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Grassley on the Multiemployer Pension Recapitalization and Reform Plan

November 20,2019

Prepared Floor Statement
by U.S. Senator Chuck Grassley of Iowa

Chairman, Senate Finance
Committee

Wednesday, November 20,
2019

The
financial crisis facing the private-sector multiemployer pension system calls
for comprehensive reform. The crisis is severe and growing worse every day.

Around 125 multiemployer plans are in so-called “critical and
declining” financial status, and they report that they will become insolvent
over the next two decades. Several large plans – including the United Mine
Workers Pension Fund and the large Central States Pension Fund – predict that
they will become insolvent in the next few years.

This will leave more than 1.3 million participants without the
pension benefits they have been promised.

In Iowa, the benefits of close to 10,000 participants of
multiemployer plans are at risk if the system fails. That represents over $70
million in benefits paid out annually that these individuals rely on in
retirement.

More broadly, another large group of multiemployer plans are in
“critical status.”  They report that no realistic combination of contribution
increases or allowable benefit reductions – options available under current law
to address their financial condition – will enable them to emerge from their
currently poorly funded financial condition. These plans cover millions more
workers and retirees across the nation, and those workers and retirees face
significant benefit cuts under existing laws.

We
should also be concerned about the financial health of the federal insurance
system that is intended to back these retirement benefits. The Pension Benefit
Guaranty Corporation’s multiemployer pension program may itself become
insolvent if only one, or possibly two, large multiemployer plans become
insolvent. And, one of these plans – the United Mine Workers – just lost its
last large contributing employer to bankruptcy.

Without
reforms, the PBGC reports it will be insolvent no later than 2026. When that
happens, PBGC will not be able to pay either current or future retirees more
than a very small fraction of the benefits they have been promised.
Consequently, substantial reductions in retirement income are a real
possibility for the millions of workers and retirees who depend on benefits
from these plans.

We need to act soon to protect the hard-earned pension benefits of
the workers who participate in these plans.

As
Chairman of the Finance Committee, I join today with Chairman Alexander of the
HELP Committee to release a responsible reform plan to address the immediate
financial challenges of a number of plans in critical financial condition and
also secure the multiemployer pension system over the long term.

As
we looked at options for reforming the current system, we have relied on
several important reform principles.

First,
a reform plan should provide balanced assistance to the most poorly funded
plans.

Second,
federal assistance to the failing plans should rely on as little taxpayer
dollars as possible.

Third,
reforms must promote long-term stability of the multiemployer pension system
and the long-term solvency of PBGC.

Finally
– and most importantly – reform options must focus on workers and retirees.
That is, the reforms must ensure as much as possible that when workers retire,
the benefits they have been promised by their employers and unions are there
for them.

The
relief and reform proposal we are releasing today adheres to those principles
and gives us a realistic path for securing multiemployer plans and the benefits
they have promised to workers in each of our states.

To
help the sickest plans recover their financial footing, our proposal creates a
special “partition” option for multiemployer plans. This is not a new concept.
In fact, it simply expands on the PBGC’s existing authority. It’s based on
banking industry reforms Congress enacted after the Great Depression and other
times.

Partitioning
permits employers to maintain a financially healthy multiemployer plan by
carving out pension benefit liabilities owed to participants who have been
“orphaned” by employers who have exited the plan without paying their full
share of those liabilities. Removing orphan liabilities allows the original
plan to continue to provide benefits in a self-sustaining manner by funding
benefits with contributions from current participating employers. In effect,
partitioning creates a “healthy pension” that continues to meet all of its
obligations to retirees, and a separate “sick pension” that requires attention
and assistance from the PBGC.

For
this partition program to operate effectively and address the plans that are in
immediate danger, a limited amount of federal taxpayer funds will be needed to
support the PBGC. We expect the necessary federal resources to comprise only a
small portion of the financial assistance provided to the faltering
multiemployer plans, and we intend to offset the cost. We should all acknowledge
the reality that action now means lower taxpayer involvement than if we wait
for the PBGC to become insolvent, which would lead to a far larger commitment
of taxpayer funds in the not-too-distant future.

Over
the long run, the reforms we are proposing will be sustained primarily by
shared-sacrifice funding reforms and a new premium structure for all
stakeholders of the multiemployer plans.

Because
taxpayer dollars would be at risk if the sickest plans fail to move to fully
funded status, the proposal also includes a number of plan-governance reforms
to strengthen multiemployer plans, protect the taxpayers’ contributions to the
overall reforms, and shield taxpayers from future risks.

While
partitioning addresses one element needed for reform, Senator Alexander and I
propose to go a step further to make significant changes to the management and
operation of all multiemployer pension plans. That way, moving forward, the
entire multiemployer pension system will be better funded and more transparent
to participants, sponsoring employers, and government regulators.

