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CHALLENGES FACING MULTIEMPLOYER PENSION 

PLANS: EVALUATING PBGC’S INSURANCE 

PROGRAM AND FINANCIAL OUTLOOK 

HEARING 

BEFORE THE

SUBCOMMITTEE ON HEALTH, 

EMPLOYMENT, LABOR AND PENSIONS 

COMMITTEE ON EDUCATION 

AND THE WORKFORCE 

U.S. HOUSE OF REPRESENTATIVES

ONE HUNDRED TWELFTH CONGRESS 

SECOND SESSION 

HEARING HELD IN WASHINGTON, DC, DECEMBER 19, 2012 

Serial No. 112–70 

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

( 

Available via the World Wide Web: 

www.gpo.gov/fdsys/browse/committee.action?chamber=house&committee=education 

or 

Committee address: http://edworkforce.house.gov 
(II) 

COMMITTEE ON EDUCATION AND THE WORKFORCE 

JOHN KLINE, Minnesota, Chairman 

Thomas E. Petri, Wisconsin 

Howard P. ‘‘Buck’’ McKeon, California 

Judy Biggert, Illinois 

Todd Russell Platts, Pennsylvania 

Joe Wilson, South Carolina 

Virginia Foxx, North Carolina 

Bob Goodlatte, Virginia 

Duncan Hunter, California 

David P. Roe, Tennessee 

Glenn Thompson, Pennsylvania 

Tim Walberg, Michigan 

Scott DesJarlais, Tennessee 

Richard L. Hanna, New York 

Todd Rokita, Indiana 

Larry Bucshon, Indiana 

Trey Gowdy, South Carolina 

Lou Barletta, Pennsylvania 

Kristi L. Noem, South Dakota 

Martha Roby, Alabama 

Joseph J. Heck, Nevada 

Dennis A. Ross, Florida 

Mike Kelly, Pennsylvania 

George Miller, California, 

Senior Democratic Member 

Dale E. Kildee, Michigan 

Robert E. Andrews, New Jersey 

Robert C. ‘‘Bobby’’ Scott, Virginia 

Lynn C. Woolsey, California 

Rube ́n Hinojosa, Texas 

Carolyn McCarthy, New York 

John F. Tierney, Massachusetts 

Dennis J. Kucinich, Ohio 

Rush D. Holt, New Jersey 

Susan A. Davis, California 

Rau ́l M. Grijalva, Arizona 

Timothy H. Bishop, New York 

David Loebsack, Iowa 

Mazie K. Hirono, Hawaii 

Jason Altmire, Pennsylvania 

Marcia L. Fudge, Ohio 

Barrett Karr, Staff Director 

Jody Calemine, Minority Staff Director 

SUBCOMMITTEE ON HEALTH, EMPLOYMENT, LABOR AND PENSIONS 

DAVID P. ROE, Tennessee, Chairman 

Joe Wilson, South Carolina 

Glenn Thompson, Pennsylvania 

Tim Walberg, Michigan 

Scott DesJarlais, Tennessee 

Richard L. Hanna, New York 

Todd Rokita, Indiana 

Larry Bucshon, Indiana 

Lou Barletta, Pennsylvania 

Kristi L. Noem, South Dakota 

Martha Roby, Alabama 

Joseph J. Heck, Nevada 

Dennis A. Ross, Florida 

Robert E. Andrews, New Jersey 

Ranking Member 

Dennis J. Kucinich, Ohio 

David Loebsack, Iowa 

Dale E. Kildee, Michigan 

Rube ́n Hinojosa, Texas 

Carolyn McCarthy, New York 

John F. Tierney, Massachusetts 

Rush D. Holt, New Jersey 

Robert C. ‘‘Bobby’’ Scott, Virginia 

Jason Altmire, Pennsylvania 
(III) 

C O N T E N T S 

Page 

Hearing held on December 19, 2012 ...................................................................... 1 

Statement of Members: 

Andrews, Hon. Robert E., ranking member, Subcommittee on Health, 

Employment, Labor and Pensions ............................................................... 4 

Roe, Hon. David P., Chairman, Subcommittee on Health, Employment, 

Labor and Pensions ...................................................................................... 1 

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

Statement of Witnesses: 

Gotbaum, Hon. Joshua, Director, Pension Benefit Guaranty Corporation .. 6 

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

Additional Submissions: 

Mr. Gotbaum: 

Addendum, ‘‘Pension Benefit Guaranty Corporation Annual Report 

2012,’’ Internet address to ..................................................................... 15 

Response to questions submitted for the record ..................................... 33 

Questions submitted for the record from: 

Kline, Hon. John, Chairman, Committee on Education and the Workforce ......................................................................................................... 32 

Chairman Roe ............................................................................................ 32 

Scott, Hon. Robert C. ‘‘Bobby,’’ a Representative in Congress from 

the State of Virginia .............................................................................. 33 

Tierney, Hon. John F., a Representative in Congress from the State 

of Massachusetts .................................................................................... 32 

(1) 

CHALLENGES FACING MULTIEMPLOYER 

PENSION PLANS: EVALUATING 

PBGC’S INSURANCE PROGRAM 

AND FINANCIAL OUTLOOK 

Wednesday, December 19, 2012 

U.S. House of Representatives 

Subcommittee on Health, Employment, Labor and Pensions 

Committee on Education and the Workforce 

Washington, DC 

The subcommittee met, pursuant to call, at 10:03 a.m., in room 

2175, Rayburn House Office Building, Hon. Phil Roe [chairman of 

the subcommittee] presiding. 

Present: Representatives Roe, Wilson, Thompson, Walberg, 

DesJarlais, Hanna, Rokita, Bucshon, Barletta, Noem, Roby, Andrews, Kucinich, Hinojosa, Tierney, Holt, and Scott. 

Also Present: Representatives Kline and Miller of California. 

Staff Present: Andrew Banducci, Professional Staff Member; 

Katherine Bathgate, Deputy Press Secretary; Adam Bennot, Press 

Assistant; Casey Buboltz, Coalitions and Member Services Coordinator; Ed Gilroy, Director of Workforce Policy; Benjamin Hoog, 

Legislative Assistant; Marvin Kaplan, Workforce Policy Counsel; 

Barrett Karr, Staff Director; Brian Newell, Deputy Communications Director; Molly McLaughlin Salmi, Deputy Director of Workforce Policy; Todd Spangler, Senior Health Policy Advisor; Alissa 

Strawcutter, Deputy Clerk; Aaron Albright, Minority Communications Director for Labor; Tylease Alli, Minority Clerk; John D’Elia, 

Minority Staff Assistant; Daniel Foster, Minority Fellow, Labor; 

Brian Levin, Minority New Media Press Assistant; Megan O’Reilly, 

Minority General Counsel; Julie Peller, Minority Deputy Staff Director; and Michele Varnhagen, Minority Chief Policy Advisor/ 

Labor Policy Director. 

Chairman ROE. A quorum being present, the Subcommittee on 

Health, Employment, Labor, and Pensions will come to order. 

Good morning, Director Gotbaum. And it is good to see you 

again. We appreciate your taking your time to be with us this 

morning. 

Before we begin, I would like to take a moment to extend my 

condolences to the people of Newtown, Connecticut. Last week, an 

unspeakable act of evil killed 20 innocent children and six amazing 

adults, changing our country and the community around Sandy 
2 

Hook Elementary School forever. As a Nation, we continue to stand 

by the people of Newtown and lift them up in our prayers. 

And I now yield to my friend Congressman Andrews for any comments he may have. 

Mr. ANDREWS. Good morning, Chairman. Thank you for beginning our gathering with the appropriate memorial to those who 

suffered such a loss in Connecticut and across the country. 

This is the Committee on Education and Labor. And the idea 

that such an act of pure unadulterated evil could take place in a 

school in this country is not something we can easily process. Suffice it to say that there is unanimous feeling, I know, on this committee that our hearts and prayers go out to all those afflicted by 

this unspeakable loss. 

There is a higher purpose in life than politics. It is loving our 

children. And extending that love to those who suffered from this 

is something I certainly will join you in with a heavy heart but 

with a strong conviction. 

Chairman ROE. On behalf of the committee, I ask that we honor 

memories of those who died by observing a moment of silence while 

we please stand. 

You may be seated. Thank you for that privilege. 

And now let’s turn to the issue before the subcommittee this 

morning. Today’s hearing is our second opportunity in recent 

months to examine the multiemployer pension system. In June, we 

discussed broadly the politics governing the system and its structural challenges. Since that hearing, news reports have reminded 

us of the problems plaguing many pension plans and the need for 

reforms that will help promote a stronger system. Hostess Brands, 

an iconic American company for more than 80 years, decided in November to close its doors and lay off 18,500 workers. Hostess participates in 42 multiemployer pension plans, and its total withdrawal liability, the penalty a company pays when exiting a plan, 

could exceed $2 billion. Yet it is uncertain whether that money will 

be collected in bankruptcy. Those employers who remain in the 

plans will have to provide Hostess employees the retirement benefits they earned. 

Regrettably, the Hostess story is one that is becoming all too 

common in the multiemployer pension system. An employer withdraws from a pension plan leaving behind unfunded promises that 

then fall to the remaining employers. At times, this can drive even 

more employers out of the system, creating a domino effect that undermines the strength of the individual plan and the pension system as a whole. 

These events have a profound effect on workers, and they also 

impact the Pension Benefit Guaranty Corporation. The Federal 

agency provides financial assistance to multiemployer pension 

plans in distress, a responsibility that has grown significantly in 

recent years. According to its annual report, PBGC has obligations 

of $7 billion in future financial assistance and a 57 percent increase since 2011. The agency believes there is a 30 percent chance 

its multiemployer insurance program will be insolvent in less than 

20 years. Meanwhile, its total deficit continues to grow and now 

stands at $34.4 billion. 
3 

Maintaining the status quo is no longer possible. Provisions in 

the law governing multiemployer pensions will expire in 2 years, 

which means Congress has an important opportunity to study the 

system, assess its strengths and weaknesses, and pursue solutions 

that support workers without discouraging participation in the voluntary pension system. 

To do this successfully, we need the facts as quickly as possible. 

Unfortunately, the administration has a history of delaying the 

facts and slowing the work of this committee. For example, it took 

nearly 9 months to get answers to questions submitted by members 

of the committee, both Republican and Democrat, after our hearing 

with Director Gotbaum in February. Only now are we able to complete the hearing record. 

I am also troubled by two missing reports that were due last 

year. These reports should provide important details on multiemployer pensions, including the sufficiency of current premium levels 

and the impact of funding rules on small employers. The law requires the PBGC to finish these reports by the end of last year and 

yet we are still waiting. We are now told to expect the reports by 

the end of this year. 

Congress is ultimately responsible for legislating changes that 

will improve the long-term health and stability of the multiemployer pension system. We cannot do our work if the administration fails to do its job in a timely manner. Blaming changes to the 

law enacted 6 months after the reports were due is not an acceptable excuse. 

The success of the multiemployer pension system depends upon 

many factors, such as a strong economy, practical promises, and a 

diverse group of participating employers. It also requires policymakers working together on reforms that serve the interests of 

workers, employers, and retirees. Director Gotbaum, you play a 

vital role in that effort. I hope you will help us get the answers we 

need without unnecessary delay. And thank you for your service. 

And we look forward to working with you. 

I now recognize my distinguished colleague, Rob Andrews, the 

senior Democratic member of the subcommittee, for his remarks. 

[The statement of Chairman Roe follows:] 

Prepared Statement of Hon. David P. Roe, Chairman, 

Subcommittee on Health, Employment, Labor and Pensions 

Good morning. Director Gotbaum, it is good to see you. We appreciate you taking 

time to be with us this morning. 

Before we begin, I would like to take a moment to extend my condolences to the 

people of Newtown, Connecticut. Last week, an unspeakable act of evil killed 20 innocent children and six incredible adults, changing our country and the community 

around Sandy Hook Elementary School forever. As a nation, we continue to stand 

by the people of Newtown and lift them up in our prayers. I ask that we honor the 

memories of those who died by a observing a moment of silence. 

[Moment of silence.] 

Thank you. 

Now, let us turn to the issue before the subcommittee this morning. 

Today’s hearing is our second opportunity in recent months to examine the multiemployer pension system. In June, we discussed broadly the policies governing the 

system and its structural challenges. Since that hearing, news reports have reminded us of the problems plaguing many pension plans and the need for reforms 

that will help promote a stronger system. 

Hostess Brands, an iconic American company for more than 80 years, decided in 

November to close its doors and lay off 18,500 workers. Hostess participates in 42 
4 

multiemployer pension plans and its total withdrawal liability—the penalty a company pays when exiting a plan—could exceed $2 billion. Yet it is uncertain whether 

that money will be collected in bankruptcy. Those employers who remain in the 

plans will have to provide Hostess employees the retirement benefits they earned. 

Regretably, the Hostess story is one that is becoming all too common in the multiemployer pension system. An employer withdraws from a pension plan, leaving behind unfunded promises that then fall to the remaining employers. At times, this 

can drive even more employers out of the system, creating a domino effect that undermines the strength of the individual plan and the pension system as a whole. 

These events have a profound effect on workers, and they also impact the Pension 

Benefit Guaranty Corporation. The federal agency provides financial assistance to 

multiemployer pension plans in distress, a responsibility that has grown significantly in recent years. According to its annual report, PBGC has obligations of $7 billion in future financial assistance—a 57 percent increase since 2011. The agency believes there is a 30 

percent chance its multiemployer insurance program will be insolvent in less than 

20 years. Meanwhile, its total deficit continues to grow and now stands at $34.4 billion. 

Maintaining the status quo is no longer possible. Provisions in the law governing 

multiemployer pensions will expire in two years, which means Congress has an important opportunity to study the system, assess its strengths and weaknesses, and 

pursue solutions that support workers without discouraging participation in the voluntary pension system. 

To do this successfully, we need the facts as quickly as possible. Unfortunately, 

the administration has a history of delaying the facts and slowing the work of this 

committee. For example, it took nearly nine months to get answers to questions submitted by members of the committee—both Republican and Democrat—after our 

hearing with Director Gotbaum in February. Only now are we able to complete the 

hearing record. 

I am also troubled by two missing reports that were due last year. These reports 

should provide important details on multiemployer pensions, including the sufficiency of current premium levels and the impact of funding rules on small employers. The law requires PBGC to finish these reports by the end of last year and yet 

we are still waiting. We are now told to expect the reports by the end of this year. 

