

Since Clark Construction’s beginning, we have participated in 

the collective bargaining process and have been a member of the 

fund since their inceptions. I have also ben actively involved in the 

collective bargaining process. Last year, we contributed over 

$225,000 to multiemployer pension funds, including $95,000 to the 

Michigan Carpenters Fund, of which I am a trustee and was appointed by the Michigan Chapter of the AGC. We also contribute 

to the Laborers and the Teamster Funds. In the nineties, the 

Michigan Carpenters Fund approached 100 percent funding. According to the IRS Code, funding in excess of 100 percent is no 

longer a deductible expense for the contributing company. As a 

trustee, it is our fiduciary responsibility to prevent overfunding. So, 

an increase in benefits to the participants was required since a reduction of contributions was prohibited by the collective bargaining 

process. In other words, the trustees really had no choice; since 

they could not reduce funding, they had to increase—they could not 

reduce contributions. They had to increase funding. 

Later, in 2001, the markets went wrong, and those funds became 

underfunded. But since ERISA disallows a reduction of benefits to 

the current beneficiaries, to correct the situation contributions to 

the fund then had to be increased or accruals to the active participants reduced. Fortunately, the Michigan Carpenters acted timely, 

and events played out favorably. Things could have been much 

worse, very much worse. Raising the deductible rates, as this legislation proposes, would have let us build a buffer in the nineties 

that would have helped us account for severe market fluctuations, 

would have added stability to our fund, confidence to our members, 

and predictability to the process. The changes proposed seemed 

minor, but they are essential to the long-term health of these 

funds. The Michigan Laborers also went through similar pressures 

and solutions. These scenarios are very typical to many Michigan 

funds and point to our necessary support of this legislation. Thank 

you. 

[The prepared statement of Mr. Clark follows:] 

Statement of Charles Clark, President, Clark Construction Company, 

Lansing, Michigan 

Thank you for this opportunity to testify on multiemployer pension plans. I am 

testifying on behalf of the Associated General Contractors of America (AGC), a national trade association representing more than 32,000 companies, including 6,800 

of America’s leading general contractors and 12,000 specialty contractors. AGC is 

the voice of the construction industry. 

AGC represents both union and open-shop contractors in a network of 98 chapters 

across the country, including at least one chapter in every state and Puerto Rico. 

Over half of those chapters represent contractors that contribute to Taft-Hartley 

multiemployer pension plans. Over half of AGC chapters serve as the collective bargaining representative of one or more multiemployer bargaining units that negotiate 

collective bargaining agreements with a construction trade union, such as local affiliates of the International Union of Operating Engineers, the Laborers’ International Union of North America, the United Carpenters and Joiners of America, 

the International Association of Bridge, Structural, and Ornamental Reinforcing 

Iron Workers, the International Union of Bricklayers and Allied Craftworkers, the 

International Brotherhood of Teamsters, and the Operative Plasterers’ and Cement 

Masons’ International Association. Those chapters typically sponsor multiemployer 


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pension plans with each union that they bargain with and have responsibility for 

appointing management trustees to the jointly-trusteed plans. 

The construction industry provides for more than 40% of multiemployer plans nationwide, predominantly due to their portability for workers. As employees move 

from job site to job site and between employers, multiemployer pension plans are 

the best way for union contractors to voluntarily provide a decent retirement benefit. We believe that the legislation you are considering today will improve and 

strengthen these plans for current and future retirees, while allowing collective bargaining parties and trustees flexibility in meeting the needs of the plans. Multiemployer pension plans need to be treated differently from single-employer plans, as 

I will explain. 

I am Chuck Clark, president and CEO of Clark Construction in Lansing, Michigan, and a member of the Michigan Chapter AGC. While we are not the Clark Construction seen on signs around the Capital, we are one of the Top 100 companies 

on ENR’s Construction Management list, and one of the Top 350 General Contractors nationwide. We are also proud to be one of the Top 10 largest construction employers in the State of Michigan. Clark Construction employs 150 full-time employees and finished $250 million worth of construction projects last year, mostly in 

Michigan. We are a family-run, closely-held operation; my father began the business 

in 1968 and remained active until my brother, John, and I began running it in 1981. 

Both John’s children as well as my own are active in the business. 

Clark Construction makes substantial contributions to the Michigan Carpenters 

Pension Fund (the Carpenters Fund) and to the Michigan Laborers Pension Fund 

(the Laborers Fund), which cover all of Michigan except for Detroit and its vicinity. 

In 2004 alone, my company contributed $95,752.84 to the Carpenters Fund and 

$110,828.61 to the Laborers Fund. We also contribute to the Central States Teamsters Fund.1 

In the past, I have served on the committees that negotiate on behalf of the 

Michigan Chapter AGC for collective bargaining agreements with the Carpenters 

and with the Laborers. Currently, I am one of six management trustees on the Carpenters Fund. I will spend most of my testimony describing this plan, but I will also 

mention the Laborers Fund for comparison. 

There are 9,665 beneficiaries in the Carpenters Fund: 2,796 retirees, 4,036 

actives, and 2,883 who are entitled to future benefits but not currently working. 

Fewer than 600 employers contribute to this plan. On average, we employ 50 carpenters per year. 

In the late 1990s, the Carpenters Fund, like most plans in Michigan, was fully 

funded and close to hitting the maximum deductibility level as detailed in Section 

404(a)(1) of the Internal Revenue Code, which was then set by Congress at 100% 

fully funded,. If the fund had hit the maximum level, the employer contributions 

no longer would have been tax deductible, which would have been a financial penalty on contributing employers. It is a contractual and fiduciary duty of trustees to 

ensure that this never happens, so we were forced to grant benefit increases. 

In terms of the maximum deductibility level, multiemployer pension plans function quite differently from single-employer plans. Multiemployer pension plans are 

Taft-Hartley Plans, with an equal number of trustees from management and from 

labor. The contributions made by employers to the funds are negotiated as part of 

a collective bargaining agreement, during which time management and unions decide on a wage and fringe package. In our case, the Carpenters agreement and the 

Laborers agreement are negotiated by the Michigan Chapter AGC and the local 

council for the respective unions. Our agreements typically last for three years, after 

which the parties go back to the bargaining table. In other cases, the parties negotiate every two years, four years, or alternative, yet regular, intervals. 

The collective bargaining agreement dictates the hourly rate for contributions to 

the plan that an employer will make on behalf of covered employees. Traditionally 

in Michigan plans, labor and management have negotiated an overall increase in 

the wage and fringe package for employees. It is then up to the union to decide how 

to allocate the overall increase among wages, pension fund contributions, healthand-welfare fund contributions, training fund contributions, and any other agreedupon benefits. Some AGC chapters negotiate specific increases to be allocated in 

specific ways. In either case, the amount of the employer’s pension fund contribution 

is determined by the collective bargaining process. 

Therefore, in the late 1990s, when plans approached the fully-funded ceiling, at 

which time contributions would no longer be tax deductible, the option of discontinuing contributions to the plan was NOT available to contributing employers. 

Employers are legally bound to the negotiated levels set under the collective bargaining agreement. Instead, trustees needed to make benefit improvements in order 

to ensure plans stayed under the ‘‘magic level’’ and contributing employers did not 


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face additional taxes. While Congress might have intended that contributing employers reduce contribution levels to stay under the maximum deductibility level, 

this is, in effect, impossible. 

Interestingly, Clark Construction employs two teamsters and has for many years. 

While we do not plan to withdraw from this plan, we have been informed that it 

would cost in excess of $123,000 to withdraw. 

In the case of the Carpenters Fund, contributing employers like Clark Construc- tion pay $3 per hour per worker for pension benefits. In 1997, we were approaching 

full funding and decided to give a 12% ‘‘kicker’’ for 1997 and previous plan years. 

This involves multiplying the accrual value by 12%. This backward-looking benefit 

improvement kept us from hitting the maximum deductibility level and was a benefit increase that the fund could afford. 

The unforeseeable stock market losses and economic downturn in 2001–2002 hit 

the plan soon after these benefits were made. Because of the maximum deductibility 

level, there was no way for the plan to save for the rainy day that was upon us; 

we had been forced to spend the excess money the plan had accrued. In 2003, the 

market did not improve and the fund was not making its investment assumptions. 

Under the ERISA rules, once benefit increases are given, they cannot be taken 

away; they can only be modified for the future. For the first time in the history of 

the plan, we were facing employer withdrawal liability and a future funding deficiency (although several years off). 

On September 1, 2003, the trustees of the Carpenters Fund decided to reduce the 

formula for future benefit accruals from 4.3% to 1.0%, and to put the resulting 

money into the plan. After receiving the 2004 valuation from the plan actuaries, we 

looked back and realized that the 2003 plan year had not been as bad as expected, 

so we increased the accruals for2003 to 3% and left future years at the 1% level. The bargaining parties also agreed to put an additional $.10 per year into the 

plan, uncredited. Uncredited simply means that there is no resulting benefit increase for the employee. In essence, the employee has taken what could have been 

a $.10 wage improvement out of his pocket and agreed to put it into the pension 

plan, with no benefit other than a healthier plan. This $.10 will be increased by $.10 

each year until it reaches $.50. The actuaries have determined that the plan will 

be back at the fully funded level after five years, as long as hours worked and market assumptions are met. At this point, employer contributions will be $3.50 per 

worker, of which $.50 will be uncredited. 

In comparison, the Laborers Fund made different choices. This plan is slightly 

larger than the Carpenters Fund, with 23,815 beneficiaries, including 12,237 active 

workers, 3,151 retirees receiving benefits, and 8,427 individuals who are eligible but 

not working. Approximately 1,000 employers contribute to this plan. 

The Laborers Fund was also approaching the maximum deductibility level in the 

late 1990s. Trustees decided to increase survivor benefits for spouses and enhance 

benefits for early retirees. As you can imagine, the retirement age for construction 

workers is on average much younger than the age at which Social Security benefits 

kick in. 

Facing a funding problem, in 2001, the Laborers Fund increased contributions by 

$.50 per worker per hour. This will increase every year for two more years. While 

the fund reported employer withdrawal liability for the first time ever on September 

1, 2004, our actuary reports that the plan will be fully funded again in five years 

and the future funding deficiency avoided for now. 

The two plans I have described are typical of the rest of the plans in Michigan, 

and we believe that they are representative of most of the plans to which AGC 

members contribute or serve as trustees. The biggest fixable problem that these 

plans have faced over the last ten years is the maximum deductibility level. If Congress would raise that level to 140%, as is laid out in this legislative proposal, many 

of the immediate funding problems we faced in 2002 could be avoided in the future. 

Plans could save money and provide a cushion from bargaining cycle to bargaining 

cycle, rather than fund benefits, in order to avoid a ceiling. 

In addition, AGC has been working on a legislative proposal with a broad coalition of employer, union, and multiemployer plan representatives known as the Multiemployer Pension Plan Coalition. I expect that you will hear more about this from 

other witnesses. Nevertheless, I would echo their comments on the importance of 

making changes for those plans that are approaching bankruptcy. The incredible 

benefit of multiemployer pension plans is that, if an employer leaves the plan, the 

other employers employ the workers and cover the costs. This plan structure has 

served the construction industry well for over 40 years, and we do not want to see 

it changed. 

Nevertheless, when pension plans approach bankruptcy, it threatens the financial 

well-being of all contributing employers—in some cases, many thousands—and could 


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result in a string of bankruptcies and massive unemployment. The proposal developed by the coalition would help pension plans approaching bankruptcy by offering 

additional tools to achieve financial solvency. Currently, the only tool employed by 

the IRS is the minimum funding hammer, which begins as a fine of 5% and rises 

quickly to 100% of employer contributions. Worst of all, this fine goes to the general 

treasury, not to the retirees whose plan may soon be bankrupt. The coalition proposal would, in effect, turn this fine into a mandatory employer surcharge paid directly to the fund (outside the collective bargaining agreement). At the same time, 

trustees would have the ability, just like the PBGC, to disregard the last five years 

of benefit changes and disallow lump-sum payments, which are like a run on the 

bank. These two changes would offer funds greater financial footing, giving trustees 

additional time, and bargaining parties the stimulus, to make the necessary difficult 

choices. We hope to see these two changes as an amendment to this legislation. 

Again, thank you for the opportunity to testify today on behalf of AGC. I look forward to your questions. 

f 

Chairman CAMP. Thank you very much. Mr. Lynch, again, your 

statement is part of the record, and you have 5 minutes. Thank you 

for being here. 

STATEMENT OF TIMOTHY P. LYNCH, PRESIDENT AND CHIEF 

EXECUTIVE OFFICER, MOTOR FREIGHT CARRIERS ASSOCIATION 

Mr. LYNCH. Thank you. Good morning. My name is Tim Lynch, 

and I am the President and chief executive officer of the Motor 

Freight Carriers Association. I want to begin by thanking Subcommittee Chairman Camp and Ranking Member McNulty for 

holding this hearing on H.R. 2830, the Pension Protection Act of 

2005. While I cannot speak to all of the provisions of H.R. 2830, 

I can say that with respect to Title II, the sponsors of H.R. 2830 

have done something very important. They have addressed a problem before it becomes a crisis. They have done that by providing 

the tools for labor, management, and plan trustees to deal with the 

problem without resorting to additional government regulation. 

Most importantly, they are providing the framework for dealing 

with the problem before it grows so large that the only recourse is 

government intervention through the PBGC. In our view, that is no 

small accomplishment, and we pledge to work with the members 

of the Committee on Ways and Means to ensure enactment into 

law. 

I am here today as a representative of an association of trucking 

industry employers who, by virtue of their collective bargaining 

agreement, are major participants in a number of multiemployer 

pension plans. In addition, I was a participant in discussions that 

began last October with other industry Labor representatives that 

ultimately resulted in a coalition, the Multiemployer Pension Plan 

Coalition, that developed a legislative proposal addressing many of 

the problems facing multiemployer pension plans. Because H.R. 

2830 contains many of the recommendations of the coalition, I believe it represents an excellent opportunity for legislative action. 

The coalition proposal is the only proposal that has the full support 

of contributing employers, organized labor, and those responsible 

for the governance and administration of multiemployer plans—in 

other words, all of the parties most directly affected by the MPPAA 

statute. I would like to focus my comments this morning on two 

provisions of the legislation: funding rules for multiemployer plans 


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in endangered status and those in the critical status. Both of these 

provisions are similar to recommendations that the coalition proposed, but they contain significant differences that I would like to 

discuss. The coalition proposal envisioned an early warning system 

for plans that were at risk but not necessarily heading for severe 

financial difficulties. Plans in this category would be required to 

develop a benefit security plan to improve the funding ratio. That 

approach can be described as a flexible benchmark that takes into 

account plan differences and encourages plan trustees to prudently 

balance plan assets Liabilities. 

