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REFORMING AND 

STRENGTHENING DEFINED 

BENEFIT PLANS: EXAMINING 

THE HEALTH OF THE 

MULTIEMPLOYER PENSION 

SYSTEM

HEARING

BEFORE THE

SUBCOMMITTEE ON EMPLOYER-EMPLOYEE 

RELATIONS

OF THE

COMMITTEE ON EDUCATION 

AND THE WORKFORCE 

U.S. HOUSE OF REPRESENTATIVES

ONE HUNDRED EIGHTH CONGRESS

SECOND SESSION

March 18, 2004

Serial No. 108-49

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

(

Available via the World Wide Web: http://www.access.gpo.gov/congress/house 

or 

Committee address: http://edworkforce.house.gov 

(II)

COMMITTEE ON EDUCATION AND THE WORKFORCE 

JOHN A. BOEHNER, Ohio, Chairman

Thomas E. Petri, Wisconsin, Vice Chairman 

Cass Ballenger, North Carolina 

Peter Hoekstra, Michigan 

Howard P. ‘‘Buck’’ McKeon, California 

Michael N. Castle, Delaware 

Sam Johnson, Texas 

James C. Greenwood, Pennsylvania 

Charlie Norwood, Georgia 

Fred Upton, Michigan 

Vernon J. Ehlers, Michigan 

Jim DeMint, South Carolina 

Johnny Isakson, Georgia 

Judy Biggert, Illinois 

Todd Russell Platts, Pennsylvania 

Patrick J. Tiberi, Ohio 

Ric Keller, Florida 

Tom Osborne, Nebraska 

Joe Wilson, South Carolina 

Tom Cole, Oklahoma 

Jon C. Porter, Nevada 

John Kline, Minnesota 

John R. Carter, Texas 

Marilyn N. Musgrave, Colorado 

Marsha Blackburn, Tennessee 

Phil Gingrey, Georgia 

Max Burns, Georgia 

George Miller, California 

Dale E. Kildee, Michigan 

Major R. Owens, New York 

Donald M. Payne, New Jersey 

Robert E. Andrews, New Jersey 

Lynn C. Woolsey, California 

Rube ́n Hinojosa, Texas 

Carolyn McCarthy, New York 

John F. Tierney, Massachusetts 

Ron Kind, Wisconsin 

Dennis J. Kucinich, Ohio 

David Wu, Oregon 

Rush D. Holt, New Jersey 

Susan A. Davis, California 

Betty McCollum, Minnesota 

Danny K. Davis, Illinois 

Ed Case, Hawaii 

Rau ́l M. Grijalva, Arizona 

Denise L. Majette, Georgia 

Chris Van Hollen, Maryland 

Tim Ryan, Ohio 

Timothy H. Bishop, New York

Paula Nowakowski, Staff Director 

John Lawrence, Minority Staff Director 

SUBCOMMITTEE ON EMPLOYER–EMPLOYEE RELATIONS 

SAM JOHNSON, Texas, Chairman

Jim DeMint, South Carolina, Vice Chairman 

John A. Boehner, Ohio 

Cass Ballenger, North Carolina 

Howard P. ‘‘Buck’’ McKeon, California 

Todd Russell Platts, Pennsylvania 

Patrick J. Tiberi, Ohio 

Joe Wilson, South Carolina 

Tom Cole, Oklahoma 

John Kline, Minnesota 

John R. Carter, Texas 

Marilyn N. Musgrave, Colorado 

Marsha Blackburn, Tennessee 

Robert E. Andrews, New Jersey 

Donald M. Payne, New Jersey 

Carolyn McCarthy, New York 

Dale E. Kildee, Michigan 

John F. Tierney, Massachusetts 

David Wu, Oregon 

Rush D. Holt, New Jersey 

Betty McCollum, Minnesota 

Ed Case, Hawaii 

Rau ́l M. Grijalva, Arizona 

George Miller, California, ex officio 

(III)

C O N T E N T S 

Page

Hearing held on March 18, 2004 ............................................................................ 1

Statement of Members: 

Andrews, Hon. Robert E., Ranking Member, Subcommittee on EmployerEmployee Relations, Committee on Education and the Workforce .......... 4

Johnson, Hon. Sam, Chairman, Subcommittee on Employer-Employee Relations, Committee on Education and the Workforce ................................ 2

Prepared statement of ............................................................................... 3

McCollum, Hon. Betty, a Representative in Congress from the State 

of Minnesota, Questions to John McDevitt, Submitted for the record ..... 60

Statement of Witnesses: 

Bovbjerg, Barbara, Director, Education, Workforce, and Income Security 

Issues, U.S. General Accounting Office, Washington, DC ......................... 6

Prepared statement of ............................................................................... 8

DeFrehn, Randy G., Executive Director, National Coordinating Committee for Multiemployer Plans, Washington, DC ..................................... 38

Prepared statement of ............................................................................... 40

McDevitt, John, Senior Vice President, United Parcel Service, Washington, DC ..................................................................................................... 30

Prepared statement of ............................................................................... 31

Response to questions submitted for the record ..................................... 60

Weicht, Scott, Executive Vice President, Adolfson and Peterson Construction, Minneapolis, MN, on behalf of the Associated General Contractors ................................................................................................................. 33

Prepared statement of ............................................................................... 35

(1)

REFORMING AND STRENGTHENING DEFINED 

BENEFIT PLANS: EXAMINING THE HEALTH 

OF THE MULTIEMPLOYER PENSION SYSTEM 

Thursday, March 18, 2004

U.S. House of Representatives 

Subcommittee on Employer-Employee Relations 

Committee on Education and the Workforce 

Washington, DC 

The Committee met, pursuant to notice, at 10:30 a.m., in room 

2175, Rayburn House Office Building, Hon. Sam Johnson [Chairman of the Subcommittee] presiding. 

Present: Representatives Johnson, Boehner, McKeon, Wilson, 

Kline, Carter, Andrews, Payne, Kildee, Tierney, Wu, Holt, and 

McCollum. 

Staff present: Stacey Dion, Professional Staff Member; Kevin 

Frank, Professional Staff Member; Ed Gilroy, Director of Workforce 

Policy; Chris Jacobs, Staff Assistant; Greg Maurer, Coalitions Director for Workforce Policy; Jim Paretti, Workforce Policy Counsel; 

Deborah L. Samantar, Committee Clerk/Intern Coordinator; Kevin 

Smith, Senior Communications Counselor; Jody Calemine, Minority 

Counsel, Employer-Employee Relations; Ann Owens, Minority 

Clerk; and Michele Varnhagen, Minority Labor Counsel/Coordinator. 

Chairman JOHNSON. Thank you all for being here. I salute you 

for getting up this early. I mean it is 10:30. That’s kind of early 

for most of us, isn’t it? 

A quorum being present, the Subcommittee on Employer-Employee Relations of the Committee on Education and the Workforce 

will come to order. 

We’re holding a hearing today to hear testimony on reforming 

and strengthening defined benefit plans, examining the health of 

the multiemployer pension system. Under Committee Rule 12(b), 

opening statements are limited to the Chairman and Ranking Minority Member of the Subcommittee. Therefore, if other Members 

have statements, they will be included in the record to remain open 

14 days to allow Members’ statements and other extraneous material referred during the hearing to be submitted in the official hearing record. Without objection, so ordered. 

2

STATEMENT OF HON. SAM JOHNSON, SUBCOMMITTEE ON EMPLOYEE-EMPLOYER RELATIONS, COMMITTEE ON EDUCATION AND THE WORKFORCE 

I want to welcome you here today to another hearing in our series on the defined benefit pension system. Roughly 1 year ago, 

Chairman Boehner and I requested two reports by the GAO regarding this system. We spent 2 years looking into the defined contribution retirement system and passed legislation dealing with 

that system, and now we’ve turned our attention to reforming and 

strengthening the defined benefit system. 

The first report by the GAO was released last summer, coinciding with the declaration that the single employer retirement system insured by Pension Benefit Guaranty Corporation (PBGC) is a 

high risk program facing record deficits. 

We held hearings to examine this system, and I expect us to propose solutions to address systemic problems that we have uncovered in the insurance system and with funding rules generally. 

The GAO is back with us today to deliver the second of two reports we requested, this one on multiemployer programs. The last 

time that Congress passed comprehensive reforms to the multiemployer system was in 1980 with the enactment of the Multiemployer Pension Plan Amendments Act, in its Washington terminology, MPPAA. You understand that. 

Believe it or not, except for the gentleman from Michigan, Mr. 

Kildee, who I hope will be here later, no one on this Subcommittee 

was even in the Congress when that law was enacted. 

I think that the report prepared by the GAO is helpful for Members to begin to understand how differently the multiemployer system works from the single employer system. The multiemployer 

system has had a history of financial stability. Due to the fact that 

these plans pool their risks, retiree benefits are not generally dependent upon the economic viability of just one company. However, 

the multiemployer system faces some serious long-term structural 

issues. I know our witnesses today want to talk about short-term 

relief for market losses of 2000, 2001 and 2002. But the focus of 

this hearing is long-term problems and long-term solutions. 

We must ensure the system is self-sustaining for the long term 

on behalf of the workers and employees, and I fear for the viability 

of a system that is funded by a sharply declining number of active 

workers but paying benefits to a huge and growing number of retirees. We are already seeing employers asking for relief from minimum funding rules. 

This pension funding scheme was designed in our view for a 

1940’s era model of projected growth in the multiemployer labor 

base, when in reality this demographic has not been the case for 

the last 30 years. I want to ensure that taxpayers do not end up 

footing the bill for these promises in the same manner that we 

have seen the promises made for the coal miner retiree health 

plan. 

Striking differences exist between single and multiemployer pension systems. In many cases, it is inappropriate to expect these systems to address problems in exactly the same manner. But reforms 

to both systems need to be made. And as we look at making both 

systems function better, we must not lose our focus on two stakeVerDate 0ct 09 2002 12:41 Oct 14, 2004 Jkt 000000 PO 00000 Frm 00006 Fmt 6633 Sfmt 6633 H:\DOCS\92627.TXT EDUWK PsN: NNIXON
3

holders: The taxpayer, who ultimately backs up those promises, 

and the people who count on these benefits in their retirement. 

Our witnesses today are Barbara Bovbjerg, the Director of Education, Workforce, and Income Security Issues at GAO, who will 

help us spotlight these two stakeholders and shed light on how this 

system works, hopefully; Mr. John McDevitt, Senior Vice President 

of UPS, who will provide us with insight into one particular company’s views of how to reform the system long-term; Mr. Weicht—

Weicht? I’m sorry. Mr. Weicht, to discuss reforms on behalf of the 

AGC with the perspective of small employers in multiemployer systems; Randy DeFrehn to discuss reforms from the perspective of 

the multiemployer plan trustees. 

I hope we can find solutions together this morning maybe to 

strengthen the entire defined benefit plan and protect the retirement security of millions of Americans as well as our taxpayers, 

who we represent. 

I now yield to the distinguished Ranking Member of the Subcommittee, Mr. Andrews, for whatever comments he wishes to 

make. 

[The prepared statement of Chairman Johnson follows:]

Statement of Hon. Sam Johnson, Chairman, Subcommittee on Employer–

Employee Relations, Committee on Education and the Workforce 

Good morning, I want to welcome you here today to another hearing in our series 

on the defined benefit pension system. Roughly one year ago, Chairman Boehner 

and I requested two reports by the General Accounting Office regarding this system. 

We spent two years looking into the defined contribution retirement system and 

passed legislation dealing with that system and now we’ve turned our attention to 

reforming and strengthening the defined benefit system. 

The first report by the GAO was released last summer, coinciding with the declaration that the single employer retirement system insured by Pension Benefit 

Guaranty Corporation (PBGC) is a ‘‘High Risk’’ program facing record deficits. We 

held hearings to examine this system and I expect us to propose solutions to address 

systemic problems that we have uncovered in the insurance system and with funding rules generally. 

The GAO is back with us today to deliver the second of the two reports we requested—this one on the multiemployer program. 

The last time that Congress passed comprehensive reforms to the multiemployer 

system was in 1980, with the enactment of the Multiemployer Pension Plan Amendments Act (MPPAA). Believe it or not, except for the Gentleman from Michigan, Mr. 

Kildee, no one on this subcommittee today was even in Congress when this law was 

enacted! 

I think that the report prepared by GAO is helpful for members to begin to understand how differently the multiemployer system works from the single employer system. 

The multiemployer system has had a history of financial stability—due to the fact 

that these plans pool their risks. Retiree benefits are not generally dependent upon 

the economic viability of one company. 

However, the multiemployer system faces some serious long-term structural 

issues. I know that our witnesses today want to talk about short-term relief for market losses of 2000, 2001 and 2002. But, the focus of this hearing is the long-term 

problems and long-term solutions. 

We must ensure this system is self-sustaining for the long-term on behalf of workers and employers. 

I fear for the viability of a system that is funded by a sharply declining number 

of active workers but is paying benefits to a huge and growing number of retirees. 

We are already seeing employers asking for relief from minimum funding rules. 

This pension funding scheme was designed for a 1940’s era model of projected 

growth in the multiemployer labor base, when in reality this demographic has not 

been the case for the last thirty years. 

4

I want to ensure that taxpayers do not end up footing the bill for these promises 

in the same manner as we have seen with the promises made for coal miner retiree 

health benefits. 

Striking differences exist between the single and multi-employer pension systems. 

In many cases, it is inappropriate to expect these systems to address problems in 

exactly the same manner, but reforms to both systems need to be made. 

As we look at making both systems function better, we must not lose our focus 

on two stakeholders—the taxpayer who ultimately backs up these promises and the 

people who count on these benefits in their retirement. 

Our witnesses today are: 

Ms. Barbara Bovbjerg, the Director of Education, Workforce and Income Security 

Issues at GAO, who will help us spotlight these two stakeholders and shed light on 

how this system works. 

Mr. John McDevitt, Senior Vice President of UPS, who will provide us with insight into one particular company’s views of how to reform this system for the longterm. 

Mr. Scott Weicht, to discuss reforms on behalf of the AGC with the perspective 

of small employers in multiemployer systems. 

Mr. Randy DeFrehn, to discuss reforms from the perspective of multiemployer 

plan trustees. 

I hope we can find solutions together to strengthen the entire defined benefit system and protect the retirement security of millions of Americans. 

STATEMENT OF HON. ROBERT ANDREWS, RANKING MEMBER, 

SUBCOMMITTEE ON EMPLOYER-EMPLOYEE RELATIONS, 

COMMITTEE ON EDUCATION AND THE WORKFORCE 

Mr. ANDREWS. Thank you. Good morning, Mr. Chairman. Good 

morning, ladies and gentlemen. Thank you for your participation. 