Congress is ultimately responsible for legislative changes that will improve the 

long-term health and stability of the multiemployer pension system. We cannot do 

our work if the administration fails to do its job in a timely manner. Blaming 

changes to the law enacted six months after the reports were due is not an acceptable excuse. 

The success of the multiemployer pension system depends upon many factors, 

such as a strong economy, practical promises, and a diverse group of participating 

employers. It also requires policymakers working together on reforms that serve the 

interests of workers, employers, and retirees. 

Director Gotbaum, you play a vital role in that effort. I hope you will help us get 

the answers we need without unnecessary delay. Thank you for your service and 

we look forward to working with you. 

Mr. ANDREWS. Thank you, Mr. Chairman. And good morning 

again. 

Mr. Gotbaum, thank you for being with us this morning and for 

your service to our country. You are running a very important 

agency, and I know you are very dedicated to that task. It is good 

that you are here this morning to answer the committee’s questions. 

Ten million Americans benefit from a system that has served 

this country for many decades very well. And it is a system where 

pensions and other benefits are provided, where small business 

people, contractors, trucking companies, markets, supermarkets, 

and others get together and pool their resources and share costs in 

order to provide pensions and other employee benefits. This is what 

is known, as the chairman said, as the multiemployer system. 

The multiemployer system in all cases involves a collective bargaining agreement that sets the terms and conditions of the bene-
5 

fits that will be given. The system has worked extraordinarily well 

and it is the system that 10 million Americans rely upon for their 

pension. It is essentially and fundamentally sound, but there are 

some significant problems that we must deal with in order to assure its soundness. 

The graphs that are to my right tell the story of the last few 

years in this situation. Prior to the financial downturn of the first 

decade of the new century, by and large, multiemployer pension 

plans were exceedingly healthy. We then had the downturn of 

2001, followed by the market crash of 2008 and 2009. And if you 

look at the chart that is to my right, we are in a situation where 

only 32 percent of multiemployer plans were in the healthiest category in 2009. That number has now grown to 60 percent. So improvement in the economy and several steps taken by this committee—at that time under the leadership of our present Speaker 

John Boehner—helped us to give plan trustees the tools to improve 

the situation. 

Having said that, the disturbing element of that graph is the red 

category at the bottom which indicates that roughly a quarter of 

plans are in some significant financial distress. This distress flows 

from a variety of causes. Typically, the cause is that the employers—the trucking companies, the supermarket owners, the construction contractors—are in very difficult segments of our economy. You talk to any electrical contractor, air conditioning contractor, trucking company, they will tell you they have had very 

difficult times over the last 5 or 6 years. So that manifests itself 

in less money coming into the business, fewer workers paying into 

the fund. 

The second problem we can all see in our own 401(k) accounts, 

or thrift accounts in the case of Federal employees, that as market 

values have tumbled, so have our retirement accounts. So the investments in many of these funds have not kept pace with the 

needs of employees. 

And then the third is a sort of demographic tidal wave that I 

have to take some responsibility for. I was born in 1957, so I am 

part of the baby boom generation. And as baby boomers begin to 

retire and relatively fewer workers are in place to pay into funds, 

you have more people drawing out and fewer people paying in, 

which is a problem we see in Medicare and Social Security, in single-employer plans, and certain of these plans as well. 

So the task that is before the committee is to think about ways 

that properly balance the health of the small businesses that make 

up these plans so they can continue to thrive and prosper, fairness 

to present retirees, and a system that protects taxpayers to the 

maximum extent so that the promises made by the Pension Benefit 

Guaranty Corporation that Mr. Gotbaum leads would never have 

to step in and reach into the Federal Treasury in order to help 

these plans, should that occur. Now I would hesitate to point out, 

there is no explicit guarantee from Federal taxpayers for these 

plans. But the last 5 years have certainly showed us that moral 

hazard exists, and taxpayers are very often called upon to make 

good for promises they never explicitly made. 

Our goal as a subcommittee, which the chairman has pursued 

very diligently for the last year, is to make sure that the day never 
6 

occurs when we are in a situation where the 10 million people who 

are in these pension plans would ever require any consideration of 

a taxpayer step in to help make that problem happen. So I am encouraged, Mr. Chairman, that this is the second hearing that we 

have had to delve into this issue. And I look forward to working 

with you in the new year to find constructive solutions so that we 

can ensure the continued vitality of the businesses that pay into 

these funds, the continued security of the 10 million Americans 

who rely on these funds. And I yield back. 

Chairman ROE. I thank the gentleman for yielding. 

Pursuant to committee rule 7(c), all members will be permitted 

to submit written statements to be included in the permanent 

hearing record. And without objection, the hearing record will remain open for 14 days to allow such statements and other extraneous material referenced during the hearing to be submitted for 

the official hearing record. 

It is now my pleasure to introduce Joshua Gotbaum, who is the 

director of the Pension Benefit Guaranty Corporation, where he 

has served since 2010. As director, he is responsible for the agency’s management, personnel, organization, budget, and investments. Mr. Gotbaum holds degrees from Stanford, Harvard Law 

School, and from Harvard’s Kennedy School of Government. 

And I understand, Mr. Gotbaum, that you have some family 

members here, and would appreciate you introducing your guests, 

if you would. 

Mr. GOTBAUM. Thank you, Dr. Roe. I am accompanied this morning, in addition to by the very competent staff of the Pension Benefit Guaranty Corporation, by my mother-in-law, Carol Lougheed, 

who I will say, to evidence the bipartisanship with which I think 

pensions should be done, is a Republican. 

Mr. ANDREWS. Mr. Chairman, if I might, it is not necessary to 

swear in this witness because no one would fail to tell the truth 

in front of—— 

Mr. GOTBAUM. Their mother-in-law. Yes. And also my son Adam. 

Chairman ROE. Thank you for introducing your guests. 

Before recognize you to provide your testimony, let me briefly explain our lighting system. You have 5 minutes to present your testimony. When you begin, the light in front of you will turn green. 

When 1 minute is left, the light will turn yellow. And when your 

time has expired, the light will turn red, at which point I will ask 

you to wrap up your remarks as best able. After you have testified, 

members will each have 5 minutes for questions. Now appreciate 

your testimony. 

STATEMENT OF JOSHUA GOTBAUM, DIRECTOR, 

PENSION BENEFIT GUARANTY CORPORATION 

Mr. GOTBAUM. Dr. Roe, Mr. Andrews, Mr. Chairman, members 

of the subcommittee, thank you very much. Thank you very much 

for holding your prior hearing. Thank you very much for holding 

this hearing. With your permission, I will summarize the main 

points. 

I want to start with something which is basic, which is that multiemployer plans are important. I come from the business community. Employee benefit plans are complicated. And one of the real 
7 

benefits of multiemployer plans is they permit several hundred 

thousand businesses—mostly small businesses—in many different 

industries to provide retirement security without needing a big 

H.R. department, just by writing a check. That is a huge benefit. 

In addition, as Mr. Andrews noted, for more than 10 million people and their families, multiemployer plans give them a pension 

that is portable, that they can take with them from job to job, that 

doesn’t require them to become an investment expert or an actuary, and that gives them an income they can depend on for the rest 

of their lives without worrying that they or their spouse might outlive the money in their 401(k). And as you can see from the map 

to your right and my left, multiemployer plans cover businesses 

and people in every State in the Union and, I daresay, virtually 

every congressional district. 

Like single-employer plans, the last decade was tough for multiemployer plans. Their investments shrank, but their commitments 

did not. So their contributions necessarily rose at a time when the 

businesses had less work and less ability to pay them. Six years 

ago, a bipartisan coalition in Congress, with the support of the 

business and labor community, passed the Pension Protection Act. 

That was an important piece of legislation. It recognized that not 

all multiemployer plans were alike, some plans are healthier than 

others, that different plans have different needs, that they need 

flexibility. Two years ago, a similar bipartisan coalition passed the 

Pension Relief Act, recognizing, again, that multiemployer plans, as 

well as single-employer plans, needed greater funding flexibility. 

So where are we today? After all the events of the past decade, 

the financial health of these plans varies widely. As you can see 

from the status graph, there is a wide range of financial conditions. 

Two years ago, about a third of all the participants were in plans 

that reported—a third of 10 million people—were in plans that reported they were in green status. Today about 60 percent do. Excuse me, that is not true. In the information we got, you know, a 

few months ago, as at the beginning of 2011, 60 percent do. So we 

think that is good news. What that means is that a majority of the 

participants are in plans that are recovering. They are recovering 

for a whole variety of reasons: In part because of their markets, in 

part because they were conservative, in part because they used the 

authorities that the Congress gave them under the Pension Protection Act, in part because of funding relief, and, let’s be honest, in 

part because of luck. 

However, a minority of plans, maybe a couple of hundred, lack 

the necessary economic base. As you can see there, that is a smaller set of the population. It is not most plans. It is the minority of 

plans. But it is a significant number of plans. They lack the economic base. They have fewer active employees and contributing 

employers. And those that they do have may be unwilling or unable 

to cover the costs of retirees, particularly the orphan retirees of 

other companies that no longer contribute to the plan. 

Without changes, some of these plans will not be able to avoid 

insolvency. The reason I personally am encouraged, as in the past, 

multiemployer plans, their trustees, their employers, their unions, 

their professionals, and others are stepping forward, looking for solutions that everyone can endorse. They are changes to allow flexi-
8 

1 As the Committee knows, PBGC and the Board agencies are working to complete reports 

on both multiemployer plans and on PBGC’s multiemployer program. As we explained in a letter 

to the Committee on this topic, we have not yet completed the reports in part to be able to 

present more current information than would otherwise have been available, in part to incorporate recent legislative changes, and for other reasons. We expect to complete the reports very 

soon. We regret the delay. 

bility, changes to allow distressed plans more robust tools. One effort worth noting is the retirement commission sponsored by the 

National Coordinating Committee on Multiemployer Plans. We 

have not seen the result of their work. They have been very insistent that they keep government out. But they say they will come 

forward, and we look forward to hearing their results and commenting on and analyzing it. 

We think that is the right step, that what the Congress has always done is, working consensually with the many businesses, 

small businesses, and the unions that make up multiemployer 

plans, to figure out what works. And so we think the right step is 

to hear from the industry itself and then to respond and work with 

it. 

At the same time, PBGC’s multiemployer insurance program also 

needs a fresh look. This is a program which has not been substantially modified in 30 years. PBGC does not have the same tools for 

multiemployer plans that it has for single-employer plans. PBGC 

pays lower benefits for multiemployer plans than it does for singleemployer plans. And PBGC gets much lower premiums from multiemployer plans than it does from single-employer plans. As a result, unless there are significant changes, both for plans and in 

PBGC’s programs and finances, the agency will eventually end up 

without the tools and resources to help the plans improve and 

without the resources to continuing to pay benefits for those plans 

that do fail. 

I am, as one who spends his life working on fixing businesses, 

an optimist. The next 2 years provides an opportunity, an opportunity for multiemployer plans, their participants, their professionals, their businesses, and their unions to work together with 

the Congress and the administration to develop approaches that 

are flexible, practical, and facilitate self-help. And that is why we 

are enormously grateful for the committee’s continuing interest. I 

look forward to hearing your comments, to answering your questions, to finally providing the reports that we have owed you for a 

year, for which I regret, and to working with you to preserve what 

is a really important form of retirement security for tens of millions 

of Americans. 

Chairman ROE. I thank you for your testimony. 

[The statement of Mr. Gotbaum follows:] 

Prepared Statement of Hon. Joshua Gotbaum, Director, 

Pension Benefit Guaranty Corporation 

Thank you for holding this hearing on multiemployer plans and on PBGC’s efforts 

to support them.1

Multiemployer plans are an important part of retirement security. They affect 

hundreds of thousands of businesses and more than ten million participants and 

their families. Unlike some other retirement or savings plans, multiemployer defined benefit plans offer lifetime retirement income. 

Multiemployer plans offer employers, especially small businesses, the opportunity 

to provide retirement benefits to their workers. They are an affordable way for busi-
9 

2There are also about 110 terminated plans. These continue to pay benefits until assets are 

depleted, at which point PBGC funds benefits and administrative costs. 3 Based on Form 5500 filings. 

nesses to provide a defined benefit pension without the administrative expenses and 

burdens of sponsoring a separate company retirement plan. 

There are about 1,340 ongoing multiemployer plans.2 They are not all alike. They 

cover a variety of industries, including construction, retail food, transportation, 

manufacturing, and services (e.g., hotel and restaurant industry). They vary in size 

from small local plans covering a few hundred participants to large regional or national plans covering hundreds of thousands. 

Together these plans held nearly $400 billion in assets at the end of 2010, making 

them an important factor in the U.S. economy and Americans’ retirement security.3

Like single-employer plans, multiemployer plans were strongly affected by recent 

declines in the economy and the investment markets. Virtually all of these plans 

suffered massive asset losses, causing underfunding to soar and compelling increased contributions at a time of economic contraction. 

After all the events of the past decade, the financial health of these plans varies 

widely. The majority are recovering, in part by relying on the tools and authorities 

provided to plans under the Pension Protection Act of 2006 (PPA) and subsequent 

legislation, as the economy and the financial markets improve. Some plans, however, lack the necessary economic base and will not, absent changes, be able to avoid 

eventual insolvency. 

As a result, PBGC’s multiemployer insurance program will need a fresh look. Although the timing is uncertain, currently PBGC is at risk of having neither sufficient tools to help multiemployer plans deal with their problems nor the funds to 

continue to pay benefits beyond the next decade under the multiemployer insurance 

program. 

In the past, multiemployer plans, the Congress, administrations of both parties, 

and others have worked together to preserve multiemployer plans, so they continue 

providing retirement security to more than 10 million participants and their families. We understand that multiemployer plan trustees, employers, unions, and others have been discussing potential solutions and expect to make proposals to the 

Congress and the Administration sometime next year. PBGC looks forward to assisting in that process. 

Why Multiemployer Plans Matter 

Multiemployer defined benefit plans offer a broad range of advantages: 

•They provide lifetime participant and spousal annuities. 

•They provide portability for employees who change employers frequently within 

an industry, such as in the construction trades. 

•They ease employers’ administrative burdens: joint boards of trustees administer 

these collectively bargained plans, retaining professional investment advisors and 

benefit managers, and minimizing employers’ fiduciary obligations. The employer 

need only remit contributions to the plan in agreed-upon amounts. 

•They reduce administrative and investment costs through economies of scale. 