In contrast, H.R. 2830 establishes a hard benchmark with very 

stringent and time-definite standards as part of the funding improvement plan. This approach forces all plans in the endangered 

category to meet the same funding ratio target regardless of what 

the funding ratio is on enactment. Plans at the higher end of the 

endangered category, for example, those with a funding ratio of between 75 and 79 percent, undoubtedly will be able to meet the onethird improvement benchmark. Unfortunately, plans at the lower 

end, for example, those with a funding ratio of between 66 and 69 

percent, will have a virtually impossible task. The level of benefit 

modifications coupled with additional employer contributions needed to meet that benchmark over the 10-year timeframe will be very 

detrimental to both contributing employers and plan participants. 

We would request then that consideration be given to alternative 

approaches, certainly maintaining benchmarks but not ones that 

create an insurmountable and unreasonable financial burden on 

contributing employers. Multiemployer plans in the trucking industry cannot afford to lose the base of small-company contributing 

employers who in turn cannot afford the additional contributions 

potentially required under these benchmarks. With respect to the 

funding rules in the critical status, this provision is similar to the 

approach suggested by the coalition’s category for plans with severe 

funding problems or what was referred to as the red zone. Under 

the coalition proposal, the most difficult and controversial remedies—additional employer contributions above what was contractually obligated to pay in the form of a mandatory surcharge, and 

benefit modifications—are reserved for those plans that face the severest funding problem. This is in part designed as a strong incentive to plan trustees to do all they can to solve the plan’s problems 

before entering the red zone category. 

I believe it is to the credit of those in the coalition and the interests that they represent that they recognize the risk and concern 

attendant to both additional contributions and benefit modifications. Any significant increases in employer contributions run the 

very real risk of jeopardizing the large pool of small employers typically involved in multiemployer plans. Conversely, any significant 

modifications in the benefit plan raise important issues of labormanagement relations, employee trust, and fundamental issues of 

fairness with retirees. I would respectfully suggest and assure the 

members of this Subcommittee that you will have no more spirited 

debate over these two issues than we had in the coalition. But we 

understand that you cannot solve the problems facing a severely 

underfunded plan without both components. I would urge the committee to include both concepts as tools available to address the 


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funding problems for plans in the critical status. Mr. Chairman, I 

would be happy to answer any questions. 

[The prepared statement of Mr. Lynch follows:] 

Statement of Timothy P. Lynch, President and Chief Executive Officer, 

Motor Freight Carriers Association 

Mr. Chairman and Members of the Select Revenue Measures Subcommittee. 

Good morning. My name is Timothy Lynch and I am the President and CEO of 

the Motor Freight Carriers Association (MFCA). I want to begin by thanking Chairman Dave Camp for holding this hearing on H.R. 2830, the Pension Protection Act 

of 2005. 

I am here today as a representative of an association of trucking industry employers who by virtue of their collective bargaining agreement are major participants 

in a number of multiemployer pension plans. In addition, I was a participant in discussions that began last October with other industry and labor representatives that 

ultimately resulted in a coalition—the Multiemployer Pension Plan Coalition—that 

developed a legislative proposal addressing many of the problems facing multiemployer pension plans. 

MFCA member companies are key stakeholders in multiemployer pension funds. 

They are concerned about the current framework for multiemployer pension plans 

and strongly believe that if not properly addressed, the problems will increase and 

possibly jeopardize the ability of contributing employers to finance the pension 

plans. The end result could put at risk the pension benefits of their employees and 

retirees. 

In my testimony today, I will discuss the coalition’s recommendations and the corresponding provisions of H.R. 2830. It is important that the coalition’s recommendations be viewed in the context in which they were negotiated: both labor and management understanding that changes are needed. Additionally, these recommendations represent a unique opportunity in that they are the only reform proposal having the full support of contributing employers, organized labor, and those responsible for the governance and administration of multiemployer plans. In short, those 

most directly affected by the MPPAA statute. 

MOTOR FREIGHT CARRIERS ASSOCIATION 

MFCA is a national trade association representing the interests of unionized, general freight truck companies. MFCA member companies employ approximately 

60,000 Teamsters in three basic work functions: local pick-up and delivery drivers, 

over-the-road drivers and dockworkers. All MFCA member companies operate under 

the terms and conditions of the Teamsters’ National Master Freight Agreement 

(NMFA), one of three national Teamster contracts in the transportation industry. 

Through its TMI Division, MFCA was the bargaining agent for its member companies in contract negotiations with the Teamsters for the current National Master 

Freight Agreement (April 1, 2003—March 31, 2008). Under that agreement, MFCA 

member companies will make contributions on behalf of their Teamster-represented 

employees to 90 different health & welfare and pension funds. At the conclusion of 

the agreement, MFCA companies will be contributing $12.39 per hour per employee 

for combined health and pension benefits, or a 33% increase in benefit contributions 

from the previous contract. This is in addition to an annual wage increase. 

DESCRIPTION OF PLANS 

MFCA member companies, along with UPS, car-haul companies and food-related 

companies are typically the largest contributing employers into most Teamster/ 

trucking industry-sponsored pension plans. The Teamster/trucking industry benefit 

plans vary widely in size, geographic scope and number of covered employees. The 

two largest plans—the Central States Pension Fund and the Western Conference of 

Teamsters Pension Fund—have reported assets of $18 and $24 billion respectively 

and cover over 1 million active and retired employees in multiple states. 

As Taft-Hartley plans, these pension funds are jointly-trusteed (an equal number 

of labor and management trustees) and provide a defined benefit (although some 

plans offer a hybrid defined benefit/defined contribution program). MFCA member 

companies are represented as management trustees on most of the plans to which 

they make contributions. In an effort to help improve the management of the plans, 

MFCA member companies have made a concerted effort to nominate as management trustees individuals with backgrounds in finance, human resources, and employee benefits. 


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RELATIONSHIP BETWEEN COLLECTIVE BARGAINING AND THE PENSION PLANS 

In a report to Congress last year, the General Accounting Office (GAO) stated that 

multiemployer plans ‘‘contribution levels are usually negotiated through the collective bargaining agreement’’ and that ‘‘[b]enefit levels are generally also fixed by the 

contract or by the plan trustees.’’ In our case, that is only partially correct: the 

NMFA only establishes a contribution rate. It does not set a pension benefit level. 

It is worth reviewing for the Subcommittee the relationship between collective bargaining and the multiemployer pension plans. 

Like most multiemployer plans, our plans are maintained and funded pursuant 

to collective bargaining agreements. During each round of bargaining, the industry 

and union bargain and agree on the per-hour contribution rate required to be paid 

by employers to the plans for pension and health benefits. Once the rate is established, however, the role of the collective bargaining process and of the collective 

bargaining parties with respect to the plans—in terms of the level of benefits, the 

administration of delivering those benefits, management of plan assets, etc.—is 

over. For employers, the only continuing role in the plans is to make the required 

contractual contributions. That is, unless the plan, over which the employers have 

no control, runs into financial crisis. I will talk more about that in a moment. 

Each multiemployer pension plan is a separate legal entity managed by an independent board of trustees. It is not a union fund controlled by the union. Nor is it 

an employer fund, over which the employer has control. Rather, by law, the plans 

are managed independently by their trustees under a complex set of statutory and 

regulatory requirements. Although the trustees are appointed—half by the union 

and half by the employer—each trustee has a legal obligation to act not in the interest of the union or employer that appointed them, but rather with a singular focus 

on the best interests of the plans participants. Trustees who do not act in the best 

interest of participants may be held personally liable for breach of their fiduciary 

duty. 

As noted earlier, employers’ role with respect to multiemployer pension plans is 

limited to making contributions unless the plan runs into financial difficulty. Under 

current law, employers are ultimately responsible for any funding deficiency that 

the multiemployer plan may encounter. Specifically, if a multiemployer plan hits a 

certain actuarially-calculated minimum funding level, employers in the fund are assessed a five percent excise tax and their pro-rata share of the funding shortfall or 

face a 100% excise tax on the deficiency. 

HOW WE GOT TO WHERE WE ARE 

1980 was a watershed year in the history of the trucking industry. In that year 

Congress passed two major legislative initiatives—the Motor Carrier Act (MCA) and 

the Multiemployer Pension Plan Amendments Act (MPPAA)—that radically altered 

the profile of the industry and the landscape for industry-sponsored pension plans. 

The first brought about deregulation of the trucking industry and ushered in an era 

of unprecedented market competition. The second, while perhaps not recognized at 

the time, upset the essential balance between exiting and entering employers that 

is key to maintaining a viable multiemployer pension program. 

To put this in some perspective, I have included in my statement (Appendix A), 

a list of the top 50 general freight, LTL carriers who were operating in 1979, the 

year just prior to enactment of MCA and MPPAA. Of those 50, only 7 are still in 

operation and of those 7 only 5 are unionized. Virtually all of the 43 truck companies no longer in business had unionized operations, and consequently were contributing employers to industry-sponsored pension plans. There have been no subsequent new contributing employers of similar size to replace these departed companies. And beyond the top 50 there were literally hundreds, perhaps thousands, of 

smaller unionized truck operators who also have fallen by the wayside. The simple 

fact is that since 1980 there has not been a single trucking company of any significant size to replace any of the departed companies on the Top 50 list. 

And what happens when these companies leave the plans? Their employees and 

retirees become the responsibility—not of the PBGC—but of the plans and their remaining contributing employers. In short, the remaining contributing employers 

function as a quasi-PBGC ensuring the full pension benefit. 

One of the key elements of the MPPAA statute was the ability to recover assets 

from withdrawing employers or withdrawal liability. Unfortunately, that has not 

been the case. One of the largest trucking industry plans reports that bankrupt 

(withdrawing) employers ultimately pay less than 15% of their unfunded liability. 

And what happens when these liabilities are not fully recovered? They become the 

responsibility of the remaining contributing employers. This represents one of major 


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differences between the treatment of liabilities of single versus multiemployer pension plans. 

Nothing highlights the inequity of this situation more than the bankruptcies of 

two contributing employers: Consolidated Freightways (CF) and Fleming Companies. Both companies were in the top 10 category of contributing employers to the 

Central States plan. They also sponsored their own company, single-employer plan 

for their non-collective bargaining covered employees. The PBGC has assumed responsibility for the CF plan with a potential liability in excess of $250 million and 

the Fleming plan with a projected liability in excess of $350 million or a combined 

liability for PBGC of over $600 million. 

Conversely, the Fleming and CF employees/retirees covered under multiemployer 

pension plans like Central States will now be the responsibility of the remaining 

contributing employers (less whatever these plans can recover in withdrawal liability payments). These beneficiaries will be entitled to a guaranteed full pension benefit. This will only add further cost to what is already one very stark financial fact 

of life for the Central States fund: half of its annual benefit payments now go to 

beneficiaries who no longer have a current contributing employer. 

MPPAA delineates a very different role for PBGC with respect to single employer 

versus multiemployer plans. The GAO report identifies four: monitoring, providing 

technical assistance, facilitating activities such as plan mergers, and financing in 

the form of loans for insolvent plans. In contrast to PBGC’s more aggressive role 

with single employer plans, these are relatively passive activities. It was not until 

the recent Congressional debate over whether to provide limited relief to multiemployer plans that attention was focused on the need to have a better understanding 

of the true financial condition of these plans. And underlying that need was a concern whether the relief would provide assistance for a truly short-term issue or 

mask a more fundamental, long-term problem. 

Furthermore, the remedies available to multiemployer plans in the form of amortization relief, short-fall methodology or waivers are often viewed as ‘‘last resort’’ solutions. There are no intermediate steps that can assist a plan well before it reaches 

this point. 

DEVELOPMENT OF COALITION PROPOSAL 

Last October, we began participating in a small working group of trucking company and union representatives to try to develop recommendations that would be 

acceptable to multiemployer plans, unions and contributing employers. The objective 

was to develop a legislative proposal that would alleviate the short-term consequences of funding deficits and promote long-term funding reform for multiemployer plans. As a representative of contributing employers, I entered those discussions with a clear mission to protect the economic interests of my membership. My 

union counterparts entered with a similar mission to protect the interests of their 

membership. 

Early on in those discussions, we agreed on several fundamental issues that ultimately formed the basis for our recommendations. 

• Because of the diversity of multiemployer plans, a one-size-fits-all approach 

would not be productive. Instead remedial programs would be targeted to those 

plans facing the greatest financial problems. 

• Multiemployer plans function as a quasi-PBGC, with contributing employers assuming plan liabilities and shielding the federal agency from that responsibility 

until plan bankruptcy. Unfortunately, plan trustees don’t have all the tools 

available to the PBGC to address funding problems. 

• Furthermore, most of the tools available to address funding problems become 

available too late in the process and are often viewed as ‘‘last-resort’’ remedies 

by federal agencies. 

• All parties to the plans deserve more timely and meaningful disclosure of information about the status of the plans. 

• The need to establish an early warning system for ‘‘at risk’’ plans and a separate category for ‘‘severely underfunded’’ plans. 

• The burden to fix the problem of severely underfunded plans should not be 

borne disproportionately by any one party to the plans. To do otherwise would, 

in fact, jeopardize the continued viability of the plan and its defined benefits. 

This process ultimately was expanded to include employer and union representatives from other industries. The result was a coalition proposal that has the support 

of a wide range of business and labor organization interests. 


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RECOMMENDATIONS FOR LEGISLATIVE ACTION 

From the perspective of the contributing employers, the key elements of the coalition proposal are as follows. 

FUNDING RULES 

Multiemployer plans would be required to have strong funding discipline by accelerating the amortization periods, implementing funding targets for severely underfunded plans and involving the bargaining parties in establishing funding that will 

improve plan performance over a fixed period of time. In addition, the proposal 

would limit the ability for plan benefit enhancements unless the plan reaches certain funding levels. 

FUNDING VOLATILITY 

By virtue of their collective bargaining agreements, contributing employers must 

make consistent payments regardless what gains are achieved in the financial markets. (This is in contrast to single employer plans that may avoid contribution payments in lieu of above-average market returns.) However, the volatility of these 

plans occurs in the form of funding deficiencies. The coalition proposal would address this situation by allowing the plans to use existing extension and deferral 

methods to permit time for the bargaining process to address the underfunding over 

a rational period of time. 

EARLIER WARNING SYSTEM 

The coalition proposal suggested a ‘‘yellow zone’’ or early warning system. The 

goal of the yellow zone concept was to make sure plans would be cautious in their 

approach to balancing plan assets and liabilities. Plans in the yellow zone would 

have to improve their funded status in a responsible manner, one that does not put 

extreme pressure on the benefits provided or eliminate the ability for employers to 

operate in a highly competitive marketplace. The coalition proposal was designed to 

strike a reasonable balance through creation of a bright line standard for an improving funded status but not one that imposes an insurmountable and unreasonable 

financial burden on contributing employers. While it is important that yellow zone 

plans develop a program for funding improvement, the burden to do so should be 

commensurate with the ability to recover over a rational period of time. 