I want to say to my friend Mr. Kildee that before he came in, the 

Chairman pointed out that the only member of the Subcommittee 

who was present in the Congress in 1980 when this law was last 

reformed was Mr. Kildee. And I interpret the Chairman’s remarks 

as meaning that any suggestions Mr. Kildee has to reform the law 

further will be adopted by unanimous consent. 

[Laughter.] 

Mr. ANDREWS. So congratulations, Mr. Kildee. That may be an 

interpretation the Chairman may want to differ with. But what we 

don’t differ with is the importance of having this hearing and our 

appreciation for the witnesses that are here today. 

There are two dynamics, I believe, happening with defined benefit plans, and it’s important that we separate them analytically as 

we respond to those dynamics. The first mirrors the macro problem 

we have in our country of more retirees and fewer workers. It really mirrors the Social Security problem and Medicare problem the 

country is going to be facing over the next couple of decades. That’s 

indisputable, and it’s a serious issue. 

But the second dynamic also needs to be looked at, and I believe 

it is an anomalous dynamic that has not occurred at any other time 

in the history of the ERISA statute, and that is a series of unfortunate circumstances adversely affecting the financial health of these 

plans. 

The circumstances are the significant drop in equity values that 

we’ve experienced over the last couple of years. We’ve seen some 

modest recovery recently, but certainly the recovery has not 

brought us up to where we were three or 4 years ago. 

The second dynamic are historically how interest rates so that 

investments in debt instruments that yield income from interest 

rates are the lowest they’ve ever been. 

5

The third dynamic is softening, weakening of the economy—layoffs of workers, which meaning fewer people paying in, fewer profits to pay from, and other conditions. 

I think it’s important that we recognize this circumstance, that 

we recognize that it’s an anomalous circumstance, and that we not 

exaggerate the long-term problem by associating these anomalous 

circumstances with the long-term problem on a permanent basis. I 

hope that the anomalous circumstances are soon going to evaporate. There is some evidence that the market has come back. I 

think inevitably interest rates are going to rise, which is a mixed 

blessing but one that’s going to have some positive impact on earnings for these plans. 

So I believe that it’s very important to look at the long-term 

issues of defined benefit plans, but it’s equally important not to exaggerate those long-term problems by importing present anomalous 

negative circumstances and assuming that they’ll always be true. 

I think that the present problems of the plan result from some 

serious consequences that have not been seen before and I hope 

will not be seen again. 

Having said that, it is also important that we understand that 

the anomalous circumstances that we see today are having a profoundly negative effect on multiemployer defined benefit plans. It’s 

one of the reasons why I support in the present conference negotiations the Senate provisions which would provide relief for the multiemployer plans from the short-term problems that we face. 

The Congress has debated over the last number of years any 

number of measures for economic stimulus to reduce unemployment. One of the worst things we could do in the area of economic 

stimulus is to require employers, both single employer plans and 

multiemployer plans, to overcontribute to their defined benefit 

plans and drain money from wages and benefits and purchases 

that would otherwise stimulate the economy. 

You know, we don’t want to kill the goose that lays the golden 

egg. In the name of pension sanctity, it would be a huge mistake 

to require overcontributions that would cripple the employer that 

we need to make those pension contributions on into the future. 

So I think we have to be surgical, careful in what we’re doing. 

We have to recognize that we are presently living under some 

anomalous problems that need to be addressed in the short run, 

which is why I do support the Senate provisions on the multiemployer plans. 

In the long run, there are clearly issues to be dealt with given 

the pending imbalance between workers and retirees, and we have 

to take a long look at that. But to exaggerate the scope of that 

problem by assuming that the present anomalous circumstances 

will continue indefinitely I think is a mistake. And it would be a 

mistake to make a law based upon that flawed assumption. 

So, Mr. Chairman, I’m very interested in hearing from our panel 

of witnesses this morning, and I appreciate the chance to ask them 

questions. Thank you. 

Chairman JOHNSON. Thank you for your comments, Mr. Andrews. I appreciate them. We may not agree totally, but that’s 

what this Congress is all about. 

Mr. ANDREWS. That’s what this country is all about. 

6

Chairman JOHNSON. Sir? 

Mr. ANDREWS. That’s what this country is all about. 

Chairman JOHNSON. You got it. That’s what makes America a 

great place to live in. We can agree to disagree and still be good 

friends. 

And with that, I would like to explain the lights. We’ve got a set 

of lights down there. You all may be aware of them. When they 

come on, you’ll get a green. They’re good for 5 minutes. We’d like 

to have you limit your remarks to that if you can. A yellow light 

will come on when there’s 1 minute left, and we appreciate you 

closing it off when the red light comes on. 

And I’d now like to recognize Ms. Bovbjerg for her comments. 

You may begin. 

STATEMENT OF BARBARA BOVBJERG, DIRECTOR, EDUCATION, WORKFORCE, AND INCOME SECURITY ISSUES, GENERAL ACCOUNTING OFFICE, WASHINGTON, DC 

Ms. BOVBJERG. Thank you, Mr. Chairman, Congressman Andrews, Members of the Subcommittee. I appreciate your inviting 

me here today to discuss multiemployer pension plans and the 

challenges they face. 

Multiemployer pensions are defined benefit plans created by collective bargaining agreements covering more than one employer. 

These plans provide coverage for almost 10 million American workers and retirees, and they represent an important part of the nation’s private pension system. 

The recent collapse of several large single employer plans has 

prompted questions about the health of multiemployer plans as 

well. In seeking to clarify some of these issues today, my testimony 

will focus on three points. First, how multiemployer plans differ 

from single employer plans. Second, trends in funding and worker 

participation in multiemployer plans. And finally, the potential 

challenges to such plans. 

My testimony is based on work we are completing for this Committee that will be released next week. 

First, the differences between single and multiemployer plans. 

Multiemployer plans are all collectively bargained by employee 

unions and several employers and are administered jointly by labor 

and management. Although single employer plans may be collectively bargained, they are not always, and are administered by a 

single sponsoring employer. Although ERISA funding rules apply to 

both types of plans, sponsors of multis negotiate contributions 

through collective bargaining and may not alter contributions levels in response to changing circumstances. In contrast, single plan 

sponsors may alter contributions annually as business conditions 

change, as long as they remain within the limit set by ERISA. 

Rules for employers seeking to end their sponsorship are less 

flexible for multis than for single. Multiemployer plan sponsors 

who wish to withdraw from the plan must pay their share of the 

plan’s unfunded vested benefits. This is called the withdrawal liability. Further, if an employer in such a plan goes bankrupt, the 

other sponsors must assume responsibility for paying benefits to 

the bankrupt sponsor’s participants. In contrast, a single employer 

7

plan sponsor is liable only for the unfunded portion of his own 

plan. 

These structural differences between multi and single employer 

plans result in differences in PBGC’s role. PBGC premiums for 

multiemployers are significantly lower than those for single employers, and so are premium revenues. So too are PBGC benefit 

guarantees. PBGC guarantees benefits up to $44,000 a year for single employer plans but only $13,000 for multis. Further, single employer plans are insured at termination, and PBGC may assume 

responsibility for the plan and pay benefits directly to retirees. 

Multiemployer plans are ensured as well, but PBGC does not take 

over these plans. It instead provides financial assistance in the 

form of loans. 

The net effect of these differences is the redistribution of risk. 

Most of the risk of plan underfunding is borne first by the company 

sponsoring the multiemployer plan, then by the participants whose 

benefit guarantees are relatively low. 

PBGC is unlikely to have to provide benefits at guaranteed levels, and even then, those levels are less costly to the agency than 

the guaranteed benefits in a single employer program. 

Let me turn now to trends in multiemployer plans. While multiemployer funding has been fairly stable in the 1980’s and ’90’s, 

plan funding levels have deteriorated in the last several years. As 

with single employer plans, stock market declines coupled with low 

interest rates have reduced the assets and increased the liabilities 

of many multiemployer plans. While most plans continue to pay 

promised benefits, PBGC predicts the need for more financial assistance in the future. Meanwhile, the numbers of plans and plan 

participants have fallen steadily over the years and continue to do 

so. 

Finally, as to the long-term prospects for multiemployer plans, 

the future holds challenges for this system. Employers perceive 

these plans as financially risky and less flexible than others. 

Hence, they’re not likely to join multiemployer plans or to remain 

in them if withdrawals become financially feasible. 

Furthermore collective bargaining itself, a necessary aspect of 

the multiemployer plan model, is in long-term decline and will offer 

fewer future opportunities for new plans to be created or existing 

ones to expand. This means the ratio of active workers to retirees 

will continue to fall. 

Finally, multiemployer plans are defined benefit plans and as 

such exist in a world where employers increasingly are choosing 

defined benefit plans. Taken together, these trends suggest a future of fewer, smaller and older multiemployer plans. 

In conclusion, although multis are not now experiencing the magnitude of problems plaguing single employer plans, there is cause 

for concern. Multis’ financial health is deteriorating, and these 

plans cannot look to future growth for help. Fortunately, shared 

governance and the distribution of risk among sponsors and participants creates strong incentives for these parties to resolve financial 

situations before they result in plan insolvency and PBGC intervention. 

However, over time, multiemployer plans could become less financially viable as the unionized workforce shrinks and ages. PubVerDate 0ct 09 2002 12:41 Oct 14, 2004 Jkt 000000 PO 00000 Frm 00011 Fmt 6633 Sfmt 6602 H:\DOCS\92627.TXT EDUWK PsN: NNIXON
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lic policy will be challenged to balance the needs of increasingly 

stressed plans with those of workers, retirees and the public. 

And that concludes my statement, Mr. Chairman. I welcome your 

questions. 

[The prepared statement of Ms. Bovbjerg follows:]

Statement of Barbara Bovbjerg, Director, Education, Workforce, and 

Income Security Issues, U.S. General Accounting Office, Washington, DC


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Chairman JOHNSON. Thank you, ma’am. 

Mr. McDevitt, you may begin your testimony. 

STATEMENT OF JOHN McDEVITT, SENIOR VICE PRESIDENT, 

UNITED PARCEL SERVICE, WASHINGTON, DC 

Mr. MCDEVITT. Thank you, Mr. Chairman, Congressman Andrews, and Committee Members. My name is John McDevitt. I 

have been with UPS for 28 years and I started as a Teamster 

working as a loader in New Jersey. 

A majority of UPS’s management Committee began their UPS 

careers as Teamsters as well. We know that our people work hard 

each and every day. And it has caused us great concern when the 

rewards of their efforts are jeopardized by factors outside their conVerDate 0ct 09 2002 12:41 Oct 14, 2004 Jkt 000000 PO 00000 Frm 00034 Fmt 6633 Sfmt 6602 H:\DOCS\92627.TXT EDUWK PsN: NNIXON

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trol or the company’s control. For our employees in multiemployer 

pension plans, UPS pays into the plan an average of $8,000 a year 

for each employee. Stated another way, each year we contribute on 

the average nearly 12 percent of their wages as a retirement contribution to the multiemployer pension plans. Those contributions 

should accumulate to permit an employee to have a nest egg of 

$827,000 after 30 years, assuming a conservative 7.5 percent rate 

of return. If these funds were placed in a simple interest bearing 

account rather than in a multiemployer plan such as Central 

States, this would produce $70,000 annually for that employee over 

the next 30 years of retirement. 

But that is not today’s reality. The Central States benefit would 

only provide such a driver about $36,000 a year. We believe the 

contributions we make on behalf of our employees to be as much 

theirs as their 401(k) plan or their hard earned wages. That these 

employees are not going to see the full value of what’s being paid 

by the company on their behalf is upsetting to me and to UPS as 

a whole. 

It is important to understand that the underlying problems are 

not simply caused by swings in the stock markets which could be 

cured by waiting out the downturn. Central States, for example, 

pays approximately $1 billion annually to about 100,000 retirees 

who no longer have a contributing employer because those companies are out of business. These factors were in place before the 

market downturn. And a reversal of Wall Street will not solve the 

underlying problem. 

Many of these plans were in tenuous condition during the market highs. Short-term fixes dependent upon market changes will 

not correct the financial solvency problems of multiemployer pension plans. Therefore, real multiemployer pension plan reform is 

urgently needed. Doing nothing is not an option. 

We support the proposed Multiemployer Pension Security Act of 

2003 introduced by Congressman Tiberi as H.R. 2910. That legislation proposes real reforms in multiemployer pension plans to truly 

protect the long-term interest of UPS employees and others in multiemployer plans. 

The bill is a good beginning and would for the first time provide 

a 90 percent funding standard so the plans do not make promises 

they can’t keep and the plans keep the promises they have already 

made. 

All of UPS’s efforts begin and end with our people’s best interests 

in mind. So we stand ready to help you, Mr. Chairman and Members of this Committee in any way we can to ensure that meaningful, long-term multiemployer pension plan reforms becomes a reality. For that is what our people truly deserve. 

Thank you for allowing UPS to testify and for your willingness 

to face this serious issue. 

[The prepared statement of Mr. McDevitt follows:]

Statement of John McDevitt, Senior Vice President, United Parcel Service, 

Washington, DC 

Mr. Chairman, I appreciate the opportunity to talk with the Subcommittee about 

UPS employees’ multi-employer pension plans. The success or failure of our company is dependent upon our employees. After 97 years in business, it is the skill, 

energy and loyalty of our employees that have made UPS what it is today. Our peoVerDate 0ct 09 2002 12:41 Oct 14, 2004 Jkt 000000 PO 00000 Frm 00035 Fmt 6633 Sfmt 6621 H:\DOCS\92627.TXT EDUWK PsN: NNIXON
32

1Trucking: Structure of the Less-than–Truckload (LTL) Industry and Legislative Issues, Congressional Research Service Report RL32257, March 5, 2004. 

ple work hard each and every day for their wages and benefits, and it has caused 

us great concern when the rewards for their effort are jeopardized by factors outside 

of their control or their company’s. 

For our employees in multi-employer pension plans, UPS pays into the plan an 

average of $8,000 a year for each employee. Stated another way, each year we contribute, on average, nearly 12% of their wages as a retirement contribution to their 

multi-employer pension plan. Those contributions should accumulate to permit an 

employee to have a nest egg of $827,000 after 30 years assuming a conservative 

7.5% rate of return. If these funds were placed in a simple interest bearing account 

rather than a multi-employer plan such as the Central States, this would produce 

$70,000 annually for that employee over their next thirty years of retirement. But 

that’s not today’s reality. 

As a result of structural problems and significant shortfalls in multi-employer 

pensions, trustees in many plans have been forced to make cuts in benefit levels. 

The point needs to be made that a change of facts and circumstances has resulted 

in a perversion of the intent behind the design of multi-employer plans. Rather than 

creating an environment where inter-reliance among participating employers provided increased participant security, the result has been decreasing and potentially 

non-existent security for plan participants. After those benefit reductions were 

made, the gap between dollars contributed and benefits paid to our people widened. 