Outside the multiemployer sector, many employers over the past several decades 

have turned to defined contribution plans (such as 401(k) plans) to avoid the longterm liabilities, potential contribution volatility, and compliance complexities of defined benefit plans—and some have opted to offer no plan at all. This has also been 

occurring in the multiemployer sector. Unfortunately, the result is often that employees do not save enough for a secure retirement. Furthermore, defined contribution plans often lack lifetime income options, so many retirees are at risk of outliving their savings. 

For all these reasons, at a time of inadequate retirement savings and declining 

retirement security, it is important to explore ways to preserve the multiemployer 

model. 

The Last Decade was Tough for All Pension Plans 

Until the 2000’s, both single-employer and multiemployer defined benefit plans 

were generally adequately funded (plan assets were relatively high relative to liabilities). Strong investment returns provided asset growth with an affordable level of 

contribution effort by employers. Many plans also relied on excess investment returns to support benefit increases. However, the turmoil in the financial markets, 

both at the beginning and the end of the last decade, caused both single-employer 

and multiemployer plans to suffer dramatic losses. (Both kinds of plans had similar 

investment mixes.) 
10 

4 Critical status is triggered when a plan is less than 65% funded (on the plan’s actuarial 

basis) and projects a funding deficiency within 5 years or projects insolvency within 7 years, 

or the plan has similar funding or insolvency characteristics; endangered status is triggered 

when a plan is less than 80% funded (on the plan’s actuarial basis) or projects a funding deficiency within 7 years (including amortization extensions); seriously endangered status is triggered when a plan exhibits both endangered status triggers. 

The effect on multiemployer plans of a $50 billion loss in asset values following 

the 2001-2002 downturn and a $100 billion loss following the 2008 downturn was 

devastating. Underfunding, which had totaled less than $50 billion until 2000, increased eight-fold during the next decade, using PBGC measurements. 

Equally distressing to plans was the economic recession that followed the 2008 

crash, which hurt the industries in which these plans operate. Contributions to multiemployer plans are generally based on hours worked: as active employees were 

laid off and work hours were reduced, plan contributions plummeted. At the same 

time, the significant underfunding in these plans put pressure on employers to increase contributions: Minimum required contributions, as calculated by plan actuaries, rose precipitously and there were fears that hourly contribution rates for some 

plans would have to triple or quadruple to avoid a funding deficiency or, beginning 

in 2008, to conform to benchmarks required by funding improvement plans or rehabilitation plans under PPA. 

Congressional Support for Multiemployer Plans 

Congress has acted repeatedly to help reduce the strains on multiemployer plans 

and provide contribution flexibility: in 2004, certain plans were permitted to defer 

the charges related to one-time investment losses; in 2008, plans could elect to delay 

implementation of PPA requirements for one year; and in 2010, funding relief allowed many plans to lessen the impact of 2008 investment losses on their funded 

status and contribution requirements. Plans relied extensively on this relief as they 

tried to regain their footing. 

PPA Tools Have Helped 

Most important, Congress in the Pension Protection Act of 2006 recognized that 

different plans would require different combinations of authorities concerning benefits and contributions. 

PPA required annual plan certifications based on standardized funding and liquidity measures for determining the financial health of plans. Plans in serious financial distress are identified as in ‘‘critical’’ (‘‘red’’) status, and plans experiencing 

some financial difficulty are identified as in ‘‘endangered’’ (‘‘yellow’’) status or ‘‘seriously endangered’’ (‘‘orange’’) status.4 Plans not experiencing financial difficulty are 

categorized as non-distressed (‘‘green’’) status. 

After the turbulence of 2008, PPA steered many plans to a more structured path 

towards improved funded status. Over the past few years, hundreds of plans in endangered or critical status were required to adopt funding improvement plans or rehabilitation plans to increase contributions and reduce costs. Between 2008 and 

2010, average annual employer contributions to these plans increased from $4,300 

per active participant to $5,000. 

In 2009 and 2010 combined, over 350 plans reported reducing future benefit accruals as a way to limit costs and liabilities. In addition, for participants who had 

not yet retired, PPA permitted plans in critical status to reduce certain past benefits 

such as early retirement subsidies that were adopted when plans appeared to have 

had a surplus. In 2009 and 2010, more than 250 plans reported making such past 

benefit reductions; those that provided information reported erasing nearly $3 billion in past benefit liabilities. 

The funding flexibility that multiemployer plans were given under PPA was particularly valuable to cushion the effects of financial market and economic disruptions. To accelerate plan funding, PPA shortens the amortization periods for all 

types of unfunded liabilities to 15 years. However, PPA also allows plans to extend 

their amortization periods by up to 5 years, without government approval, if they 

would otherwise face a funding deficiency in the future and they are on a path to 

funding improvement. By 2010, 178 multiemployer plans were operating under 

automatic amortization extensions, compared to only six plans using extensions in 

2005 when IRS approval was required. In addition, PPA generally exempted plans 

from the excise tax assessed against employers for funding deficiencies, thus freeing 

up employer resources for the plan’s rehabilitation program. For the 2010 plan year, 

90 plans reported funding deficiencies totaling $1.9 billion for which an excise tax 

will not be owed. 
11 

PRA 2010 Funding Relief Also Helped 

In 2009, nearly 70% of all plans (covering 70% of all participants) were in moderate or serious financial distress under PPA standards—endangered (yellow), seriously endangered (orange), or critical (red) status. By 2011, these numbers had 

dropped significantly: yellow, orange or red status plans represented only 40% of all 

plans and currently cover about 50% of all participants. This improvement in funded 

status is due in part to positive investment returns in 2009 and 2010 and the steps 

plans took to improve their status. 

But it is also due to the funding relief in the Pension Relief Act of 2010 (PRA 

2010). This relief allowed certain plans to amortize net investment losses incurred 

during the 2008 crisis over a 29-year period—rather than the shorter 15-year period 

that would otherwise apply—significantly reducing annual amortization charges and 

minimum required contributions. It also allowed plans to increase the actuarial 

value of their assets for funding purposes by recognizing 2008 investment losses 

over 10 years rather than the regular smoothing period of five years. 

Plans relied extensively on PRA 2010 relief—more than 700 plans elected the relief. Form 5500 filings indicate that a decrease in amortization charges and an increase in amortization credits boosted these plans’ aggregate credit balances by $2 

billion over the amounts reported in the 2009 plan year. 

The special funding rules had an additional importance: increasing the actuarial 

value of assets had the effect of inflating a plan’s funded percentage, and larger 

credit balances delayed the date of a future funding deficiency, both of which positively impacted plans’ funded statuses under PPA. About 400 plans that elected the 

relief were in non-distressed (green) status in 2010. 

Notices from many of these plans explained that the relief provided a buffer 

against future adverse experience and made it easier to avoid endangered or critical 

status in future years. 

Given the lack of timely information available on multiemployer plans, it is not 

possible to fully quantify the effects of funding relief on plans’ PPA funded statuses. 

Nonetheless, it seems clear that many plans enhanced their certified status as a result of the relief. 

Many plans certified as in endangered (yellow) and seriously endangered (orange) 

status for the 2010 plan year were re-certified to non-distressed (green) status as 

a result of the application of PRA 2010 relief. About 170 critical (red) status plans 

(45% of red plans in 2010) used PRA 2010 relief, stating that the plan was expected 

to either immediately move into endangered (yellow) or non-distressed (green) status or to emerge from critical status sooner as a result of the relief. 

For some plans, the deferral of recognition of obligations permitted by PRA 2010 

may make funding of those obligations ultimately more difficult. The ratio of active 

(employed) participants to inactive participants in multiemployer plans as a whole 

has been steadily declining: 60% of participants were active participants in 1990, 

but only 40% of participants are active today. Plans reported about 1.3 million nonsponsored (‘‘orphan’’) participants (whose employers have withdrawn) in 2010, 

whose underfunded benefits become the responsibility of employers other than their 

own. A smaller pool of participating employers and active employees reduces the 

funding available to meet plan obligations. 

Multiemployer Plans Now in Varied Financial Situations 

For Most Plans Challenges Seem Manageable, but Future Flexibility Can Help 

Our research suggests that the majority of multiemployer plans, though currently 

substantially underfunded, will be able to recover over time as the economy improves, financial markets stabilize, and small and large businesses ramp up hiring 

and hours worked. This assumes that these plans will generally maintain a base 

of contributing employers able to sustain their liabilities and benefit disbursements, 

and will avoid investment losses that significantly erode their asset base. A diverse 

industrial base, broad geographical coverage, and careful management help position 

plans for the future. 

Generally, plans are using the tools and authorities provided under PPA to reduce 

costs, limit liabilities, and increase contributions steadily over time. They are using 

their new flexibility under PPA to respond to market fluctuations and to reduce excessive stress on employers and participants. 

Trustees and others associated with these plans have begun suggesting additional 

flexibility to address pressing issues, such as the need to attract new employers, to 

transition to new benefit formulas that reduce costs and minimize risks, and to adjust their liabilities to ensure sustainability. 
12 

Severely Distressed Plans Will Need More Help 

While a majority of plans appear primed for gradual recovery, a minority of plans 

will not be able to recover using the tools and authorities under PPA. Many critical 

status plans (and some seriously endangered status plans) are severely distressed 

and will need still further provisions to remain viable. 

At the beginning of the 2008 plan year, only 12% of all plans were in critical (red) 

or seriously endangered status (orange). That number spiked to 44% of all plans at 

the beginning of the 2009 plan year. In 2010, nearly one-third of all plans, covering 

more than four million participants, continued to be in critical (red) or seriously endangered (orange) status. While the percentage of critical (red) and seriously endangered (orange) plans dropped slightly in 2011 to 26% (336 plans) of all plans, that 

percentage is likely understated due to the effect of PRA 2010 funding relief. A substratum of critical and seriously endangered status plans is beyond the point of recovery without significant changes in the rules that govern their operations. 

These plans’ underlying fundamentals reveal why they are so distressed. They 

often operate in declining industries—such as furniture manufacturing, textiles, or 

typesetting, or in intensely competitive markets, from which large numbers of employers have gone out of business. Their participant populations are mature, with 

a large proportion of retirees and significant unfunded retiree liabilities. As a result, 

contributions coming into these plans on behalf of current workers are small compared to the outflow of benefit payments. Investment returns during the 2000s were 

unable to make up the difference, as those returns suffered due to the drop in the 

overall asset base. In the worst-case scenarios, these plans’ negative cash flows each 

year further erode their asset base and the plans are faced with eventual insolvency. 

The severely distressed subset of plans includes several hundred plans. Some of 

these plans have already terminated and are expecting to receive financial assistance from PBGC. Others are ongoing plans that operate under PPA funding improvement or rehabilitation plans. The rehabilitation plans of critical status plans 

often signal that they have exhausted all ‘‘reasonable measures’’ for contribution increases and reductions in adjustable benefits and do not expect to emerge from critical status; they are merely striving to delay insolvency. 

In the case of some of these ongoing plans, further contribution increases may be 

needed: our research shows that critical status plans averaged lower contributions 

per active participant in 2010 than plans in other funded statuses—about $4,000 

per participant as compared with about $5,500 per participant. On the other hand, 

we also know that some employers contribute substantially more and participate in 

numerous multiemployer plans—large employers in one critical status plan contributed $18,000 per active participant in 2011. 

Because benefits generally cannot be reduced after they are earned, there is also 

a natural limit to how much underfunding can be made up through reductions in 

benefits. Plans may reduce future benefit accruals for active workers and, under 

PPA, critical status plans may reduce certain previously earned benefits (known as 

‘‘adjustable benefits’’)—such as early retirement benefits, early retirement subsidies, 

subsidized optional forms of benefit, and disability and death benefits (other than 

normal spousal death benefits)—for active workers and terminated vested participants (participants no longer earning benefits under the plan but not yet retired). 

However, where a majority—or close to a majority—in a plan are already retired 

participants whose benefits cannot be reduced, some employers and active workers 

will be reluctant to consent to contribution increases if the bulk of the money goes 

to retirees, while active workers’ earnings and benefits deteriorate. 

If the bargaining parties cease to view the employer’s contribution to a plan as 

valuable, they will negotiate for the employer’s withdrawal from the plan. Such actions can ultimately lead to a mass withdrawal of all employers from the plan and 

the plan’s ultimate insolvency. A mass withdrawal termination can result in withdrawal liability assessments that can be particularly onerous at today’s high plan 

underfunding levels. 

Preserving severely distressed plans is important, not just to the employers and 

participants in those particular plans, but also to the health of other multiemployer 

plans. Many contributing employers, chiefly large employers, participate in numerous multiemployer plans, and the termination of one plan that produces withdrawal 

liability assessments for these employers could undermine the ability or willingness 

of those employers to contribute to other multiemployer plans. This, in turn, could 

result in multiple employer withdrawals and mass withdrawal terminations for 

other plans, damaging hundreds or thousands of businesses and hurting tens of 

thousands of workers along the way. 
13 

PBGC’s Multiemployer Insurance Program 

PBGC helps to secure the retirement benefits of more than ten million workers 

and retirees in multiemployer plans by working with plans to retain and attract 

participating employers and by paying financial assistance to cover benefits earned 

by workers up to the maximum allowed by law when plans are no longer able. 

Multiemployer Financial Assistance 

PBGC’s multiemployer program is very different from its larger and better-known 

single-employer insurance program. Unlike the single-employer program, when multiemployer plans are in distress, PBGC generally can take no action until the plans 

have entirely run out of money and are insolvent. Also unlike the single-employer 

program, when PBGC becomes responsible for a multiemployer plan, the agency 

does not take over the plan. Instead, the plan administrator remains in place while 

PBGC funds the administrative and benefit costs. 

PBGC multiemployer benefit levels are also very different. The maximum guarantee for a multiemployer participant with 30 years of service is $12,870 per year; 

it is not indexed for inflation. In contrast, the maximum guarantee set by law for 

single-employer participants at age 65 is $55,840 for the 2012 calendar year; the 

maximum guarantee is indexed for inflation for future plan terminations. 

PBGC’s Other Multiemployer Activities 

In addition to providing financial assistance to insolvent plans, PBGC has oversight authority for certain activities of multiemployer plans that are important to 

their financial well-being. 

Plans must notify PBGC when they propose to merge. PBGC evaluates a merger 

to determine whether the merged plan poses a risk of loss to PBGC or plan participants. Generally, this involves a confirmation that the plan’s finances will not be 

weakened and the plan will have sufficient assets to pay benefits for a period of 

time. In some instances, mergers can reduce a plan’s administration costs, improve 

future investment returns, and help expand the plan’s ratio of active to inactive participants. PBGC can and does provide technical assistance, on request, to plans evaluating a merger option. 