PLANS WITH SEVERE FUNDING PROBLEMS 

Under the coalition proposal, plans facing severe funding problems would find 

themselves in a ‘‘red zone’’ or essentially reorganization status. When a plan is in 

reorganization status, extraordinary measures would be necessary to address the 

funding difficulties. It is here that the concept of shared responsibility for balancing 

plan assets and liabilities fully comes into play. Reorganization contemplates a combination of contribution increases—above those required under the collective bargaining agreement—and benefit reductions—though benefits at normal retirement 

age are fully protected—to achieve balance. 

TRANSPARENCY AND DISCLOSURE 

The Pension Funding Stability Act of 2004 greatly improved the transparency of 

multiemployer plans. The coalition proposal would expand those disclosures and 

place additional disclosure requirements for plans that are severely underfunded in 

the red zone. 

WITHDRAWAL LIABILITY 

The coalition proposal would strengthen and clarify withdrawal liability rules to 

protect the remaining contributing employers from assuming a disproportionate and 

unfair burden from non-sponsored participants. 

PENSION PROTECTION ACT OF 2005—TITLE II MULTIEMPLOYER 

PLANS 

How then do we view Title II of H.R. 2830? We believe that H.R. 2830 addresses, 

in part, all of the issues that we suggested were in need of reform. Several provisions of the legislation represent a significant—and innovative—approach to solving 

the funding problems facing multiemployer pension plans. We believe that H.R. 

2830 meets the overall objective of alleviating the short-term consequences of funding deficits while promoting long-term funding reform for multiemployer pension 

plans. 

Early Warning System 

H.R. 2830 contains the suggested early warning system for plans viewed as ‘‘at 

risk’’ through the establishment of a category called, ‘‘endangered plans.’’ While we 

are in agreement with this approach toward financially ailing plans, we have one 

very important—and critical—issue that needs to be addressed in order to gain our 

full support. 


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The coalition proposal contained what could be described as flexible benchmarks 

for plans in the endangered category while H.R. 2830 establishes very stringent and 

time-definite standards. H.R. 2830 contemplates a one-size-fits-all approach and 

consequently, does not adequately take into consideration the multiemployer bargaining environment in which these plans operate. Additionally, depending upon the 

actual date of enactment and the effective dates for compliance, plans—and their 

underlying collective bargaining agreements—could be facing very different circumstances and hence their ability to meet the targets. 

For example, plans that only enter the yellow zone some time after the date of 

enactment undoubtedly will be able to meet the 33 1/3% improvement benchmark. 

It also possible that plans at the higher end of the yellow zone (e.g., 75–79% funded) 

could meet the benchmark. But as the percentage of underfunding increases 

through the yellow zone category, plans will have a very difficult, if not impossible, 

task of meeting the benchmarks with plans at the lowest end (e.g., 66–70%) facing 

an insurmountable hurdle. The level of benefit modifications coupled with additional 

employer contributions needed to meet this benchmark will be detrimental to both 

contributing employers and plan participants. 

We would request that the Committee give consideration to alternative approaches to the treatment of plans in the endangered category. Specifically, we suggest that plans have more flexibility to meet appropriate benchmarks and consideration be given to some form of a proportional approach to the benchmarks. In other 

words, take into account that plans at the lower end of the zone cannot be held to 

the same standard of improvement as plans in the upper range. Additionally, the 

timing for the 10-year improvement plan needs to recognize the timing of the plan 

sponsors’ collective bargaining agreements. 

Plans With Severe Funding Problems 

H.R. 2830 establishes a second category of plans—‘‘critical’’—that is designed to 

address plans with the severest funding problems. Unfortunately, the tools necessary to address these problems are not included in H.R. 2830. Under the coalition 

proposal, the most difficult and controversial remedies—additional employer contributions and benefit modifications—are reserved for those plans that face the most 

difficulties. The members of the coalition recognize—and don’t take lightly—the impact of additional employer contributions and benefit modifications. Any significant 

increases in employer contributions run the very real risk of jeopardizing the large 

pool of small employers typically involved in multiemployer plans. Conversely, any 

significant modifications in the benefit plan raise important issues of labor/management relations, employee trust and fundamental fairness with retirees. 

However, all members of the coalition recognize that we cannot solve the problems 

facing ‘‘critical’’ plans without those two tools. Consequently, I would urge in the 

strongest terms possible that the Committee give consideration to including language that puts meaningful remedies back into the ‘‘critical’’ category of plans. 

Funding Rules 

H.R. 2830 will require plans to have strong funding discipline by accelerating the 

amortization periods, implementing funding targets for severely under funded plans 

and involving the bargaining parties in establishing funding that will improve plan 

performance over a fixed period of time. In addition, H.R. 2830 will limit the ability 

for plan benefit enhancements unless the plan reaches certain funding levels. While 

the legislation proposes a 15 year amortization schedule for increases and decreases, 

we would ask that further consideration be given to a 10 year schedule. We believe 

a 10 year schedule will provide stronger funding discipline. 

Funding Volatility 

H.R. 2830 attempts to provide additional tools to plan trustees to address the 

problems of a short-term funding deficiency and funding volatility. The coalition proposal addressed this issue by allowing the plans to use existing extension and deferral methods to permit time for the bargaining process to address the under funding 

over a rational period of time. We would urge the Committee to consider a more 

expansive list of tools for plan trustees to utilize in addressing funding volatility. 

Additionally, one of the objectives of the coalition was to preclude funding deficiencies—and the attendant penalties—from occurring during the collective bargaining agreement cycle. In the case of the excise tax penalty, this provides no benefit to plan funding and represents a punitive assessment against contributing employers. 

Transparency and Disclosure 

H.R. 2830, coupled with the earlier requirements under the Pension Funding Stability Act, provide additional information to plan participants, contributing employVerDate Aug 31 2005 06:59 Apr 28, 2006 Jkt 026381 PO 00000 Frm 00035 Fmt 6633 Sfmt 6621 E:\HR\OC\26381.XXX 26381

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ers, and employee organizations that should improve the dissemination of important 

plan information. 

Withdrawal Liability 

H.R. 2830 strengthens and clarifies the withdrawal liability rules to protect contributing employers from assuming a disproportionate and unfair burden from nonsponsored participants. 

Mr. Chairman, thank you for giving me the opportunity to present the views of 

the Motor Freight Carriers Association. I look forward to working with the members 

and staff of this Subcommittee on the Pension Protection Act of 2005. I would be 

happy to answer any questions you may have. 

TOP 50 LTL CARRIERS IN 1979 

1. Roadway Express 

2. Consolidated Freightways 

3. Yellow Freight System (Yellow Transpertation) 

4. Ryder Truck Lines 

5. McLean Trucking 

6. PIE 

7. Spector Freight System 

8. Smith’s Transfer 

9. Transcon Lines 

10. East Texas Motor Freight 

11. Interstate Motor Freight 

12. Overnite Transportation 

13. Arkansas Best Freight (ABF Freight System) 

14. American Freight System 

15. Carolina Freight Carriers 

16. Hall’s Motor Transit 

17. Mason & Dixon Lines 

18. Lee Way Motor Freight 

19. TIME–DC Inc. 

20. Wilson Freight Co. 

21. Preston Trucking Co. 

22. IML Freight 

23. Associated Truck Lines 

24. Central Freight Lines 

25. Jones Motor-Alleghany 

26. Gateway Transportation 

27. Bowman Transportation 

28. Delta Lines 

29. Garrett Freightlines 

30. Branch Motor Express 

31. Red Ball Motor Freight 

32. Pilot Freight Carriers 

33. Illinois-California Exp. 

34. Pacific Motor Trucking 

35. Central Transport 

36. Brown Transport 

37. St. Johnsbury Trucking 

38. Commercial Lovelace 

39. Gordons Transports 

40. CW Transport 

41. Johnson Motor Lines 

42. System 99 

43. Thurston Motor Lines 

44. Walkins Motor Lines 

45. Santa Fe Trail Transportation 

46. Jones Truck Lines 

47. Merchants Fast Motor Lines 

48. Murphy Motor Freight 

49. Maislin Transport 

50. Motor Freight Express 

Bold = Still Operating on 06/27/05 

f 


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Chairman CAMP. Thank you very much for your testimony. Mr. 

Morgan, you have 5 minutes, and your written statement is part 

of the record. 

STATEMENT OF JAMES V. MORGAN, VICE PRESIDENT, COLLECTIVELY-BARGAINED COMPENSATION AND BENEFITS, 

SAFEWAY INC., PLEASANTON, CALIFORNIA 

Mr. MORGAN. Thank you. Chairman Camp, Congressman 

McNulty, and members of the Committee, my name is Jim Morgan, 

and I am Vice President of Collectively-Bargained Compensation 

and Benefits at Safeway. I am testifying on behalf of Safeway and 

also the Food Marketing Institute. Safeway is one of the largest 

U.S. food and drug retailers; FMI represents 26,000 supermarkets. 

I have been involved with jointly trusteed, labor and management 

benefit funds for over 30 years, and for most of that time I have 

served as an employer trustee on numerous retail industry funds. 

My job puts me in contact with many funds, and I am currently 

a trustee on several funds. A few facts about Safeway and its pension funds. Safeway has 190,000 employees; 77 percent of its employees are covered by over 400 collective bargaining agreements; 

and most of our unionized employees and many of those in the industry participate in multiemployer pension plans. Labor and management pension funds are funded by employer contributions and 

by investment earnings. Contributions are bargained by employers 

and unions in collective bargaining negotiations. Benefit levels generally are set by the trustees of the funds, and by law, the employer and the union trustees of such funds have an equal vote. 

When the stock market suffered huge losses in 2000–2003 at the 

same time interest rates declined, the funding status of many multiemployer plans suffered greatly. In many of our funds, the trustees have taken significant actions to avoid funding deficiencies 

while the bargaining parties have negotiated collective bargaining 

agreement changes to aid funding recovery. We believe the actions 

of fund trustees, employers, and unions have been and will continue to be responsible and judicious and that their responses to a 

very unusual series of events have been prudent. Some funds have 

worse problems and need substantial help to recover; others, more 

modest assistance. We believe the legislative changes represented 

by H.R. 2830 provide a reasonable and rational framework for multiemployer plans to work through their funding problems without 

putting additional financial pressure on the PBGC. We think several features of proposed law changes are particularly important. 

First, funds need specific guidelines to assist trustees in making 

longer-term funding decisions. trustees need to know when to act 

to prevent funding deficiencies and to adopt a plan with achievable 

benchmarks to avoid such deficiencies. We believe trustees need to 

take action when a funding deficiency is projected within 7 years. 

Second, we believe there is a need for greater transparency with 

respect to information about multiemployer pension funds and not 

just with respect to participants, but also many contributing employers do not have access to such information because they do not 

appoint trustees to a particular fund. Third, funds at times need 


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access to short-term funding relief, extending the time they have 

to avoid a funding deficiency. This additional time allows trustees 

and bargaining parties enough time to develop and implement a recovery plan. There are laws on the books today, such as IRC section 412(e), which allow for such relief. We believe these rules need 

modifications to be effective. Fourth, the funding ceiling for tax deductibility of employer contributions is too low. Funds should be 

able to receive tax-deductible contributions to provide funding 

cushion in difficult times. The FMI has been working for the past 

year to develop recommendations for comprehensive pension reform. FMI has worked extensively with many other groups to develop a common ground on many issues, and in many cases we 

have succeeded. We applaud the sponsors of H.R. 2830 for recognizing Congress must address multiemployer plans as part of comprehensive pension reform. H.R. 2830 provides a reasonable, rational framework for multiemployer plans to work through their 

problems. The proposed legislation will provide tools which will 

allow these plans to solve their funding problems without direct 

government intervention and without putting additional pressure 

on the PBGC. We believe if Congress acts now, multiemployer 

plans can solve their own problems so they do not become a burden 

to the Federal Government or the taxpayers. Again, Chairman 

Camp and members of this Committee, I thank you for the opportunity to testify on this important topic I would be glad to answer 

any of your questions. 

[The prepared statement of Mr. Morgan follows:] 

Statement of Jim Morgan, Vice President, Collectively-Bargained Benefits, 

Safeway Inc., Pleasanton, CA Chairman Camp, Congressman McNulty 

and Members of the Committee: 

I am Jim Morgan, Vice President of Collectively-Bargained Compensation and 

Benefits, Safeway Inc., Pleasanton, CA. I am testifying on behalf of Safeway and 

the Food Marketing Institute (FMI), which represents 26,000 retail supermarkets 

and food wholesalers. 

I’ve been involved with jointly trusteed, labor and management Taft-Hartley benefit funds for over 30 years, and for most of that time have served as an Employer 

Trustee on numerous retail industry funds. My job puts me in contact with many 

funds, and I am a trustee on several funds. 

Let me spend a minute on a few facts about the scope of the industry and the 

funds you should know, which include: 

• Safeway has 190,000 employees in the U.S. and Canada. 

• 77% of these employees are covered by over 400 collective bargaining agreements. 

• Supermarkets employ 3.5 million Americans, 1.3 million of whom are covered 

by collective bargaining agreements. 

• Most of Safeway’s unionized employees, and many of those in the industry that 

are covered by collective bargaining agreements, participate in multi-employer 

pension plans, which in total cover about 9.7 million people. 

Safeway is one of the largest food and drug retailers in North America, with over 

1,800 stores. These include 325 Vons stores in Southern California and Nevada, 113 

Dominick’s stores in the Chicago metropolitan area, 137 Randalls and Tom Thumb 

stores in Texas, 38 Genuardi’s stores in the Philadelphia area, as well as 17 Carrs 

stores in Alaska. Safeway has an extensive network of manufacturing, distribution 

and food processing facilities in support of its stores. 

Multi-employer labor and management pension trust funds are funded by the contributions of contributing employers and by investment earnings on those contributions. Contributions are bargained by employers and unions in collective bargaining 

negotiations, and benefit levels generally are set by the trustees of the funds. By 

law, the employer and the union trustees of such funds have an equal vote. 


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When the stock market suffered huge losses in 2000–2003 at the same time interest rates declined, the funding status of many multi-employer plans suffered greatly 

to the point where many funds faced a funding deficiency which required action by 

the trustees and in many cases by the bargaining parties. In many of our funds, 

the trustees have taken drastic actions to avoid funding deficiencies, while the bargaining parties have negotiated collective bargaining agreement changes to aid 

funding recovery. 

We believe the actions of fund trustees and of employers and unions have been 

and will continue to be responsible and judicious, and that their responses to a very 

unusual series of events have been prudent. Some funds have worse problems and 

need help to recover, others need more modest assistance. 

Several features of the proposed law changes are particularly important: 

The funding ceiling for the tax-deductibility of employer contributions is too low, 

particularly during periods of strong investment returns. Funds should be able to 

receive tax-deductible contributions to provide a funding cushion in difficult times 

without being forced to raise benefit levels to avoid tax deductibility problems. It 

is important to be able to ‘‘save for a rainy day.’’ 

