Executive Session

Floor Speech

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Mr. GRASSLEY. Mr. President, the financial crisis facing the private sector multiemployer pension system calls for comprehensive reform and getting it done soon.

The crisis is severe and growing worse every day. Would you believe about 125 multiemployer plans are in so-called critical and declining financial status? These plans report that they will become insolvent over the next two decades. There will be a lot of people without a retirement plan if we don't act.

Several large plans, including the United Mine Workers Pension Fund and the large Central States Pension Fund, predict these plans will become insolvent in the next few years. That is not a very comfortable environment for those retirees.

This will leave more than 1.3 million participants without the pension benefits they have been promised and, of course, worked for probably throughout their whole lives.

In just my State of Iowa, the benefits of close to 10,000 participants of multiemployer plans are at risk if the system fails. Ten thousand Iowans being affected by what we do or don't do, obviously, gets my attention. That figure of 10,000 will represent 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 the current law to address their financial condition--will enable these plans to emerge from their current, poorly funded financial condition. So it is very important that Congress act to save these retirement plans. These plans cover millions more workers and retirees across the Nation, and those workers and retirees face significant benefit cuts under existing law.

We should also be concerned about the financial health of the Federal insurance system that backs up these retirement benefits. The Federal insurance system goes by the name of the Pension Benefit Guaranty Corporation. The PBGC's multiemployer pension program may itself become insolvent if only one or possibly two larger multiemployer plans fail.

One of these plans, the United Mine Workers, just lost its last large contributing employer to bankruptcy. Without reforms, the Federal guaranty system, the PBGC, reports it will be insolvent no later than 2026. When that happens, the 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 very real possibility for the millions of workers and retirees who depend on benefits from these plans. We need to act very soon to protect the hard-earned pension benefits of the workers who participate in these plans.

As chairman of the Senate Finance Committee, I am on the floor today to join with Chairman Alexander from the Health, Education, Labor, and Pensions Committee to release a responsible reform plan to address the immediate financial challenges of a number of plans in critical financial condition and also at the same time to secure the multiemployer pension system over the long term, not just a quick fix that is going to last a short period of time.

As we looked at options for reforming the current system, we relied on several important reform principles. I will go through these principles.

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

The second principle is that Federal assistance to the failing plans should rely on as little taxpayer dollars as possible.

The third principle is that reforms must promote long-term stability of the multiemployer pension system and the long-term solvency of the PBGC.

To help the sickest plans recover their financial footing, our proposal creates a special partition option for multiemployer plans.

I want everybody to know that this is not a new concept. In fact, quite simply, it expands on the PBGC's existing authority. It is based on banking industry reforms that Congress enacted after the Great Depression and at other times.

The partition option 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. By removing these liabilities, we allow 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--I should say very small--portion of the financial assistance provided to the faltering multiemployer plans, and it is our intent, as we should be fiscally responsible, to offset those costs.

We should also acknowledge the reality that action right 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. Congress needs to be ahead of the real catastrophe we know is coming.

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, to protect the taxpayers' contributions to the overall reforms, and to 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. This is something that should have been done years ago so that plan trustees would have had to act in a responsible way, and maybe we wouldn't be where we are today, but we want to make sure this doesn't happen in the future. If we go that way--and we must go that way-- moving forward, the entire multiemployer pension system will be better funded and more transparent to participants, to sponsoring employers, and to 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, as people would expect, in a financially sound way in the future.

To help finance the partition relief and to provide a stronger PBGC insurance guarantee to participants in the system, our reform proposal creates a new premium structure. That structure includes raising the flat-rate premium to $80 per participant in a multiemployer plan, putting the multiemployer program on par with a single-employer guarantee program. The new premium structure also broadens the base on which premiums are assessed to more equitably spread the cost of insuring benefits and to ensure PBGC solvency. The new structure applies a copayment to active workers and retirees. However, because of the broader contribution base, the copayments 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 will also be protected.

In addition, our reform package establishes a variable-rate premium. This variable-rate 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. This also creates an incentive for plans to improve their funding over time.

The new premium structure not only helps to secure the 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 otherwise 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, the reforms we are proposing make other important structural changes to the multiemployer system to help ensure that the entire system moves to a well-funded status over the long haul.

We achieve this goal 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. You can tell that by the bad condition, financially, some of these plans are in today, threatening the retirement of our workers who have paid into them over a lifetime. These rules 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 are ultimately 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 in a more prudent and accurate way than has been required under present law.

These changes also are designed to help move plans toward full funding and at the same time protect the interests of plan participants and the taxpayers who would otherwise be required to bail out these multiemployer plans.

Our reform proposal also improves the so-called zone rules. Plans will be required to look further into the future when estimating their financial status, and will have to 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. That is a pretty commonsense approach.

We will 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.

We have to look to the future. In doing so, the proposal includes a new option for sponsors of multiemployer plans to establish a new hybrid pension plan that we are going to call 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.

In closing, let me say that there are no perfect solutions to the multiemployer pension crisis. But it is very true that the longer we wait, the harder and more expensive this problem gets. But it is clear, 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 plans without changing how they operate. The problem is never going to be solved by waiting or by using taxpayers' money.

The House has essentially advanced a pure, no-strings-attached bailout plan that throws taxpayer money to the plans in the hope that they can somehow earn returns sufficient to keep them going. We rely a great deal on the Congressional Budget Office around here for estimates of the future, and the nonpartisan CBO has told us that the House's proposal will not generate sustainability of pension plans or the sustainability of the PBGC. So we had better not spend our time on something the Congressional Budget Office says just isn't going to bring a solution and definitely not a long-term solution to these issues.

In contrast, the proposal that Senator Alexander and I are releasing today addresses the immediate needs of the few multiemployer plans facing immediate crisis in a manner that protects participant benefits and also ensures a sustainable multiemployer pension system for the long haul, and it does this all in a fiscally responsible way.

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

All participants in the system would make a sacrifice. Let me make that clear. All participants in the system are going to sacrifice-- employers, unions, workers, and retirees. I am sure each one of those groups isn't going to consider this fair and responsible, but with a problem like this, if everybody doesn't give a little bit, it is never going to be fair and responsible anyway. But with some shared pain will come significant shared gain that will be to the benefit of over 1.5 million participants in about 125 multiemployer plans that are in serious financial jeopardy.

Without changes to the current system, we can't say for sure that people are going to get the benefits that they sacrificed for over a lifetime of work. But our plan, we are confident, will benefit all 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 that we all know is in crisis.

Now, as we turn to getting this job done, I look forward to working with my colleagues in the Senate and in the House of Representatives to advance this proposal. We all know that just because you lay something on the table, that it is not necessarily going to be passed that way. So maybe there is some compromise needed. But whether it is this proposal or a little bit of compromise, we have to get this piece of legislation to the President's desk before more pension holders face losses of the benefits they have earned and benefits that they were promised.

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