Let me give you three practical examples of what these reductions mean for 

UPSers. Today, a 50 year old UPS driver who will retire in six years after thirty 

years of service will lose $3,216 annually from the $36,000 he was planning on as 

a Central States retirement benefit. The second example is a 31 year old driver who 

also plans to retire after thirty years of service; this driver will lose $17,000 annually. And our third employee is a 21 year old driver hired today. This new driver 

will have to work 42 years in order to get to today’s benefit levels; again not even 

half of what a simple interest bearing account would have generated. These examples highlight the unfair impact borne by younger workers, and does not even consider the impact of inflation going forward. 

We believe the contributions we make on behalf of our employees to be as much 

theirs, as their 401K plan or their hard earned wages. That these employees are 

not going to see the full value of what’s been paid by the company on their behalf 

is upsetting to me and to UPS as a whole. 

According to a report from the Congressional Research Service released last 

week, 1 the dire financial condition of many multi-employer plans illustrates the 

need for meaningful reform. All seven transportation industry plans referenced in 

that report would fail to meet a minimum 90% funding standard if they were subjected to the same funding standards that apply to single-employer company plans 

today. The two worst plans barely cover half of their liabilities (54% and 48% funded, respectively). UPS has 42,000 employees in those two plans alone. 

It is important to understand that the underlying problems are not simply caused 

by economic swings in the stock markets, which could be cured by ‘‘waiting out’’ the 

downturn. The problems are structural to the trucking industry, to the labor market 

in general, and to the past management of multiemployer pension plans. Central 

States, for example, pays approximately $1 billion annually to about 100,000 retirees who no longer have a contributing employer because those employers are out 

of business. The former employees continue to receive their benefits, but become a 

burden on the remaining employers in the plan and impact overall employee benefits. 

These forces were in place before the market downturn, and a reversal of Wall 

Street will not solve the underlying problems. Many of these plans were in a tenuous condition during the market highs. Short-term fixes dependent on market 

changes will not correct the financial solvency problems of multiemployer pension 

plans; therefore a need for real multi-employer pension plan reform is urgently 

needed. Doing nothing is not an option. 

We support the proposed Multi-employer Pension Security Act of 2003 (introduced 

by Congressman Tiberi as H.R. 2910). That legislation makes real reforms in multiemployer pension plans to truly protect the long term interests of UPS employees 

and others in the multi-employer pension plans. The bill would, for the first time—

1) give employees and beneficiaries of multi-employer pension plans the same 

90% funding standard and discipline that single-employer plans must meet; 

thus, ensuring that reasonable funding levels exist before a multi-employer 

pension plan could promise benefit increases; and 

33

2) increase the role of the Pension Benefit Guaranty Corporation so that the 

PBGC provides the same protection for employees who are in multi-employer 

pension plans as they currently do for single employer plans. 

This issue is not new to UPS. We identified multi-employer pension plan underfunding as a problem in the early 1990s and have attempted to address this issue 

in collective bargaining negotiations, as well as legislatively. We hope this subcommittee will give serious consideration to H.R. 2910 or any other measure that 

will create real reform for multi-employer pension plans. 

While we are convinced that the multi-employer pension plan underfunding problem requires long-term reform, we see value in the short-term relief provisions contained in H.R. 3108 to allow us to continue working towards long-term reform. 

As we see it, there are three simple and achievable objectives of reform: 

• Viability—in order to ensure our employees get what they should reasonably expect; 

• Fairness—in order that employees of a company see the benefits of their own 

labor; and 

• Transparency—in order that employees and their companies know the true status of the funds that have been deposited in the multi-employer pension plans 

on their behalf. 

Today this is not the case and is the basic reason that supports the need for reform. 

All of UPS’s efforts begin and end with our people’s best interests in mind. So 

we stand ready to help you, Mr. Chairman, in any way we can to assure that meaningful, long-term multiemployer pension plan reform becomes a reality. Thank you 

Mr. Chairman for allowing UPS to testify and for your willingness to face the serious multi-employer pension plan issue. 

Chairman JOHNSON. Thank you, sir. You’ve got some time left. 

Don’t you want to talk some more? Did UPS stifle you? 

[Laughter.] 

Mr. ANDREWS. See, it’s part of the UPS culture. You just get the 

job done and stop. You don’t have to keep going to run out the 

clock, right? You just get the job done. 

Chairman JOHNSON. I thought you would have said it was the 

Teamsters. 

Mr. ANDREWS. Absolutely. I have a UPS hub in my district. 

Where did you work in New Jersey, Mr. McDevitt? 

Mr. MCDEVITT. Edison, New Jersey. 

Mr. ANDREWS. We’re a little south of there, but you guys do get 

things done quickly. We appreciate that. 

Mr. MCDEVITT. Thank you very much. 

Chairman JOHNSON. Thank you very much. 

Mr. Weicht, you may begin. 

STATEMENT OF SCOTT A. WEICHT, EXECUTIVE VICE PRESIDENT, ADOLFSON AND PETERSON CONSTRUCTION, MINNEAPOLIS, MN, ON BEHALF OF THE ASSOCIATED GENERAL 

CONTRACTORS 

Mr. WEICHT. Thank you, Members of the House Committee and 

Chairman Johnson. I represent the Associated General Contractors 

of America. Also I am an employer based out of Minnesota, and we 

have about 450 workers. Of that, we have 300 workers that pay 

into multiemployer pension plans. We paid about $3 million in last 

year. 

I sit as the Chair and have been involved as a trustee for many 

years with the Iron Workers pension plan in the state of Minnesota, have about $170 million in assets, about 1,300 employee 

members, and represent about 188 companies that are participating or contributing employers. 

34

We have eight trustees, four union and four management, and 

we meet once every 8 weeks. We review all the administrative 

things that come up. We review our investment performance, fund 

review and how we’re handling the compliance issues that we’re 

dealing with, funding status. And this plan here now we’ve actually 

from 1999 when we were 88 percent funded, we’re now down to 68 

percent funded in 2003. We assume that we have a long-term rate 

of return of 7.75 percent in this plan. That’s used for all of our calculations with benefits, future liabilities. 

We deal with the collective bargaining process where every three 

to 5 years we determine the wage package, and in our region, what 

takes place then is that, the union in this case, meets with the 

trustees, and the trustees and union work together to determine 

what will be contributed out of that wage package paid annually 

by the employers to the pension fund. And the trustees are part of 

the negotiations and they’re well aware of what they’re looking at 

as far as what benefit contributions are needed. 

The issues that we’re dealing with that we see is certainly what’s 

been discussed already by Members of the Committee and the folks 

here. We’re seeing demographics, the aging workforce. It’s interesting that in the years 1996 to 1999, our plan did not—and many 

plans I’m aware of—did not increase benefits. They were actually 

going in and adjusting and changing their assumptions of what 

was taking place with the workforce that was living longer and 

aging faster in the last final years before they retire here now, so 

we were dealing with those and not looking at benefit increases. 

We certainly are seeing in the last few years the decrease in the 

hours worked, and that directly affects these plans nationwide as 

well as ours locally where we’re just not seeing the contribution 

hours come in. 

We have many mature plans throughout the country, and I am 

on a mature plan as well, meaning that we rely on these contributions to pay the current benefits that are being paid out, and the 

investment returns then are what is there being prepared for these 

future workers that are retiring. 

Two issues that we see that could really help us is that back in 

the late ’90’s, the deductibility issue was large. We were concerned 

as we were getting close to that 100 percent funded level that the 

employers would no longer be able to deduct the contributions that 

they were putting in. So it would help if that had more flexibility 

for us. 

The other issue that we have seen is that now after 3 years of 

losses, we’re looking at the minimum funding threshold, and 

there’s a risk that we would have an excise tax that we’d paying 

if we were underfunded. And instead of paying this excise tax in, 

it would be much more beneficial for us to be able to pay these dollars in as contributions so the employers could actually work hard 

to get the funding ratios back up to that mid-’90’s, you know, 100 

percent range that we want to be at. 

So that’s what we’re looking at. And that’s, in summary, what I 

would have. Open for questions. Thank you. 

[The prepared statement of Mr. Weicht follows:]

35

Statement of Scott A. Weicht, Executive Vice President, Adolfson and Peterson Construction, Minneapolis, MN, on behalf of the Associated General 

Contractors 

I am Scott A. Weicht, Executive Vice President, Chief Financial Officer, and a 

third-generation owner of Adolfson and Peterson Construction, a general contracting 

firm based in Minneapolis, Minnesota. I am testifying on behalf of the Associated 

General Contractors of America (AGC), a national trade association representing 

more than 33,000 companies, including 7,200 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 100 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. Nearly 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, 

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

Masons’ International Association. Those chapters typically sponsor multiemployer 

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

appointing management trustees to the jointly-trusteed plans. 

Adolfson and Peterson Construction is a member of AGC’s AGC of Minnesota 

chapter. The company performs about $400 million of construction work per year 

and employs about 300 union workers. On behalf of those employees and in accordance with our collective bargaining agreements, we contribute about $2.5 to $3 million annually to six different multiemployer pension funds. 

I currently serve as the chairman of the Twin City Iron Workers Pension Fund, 

which is sponsored by AGC of Minnesota and Iron Workers Local 512. This fund 

covers workers in Minnesota, North Dakota, and western Wisconsin. I have been a 

management trustee for the fund since appointed by AGC of Minnesota in 1992, and 

have served as the fund’s chairman since appointed by the trustees in 2001. In addition, I have served on various AGC of Minnesota collective bargaining committees 

since 1984, and presently serve on the committee that negotiates with the Lakes 

and Plains Regional Council of the United Brotherhood of Carpenters and Joiners. 

These committees are responsible for negotiating collective bargaining agreements 

with particular construction trade unions on behalf of member employers. 

A key term of these agreements, of course, is the amount of compensation increase 

(including pension fund contributions) that covered workers will receive in each year 

of a multi-year collective bargaining agreement. AGC of Minnesota committees typically negotiate a total wage-and-fringe benefit package and leave up to the union 

the designation of how that total increase will be allocated among wages, pension 

fund contributions, health-and-welfare fund contributions, training fund contributions, and any other agreed-upon benefits. Some AGC chapters negotiate specific increases to be allocated in specific ways. In either case, the amount of an employer’s 

pension fund contributions is determined by the collective bargaining process and 

is normally set on a dollars-per-hour-worked basis. 

The Twin City Iron Workers Pension Fund has seen its funded ratio deteriorate 

from 89% on January 1, 2000, to an estimated 68% on December 31, 2003. The deterioration resulted from the decline in stock investment earnings, in interest rates, 

and in the average hours worked per member. The Fund provides pension benefits 

to 1,264 members employed by 188 companies. Average annual employment contribution hours per employee have declined from 1,897 in 1999 to an estimated 

1,490 in 2003. Currently, employers are paying into this fund $5.35 per hour 

worked. 

I would like to thank Chairman Johnson and the other members of this distinguished subcommittee for the opportunity to discuss both role as a signatory employer, collective bargaining negotiator, and management trustee on a multiemployer pension plan, as well as to suggest changes to improve the long-term outlook 

of these important plans. 

Let me say from the outset that I believe that these plans are a secure and viable 

way for construction companies like Adolfson and Peterson Construction to provide 

pension benefits to workers. In the construction arena, workers follow the job, not 

necessarily the company, and these plans provide the proverbial third leg of the retirement stool for people who would otherwise be left with only Social Security and 

whatever savings that they could muster. I know that Congress is extremely interVerDate 0ct 09 2002 12:41 Oct 14, 2004 Jkt 000000 PO 00000 Frm 00039 Fmt 6633 Sfmt 6621 H:\DOCS\92627.TXT EDUWK PsN: NNIXON
36

ested in retirement security, and I believe that these plans are an essential part 

of that discussion. At the end of this statement, I will suggest that one simple and 

immediate change to the system is to eliminate, or at least raise, the maximum deductibility limits. This limit forces plan trustees to raise benefits unwisely rather 

than allowing the plan to develop a cushion to use in the future. 

My duties as the Chair of the Board of Trustees for the Twin City Iron Workers 

Pension Fund are many. I review information with the fund consultant, review data 

with the actuary, perform periodic reviews with the investment managers, build the 

agenda for each board meeting, review the minutes after each meeting, and approve 

applications for retirement benefits. My time commitment is approximately five 

hours per week. 

I participate at each board meeting along with the other trustees. Like all Taft–

Hartley plans, the fund has an equal number of management trustees and union 

trustees. In this case, there are eight trustees in total. We meet every other month 

for about three hours. In between those meetings, we also hold subcommittee meetings as needed. 

Before each board meeting, trustees receive a packet of information. Documents 

include investment guidelines, monthly financial statements, disbursements, applications for retirement benefits, reviews of both the investment manager and the financial performance of the investments, benefit and funding options, plan changes, 

audits of signatory employers, collections information, and requests for information 

from participants. We have access to all information about the plan, and we base 

our benefit determinations on the data. 

In general, benefit changes are made once a year on May 1. By May of each year, 

we have the preliminary actuarial data from the prior year. In May of 2004, we will 

receive the last of the plan data from 2003, some having been sent in prior to that. 

We will make any plan changes based on this information, and, in accordance with 

the law, will notify participants of all changes 30 days ahead of time. Benefit 

changes begin in June. 

Benefit changes are made based on margin, if we have a positive or negative margin. Trustees watch the incoming data for one year and project out the next year’s 

revenue stream. We assume a conservative rate of return on investments of 7.75%, 

participating in both fixed-income securities and stocks. Union trustees often push 

for increased benefits when future benefit liabilities are 90% funded or more, while 

management trustees often prefer keeping benefits the same until plans are funded 

in the high 90 percentages. This natural tension ultimately benefits the employee, 

as both sides try to maintain a balance of funding in the plan to ensure plan continuation, as well as looking out for the needs of the employees. 

Most multiemployer collective bargaining agreements are negotiated to last for 

multiple years. In the construction industry, three-year to five-year agreements are 

most common. As mentioned earlier, the multiemployer bargaining agent (such as 

an AGC of Minnesota committee) will negotiate either (a) a total compensation increase that covers wages plus all fringe benefit contributions in a non-allocated 

package, or (b) a total compensation increase with specific amounts allocated to 

wages and to each benefit plan. In our case, we negotiate a non-allocated package. 