Funds need specific guidelines to assist Trustees in making longer-term funding 

decisions which require them to look out over a number of years to detect potential 

funding deficiencies, and to adopt a plan with achievable benchmarks to avoid these 

deficiencies. 

Funds at times need access to short-term funding relief extending the time they 

have to avoid a funding deficiency. This additional time allows trustees and bargaining parties enough time to develop and implement a recovery plan. There are 

laws on the books today, such as IRC Section 412(e), which allow for such relief. 

Unfortunately, such relief has proved unobtainable and there are not clear guidelines for trustees and bargaining parties to determine when such relief will be 

granted by Treasury. 

Some funds are concerned about hitting underfunding levels which could trigger 

an excise tax. The implications of a funding deficiency for contributing employers, 

the plans and their participants can trigger payments outside of the collective bargaining process. Contributing employers are assessed by the plan trustees for additional contributions in an amount equal to their proportionate share of the amount 

necessary for the plan to meet its minimum funding requirements. If the excise tax 

is triggered it can be equal to 5% of that assessment. In the event that all contributing employers fail to make up the shortfall in a timely fashion, the excise tax may 

be increased to 100% of the shortage. 

In addition, we agree with Congress there is a need for greater transparency with 

respect to information about multi-employer pension funds. Many contributing employers do not have access to such information because they do not appoint trustees. 

Need for Change 

FMI has been working for the past year to develop recommendations for comprehensive pension reform. In addition, our industry has worked with the trucking 

industry, other employer groups, and other union representatives to address multiemployer pensions funding reform. 

We applaud the sponsors of H.R. 2830 for recognizing that Congress must address 

multiemployer pensions as part of comprehensive pension reform legislation. 

We believe that legislative changes represented by H.R. 2830, the Pension Protection Act, provide a reasonable and rational framework for multi-employer pension 

plans to work through their funding problems without putting additional financial 

pressure on the Pension Benefit Guaranty Corporation. 

H.R. 2830—The Pension Protection Act 

The multiemployer pension provisions in H.R. 2830 incorporate four fundamental 

principles which FMI and its member companies believe are essential to accomplishing fundamental reform: 

• Greater transparency and greater flexibility for all plans; 

• An early warning system for what the proposed legislation terms ‘‘endangered’’ 

and ‘‘critical’’ plans; 

• Immediate steps to stabilize these plans; and 

• Perhaps most importantly, objective, quantifiable benchmarks that measure the 

plan’s funding improvement and provides reasonable targets for the Trustees 

and the bargaining parties. 

We believe that the mechanisms created by H.R. 2830 will accurately address the 

unique nature of multiemployer plans. As a result, all parties (contributing employers, unions, and Trustees) will have the ability to act responsibly on behalf of emVerDate Aug 31 2005 06:59 Apr 28, 2006 Jkt 026381 PO 00000 Frm 00039 Fmt 6633 Sfmt 6621 E:\HR\OC\26381.XXX 26381

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ployees by providing an accurate measure of expected liabilities over a longer time 

frame and by providing a schedule to correct any funding problems on the horizon 

before they reach a crisis stage. 

We further believe that H.R. 2830 provides these solutions in a manner that will 

also maintain the collective bargaining rights of all the parties. 

In summary, we in the retail food industry strongly support efforts to reform our 

nation’s pension funding laws. Those of us who contribute to and participate in multiemployer pension plans are asking Congress to recognize the ways in which these 

plans differ from single-employer pension plans, and to enact changes to existing 

laws that will give us the tools to manage these plans more effectively, so that we 

can continue to provide great retirement benefits for our millions of employees and 

retirees well into the future without ever becoming a burden on the federal government. 

Again, Chairman Camp and members of this Subcommittee, I thank you for the 

opportunity to testify on this important topic. I am glad to answer any of your questions. 

Food Marketing Institute (FMI) conducts programs in research, education, industry relations and public affairs on behalf of its 1,500 member companies—food retailers and wholesalers—in the United States and around the world. FMI’s U.S. 

members operate approximately 26,000 retail food stores with a combined annual 

sales volume of $340 billion—three-quarters of all food retail store sales in the 

United States. FMI’s retail membership is composed of large multi-store chains, regional firms and independent supermarkets. Its international membership includes 

200 companies from 50 countries. 

f 

Chairman CAMP. Thank you very much, Mr. Morgan. Ms. Mazo, 

thank you for being here. I also want to acknowledge and welcome 

your father to the committee room today. I understand he has an 

upcoming birthday. You still have 5 minutes, and I would ask that 

you summarize your testimony in that time. But thank you for 

being here. 

STATEMENT OF JUDITH F. MAZO, SENIOR VICE PRESIDENT 

AND DIRECTOR OF RESEARCH, THE SEGAL COMPANY 

Ms. MAZO. Thank you. I thought I would bring along a pensioner just so that we keep it real. Mr. Chairman and Mr. McNulty, it is a pleasure to be here. The last time that I was working 

closely with your Committee was much happier times. It was when 

we were working on what became EGTRRA, and we were increasing the ability of multiemployer plans to share the wealth that they 

were accumulating during the 1990s with the participants by relieving some of the pressure of the limits on benefits. Today, unfortunately, we are looking at a reversal of problems. I would like to 

put a few things in context. You have had a very good outline of 

where things stand and what the multiemployer universe looks 

like. All of my colleagues to my right have pointed out one thing 

which is one of the answers to the questions you put to Dr. HoltzEakin: What caused the problem? One of the things that did cause 

the problem was the deduction limits, and that caused—as Mr. 

Clark described, it forced many multiemployer plans to increase 

benefits under situations where the trustees might not otherwise 

have believed that that was prudent and appropriate to do so in 

order to protect the employers not only from losing tax deductions 

but from actually being punished for putting in more than—for living up to their bargaining agreements. None of these employers 

throws money in to shelter their own taxes. They have bargaining 

agreements. They live by their agreements. They put in what they 


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are required. They were told in the 1990s, ‘‘You won’t be able to 

deduct this, and you are going to get punished with an excise tax 

unless the plans increase benefits.’’ In something like 75 percent of 

our client plans—by the way, I work with the Segal Company, 

which is the actuarial consultant to roughly 30 percent of the multiemployer plans in the country, covering about half of the participants in these plans. So, when I talk about our experience, it is a 

very broad range of plans in different industries. 

That situation was very typical, and it dug a much deeper hole, 

we think, than would have been necessary, but it was necessary to 

protect the employers. One of the good things about H.R. 2830 is 

that it lifts the lid on that. In addition, in the meantime the IRS 

has come around to some more what we believe appropriate interpretations of the deduction rules, so that we are hopeful this problem will be at least mitigated in the future. Another question that 

a number of you asked and a very appropriate one is: Are these industry-specific problems? Is this caused by particular problems in 

given industries? I think as you can see from the distribution of 

where the underfunding is, it is not necessarily an industry-specific 

problem. I want to tell you a tale of two industries that shows how 

different ways can be handled. Right after ERISA, there were a series of multiemployer plans that terminated at a time when the 

benefits were not guaranteed by PBGC unless the agency agreed 

to do so, and they were the pension plans covering milk drivers, 

the home delivery of milk, an industry that has disappeared. Those 

pension plans were disappearing along with the industry. They 

were severely underfunded, and the PBGC stepped in, and part of 

that experience led to the development and passage of the Multiemployer Pension Plan amendments Act. 

Another industry that had multiemployer plans, in fact, the 

original prototype multiemployer plans, was in garment manufacturing. Both the ladies’ garment and the men’s garment industries, 

their plans started in the thirties. Those plans, upon the enactment 

of the Multiemployer Pension Act in 1980, were significantly underfunded. They have not become PBGC wards of the State. They 

have put the clamps down on any benefit increases. They gritted 

their teeth and got contribution increases. They pursued all of their 

measures. It has not been a happy ride for them, but the plans 

along with the industries are largely being put to bed, the industries in this country, without turning to the PBGC for big infusions 

of money. Those are industries that have gone away because of the 

shifts in the economy, but given tools that were appropriate at the 

time that they were running into trouble, they solved their problems. What we are looking for today is updating and modernization 

of the tools so that industries facing turmoil or facing maybe not 

long-term turmoil but volatility in the market for their goods, volatility in the investment markets, will have the opportunity to take 

the deep breath, to take the measures necessary, and to resolve 

their problems the way earlier plans were able to do so without 

turning to the government for relief. Thank you. 

[The prepared statement of Ms. Mazo follows:] 


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Statement of Judith F. Mazo, Senior Vice President and Director of 

Research, The Segal Company 

I am pleased to be here today to discuss the provisions of H.R. 2830 that are 

aimed at reforming and strengthening the funding rules that govern multiemployer 

defined benefit pension plans. The Segal Company is an international employee benefits, compensation and human resources consulting firm that serves close to 30% 

of the nation’s multiemployer pension plans. Our clients provide a secure retirement 

income for more than half of the workers covered by multiemployer plans. 

I appear here on behalf of a broad coalition of plans, employers, employer associations and labor organizations that sponsor multiemployer plans. The Coalition has 

put forth a carefully negotiated, balanced proposal for multiemployer pension plan 

reform, which has evolved through the efforts of many of the system’s largest stakeholders. I am pleased to see that you will also be hearing today from representatives 

of the Motor Freight Carriers Association and the Associated General Contractors, 

both of which are part of our Coalition. 

In fact, the Coalition represents the overwhelming majority of employers and virtually all of the unions in the construction, trucking, entertainment, service and 

food industries, as well as the membership of the National Coordinating Committee 

for Multiemployer Plans (NCCMP), which directly represents over 600 jointly-managed multiemployer pension, health, training and other trust funds and their sponsoring organizations across the economy. 

The NCCMP is a non-profit, non-partisan advocacy organization formed in 1974 

to protect the interests of plans and their participants following the passage of 

ERISA and the increasingly complex legislative and regulatory environment that 

has evolved since then. The Segal Company has been the technical advisor to the 

NCCMP since its formation; I have been a member of its Working Committee for 

25 years. 

Initially, I want to congratulate Chairman Camp and the members of the Subcommittee for the care that you are taking to address the special issues facing multiemployer plans as distinct from the single-employer issues and problems. We appreciate the considerable effort on your part and by your staff to understand the 

special characteristics of multiemployer plans, the industries that support them and 

the labor-relations contexts in which they function, and to shape legislation appropriate for the multiemployer community rather than attempting to shoehorn multiemployer plans into the very-different single-employer requirements. We look forward to working together to refine the multiemployer provisions to be sure they 

achieve your goal and ours—stronger plans that do an even better job of meeting 

the needs of their participants, their employers and the industries that foster and 

sustain them. 

Background 

There are nearly 1600 multiemployer defined benefit pension plans in the country 

today. They provide benefits to active and retired workers and their dependents and 

survivors in virtually every area of the economy. Because of their attractive portability features, multiemployer plans are most prevalent in industries, like construction, which are characterized by mobile workforces. According to the latest information from the Pension Benefit Guaranty Corporation, multiemployer plans cover approximately 9.7 million participants, or almost one in every four Americans working 

in the private sector who still have the protection of a guaranteed income provided 

by a defined benefit plan. With few exceptions, these are mature plans that were 

created through the collective bargaining process 40, 50 or even 60 years ago and 

have provided secure retirement income to many times the current number of participants since their inception. Although some mistakenly refer to them as ‘‘union 

plans,’’ the law has required that these plans be jointly managed with equal representation by labor and management on their governing boards since the passage 

of the Labor Management Relations (Taft-Hartley) Act in 1947. 

This active participation by both management and labor representatives (many of 

whom are also participants in the plans) provides a clear distinction between single 

employer and multiemployer plans. Multiemployer plans are regulated not only 

under the tax and employee benefits laws and regulations and the watchful eyes of 

the Department of Labor, the Internal Revenue Service and the Pension Benefit 

Guaranty Corporation, with which all private-sector benefit plans must comply. In 

addition, they are subject to a second overlay of regulation, the federal labor-relations laws. Most important among these laws and regulations, the Taft-Hartley Act 

requires that the union and management fiduciaries who serve on these joint boards 

operate these plans for the ‘‘sole and exclusive benefit’’ of plan participants. This, 

of course, echoes and reinforces the capstone of ERISA, which imposes fiduciary obVerDate Aug 31 2005 06:59 Apr 28, 2006 Jkt 026381 PO 00000 Frm 00042 Fmt 6633 Sfmt 6621 E:\HR\OC\26381.XXX 26381

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ligations on plan fiduciaries that put at risk the personal assets of those who fail 

to meet their obligations. 

It is estimated that over 65,000 employers contribute to multiemployer pension 

plans. The vast majority of these are small employers. For example, in the construction industry, which makes up more than 50% of all multiemployer plans (but just 

over one-third of the participants), it is estimated that as many as 90% of all such 

employers employ fewer than 20 employees. By sponsoring these industry plans, employers are able to ensure that their employees have access to comprehensive health 

and pension benefits and, through the jointly managed training and apprenticeship 

plans, the employers have access to a readily available pool of highly skilled labor, 

none of which would be feasible for individual employers to provide. 

Funding for multiemployer plans comes from the negotiated wage package agreed 

to in collective bargaining. For example, if the parties agree to an increase in the 

wage package of $1.00 per hour over three years, the $1.00 may be allocated as 40θ 

to the health benefit plan, 20θ to pensions, 5θ to the training fund and the remaining 35θ taken in increased wages. Although for tax purposes the contributions that 

employers make to employee benefit plans are considered to be employer contributions, the funding comes from monies that would otherwise be paid to the employees 

as wages, health coverage or the like. Through collective bargaining the employees 

explicitly agree to take less in pay in order to fund the pension, so many of them 

feel as though they are making the contributions. 

For the overwhelming majority of contributing employers, their regular involvement with the plans is limited to remitting their monthly payments to the trust 

funds as required pursuant to their collective bargaining agreements. For these 

small companies, the funds are the perfect substitute for making a large financial 

commitment to human resources functions, providing administrative services and 

meeting today’s complex compliance requirements while providing economies of 

scale that would otherwise make such benefit plans unaffordable for small business. 

In effect, the employers have outsourced their employee benefits operations to the 

multiemployer plans and their labor-management boards of trustees. 

Since the passage of the Multiemployer Pension Plans Amendments Act of 1980, 

participants of multiemployer plans have been covered by the benefit guarantee provisions of the PBGC. Unlike single employer plans, however, the PBGC is more like 

a reinsurer of last resort for multiemployer plans. Instead of having PBGC pick up 

the pieces when an employer goes out of business, all of the employers who contribute to these plans self-insure against the risk of failure by one another. Under 

the multiemployer rules, employers who no longer contribute, or cease to have an 

obligation to contribute to the plan, must pay their proportionate share of any unfunded vested benefits that exist at the time of their departure. This obligation, 

known as withdrawal liability, recognizes the shared obligations of employers in 

maintaining an industry-wide skilled labor pool in which employees may move 

among contributing employers dozens of times during their careers. 

