Andrew J. Scoggin
Vice President of Labor Relations ALBERTSONS
on behalf of the
Food Marketing Institute
before the
Committee on Education and the Workforce
U.S. House of Representatives
Hearing on
H.R. 2830 “The Pension Protection Act”
Wednesday, June 15, 2005
Chairman Boehner and Members of the Committee:
Thank you for allowing me to testify today. My name is Andrew Scoggin, Vice President of Labor Relations for Albertsons, Inc. Albertsons is the second largest food and drug retailer in the United States, operating more than 2,500 stores in 37 states and employing over 240,000 associates nationwide. Albertsons operates under the banners of Albertsons, Acme, Shaw’s, Jewel-Osco, Sav-on Drugs, Osco Drug, and Star Markets, as well as Super Saver and Bristol Farms, which are operated independently. We serve more than 28 million customers each week in our stores.
During the past decade, I have also served on the Boards of Trustees of a number of Taft Hartley multiemployer Trust Funds and I currently serve as a management trustee on the Board of Trustees of the Western Conference of Teamsters pension fund, one of the largest private sector Taft-Hartley pension trust funds in the United States with a current fund balance of $28 billion.
I am testifying today on behalf of the Food Marketing Institute (FMI), of which Albertsons is a member. FMI represents 26,000 retail food stores across the country and has worked with its members for a number of years to achieve comprehensive pension reform.
Industry-wide, supermarkets employ approximately 3.5 million Americans, providing employees with good wages and excellent benefits. Employment in the industry is a proven path to success for the American worker. The industry provides a variety of retirement plans among the wide range of benefits it offers. The industry’s defined benefit pension plans include both single-employer plans (those sponsored by an individual company and common in the steel, automotive, and airline industries) and multi-employer plans, in which many companies join together to fund and operate the plans (common in the grocery and construction industries).
I am pleased to appear before the Committee today to express our views on H.R. 2830, The Pension Protection Act.
Multiemployer Plan Regulation
Multiemployer plans are governed, in part, by the Employee Retirement Income Security Act (ERISA), like their single-employer plan counterparts. Unlike single-employer plans, however, multiemployer plans are also governed by the Taft-Hartley Act, which mandates that their Boards of Trustees have equal representation by Union and Management Trustees. They are also governed by the Multiemployer Pension Plan Amendments Act of 1980, which amended ERISA and provided special rules for multiemployer pension plans.
Multiemployer Plan Impact
Multiemployer pension plans are an important part of the nation’s private sector retirement system, providing pension benefits for approximately 9.7 million workers and retirees in the United States. In 1980, Congress recognized some of the funding and operational differences between single-employer pension plans and multiemployer pension plans. As a result, Congress amended ERISA and established separate and distinct rules for multiemployer plans under the Multiemployer Pension Plan Amendments Act of 1980.
Shortfall of current law
The past 10 years have exposed areas in which existing law governing multiemployer pension plans are not consistent with a goal of stable, long-term decision making. We believe that responsible Trustees can continue to maintain strong and viable plans, and the minority of plans which are facing greater difficulties can resolve their issues if given the necessary tools and legislative guidance. Further, we subscribe to the view that the best decisions will be made when both management and labor have a full say in the outcome and are provided with the necessary tools to accomplish that goal.
I will focus on four primary areas of current law that do not contribute to responsible, long-term administration of multiemployer pension plans.
First, the funding ceiling is too low. As the law is currently written, any employer contributions made to a plan once the plan is “fully funded” are no longer deductible. Thus, the law discourages trustees from allowing a plan, during good times, to reach full funding. Why not? Because if the trustees come too close to a projected “full funding” status, given the imprecise nature of actuarial projections the trustees could find themselves advising the contributing employers that their contributions will no longer be deductible. In that environment, trustees are not encouraged to make long term, responsible decisions. This is, unfortunately, counterproductive. During periods of strong investment return, such as occurred in the 1990s, funds should be encouraged to build up a strong surplus to provide them with a cushion for the difficult times. Instead, trustees are forced to decide whether to increase retirement benefits, sometimes to unreasonably high levels, or to suspend contributions. Both of these approaches put funds in a much worse position when the market turns down, as it inevitably will.
Second, there are no clear legislative guidelines provided for multiemployer plan trustees to make longer term funding decisions. Unless required by a collective bargaining agreement, in practice, funds often do not “look out” over a specified number of years to detect potential deficiencies and to adopt a plan to avoid those deficiencies. Trustees aren’t required to address potential deficiencies until they are confronted by them. Although some funds have implemented long term funding policies, it is still not a common practice in many multiemployer funds.
