The Pension Rights Center is a nonprofit consumer organization that has been working since 1976 to promote and protect the retirement security of American workers and their families. We are pleased that the Senate Finance Committee is holding today’s hearing, “The Multiemployer Pension Plan System: Recent Reforms and Current Challenges.” We hope that the hearing will jumpstart a serious conversation on saving critically underfunded pension plans without the cruel and unfair benefit cuts authorized by the Multiemployer Pension Reform Act. In December 2014, Congress passed the Multiemployer Pension Reform Act (MPRA) as part of the comprehensive end-of-year spending bill. MPRA’s cutback provisions eviscerated forty years of pension law and paved the way for gutting the pensions of hundreds of thousands of today’s retirees and workers.
It is noteworthy that this is the first hearing to be held by any congressional committee on the legislation itself. Hearings were held in one committee of the House of Representatives on a trade group proposal to permit benefit cuts, but the 161-page legislative language was never the subject of hearings and was invisible to the public until its passage was a fait accompli. Retirees and former employees had no seat at the table and no voice in the legislative product, which was only considered in the Rules Committee as an amendment to the rule governing debate on the so-called “Cromnibus” legislation in the House. Neither the U.S. House of Representatives nor the U.S. Senate ever voted separately on the language of this bill, and many Members were unaware of its implications when they voted on the massive funding bill. The process was unconscionable; the legislation would never have emerged from an open, transparent, and democratic process.
Forty-one years ago Congress passed a different law that emerged from almost a decade of legislative and societal debate; a debate driven by government and private-sector failure to ensure that American working people and retirees, and their families, could count on the pension promises made to them.
This law, of course, was the landmark federal private pension law called the Employee Retirement Income Security Act (ERISA). ERISA’s chief goal was to protect the reasonable expectations of workers and retirees. Among its unbending and foundational principles, ERISA ensured that once individuals earned pensions, they could not be reduced absent the exceptional circumstance of the failure of a single employer pension plan, or when a multiemployer plan completely ran out of money. Even then, retirees were provided the maximum protections under the law and had first claim to the plan’s assets, since Congress recognized that they were the most vulnerable participants and would not have time, or the ability in many cases, to go back to work and make up for the lost pension benefits.
MPRA, however, undoes these critical protections by giving plan trustees extraordinary and almost unreviewable power to “suspend” – a euphemism for slashing – already-earned benefits in certain underfunded multiemployer plans, including the benefits of most retirees. Furthermore, these cuts can happen today, 10 to 15 years before even the most troubled plans are projected to become insolvent. Congress would have had sufficient time to consider better solutions during that time. Retiree cutbacks should have been the last option on the table, not the first.
The plan trustees endowed with these new and extraordinary powers are not neutral, objective, and independent actors. Rather, they are appointed by the bargaining representatives of active employees and by the contributing employers, and as such have profound structural conflicts of interest. They will, as the MPRA statute implicitly invites them to do, seize retiree property for the benefit of those they represent. Shockingly, the statute dilutes to almost nothing whatever legal duty the trustees might have had to retirees and even purports to bar retirees from bringing legal actions challenging the trustees’ decisions.
The Central States Pension Fund is the first plan to apply to cut benefits, and it graphically illustrates how these conflicts will play out. The cuts to the benefits of retirees and former employees are far steeper than the cuts to active employees, and future financial obligations of contributing employers to the plan have been implicitly reduced. Hence the burden of balancing the books of these plans falls almost entirely on retirees. Indeed, almost a third of retirees face cuts from 40 percent to more than 70 percent (and in a few cases, 100 percent).
And perhaps the supreme irony is that the benefit cuts are unlikely to preserve the plan in the long run. To make its application work, the actuaries for the Central States Pension Fund claim that it is reasonable to believe that Central States will earn a 7.5 percent return on investments going forward, an assumption that the experts we have consulted think is inappropriate in general and for this plan in particular.
The Pension Rights Center has submitted comments to the U.S. Treasury Department urging the agency to reject the Central States’ application because we do not believe the plan has met the statutory criteria required for benefit cuts to be permitted. However, we are concerned that if the Treasury decides, against the evidence, to approve the application, it could spur many more plans to submit their own applications to cut benefits. We are concerned that these cuts will be as extreme and as unfairly distributed as is the case for the Central States’ participants.
Now that the full effects of the Multiemployer Pension Reform Act have been exposed, Congress simply cannot walk away from MPRA’s cruelty and unfairness. If the proposed benefit cuts go into effect, many retirees will no longer be able to pay their mortgages, or pay for medicines or other necessities, or be able to take care of family members who have relied on them. Growing demand for financial support could put increased strain on governments at the federal, state and local levels, in addition to charitable and community support groups that are still overwhelmed by demand in areas where the economic recovery has not yet taken hold.