This system of shared risk has protected both the participants and the PBGC, as 

evidenced by the fact that it has had to intervene in around 36 multiemployer cases 

over the past 25 years. The reduced risk to the PBGC is also reflected in a much 

lower premium for multiemployer plans—$2.60 per participant per year, versus $19 

per participant per year plus a variable premium for single employer plans. The 

PBGC guarantees a much lower benefit for multiemployer plans. The guarantee formula is expressed as an accrual rate, with the maximum at $35.75 per month per 

year of service. This works out to $12,870 per year for a participant with 30 years 

of service, compared with a maximum guaranteed annual benefit for single employer plans of roughly $45,000, for someone who retires at age 65. As of the last 

fiscal year, PBGC’s multiemployer guaranty program showed a small deficit—about 

$236 million—which was in fact an improvement over the prior year. So the multiemployer program, which covers more than 20% of the people with PBGC-guaranteed pensions, has a projected deficit equal to about 1% of that projected for the single employer program. 

The multiemployer system of pooled risk and mutual employer financial guarantees has been both one of the greatest strengths and major weaknesses of the multiemployer system. In the early 1980s, the presence, or even the threat of withdrawal 

liability produced a chilling effect on the growth of multiemployer plans that has 

persisted in several industries despite the fact that most have had no unfunded benefits for most of that time. On the other hand, for many, the threat of unfunded 

liabilities provided an incentive to plan fiduciaries to adopt and follow conservative 

funding and investment policies that, in combination with a robust economy, led the 

plans to become fully funded. 

Nevertheless, rather than being able to build a buffer against future economic 

downturns, this success led plans to experience problems at the top of the funding 


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spectrum. In the late 1980s and throughout the 1990s, plans began to hit the full 

funding limits of the tax code. Under these provisions, employers that contribute to 

plans in excess of these limits were precluded from receiving current deductions for 

their contributions to the plans. Compounding the situation, employers who continued to make their contributions also faced an excise tax for doing so, despite the 

fact that the collective bargaining agreements to which they were signatory obligated them to continue to make them. Although in rare instances the bargaining 

parties negotiated ‘‘contribution holidays,’’ timing considerations and the fact that 

in most cases the plan fiduciaries and bargaining parties were different people 

meant that plan trustees had no choice other than to increase plan costs by improving benefits to bring plan costs up to the level of plan income to protect the deductibility of employer contributions. Further, once adopted, the actions taken to improve the plan of benefits in order to protect the employers cannot be rescinded 

under the anti-cutback provisions of ERISA. We estimate that over 75% of multiemployer defined benefit pension plans were forced to make benefit improvements as 

a result of the maximum deductible limits, even when the trustees were skeptical 

about being able to cover the costs in the long term. Overall, multiemployer plans 

were very well funded as the plans approached the end of the millennium, with the 

average funded position for all multiemployer plans at 97% (see The Segal Company 

Survey of the Funded Position of Multiemployer Plans—2000). 

In the three years that followed, however, these same plans, like all investors, suffered significant losses as the markets plunged into a deep and prolonged contraction. For the first time since the ERISA funding rules were adopted in 1974—in 

fact, for the first time since before the beginning of World War II—the markets experienced three consecutive year of negative performance. Not only were plans unable to meet their long term assumed rates of return on their investments, like just 

about all investors the plans saw their principal decline. For many of these mature 

multiemployer plans that depend on investment income for as much as 80% of their 

total income, the loss of significant portions of the assets caused a rapid depletion 

of what for most had been significant credit balances in their funding standard accounts. The most recent Segal Company multiemployer funding report shows a significant decline from the 97% in 2000, although the average funded position is still 

relatively healthy at 83%. Nevertheless, these investment losses have left a number 

of plans at all levels of funding facing credit balances approaching zero, meaning 

these plans face a funding deficiency in the near future (see The Segal Company 

Survey of the Funded Position of Multiemployer Plans—2004). According to the most 

recent estimates, as many as 15% of all plans are projected to have a funding deficiency by the year 2008 and an additional 13% face the same fate by 2012 (assuming benefit levels and contribution rates remain unchanged). 

The implications of a funding deficiency for contributing employers, the plans and 

their participants are potentially devastating. Once a plan’s credit balance drops 

below zero, contributing employers may have to be charged additional amounts to 

make up the shortage so that the plan can meet its minimum funding requirements. 

This is above the amounts they have promised to pay in their collective bargaining 

agreements. In addition, they are required to pay an excise tax by the IRS equal 

to 5% of that assessment. It the full shortfall is not made up in a timely fashion, 

the excise tax may be increased to 100% of the shortage. 

For many of the contributing employers, especially those in industries like construction that operate through competitive bidding and traditionally have small 

profit margins, they have bid their work throughout the year based on their fixed 

labor costs (including the negotiated pension contributions). For them, receiving an 

assessment for what could be multiples of the total contributed for the year, could 

be enough to drive them into bankruptcy. In this instance, the concept of pooled risk 

among contributing employers means that the shortage amounts as well as the excise taxes owed by the bankrupt employers would be redistributed among the remaining employers, invariably pulling some at the next tier into a similar fate. As 

more and more employers fail, those companies that are more financially secure 

begin to worry about being the ‘‘last man standing.’’ The result is that they will also 

seek ways to abandon the plan before all of their assets are at risk. When all of 

the employers withdraw, the assets of the plan will be distributed in the form of 

benefit payments until the assets on hand are sufficiently depleted to qualify for assistance from the PBGC. At that point, participants’ benefits will be reduced to the 

maximum guaranteed levels, as noted above, which are likely to represent only a 

fraction of the amount to which they would otherwise be entitled. 

A Balanced, Negoitated Industry-Wide Response 

Trustees of most plans faced with the prospects of an impending funding deficiency have already taken action to address the problem to the extent possible. For 


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the most part, that has involved reducing future accrual rates or ancillary benefits 

that have not yet been earned, as the current anti-cutback rules prohibit reducing 

benefits that have already accrued, including all associated features such as early 

retirement subsidies and the like. In many cases, this has involved substantial reductions (e.g. 40% by the Western Conference of Teamsters, 50% by the Sheet Metal 

Workers National Pension Plan and the Central States Teamsters Pension Plan, 

and 75% in the case of the Plumbers and Pipefitters National Pension Plan). But 

financial impact of adjusting only future benefits is limited, especially for mature 

plans that have relatively small numbers of active workers earning new benefits. 

These actions on their own may be insufficient to avoid a funding deficiency. Moreover, it can be counterproductive to take too much away from the active workers, 

because they are the ones who must agree to increase funding for the pension plan. 

Additionally, the modest recovery of the investment markets experienced in 2004 is only marginally helpful. For example, a $1 billion fund in 2000 that suffered a 

20% decline in assets through 2003 would have to realize an annualized rated of 

return of 15% every year for the remainder of the decade to get to the financial position by 2010 it would have had it achieved a steady rate of 7.5% for the full ten 

year period. Other relief, including funding amortization extensions under IRC Section 412(e) or the use of the Shortfall Funding Method, have been effectively precluded as options by the IRS. Consequently, the only alternative available requires 

a legislative solution. 

When the Pension Funding Equity Act of 2004 failed to give multiemployer plans 

short-term relief to help them over the current crisis, various groups began to evaluate alternatives. The objective was to find ways to strengthen plan funding to avoid 

or minimize risks that the trustees and the parties can control, and to provide additional tools to the plan fiduciaries and bargaining parties for plans that face imminent funding crises so that they can bring their liabilities and resources into balance. A broad cross section of groups that deal with many varieties of multiemployer 

plans from many different perspectives entered into extensive negotiations to develop a set of specifications for reform that all could agree on. The resulting specifications for reform reflect a carefully conceived compromise between employer and 

labor groups, undoubtedly quite different from what either group would have designed independently, but reflective of a desire by all parties to preserve the plans 

as valuable sources of retirement income security on a cost-effective basis. The result was the current coalition proposal, a copy of which is attached as an addendum 

to this testimony. Here is a summary of that proposal: 

Summary of Coalition Proposal 

The proposed specifications for multiemployer reform include three major components, supplemented with several clarifying and remedial changes intended to make 

the system work more effectively for plans, their participants and their contributing 

employers. 

The first component is applicable to all multiemployer plans and has two major 

provisions geared to strengthening funding requirements for plan amendments that 

increase or decrease plan costs (specifically unfunded actuarial accrued liabilities) 

related to past service and to require that new benefits designed to be paid out over 

a short period, like 13th checks, be amortized over that payout period. 

The other major provision would allow plans to build a ‘‘cushion’’ against future 

contractions in investments, and to save for the lean years when times are good, 

by increasing the maximum deductible limit to 140% of the current limits and repealing the combined limit on deductions for multiemployer defined benefit and defined contribution plans. 

The second component of the Coalition proposal applies to plans that have potential funding problems, defined as those with a funded ratio of less than 80%, using 

the market value of assets compared to the actuarial value (as used for minimum 

funding) of its actuarial accrued liability. Such plans would be required to develop 

and adopt a ‘‘benefit security plan’’ that would improve the plan’s funded status. 

Plans in this category would not be able to adopt amendments to improve benefits 

unless the additional contributions related to such amendment more than offset the 

additional costs to the plan. Amendments that violate that restriction would be void, 

the participants would be notified and the benefit increase would be cancelled. 

To provide additional tools to help multiemployer plans deal with looming funding 

problems, they would have ‘‘fast track’’ access to five-year amortization extensions 

and the Shortfall Funding Method if certain criteria were met. IRS authorization 

could be withheld only in certain circumstances and applications would need to be 

acted upon within 90 days or the approval would be automatic. Additional restrictions that currently apply to plans with amortization extensions would also apply, 

although it would be clarified that plans could increase benefits if the result would 


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be to improve the plan’s funding because the increase generates contributions above 

and beyond the amounts needed to pay for the benefit increases. 

The third and most critical component involves plans that have severe funding 

problems or will be unable to pay promised benefits in the near future. The intent 

is to prevent a funding deficiency that could trigger a downward spiral of the plan 

and its contributing employers and ultimately thrust the funding of the benefits 

onto the PBGC. This would be accomplished by providing the bargaining parties and 

plan fiduciaries with additional tools beyond those currently available to bring the 

plan’s liabilities and resources back into balance. 

The Coalition proposal modifies the current multiemployer-plan reorganization 

rules to provide a useful mechanism for plan sponsors, much like a Chapter 11 

bankruptcy reorganization. ERISA currently has reorganization rules governing 

plans that are nearing insolvency, but those rules were adopted at a time when the 

major concern was a plan’s ability to meet its payment obligations to current pensioners. Today, even those plans with the most severe funding problems have sufficient assets to meet their obligations to current pensioners. The Coalition proposal 

suggests several new triggers to reorganization that reflect the problems of mature 

plans, recognizing that funding ratios below 65%, a plan’s short term solvency and 

a plan’s demographic characteristics (i.e. the relationship between the present value 

of benefits earned by inactive vested and retired participants to that of currently 

active participants) can play an important role in a plan’s ability to meet its obligations to all participants, current and future. 

Once a plan is in reorganization, notice would be given to all stakeholders and 

the government agencies with jurisdiction over the plans that the plan is in reorganization and describing the possible consequences. Once in reorganization, plans 

would be prohibited from paying out full or partial lump sums, social security level 

income options for people not already in pay status, or other 417(e) benefits (except 

for the $5,000 small annuity cashouts). Within thirty days, contributing employers 

would be required to begin paying a surcharge of 5% above their negotiated contribution rates. If the bargaining agreement covering such contributions expires 

more than one year from the date of reorganization, the surcharge would increase 

to 10% above the negotiated rate and remain there until next round of bargaining. 

Once in reorganization, the normal funding standard account continues to run, but 

no excise taxes or supplemental contributions will be imposed if the plan encounters 

a funding deficiency. 

Not later than seventy-five days before the end of the first year of reorganization, 

the plan fiduciaries must develop a rehabilitation plan to take the plan out of reorganization within ten years. The plan would set forth the combination of contribution increases, expense reductions (including possible mergers), benefit reductions 

and funding relief measures (including amortization extensions) that would need to 

be adopted by the plan or bargaining parties to achieve that objective. Annual updates to the plan of rehabilitation would need to be adopted and reported to the affected stakeholders. Although the proposal anticipates the loosening of the current 

anti-cutback rules with respect to ancillary benefits (such as subsidized early retirement benefits, subsidized joint and survivor benefits, and disability benefits not yet 

in pay status), a participant’s core retirement benefit at normal retirement age 

would not be reduced. Additionally, with one minor exception which follows current 

law regarding benefit increases in effect less than 60 months, no benefit for pensioners already in pay status would be affected. Finally benefit accruals for active 

employees could not be reduced below a specified ‘‘floor’’ as a means of ensuring that 

the active employees whose contributions support all plan funding, remain committed to the plan. 

The proposal anticipates that these ancillary benefits become available as part of 

a menu of benefits that can modified to protect plans from collapsing under the 

weight of previously adopted plan improvements that are no longer sustainable, but 

that cannot be modified under the current anti-cutback restrictions. Without such 

relief participants would receive lower overall benefits on plan termination and the 

plan would be eliminated for future generations of workers. Within seventy-five 

days of the end of the first year a plan is in reorganization, the plan trustees must 

provide the bargaining parties with a schedule of benefit modifications and other 

measures required to bring the plan out of reorganization under the current contribution structure (excluding applicable surcharges). If benefit reductions alone are 

insufficient to bring the plan out of reorganization, the trustees shall include the 

amount of contribution increases necessary to bring the plan out of reorganization 

(notwithstanding the floor on benefit accruals noted above). The trustees shall also 

provide any other reasonable schedule requested by the bargaining parties they 

deem appropriate. 


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The bargaining parties will then negotiate over the appropriate combination from 

among the options provided by the trustees. Under this proposal, benefits for inactive vested participants are subject to reduction to harmonize the impact on future 

benefits for this group as well as for active participants. 

The proposal includes suggestions for: bringing the current rules on insolvency in 

line with the proposed reorganization rules; strengthening withdrawal liability provisions; and providing construction industry funds with additional flexibility currently available to other industries to encourage additional employer participation. 

It also includes provisions that address recent court rulings. One suggested change 

would allow trustees to adjust the rules under which retirees can return to work 

and still receive their pension benefits and another would confirm that plans can 

rescind gratuitous benefit improvements for current retirees adopted after the date 

they retired and stopped generating employer contributions. 

The Challenge 

For more than half a century, multiemployer plans have provided benefits for tens 

of millions of employees who, using standard corporate rules of eligibility and vesting, would never have become eligible. They offer full portability as workers move 

from one employer to another, in a system that should be held out as a model for 

all defined benefit plans. More importantly, the system of collective bargaining and 

the checks and balances offered by joint employer—employee management has enabled the private sector to take care of its own without the need for government 

support. 