For example, the parties will agree to a total wage-and-fringe benefit increase of 

$1.10 an hour per year for each of the three years covered by the contract. The 

union then decides how much of that $1.10 will go to wages (in the paycheck) and 

how much will go to each benefit fund to which the employers have agreed to contribute. Each year, the union works with the various trustees to decide which benefit is increased and by how much. This method prevents the union from being 

locked into a specific rate increase in one plan when a shortfall may arise in a different plan. Meanwhile, employers are locked into the total increase amount. In 

areas where specifically-allocated amounts are negotiated by the employers, the parties may have decided that $0.50 of the $1.10 total increase should go into the pension fund in each year. If the plan should hit a shortfall or an overage, it is very 

difficult (although not impossible) to increase or decrease the negotiated contribution rate until the next bargaining cycle is up. On the other hand, this system gives 

management more authority to determine where their increase payments will go. 

Regardless, negotiators in both situations receive information from the relevant 

plans beforehand, so that they are informed about the plans’ fiscal status before 

locking in contribution rates. 

AGC of Minnesota normally negotiates with the union trades every three years. 

In fact, negotiations for a new contract are taking place this month. Once the compensation increase is decided on, the pension fund trustees communicate what 

changes to pension benefits are needed. Collective bargaining negotiators do not determine these changes; they determine only the pool of contributions available. Only 

plan trustees can make benefit changes. Even then, they change only the benefits 

37

that will be provided to future retirees; the Employee Retirement Income Security 

Act generally prohibits changes to the amount of benefits provided to retirees who 

are already receiving benefit payments. 

With that background, the plan on which I am chairman entered the late 1990s 

in a fiscally healthy situation. In 1999, like many construction-industry multiemployer pension funds, an issue we were aware of was the maximum deductibility 

level allowed. This means that contributions made into the plan by the employers 

would no longer be tax deductible. Section 404(a)(1) of the Internal Revenue Code 

(IRC) sets limits on the dollar amount of pension contributions that can be deducted 

by an employer on its income tax return. From Congress’ perspective, this limit is 

important because each dollar of additional tax deduction represents lost revenue 

of up to $.38 for the government. This well-intentioned law generally produces the 

intended result, which is to limit the ability of employers to use their single-employer pension plans as tax shelters. However, it has had unintended consequences 

for multiemployer plans. 

As discussed, employer contributions to multiemployer pension plans are bargained based on number of hours worked. Neither unions nor contractors are generally desirous of re-opening a collective bargaining in order to reduce contributions 

because the plan is doing ‘‘too well.’’ Furthermore, the completion of actuarial valuations following the close of a plan year would usually be too late to allow contribution reductions to be used as a method of ensuring deductibility in any event. 

Full deductibility of employer contributions under Section 404 is crucial to both 

contributing employers and to unions, and most trust agreements require it. However, in a multiemployer pension plan, if expected contributions initially exceed the 

deductible limit, the only practical way to fix the problem and obtain full deductibility is to improve benefits for participants. Thus, instead of reducing employer 

contributions to meet the deductible limit as Congress likely intended, multiemployer plans raise benefit levels, thereby raising the limit and making employers’ 

bargained contributions deductible. 

The Section 404 maximum deductibility rules have also had the effect of limiting 

the amount of money multiemployer pension funds can put away for a rainy day. 

Actuarial techniques, such as asset ‘‘smoothing,’’ can allow a certain amount of plan 

assets to be held in reserve; but the level of these reserves have, in many cases, 

proven to be insufficient. Furthermore, while many boards of trustees improved benefits in excess of the bare minimum required to ensure deductibility, the window 

of acceptable plan designs that ensure both deductibility and long-term financial viability is narrow. In comparison to the magnitude of recent market losses, the difference between a deductible plan design and a viable plan design is often de minimis. 

Thus, much of the asset gains experienced in the late 1990’s have, necessarily, 

been ‘‘spent’’ on benefit improvements and were unavailable to help plans ride out 

the ‘‘perfect storm’’ of the early 2000’s. As mentioned, benefit improvements, once 

given, cannot typically be revoked retroactive. 

In our case, we made a increase in 2000 and 2001, funded by a combination of 

employer contributions and use of investment returns. In 2000, the fund was at 83% 

because of the stock market downturn. In 2001, the increased benefit was halted. 

Due to the great stock market decline, however, additional contributions from the 

total amount were still required in order to keep the fund healthy. In 2002, the 

union increased the allocation from the wage settlement, but did not get any benefit 

for it. Under our current funding formulas, the plan could hit the minimum funding 

level within four years, unless the plan is increased by an additional $1.58 per hour. 

This can be done either at the bargaining table by increasing contributions or 

through decreased future benefit plan changes. Nevertheless, we went from being 

88% funded to projecting a possible funding deficiency over the course of few years. 

This is unprecedented. 

I understand Congress is considering a short-term relief proposal that would aid 

multiemployer pension plans facing a similar situation. AGC encourages passage of 

this legislation in order to give the plans more time to deal with and absorb the 

unprecedented investment losses of recent years. The negotiated contributions mandated by current collective bargaining agreements would continue to be made, and 

all guaranteed benefits would be provided. While the plans I work with will have 

the ability to make contribution increases or change plan benefits relatively quickly, 

many plans will not negotiate contracts for several more years and could reach the 

minimum funding requirement threshold, unless significant plan changes are made. 

In that case, employers are assessed additional contributions by the plan—outside 

of collective bargaining agreement—as well as fines by the Internal Revenue Service. Incredibly, the fines will not even go to the plans for the benefit of the pension; 

they will go to the federal government instead. 

38

As employers, under the current economic climate, we are working at the bargaining table to maintain a reasonable compensation package with pension benefits. 

Employers—especially small businesses such as ours—can only afford to pay so 

much. We face slim profit margins, especially with the current steel crisis, and 

every part of the economy is trying to achieve more with less. We also must compete 

against nonunion companies and risk pricing ourselves out of the market. Furthermore, the well-known and widespread increase in health care costs creates an additional drain on the amount available for other uses. There are many moving parts 

to this arrangement. 

Because of these complexities, legislative action is needed. In particular, for the 

long-term betterment of the multiemployer pension plan system, AGC urges Congress remove, or at least raise, the maximum deductible contribution rules. Revision 

of the maximum deductible rules would help prevent a recurrence of the current situation in the future. While much-needed changes to IRC Section 404(a)(1)(D) effective in 2002 allowed multiemployer plans to deduct their full, unfunded current liability, further action in this regard is needed. Specifically, contributions made to 

a multiemployer pension fund pursuant to a bona fide collective bargaining agreement should be exempted from the maximum deductible rules. 

In short, the maximum deductibility rules are ill-suited for the less flexible world 

of collectively-bargained multiemployer pension plans. By amending IRC Section 

404(a)(1)(D) to exempt contributions to such plans, boards of trustees could 

strengthen funding during times of favorable investment returns without being 

forced to improve benefits unwisely. This would allow the development of a greater 

‘‘cushion’’ that could be used to weather market downturns. 

In conclusion, I would like to thank you for the chance to testify today, and your 

willingness to listen to and hopefully address our concerns. AGC hopes that Congress can help strengthen multiemployer pension plans like the one that I chair. We 

recommend amending the IRC to allow trustees to create a cushion to face the 

downtimes will help ensure that these plans continue to operate in a fiscally healthy 

and financially responsible way. We also recognize that this is only one of many possible solutions and are very interested in considering other options. AGC and I look 

forward to assisting Congress in any way possible as those options are further developed and examined. 

I thank you and will gladly answer any questions you might have. 

Chairman JOHNSON. Thank you, sir. We appreciate your testimony as well. 

Mr. DeFrehn, you may begin. 

STATEMENT OF RANDY G. DeFREHN, EXECUTIVE DIRECTOR, 

NATIONAL COORDINATING COMMITTEE FOR MULTIEMPLOYER PLANS 

Mr. DEFREHN. Thank you, Chairman Johnson. Mr. Chairman 

and Members of the Committee, I thank you for this opportunity 

to be here and discuss with you the future of the defined benefit 

pension system and particularly the multiemployer defined benefit 

system. 

As you may know, multiemployer plans cover virtually ever segment of the economy, although they’re best known in perhaps the 

building and construction trades, and because of some recent discussions, in the transportation industry. 

Multiemployer plans have been a major force in the delivery of 

employee benefits for over a half a century. Although they’ve been 

known sometimes mistakenly as union plans, since 1947, the law 

has stipulated that these plans be managed jointly by management 

and labor under equal representation, and that the plans be managed for the sole and exclusive benefit of the participants. 

For industries characterized by large numbers of medium and 

small employers, this is perhaps the best and sometimes the only 

way for employers to provide competitive, comprehensive pension 

and health benefits. There are approximately 60,000 employers 

39

who contribute to such plans across the country, many of which are 

small to medium-sized employers, approximately 90 percent of 

whom are employers of 100 or fewer employees. And while by definition a multiemployer plan does require contributions pursuant to 

a collective bargaining agreement between at least one union and 

more than one employer, the union membership is not a condition 

of either participation, eligibility or receipt of benefits. 

The multiemployer system has been an unqualified success. In 

over 50 years of existence, these plans have never been a problem 

for the government or the PBGC and is the only segment of the defined benefit system that has expanded coverage in recent years. 

Although the number of plans has declined since 1980 from 2,244 

to 1,661, the number of participants in those plans has grown from 

8 to 9.5 million people. 

A hallmark of the multiemployer plans which causes them to be 

inherently more stable than single employer plans is something 

which several of our speakers have already addressed. That’s the 

interrelationships between the employers. There is, however, a 

hook, and that is withdrawal liability in the event that an employer seeks to leave a plan after participating for many years and 

perhaps reaping the fruits of additional benefits for their employees, but at the same time having unfunded vested benefits. This 

withdrawal liability, which has been described previously, and it 

was implemented pursuant to MPPAA. 

In his opening remarks to the conference currently considering 

3108, Chairman Boehner made the observation that the multiemployer pension system is basically sound and financially healthy. 

We agree with that conclusion. The average funded position of multiemployer plans in 2002 was 87 percent. While it was down from 

95 percent in 2001, it still reflects a favorable funding position 

looking forward to the fund’s ability to meet its short and long-term 

benefit obligations. 

In fact, as recently as the 1990’s, multiemployer plans were so 

well funded that more than 75 percent of all such plans hit the 

maximum funding—maximum deductible limits. That required employers to make benefit improvements in order—not the employers. 

Excuse me—the trustees to make benefit improvements in order to 

maintain the current deductibility of contributions made by employers and to avoid excise taxes for contributing to a plan that 

was over-funded. 

While the Congress did ultimately take action to correct that 

somewhat in 2001, the corrections came too late to avoid these 

plans from having to make those additional benefit improvements, 

raising the cost of the participants of the benefits to a level where 

they can no longer be cut back under ERISA’s anti-cutback provisions. 

Of a more immediate nature is the legislation pending under consideration by the conference, 3108. We strongly urge the passage 

of that legislation, including especially the short-term, limited multiemployer relief contained in this version. It’s estimated that approximately 30 percent of all multiemployer plans may experience 

a technical funding deficiency before the end of the decade due to 

the 3-year, unprecedented 3-year decline in the equity markets. 

40

By taking timely action, Congress has an opportunity to protect 

the thousands of small businesses from potential bankruptcy resulting from the imposition of taxes, excise taxes, and additional 

contributions over and above those required by their collective bargaining agreements, that would arise when a plan experiences a 

funding deficiency. Failing to do so, however, carries substantial 

risk that the system would be destabilized, therefore increasing the 

risk to the Pension Benefit Guaranty Corporation. 

Thank you very much. I welcome your questions. 

[The prepared statement of Mr. DeFrehn follows:]

Statement of Randy G. DeFrehn, Executive Director, National Coordinating 

Committee for Multiemployer Plans, Washington, DC 

Mr. Chairman and members of the Committee, thank you for this opportunity to 

meet with you and discuss one of the most important domestic policy issues facing 

our nation: the long-term financial viability of the defined benefit pension system 

and specifically, the multiemployer defined benefit pension system. I represent the 

National Coordinating Committee for Multiemployer Plans. As you might expect 

with a name like that, it will come as no surprise that we are known more simply 

by our initials: the NCCMP. 

I. Background 

The NCCMP is a non-partisan membership organization comprised of multiemployer plans and their sponsoring employee and employer organizations. It is the 

only national organization devoted exclusively to protecting the interests of the 

plans and the approximately ten million workers, retirees, and their families who 

rely on multiemployer plans for retirement, health and other benefits. Our purpose 

is to assure an environment in which multiemployer plans can continue their vital 

role in providing benefits to working men and women. The NCCMP is a nonprofit 

organization, with members, plans and plan sponsors in every major segment of the 

economy, including, among others, those in the building and construction, retail 

food, trucking, service, textile, health care, communications, printing, steel, mining 

and entertainment industries. 

We commend the Subcommittee on its work in this matter as well as the Committee on Education and the Workforce. In his opening statement upon convening 

the current Conference considering HR 3108, Education and the Workforce Chairman Boehner stated that his overriding goal ‘‘...is simple: to protect the pension benefits of American workers.’’ We find that goal to be commendable and completely 

consistent with the objectives of the NCCMP and the multiemployer funds we serve. 

II. Multiemployer Plans: Often Misunderstood 

Multiemployer plans have been a major force in the delivery of employee benefits 

to active and retired American workers and their dependents for over half a century. Although they are often mistakenly referred to as ‘‘Union’’ plans, these plans 

have operated under a statutory mandate since the passage of the Labor—Management Relations Act of 1947 (also known as the ‘‘Taft–Hartley Act’’), under a structure that requires equal representation by labor and management in the operation 

and management of the funds. Furthermore, the fiduciaries who control the assets 

of the benefit plans are obligated under the Act to manage the plans for the sole 

and exclusive benefit of the fund participants. While this statutory requirement provides sufficient incentive for plan trustees (most of whom serve without compensation) to take these responsibilities seriously, ERISA’s fiduciary responsibility provisions place their personal assets at risk in the event they violate these obligations. 

For industries characterized by large numbers of small to medium sized employers and / or a mobile workforce, the multiemployer structure is the only way that 

many employers are able to offer competitive health and pension benefits to their 

employees, by enabling them to take advantage of the economies of scale and shared 

administrative costs. It is estimated that approximately 60,000 to 70,000 employers 

contribute to multiemployer plans and that upwards of 90% of such contributing 

employers are small to medium sized businesses, employing fewer than 100 employees. Similarly, the portability features of multiemployer plans enable employees in 

such industries to carry credited service in defined benefit pension and other benefit 

plans with them as they move among contributing employers within a given industry. While by definition, a multiemployer plan requires contributions pursuant to a 

written agreement between at least one union and more than one employer, union 

41

1 Early plans in the mining industry called for contributions per ton of coal produced. 

2 Before the enactment of the withdrawal liability provisions of MPPAA, a withdrawing employer could abandon its accumulated liabilities and effectively shift the responsibility for funding them to the remaining employers, many of whom were their competitors. The competitive 

edge to be gained by doing so actually provided an incentive to employers to do so. 

membership is not a condition of participation, eligibility, or receipt of benefits from 

multiemployer plans. 