There are alternatives to this potentially nightmare scenario. Despite the claims of those who wrote and lobbied for MPRA, little effort was made to fashion a different solution to the multiemployer pension plan problem. These lobbyists determined that the brunt of the financial hit from rescuing these plans would be borne by retirees who were not at the table. Once this decision was made, little or no effort was made to explore alternatives that might have spread the financial burden more broadly.
However, the Pension Rights Center has supported alternatives. For example, S. 1631, the Keep Our Pension Promises Act (KOPPA), is currently pending before this Committee and is sponsored by two Committee members, Senator Sherrod Brown and Senator Debbie Stabenow. KOPPA would roll back MPRA’s pension-cut provisions, while providing funding to troubled multiemployer plans and the Pension Benefit Guaranty Corporation. KOPPA provides a mechanism for supporting the retirees of these companies, which leaves a manageable liability for the employers remaining in the plan.
A second bill, introduced by another member of this Committee, Senator Rob Portman, is S. 2147, the Pension Accountability Act. This bill was not designed as an alternative to MPRA but addresses one of the more egregious deficiencies in the statute, the lack of a real voice for retirees in the current process, by providing a remedy for MPRA largely illusory voting process.
While the Pension Rights Center has supported both bills, we recognize that time is running short. We believe there is a need for a new comprehensive bi-partisan approach to solve the problem.
We hope that this hearing will be the beginning of this new process. We urge the members of this committee to convene a dialogue to find innovative approaches to fixing the problem by working with retirees, unions, employers and other experts. We strongly believe that ideas that may have been considered but discarded in the past may find new support in the wake of the devastation that the MPRA cuts will impose on retirees and their communities. We also believe that Members of Congress, working together with all stakeholders, including retirees and their families, have the ability to design a better solution that does not place the burden of preserving these plans on the backs of retirees.
We note the precedent for such a grand bargain in Detroit, where stakeholders from all sides joined forces, Republicans and Democrats working together, to ensure the viability of the Detroit public pension plans while avoiding the 34 percent pension cuts that had originally been proposed. In the end, Detroit’s plans reduced civilian retiree cuts to only four percent and spared police and firefighters from any cuts. We should follow Detroit’s example and find creative solutions to ensure the survival of multiemployer plans, while sparing pensioners from cuts.
We conclude with a word of caution for every member of this committee and of the United States Senate. Those senators who have Central States Pension Fund retirees as constituents are already well aware of the impact MPRA will have on your constituents. But soon this issue may affect substantial numbers of retirees in every state. Central States was the first multiemployer pension plan to file a plan for retiree benefit cuts, but it is by no means the only plan that will do so. At this time, there are three other plans that have already filed an application, or announced their intention, to cut benefits. But there are more than 50 plans that have filed notices of “critical and declining” status with the Department of Labor – a prerequisite to filing a proposal to cut retiree benefits, and we believe there are another 100 plans that will be eligible to cut benefits over the next several years.
Congress has an opportunity to reverse this ill-conceived and unfair legislation now, before its effects spread and become catastrophic, by pushing the “pause button” on the Central States Pension Fund’s proposal and bringing all the stakeholders together to develop a sensible, fair and workable solution. Retirees in multiemployer plans did everything right while they were working, and they are not responsible for the financial situation their plans are in today. They worked hard and played by the rules, and they relied on promises made by their employers – and backed up by a federal guarantee – that they would have a secure income in retirement. These are not wealthy people – they are the heart of middle America – and their futures are our future.
Finally, we want to briefly comment on another subject of this hearing, the so-called composite plans. Composite plans are “hybrid” plans, in which assets are pooled and professionally managed and in which benefits are paid in accordance with a formula, with possible adjustments to reflect plan experience. In concept, such plans reflect a promising new direction, one that the Pension Rights Center has championed. But the success of such plans will depend on the legislative parameters: Are the plans’ promised benefits conservatively and responsibly funded? Are retirees and older participants adequately protected from downward benefit adjustments? Is there a minimum floor benefit that cannot be reduced and which is backed by PBGC guarantees? We are also concerned that such plans not be connected to legacy defined benefit plans through overlapping trustees and other plan officials. But we are interested in the idea of hybrid plans and look forward to constructive dialogue with other organizations and stakeholders.
The Pension Rights Center is working on ideas both for a new comprehensive bipartisan compromise bill to solve the issue of underfunded multiemployer plans, as well as an analysis of the composite plan concept. We will be happy to share our findings once they are completed.