Yet the current funding rules, previously untested under the unprecedented unfavorable investment climate experienced in recent years, have the potential not only 

to undermine the retirement income security of millions of current and future workers and their dependents, but to force large numbers of small businesses out of business and eliminating participants’ jobs. 

Congress now has an ideal opportunity to enact meaningful reform supported by 

both the employer and employee communities, who have coalesced behind a responsible proposal that will enhance plan funding and provide safeguards to plans, participants, sponsoring employers and the PBGC, without adding to the already burgeoning debt. We know that our proposal is unlikely to be the last word, of course, 

and we embrace the opportunity to work with the Subcommittee and with others, 

including others in the private sector with a stake in multiemployer plans, to 

strengthen and polish the ultimate result. Along those lines, there are a few points 

regarding the way H.R. 2830 adapts the ideas that have been put forth that we believe deserve mention at this stage. 

Section 202 of the Bill contains new funding and other requirements for multiemployer plans that are in ‘‘endangered’’ status that go well beyond what the Coalition 

has recommended for plans facing potential funding problems (colloquially referred 

to as the ‘‘Yellow Zone’’). While we think there may be some merit in further tightening the reins on plans that may be heading for serious trouble, it is important 

that the standards not be so stringent that they could create insupportable costs for 

employers and thereby harm rather than help with plan funding. 

Section 202 also creates a new category—multiemployer plans in ‘‘critical’’ status—which is set up to address the special problems of plans that are near the 

brink of failure. As noted, the Coalition agrees that a program like this is needed 

(in our proposal, it takes the form of a redesigned approach to plan reorganization). 

However, the role of plan trustees at this point is vital to plan survival and, we believe, they need additional authority to restructure and revitalize seriously troubled 

plans substantially beyond what is proposed in H.R. 2830. Again, we anticipate 

working with you and your staff to come up with a suitable solution to these important policy questions, as well as to deal with the inevitable technical issues that 

arise in any legislative effort in this extraordinarily complex area. 

Conclusion 

The Coalition understands that whatever legislation is ultimately passed will include some provisions that are distasteful to the employers, the employees or both, 

because it will of necessity be a compromise. Our aim is to make sure that, in the 

end, the environment for multiemployer plans will be improved, so that they, their 

contributing employers and their participants are all well-served. The alternative is 

not the continuation of the status quo, but a much worse fate that includes: the loss 

not only of accrued ancillary benefits, but a substantial portion of a participant’s 

normal retirement benefit as plans are assumed by the PBGC; the demise of potentially large numbers of small businesses, the accumulation of unbearable cost burdens for the surviving companies in multiemployer plans and the loss, not only of 


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pension benefits, but the jobs from which such benefits stem; and an increase in taxpayer exposure at the PBGC, an agency that is already overburdened. 

In closing, I would like to thank you for taking the time to engage in this important discussion and for the opportunity to be with you here today. 

f 

Chairman CAMP. Thank you very much. You referred to the deduction ceiling, Ms. Mazo, and H.R. 2830 increases that, I believe, 

to 140 percent. 

Ms. MAZO. Yes. 

Chairman CAMP. In your opinion, how do you think the employers that you deal with will react to that raise in the deduction ceiling? 

Ms. MAZO. Well, typically, it is not really a matter of the employers wanting to put in more money to take greater tax deductions. The parties negotiate contributions that they believe will be 

a fair amount that will fund the plan, and at the time they do so, 

they do not necessarily know what is going to be needed to fund 

the plan. It is based on estimates that we think maybe there will 

be—each person in the plan will work 1,500 hours and we are 

going to need $15,000 to fund the plan this year, so we need $10 

a person per year. I have to make up numbers that even I can decide in my head, but just multiply adding zeros. If, as happened in 

the 1990s, there is a whole lot of work and people work much more 

than was anticipated, more money is going to come in. If the markets are very good so that, in fact, the plan does not need as much 

for the employers to meet the cost of the plan from year to year, 

then, again, the contribution levels that were fixed in the bargaining agreement may be greater than are needed at a given time. 

What raising the deduction level will do is it will enable the plan 

trustees to save that money that came in in the good years and 

have it there as a buffer for the periods when times are going to 

be bad. They will be bad and hopefully they will be better again, 

but we do not want—the whole point of it is to smooth it out over 

time so that they do not have shocks to the negotiating systems 

and shocks to the employers. 

Chairman CAMP. Thank you. Mr. Clark, I wanted your reaction 

or comment to how employers would see the deduction ceiling at 

140 percent in H.R. 2830. 

Mr. CLARK. Simply I would just say ‘‘Amen’’ to the previous 

comments. I know that in 1997 when we reached the funding limits, we would have welcomed the opportunity to take a balanced 

approach to what the market and our collective bargaining agreement was handing us, and given some increase in funding but certainly to build a war chest. Many of the funds—I know it is definitely the case with the Michigan Carpenters—have trustees from 

the management side who have been there forever, and they have 

seen what happens in life. The market goes up and down. We get 

overfunded, we get underfunded. No question our counsel would 

have been let’s put some away for a rainy day. We would not have 

run into the problem in 2001 that we did face. 

Chairman CAMP. All right. Thank you. Mr. Lynch, in your statement you mentioned the non-sponsored participants, and you noted 

that plans for your industry have recovered less than 15 percent 


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of the assets needed to cover the liabilities of companies which 

withdraw. What effect does H.R. 28thirties new withdrawal requirements have on the plans in your industry, if you could comment on that? 

Mr. LYNCH. I think the provisions in H.R. 2830 relating to 

tightening up on withdrawal liability rules are very important in 

helping to address part of that problem. I mentioned in my written 

statement that there is one large Teamster trucking industry fund 

where it is estimated that they recover less than 15 percent of the 

withdrawal liability that is actually owed. So, to the extent the 

other 85 percent is not captured, that then becomes the burden on 

the remaining contributing employers. So, we believe those withdrawal liability rules and tightening those up will be helpful. 

Chairman CAMP. All right. Thank you. The gentleman from 

New York, Mr. McNulty, may inquire. 

Mr. MCNULTY. Thank you, Mr. Chairman, and I thank all of 

the panelists for their testimony. Mr. Morgan, do the union representatives who are trustees of the plans of which your employers 

are a part support your proposal? If not, what is your perception 

as to why they do not? 

Mr. MORGAN. Congressman, it is difficult for me to say whether 

the union trustees of our various funds would support this or not. 

We think they would support some parts of it. I am not sure about 

other parts. 

Mr. MCNULTY. You do not know the positions of any of them? 

Mr. MORGAN. Well, we have been dealing with the coalition, 

which includes Teamsters and the UFCW, and they have been concerned, as was mentioned earlier, about the effect of what we have 

been calling the yellow zone, the endangered group, rules on getting to full funding on contribution levels and benefit accrual rates. 

We do not see it quite the same way, but I think if there was an 

area of difference, that might be it. 

Mr. MCNULTY. Okay. Well, I think that would be it because I 

have that concern myself with this proposal, Ms. Mazo, this multiemployer plan coalition has put forward. In your opinion, how large 

would the benefit cuts be that would be permitted under this proposal to the average worker or the average retiree? 

Ms. MAZO. Are you talking about the coalition proposal? 

Mr. MCNULTY. Yes. 

Ms. MAZO. Under the coalition proposal, the benefit cuts would 

not come until the plan is in very severe trouble, that is, what we 

call reorganization. Our proposal would protect retirees unless they 

retired after it was already known the plan was in trouble. We do 

not want people racing for the door knowing that benefit cuts are 

coming. But we would propose not to cut the benefits of retirees 

who had been retired before the plan ran into trouble. So, the cuts 

would really be—and also we are talking about not cutting accrued 

benefits that are payable at normal retirement age. The cuts would 

come in the form of taking away some of the subsidies for early retirement, some of the added special death benefit provisions that 

are available after retirement, the opportunity to double dip, if you 

will, to retire, draw your benefit, and come back to work. Our proposal would allow plans to change the rules and say if you are 

going to come back to work, we are going to withhold your pension. 


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I cannot give you an estimate about how large the reductions 

would be because I do not think the reductions would be huge. I 

think much more important, actually, based on the experience that 

we have had in the early days of plan reorganization, there would 

be a huge spur to the parties to moderate what the benefit promises are for the future and to focus on getting better funded because of the tremendous pain that benefit cuts would entail. So, it 

is kind of like a sword of Damocles hanging over their head. 

Mr. MCNULTY. Thank you very much, and I thank everyone on 

the panel for being here and for their testimony. 

Chairman CAMP. Thank you. The gentleman from Illinois, Mr. 

Weller, may inquire. 

Mr. WELLER. Thank you, Mr. Chairman. Ms. Mazo, in your testimony, of course, you have indicated you are part of the Multiemployer Plan Coalition. Can you share with us who is all part of that 

coalition? 

Ms. MAZO. I cannot give you a complete list, but the National 

Coordinating Committee for Multiemployer Plans itself represents 

a large number of plans and employers and unions, including the 

United Food and Commercial Workers, the Teamsters, I think all 

or just about all of the building trades, the Mine Workers, et 

cetera. In addition, the trucking—Mr. Lynch’s organization, the 

Motor Transport Organization, the AGC, UPS, Yellow Roadway, 

major employers, all of the specialty construction groups, the sheet 

metal contractors, electrical contractors, and so forth. 

Mr. WELLER. Well, you know, so business, labor, employers, 

workers are all part of this coalition. 

Ms. MAZO. That is right. 

Mr. WELLER. Essentially three of the four panelists represent 

different segments of that coalition today, so perhaps it might be 

best if I direct my question and ask if any of the three of you would 

like to answer that. But, you know, one of the biggest concerns that 

has been raised with me on multiemployer pension plans is they 

have the responsibility the PBGC has for single-employer plans in 

insuring benefits for bankrupt employers, yet they do not have all 

the tools required to manage the plans when a crisis threatens that 

plan’s survival. How does the proposal of the coalition rectify this 

and at the same time protect the core retirement benefit levels for 

all the participants? Also, are your recommendations included in 

H.R. 2830? 

Ms. MAZO. Some of our recommendations are included. As 

things stand now, many of them are not. But I think that is under 

consideration at this point by the Education and the Work force 

Committee. The philosophy behind our proposal was first to try to 

forestall the problems that were under the bargaining parties’ and 

the trustees’ control by making it—having higher standards for— 

tighter funding standards for benefit increases to not enable trustees to improve benefits unless they are pretty sure they can afford 

them, and that feature of our proposal, a variation of it, which was 

also in the Food Marketing Institute’s proposal, is in H.R. 2830. 

Another part was, as you have heard, to increase the deduction 

limits, and that is in 2830. A third part was to give plans ready 

access to some of the already existing tools in the law which have 

been difficult for the IRS to deal with, and particularly given the 


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funding crisis they have been dealing with in the single-employer 

plans. Part of that is in H.R. 2830. It is not in there 100 percent. 

Mr. WELLER. Mr. Lynch or Mr. Clark, do you have something 

you would like—— 

Mr. LYNCH. When we first began these discussions within the 

coalition, I think there was a general feeling that under current 

law many of the tools to address some of these problems occur far 

too late in the process. They really come into play when plans are 

facing very severe funding problems. So, what we have suggested 

is that some of those things—amortization relief, waiver relief—get 

moved up in the process so the trustees can address some of these 

things sooner rather than later where they are really dealing with 

a very, very difficult problem. Much of that is incorporated in H.R. 

2830. 

Mr. WELLER. Mr. Clark? 

Mr. CLARK. I agree. I differ from most of the panelists. I am not 

an expert on this. But I do have skin in the game. I am an actual 

contributor to these plans. On top of that, I know the beneficiaries 

personally, and I am a trustee. Anything that would allow us to act 

more quickly to assure those benefits get to those that they were 

intended for is essential. 

Mr. WELLER. Just as a quick follow-up—and I see my time is 

running out here—the provisions that were in the coalition proposal that were put forward but were not included in H.R. 2830, 

what is the most important provision you feel that needs to be 

added to this piece of legislation to improve it? 

Mr. LYNCH. I think the tools in the red zone. Right now, plans 

falling in the red zone, the most severely underfunded plans, there 

is a big gap in the tools available to the trustees and the bargaining parties, and that is a very, very important point here. 

What we tried to do is balance what the responsibilities are for the 

trustees and as well as the bargaining parties. So, I would say the 

red zone is the most important component that needs to get back 

into the legislation. 

Mr. WELLER. Well, thank you, and I see my time has expired. 

Thank you, Mr. Chairman. Thank you, panelists. 

Chairman CAMP. Thank you. The gentleman from Texas, Mr. 

Doggett, may inquire. 

Mr. DOGGETT. Thank you, Mr. Chairman. Do each of you and 

the groups that you represent support the disclosure and transparency provisions that are in 2830? 

Mr. CLARK. We do. 

Mr. LYNCH. Yes, we do. 

Mr. MORGAN. Yes. 

Ms. MAZO. We support them in principle. I am sorry to have to 

demur, but there are technical aspects of the disclosure rules that 

we do need to address. One of the particular features of multiemployer plans is that they are independent entities that operate as 

trust funds to which many employers contribute and that cover 

many people, as has been noted, who move among employers and 

from job to job. Accordingly, the plans do not necessarily always 

have all of the information about all of the individuals that might 

be captured within a given employer’s own personnel data system, 

but that is not there at the plan level. Similarly, the plans are— 


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operations are funded out of the same pool of assets that funds the 

benefits, and so it is not very—— 

Mr. DOGGETT. Will you submit to the Subcommittee any 

changes that you think are necessary? 

Ms. MAZO. We will. 

Mr. DOGGETT. That would be useful. 

Ms. MAZO. We definitely support them in principle. It is just a 

question of making sure they are not overwhelming. 

Mr. DOGGETT. Thank you. Mr. Clark, is it your position that we 

need to pass the Boehner bill or 2830 as soon as possible? 

Mr. CLARK. Yes. 

Mr. DOGGETT. Is that your position also, Mr. Morgan? 

Mr. MORGAN. Yes. 

Mr. DOGGETT. Mr. Lynch, while you believe that there need to 

be some changes, particularly in the yellow zone provisions, do you 

also feel that Congress needs to act on perhaps a revised Boehner 

bill this year? 

Mr. LYNCH. Absolutely. 

Mr. DOGGETT. Mr. Clark, has anyone in the groups that you 

represent suggested that we need to attach the Boehner bill or any 

portions of it to some variant of the President’s plan to privatize 

Social Security to kind of help boot-strap it forward? 

Mr. CLARK. Mr. Congressman, I do not have any knowledge 

someone is for or—— 

Mr. DOGGETT. It is not a recommendation that you have made? 

Mr. CLARK. No. 

Mr. DOGGETT. And, Mr. Morgan, has your institute recommended that the best way to get the Boehner bill and reform of 

our pension system is to attach it to this faltering plan to privatize 

Social Security? 

Mr. MORGAN. No. 