Operationally, contributions to multiemployer plans are usually a function of the 

hours worked by covered participants, although other structures permit contributions on other bases such as weekly, monthly or by some other measure of productivity.1 The amount of such contributions is determined by the bargaining parties 

or ‘‘settlors’’ through the collective bargaining process and is fixed for the term of 

the bargaining agreement (usually three, but five year terms are not unusual). 

There is an explicit trade-off between wages and benefits, as the funds from which 

contributions are made would otherwise be part of the wage package. Based on assets available and on the advice of plan professionals, including the enrolled actuary, the plan trustees then determine the level of benefits to be provided. It is important to note that in most situations (especially those involving national plans), 

the individuals who bargain the contribution levels (usually at the local level) are 

not the same as those who serve as trustees. A national plan could receive contributions pursuant to literally hundreds of distinct, local bargaining agreements. 

Benefits provided under these plans are not typically related to salary, but are 

based on a unit value. This could be expressed as a flat dollar per month per year 

of service or by a percentage of contributions. Depending on the industry and the 

plan, the value of past service may or may not be increased over time. Unlike most 

single-employer plans, but consistent with their statutory obligation to administer 

these plans for the sole and exclusive benefit of plan participants, the majority of 

multiemployer plans provide periodic increases for retired participants. 

Under the current funding rules, plan fiduciaries must ensure that the required 

contributions are collected as owed and in a timely manner. To facilitate this process, most have well defined collection procedures, including procedures to collect interest, collection fees and liquidated damages, from delinquent employers. These 

contributions are held in trust for the payment of benefits, reasonable administrative costs and to fund future benefits when they are due. As these are generally mature plans, over time the contributions held for future benefits have evolved into the 

primary source of income for the trust. They are managed by qualified professional 

asset managers (know as QPAMs under ERISA) who are also plan fiduciaries. 

Under asset diversification policies encouraged by the Department of Labor, trust 

assets have been held in a broad variety of asset classes, including equities and 

fixed income, real estate and more recently and to a much lesser extent, other types 

of asset categories (hedge funds, international funds, venture capital). Multiemployer plans are typically more conservative than their single-employer counterparts 

with equity allocations generally averaging 50% to 55%. These allocations are established by the trustees in consultation with their professional advisors, including investment consultants, investment advisors and managers and actuaries. 

By design, multiemployer plans feature an interrelationship among contributing 

employers that is not found in the single-employer community, causing them to be 

inherently more stable. Because of the mobility and portability features, employers 

fund a portion of an employee’s benefit with the remainder paid by other contributing employers for whom that individual may have worked during his career. Because they are contributing to a pooled benefit plan for a pool of employees, the departure or demise of a given member of the pool has certain consequences, both for 

the departing employer and for those who remain. Although the rules governing 

those consequences vary by industry, the general rules require that if an employer 

ceases to participate (either voluntarily, through bankruptcy, or retirement) in a 

fund that has no unfunded vested benefits, there are no consequences for that employer or the other employers and the employees can move on to a different contributing employer to continue to accrue additional vesting and benefit credits. If an 

employer voluntarily ceases to participate in a fund that has unfunded vested benefits it is assessed its proportionate share of those unfunded vested benefits, based 

on a formula that tracks its contributions over a period prior to its departure. This 

is a requirement that was added in the Multiemployer Pension Plan Amendments 

Act of 1980 (MPPAA) and is known as ‘‘withdrawal liability 2.’’ The trustees would 

file a claim, and then proceed to collect the amounts due in a manner similar to 

its delinquent contribution procedures. 

If the withdrawing employer has insufficient assets to pay its withdrawal liability, 

or if that liability is capped under certain provisions of MPPAA, the remaining liVerDate 0ct 09 2002 12:41 Oct 14, 2004 Jkt 000000 PO 00000 Frm 00045 Fmt 6633 Sfmt 6621 H:\DOCS\92627.TXT EDUWK PsN: NNIXON
42

3See PBGC Data Trends 2002

4See the Survey of the Funded Positions of Multiemployer Plans 2003 issued by The Segal 

Company, an international actuarial and benefits consulting firm. 5See PBGC Data Trends 2002

ability is left with the remaining contributing employers, to be funded over time 

similar to an investment loss. While there are certain notable exceptions, withdrawal liability has proven over time to be an additional motivating factor to the 

parties to ensure that the plans’ funding levels are sufficient to fully fund the 

present value of vested benefits. Although there are withdrawal liability methods 

utilized by some plans that more directly attribute an employer’s withdrawal liability to that employer’s contributions (with interest) offset by benefit payments and 

accrued liabilities of his own workforce, for the most part the pooled methods have 

been little more than a footnote for the vast majority of plans during most of the 

last 25 years. This has changed recently and mainly as a direct result of the three 

consecutive years of negative performance in the equity markets, unprecedented 

since the decades before the adoption of ERISA’s funding rules in 1974. 

The concept of interconnectedness of contributing employers is an important element in understanding how they differ from single-employer plans and why these 

plans have posed an insignificant risk to the Pension Benefit Guaranty Corporation 

(PBGC) since the multiemployer fund was initiated in 1980. According to PBGC, 

there were 1661 multiemployer defined benefit pension plans in 2002, down from 

2,244 in 1980, while at the same time the number of participants grew from approximately 8 million in 1980 to slightly more than 9.5 million in 2002. Much of 

the contraction in the number of plans was related to significant merger activity 

during the 1990s. Almost none of the plans became the wards of the PBGC, with 

only 31 plans ever having received any financial assistance since the creation of the 

multiemployer guaranty fund in 1980. This is contrasted with the single-employer 

guaranty fund which has taken over approximately 3,100 such plans through the 

end of 2002.3

More than any other testament, this record speaks well for the long-term structure of this private sector system as it is currently constituted. 

III. Historically and Still Well Funded 

In addition to commenting on the Committee on Education and the Workforce’s 

objective to protect the benefits of the American worker, Chairman Boehner made 

the observation that ‘‘the multi-employer pension system is basically sound and financially healthy.’’ We concur with that conclusion. In fact, according to a recently 

issued survey, the average funded position of multiemployer pension plans in 2003 

(based on plan years that ended in 2002) was 87% 4. While that represented a decline from 95% in 2002, it still reflects a favorable funded position looking to the 

funds’ ability to meet their long and short- term benefit payment obligations. By industry, the funded positions ranged from a high of 91% for retail trade and food, 

to a low of 85% for transportation. According to the latest PBGC data the funding 

ratio for multiemployer plans was 104% as of 2000. The average funding ratio of 

PBGC insured plans for the 20 year period from 1980 through 2000 dropped below 

90% only one year (1996 when it was 88%). For eight of those years the ratio exceeded 100% with the remainder ranging from 91% in 1999 to 98% in 1992 and 

1993 5. 

Although the latest PBGC annual report showed a deficit in the multiemployer 

fund for the first time in 20 years, when one looks behind the conclusion it is clear 

that the primary reason for this shift is related to the historically low long-term interest rates used in determining the funding levels. We are confident that the plans 

covered by the multiemployer guaranty fund present no substantial long-term risk 

to the PBGC or, more importantly, to the participants of those plans and when the 

rates return to more normal levels the perceived deficit will disappear. 

Part of the reason why multiemployer plans have traditionally been so well funded is that the contributions to the funds are negotiated and mandated in a collective 

bargaining or other agreement that requires contributions to the plan, regardless of 

the performance of the investment markets. Unlike single-employer plan sponsors 

which tend to fund defined benefit plans at the minimum funding requirement (a 

policy that resulted in the absence of any contributions for a number of years to 

such plans when the investment markets significantly outperformed the assumed 

rates of return), multiemployer plan sponsors continued to make contractually mandated contributions throughout that period. Since they also benefited from the bull 

markets in the 1990s, however, multiemployer plans encountered a different type 

of problem—the full funding limitations. 

43

It is estimated that upwards of 75% of all multiemployer defined benefit plans encountered funding limitations during the 1990s that would have resulted in the employers’ inability to take tax deductions for contributions to these trusts and accompanying excise taxes. Because the plan trustees were generally not the same parties 

as the settlors who set contribution rates in the collective bargaining agreements, 

the trustees were forced to increase benefits to protect the deductibility of the employer contributions. This prevented the funds from accumulating a contingency reserve to offset the unanticipated steep and prolonged declines in the investment 

markets such as those encountered from 2000 through and including 2002. Although 

this problem was partially addressed legislatively in 2001, a permanent exclusion 

to the maximum deductible limits for multiemployer plans seems indicated in any 

comprehensive reform measure. 

IV.Principles of Reform 

The preceding background describes a system that has largely evolved into a well 

conceived, self-correcting system in which private sector employers and employee 

representatives have negotiated contributions that have been wisely invested to provide secure retirement income to tens of millions of plan participants. 

In evaluating the issues that might be the subject of a reform initiative, we would 

do well to borrow a line from Hippocrates who, in reference to disease is reported 

as having said ‘‘...make a habit of two things—to help, or at least, do no harm.’’ The 

following recommendations for guidelines to observe when considering any reform 

proposal are offered in that vein. 

First, multiemployer plans are fundamentally different from single-employer 

plans. Therefore, solutions for single-employer plans cannot be applied to multiemployer plans without thought, study and adaptation to multiemployer situations. For 

example, funding tests that are based on employers’ individual business hardship 

are not reasonably adaptable to multiemployer plans, because, among other things, 

each employer’s financial information must be kept confidential vis-a-vis the other 

contributing employers (including the employer trustees) who are competitors, and 

the union. 

A second tenet is that the funding requirements must be level and predictable, 

so that the trustees can set benefit levels with some confidence that the fund’s probable investment and contribution income will be able to meet the statutory standards. This includes rejecting any proposal that would cause the fund to be subject 

to greater volatility, such as the elimination or reduction in the ability of a plan 

to use sound actuarial smoothing methods. The recent experience with our unprecedented declines in U. S. equity markets, compounded by historically low fixed income rates presents the best case for not making sweeping policy changes at either 

extreme lows or extreme highs. 

A third point to consider is that multiemployer funding requirements must be 

adaptable to the realities of the collective bargaining process from which the contributions arise. This underscores the need for level, predictable funding requirements, including the need to phase-in funding increases to avoid sudden demands 

for dramatic contribution increases that could disrupt the bargaining process. An essential element of this concept is an assurance that the bargaining parties will have 

an opportunity to address new funding demands in bargaining so that neither the 

employers nor the participants are penalized because contribution levels cannot be 

changed during the term of the collective bargaining agreement. 

Forth, given the wide variety of circumstances and issues affecting bargaining, 

trustees and the bargaining parties need flexibility to meet the funding standards 

using whatever approaches best match the economics of their industry. Therefore, 

the law should specify the funding goal, but give the parties and trustees substantial leeway in setting the path to reach it. Furthermore, the funding rules should 

allow for benefit designs that participants will regard as fair: to retirees, to those 

nearing retirement, and to the population of active employees who generate the contributions. 

Fifth, the multiemployer funding regime should aim for benefit security and participant satisfaction—not ‘‘PBGC protection’’ or ‘‘100% funding at all costs.’’ Such a 

concept is somewhat perverse—that the very agency that was established to provide 

a safety net for plan participants would contribute to funding policies that would 

discourage employers from continuing them. Full funding, as a goal, and for setting 

funding targets for PBGC purposes, should be measured on a going-concern rather 

than termination basis for plans that are in fact going concerns. 

Sixth, the funding and tax rules should not inhibit responsible funding through 

the imposition of deduction limits and penalties that make it impossible for plans 

to build up strong reserves in the good years as a buffer against future bad years. 

It should also be noted that ‘‘bad years’’ in the context of multiemployer plans inVerDate 0ct 09 2002 12:41 Oct 14, 2004 Jkt 000000 PO 00000 Frm 00047 Fmt 6633 Sfmt 6621 H:\DOCS\92627.TXT EDUWK PsN: NNIXON
44

clude periods in which there is little work for the active participants that generate 

the contributions, as well as those in which there are investment market reverses. 

Seventh, funding rules need to respect intergenerational equity—do not ask for 

too much sacrifice from current actives or retirees during a funding crisis, but ask 

enough from each generation of actives so that its costs are not knowingly being 

passed on to the next group. 

Eighth, do not force multiemployer plans, even mature multiemployer plans, into 

a uniform investment mode in order to minimize financial risk. Recognize that defined benefit plans inherently incorporate a balance between promised benefits and 

the risk that the plan’s assets could fall short, regardless of how sizeable the funding reserves appear to be at any given point. A defined benefit plan remains alive 

only to the extent its assets (invested and contributed) can grow to meet the growing benefit needs and expectations of its participants. Striving for full funding, on 

a mark-to-market basis, at any time would not only be futile, it could also end the 

defined benefit plan’s ability to serve its participants as they expect and deserve. 

Finally, withdrawal liability is almost universally disliked within the multiemployer world by employers and unions alike, but some hedge is needed to prevent 

strong employers from abandoning plans and leaving liabilities to roll over onto the 

weaker employers or to the guarantee system. Even in declining industries, the 

withdrawal liability system has worked to protect the participants without shifting 

obligations to the PBGC. 

V. Conclusion 

In the earlier joint hearing held with the Committee on Education and the Workforce, you heard a number of experts comment on the administrative and regulatory 

compliance complexities that accompany the sponsorship of defined benefit plans. 

Multiemployer plans suffer from many of the same problems and concerns and we 

urge you to continue your work to eliminate such obstacles to the long term health 

and survival of these plans. 

As we look forward to the coming decades in which the baby-boomers retire and 

the coming generations face an uncertain future, wondering how they will cope with 

the costs of Social Security and Medicare, all the while being convinced that neither 

of these programs will be there for them, we would do an even greater disservice 

to them by failing to salvage the defined benefit system that has provided those who 

have gone before us–our fathers and mothers–with a dignified retirement. The continued decline of the defined benefit system in favor of the empty promises of a defined contribution retirement system that too few low to moderate income workers 

can afford to utilize and those who do vastly underestimate the amount they will 

need in their lifetime, will only serve to foist ever more of a financial burden on 

those future generations. 

As future retirees outlive their money, the costs of their care, even at a subsistence level, will be shifted to the taxpayer. 

If the volatile market performance of the past three years has taught us nothing 

else, we should have learned that only a defined benefit pension will keep us from 

returning to the days of the County poor house to house our indigent elderly. 

As the Committee proceeds with its work to strengthen the defined benefit system, we hope that you will consider ways that some of the features of the multiemployer system, such as portability of service, could be adapted to the single-employer 

system to encourage greater participation in defined benefit plans. We are eager to 

assist the Committee in its work in any way you choose to do so. 

