The House Education and Labor Subcommittee on Health, Education, Labor, and Pensions hearing on the multiemployer pension crisis on March 7, 2019, reflected a continued tension between Democrats, who urgently want legislation to provide loans to the most distressed plans to prevent massive cuts in benefits, and Republicans, who view such a move as a bailout that ignores structural changes necessary to prevent continued problems in the system.

The issues are still the same as last year, when a November 30 deadline for a Joint Select Committee on the issue came and went without a solution that could have been considered in Congress under an expedited process. What has changed is the House is now controlled by Democrats, and full Committee Chairman Bobby Scott (D-VA) (Education and Labor) and Ways and Means Chairman Richard Neal (D-MA) are very active on the issue and are expected to act on legislation this year. Neal’s first bill of the new Congress was the Rehabilitation for Multiemployer Pensions Act (H.R. 397), also known as the Butch-Lewis Act, to address the multiemployer crisis, including through new Treasury Department bond authority.

During her opening statement, Subcommittee Chairman Frederica Wilson (D-FL) cited the most urgent situations in the crisis: the Central States Teamsters plan, which covers more than 900 workers and retirees in her district, and the mineworkers’ plan are both projected to be insolvent around 2022. Wilson said the important thing is “not how much it costs to fix the multiemployer pension crisis, but how much it will cost retirees, employers, and taxpayers if we do not act.”

Witnesses at the hearing were:

1. Joshua Shapiro, Vice President, Pensions, American Academy of Actuaries
2. Mary Moorkamp, Chief Legal Officer, Schnuck Markets, Inc.
3. James Morgan, Blue Island, IL Retired Hostess shop steward, 33 years of service
4. James Naughton, Assistant Professor of Accounting Information & Management at the Kellogg School of Management at Northwestern University
5. Glenn Spencer, Senior Vice President, U.S. Chamber of Commerce
6. Charles Blahous, J. Fish and Lillian F. Smith Chair and Senior Research Strategist at the Mercatus Center at George Mason University
7. Mariah Becker, Director of Research and Education, National Coordinating Committee for Multiemployer Plans (NCCMP)

As many have before them, former workers and officials from companies that participated in multiemployer plans testified regarding the financial strain resulting from the system and impending plan insolvency. The other witnesses testified regarding the mechanics of the crisis.

Shapiro said nearly all multiemployer plans had to take corrective action following economic downturns between 2000 and 2010, including reductions in benefit accruals and increases in contribution rates, and while a large majority of plans have been able to weather the storm, around 130 multiemployer plans covering well over 1 million participants are projected to fully exhaust their assets in the coming 20 years.  He said without congressional action, participants would see benefit cuts of 90% or more.

Moorkamp noted that lenders were increasing borrowing charges due to the looming Central States crisis.  She said that each new driver her company hired, if the driver had been in a multiemployer plan, brought $268,000 in increased withdrawal liability.

Naughton said there are two main decisions to be made regarding the crisis: past underfunding, and who will cover the shortfall that has arisen because of the difference between what the unions promised their members and what the unions collected from employers to cover these promises; and how to ensure that underfunding does not deteriorate further and the system stays on a sustainable path. He recommended moving to a system based on annuities, with actuarially-sound employer contributions pegged to a lower discount rate and leading to annuity contracts upon retirement.

Blahous, who was an economic staffer to President George W. Bush in various positions, including as executive director of the bipartisan Commission to Strengthen Social Security, said multiemployer pensions are less than 50% funded relative to their current liabilities and there is more than $600 billion of underfunding in multiemployer pensions, meaning a failure to reform the system threatens huge costs.

Q&A

During member questioning, Walberg pointed out that, according to the PBGC, less than 2% of multiemployer plan participants are in plans that are more than 70% funded, while 95% of plan participants are in plans that are less than 60% funded, and that the problem in the system goes well beyond Central States. He asked the witnesses if new underfunding was being created each year.  Naughton responded that there is new underfunding being added each year, and that it is not limited to ‘red’ and ‘yellow’ zone plans.

Rep. Phil Roe (R-TN), calling into question the central provision of the Neal legislation, asked how it would improve the system for the federal government to loan money to a company that can’t pay it back. The Chamber of Commerce witness pointed out that the preferred solution included not just loans, but also plan restructuring.

Rep. Rick Allen (R-GA) suggested that a “Band-Aid” approach is not going to fix problems in the system, especially against the backdrop of $22 trillion in federal debt. Blahous said he hasn’t really seen proposals to fix the structure of the system, which has problems that are difficult to solve. He later said that, for certain large plans, the story isn’t going to end with a fix to immediate problems, and there are additional plan failures over the horizon unless there are structural changes.

Blahous said he disagreed that the multiemployer crisis resulted from market shocks, saying the single employer system has been through same experience and is in much better condition, in part because single employers have rebuilt their financial position in recovery years in a way that multiemployers have not.

Under questioning from Rep. Dan Meuser (R-PA), Spencer, who testified that composite plans must be authorized so that healthy multiemployer plans can stay that way, said the plans would freeze accruals in existing DB plans; composite plans would be funded at 100% and privately managed, with no need for the PBGC to backstop them. Composite plans would be authorized by the Give Retirement Options to Workers (GROW) Act introduced by Committee members Phil Roe (R-TN) and Donald Norcross (D-NJ) in the last Congress.

Rep. Lori Trahan (D-MA) asserted that protecting the dignity of Morgan and other participants requires immediate action. In addition to other factors cited as contributing to the crisis, including a lopsided number of retirees to workers and the deregulation of trucking and other industries, she asked about declining union membership and what impact that has had. Shapiro said it made it harder for plans to recover from other factors that cause downturns, and cited Naughton’s earlier statement to the effect that you take risks when they can be properly managed. Even in light of declines in the stock market, he said, the majority of plans emerged unscathed, illustrating a fair amount of resiliency in the system. But for some, risk absorption mechanisms were insufficient and the focus going forward should be on restoring a balance between risks taken and the ability to absorb risks.

Full Committee Ranking Member Virginia Foxx (R-VA) asked Naughton whether unions and employers were fully funding plans or meeting minimum contributions under collective bargaining agreements. Naughton said negotiations focused on minimum contributions and, like credit card minimum payments, the balance eventually becomes out of control.

Testimony is here.

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