Providing relief to critical and declining plans is contingent on
making changes to the legal framework of the multiemployer pension system to
ensure that all plans operate on a sound financial basis in the future.

To help finance the partition relief and provide a stronger PBGC
insurance guarantee to participants in the system, our reform proposal creates
a new premium structure.

That includes raising the flat-rate premium to $80 per participant
in a multiemployer plan, putting the multiemployer program on par with the
single-employer guarantee program.

The new premium structure also broadens the base on which premiums
are assessed to more equitably spread the costs of insuring benefits and to
ensure PBGC solvency.

The new structure applies a co-payment to active workers and
retirees. However, because of the broader contribution base, the co-payments
are significantly less than the amount of the typical benefit cuts retirees
face under current law if their plan should fail. Older retirees and disabled
participants also will be protected.

In
addition, our reform package establishes a variable-rate premium. This premium,
which parallels the variable-rate premium that has long applied to
single-employer plans, is tied to a plan’s funding status to manage risks
stemming from more poorly funded plans.

The new premium structure not only helps to secure finances of the
PBGC, but also funds an increase in the guaranteed benefit level for the vast
majority of participants in the system. Raising the guaranteed benefit will
greatly reduce the risk to retirees of significant reductions in retirement
income, which would occur if their multiemployer plan becomes insolvent.

While
the changes to the premium structure will fundamentally strengthen the
financial status of the multiemployer pension system and the PBGC, our reform
proposal makes other important structural changes to the multiemployer system
to help ensure that the entire system moves to a well-funded status over the
long term.

We
achieve this by addressing key flaws in the current legal framework governing
multiemployer plans.

Current
multiemployer-plan rules do not serve the best interests of workers and
retirees. They have not been sufficient to keep plans in good financial health,
and they tend to underestimate liabilities and result in insufficient
contributions to the plans.

To
ensure that benefit promises offered in a multiemployer plan ultimately are
met, our proposal strengthens the rules for measuring the value of promised
pension benefits and the amount of employer contributions necessary to pay them
when the worker retires.

These
changes will require plan trustees and actuaries to measure and project plan
assets and liabilities more prudently and accurately. They also are designed to
help move plans toward full funding and to protect the interests of plan
participants and taxpayers.

Our
reform proposal also improves the so-called “zone” rules. Plans will be
required to look farther into the future when estimating their financial status
and institute a form of “stress testing” to check whether a plan can remain
financially sustainable through potential economic and demographic stresses.
Depending on its health, plans will have to bolster the steps they take when
signs of financial hardship arise.

We
also replace current withdrawal-liability rules with a simpler, more
transparent, and consistent method for determining an employer’s liability if
it withdraws from a multiemployer pension plan.

Looking
to the future, the proposal includes a new option for sponsors of multiemployer
plans to establish a new hybrid pension plan – called a “composite” plan.

We
have heard a great deal of interest from smaller businesses and their workers
about the benefits of a composite plan approach, including less costly
operations, and more certainty in the financing of these plans.

To
close, let me say that there are no perfect solutions to the multiemployer
pension crisis. The longer we wait, the harder it gets. What’s more, our
solution is far better than allowing the system to continue on its current path
to collapse, and far better than merely throwing federal money into the plans
without changing how they operate.

The
House has essentially advanced a pure, no-strings-attached, bailout plan that
would give taxpayer funds to plans in the hopes that they can somehow earn
returns sufficient to keep them going. But the nonpartisan Congressional Budget
Office tells us that the House’s proposal will not generate sustainability of
pension plans or the PBGC. In contrast, the proposal we are releasing today
addresses the immediate needs of the few multiemployer plans facing immediate
crisis in a manner that protects participant benefits and ensures a sustainable
multiemployer pension system for the long haul, all in a fiscally responsible
way.

Our
proposal is not a giveaway to corporations or to unions. And, it is a better
deal for taxpayers than a future with even larger problems and PBGC funding
needs that will almost surely be met with taxpayer backing.

All
participants in the system would make a sacrifice – employers, unions, workers,
and retirees – which is fair and responsible.

But
with some shared pain will come significant shared gain. That will be to the
benefit of over one and a half million participants in about 125 multiemployer
plans that are in serious financial jeopardy. And it will be to the benefit of
the rest of the multiemployer plans and their participants by providing a
stronger system for the long haul and by promoting long-term solvency of the
PBGC.

Senator
Alexander and I offer this proposal as a path forward for a multiemployer
pension system in crisis. I look forward to working with my colleagues in the
United States Senate and in the House to advance this proposal, compromise
where needed, and get it to the President’s desk before more pension holders
face losses of the benefits that they earned and were promised.

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