Mr. DOGGETT. And, Mr. Lynch, has your organization recommended that we need to pair up pension reform with privatization of Social Security? 

Mr. LYNCH. We have been so singularly focused on trying to 

pass multiemployer pension reform. That has been our singular 

focus. 

Mr. DOGGETT. Do you feel that any step the Congress would 

take to slow down the reform of our pension system would be a 

mistake? 

Mr. LYNCH. I got a feeling I know where you are heading with 

that. We would support any avenues to make it happen. 

Mr. DOGGETT. Ms. Mazo, there clearly has been a good bit of 

debate, as some of the other witnesses indicated, amongst you 

about the best way to solve these problems. What is your feeling 

as to why the Food Marketing Institute’s approach, particularly as 

it relates to yellow zone companies, won out over what the coalition 

had proposed, since the coalition seems to represent a larger number of employees and industries? 

Ms. MAZO. I would hesitate to speculate what might have been 

in the minds of Chairman Boehner and others as to why it won 

out. I can see the appeal of saying we want hard benchmarks to 

measure the process and to measure the progress. We appreciate 

the idea of imposing more discipline in the so-called yellow zone 


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plans than we had proposed. Our concern is that the benchmarks 

are so hard that they could cause some employers to collapse under 

the weight and the plans to collapse under the weight of the employers. 

Mr. DOGGETT. Mr. Morgan, I understand that if we change the 

deductibility provisions, that will remove a disincentive to your 

members to contribute in good times. What incentive is there to increase contributions during good times in a highly competitive industry? 

Mr. MORGAN. Well, during good times, meaning investment returns are high? Is that what you are referring to? 

Mr. DOGGETT. Yes, sir. 

Mr. MORGAN. Well, then there wouldn’t be any particular incentive to do that, but it is subject to collective bargaining. So, both 

sides have a say in how the available funds are divided among 

wages and—— 

Mr. DOGGETT. Your feeling is then through the collective bargaining process, during periods of prosperity there would be increases made in contributions? 

Mr. MORGAN. Not necessarily, sir. If there is no need for increases there, the moneys would probably be allocated to wages or 

health care. 

Mr. DOGGETT. But in yellow zone companies, in yellow zone 

plans, you think there would be increases. 

Mr. MORGAN. I think there would be, yes. 

Mr. DOGGETT. Thank you, Mr. Chairman. 

Chairman CAMP. Thank you. The gentlewoman from Pennsylvania, Ms. Hart, may inquire. 

Ms. HART. Thank you, Mr. Chairman. I have a whole lot of 

questions, but I am going to go, I think, to Ms. Mazo because the 

coalition seems to include the folks who have contacted me the 

most. 

Ms. MAZO. Maybe we should have contacted Mr. Boehner more 

and we would have been in the bill. 

[Laughter.] 

Ms. HART. You explained that, as we are all familiar, the multiemployer plans include a number of different employers, and some 

would think that when you have that mix, that would imply that 

there is going to be more stability. I think if you look at the figures 

that we saw in that first panel, that is the case. But it is not 

enough, according to a lot of folks, and especially some of my constituents who have contacted me. I guess my question is—there are 

some things you do not like in the Boehner bill, and one of the 

things was the 10-year benchmark. I guess my question for you is: 

What would you propose as an alternative to that benchmark? 

Ms. MAZO. We are concerned about a benchmark that is a fixed 

number that cannot be adapted to the needs and the situations of 

varying plans. We have been looking at benchmarks that would, for 

example, have the plans achieve a certain level of funding not 

based on fixed ratios, but covering all of the benefits that are being 

earned in any given year, which is called the normal cost, plus paying interest on the existing liabilities. We have been looking at giving plans the opportunity to reach that kind of benchmark within 

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cerned about in the Boehner bill is that it sets benchmarks and 

sets requirements for achieving certain benchmarks before the parties have had the chance to bargain over the situation. It appears 

to potentially in underfunded plans require benefit reductions for 

active workers as an interim step before there is any collective bargaining over how to deal with the plan’s problems. We believe that 

there should be benchmarks, but they should be timed to be 

achieved within a sustainable period that allows for collective bargaining to absorb the cost increases and to integrate them into the 

overall compensation package so that the employers are not hit 

with very high contribution increases early on or, conversely, very 

dramatic benefit cuts early on. 

Ms. HART. So, it sounds to me like you want to go more in the 

direction of sort of a re-analysis more often. Is that correct? 

Ms. MAZO. I think that is right. Looking at the plan every year, 

achieving progress but progress in a way that fits the bargaining 

cycles, because we think it is very important not to take control of 

the plans out of the hands of the employers and the unions who 

give it life, who are the source of the funds to make it go. The bargaining parties have to have the opportunity to decide how much 

to put in and the rate at which they can afford to put it in. I am 

not saying they should have a free hand, we only want to put in 

a dollar, but they should have benchmarks that would be absorbable for them under the cycles of when their bargaining agreements open and are negotiated. 

Ms. HART. Are you looking for something that would result more 

in a steady funding stream more than swings? 

Ms. MAZO. Absolutely. That is right. We have some data that 

our company has just done looking at the benchmarks in the 

Boehner bill. This looks at about 30-some plans of ours that my 

company works with that would be in the yellow zone. The contribution increases that would be required to meet those benchmarks range from 7 percent, which is certainly doable, to 135 percent, which is very, very difficult, to 356 percent down to 20 percent. Some of the plans, if it was 20 percent over a period of years, 

they could do that. Where it is 171 percent starting right away to 

get to that point, that would be too much for the employers and 

too much for the employees. 

Ms. HART. Okay. Thanks. I appreciate that. I yield back. 

Chairman CAMP. Thank you very much. The gentlewoman from 

Ohio, Mrs. Tubbs Jones, may inquire. 

Ms. TUBBS JONES. Thank you, Mr. Chairman. I would like to 

continue with that line of questioning, Ms. Mazo. How would you 

express what you are asking in an agreement, or suggesting should 

happen in a multiemployer plan? 

Ms. MAZO. In the—— 

Ms. TUBBS JONES. Or in the law. 

Ms. MAZO. In the law. I think the law should set tough standards. I think that the parties should not be led into temptation 

about, well, let’s just relax. They don’t. They practically never do, 

and Mr. Clark and the gentleman here from Safeway as trustees 

can certainly attest to the fact that they pay very close attention 

to the costs. But I think there should be standards that when a 

plan is headed to trouble and it is appropriately identified, our sugVerDate Aug 31 2005 06:59 Apr 28, 2006 Jkt 026381 PO 00000 Frm 00054 Fmt 6633 Sfmt 6602 E:\HR\OC\26381.XXX 26381

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gestion would be perhaps identifying them as facing a funding deficiency within 7 years or something along those lines. When they 

are headed to trouble, not there, they should be required to look 

forward—as Dr. Holtz-Eakin has suggested and FMI has suggested, they should be required to do projections to see what things 

are going to look like down the road and not just say, well, today 

we have got plenty of money so we are going to just sit on our 

hands. Nobody obviously can predict what the market will do, and 

what happened the earlier part of this century, which pulled the 

rug out from everyone, was a catastrophe that could not have been 

planned for and probably should not have been planned for. I 

know, Ms. Hart, you have suggested you do not want to force the 

plans to be overfunded. That is a misallocation of resources on 

everybody’s behalf. So, I would suggest some kind of standard that 

sets a reasonable timetable and a timetable that can be readjusted 

as events develop for, for example, the plans to aim to reach a responsible funding amortization period. Let’s say if they start today, 

within 10 years from now they should have their liabilities in 

shape and their assets in shape so that by amortizing the benefits 

over a reasonable period, they are amortizing the costs over a reasonable period thereafter, they could be fully funded. Along—— 

Ms. TUBBS JONES. Hold on a second. Let me slow you down. 

Ms. MAZO. Okay. 

Ms. TUBBS JONES. You are heading down a road I was not asking about. 

Ms. MAZO. Oh, I am sorry. 

Ms. TUBBS JONES. How would you express in the law the ability to factor in labor negotiations when you set a 240-day timetable? 

Ms. MAZO. Right, that is a problem. I think the timetables have 

to be based on the later of a fixed date—or maybe an earlier date, 

you know, but a reasonable date, or the year after the majority of 

bargaining agreements expire. 

Ms. TUBBS JONES. Okay. 

Ms. MAZO. You have to time it to the bargaining cycle. 

Ms. TUBBS JONES. Mr. Lynch, are you trying to answer my 

question? 

Mr. LYNCH. If I could add one point, one of the challenges that 

the trustees have in these plans is in a multiemployer bargaining 

scenario, you have multiple contracts that come up at various 

times. Now, in some plans you have maybe three or four contracts 

that represent the bulk of the participants in the plan. But you 

have to try and fix this timeframe so that you get the bulk of those 

plans. We had suggested something along the lines of when 75 percent of the participants’ contracts had been bargained, that is when 

the clock would start. 

Ms. TUBBS JONES. Okay. Mr. Clark, would you like to respond 

to that question? 

Mr. CLARK. Mr. Lynch makes a very good point, and we could 

certainly use that as trustees. It is very much more reasonable 

than the proposed timetable. 

Ms. TUBBS JONES. Mr. Morgan? 


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Mr. MORGAN. Well, we think that the current proposed law is 

workable. We do not quite see it the same way as the folks who 

have just spoken to you, but—— 

Ms. TUBBS JONES. Well, tell me how you see it. 

Mr. MORGAN. Well, we are employers, too. We obviously don’t 

want to be saddled with huge increases in contributions. We don’t 

want employers withdrawing from funds because they cannot afford it. On the other hand, we think there have to be some standards applied to when you do certain things. We think, for example, 

there has to be a trigger. We have suggested 7 years to a funding 

deficiency as one. We think there has to be a time limit on how 

long trustees and bargaining parties have to craft a solution. We 

also think there needs to be a time period set for restoring the fund 

to where it should be, and there should be an interim look at where 

you are, which we think in the Boehner bill is a reasonable timeframe. I would add one other thing. We have run some of our own 

actuarial studies to try to determine what the impact would be 

here of the endangered zone on large plans that we contribute to 

and some smaller plans, and we have not seen the same results 

Ms. Mazo referred to. But I would suggest that perhaps as funds 

approach the critical zone, there might be some different issues 

there. 

Ms. TUBBS JONES. Thank you. Mr. Chairman, I seek unanimous consent to ask just one more short question. 

Chairman CAMP. One brief question. 

Ms. TUBBS JONES. Thank you, Mr. Chairman. Ms. Mazo—and 

I do not know whether somebody asked this question before—what 

is your position about the 140-percent deduction of current pension 

liabilities? Did someone ask that question and I missed it? They 

did? Well, then if they asked, I will ask that—— 

Chairman CAMP. You can respond briefly, if you would. 

Ms. MAZO. We would strongly support increasing the deduction 

limit so that plans are not forced to make benefit increases that 

they are afraid they will not be able to afford in the future. 

Ms. TUBBS JONES. Okay. So, you think it should be 150, 160? 

Ms. MAZO. Well, we would love to see it—for collectively bargained plans, we would like to see it repealed because the plans are 

not—no employer puts money into a collectively bargained plan as 

a tax shelter. But being realistic, we are perfectly willing to live 

with the 140 or whatever number is put in there. 

Ms. TUBBS JONES. Thank you, Mr. Chairman. 

Chairman CAMP. Thank you. The gentleman from Indiana, Mr. 

Chocola, may inquire. 

Mr. CHOCOLA. Thank you, Mr. Chairman. Thank you all for 

being here. I guess I am still trying to figure out how we got here. 

The numbers are astounding when you consider that I think it is 

26 percent of all multiemployer funds have less than 70 percent 

funding obligation met, only 11 percent are fully funded. I keep 

hearing, well, nobody broke the rules, employers are doing what 

they are supposed to do. I hear the stock market has gone down. 

Mr. Clark, I think you said the markets went wrong. But the markets have gone right over the last year or so. How did we get here, 

in your opinion? What rules are wrong that have resulted in this 

massive underfunding of these multiemployer pension plans? 


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Mr. CLARK. Well, my personal experience with this indicates 

that in the 1990s our fund would have handled things differently 

had we had a higher deductibility option. Second, it is compounded 

by the collective bargaining agreements. The trustees are handed 

a bargaining result that says this year the contribution is going to 

be raised to $5 an hour. There is nothing we can do about it. We 

have got to take the $5, and all of a sudden that adds again to the 

overfunding. So, we do not have any solutions because we cannot 

cut the benefit. The ERISA will not let us do that. So, when we 

get underfunded, we cannot cut the benefits. So, we are in this little box that we have got to rattle around inside and keep trying 

to balance this very difficult process. I am not a stupid man, but 

this is a hard thing to balance and keep it within the law, pretty 

close to 100 percent, because that is where we all want to be. But 

if we go over it, we are penalized. The only thing—and we cannot 

cut benefits, and we cannot cut contributions. Our only tools are to 

cut accruals when we can—not particularly popular, not very popular. So, we really don’t have enough tools in the toolbox to handle 

the situation. 

Mr. CHOCOLA. The solvency measurement, as I understand it, 

you measure solvency by the current year plus the next 3 years. 

Is that correct? Is that too short a time frame to plan or to reflect 

the true solvency of the plan? 

Mr. CLARK. Well, I think one of the three other panelists have 

more expertise in this regard than I do. 

Mr. LYNCH. On that point, one very large trucking industry 

plan reduced the accrual rate from 2 percent down to 1 percent. 

That was a very big move, and it is a large fund, so it potentially 

has a pretty dramatic impact. Unfortunately, that change gets amortized over 30 years, so the plan does not see an immediate benefit to the pain that was endured in that change. So, one of the 

things we suggested—and it is in the bill—is to—well, we had suggested that the amortization of that, both benefit increases as well 

as changes down, would be amortized over 10 years. The bill is 15. 

It is those kinds of things that—there is no one single—there is no 

one single answer. In Central States, like every other fund out 

there, I mean, they all face the same market downturn, but in Central States they faced two fairly large bankruptcies of top-ten contributing employers, virtually within 6 months of each other. So, 

we are having to grapple with that. None of the contributing employers can control whether Consolidated Freightways went out of 

business or did not go out of business, but there are 6,000 CF employees that contributions are no longer being made on their behalf 

to contribute into that fund. Consolidated Freightways was just 

one, but they were contributing to virtually every single plan in the 

country. 

Mr. CHOCOLA. I am running out of time, but just on that point, 

if a member company cannot meet their funding obligations, what 

are their options as part of the multiemployer plan? Can they opt 

out and pay something? What other options—— 

Mr. LYNCH. They can opt out and pay what is referred to as 

withdrawal liability. They also have to bargain out as well. It is not 

like they just simply write the check and say, you know, we are 

gone. 


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Mr. CHOCOLA. I see I have run out of time. Thank you, Mr. 

Chairman. I yield back. 