Thank you very much. I welcome any questions you may have. 

Chairman JOHNSON. Thank you, sir. Appreciate the testimony of 

all of you and hope that you can help us solve some of the problems 

of the day, which as you point out, don’t exist just in this part of 

the pension system but all across it, and I think GAO would confirm that. 

Mr. Weicht, in your testimony, you say that employers can only 

afford to pay so much for labor, and then continue by saying that 

you must compete against nonunion companies and risk pricing 

yourselves out of the market; yet the only thing you asked for is 

to be allowed to contribute more to the plan when they are at a 

well-funded or over-funded status. So I wonder if you can explain 

how that makes sense. 

45

Mr. WEICHT. Sure. What we’re seeing is, is that there’s—when 

you’re looking at a situation that we were in, we were hitting the 

90-plus percent funded level, what happens is, is that the contributions are based on hours worked. 

So we can sit where we’re at now with $5.35 going in per hour. 

In a robust economy in the late ’90’s, we actually could be exceeding that 100 percent level by just the hours—the monies being contributed by the hours worked. For example, back at that time we 

were working an average of about 1,800 hours per employee that 

was in the plan. Now, this year, we’re down to about 1,490 hours 

per worker. So what happens is, is that we almost hit like a technical overpayment going in in these years when we’ve got full employment. In our industry you’d call it full employment, the 1,800 

hours. So that’s what takes place. 

Does that respond to the question? 

Chairman JOHNSON. Yeah, I guess so. It seems to me instead of 

putting the money in, the extra money in, you might want to put 

it into something that benefits your company. Why is that not true? 

Mr. WEICHT. Say it again? 

Chairman JOHNSON. Because you’re putting it into an over-funded plan. 

Mr. WEICHT. Well, we weren’t at that position, but the risk was 

there. We were within about a dollar per hour where we would 

have been over-funded. And so then we would have either increased benefits, or we could have met with the union and said, 

you know what? Let’s only put in $5 an hour. Let’s take 35 cents 

and put it back out to the employees on their check. 

Chairman JOHNSON. Right. And the unions didn’t want to do 

that? 

Mr. WEICHT. Well, we didn’t hit that point. They would say yes. 

Chairman JOHNSON. OK. Thank you. GAO, you mentioned that 

more information might be helpful in more accurately assessing the 

true funding state of the multiemployer system. Can you list what 

type of information you would specifically like to see? 

Ms. BOVBJERG. As you know, Mr. Chairman, GAO is always in 

favor of more information. 

Chairman JOHNSON. You like paperwork, don’t you? 

[Laughter.] 

Ms. BOVBJERG. We like more disclosure, too, and we talked about 

that at some length when we met before on the single employer 

program and PBGC. There is nearly always room to disclose more 

to participants in the pension world. I think that they should know 

what the funding for their plan looks like. They should know what 

their guarantees are. 

I would urge, though, that the disclosure be meaningful. It’s not 

always true that when someone receives something from their plan 

that discloses something in accordance with ERISA and it complies, 

they necessarily understand what that disclosure is telling them. 

So I would say meaningful disclosure would be important. 

Chairman JOHNSON. By the company or the union or both? 

Ms. BOVBJERG. I’m not ready to pick. But I think that it would 

be good to have something come from the plan that talks about 

plan funding, and anything that employers or the union wanted to 

provide in addition, I’m sure that they would be welcome to do so. 

46

Chairman JOHNSON. Well, my understanding is the unions pretty 

well run the plans after an agreement is made with the company. 

Is that true? 

Ms. BOVBJERG. We’ve heard that they work together jointly to 

run the plans, the employers and the unions. 

Chairman JOHNSON. Theoretically, but the union determines how 

much money goes to the retirement system, don’t they? As part of 

the agreement? 

Ms. BOVBJERG. This was not something that we looked at specifically in plans. We were looking at general plan structure and the 

macro funding levels for plans. 

Chairman JOHNSON. OK. Well— 

Ms. BOVBJERG. So we wouldn’t have found something like that. 

Chairman JOHNSON. So all you’re recommending is that the 

workers be advised with more information. Is that what you’re saying? 

Ms. BOVBJERG. I think more information is nearly always helpful. It would of course have to balance the cost of providing that 

information. 

Chairman JOHNSON. Well, I’d bet that they all know what that 

pension plan is. Would you guys confirm that? Don’t your workers 

know what they’re getting into? 

Mr. WEICHT. Well, yes. The benefits that they receive, they certainly know. The summary plan document discloses it, and you can 

ask any employee or employer and they’ll know. 

Chairman JOHNSON. OK. 

Mr. DEFREHN. Chairman Johnson, if I could comment on your 

question? 

Chairman JOHNSON. Please do, yes. 

Mr. DEFREHN. It’s been my experience in 30 years of working 

with these plans that the boards of trustees actually do work together, and it’s not simply that the union runs these things, but 

the management and union trustees work together, as was intended in ERISA and Taft-Hartley, to make those decisions on behalf of the participants. So I think it’s a misunderstanding that the 

unions run these plans. 

And with respect to the communications, it’s always much simpler for the plan itself, which has access to the information, to provide that information than either of the two bargaining parties who 

wouldn’t have that kind of information. 

Chairman JOHNSON. Thank you for that comment. Mr. Andrews, 

do you care to comment? 

Mr. ANDREWS. Thank you. I do. I’d like to thank the witnesses 

for excellent presentations. Mr. DeFrehn, I heard you say that with 

respect to the short-term relief legislation that’s before the conference that you support extension of the short-term relief to the 

multiemployer plans. Is that correct? 

Mr. DEFREHN. Yes, that’s correct. 

Mr. ANDREWS. And Mr. Weicht, did you also say that you support 

that? 

Mr. WEICHT. The short term? Yes. But once again, that’s short 

term. 

47

Mr. ANDREWS. OK. But I think I hear that each of these two witnesses support the Senate approach to this problem by including 

the multiemployer people. 

Mr. McDevitt, what is UPS’s position on that? 

Mr. MCDEVITT. UPS sees value in the short-term reform, but we 

are currently stringent that we do need long-term reform for these 

plans. 

Mr. ANDREWS. When you say you see value, do you want to see 

us adopt the short-term reform or not? 

Mr. MCDEVITT. We think if it gives us an opportunity to get into 

an area where we can work toward long term, we certainly would 

be behind that. 

Mr. ANDREWS. Well, of course, we’re either going to work or not 

work toward long term, depending upon what the Chairman and 

others decide. But we have to take a position on what’s in front of 

us right now. Do you want to see the conference report out the Senate approach to including the multiemployer plans or not? 

Mr. MCDEVITT. Well, basically, I would have to say that if in fact 

it gets us to where we can address long-term reform, we would see 

value in that, yes sir. 

Mr. ANDREWS. I understand. Turning to the long term—you 

should run for office. That was pretty good. 

[Laughter.] 

Mr. ANDREWS. With respect to the long-term problem, Ms. 

Bovbjerg, thank you for the excellent work that the GAO has done 

on this. I read on page 8 of you testimony the section that says, 

‘‘Aggregate funding for multiemployer pension plans remained stable during the 1980’s and 1990’s. By 2000, the majority of multiemployer plans reported assets exceeding 90 percent of total liabilities, with the average plan funded at 105 percent of liabilities.’’ 

Would you characterize the financial position of multiemployer 

plans as of 2000 as generally healthy or generally unhealthy? 

Ms. BOVBJERG. We thought they looked pretty healthy in 2000. 

It’s difficult to tell, by the way, just what’s happened since then because of the way our data come in. 

Mr. ANDREWS. Right. 

Ms. BOVBJERG. And we’re relying nearly entirely on PBGC’s recent reports on funding levels. 

Mr. ANDREWS. It’s my understanding that during the period that 

you did look at, the average annual growth in assets for multiemployer plans was 11.7 percent, and the average annual growth in 

liabilities as 10.2 percent. If that spread were to continue over the 

next 10 years—first of all, how realistic is it to expect that that 

spread will continue over the next 10 years? 

Ms. BOVBJERG. Sitting here today, it doesn’t look that realistic, 

but— 

Mr. ANDREWS. And why doesn’t it look that realistic? What are 

the factors that make it unrealistic? 

Ms. BOVBJERG. That’s pretty high growth. 

Mr. ANDREWS. High growth? 

Ms. BOVBJERG. On both ends. It’s higher than what we see in 

single employers. I don’t remember the exact figures. 

Mr. ANDREWS. High growth in assets? 

Ms. BOVBJERG. And in liabilities both, higher than singles. 

48

Mr. ANDREWS. Do you anticipate—to what extent do you think 

that the problems that we’ve encountered since 2000 are attributable to decline in equity values, decline in interest rates, to what 

extent is it attributable to some other factor? 

Ms. BOVBJERG. We didn’t evaluate exactly to what it’s attributable in part because we don’t really have data that are completely consistent with what we had through 2000. Certainly the 

interest rate and the equity prices made a huge difference, that we 

know. 

Mr. ANDREWS. Is it within the purview of what you’ve been asked 

to do to forecast what might happen if we gave you certain assumptions about rises in equity values and rises in interest rates? If the 

Committee were to say to you, assuming this level of stock market 

performance and this level of interest rate performance, what 

would happen, is that something you could do? 

Ms. BOVBJERG. It might be. If the Committee asked us, we would 

find a way to try to do it. 

Mr. ANDREWS. The questions are not hypothetical. They’re really, 

as I said in my opening statement designed to parse out the analytical differences between problems in multiemployer plans that are 

inherent in the aging of the population, the demographic tidal wave 

that is coming, and problems that are unique to the present circumstances that we faced in the last couple of years. 

I think it’s indisputable that the demographics are moving in a 

direction where there will be fewer workers and more retirees, and 

that’s a fact. The question is, is how bad that problem will be and 

what kind of changes it requires. You know, I know my Chairman 

is a conservative, and I share with him the view that the first principle of government should be the Hippocratic Oath, that we should 

first do no harm. And I agree with what Mr. DeFrehn said that defined benefit plans are a success story, and I would be very leery 

of making changes that might disrupt that success story on the 

basis of some anomalous circumstances. 

Thank you. 

Chairman JOHNSON. Thank you, Mr. Andrews. Recognize the 

Chairman of the Full Committee, Mr. Boehner for questions. 

Mr. BOEHNER. Well, thank you, Mr. Johnson. Let me congratulate you and Mr. Andrews for having this next in a long series of 

hearings looking at defined benefit plans, and today specifically, 

multiemployer plans. I think that it’s helpful and certainly useful 

considering that we have a pension bill that we’re in conference on. 

And I’ve just got to say, I’m confused. And I think I’m going to follow up with the words of Mr. Andrews when he suggests that making changes to multiemployer pension rules at this time without 

having more information, you’re somewhat reluctant to do. I’m 

damn reluctant to do, let me say that. 

As I understand the testimony, 2 years ago, 95 percent was the 

average funding level of multiemployer plans. Today it’s 87. Down, 

but certainly not the end of the world. And in the 87 percent figure 

average, Ms. Bovbjerg, was from what year? What plan year? The 

calendar year 2002? 

Mr. DEFREHN. Mr. Boehner, I believe I was the one who commented on that. 

Mr. BOEHNER. Oh. 

49

Mr. DEFREHN. It was from actuarial valuations completed in 

2002. 

Mr. BOEHNER. 2002. So we’ve had in round numbers about 15 

months since those numbers were calculated, and over the last 15 

months, we’ve seen the market increase, last year over 20 percent, 

and we’ve seen an improvement—an increase in interest rates, 

while not substantial, but we’ve seen an increase in interest rates. 

And between the two, those figures alone, those two indicators 

alone, should make the actuarial value of these plans better today 

than they were at the end of 2002. Would you agree to that? 

Mr. DEFREHN. I wouldn’t agree with that completely. First of all, 

if you look at some of the interest rates used by PBGC in valuing 

long-term liabilities, they’ve actually, as reflected in their most recent report, they are lower than they were in the prior year. 

Secondly, the market decline, the compounding effect of the market declines over the last 3 years, although they have, in 2003 

there was a recovery, the actuarial procedures used generally involve a level of smoothing that recognizes gains and losses over a 

period of years. 

Mr. BOEHNER. Fifteen, I might add. 

Mr. DEFREHN. Well, in most cases—that has to do with the amortization of the losses it’s 15. But in most cases from a funding 

standpoint, they use a 5-year smoothing method where they recognize a portion of the gains and losses recognized over—that were 

experienced over a period of 5 years. So over the next couple of 

years, our plans for funding purposes, we’ll be seeing those three 

bad years stay with them, for funding purposes, for a period longer 

than you would have seen had the gains in 2003 been recognized 

immediately. 

Mr. BOEHNER. Ms. Bovbjerg, how would you answer that hypothetical question that I pointed out? 

Ms. BOVBJERG. About whether they’re better off today than? 

Mr. BOEHNER. Than they were at the end of 2002. 

Ms. BOVBJERG. I don’t know the answer to that question. I do 

know that in the PBGC 2003 Annual Report, they reported that 

their insurance program was in deficit for the first time in 20 

years. So—and I think that that may also relate to some of the 

things that Mr. DeFrehn was mentioning just now. So there will 

be some period of time to recover. 

Mr. BOEHNER. All right. Let’s use the 2002 number, then, that 

on average, there’s an 87 percent funding level in multiemployer 

plans. Now there’s a provision in the Senate passed bill, the 3108, 

that provides an additional 2 years to amortize losses for all plans. 

That’s what the provision says, all plans, all multiemployer plans. 

It seems to me that’s overly broad, considering we’re not doing 

anything like that for single employer defined benefit plans. And 

I’m trying to understand why anyone would think that it’s fair to 

provide broad relief, that broad of relief for multiemployer plans 

when nobody’s made the case. We don’t have the numbers at the 

PBGC. We don’t have the numbers at the GAO because the plans 

don’t disclose enough information for us to even make judgments 

about where there’s a need and where there may not be a need. 

And I’m trying to get at how could we determine where the need 

50

is, if there’s a need, and how you could look at this issue in a narrower context than all multiemployer plans. 

I’ll start with you, Ms. Bovbjerg. 

Ms. BOVBJERG. Generally, if you wanted to not have it be so 

broad, you could consider targeting in some way. I believe that 

that’s the approach that is being considered with the DRC provision in the same bill. It’s targeted in some way. You have narrowed 

it already at some level by simply deferring rather than forgiving 

the amortization. 

As for knowing, you know, which companies or which plans 

would benefit or need the relief and trying to target it, that’s not 

something that’s knowable with the information we have now. 

You’re right. 

Mr. BOEHNER. We can go down the list of whoever would like to 

speak up. 