In a few rare cases, PBGC has facilitated a merger of an insolvent (or near-insolvent) plan by providing financial assistance to the merged plan rather than to the 

insolvent plan. However, PBGC does not have the legal authority to provide financial assistance to facilitate a merger in the absence of insolvency, nor the financial 

resources to step in in such circumstances. 

Plans may also apply to PBGC for an order of partition, which permits a plan to 

transfer benefits of non-sponsored participants, whose sponsors no longer participate 

in the plan, to a partitioned portion of the plan that receives financial assistance 

from PBGC. The requirements necessary for a partition are strict, in part because 

retirees and participants in the partitioned plan incur an immediate reduction in 

their benefits to PBGC’s guarantee levels. A partition requires a finding by PBGC 

that the plan has had a substantial reduction in contributions due to employer 

bankruptcies and is likely to become insolvent. PBGC has partitioned two plans; the 

second occurred in 2010 when PBGC partitioned a trucking plan. PBGC does not 

have the finances needed to undertake expanded partitioning activities, even though 

doing so would relieve employers of burdensome unfunded liabilities. 

PBGC’s Multiemployer Program Financial Status is Strained 

Another difference from PBGC’s single-employer program is that multiemployer 

premiums are much lower, too. Historically, the program had very low premium 

rates: multiemployer plans paid an annual flat-rate premium of $2.60 per participant per year until 2006, when Congress increased the rate to $8 per participant, 

indexed for inflation. Plans have paid $9 per participant per year since 2008, and 

multiemployer premiums to the insurance program totaled $92 million for FY 2012. 

Under the Moving Ahead for Progress in the 21st Century Act (MAP-21), multiemployer premiums will increase to $12 per participant in 2013 (indexed), generating 

about $120 million for the program. For single-employer plans, the per-participant 

flat rate premium under MAP-21 for plan years beginning in 2013 is $42 (indexed) 

and these plans also pay a variable rate premium on their underfunding. For multiemployer plans, even with the MAP-21 increases, absent further changes, PBGC 

premiums will be insufficient to support the guarantee at some point in the future. 

Because PBGC does not trustee multiemployer plans, the multiemployer insurance program’s assets consist only of premium income and investment income on 

the premiums. The multiemployer program has few assets: as of September 30, 

2012, the program had total assets of $1.8 billion. 
14 

As of the end of FY 2012, the multiemployer insurance program has $7.0 billion 

in booked liabilities. This represents the present value of all future financial assistance payments owed to participants in 148 plans that are recorded as liabilities on 

our FY 2012 financial statements; these are plans currently receiving financial assistance, terminated plans not yet receiving financial assistance, and ongoing plans 

that are expected to receive financial assistance. Thus, our current deficit—the difference between the program’s $7.0 billion in liabilities and $1.8 billion in assets— 

is $5.2 billion. We expect both our liabilities and our deficit to increase as more distressed plans terminate or approach insolvency in future years. 

PBGC pays financial assistance in the form of life annuities and administrative 

expenses. In 2012, PBGC paid $95 million in financial assistance to 49 insolvent 

plans that had run out of assets to pay benefits when due. Another 61 plans are 

terminated plans to which PBGC expects to begin paying financial assistance in the 

future. Based solely on our current inventory of booked plans as of September 30, 

2012, the amount of financial assistance PBGC will pay each year is projected to 

rise rapidly—with payments exceeding $500 million in 2022. This does not take into 

account financial assistance payments to any plans that would be first recognized 

as liabilities of the program in FY 2013 or future years. 

Over the next decade or so, even before any new obligations are added, there is 

a substantial risk that, without significant change to the multiemployer system, the 

multiemployer program will become insolvent and not be able to pay financial assistance. If new claims are recognized and additional payments required, insolvency 

could occur within a shorter timeframe, particularly if a large plan became insolvent. However, the risk of program insolvency, while serious, is not immediate and 

its timing is uncertain. Timing is dependent on many factors, including investment 

returns and the actions of trustees, employers, and unions dealing with individual 

ongoing plans. 

Next Steps 

For several years, multiemployer plans, participating employers, unions, actuaries, plan professionals and others have been discussing various changes to the 

multiemployer system that would preserve plans by providing them greater flexibility to address various challenges. Several are now planning to present proposals 

to both the Congress and the Administration in the coming months. 

The financial condition of multiemployer plans varies widely. Some plans will propose flexibility in benefit structures, or in contributions or withdrawal obligations. 

Severely distressed plans, on the other hand, will probably require broader changes. 

Historically, when necessary to preserve plans, Congress has worked in a bipartisan way with the executive agencies, plans, businesses, unions, and others. It was 

such a collaboration that resulted in the Pension Protection Act of 2006. Some of 

the provisions of that Act will sunset in 2014, which creates both the need and the 

opportunity to consider what changes are appropriate for the future. PBGC looks 

forward to working with Congress and the multiemployer community as this important dialogue evolves. 

PBGC’s multiemployer program should also be reviewed as part of that discussion. The basic contours of the program have not been modified in more than 30 

years. Some of the tools and authorities the statute provides that might be useful 

in certain circumstances are not useable in practice because of the agency’s lack of 

financial resources. Both the program and PBGC’s finances should be analyzed as 

part of and in the context of the broader changes for multiemployer plans generally. 

PBGC takes the support and preservation of multiemployer pension plans very seriously. Since I have been Director, I have doubled the size of multiemployer staff, 

am planning to add further resources and make further changes to strengthen 

PBGC’s capabilities. 

PBGC staff has expertise and analytic ability in the area of multiemployer plans, 

as well as a dedication to multiemployer plans. We look forward to providing assistance in the deliberations, and to continuing to serve the millions that look to multiemployer plans for a secure retirement. 
15 

APPENDIX: PBGC FY 2012 ANNUAL REPORT

[The report, ‘‘Pension Benefit Guaranty Corporation Annual Report 2012,’’ may be accessed at the following Internet address:] 

http://www.pbgc.gov/documents/2012-annual-report.pdf 

Chairman ROE. And I really appreciate you being here a week 

before Christmas because I felt it was very important. And the reason for that was because that PPA sunsets in 2014. And I think 

both sides of the aisle understand that we have got a little bit of 

a timeline with this sunset to get moving. And I was afraid if we 

would put this off, we would be into February or later getting this 

done. 

I can certainly appreciate the multiemployer, the improvement 

there. And my question is, after reading your testimony, that improvement somewhat is an improvement in the economy but is it 

also the changes in the law that was made in 2010? Because something happened in 2010 to allow you to amortize those liabilities 

over a different period of time. So how much of that is just due to 

amortizing instead of 15 years to 29 years? And I mean how much 

of it is due to the change in the law we passed in 2010? 

Mr. GOTBAUM. Dr. Roe, you are unquestionably right that part 

of the improvement is due to the fact that the funding relief allowed plans to stretch out their required contributions and, as a result, the indicators of distress some plans no longer meet. Part of 

the improvement is clearly that. I think it is important to recognize 

that an important part of the improvement is also that the economy is recovering and that plans really are taking advantage of the 

authorities that this Congress gave them in the Pension Protection 

Act. 

Unfortunately, the quality of information that we have, the information that the Federal Government gets is a little old. And so the 

reason why you have 2011 is because that is the latest information 

we have. And so we don’t have enough information for me to be 

able to tell you how much of this is funding relief and how much 

of this an economic recovery. 

Chairman ROE. Clearly it is part of both, I think. I was just hoping that it wasn’t an accounting gimmick that we did. And understandably I certainly understand that in a downturn why companies need some relief, because they don’t have the cash flow to 

make their pension obligations. And that is something we have to 

look at. 

I think the other question I wanted to ask was, in multiemployer 

plans versus single-employer plans, there is a difference in the premium. And I was reading the financial status is strained in your 

testimony where it is $9 per participant; and with a single-employer plan it is $42, I think. It looks like that very soon, at least 

last year, we paid out more in the multiemployer plans than we 

took in, in premiums. You obviously can’t continue to do that. And 

by 2020, or 8 to 10 years from now, 10 years from now, you estimate we will be paying out $500 million in plans. 
16 

And I guess the other thing that I have, the question, how do you 

propose to change that since you have the premiums only bringing 

in 20 percent of what we will be paying out? Although it is indexed 

for inflation. How do you propose to do that? What recommendations do you make for that? 

Mr. GOTBAUM. That is an important question. Certain things we 

know and can say right now. One is that the situation, as it currently exists, cannot work forever. If we have the premiums as they 

currently are and we have the system as it currently is, eventually 

we will run out of money and can’t pay benefits. However, and this 

is what we have been wrestling with, it is clear to us that because 

our program has not been rethought in 30 years, that the changes 

that ought to be made, some of which will clearly involve higher 

premiums, I have to say, I am a finance person, and I don’t believe 

in, you know, prevaricating about numbers, some of this resolution 

is going to clearly have to involve higher premiums, premiums that 

reflect the real cost of this. 

But, and this is the reason why we don’t have a set of recommendations yet that are independent of what you all are going 

to do, part of the solution relates to what the plans themselves are 

allowed to do and can do to form self-help. If plans, using the tools 

that you have given them and the tools that the Congress might 

give them, as you consider changes, can continue that transformation to less and less red, then our situation is different. And 

so what we hope to do is, as part of your discussion over the next 

year or 2 as to how to change the multiemployer system in general, 

to work with the Congress to develop reforms in PBGC’s program 

and finances. 

Chairman ROE. I think one of the other questions, and of course 

I would like to see what it would be if we had the previous accounting rules, and one of the recommendations, I guess, that we will 

see, is should we assume these accounting rules we passed in 2010 

will be the new norm. 

The other question, and you don’t have to answer it because my 

time has expired, is are these assumptions—and I have a list of 

questions I would like answered—assumed on a 7.5 percent return? 

In other words, do you follow me that that is a pretty lofty assumption these days? I am going to not answer that question now. 

Mr. Andrews. 

Mr. ANDREWS. Thank you, Mr. Chairman. 

Thank you, Mr. Gotbaum. When do you think we would have results about 2012? I realize that you don’t have those in your custody. They are reported by various plans. But when will we know 

the results for 2012? 

Mr. GOTBAUM. We will know them towards the end of 2013. 

Mr. ANDREWS. Okay. 

Mr. GOTBAUM. One of the issues, Mr. Andrews, is that the information requirements that we have are kind of from the typewriter 

and carbon paper days. And so we are in an era in which—— 

Mr. ANDREWS. You may have to explain those references to the 

young staff that are sitting behind us here. 

Mr. GOTBAUM. Oh, sorry, sorry, sorry. Yes. For Mr. Banducci’s 

benefit, carbon paper is something that—anyway. Sorry. But we 
17 

are in an era in which I can get and send information around the 

planet in a second and—— 

Mr. ANDREWS. We ought to figure out a way to work on it. 

Let me ask you a couple. You have very wisely acknowledged and 

listened to a collaborative process that has begun among small 

businesses, unions, experts in this field. And I think that the chairman has done the same thing and it is a good thing to do. Without 

prejudging what those groups are going to recommend, let me ask 

a couple of conceptual questions that I carry as assumptions into 

this effort. 

The first is that, given the relatively low cost of obtaining money, 

that stretching payments out over amortization schemes has been 

pretty effective in the 2010 and 2006 laws in helping plans get to 

the green zone. Is that right? 

Mr. GOTBAUM. It is very clear that funding relief is an important 

part of enabling plans to deal with their situation. 

Mr. ANDREWS. Is it also correct that if we were to put the hammer down on plans in the red zone and say, well, pay up right now 

to get current, it would in all likelihood seriously impair or kill a 

lot of these plans because we assume a lot of employers would just 

leave, and you got the problem of people abandoning and then the 

departure fee going up even more, that the way to kill the goose 

that is laying this golden egg is to insist that it pay up quicker. 

Do you think that is fair to say? 

Mr. GOTBAUM. It is very clear, Mr. Andrews, that we can, if we 

demand that plans—let me step back one second, if I may. We are 

in a world in which financial markets vary a lot more than they 

used to. And so as a result, plans’ financial statuses vary a lot 

more than they used to. And if we simultaneously, in a world in 

which plans’ financial status is variable, if we demand that they 

fund up more and more rapidly, we are going to make it harder 

and harder for folks to do that. 

Mr. ANDREWS. Which has the perverse effect of actually increasing PBGC exposure. It actually makes the problem worse from your 

deficit point of view, right? 

Mr. GOTBAUM. It clearly raises our risks. 

Mr. ANDREWS. Now, is it also true that many of these plans in 

the red zone would benefit from structural internal reform? Putting 

that in blunt English, lower benefits for some participants, higher 

contributions from some employers to improve their cash position. 

Is it empirically true that that is the case? 

Mr. GOTBAUM. We don’t know the details of the individual plans. 

What a number have come to us and said, we are in a box. The 

box is that if we keep on paying the benefits we have, we will pay 

those benefits for 5 years or 7 years, whatever, and then we will 

run out of money and then you, the PBGC, will owe them a smaller 

benefit. And they have said they would like an ability to think 

about whether or not there are ways to resolve that that are fairer 

to them. 

Mr. ANDREWS. Well, I think what we also conceptually—— 

Mr. GOTBAUM. But if I may, Mr. Andrews, I want to be clear. 

Mr. ANDREWS. Sure. 

Mr. GOTBAUM. My view of this is, this is very sensitive. This gets 

to the guts, if you will, of the law regarding employee benefit plans. 
18 

Mr. ANDREWS. It is a very hard question. And what I think we 

all have to start to contemplate conceptually is an arrangement 

where plans get access to these facilities that would help them extend their liability and deal with this in exchange for making some 

difficult internal decisions, which hopefully would have the result 

of a relatively smaller benefit reduction now, avoiding a much larger benefit reduction down the road if they are PBGC beneficiaries. 

I yield back. 

Chairman ROE. I thank the gentleman for yielding. 

I now yield to our chairman, Mr. Kline. 

Mr. KLINE. Thank you, Mr. Chairman, for your indulgence in recognizing me. 