Third, access to short term funding relief granted by legislation after a market downturn is good policy because it allows trust funds time to regain momentum without taking short-term, extraordinary, and in some cases, damaging action to head off a looming deficiency. There are provisions in existence today, such as Section 412(e) of the Internal Revenue Code, that allow for such relief. Unfortunately, relief under 412(e) has been hard to obtain, and there are no clear guidelines for trustees or bargaining parties to determine when such relief will be granted. This creates uncertainty in collective bargaining and in the minds of trustees who must make significant decisions that hinge on whether such relief will be granted.
Finally, FMI member employers represent great diversity in terms of size and geography. In many instances, those employers are not represented on the Boards of Trustees of the funds to which they contribute. This puts them in a position of limited access to information about the health and funded status of the plans. Despite important changes in recent legislation, transparency to key information is still not sufficiently available to participants and contributing employers.
Need for Change
We applaud the sponsors of H.R. 2830 for recognizing that Congress must address multiemployer pensions as part of comprehensive pension reform legislation. Although H.R. 2830 doesn’t address every proposal in FMI’s proposed legislation, we believe that it provides a reasonable and rational framework for multiemployer pension plans to work through the problems now facing all pension plans (both single and multiemployer). The reforms in H.R. 2830 are not a government bail out. Instead, the proposed legislation will provide the tools which will allow multiemployer plans to solve our own pension problems without direct government intervention and without putting additional financial pressure on the Pension Benefit Guaranty Corporation. We believe, if Congress acts now, multiemployer plans can solve their own problems so that they do not become a burden on the federal government or the taxpayer.
FMI Task Force
FMI has been working for the past year to develop recommendations for comprehensive pension reform. In addition, our industry has worked with other employer groups as well as representatives of the trucking industry, the International Brotherhood of Teamsters, the Central States Teamsters Pension Fund, and other union representatives to address multiemployer pensions funding reform.
HR 2830 – The Pension Protection Act
The multiemployer pension provisions in HR 2830 incorporate four fundamental principles which FMI and its member companies believe are essential to accomplishing fundamental reform: (i) greater transparency and greater flexibility for all plans; (ii) an early warning system for what the proposed legislation terms “endangered” and “critical” plans; (iii) immediate steps to stabilize these plans, and (iv) perhaps most importantly, objective, quantifiable benchmarks that measure the plan’s funding improvement and provide reasonable targets for the Trustees and the bargaining parties. We have focused our comments on those provisions related to plans in what is referred to in the legislation as the “endangered” category – generally speaking those plans whose funding ratios are between 65 and 80 percent.
Funding Reforms for “Endangered” Plans
The requirements of current law permit, and even encourage, plans to take a short-term, “snapshot” approach to determine funding requirements and benefit formulas at the expense of long-term projections. H.R. 2830 requires multiemployer plan actuaries and trustees to take a longer-term look at a plan’s funding status. As you can imagine, it can take a considerable amount of time to make changes to multibillion dollar pension funds and early intervention, and action, is the key to reform. Under this legislation, trustees will be required to look at the plan’s current funding level, as well as seven years into the future, to project a plan’s funding outlook. As a result, potential future funding problems are recognized early, when there is still time to correct them in a responsible manner.
Under H.R. 2830, once an “endangered” plan is identified as such, the plan’s Board of Trustees will be required to prepare a Funding Improvement Plan that stabilizes the plan during the interim period. The Funding Improvement Plan further requires that the Trustees adopt a schedule that will satisfy the benchmarks and allow the collective bargaining parties to adopt contribution levels that are appropriate for the benefits provided by the plan. The schedule would allow for employer contribution increases, reductions in future employee benefit accruals, or a combination of both.
We believe that creating this mechanism will accurately address the unique nature of multiemployer plans, in which collective bargaining agreements fix contribution rates for several years into the future and where, under current ERISA law, Trustees are prohibited from retroactively reducing the benefit levels for plan participants. 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 believe that H.R. 2830 provides these solutions in a manner that will also maintain the collective bargaining rights of all the parties.
Greater Flexibility and Transparency for Multiemployer Plans
H.R. 2830 encourages employers to build strong surpluses in trust accounts and provides greater flexibility to manage short term periods of reduced investment returns by increasing the maximum allowable deductibility of contributions. These proposals are critical to allowing plans sponsors to make long term, responsible decisions and open up the funding corridor to allow trustees more room to avoid crises.
FMI is also concerned about the lack of transparency in multiemployer plans. Without current and accurate financial information, contributing employers and plan participants cannot work with plan Trustees to address underfunding issues. The 2004 Pension Equity Act took a step in the right direction by requiring enhanced disclosure for multiemployer plans, but didn’t go far enough toward getting timely information to affected parties. H.R. 2830 improves on the reforms initiated by this committee in the last Congress.
In summary, though H.R. 2830 does not address every issue contained in FMI’s proposals, 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 Boehner and members of this Committee, I thank you for the opportunity to testify on this important topic. I’d be happy to answer any of your questions.
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