Mr. WEICHT. If I may, I would like to share that as a trustee, 

the way we can adjust this of course is to reduce benefits with another side of what you were asking for, Representative Boehner, as 

well, is that the smoothing, 5-year smoothing, just to share on a 

practical side of our plan, is that we have to have a 15 percent per 

year return for the next 5 years to get back to our 90-plus percent 

funding level with what’s taken place in the last three. So that 

sheds a little practice light on just how one plan is working. 

And what I have seen with the plans in the Midwest is that a 

majority of plans have reduced benefits as well. So they’re not relying on just the returns to bail them out, so to speak. 

Mr. BOEHNER. Mr. DeFrehn? 

Mr. DEFREHN. Mr. Boehner, well, you know, with respect to the 

question of allowing all plans to participate in that deferral of the 

amortization of the losses, there are some self-limiting provisions 

in there in that a plan that accepts that relief under the Senate 

provision would be required to have restrictions on the ability to 

make benefit improvements during the next—during the period of 

the hiatus. So plans that normally would not want to have those 

restrictions wouldn’t adopt that. 

Similarly, I believe that there is a mechanism for trying to identify which plans would need the relief by having perhaps an actuarial certification or projection that the plan would experience a 

funding deficiency within the next 7 or 8 years. That would also 

allow the number of plans that would be affected by this to be narrowed significantly, and it would target those plans—we had approximately 30 percent of the plans out there would need some portion of this relief—that it would help narrow that down to the 

plans that do need the relief. 

Mr. BOEHNER. Mr. McDevitt, do you have anything to add here? 

Mr. MCDEVITT. Yes, Congressman. I did not have an opportunity 

to see those numbers that were reported earlier, but I can tell you 

from UPS’s perspective, we track 21 plans, and less than half of 

them would meet the 75 percent level currently. 

UPS, as you know, is a forward-looking company. We do not look 

at the next quarter or the next year. This has been our radar 

screen since the late ’80’s and early ’90’s, and we think there is 

structural change required here because of some of the other factors, such as the demographics which was referred to in the GAO 

51

report that I heard here. But there is definitely a need for some 

restructuring and some long-term reform. 

Mr. BOEHNER. Well, there’s no question that we’re heading down 

a path of long-term—a project to look at the long-term changes that 

are needed both in single employer plans and multiemployer plans. 

But we’ve got this little 2-year, small pension relief bill that is 

being expected to carry mountains of other issues, and for the life 

of me, I’m trying to understand how we’re going to be able to determine fairly who really needs help and how much help they need, 

because it’s only a 2-year window that we’re dealing with in this 

small bill. 

So with that, Mr. Chairman, I thank you for your indulgence. 

Chairman JOHNSON. Thank you, Mr. Chairman. I appreciate 

those comments. I think everybody knows that the PBGC, your 

multiemployer plans really are only about 3 percent of their commitment total. So it’s something we need to look at, but it’s not 

going to break the bank, if you will, if your system starts to default. 

I think you can increase contributions. I’m told you can increase 

contributions under the Senate plan, but the problem you’ve got is, 

if you increase contributions, your union agreement is probably 

going to want some more increases in benefits as well. 

Mr. ANDREWS. If the Chairman will yield, the other fact that I 

think does need to be pointed out, though, is the potential of a 

chain reaction within multiemployer plans where a failure of one 

employer triggers substantial increase in burdens on the rest of the 

employers, which could push others over the edge, and it could proceed like an epidemic where one person is sick at the beginning 

and a few more get sick the next wave, and everybody gets sick at 

the end. 

The explosive potential for this chain reaction within multiemployer plans needs to be carefully assessed. 

Chairman JOHNSON. Well, there’s no doubt we need to look at it 

carefully. Mr. Kildee, you’re recognized. 

Mr. KILDEE. Thank you, Mr. Chairman. 

Chairman JOHNSON. And I want to thank you for being here 

when this thing first started. 

Mr. KILDEE. Well, we tried anyway. That was 24 years ago. I’ve 

been here 28 years, so I had 4 years’ experience before I got involved in this. But I appreciate all of you being here today. 

Mr. McDevitt, about twice a year I go out to the UPS center in 

Flint, Michigan and have coffee and doughnuts with the drivers as 

they peel off. Mark LeHay invites me out thee. And as a matter 

of fact, about a year ago I went up to Saginaw, Michigan in my district and donned the brown uniform and delivered packages for a 

morning and enjoyed that very much. And I have good relations 

with both UPS and the union. 

As I understand your testimony, Central States is currently paying nearly a billion dollars annually in benefits to some 100,000 retirees whose employers have gone out of business. You’re not suggesting that these retirees be cutoff without pensions after their 

years of having their employers contribute on their behalf? 

Mr. MCDEVITT. No, Congressman, I am not saying that. I’m just 

pointing out that that is a structural flaw in the program moving 

52

forward. These plans were healthy in the ’80’s to some degree. 

They’ve quickly, because of the demographics and the change, quite 

frankly, right now they are .62 active to retiree termed in that 

plan, and right now I believe they have a built in percent of 2 percent less members coming in on an annual basis going outward. So 

there are going to become even less contributions in the front door, 

and as we approach the baby boomer retirement, we’re going to 

have more retirees. That is just going to make that plan that much 

worse. 

Mr. KILDEE. I was told by some of the employees at the Flint facility, Flint, Michigan, that Central States had informed them that 

because of some of the problems in the plan, that they would have 

to work 32 or 33 years before they would qualify for the full retirement. Is that correct? 

Mr. MCDEVITT. Yes sir. Under, as was mentioned before from one 

of the colleagues here on the panel, there have been many plans 

that have not increased. Unfortunately, we have been in a case 

where we’ve seen plans have to decrease the benefits. And, yes, 

that is in fact the case with Central States. 

As a matter of fact, we have an example that we now have to 

deal with which we never had to deal with before, in Michigan, as 

a matter of fact. We have a driver who retired in January and has 

since come back to us and asked us to unretire, because he did not 

understand how much he was willing to get or about to get based 

on the plan changes. It’s a very sad state of affairs. He’s a 30-year 

driver with UPS. He has cancer, and he has now come back and 

asked to unretire after being retired for only 3 months. 

We are still trying to find ways to address that, and more and 

more of these situations—I would have to disagree with one of the 

earlier comments that our employees understand what their benefits are going forward. That’s why I think we certainly need transparency. We need education, and we need our folks to clearly understand the impact going forward. 

And that’s just one. We understand there’s another similar situation proceeding as well, sir. 

Mr. KILDEE. And I know that the Teamsters and UPS both want 

to address those problems. I work closely with both groups in Flint, 

and I know that they are concerned about addressing that, and 

both of you have a voice in that Central plan and a vote in that 

Central plan. 

And you certainly aren’t proposing that the problems be transferred to the Federal Government to take care of that shortfall? 

Mr. MCDEVITT. No. What we are saying is, I think the crux of 

the matter comes down to how we differentiate a multiemployer defined benefit plan and a single employer defined benefit plan. And 

I think in our best interest of what we think would work is just 

look at a plan that’s defined benefit and could take the best of both 

worlds and put some structural changes in there to, No. 1, shore 

up the plans as they exist right now and give them the opportunity 

to get back on better footing going forward, and hopefully keeping 

the government out of it. 

But clearly, down the road, the PBGC one way or the other will 

have to step up in some of these plans if we do not take a look at 

some long-term structural reform inside of these plans. 

53

Mr. KILDEE. In response to Mr. Andrews’ statement, you would 

be willing to take the short-term relief while waiting for a more 

long-term relief? 

Mr. MCDEVITT. Yes. As I said earlier, right now we see value in 

any short-term relief that will allow us the opportunity to continue 

to work toward long-term reform. But long-term reform is certainly 

a must have. 

Mr. KILDEE. Appreciate your testimony. Thank you very much. 

Mr. MCDEVITT. Thank you, sir. 

Chairman JOHNSON. Thank you, sir. Appreciate your insights 

and your experience. Mr. Kline, do you care to comment? 

Mr. KLINE. Yes, Mr. Chairman, thank you very much, and 

thanks to all the panelists for being here. I’m always delighted 

when somebody is here from Minnesota, by the way, Mr. Weicht. 

Great to see you. We’re still in that time of year when Minnesotans 

are not reluctant to travel out of the state. 

And it’s always a delight to have UPS. Like Mr. Kildee, I had 

the pleasure of putting on a brown suit and riding around delivering packages, and I was horrified to learn that I was slowing 

down the whole process by about 50 percent when I thought I was 

helping. 

This subject is of particular concern to me because I’ve had Minnesota employers in the trucking business, for example, come to me 

and say that they are in fact in real trouble; that the reason that 

the pension funds are funded even to 87 percent is because some 

of them are really eating into operating capital at an enormous 

rate to keep that done. 

So I’m, like all of us here, I think, looking for a way to make sure 

that these defined benefits plans, whether they’re single employer 

or multiemployer, are solvent and providing the benefits that 

they’re supposed to provide. 

I think in your—let’s see here. I believe I’ve got it underlined 

properly, Mr. McDevitt. In your testimony, you said, ‘‘As a result 

of structural problems and significant shortfalls in multiemployer 

pensions,’’ there are problems. And you’ve talked about some of 

those structural problems, but I wonder if you could just in sort of 

one encapsulated approach tell us what you think those structural 

problems are that we need to be addressing. 

Mr. MCDEVITT. Well, Congressman, the first would be, as I mentioned before, the clear demographics of those plans currently. We 

do not see new workers coming in the front door to support those 

folks who are approaching retirement. 

The other is we believe there’s a flaw because there are no funding guidelines. The 21 plans that I mentioned earlier that we address and look after, it’s safe to say that those that had any type 

of a funding guideline are in much better shape than those that did 

not, regardless of how they received those funding guidelines, 

whether they were imposed upon them or the trustees enacted on 

their own. 

Transparency, as we talked about, and the timeliness of information makes it hard for us and for our employees and the participants in these plans to clearly get an idea of where they stand inside of these plans. And, therefore, when they go to retire and they 

think they’re going to get one thing, quite frankly, in the long term, 

54

the may not be able to get that. An example is recently right here 

in the Central States where there was a cut, and now we have to 

deal with some folks who have to reevaluate their retirement 

plans. 

And then certainly those that have been left behind, where the 

burden is spread out on those employers that are left to pick up 

the pieces of people who have exited the plans. And we understand 

that there is a percent that they go back after assets to try to recoup the liabilities that are required on those ones that exit, but 

it’s right around 10 percent. So the 90 cents on each dollar that 

these folks leave behind are spread throughout those companies 

that are left in those plans themselves. We think that there are 

some structural problems with that. 

Mr. KLINE. Thank you very much. And thank you, Mr. Chairman. I yield back. 

Chairman JOHNSON. Thank you. Mr. Tierney, do you care to 

question? 

Mr. TIERNEY. I do. Thank you, Mr. Chairman. 

Chairman JOHNSON. Thank you, sir. You’re recognized. 

Mr. TIERNEY. It’s been a while, and I was wondering why a package from Michigan showed up on my doorstep in Massachusetts, 

and now I know that Dale was messing up deliveries, and I figured 

that one out. 

[Laughter.] 

Mr. TIERNEY. I’m almost tempted, Mr. McDevitt, to ask you 

again the same question Mr. Andrews and Mr. Kildee asked you 

to see if you can again repeat exactly the same, but I trust you 

would. 

Let me ask—and I’m going to have trouble pronouncing your 

name. Would you help me, please, Barbara? 

Ms. BOVBJERG. Bovbjerg. 

Mr. TIERNEY. Bovbjerg. If we had an answer to our health care 

system in this country, if we were able to deal with the rising premiums in health care that employers face, would that not have a 

positive effect on the ability of those companies to better maintain 

their contribution levels? 

Ms. BOVBJERG. That was what we were told in talking to various 

companies in multiemployer plans is that there’s a certain amount 

they feel that’s on the table, and one of the things competing, one 

of the priorities competing with pension benefits, is the rising cost 

of health care benefits. 

Mr. TIERNEY. I say that because I think, you know, sometimes 

we can’t take these issues, as important as they are, in a vacuum. 

And we were looking at so many retirees now being dumped out 

of their health plans, over 5 million in this country after they retire, being either decreased in their benefits or tossed off; employers facing incredible increases in premiums, and I think that we 

ought to perhaps sometimes look at these issues together to see if 

we can’t resolve some of our health care issues to help in turn address this problem. 

Mr. DeFrehn, give us, if you would, a thumbnail sketch of—because I see many good aspects of this multiemployer pension system. In fact, I see some serious areas where it’s better than the single system by far, not the least of which are the ability of the emVerDate 0ct 09 2002 12:41 Oct 14, 2004 Jkt 000000 PO 00000 Frm 00058 Fmt 6633 Sfmt 6602 H:\DOCS\92627.TXT EDUWK PsN: NNIXON
55

ployees and employers to work together as trustees to make it 

work. As tough as it is, they make decisions sometimes, even if it 

means decreasing some benefits or increasing them, and people understand that it’s made in good faith, that are accepted. The portability aspects obviously. What would be a good way for us to look 

forward to short-term and long-term strengthening of this system 

as opposed to dismantling it? 

Mr. DEFREHN. Well, certainly on the short-term basis, consideration of the Senate version of 3108 would allow the plans to get 

through, as Mr. Andrews describe, an anomalous situation. Never 

since the beginning of the funding rules under ERISA have we encountered three consecutive years of negative performance in the 

markets. Therefore, it’s a time—and also a time when the interest 

rates are at historical lows. 

So our plans are facing a period where they have changes of experiencing a technical violation in the funding rules, those funding 

rules which had never been tested under similar circumstances, 

that could result in having employers who have been good supporters of these plans and paid on a regular basis their required 

contributions pursuant to the bargaining agreements, those same 

employers would be subject to additional contributions, were the 

plans to trigger the funding deficiencies. 

So that would result in some of them being bankrupt, and a fundamental destabilization of the system. 

On a longer-term basis, we believe that the system has worked 

very well. And contrary to what Mr. McDevitt has said, I think 

that if you look at it in a broader context, that you would find that 

the system has worked very well. The funding levels have been 

very good, and rather than looking in isolation at the last 3 years, 

it’s better to take a broader look at how the funding of the plans 

broadly has played out. 

Even the example that he has cited on a number of occasions 

here, the Central States Pension Fund, their plan was funded at 

almost 96 percent for the vested—present value of vested benefits 

as recently as 1999. And they, because of the leveraged nature of 

that plan, were severely impacted by the reduction in the economy 

here and the reduction in the markets. It drove their assets base 

down to about $14 billion from a high of about $26 billion. They’ve 

recovered in the last year to a little over $18 billion, but again, it 

shows that these mature plans are highly dependent upon investment return. 