Thank you, Director, for being here for what many people in 

America think are the holidays. Some of us here in this building 

maybe not so much the holidays. But thank you very much and 

having your family here. I have a whole bunch of questions which, 

frankly, I am not going to ask. I just want to make it clear that, 

with or without the chart up there, we recognize that there are 

some multiemployer plans that are in real, real trouble and, therefore, hundreds of thousands of employees and retirees that are in 

trouble. And we also recognize that the PBGC has a relatively limited ability to help them. The benefit payments are relatively low, 

as you have testified, compared to single-employer plan. 

And so I very much appreciate Chairman Roe and Mr. Andrews’ 

diligence in pursuing this. I am determined to keep after this because where we have some plans that are spectacularly in trouble—and Central States is not a secret name here, in that one multiemployer plan alone, you have employers that are in trouble because of these obligations and you have in that one plan alone hundreds of thousands of employees and retirees that are at jeopardy. 

So I am hoping that as we wrap up this Congress and move into 

the next Congress that we will be able to work with you and with 

those outside groups whose input we are eagerly awaiting to do 

something about this. I think that the work that we did under 

Chairman Boehner and ranking member then Miller in the Pension 

Protection Act was a pretty good step. But clearly, even though the 

32 to 60 percent looks pretty nice up there, we know that there are 

some big, big problems in the multiemployer plans, and I am eager 

to get at it. 

I see Mr. Miller is here, and I know that he recognizes there is 

a problem as well. And I hope we are going to be able to come together and do something about this, because it is a multifaceted 

problem with the PBGC’s limited capability and some plans that 

are in real, real trouble. 

So again, thank you very much for being here today and for your 

testimony and your willingness to work with us as we try to solve 

this problem. 

And Mr. Chairman, I yield back. 

Chairman ROE. I thank the gentleman for yielding. 

Mr. Scott. 

Mr. SCOTT. Thank you, Mr. Chairman. 

And thank you for being with us. 
19 

Just a couple of quick questions first. When you say number of 

plans, would the number of people covered by the plans be essentially the same charts? 

Mr. GOTBAUM. Yes, Mr. Scott. This may be because I am a nerd. 

What we have done here is we have showed you the percentage of 

participants. So this is the percent of 10-plus million people whose 

plans are in those segments. 

Mr. SCOTT. Okay. And how would those charts for single plans 

differ? Single plans, were they in trouble in 2009 and a little bit 

better now and still in the 60 percent range? These aren’t any 

worse than single plans, are they? 

Mr. GOTBAUM. Mr. Scott, rather than make a guess about the 

exact comparison, since the standards are actually different for single-employer plans and multiemployer plans, if I may, with your 

permission, let me come back with a chart for the record trying to 

do an apples-to-apples comparison. 

Mr. SCOTT. Okay. Now, when a company withdraws from a 

multicompany plan on a voluntary basis they are responsible for 

their proportionate share of the liability. That is not much of a 

problem for a solvent company, but when a company goes bankrupt, what happens? 

Mr. GOTBAUM. Unfortunately, what happens in a lot of cases is 

that the bankrupt company, along with its other obligations, is allowed in the bankruptcy process to eliminate its obligation to its 

pension plan. 

Mr. SCOTT. So who picks it up? 

Mr. GOTBAUM. In the multiemployer world, those obligations are 

picked up by the remaining employers. 

Mr. SCOTT. So if a company gets into one of these things, they 

are at risk of getting everybody else’s liabilities dumped on them? 

Mr. GOTBAUM. Yes. And that is one of the issues that the employers, the hundreds of thousands of employers, small businesses 

and large, have continually raised. 

Mr. SCOTT. They would argue that the pension fund really ought 

to pick up the bankrupt company’s share of the liabilities. 

Mr. GOTBAUM. Mr. Scott, I will say that over the years, it has 

repeatedly been suggested to the Pension Benefit Guaranty Corporation, you know, rather than having the remaining employers 

take the responsibility, why doesn’t the PBGC take the responsibility? And the fact is, the PBGC does not have the resources to 

take on that responsibility. And the multiemployer plan, the multiemployer system designed 30 years ago, didn’t anticipate that. And 

so part of the reason why I say that you need to rethink the 

PBGC’s program in the context of how you rethink multiemployers 

is because a lot of the suggestions that we get and that I suspect 

you will get would lean towards saying, well, why don’t you let the 

PBGC pay for it? 

Mr. SCOTT. So what you are suggesting is, if we want to do that, 

we would have to adjust the premium that they are paying because 

the coverage is different? 

Mr. GOTBAUM. I don’t think this is something which changing 

premiums alone is going to resolve. I spend a lot of time with both 

single and multiemployer plans and the sponsors of them and the 

businesses. And some of the rhetoric I get about your premiums 
20 

are too high is just rhetoric. But some of it is the very legitimate 

concern of businesses all across the country that are trying to stay 

competitive, trying to control their costs, and saying, you have become too big a piece of my cost, I can’t keep doing it. 

Mr. SCOTT. I want to get in a quick question before my time runs 

out. And that is, if you could respond to the chairman’s comment 

about how you can chase a 7.5 percent return in today’s market 

without unreasonable risk. 

Mr. GOTBAUM. Mr. Scott, I don’t have an answer for that. One 

of the things that we have learned over the last decade is that the 

assumptions that actuaries made—and by the way, it wasn’t just 

actuaries, it was lots of folks, and it wasn’t just multiemployer 

plans, it was single-employer plans, too—that people who went 

through the 1990s tended to think that pension funds could make 

9 percent, 10 percent, or more. And it looked like it was going to 

last forever. And then for the last 10 years, as you know, pension 

funds have not earned 9 percent, 10 percent on average. 

And so we are now in a, frankly, in a difficult situation because 

I don’t think there is anyone who knows for sure what you can 

count on. And so we don’t have a particular recommendation for 

what a pension plan should do. We don’t think we are smart 

enough to do that. But we do think that everybody recognizes the 

fact that the last 10 years have been tough and you are going to 

need to think about what you do for the future in the context of 

that. 

Chairman ROE. Thank the gentleman for yielding. 

Now yield to Mr. Walberg. 

Mr. WALBERG. Thank you, Mr. Chairman. 

And thank you, Mr. Gotbaum, for being here. Last month, as we 

all know, Hostess decided to liquidate as a result of their bankruptcy. It had participated in, as I understand it, 42 different multiemployer plans and, in fact, two of the company’s largest creditors 

are multiemployer plans. The withdrawal from these plans may 

cost the company up to $2 billion, with around $900 million going 

to the Confectionery Workers plan and more than $500 million 

going to the Central States plan. We know that they are very large 

contributors to these plans. And following up to an extent on what 

Mr. Scott was questioning, how will their bankruptcy affect these 

plans? And more specifically, does it threaten their solvency? 

Mr. GOTBAUM. As you have said, sir, Hostess participates in 

more than 40—the numbers that I got from my staff say 41—but 

more than 40 multiemployer plans. In some of those plans, Hostess 

is a big dog. Hostess has been a big dog. In some of those plans, 

Hostess has been a more modest participant. For those plans where 

Hostess was the big dog, the fact that they are not going to contribute anymore and will be able to discharge their obligations in 

bankruptcy is going to put those plans in severely distressed status 

and some of those plans will probably run out of money. Other 

plans where they are either stronger or Hostess is a smaller percentage participant will continue on, but the employers in those 

plans will say, I am picking up, I am paying part of the cost that 

Hostess avoided. 

Mr. WALBERG. But the larger ones, insolvency is the outcome ultimately? 
21 

Mr. GOTBAUM. No. As it happens, sir, the plans for which insolvency is a real risk as a result of Hostess are relatively smaller 

plans. Depending on how you count and how conservative you want 

to be, there are four, five, six plans. They are not the larger plans. 

These are smaller plans. And they are plans that, because their 

larger employer, one of their largest employers is no longer participating, are going to be in severe financial distress. The largest 

plans in which Hostess participated, they are a relatively small 

percentage of the total. And so what I consider the Hostess tragedy 

is not going to affect them particularly substantially. 

Mr. WALBERG. In fiscal year 2008, the deficit in the multiemployer program was $473 million. However, over the past 4 years 

we have seen that deficit expand to $5.2 billion in fiscal year 2012. 

How have demographic trends created this increase? And what involvement is demographic trends? 

Mr. GOTBAUM. The fact that people are living longer means that 

pensions, all pensions are necessarily more expensive. It is a fact 

of life. And as a result, the plans that are sufficiently likely on the 

multiemployer side that we have already put them on their books, 

what that means is that as people live longer, we are going to end 

up paying a little more for it. 

In the broad scheme of things, I think demographics, partly because it is slow and partly because it is long, is less of an immediate concern to the integrity of the Pension Benefit Guaranty Corporation than the immediate financial or the near-term financial, 

within the next, decade circumstance of the severely distressed 

plans. Now, partly my reaction is, should I be distressed that people are living longer, healthier lives, and that it costs a little bit 

more? I don’t think so. I think that is something we should celebrate. It is one of the great things about the Nation. I think the 

more immediate concern is—— 

Chairman ROE. I have some sensitivity to that, too. The gentleman’s time is yield. 

Mr. Tierney. 

Mr. TIERNEY. Thank you, Doctor. 

Thank you, Mr. Gotbaum. I just want to follow up on something 

Mr. Scott started—actually, the chairman started, Mr. Scott followed on. When you say you can’t determine what the rate of return should be and what the risk is going to be on that, what bothers me a little bit is, don’t you think we ought to be a little more 

conservative in approach on that as opposed to just accepting 7.5 

percent return given history and given the facts that we have to 

deal with? 

Mr. GOTBAUM. I think it is pretty clear, sir, that people whose 

expectations were set in the 1990s need to reset those expectations 

based on the experience we have had in the last decade. The reason 

why I was saying to be cautious about it is, there is a risk of overreacting on the downside in the same way that we may have overreacted on the upside. 

Mr. TIERNEY. But we pay people a lot of attention, they are supposed to be smart enough to make those sorts of adjustments and 

those calculations. So I guess as far as the PBGC is concerned, you 

will be making more modest projections in all your calculations? 
22 

Mr. GOTBAUM. We actually are not in the business of making 

projections. And the way we do our books is, we use—excuse my 

dropping back into the jargon of the accounting community—we 

mark to market. So the way we do our liabilities is we actually get 

quotes from insurance companies about what they would charge in 

order to pay benefits on the stream that we do, and that is how 

we do it. We are actually not in the business of forecasting rates. 

Mr. TIERNEY. But you are in the business of accepting some of 

those quotes and rejecting others. 

Mr. GOTBAUM. I’m sorry? 

Mr. TIERNEY. You are in the business of rejecting some of those 

quotes and accepting others when you make your determination. 

Mr. GOTBAUM. Yes. 

Mr. TIERNEY. So I am assuming that you are going to accept 

those that come on the more modest side than those that are more 

enthusiastic, given the history that we have seen here. 

Mr. GOTBAUM. Yes, sir. 

Mr. TIERNEY. The other question I have is about the Hostess debacle on that. What enforcement provisions or what role does 

PBGC play or can it play when a company like Hostess takes 

money from union employees meant for contribution to their pension plan and doesn’t make that contribution as well as not making 

their own company contributions to the plan? 

Mr. GOTBAUM. This is, sir, a very tough situation. I have spent 

my life working in distressed businesses. I have been on the management side. I have represented unions. I have been all around 

distressed companies for a long time. And I have learned a couple 

of things. One is that when companies are in distress, they take 

a whole series of actions to conserve cash, if they are legal, and in 

the case of bankruptcy, you can go to the court and say, I am not 

going to make my contributions, and get court approval for not 

making the contributions. 

Mr. TIERNEY. Did Hostess do that? Or did they stop making their 

contribution before they went to court? 

Mr. GOTBAUM. I can’t say that I know the facts in Hostess and 

I am happy to come back. 

Mr. TIERNEY. Well, let’s assume for a moment that they stopped 

making those contributions before they got permission from the 

bankruptcy court. What responsibility does PBGC have? Or is it 

only the trustees of the plan that have the responsibility to monitor 

that situation? 

Mr. GOTBAUM. I think you have got it exactly right, which is the 

trustees of the 41 plans in which Hostess participates, they are 

creditors. Now, as it happens, Hostess has a single-employer plan, 

too. So we are creditors too. But on the multiemployer side, we are 

not the creditors. We are a step removed from it. 

Mr. TIERNEY. Did they stop making their contributions to the 

single-payer plan as well? 

Mr. GOTBAUM. I don’t know. Let me find out. 

Mr. TIERNEY. If they did, what responsibility would accrue to you 

to do something about it? 

Mr. GOTBAUM. That depends on what their legal obligations are 

in bankruptcy. 
23 

Mr. TIERNEY. What about before they get to bankruptcy, if they 

stopped making the payments? 

Mr. GOTBAUM. If they fail to make contributions beforehand—— 

Mr. TIERNEY. If they are under contractual obligation to people 

in the union to pay what the union has designated as $4 and some 

change per hour of their pay in there plus not making their employer contributions, what obligation is it of PBGC or the trustees, 

for that matter, of the multiemployer plans to step in and do some 

enforcement, to do something about that before things go belly up? 

Mr. GOTBAUM. Let me step back. Okay. When under bankruptcy, 

companies—— 

Mr. TIERNEY. They are not in bankruptcy yet. 

Mr. GOTBAUM. Pardon? 

Mr. TIERNEY. I am going to back you up a bit if you don’t mind. 

Before they are in bankruptcy. 

Mr. GOTBAUM. Hostess has been in bankruptcy multiple times in 

the last 5 years. 

Mr. TIERNEY. Right. But there were times that they were not in 

bankruptcy, allegedly, when they were not making their contributions before they went back to the bankruptcy court. So they just 

took it upon themselves to take the money from the employees that 

was designated for the plan, not put that money into the plan, plus 

not make their own contribution to the plan. When that is happening, what obligation to PBGC, what obligation to the trustees 

to do something about that in that period of time? 

Mr. GOTBAUM. The trustees of a plan—— 

Mr. TIERNEY. And PBGC on the single-payer plan. 

Mr. GOTBAUM. Right. We can act before bankruptcy, and we do. 

We can go to court and put liens on property in order to ensure 

that contributions are made if they are not made. 

Mr. TIERNEY. That was not done in this situation, in the Hostess 

situation. 

Mr. GOTBAUM. Rather than speculate, why don’t I get the facts 

and circle back. 

Mr. TIERNEY. I would appreciate that, if you would. Thank you. 

Chairman ROE. Thank you Mr. Tierney. 

I now yield to Mr. Thompson. 

Mr. THOMPSON. Thank you, Chairman. 

