Hearing On: Multi-Employer Pensions H.R. 2830- Funding Revenue Measures

Testimony
of

James V. Morgan
Vice President of Collectively-Bargained Compensation and Benefits
Safeway Inc.   

on behalf of

the Food Marketing Institute

before the

Subcommittee on Select Revenue Measures
Committee on Ways and Means

Tuesday, June 28, 2005

1100 Longworth House Office Building

Chairman Camp, Congressman McNulty and Members of the Committee:

I am Jim Morgan, Vice President of Collectively-Bargained Compensation and Benefits, Safeway Inc., Pleasanton, CA. I am testifying on behalf of Safeway and the Food Marketing Institute (FMI), which represents 26,000 retail supermarkets and food wholesalers.

I’ve been involved with jointly trusteed, labor and management Taft-Hartley benefit funds for over 30 years, and for most of that time have served as an Employer Trustee on numerous retail industry funds. My job puts me in contact with many funds, and I am a trustee on several funds.

Let me spend a minute on a few facts about the scope of the industry and the funds you should know, which include:

• Safeway has 190,000 employees in the U.S. and Canada.
• 77% of these employees are covered by over 400 collective bargaining agreements.
• Supermarkets employ 3.5 million Americans, 1.3 million of whom are covered by collective bargaining agreements.
• Most of Safeway’s unionized employees, and many of those in the industry that are covered by collective bargaining agreements, participate in multi-employer pension plans, which in total cover about 9.7 million people.

Safeway is one of the largest food and drug retailers in North America, with over 1,800 stores. These include 325 Vons stores in Southern California and Nevada, 113 Dominick's stores in the Chicago metropolitan area, 137 Randalls and Tom Thumb stores in Texas, 38 Genuardi's stores in the Philadelphia area, as well as 17 Carrs stores in Alaska. Safeway has an extensive network of manufacturing, distribution and food processing facilities in support of its stores.

Multi-employer labor and management pension trust funds are funded by the contributions of contributing employers and by investment earnings on those contributions. Contributions are bargained by employers and unions in collective bargaining negotiations, and benefit levels generally are set by the trustees of the funds. By law, the employer and the union trustees of such funds have an equal vote.

When the stock market suffered huge losses in 2000-2003 at the same time interest rates declined, the funding status of many multi-employer plans suffered greatly to the point where many funds faced a funding deficiency which required action by the trustees and in many cases by the bargaining parties. In many of our funds, the trustees have taken drastic actions to avoid funding deficiencies, while the bargaining parties have negotiated collective bargaining agreement changes to aid funding recovery.

We believe the actions of fund trustees and of employers and unions have been and will continue to be responsible and judicious, and that their responses to a very unusual series of events have been prudent. Some funds have worse problems and need help to recover, others need more modest assistance.

Several features of the proposed law changes are particularly important:
The funding ceiling for the tax-deductibility of employer contributions is too low, particularly during periods of strong investment returns. Funds should be able to receive tax-deductible contributions to provide a funding cushion in difficult times without being forced to raise benefit levels to avoid tax deductibility problems. It is important to be able to “save for a rainy day.”

Funds need specific guidelines to assist Trustees in making longer-term funding decisions which require them to look out over a number of years to detect potential funding deficiencies, and to adopt a plan with achievable benchmarks to avoid these deficiencies.

Funds at times need access to short-term funding relief extending the time they have to avoid a funding deficiency. This additional time allows trustees and bargaining parties enough time to develop and implement a recovery plan. There are laws on the books today, such as IRC Section 412(e), which allow for such relief. Unfortunately, such relief has proved unobtainable and there are not clear guidelines for trustees and bargaining parties to determine when such relief will be granted by Treasury.

Some funds are concerned about hitting underfunding levels which could trigger an excise tax. The implications of a funding deficiency for contributing employers, the plans and their participants can trigger payments outside of the collective bargaining process. Contributing employers are assessed by the plan trustees for additional contributions in an amount equal to their proportionate share of the amount necessary for the plan to meet its minimum funding requirements. If the excise tax is triggered it can be equal to 5% of that assessment. In the event that all contributing employers fail to make up the shortfall in a timely fashion, the excise tax may be increased to 100% of the shortage.

In addition, we agree with Congress there is a need for greater transparency with respect to information about multi-employer pension funds. Many contributing employers do not have access to such information because they do not appoint trustees.

Need for Change

FMI has been working for the past year to develop recommendations for comprehensive pension reform. In addition, our industry has worked with the trucking industry, other employer groups, and other union representatives to address multiemployer pensions funding reform.

We applaud the sponsors of H.R. 2830 for recognizing that Congress must address multiemployer pensions as part of comprehensive pension reform legislation.

We believe that legislative changes represented by H.R. 2830, the Pension Protection Act, provide a reasonable and rational framework for multi-employer pension plans to work through their funding problems without putting additional financial pressure on the Pension Benefit Guaranty Corporation.

H.R. 2830 – The Pension Protection Act

The multiemployer pension provisions in H.R. 2830 incorporate four fundamental principles which FMI and its member companies believe are essential to accomplishing fundamental reform:

• Greater transparency and greater flexibility for all plans;
• An early warning system for what the proposed legislation terms “endangered” and “critical” plans;
• Immediate steps to stabilize these plans; and
• Perhaps most importantly, objective, quantifiable benchmarks that measure the plan’s funding improvement and provides reasonable targets for the Trustees and the bargaining parties.

We believe that the mechanisms created by H.R. 2830 will accurately address the unique nature of multiemployer plans. As a result, all parties (contributing employers, unions, and Trustees) will have the ability to act responsibly on behalf of employees by providing an accurate measure of expected liabilities over a longer time frame and by providing a schedule to correct any funding problems on the horizon before they reach a crisis stage.

We further believe that H.R. 2830 provides these solutions in a manner that will also maintain the collective bargaining rights of all the parties.

In summary, we in the retail food industry strongly support efforts to reform our nation’s pension funding laws. Those of us who contribute to and participate in multiemployer pension plans are asking Congress to recognize the ways in which these plans differ from single-employer pension plans, and to enact changes to existing laws that will give us the tools to manage these plans more effectively, so that we can continue to provide great retirement benefits for our millions of employees and retirees well into the future without ever becoming a burden on the federal government.

Again, Chairman Camp and members of this Subcommittee, I thank you for the opportunity to testify on this important topic. I am glad to answer any of your questions.