And if you think about the way ERISA was set up, it was structured in a way to put many of these plans, or the mature plans, 

in a position where the benefits would ultimately be paid from investment earnings. I think that’s an important concept to remember here. Unlike the Social Security system where we set nothing 

aside but operate on a pay-as-you-go basis, these plans have had 

to set money aside since 1974 to fund those future benefits. And 

in fact, while the withdrawal liability system is flawed and nobody 

likes it, the unions hate it, the employers hate it for a variety of 

different reasons, you have a choice to make here. 

When the government sought to guarantee defined benefit plans, 

and those guarantees were put into place both in the single and 

multiemployer side of things, there were some guarantees made to 

56

those participants. On the multiemployer side, it was a very small, 

modest guarantee. After 30 years of employment at age 65, you 

would get about $12,700, compared with $44,000 on the single employer side. Unfortunately, someone has to pay for those benefits. 

It’s either going to be the employer or the government or the participant who loses those benefits. Since we’ve guaranteed them in 

the code, then the choices are either the employer picks it up 

through withdrawal liability, or the government picks it up 

through the PBGC. 

I would also like to just make one observation here in listening 

to Mr. McDevitt’s comments about long-term reform. I’m reminded 

of the fable of the seven blind men trying to describe an elephant. 

And while UPS is one employer involved in one industry, which 

has admittedly had significant problems for a variety of reasons, 

including deregulation, over the years, it is one segment of the 

economy and one plan. 

When we talk about the bill that has been set forth, the Multiemployer Pension Security Act of 2003, actually if the issue weren’t 

so serious, you could get the humor in the tongue-in-cheek name 

here. In fact, the multiemployer security act that they’re talking 

about doesn’t provide changes to the multiemployer system; it dismantles the multiemployer system in the trucking industry. It converts those plans from multiemployer plans to multiple employer 

plans. 

And I’d like to make it very clear that that shifts the risk from 

the pooled employers to the single employer guaranty plans under 

PBGC, because multiple employer plans are a collection of single 

employer plans and not multiemployer plans. 

So there is a significant change that’s being proposed here that 

I believe does have some significant policy implications beyond simply talking about long-term reform. Long-term reform, there may 

be some reason to discuss some of these issues, but, you know, you 

don’t fix what ain’t broken. And while some minor tinkering might 

be in order here, I’m not sure that comprehensive reform on the 

multiemployer side is anywhere near as needed as it is on the single employer side. 

I hope that addresses your question. 

Mr. TIERNEY. It does. I want to thank all the witnesses. Thank 

you, Mr. Chairman. 

Chairman JOHNSON. Thank you for your comments. Appreciate 

that. Mr. Holt, do you care to comment? You’re recognized. 

Mr. HOLT. Thank you, Mr. Chairman. And I’m wondering if 

photos exist of Mr. Kildee and Mr. Kline in brown shorts. 

[Laughter.] 

Mr. KLINE. I had them burn the negatives. 

Chairman JOHNSON. He talked about elephants, too, you know. 

Mr. HOLT. When I did it, I chose not to wear the shorts. I thank 

you for coming today. Mr. McDevitt, let me start with you. You’ve 

mentioned some of the long-term reforms that you feel are essential. I guess I’m wondering whether in your company’s case—and 

you’re such a big company, it makes a difference—whether you’ve 

already made the decision, whether, you know, any reforms will be 

beside the point, that you’ve made the decision to pull out of the 

57

multi—of the plan. Do you maintain a commitment over the long 

term if certain reforms are made? I guess is really the question. 

Mr. MCDEVITT. Yes. We have not made any commitment to that 

degree, Congressman. I was referring to the Central States earlier. 

We think that there are some structural flaws in the Central 

States, but they are not limited to the Central States. 

We have agreement with folks on both sides that reform is in 

fact needed, and needed desperately, for the Central States Fund. 

The actuaries have told us that they need returns of better than 

80 percent for several years to get back on solid funding. 

Now I might add, there’s another plan out there, so it’s not just 

to the Central States plan. We have a New England pension plan 

as well. And the fact of the matter is, the New England pension 

plan is in as bad as, if not worse, shape than the Central States 

plan. And we can throw around these percentage funding, what it 

is, what it isn’t, whether it’s including all vested benefits, whether 

it’s taking into consideration the people who have termed in there, 

which means they’ve accrued some sort of a benefit but they have 

not begun to draw on it yet, when we look at that, that plan currently is right at 61 percent funded. 

I just saw these numbers right here, these numbers that came 

from the GAO showing Central States at 54 is worse than what we 

had seen before. So, obviously, the transparency issue we spoke to 

earlier, we need to look at these very closely, because we had Central States in the ballpark of 61 to 62 percent. 

It’s problems like that that I think we have to address, and I believe that if we do not leave with some long-term reform, there are 

a lot of employees, our employees and the employees of man other 

companies, who are going to pay the burden. And we just do not 

think that is fair. 

Mr. HOLT. And if those are addressed, then you have a commitment to stay with the system? 

Mr. MCDEVITT. We have made a commitment to look at any and 

all options to fix these plans, absolutely. 

Mr. HOLT. OK. Thanks. In the—Ms. Bovbjerg, please—some proposals that are floating around call for a portion of the unfunded 

liabilities to each employer, in other words, turning a contingent 

withdrawal liability into an actual liability, or eliminating the 

withdrawal liability. Would eliminating the withdrawal liability 

rule change the entire concept of the multiemployer plans? 

Wouldn’t that be the undoing of the very nature of these plans? 

Ms. BOVBJERG. It would certainly alter the way that the plans 

work now. The Act of 1980 that Chairman Johnson referred to initially was the legislation that set up the multiemployer program at 

PBGC, the insurance program, and also the withdrawal liability. 

If an employer withdraws and is not required to compensate the 

plan for their share of an unfunded liability, then who will bear 

that? Is it left for the other employers? Is it left for participants 

to bear that, you know, in benefit cuts? Is it pushed over to the 

PBGC, which I did want to remove a misconception there might be 

about this insurance program. 

This is not like the single employer insurance program. This is 

a much smaller commitment on PBGC’s part. You see it in the difference in the premiums that are charged. Nineteen dollars per 

58

participant for the single employer plan plus a variable premium 

for unfunded liability. With multis, it’s $2.60 per participant. And 

a reason for that difference is the difference in the guaranty, the 

difference in the commitment. 

The way that these plans are structured certainly puts much less 

risk on the government’s insurance program. So you would certainly, if you were to think about removing withdrawal liability, 

you would have to think about what the impact could be on all 

these other players, and most particularly the PBGC. 

Mr. HOLT. OK. Thank you, Mr. Chairman, and thank you. 

Chairman JOHNSON. Thank you. Mr. Wu, do you care to comment? 

[No response.] 

Chairman JOHNSON. Thank you very much. Let me ask a quick 

question before we close, for Mr. McDevitt. I, you know, I appreciate your comments, but I wonder if you think it’s prudent to provide all multiemployer plans with funding relief even though there 

is just a limited amount of financial data available for any comprehensive assessment of actual funding status, and why would 

you want relief without proof of that data? 

Mr. MCDEVITT. Mr. Chairman, I think that relief, if it is coupled 

with other structural changes that can basically provide us with an 

opportunity of working toward long-term reform, could be beneficial. Certainly the plans, it would be upon their own discretion 

whether or not they elect to take upon that relief. But we are clearly, the short-term relief is not the answer; it is the long term. And 

certainly the short-term relief can come in various types and levels, 

and we think that if it’s tied to some good levels as far as providing 

the opportunity to get long-term, we do see value in that. 

Chairman JOHNSON. OK. Thank you. Ms. Bovbjerg, could you tell 

me what types—you know, we talked about the information that 

you were trying to make more inclusive, and I wonder if you could 

tell us specifically what you might want and which government 

agency is going to be the one to collect the information from the 

people out there? 

Ms. BOVBJERG. The funding information. We do get funding information in the Department of Labor in the 5500’s. It’s very slow. 

It takes a very long time. So we only have funding information 

through 2001 right now. You can get it on individual plans, but it 

lags tremendously. One of the things that we are thinking about 

now at GAO is what are the things that could be done to ensure 

that this information is made available more quickly and it comes 

in more timely, because if you’re trying to make policy in response 

to recent events, that information isn’t going to be current enough 

to really help you. 

Chairman JOHNSON. OK. 

Ms. BOVBJERG. So we’re looking at that. 

Chairman JOHNSON. OK. With Labor? You’re working with Labor 

on that? 

Ms. BOVBJERG. Pardon me? 

Chairman JOHNSON. Are you working with the Department of 

Labor on that? 

59

Ms. BOVBJERG. We have just initiated a look at it on our own. 

We’d be happy to do it for you, Mr. Chairman, if that would meet 

your needs. 

Chairman JOHNSON. Yeah. Well, maybe we just need to talk to 

them and see how we can fix the system so it’s more responsive. 

A couple of years behind is not the answer, I agree. 

Ms. McCollum, do you care to comment? 

Ms. MCCOLLUM. Thank you, Mr. Chair. Mr. Chair, I have some 

questions that deal with UPS. And what I would like to do is I 

probably can’t get to all of them, but I’d like to start out with one 

if I may, Mr. Chair. 

Chairman JOHNSON. Well, do you want to submit them for the 

record? And I’m sure they’d be willing to answer us. 

Ms. MCCOLLUM. I want to submit them for the record, but I 

would like to start off with one. I’m trying to understand some of 

the issues around UPS. Now it’s my understanding when pensions 

were first provided through multiemployer funds, that its employees were given permission to have pension credits for the years 

that they had worked for the companies prior to becoming participants in the fund. Is that correct? 

Mr. MCDEVITT. I believe you’re referring to they do accrue time 

in each fund. Yes, Congresswoman. 

Ms. MCCOLLUM. OK. And did UPS not have to pay the full cost 

to the fund? 

Mr. MCDEVITT. No. 

Ms. MCCOLLUM. No? 

Mr. MCDEVITT. That is incorrect. 

Ms. MCCOLLUM. Was it able to provide employees with instant 

retirement benefits that had not been previously paid for? 

Mr. MCDEVITT. Instant retirement benefits? Past service credits? 

Ms. MCCOLLUM. Mm-hmm. 

Mr. MCDEVITT. I don’t quite honestly know. I’d have to get back 

to you on it. 

Ms. MCCOLLUM. So, Mr. Chair, I think what I need to do is I 

need to submit these questions for the record. And with that caveat, Mr. Chair, I have submitted other questions on the record to 

get responses back and gosh darn it, I don’t seem to be getting 

much mail coming back in my mailbox. So, Mr. Chair, what is the 

timeframe in which I should expect? 

Chairman JOHNSON. I would bet that if we submit questions to 

you, you’d be willing to respond to us, would you not? 

Mr. MCDEVITT. Yes sir, Mr. Chairman. Absolutely. 

Chairman JOHNSON. Thank you. 

Ms. MCCOLLUM. So, you know, 2 weeks, a month, I should expect 

a letter in the mail? 

Chairman JOHNSON. Well, I don’t know. If we go back to the 

Labor Department it might be three or 4 years. 

[Laughter.] 

Chairman JOHNSON. I think UPS can respond faster than that. 

Would you agree to do that? 

Mr. ANDREWS. Will you give her a tracking number for her letter? 

[Laughter.] 

Mr. MCDEVITT. Absolutely. 

60

Ms. MCCOLLUM. Then it’s a done deal, because I know that 

tracking works great. 

Chairman JOHNSON. Thank you very much. I want to thank the 

witnesses for your valuable time and testimony, and the Members 

for your participation. If there’s no further business, the Subcommittee stands adjourned. 

[Whereupon, at 11:53 a.m., the Subcommittee was adjourned.] 

[Additional material supplied for the record follows:]

Questions Submitted for the Record from Hon. Betty McCollum to John 

McDevitt 

Questions for Mr. John McDevitt 

Senior Vice President 

United Parcel Service 

Washington, DC

1a. When UPS first provided pension coverage through multi-employer pension 

funds, were its employees given pension credits for years they had worked for the 

company prior to becoming participants in the fund? Was UPS able to do this without having to pay the full cost to the funds, thus providing its employees with an 

instant retirement benefit that it had not previously paid for?

1b. Were other employers bearing the burden of supporting those early UPS retirees?

2a. UPS established a Thrift Plan for its employees. Was this plan a multiemployer 

plan, and if not, were there any union trustees involved?

2b. Did UPS make all of the investment decisions for this plan?

2c. Did the Thrift Plan that UPS established for its employees lose money during 

the 1999–2002 period? Did UPS discontinue the Thrift Plan rather than continue 

to make contributions to subsidize the rate of return that was promised to employees who participated?

BETTY MCCOLLUM

4TH DISTRICT, MINNESOTA

Response of John McDevitt to Questions Submitted for the Record from 

Hon. Betty McCollum 

Stacey Dion 

Professional Staff Member 

Committee on Education and the Workforce 

U.S. House of Representatives 

2181 Rayburn House Office Building 

Washington, DC 20515–6100

Dear Stacey,

On behalf of UPS, I would like to thank the Committee for the opportunity to testify at the hearing on ‘‘Reforming and Strengthening Defined Benefit Plans: Examining the Health of the Multiemployer Pension System.’’ We appreciate the Committee’s ongoing work on this very important issue.

Listed below are the answers to the questions the Committee submitted to me on 

April 21st.

Answer 1: UPS employees did not become participants in the multiemployer plans 

at one single point in time; rather, as UPS acquired operating rights in the various 

states and expanded its operations eastward, the company recognized the Teamsters 

as the bargaining representative of the employees, and ultimately in the course of 

negotiations, the employees became covered by multiemployer plans. UPS does not 

have any active employees or any records that would indicate whether these funds 

gave new UPS participants service credit for years that they were not covered by 

these plans, as the transition to these plans took place between 30 and 50 years 

ago. 

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Today, there is no question but that UPS’ contributions to the multiemployer pension plans are subsidizing participants from other contributing employers and from 

participants whose companies have long since gone out of business. The Central 

States Pension Fund provides a representative example of this subsidization. In 

2003, UPS had over 41,000 active employees in the plan and only 6,300 retirees, 

a stark contrast to the non–UPS portion of the plan (136,000 actives and 195,000 

retirees). In 2003, UPS contributed $350 million to the Central States Pension Fund 

while the fund paid only $161 million in benefits to retired UPSers.

Answer 2: The UPS Thrift Plan was a voluntary single employer plan that began 

in 1961. All aspects of the plan were determined by four UPS trustees. The fund 

included management, non-management, and bargaining unit employees. From 

1999–2002, the fund had an annual average rate of return of 17.4%. The Thrift Plan 

did not contain any promised rate of return.

If I can be of further assistance to you or the Committee, please do not hesitate 

to contact me.

Sincerely,

John McDevitt 

Senior Vice President 

United Parcel Service

Æ