WASHINGTON, D.C. At the second meeting of the Joint Select Committee on Solvency of Multiemployer Pensions Plans today, U.S. Senator Rob Portman (R-OH) made the case that the panel must work together on solutions that address the multiemployer pension crisis and deliver results, saying that, “the status quo is not acceptable.” Portman is hopeful that his colleagues on both sides of the aisle can come together to achieve a comprehensive and permanent solution that protects earned pensions, protects taxpayer dollars, prevents the insolvency of the Pension Benefit Guaranty Corporation, and alleviates pressure on employers. The focus of the hearing was on the legal structure and history of the multiemployer pension system, and Portman focused his questions on funding rules for plan sponsors and employer withdrawal liability, which are important issues in ensuring that plans can improve their solvency without placing an undue burden on contributing employers.  

The Joint Select Committee on Solvency of Multiemployer Pension Plans consists of 16 members of Congress: four Republicans and four Democrats in the both the House and Senate. The deadline for the Committee to vote on a statement of findings and recommendations, and propose legislation to carry out these recommendations, is November 30th. In order to successfully report out legislation, a minimum of five out of the eight members of both parties must support it.

Transcript of the questioning can be found below and a video can be found here.

Portman: “The information that you are able to provide us is critical to helping us figure this out, and it is complicated, and there are different rules from multiemployers as we’ve talked about today. I think there’s a consensus around the table, I hope, that the status quo is not acceptable and that was your first summary comment, Mr. Goldman. I think, also, there is a deep interest in figuring out what we could do going forward to not just provide some solvency for Central States plan and PBGC that could otherwise go insolvent as soon as 2025, but also to put rules in place going forward that could solve some of the problems that have occurred, and one is withdrawal liability. You talked about that a little bit, Mr. Goldman, it was your third point, you said, ‘The status quo is not acceptable, many plans remain healthy’ and you talked about withdraw liability. Your point was that it keeps employers from being able to effectively help solve the problem, right?”

Mr. Ted Goldman, Senior Pensions Fellow at the American Academy of Actuaries: “Yes.”

Portman: “The key question I think we need to spend a lot of time on figuring out is the extent to which this insolvency is going to drive more employers into bankruptcy and create more issues, and one of the issues that concerns me is for the roughly 200 employers on Ohio and Central States, they would be reducing contributions for other multiemployer plans too, right? Creating a contagion effect, as you all call it. That threatens to compound the entire multiemployer system. There are many ways this could happen under current laws as evident from reading your report. The withdrawal liability issue and the possibility of a mass withdrawal, once Central States becomes insolvent. On page 46 of the Joint Committee report that we got, you noted, Mr. Barthold that the amount of an employer’s withdrawal liability is in theory determined by the plan’s sponsor and generally based on the employer’s portion of the plans unfunded, vested benefits. However, it is my understanding that the amount of withdrawal liability that employers actually pay is calculated based on their previous contributions to the plan and is payable with interest in annual installments and that those can last up to a maximum of 20 years and can also be paid in a lump sum based on that present value at 20 years, or it can be a negotiated solution between the plan sponsor and the employer. Can any of you comment on how often employers pay the full withdrawal liability, pay it off within the 20-year period, versus having some of the withdrawal liability forgiven at year 20?”

Mr. Tom Barthold, Chief of Staff of the Joint Committee on Taxation: “Senator Portman, I do not know the answer.”

Mr. Goldman: “It is not uncommon for employers to not pay that full liability. There is a mechanism that has a 20-year payment cap, and after you’ve paid those 20 years, you’re done. It doesn’t always necessarily align with the total amount you should have paid, so that’s another sort of leakage from the process and sometimes there is a negotiation up front and a lump sum settlement that is often well below the total value of that withdrawal liability, mostly dependent on the ability of the withdrawing employer to be able to pay, so it is better to get something than nothing.”

Portman: “It’s not uncommon, you’re saying, in that year 20, for you to have that withdrawal liability forgiven, causing leakage, and that money never comes back in. How would employer withdrawal burden change in the event of a mass withdrawal once a plan becomes insolvent?”

Mr. Goldman: “In the mass withdrawal, I’m blanking out on how that works. I’ll have to get back to you on that one.”

Portman: “I think when there’s a mass withdrawal there’s no 20-year cap on the payment.”

Mr. Goldman: “That’s right, there’s no 20-year cap and everybody has to pay up at that point.”

Portman: “Right, which is very hard to imagine, right? We have lots of issues here but one is, what is the current law, with regard to withdrawal liability, doing to make these plans even riskier and take away some of the possibility of us solving this problem? Another question that I’m not going to have time to ask but I would like to get an answer in writing if I could is, on the rate of return, what do we assume the rate of return is, which is really the discount rate---and I think in multi-employer plans is really seven to eight percent---and how often has that been true? In other words, is part of our problem here just that we have just estimated that there be a much higher return on investment then there actually has been?”

Mr. Goldman: “Yes, and by the way on the cap, you’re right, the cap goes away and a payment is in perpetuity in theory. On the interest rate, one thing to keep in mind is this is a very long-term pension plan and it does have a long timeline, a long investment horizon so you’re funding for people when they join the plan in their twenties and projecting out when they’re actually going to get their last payment at death. So, the long-term rate reflects long-term expectations and also reflects the investment mix of a plan so it is unique to a plan and each plan has to go through a process of assuring that the rate they select is defensible and appropriate.”

Portman: “If you could give me some comments in writing on how many times this seven or eight percent has been achieved, that would be great, thanks.”