Mr. Gotbaum, thanks for being here. Thanks for your testimony 

and your leadership in this area. 

I wanted to first of all, with the report that you issued in addition to your testimony, the graph that is on the third page that 

talks about future retiree worries, I found that very interesting actually and just wanted to affirm. There has been, since 1979, based 

on that graph, obviously significant growth in sole direct contributions programs and a corresponding decrease in defined benefits. 

And it was the kind of gray area in between—although it is not 

gray, it is kind of green on the graph—which is where companies 

that have both. It seems like that has been pretty stable since 1979 

proportionally, where a company offers both direct benefits and direct contributions. Is there anything—it is like the third page— 

there you go. 

Mr. GOTBAUM. You talking about this one? 
24 

Mr. THOMPSON. That is it. I was just curious, is there any inside 

information, is there any proportional changes within those where 

companies hold both plans, where there has been kind of a movement towards heavier weighting of direct contributions versus defined benefits? Is that a movement you are seeing? 

Mr. GOTBAUM. We continue to see that many employers are deciding that rather than keeping responsibility for the traditional 

defined benefit plan, that they instead would rather pass that responsibility off to their employees. They do it in a whole variety of 

ways. One way that has happened recently is that employers will 

say to their employees, I know I owe you $1,000 a month in perpetuity, but would you rather have a check for the full amount instead? So people go out of the defined benefit system by lump 

sums. They do it in other ways. 

From my perspective, one of the real challenges, and it is not just 

a challenge in the multiemployer system, one of the real challenges 

as the Congress thinks about retirement security is how to balance 

the obligations you put on employers with the obligations that employers are willing to take. 

Mr. THOMPSON. Right. I experienced that before coming here 4 

years ago in my health care career. The first part of that, almost 

30 years, was in a defined benefits, and, quite frankly, that was 

putting us on a path of insolvency as an institution. And I don’t 

remember even the details. But there was a transition plan, as you 

described one option, into a defined contribution plan. 

In your testimony, you said that any critical status plans and 

some seriously endangered status plans are severely distressed and 

will need still further provisions to remain viable. What are some 

options to forestall their insolvency without exposing taxpayers to 

potential liability? 

Mr. GOTBAUM. To be honest, Mr. Thompson, their first reaction 

is, well, why doesn’t the PBGC take it over? And they ignore the 

fact that we don’t have the resources to do so. So that is in my view 

a kind of back door way of trying to get to the taxpayers. 

They are talking among themselves, and what we expect is that 

some combination of stretching out obligations, expanding the authorities that the Congress already gave them in 2006 in the Pension Protection Act, that with a broader pallet of tools and authorities, that more of them will be able to do self-help. We haven’t seen 

the specific proposals, and this is one where the devil actually is 

in the details. So we are looking forward to receiving proposals, as 

I know this committee is. And so at that point, then we can talk 

about what the puts and takes are. 

Mr. THOMPSON. Thank you, Chairman. 

Chairman ROE. I thank the gentleman for yielding. 

Dr. DesJarlais. 

Mr. DESJARLAIS. Thank you, Chairman. 

And thank you, Mr. Gotbaum, to you and your family and staff, 

for attending here today. I would like to yield the balance of my 

time back to our chairman so he can finish his line of questioning. 

Chairman ROE. Okay. I thank the gentleman for yielding. I don’t 

have too many. But, you know, and what Mr. Thompson was saying and also Mr. Tierney, both, I would like to comment on that. 
25 

Because of the uncertainty, I guess, in these plans, and I have 

a real interest in this, my father was a union member who lost his 

job in 1973 when I was in the Army overseas. His company went 

out of the country to another country, so he lost his job and he lost 

his pension plan. Fifty old, first World War II, had a buyout, like 

you were talking about, of $10,000 which was nothing after 30 

years there. So I understand the plight of people who have been 

promised something and it doesn’t occur. I mean, you have made 

your plans based on your thinking that you are going to have a secure retirement. 

We have a real obligation to get this right because there are 10 

million people out there and their families, many of them who are 

retired, that are very, I am sure, very uneasy right now about, am 

I going to continue to get my benefits? So I think both sides of the 

aisle understand this very well. Probably not a lot of people in this 

Congress understand the size of this problem. 

And I know I didn’t until I started sat in this chair 2 years ago 

and began to understand that. So I saw one of the liability estimates was $27 billion. How in the world are we going to fund that? 

The current obligations are $5 billion under water, the PBGC is. 

So how do we get to $27 billion? How do we fix that problem? We 

have talked about premiums. Mr. Tierney and I both mentioned assumptions. I made the assumption when I retired that 5 percent 

would be what I would withdraw. That was a little more generous 

than I probably should have picked. So your answer. 

Mr. GOTBAUM. The $27 billion number is an estimate of plans 

that might, under current law, in current circumstances, might fail 

over the course of the next decade or so. That is an estimate. Part 

of the reason why, frankly, your committee’s deliberations, why 

this hearing matters and why the next matters, et cetera, is that 

there is no one who thinks that it is written in stone that all these 

red plans have to fail. We don’t think that. 

And so what, in my view, matters is that the Congress do what 

it did in 2006 and what you are talking about doing here, which 

is roll up your sleeves, work with the businesses and the unions 

and the plans, and figure out what kinds of steps they can take to 

do this. 

One of the things you did in the PPA is you gave plans the ability to do self-help. And can’t tell you exactly how many have done 

it, but a lot of them have. It is very clear that some plans are going 

to need more, and that is why they are going to come and suggest 

it. 

I am a long-run optimist about this. Now, partly it is because, 

with the committee’s permission, a year ago, a small business 

based in Dallas, Texas—American Airlines—filed for bankruptcy, 

and on the day they filed for bankruptcy, they said, we are going 

to have to terminate our pension plans. 

These were single-employer plans, but it was a business, it was 

in bankruptcy; they said, we have got to terminate them. And we 

sharpened our pencils, we rolled up our sleeves. The very competent staff of the PBGC worked with American Airlines, with its 

unions, and with the other ERISA agencies, and today, a year 

later, those plans have not been terminated. So people were able 

to find ways to solve their problems without plans failing. That 
26 

same willingness to roll up their sleeves, I think, can take a lot of 

red-zone plans and keep them from becoming PBGC obligations. 

Chairman ROE. I think having been in the operating room thousands of times, I always planned on a train wreck and hoped I 

would go on a train ride, and what we need to do is plan—this is 

a train wreck. We need to plan the train ride I think is what we 

need to do here. 

Mr. Hinojosa. 

Mr. HINOJOSA. Thank you, Mr. Chairman. I am sorry that I had 

to leave for a few minutes. 

Chairman Roe and Ranking Member Andrews, retirement security is an issue of great importance to millions of Americans, including me, so I thank you for having this hearing on the challenges facing multiemployer pension plans. 

Director Gotbaum, in your testimony you indicated that multiemployer plans, like the single-employer plans, have been affected by 

the recent declines in the economy and the investment markets, as 

we saw starting in 2007 through 2010. Could you elaborate and tell 

me about the problem of orphan participants, which are the participants for whom there is no longer an employer; are they a significant problem for many of these multiemployer plans, and do you 

have any thoughts on solutions? 

Mr. GOTBAUM. I can describe the problem. I can’t tell you that 

there is a standard solution, Mr. Hinojosa. 

In a single-employer plan, you have one company that is setting 

aside money to pay benefits for that company’s employees, and that 

plan is limited to their employees so that if the stock market goes 

down, and, as a result, the plan’s assets are insufficient, the company knows they are going to have to put more in, and they are 

going to know that it is for their employees. 

In the multiemployer world you have hundreds of thousands of 

businesses, small businesses, that are contributing to a common 

pool. Now, there are some very important benefits from that. One 

of them is that as a result their employees have benefits that stay 

constant when they move from job to job. That is a huge benefit. 

Another benefit is, speaking as a person who has also worked in 

small business, you can be a member of a multiemployer plan without having a huge HR department, so it works better for a lot of 

small businesses. 

So there are benefits to the multiemployer model, but there are 

costs. One of the costs of the multiemployer model is that everybody is in it together, and so if a plan gets underfunded, then the 

existing employers are the ones who make up the difference. The 

issue is that since you have many employers—and, as we know, 

some small businesses don’t make it, and some industries—a lot of 

small businesses don’t make it—the result is that in some multiemployer plans, the bill, if you will, is being presented to companies 

who know that most of the employees are not their employees, and 

so they say, we don’t like that, that doesn’t seem fair to us. 

Now, does that get taken—do they take into account at that moment that they have for, in some cases, decades and decades gotten 

the benefits of the multiemployer model? No, obviously not. But 

that is the crux of the concern, that businesses feel that it is unfair 

that they pay for the obligations of employees that were not theirs, 
27 

even though, let us be clear, they have been sharing those obligations in some cases for decades and decades. 

This is not an easy issue by any means. I find it a lot easier to 

describe what the problem is than I can to tell you some fair and 

decent way to resolve it. 

Mr. HINOJOSA. Time is running out, and I wanted to—thank you 

for that explanation—but I wanted to ask you about, you know, 

getting in the shoes of the employee who does not have to go 

through the human resources committee or department, but yet 

whatever money is being set aside for them, a fee is paid for those 

who are investing that money, and oftentimes that fee can be very 

expensive, and the employee doesn’t know just how expensive it is. 

Number two, there is administration costs, and the employee 

again doesn’t know how much is being subtracted out of every dollar that is invested each year for his retirement. 

How do you handle that, and how do you manage it so that it 

is—such as Federal employees using a thrift savings plan have a 

negotiated cost for the investing, for the investors, and it is very, 

very low. It is a fraction of 1 percent per year. That is good. But 

what about these groups? 

Mr. GOTBAUM. Let me answer as I can, and then with your permission, Mr. Hinojosa, I would like to come back with a more detailed response. 

From our perspective one of the benefits of multiemployer plans 

is that many, many employers can hire, pay for a centralized professional management, a management that can drive hard bargains 

with investment firms, a management that can get the economies 

of scale that you get from having many people processed without 

having hundreds of separate HR departments. So we think there 

is an important benefit from that. 

What I can’t tell you and don’t know is what disclosure there is 

to the various participants of the costs of those plans. So with your 

permission, sir, let me come back and report on that for the record. 

Mr. HINOJOSA. Thank you. 

Chairman ROE. Thank the gentleman for yielding. 

Mr. Rokita. 

Mr. ROKITA. I thank the chair for holding this hearing. I found 

it very educational, and if you look on the map there, you can see 

that Indiana is very much affected by this issue and these multiemployer plans. And I hear about it quite frequently as I travel the 

State and as folks from Indiana visit out here. 

Some of this has already been touched on, but at the risk of reiteration, I would like you to drill into it a little bit more just so we 

are very clear for the record, okay? 

So, number one, I am reading about the Central States Pension 

Fund with liabilities of $14 billion, and if I notice from your testimony, or from I forgot where, maybe this book, I saw that your assets are $1.8 billion. Okay. So that concerns me. What happens 

when Central—if and when Central States, something terrible happens there, insolvency, how many more insolvencies can we sustain 

before you become insolvent? 

Mr. GOTBAUM. Part of the reason why I say that I think the 

PBGC’s own program has to be rethought is the issue that you 

raised. It is clear that if, because we have got a couple of billion 
28 

dollars in assets, and our premiums are, round numbers, $100 million a year, it is bumped up a little bit, it is going to be 120-next 

year, et cetera, that if we start becoming responsible for several billion dollars a year in pension payments, that we are going to run 

out of money. However, and this is the important part, those 

plans—and it is not just the Central States plan. There are—in 

that red zone there, there are probably 200 plans, plans all across 

the country, not just on the border of Indiana, not just in Indiana, 

et cetera, and what we are hearing from them is they don’t want 

to run out of money, they don’t want to become the wards of the 

PBGC, they don’t want to bankrupt the PBGC. They would like to 

have the ability to work out their own self-help measures. 

Mr. ROKITA. Yet the number of orphan retirees only increases. 

The number of orphan retirees only increases. I mean, there is an 

insolvency issue, then there is the orphan retirees, and that is kind 

of where I want to go as well. 

To make a loose analogy to Social Security, when Mr. Roosevelt 

started, there were 100 workers for every retiree. Now there is 3, 

going to 2 in 15 years, and it seems to me that these legacy orphan 

retirees, you know, how many do we have in the system? Do you 

even know? And is it becoming harder and harder to support these 

retirees obviously with less companies paying into the system? 

Mr. GOTBAUM. In general, as I don’t think we put in the testimony, but it is in our annual report, systemwide the average is 

about 11⁄2 people who are not active, retirees and what we call deferred vested, per active worker in the system. So 11⁄2 to 1 is the 

ratio. There are plans where that ratio is 10 to 1. Those plans obviously cannot just turn to the active employees and say, okay, you 

are going to increase your contributions by a factor of five and go 

in. There something is going to have to give. 

I don’t think that anyone can be definitive and say, oh, there is 

a particular measure that you can legislate that will work for all 

of the different kinds of plans that are there. And that is a point 

that I should have made, and I am grateful for you for enabling 

me to make it. Part of the reason why we think flexibility matters, 

why the flexibility you gave in 2006 mattered, and why whatever 

you do prospectively matters, is that the circumstance of the folks 

who are green is very different from the folks who are in the red, 

and we don’t want to force one into the shoes of the other. 

Mr. ROKITA. Okay. Thank you, Chairman. I yield. Thank you. 

Chairman ROE. Thank the gentleman for yielding. 

Mr. Hanna. 

Mr. HANNA. Thank you for being here, sir. 

The last 10 years haven’t been very good, have they, in the market? You can see that. But you can also see that in the last—from 

2009 to 2011, you went from 32 to 60 and from 34 to 24. We also 

know that for about 100 years the markets returned an average of 

someplace between 9 and 11 percent, depending on—and as was 

mentioned, the fees are critical to that. 

What I am looking at is something that has a positive side to it, 

too, and that is that the actuarial tables that were built to guarantee these defined-benefit plans were built around long-held assumptions that that have broken down in the last 10 years. 
29 

Just in your mind or with your understanding of all this—and 

this year looks like the market may be up 9 or 10 percent—how 

many years out into the future would it take to take 90 percent of 

the people out of the red and put them back in the green? What 

has historically—because there is nothing fundamentally wrong 

with the assumptions they made based on the knowledge they had. 

We are looking at the 10-year slot, and we are saying, this is horrible, which, of course, it is, and plans are going broke, but this 

may not last forever either. Hopefully it won’t with so many people 

unemployed, et cetera, et cetera. Looking forward, what do you see? 