Chairman CAMP. Thank you. The gentleman from Connecticut, 

Mr. Larson, may inquire. 

Mr. LARSON. Thank you very much, Mr. Chairman. I want to 

thank all of our panelists and the chairman and ranking member 

for holding this hearing this morning. I would like just to ask a 

very simple question. I like to call it the Augie and Rays test. For 

you panelists who are not familiar with the culinary establishment 

of Augie and Rays in East Hartford, it is where the working class 

goes from breakfast, coffee, lunch, and so forth, and it is there that 

I face my constituents who ask pretty straightforward questions. 

Under the plan for reorganization, my question is, for someone who 

has been approaching age 55 and has worked for 30 years and is 

now looking at his retirement, what can he expect to get under 

your plan? 

Mr. LYNCH. Hopefully, if we do this right, they can expect exactly the same benefit that has been essentially promised to them. 

It is if we do not act and we allow the plans to deteriorate further 

that there is some risk there. 

Mr. LARSON. Would anyone else care to respond? Or are you 

pretty much in agreement? So, that basically I would say to them, 

look, there is not a problem here, the only thing that is required 

is that Congress act. However, if Congress does not act and they 

do not follow this plan, all hell is going to break loose. 

Ms. MAZO. Well, the one thing that I think you all are to be 

commended, as is the Education and the Work force Committee, for 

specifically looking at multiemployer plan situations. The one thing 

that you are trying to avoid by looking at that is not creating funding requirements that are going to take his job away before he 

reaches age 55 by having contribution imposed on his employer, on 

their employers that are too heavy for them to meet or that could 

force the employers to have to cut the health insurance because 

they have got to channel so much of whatever is available into the 

pension plan. We are talking about having it be fed in to build the 

plans in a digestible format, I think. 

Mr. LARSON. Yes, go ahead. 

Mr. CLARK. I would like to add that I think one of the things 

I would tell my constituents if I were a Congressman would be that 

enacting this plan probably does not change—may not change 

much for somebody that is 55 or 60, but certainly for their son or 

their daughter who is going to be covered by a pension plan. It is 

essential. I know in our industry looking 20 years down the line, 

I think this is a very important, the single most important element 

of the legislation. 

Mr. LARSON. We know that there are provisions in the reform 

package being promoted by the Multiemployer Plan Coalition that 

are not currently included in H.R. 2830. But the coalition has made 

it clear that it is very important that these provisions be included 

in any final package in order to have meaningful reform for the 

plans that are most in need of reform. Many of these provisions 

would result in benefit cuts to older workers, and in some instances 

the cuts would be substantial. Do you agree with that? 


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Mr. LYNCH. I would say in reiterating something that Judy said 

earlier, under the coalition’s proposal an individual in pay status 

there would be no change there. Individuals who are working to 

normal retirement age, depending on how that is defined on an individual plan, also would not see any change there. You would 

probably see—and, frankly, right now under existing law there can 

be changes in the accrual rate that would have an impact on the 

dollar amount or year in which an employee might retire. This is 

admittedly taking it another step, but I would say that ultimately 

under the proposal, those decisions are also going to be made in the 

collective bargaining process. So, this is not just a unilateral decision to say we are cutting your benefit, but that we are involving 

as much as possible the parties, both the management and the 

union representatives, in the decisionmaking. 

Mr. LARSON. What would the effect of the reorganization of the 

plan within the Central States system for a participant who is a 

truckdriver who has worked for 29 years be? 

Mr. LYNCH. That worked for 29 years? I suspect they would 

probably have to work some additional period of time, but I do not 

think it—I mean, I am not an actuary, so I am probably the absolutely worst person to ask the question of. But it probably would 

mean they would work longer but not considerably longer to get 

the same benefit. 

Ms. MAZO. What we are trying to do is prevent that truckdriver 

and everybody else who is covered by Central States from seeing 

no future benefit accruals for their continued work. But a lot more 

money taken out of their wage package because their employers 

would have to come up with—or their employers go out of business 

to come up with the money to support the plan, to fund it up in 

a big hurry with the ongoing workers getting nothing. So, in a 

sense, it might be a certain amount of spreading the sacrifice. 

Mr. LARSON. With the chairman’s indulgence, to what extent do 

you think the rank-and-file workforce is aware of that, those 

choices, those options? 

Ms. MAZO. In the Central States fund, they did, as Tim—and I 

don’t work with them, so I can only tell you from public information. But they cut benefits in half last year, and it was a very— 

future benefits, and it was a very painful process, and every newspaper throughout the Midwest, and there were member meetings 

all over the place, and there still are. They are very aware of the 

options that are available now, and if there were additional options, you can be sure that the pain that was suffered by every 

party involved would involve very, very careful weighing of how 

further to do. The union trustees on these funds are typically appointed by—they either are union officers themselves, or they are 

appointed by them, and they run for office. Like you, the last thing 

they want to do is turn around to their constituents who give them 

their jobs and say, ‘‘We just took something away from you.’’ They 

will look at every opportunity they can to preserve it. The employers need workers who are productive and happy in their jobs or at 

least comfortable in their jobs and who trust their employers. The 

last thing the employers want to do is say, ‘‘Well, we just took 

something away from you.’’ So, benefit cuts would be approached 

very, very gingerly and only used when necessary, and that would 


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be made crystal clear to the workers because the one thing that 

anybody who has to do that would want to be sure to do is explain 

in as clear a way as possible to the people who are harmed why 

it would be happening to them. 

Mr. LARSON. I thank the panel, and I thank the chairman for 

his indulgence. 

Chairman CAMP. Thank you. I want to note that a member of 

the Full Committee, Mr. Pomeroy, has joined the Subcommittee 

and has had a long-standing interest in pension issues. Mr. Pomeroy, you may inquire for 5 minutes. 

Mr. POMEROY. Mr. Chairman, thank you for that consideration. 

I commend you for having this hearing. I really do believe it is important for Ways and Means to exercise its jurisdiction over pension matters, and this hearing is an extremely important launch, 

I think, of a greater effort out of Ways and Means. Because we 

have not had much of an effort to date, we are kind of playing 

catch-up with trying to get our hands around understanding the 

Ed/Labor proposal. Ms. Mazo, if I might, let me just try and put 

out how I am understanding this, and you can correct me. It seems 

as though the coalition representing a number of large and midsized, small-size multiemployer groups has advanced a proposal. 

The Food Marketing Institute has advanced another proposal. The 

Ed/Labor provision has followed the Labor Department’s guidelines 

somewhat and veers perhaps more toward the FMI proposal than 

the coalition’s proposal. Is this correct? 

Ms. MAZO. Yes, the Labor Department, the administration has 

not yet taken a position on multiemployer issues. The Ed/Labor 

proposal is a lot closer to the FMI proposal. In a number of—— 

Mr. POMEROY. Can you help me then distinguish—I have 

looked at your testimony, but can you tee up the critical distinctions between FMI and the coalition and tell me why they are important? 

Ms. MAZO. I think the principal distinction, the core issue is 

what the bill calls plans in the endangered zone, and it has been 

colloquially referred to as the yellow zone. The primary difference 

is that the FMI proposal would set what are called hard benchmarks or hard targets of funding improvements that the plans 

would have to come up with a program to achieve within a very 

specified time frame, and the philosophy being that we want to 

catch every potential problem before it matures into a crisis. We 

share the philosophy. Our concern is that the benchmarks and the 

hard targets are too stiff, are too rigid for many plans to achieve, 

and could have the perverse result of actually precipitating a crisis 

by—— 

Mr. POMEROY. In the regular pension world, not the multiemployer, we note that the downside danger of too stringent a regulatory framework is that you basically force the freezing of plans 

and you drive people out of the defined benefit business. While that 

is a loss for the participants, I believe a significant public policy 

detriment is resulted by that sort of response. On the other hand, 

with multiemployer too stringent a response can drive the weakest 

into bankruptcy and thereby imperil the insolvency. So, unlike the 

single pension, in a multiemployer circumstance where you are all, 

for better or worse, tied together, it seems like if you overshoot on 


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57 

the requirements, you might actually damage the financial standing of the multiemployer plan that ostensibly you were trying to 

help at the beginning. Is that correct? 

Ms. MAZO. That is precisely what our concern is. I don’t think 

you were here, but Dr. Holtz-Eakin pointed out that a major difference between multiemployer plans and single-employer plays 

from the PBGC point of view is that in a multi, all the employers 

together underwrite the financing of the plan. So, if you press them 

to come up quickly with additional contributions, you are really 

pressing too hard on that net of employers that holds the plan up. 

Mr. POMEROY. Mr. Morgan, what led the FMI to another conclusion on this matter? 

Mr. MORGAN. Well, we have had experience in various trust 

funds and negotiations where we have evolved what we think is a 

good process. But also, our actuarial studies to date have not 

shown the same thing that Ms. Mazo is referring to. I suspect that 

as you approach the red zone, a plan approaches the red zone, or 

the most severe situation, there need to be some transition rules, 

there need to be some adjustments made to make sure you do not 

have the consequence that she is talking about. But we think for 

the vast number of plans, it is a workable set of benchmarks, and 

we just think there have to be some specific benchmarks. 

Mr. POMEROY. Mr. Lynch, do you believe, is there something 

unique about the food industry or is this just a professional disagreement between the actuarial support of your association versus 

FMI? What is accounting for this difference? 

Mr. LYNCH. Obviously I cannot speak for FMI. I think there is 

a sense that it is an honest disagreement over the degree to which 

these plans can meet those benchmarks. I would suggest respectfully that because of the breadth of the coalition membership who 

have looked at the broadest array of these plans have come to one 

conclusion. I think there is probably—well, I believe there is some 

merit to that argument. 

Mr. POMEROY. I know my time is up, Mr. Chairman, but just 

to sum up then, of the waterfront of views here, most would be reflected in the coalition’s view and the minority view being reflected 

in the FMI/Ed/Labor bill view? Mr. Lynch? 

Mr. LYNCH. Yes. 

Mr. POMEROY. Mr. Mazo? 

Ms. MAZO. Ms. Mazo. 

Mr. POMEROY. I am sorry. 

[Laughter.] 

Ms. MAZO. That is right, and one thing that is important about 

the coalition proposal and about the numbers that we are talking 

about is we are talking about a large number of plans that, unlike 

the food industry, are supported by quite a number of very small 

employers. The construction industry plans that Mr. Clark is representing often are small privately held, even sole proprietorship 

kinds of employers for whom these increases are not just a significant increase in one part of their business. It is their life. So, that 

is where some of our numbers come from that have not been 

present perhaps in what the food industry employers have looked 

at. 

Mr. POMEROY. Thank you, and I thank the chairman. 


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Chairman CAMP. Thank you. Just one last question before we 

conclude. I understand that the bill as written is something Mr. 

Morgan supports, but my question is: Are there more definitive 

changes or definitive tools, Mr. Lynch or Mr. Clark or Ms. Mazo, 

that you would support, more defined tools that still could be used 

to make sure that we do not get to the worst case, which I think 

Ms. Hart was talking about, where benefits have to be frozen or 

reduced because other employers have had financial difficulty and, 

therefore, you have got a situation where another firm is still left 

standing and making larger contributions and yet the employees 

are not receiving any benefit from that? What more defined tools 

could you tell the Committee at this time that might satisfy you 

in terms of this legislation that is before Education and the Work 

force? 

Mr. LYNCH. Clearly, if my organization had written this proposal in a vacuum all by ourselves, there are certainly other tools 

that we would have suggested. But the fact of the matter is we understand that if we are going to get something done on this, we 

have to get all of the stakeholders in agreement. I am sure the 

same holds for the union representatives. They would have written 

it vastly different than I would have written it. So, I cannot honestly say that there is anything else that we would suggest other 

than what we have already talked about in the yellow zone and the 

red zone, because our ultimate goal is to get something passed to 

address the issue. 

Chairman CAMP. All right. Thank you. Thank you all very 

much. Thank you for your testimony, and without objection, the 

Subcommittee on Select Revenue Measures is hereby adjourned. 

[Whereupon, at 11:52 a.m., the hearing was adjourned.] 

[Submission for the record follows:] 

Valley Stream, New York 11581 

June 23, 2005 

Dear Sir or Madam: 

I worked for JPMorgan Chase for 321⁄2 years. After a 2001 layoff, I received a 

small pension sum for the years of service I was there. A Cash Balance Plan conversion that took place in 1988 from a Traditional Pension Plan, formerly known as 

Chemical Bank, was responsible. I also worked on staff for them again part time 

in April 2003. I know that in your heart and moral fiber if the government took 

away your pension or made it smaller than was originally promised, you would be 

furious and would use all your influence to fix it. This is clearly and unmistakably 

age discrimination. Please do not let broken promises loose our right and fairness 

to claim the Traditional Pension Plan. Thank you. 

Sincerely, 

Joanne Pignatelli-O’Neill 

————— 

Please review the following letter: 

On July 31, 2003, a federal court ruled that IBM’s cash balance pension plan violates federal anti-age discrimination law. This ruling was a welcome outcome for the 

130,000 IBM employees who were represented in the case—and for the millions of 

other Americans whose employers have already converted to one of these age discriminatory plans or might in the future. 

Late last year, the Treasury Department issued proposed regulations that would 

green-light cash balance plans. However, the decision of the federal district court 

in the Southern District of Illinois raises serious questions about the legality of 

those proposed regulations. As you are well aware, an administrative agency cannot 

change statutory requirements through regulations. Only Congress has that authority. 


hmoore on PROD1PC68 with HMRPT
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Given this, we are renewing our request that your Administration immediately 

withdraw the proposed Treasury Department regulations regarding cash balance 

pension plans. (Federal Register December 11, 2002, Internal Revenue Service, 26 

CFR Part 1, REG–209500–86, REG–164464–02, RIN 1545–BA10,1545–BB79). 

In January, we sent you a letter—signed by a total of 217 Members of the U.S. 

House and Senate—urging the withdrawal of these same proposed Treasury regulations governing cash balance plans. We have included a copy of that letter for your 

further review. 

As we stated in that latter we believe the regulations ‘‘would create an incentive 

for thousands of companies to convert to cash balance plans by providing legal protection against claims of age bias by older employees. The regulations would result 

in millions of older employees losing a significant portion of the annual pension they 

had been promised by their employer and had come to rely upon as part of their 

retirement planning. . . . Re-opening the floodgates for cash balance conversions 

will destroy what is left of our private pension retirement system. This is a devastating step that your Administration need not and should not allow.’’ 

We believe that the policy arguments set forth in our January letter alone justify 

the withdrawal of the Treasury regulations at issue. However, the likely illegality 

of the regulations removes any question of whether they should go forward. They 

should not. 

We deeply appreciate your attention to this matter. We trust that you will heed 

the concerns of the millions of Americans potentially benefited by this ruling and 

that you will see to it that the Treasury Department does not proceed with regulations in violation of federal law. We look forward to working with you to protect the 

pension security of America’s workers. 

Æ 


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