Mr. GOTBAUM. Let me talk in general now, and, if I may, especially after we get you the reports we owe you all, I would like to 

answer in more detail. 

There are clearly some plans who, even if you think they will get 

the long-term average equity return, because the experience of the 

last 10 years has been so bad, they are in trouble, and they will 

be in trouble, and just praying for the stock market by itself won’t 

help. It will help some, but it probably won’t be sufficient. There 

are some plans. 

There are other plans for whom the recovery of the stock market, 

if it gets back to the long-term average, will enable them, along 

with other things, to recover. So we know there is some in some 

and some in the other. 

If I may, since this is in part the guts of the reports that we are 

working to send you all, if I can, after we have done those reports, 

come back and give you a little more detailed statement of how 

many we think are in one versus the other, I would appreciate the 

opportunity to do that. 

Mr. HANNA. Defined-benefit plans are great. People are being 

told that they have to invest for themselves from a much younger 

age. As you said, it was 34 to 1 when Roosevelt developed Social 

Security. Now it is different. But that is still not a—that is always 

going to be the new model, isn’t it? And a lot of people, a lot of companies are getting away from defined-benefit plans simply based on 

the assumptions of the last 10 years, and things like Mr. Madoff, 

those kinds of things. It is not a bad model, but it is also true that 

defined-benefit plans are really what works best for families in the 

long run. 

Mr. GOTBAUM. I could not say it any better. Thank you for saying 

it. 

Mr. HANNA. Thank you. I am all done here. Thank you. 

Chairman ROE. I thank the gentleman for yielding. I would like 

again to thank Director Gotbaum for taking your time to testify before the committee today, and I recognize closing remarks from our 

ranking member Mr. Andrews. 

Mr. ANDREWS. Thank you, Mr. Chairman. I thank our colleagues, 

and I thank Mr. Gotbaum and his family for attending and doing 

such a good job here today. 

This is a problem I think we have set out on the right path to 

solve, which is to collect a range of views from a series of people 

with expertise on this problem and learn from them. And, Mr. 

Chairman, I am confident that if we continue down this path, we 

will find a solution that achieves the goals of helping small businesses that pay into these plans prosper and grow, that assures the 
30 

maximum degree of security for pension payments for families who 

depend on them, and improves the fiscal health of the PBGC so we 

further minimize the possibility that the PBGC would ever have to 

call upon the Federal Treasury to make good its obligations. 

What I have learned so far in listening to today’s questions and 

answers and the prior hearing is that the credit facilities that the 

2006 and 2010 laws made available have contributed substantially 

to the growth of the green zone from 32 percent to 60 percent. Certainly demographic trends and economic growth have contributed, 

but the availability of those facilities has had a positive impact. 

And I have also—will approach the rest of the discussions with 

a premise that we should further facilitate those credit facilities to 

multiemployer plans in a variety of ways, but we should attach 

conditions depending upon the status of the plan. I think relatively 

healthy plans should have the opportunity to take advantage of 

such a facility, but I think that unhealthy plans, frankly, should 

have something more in the nature of an obligation to take advantage of them, and when they do, I think that those plans should 

have a concurrent obligation to make internal structural changes, 

however unpopular or difficult, that will improve their health and, 

with it, improve the fiscal health of the PBGC. 

This is not a problem that—for which the solution will be painless, easy, or uncontroversial, but if we take the path that is too 

often taken here in Washington and just hope that it gets better, 

which is emphatically not what the chairman is doing, then I think 

it for sure will get worse. 

There are 10 million people depending upon us, there are hundreds of thousands of employers depending upon us, and I do think 

that we have taken two very good steps toward a sober, well-considered, and mature approach to solving this problem. 

I look forward to working with you, Mr. Chairman, and our colleagues, and, Mr. Gotbaum, you and your colleagues, and in listening to people around the country with a stake in this problem to 

solve it, and I appreciate your opportunity to be with us today. 

Chairman ROE. I thank the gentleman for yielding and his comments. From the chair, I am absolutely committed, and this subcommittee is absolutely committed, to helping solve this problem, 

and it is imperative that we do that. I think the eyes of the country 

are on us. There are many pension plans not only in the multiemployer plan, but I think there are many pension plans in States 

and others that are in extremis now and certainly would be looking 

at us for guidance about how we manage through this morass that 

we are in right now. 

So I think that they—you made the comment in your testimony 

that the PBGC is at risk for having neither sufficient tools to help 

multiemployer plans deal with their problem, nor the funds to continue to pay benefits beyond the next decade under the multiemployer insurance plan. That is a pretty sobering statement, and I 

think we can together certainly work on the tools you need to do 

your job, and we can certainly do that. 

I had several thoughts up here today, and just to bring them up, 

no solutions, but we have the assumptions problem about the assumptions that we make. Is it possible in these plans to segregate? 
31 

I think the ‘‘last man standing rule’’ creates some issues for the 

stronger plans. For instance, UPS decided to get out. They wrote 

a check for $6 billion and got out so they would limit their future 

liabilities, and with credit being as low as it is, what is to keep a 

strong company out there that has a pretty good financial balance 

sheet to look at the multiemployer plans and look, as Mr. Rokita, 

I think, mentioned, the Central States plan with a $14 billion potential liability, and clearly the money is going to run out at some 

time, to walk. 

I think that is a real issue for multiemployer plans, which would 

further weaken them. And as Mr. Hanna has clearly stated, the 

certainty of these plans for families is essential, certainly the ones 

getting the benefits. You are limited now because people who currently are receiving benefits cannot be cut, but then, as you stated 

in your testimony, you are going to go back to current employees 

and companies and say, hey, you need to pony up some more 

money that you may never get. 

So I think that is an issue, and I think another issue is where 

the PBGC lines up in bankruptcy. I think the Hostess situation is 

clear, that you are not at the front of the line. Those employees 

that have worked there for decades are not at the front of the line. 

They may be getting a much—could be potentially getting a muchreduced benefit. It doesn’t mean that they will. 

So I think a lot of those things are just questions, not particularly solutions, but things that we have to work on, and we don’t 

have a lot of time to do it. So this subcommittee is going to be very 

active in coming up with legislation to help, and I am interested 

in knowing how much of the green has been improved by our accounting that we changed and the assumptions, because I think the 

71⁄2 percent, even though I do understand what Mr. Hanna said, 

the historic assumptions have not occurred in the last 10, 12-plus 

years. 

The city that I was mayor, I started this discussion in 2003. It 

took 10 years to get—almost 10 years to get there, but one was 

that we looked at our future liability. As the market went down 

when I first became mayor, we were—I think about 10, 11 percent 

of how much someone’s salary was going into their pension plan for 

defined benefit. As the economy got worse, it was up at 18 or 19 

percent of their income, which was really straining the city budget. 

So we started a discussion that new hirees would not—you kept 

your promise to current employees, but new hirees would come in 

under a defined-contribution plan. I think a lot of businesses are 

having to look at that simply because of this, and I think what we 

end up doing here, if we do this right, might encourage other businesses to stay with the defined-benefit plan for employees. So I 

think we have a huge obligation. 

I will finish by saying we will miss Don Payne, who passed during this past year, that served many years on this committee and 

did so with great dignity; and Dale Kildee and Dennis Kucinich, 

who won’t be with us on the subcommittee. Mr. Kildee is retiring, 

and Mr. Kucinich is going on into private life. Judy Biggert will not 

be here. It has been a great pleasure to serve with all of those 

Members, and they have done a great job, and I wanted to pass my 

congratulations on to them, to wish everyone a merry Christmas. 
32 

Mr. ANDREWS. And Jason Altmire. 

Chairman ROE. And Jason Altmire—I forgot my friend Jason 

from Pennsylvania—also served with great distinction. He was on 

and then off, and then back on, but he did serve here. We appreciate his service. 

I wish everyone a merry Christmas. 

Mr. ANDREWS. Ms. Hirono. 

Chairman ROE. And we could go on and on. Ms. Hirono is a Senator now. 

Anyway, we may have to get a whole list to read. 

But anyway, merry Christmas. We are adjourned. 

[Questions submitted for the record follow:] 

U.S. CONGRESS, 

Washington, DC, March 4, 2013. 

Hon. JOSHUA GOTBAUM, Director, 

Pension Benefit Guaranty Corporation (PBGC), 1200 K Street, NW, Washington, DC 

20005. 

DEAR DIRECTOR GOTBAUM: Thank you for testifying at the December 19, 2012 

Subcommittee on Health, Employment, Labor, and Pensions hearing entitled, ‘‘Challenges Facing Multiemployer Pension Plans: Evaluating PBGC’s Insurance Program 

and Financial Outlook.’’ I appreciate your participation. 

Enclosed are additional questions submitted by committee members following the 

hearing. Please provide written responses no later than March 18, 2013, for inclusion in the official hearing record. Responses should be sent to Benjamin Hoog of 

the committee staff, who can be contacted at (202) 225-4527. 

Thank you again for your contribution to the work of the committee. 

Sincerely, 

PHIL ROE, Chairman, 

Subcommittee on Health, Employment, Labor, and Pensions. 

QUESTIONS SUBMITTED BY CHAIRMAN ROE

1. For plan funding purposes, multiemployer plans calculate their expected assets 

using a hypothetical, yet actuarially ‘‘reasonable’’ rate of return. Please contrast this 

method with PBGC’s valuation methodology, and explain whether the plan funding 

rules appropriately reflect plan assets and liabilities. 

QUESTIONS SUBMITTED BY CHAIRMAN KLINE

1. Press reports regarding a speech you gave at the 58th Annual Employee Benefits Conference of the International Foundation of Employee Benefit Plans indicate 

that you called for new regulations on the standard of care for multiemployer plans. 

Can you elaborate, and describe how these new regulations would affect PBGC’s future sustainability? 

2. In 2012, PBGC’s Inspector General criticized the quality of the information fed 

into your Pension Insurance Modeling System. What steps have you taken to rectify 

this problem, and what remains to be done? 

QUESTIONS SUBMITTED BY CONGRESSMAN TIERNEY

1. Did Hostess stop making contributions to its single and/or multi-employer pension plans prior to filing for bankruptcy? 

2. Please detail the enforcement action(s) the PBGC can take to require a company to continue making contributions to its pension plans if it has stopped doing 

so. Is such enforcement action the same for both single and multi-employer plans? 

If not, please explain. 

3. When Hostess stopped making contributions to its single and/or multi-employer 

pension plans, did the PBGC utilize all of the enforcement authority available to 

them under the law? If not, why not? 

4. Does the PBGC believe it has sufficient enforcement authority to effectively 

deter and/or appropriately remedy future cases where a company stops making contributions to its pension plans? If not, please elaborate and provide specific recommendations (including technical assistance, if available) for amending the relevant statute(s). 
33 

QUESTIONS SUBMITTED BY CONGRESSMAN SCOTT

1. If a company in a multiemployer plan files for bankruptcy, do the other companies in the plan inherit the full responsibility for paying the withdrawn company’s 

obligations in the pension fund? If so, is there any relief for a small company which 

represents only a minor portion of a large plan and which may be financially unable 

to pay the additional costs? 

2. Do many multiemployer plans approach a ‘‘tipping point,’’ where insolvent companies are leaving and the surviving companies are having so much trouble paying 

the increasing obligations of the departing companies that others become insolvent, 

resulting in a cascade of insolvencies and ultimate total failure of the plan? 

3. What premium adjustment or statutory change would be necessary in order for 

PBGC to be obligated to pay the proportional liability of any single employer in a 

multiemployer plan that leaves a plan due to bankruptcy? 

4. If a company in a multiemployer plan goes bankrupt, and then reorganizes and 

becomes solvent again, are its past pension obligations revived? 

5. What happened to the pension obligations of the automobile companies that received assistance through the federal bailout? 

6. How much risk could be mitigated if companies in multiemployer plans were 

required to invest a significant proportion of their investment assets in insurance 

products, where the risk of the vagaries of the stock market would be borne by the 

private insurance and not the plan itself? 

[Response to questions submitted follow:] 
34 

1 Actuarial discretion for multiemployer funding purposes generally continued under the Pension Protection Act of 2006 (PPA). In single-employer plans, the actuary’s assumed interest rate 

(and mortality table) has been historically more closely regulated by statute. PPA specified the 

interest rate that all single-employer plans must use, based on average segment rates on the 

corporate bond yield curve for the preceding 24 months; the Moving Ahead for Progress in the 

21st Century Act (MAP-21) funding relief allowed the segment rates to be adjusted if they are 

below or above certain percentages of the average of the rates for the preceding 25 years. 2 Based on a 60%-40% allocation of equities to bonds, average returns exceeded 8% for the 

85-year period preceding 2012; topped 14% for the 20-year period preceding 2000; but barely 

broke 1% for the 2000s decade. 

Mr. Gotbaum’s Response to Questions Submitted for the Record 

QUESTIONS SUBMITTED BY CHAIRMAN ROE

1. For plan funding purposes, multiemployer plans calculate their expected assets 

using a hypothetical, yet actuarially ‘‘reasonable’’ rate of return. Please contrast this 

method with PBGC’s valuation methodology, and explain whether the plan funding 

rules appropriately reflect plan assets and liabilities. 

Current law supplies multiemployer plans with more actuarial discretion in measuring assets and liabilities for funding purposes than single-employer plans. The 

methods of measurement used by PBGC are different from either multiemployer or 

single-employer plans. 

Multiemployer Return Assumptions Most multiemployer plans with more than $1 

billion in liabilities used an assumed rate of return between 7.5% and 8.5% for the 

2010 plan year.1 The average assumed rate of return for all multiemployer plans 

was 7.5%. These assumptions have been the subject of some criticism because returns in the past decade have been much lower and consensus forecasts for the next 

decade are also below 7.5%. However, the 7.5%-8.5% range is consistent with market returns in previous decades and with historical returns over longer periods of 

time.2

Multiemployer Asset Valuations Multiemployer plans also have more discretion in 

valuing assets for actuarial purposes than single-employer plans. Actuarial valuations are generally not based on current market values, but instead use a 

‘‘smoothed’’ value of assets, recognizing market value gains and losses over five 

years (10 years for 2008-9 losses under PRA 2010 funding relief). 

Actuarial discretion in plans’ methods and assumptions (e.g., the interest rate 

used for measuring liabilities and the smoothing period for measuring assets) has 

an effect on the funded percentage and has reduced the effect of mandatory funding 

requirements. In addition, it affects plans’ certified status as endangered or critical. 

While plans must also separately disclose to participants the market value of assets, 

they need not disclose the market value of their liabilities. 

PBGC Asset and Liability Valuation Both PBGC’s assets and liabilities are reported at current market levels and are not ‘‘smoothed’’ or subject to actuarial discretion. The interest rate used to determine PBGC’s liabilities is derived from a survey of market quotes for comparable annuities. PBGC and its independent auditors 

believe this approach fairly and accurately represents the financial situation of 

PBGC. 

QUESTIONS SUBMITTED BY CHAIRMAN KLINE

1. Press reports regarding a speech you gave at the 58th Annual Employee Benefits 

Conference of the International Foundation of Employee Benefit Plans indicate that 

you called for new regulations on the standard of care for multiemployer plans. Can 

you elaborate, and describe how these new regulations would affect PBGC’s future 

sustainability? 

What I said was that plans need less burdensome regulation and more flexibility. 

Employers will only be willing to sponsor defined benefit plans if there is more flexibility in plan design, cost-sharing, and funding for these plans. For example, the 

single-employer and multiemployer plan communities are discussing new hybrid 

plan designs that minimize contribution volatility and underfunding risk. Innovative 

changes in law and regulation will be needed to allow these new plan designs to 

work and to encourage companies to continue to provide retirement plans to their 

employees. 

Clearly, preserving pension plans is necessary to the preservation of PBGC, but 

it’s not enough. As I testified before the subcommittee, PBGC’s financial situation 

is unsound and its resources and authorities are inadequate to help distressed plans 

avoid insolvency and fund the benefits of plans that fail. 
35 

3Over the years, PBGC’s Single-Employer Pension Insurance Modeling System (SE-PIMS) has 

been reviewed and discussed in published reports. Several years ago, PBGC provided the model 

to the Society of Actuaries, which reviewed it and has begun using it in their own published 

reports. 

The Multiemployer Pension Insurance Modeling System (ME-PIMS), which is newer than SEPIMS, was designed in 2007, before implementation of the PPA changes for multiemployer 

plans. PBGC is revisiting certain ME-PIMS assumptions to better reflect current experience 

under PPA as a basis for ME-PIMS projections, but the ERISA agencies obtain information 

about how plans are responding to PPA only gradually. PBGC commissioned an external review 

of ME-PIMS by an outside consulting firm with substantial multiemployer experience and received recommendations for changes in September 2012. We are now in the process of reviewing 

and incorporating the consultant’s suggestions for improvements. 4MAP-21, sec. 40233(a), states: ‘‘The Pension Benefit Guaranty Corporation shall contract 

with a capable agency or organization that is independent from the Corporation, such as the 

Social Security Administration, to conduct an annual peer review of the Corporation’s SingleEmployer Pension Insurance Modeling System and the Corporation’s Multiemployer Pension Insurance Modeling System. The board of directors of the Corporation shall designate the agency 

or organization with which any such contract is entered into. The first of such annual peer reviews shall be initiated no later than 3 months after the date of enactment of this Act.’’ 

2. In 2012, PBGC’s Inspector General criticized the quality of the information fed 

into your Pension Insurance Modeling System. What steps have you taken to rectify 

this problem, and what remains to be done? 

As detailed in the Inspector General’s report, in preparing several reports, the 

staff of our Policy, Research and Analysis Department (PRAD) made careless errors 

(generally in copying numbers from one place to another) and did not check their 

own work. They compounded these errors by not keeping their work papers. Our 

IG found these errors, and also noted that PRAD’s procedures weren’t adequately 

documented. We immediately made the changes recommended by the IG and are 

making additional process improvements as appropriate. All reports are now separately reviewed by others and procedures are being more carefully documented. 

Although issues documented by the IG arose in reports that used our pension insurance modeling systems (PIMS), the Inspector General was careful to note that 

her staff was not expressing an opinion on the quality of those models themselves. 

We believe that PBGC’s pension insurance modeling systems are the best tools 

available by far for information and projections concerning the defined-benefit pension-plan universe. Most analysts in the actuarial and economic communities agree 

that PBGC’s models remain the best tools available. 

That does not mean that we cannot and will not review them to make them even 

better. We do.3 We will continue to work to improve them as we better understand 

trends in the economy and in pension practices and as our information improves. 

The Moving Ahead for Progress in the 21st Century Act (MAP-21) requires an additional independent annual peer review of PBGC modeling systems.4 PBGC responded by contracting for a review by the Social Security Administration and outside consultants. We will incorporate the results of those reviews in future improvements. Nonetheless, it would be wrong to conclude that the financial unsoundness 

of PBGC or of some multiemployer plans is the artifact of modeling error. 

QUESTIONS SUBMITTED BY REPRESENTATIVE TIERNEY

1. Did Hostess stop making contributions to its single and/or multi-employer pension plans prior to filing for bankruptcy? 

Hostess Brands made required contributions to its single-employer plan until it 

filed for reorganization under Chapter 11 in January 2012. Hostess stopped making 

those required contributions once it entered bankruptcy. 

Hostess stopped making annual contributions to multiemployer plans in August 

2011, a few months before it filed for bankruptcy. 

In November 2012, a bankruptcy judge approved Hostess’ request to shut down 

its operations and liquidate its business. Hostess’ withdrawal from 41 multiemployer plans in which it participates triggered an obligation under ERISA for Hostess to pay its share of the plans’ underfunding. These obligations total nearly $2 

billion. Only a tiny fraction of that amount will be recovered and paid to the plans. 

2. Please detail the enforcement action(s) the PBGC can take to require a company 

to continue making contributions to its pension plans if it has stopped doing so. Is 

such enforcement action the same for both single and multi-employer plans? If not, 

please explain. 

PBGC’s enforcement authorities are very different for single-employer plans and 

multiemployer plans. 
36 

For single-employer plans, PBGC has the authority to file liens against the sponsor and its non-debtor controlled group members if missed contributions exceed $1 

million. However, once a company files a Chapter 11 petition, the situation changes. 

Under bankruptcy law, PBGC cannot file liens against companies for contributions 

missed during bankruptcy. 

For multiemployer plans, PBGC has no authority to require employers to make 

contributions. That authority is held only by plan trustees. Plan trustees lack 

PBGC’s ability to file liens for non-payment of required contributions. Trustees must 

first obtain a judgment in federal court for the unpaid contributions, but by the time 

such a judgment is obtained, the employer may have entered bankruptcy, preventing the trustees from filing a lien. 

The plan trustees are also responsible for collecting withdrawal liability from employers that leave the plan. (PBGC has no enforcement authority with respect to 

such collections.) Because a bankrupt company’s withdrawal liability is generally 

discharged in bankruptcy and is generally an unsecured general claim that enjoys 

no priority, plans usually collect only a tiny fraction of the obligation of bankrupt 

withdrawn employers. 

3. When Hostess stopped making contributions to its single and/or multi-employer 

pension plans, did the PBGC utilize all of the enforcement authority available to 

them under the law? If not, why not? 

Once Hostess stopped making contributions to its multiemployer plans and, after 

filing, its single-employer plan, PBGC had no authority to change Hostess’s actions. 

Hostess’ single-employer plan will terminate and be trusteed by PBGC. PBGC can 

and will pursue claims for contributions missed during bankruptcy and plan underfunding of $62 million in bankruptcy. However, because PBGC’s claims are generally treated as unsecured claims in bankruptcy, the recoveries are generally only 

a small fraction of the plan’s obligations. 

4. Does the PBGC believe it has sufficient enforcement authority to effectively deter 

and/or appropriately remedy future cases where a company stops making contributions to its pension plans? If not, please elaborate and provide specific recommend 

actions (including technical assistance, if available) for amending the relevant statute(s). 

PBGC does not have authority to require company contributions to pension plans. 

With such authority under the single-employer program, the agency would be better 

able to protect pensions, particularly during the bankruptcy process. 

Furthermore, ongoing pension contributions, unlike other ongoing employee costs, 

are generally not considered a priority expense in bankruptcy. 

QUESTIONS SUBMITTED BY REPRESENTATIVE SCOTT

1. a. If a company in a multiemployer plan files for bankruptcy, do the other companies in the plan inherit the full responsibility for paying the withdrawn company’s 

obligations in the pension fund? 

Yes. When a contributing employer to a multiemployer plan files for bankruptcy 

or otherwise fails to pay assessed withdrawal liability, the remaining employers in 

the plan become responsible for the benefits earned with that employer. If the plan 

is underfunded, the benefits must be funded by the remaining employers. 

Even if the plan is well-funded in the year of an employer’s bankruptcy or withdrawal, the plan could later incur a substantial loss in assets (e.g., due to investment losses) resulting in the underfunding of plan benefits. In these circumstances, 

plans attempt to preserve the plan by increasing contributions from current employers and/or reducing future benefit accruals for current employees. 

Problems arise when there has been a significant drop in the number of contributing employers in a plan, and the number of inactive participants (many of whose 

employers have left the plan) greatly exceeds the number of active participants. If 

such a plan becomes significantly underfunded, steep increases in plan costs can put 

enormous pressures on a small pool of employers and employees to support the liabilities of a much larger group of inactive participants. 

b. If so, is there any relief for a small company which represents only a minor portion of a large plan and which may be financially unable to pay the additional costs? 

Yes. Withdrawal liability is calculated based on a company’s level of contributions 

to a plan, so a small company with small contributions will face a smaller liability 

if it chooses to withdraw. Also, in some cases, plan trustees provide the bargaining 

parties with alternative schedules of varying contribution rates and benefit reductions, enabling small employers to negotiate less onerous contribution terms with 

commensurately lower benefits for their employees. 
37 

Nonetheless, some plans and employers report that their circumstances are such 

that these measures, by themselves, are insufficient, that some companies will 

choose to withdraw or be forced to declare bankruptcy, and that the risk to plans 

is that other employers will follow and cause mass withdrawal from a plan. 

2. Do many multiemployer plans approach a ‘‘tipping point,’’ where insolvent companies are leaving and the surviving companies are having so much trouble paying 

the increasing obligations of the departing companies that others become insolvent, 

resulting in a cascade of insolvencies and ultimate total failure of the plan? 

We don’t have enough current information to be sure, but we don’t think that 

most of the more than 1,300 ongoing plans are or will be at such a point. Nonetheless, some plans clearly will be. These generally are plans that are both seriously 

underfunded and for which the base of active employers is too small for that underfunding to be remedied by increased contributions and/or reduced future accruals. 

Such plans are often found in industries that have undergone major transformation 

involving multiple bankruptcies, such as textiles, furniture-making, or printing, but 

there are severely distressed plans in other industries as well. 

3. What premium adjustment or statutory change would be necessary in order for 

PBGC to be obligated to pay the proportional liability of any single employer in a 

multiemployer plan that leaves a plan due to bankruptcy? 

In order for PBGC to be able to pay the obligations of employers that become 

bankrupt, PBGC would need much greater financial resources. At present, we cannot say with any confidence what increase in premiums would be necessary. We are 

undertaking analyses to try and develop estimates. 

ERISA allows a plan to apply to PBGC for a plan ‘‘partition,’’ transferring to 

PBGC the liabilities attributable to service with employers that withdrew from the 

plan as a result of bankruptcy. The purpose is to keep the plan viable for the remaining employers by relieving them of the significant unfunded liabilities left behind by bankrupt employers. However, this tool has been rarely used, as partition 

is limited only to those participants that are ‘‘orphaned’’ as a result of formal bankruptcy proceedings and not for other cases. Furthermore PBGC currently lacks the 

financial resources to fund partitions. We are currently working to quantify the 

number of plans that would be helped by a partition-type solution and what the associated costs might be. 

4. If a company in a multiemployer plan goes bankrupt, and then reorganizes and 

becomes solvent again, are its past pension obligations revived? 

Generally not. If pension commitments are extinguished in bankruptcy, then 

bankruptcy law acts to prevent any restoration after emergence from Chapter 11. 

Some companies in bankruptcy will negotiate with the union to remain as a contributing employer to the plan after reorganization. In those cases, pension obligations 

remain in place. 

5. What happened to the pension obligations of the automobile companies that received assistance through the federal bailout? 

General Motors (GM), Chrysler, and Ally Financial (formerly GMAC and still partially owned by GM in 2008) received assistance through the Automotive Industry 

Financing Program (AIFP) under the U.S. ‘‘Troubled Assets Relief Program’’ 

(TARP). 

GM currently sponsors pension plans for its hourly and salaried employees. However, in 2012 GM announced that it was eliminating its obligations to salaried employees and retirees in several ways: (a) certain retirees in the salaried plan were 

offered a one-time lump-sum payment instead of receiving their pensions, (b) the 

pension obligations of those retirees who chose not to take the lump-sum payment 

were transferred by GM to the Prudential Insurance Company, and (c) active participants and those retiring after December 1, 2011, were moved to a new salaried 

pension plan with a lump-sum payment option available at retirement (note that 

GM froze this new salaried plan in late 2012). GM terminated the old salaried plan 

as well as a cash balance plan where the employees were offered the choice between 

receiving an annuity and a lump sum. 

Chrysler currently sponsors pension plans for its hourly and salaried employees. 

In 2009, PBGC obtained an agreement from Daimler AG, then a Chrysler plan 

sponsor, to contribute $600 million to the Chrysler pension plans. In 2012, Chrysler 

terminated a small cash balance plan that was fully funded. In June 2013, Chrysler 

announced that it would freeze its U.S. defined benefit plans for salaried employees 

effective December 31, 2013. (Note that these plans were closed to new hires effective December 31, 2003. Salaried employees hired on or after January 1, 2004, were 

eligible for a 401(k) plan.) The freeze affects about 8,000 employees, who will now 

receive contributions from Chrysler in the 401(k) plan. 
38 

In 2012, Ally Financial offered terminated vested participants in its pension plan 

a lump-sum payment in lieu of an annuity. 

6. How much risk could be mitigated if companies in multiemployer plans were 

required to invest a significant proportion of their investment assets in insurance 

products, where the risk of the vagaries of the stock market would be borne by the 

private insurance and not the plan itself? 

Federal law has never required pension plans to invest in any particular form of 

investment. For those plans that are significantly underfunded, investment in the 

vast majority of insurance or fixed income products does not mitigate or exacerbate 

insolvency risk. Investment policy and the mitigation and diversification of risk are 

significant issues for multiemployer plans. 

[Whereupon, at 11:28 a.m., the subcommittee was adjourned.] 

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