U.S. House of Representatives, Subcommittee on Employer-Employee Relations

Ghilarducci presented the following testimony before the US House Committee on Education and the Workforce subcommittee on Employer-Employee Relations on April 29, 2004. Read her full testimony here.

“There’s some new research from health and labor economists that may help us all—folks in back of me and the colleagues that couldn’t be here today—that actually puts a new spin on this whole idea that we’re living longer. One of the reasons we’re living longer is because people are retiring.

It looks as though that people being able to rest from their long career of work is actually letting them invest more in their health and actually improve their health. This is especially true for women, but it’s also true for men. No matter what kind of job they have, white or blue collar, this is really exciting new research, and it comes from the new data from the University of Michigan.

And saying that, we must then realize how important it is to get pensions, because we try to solve the pension problem by raising retirement age, thinking that people living longer anyway raising the retirement age and taking away pensions may actually reduce that longevity we so herald.

So with that, we are here again today as a group of people who have been really worried about expanding pension coverage. And, especially, expanding pension coverage among low-income workers. And multi-employer plans is really a high-performance model of how to do that. So you can—and you’ve seen previous testimony that showed that multi-employer plans actually exist for workers who are mobile, especially, work in small to medium-size establishments.

But I’m here to talk about how multi-employer plans really help the employers. They solve a classic public good problem. That employers want trained, skilled workers, but don’t want to pay for it unless their competitors pay for it. So by coordinating with their competitors, they pitch in with an apprenticeship program, health program, and a pension program. They all have a piece. They all come together. And this actually helps industries produce skilled workers, stabilize industries, and it’s really good for the economy.

I have documents on how high performance these plans are for the economy. I don’t want to talk about them right now. I’d like to submit those for the record.

Now, I’d like to actually talk about some of the reforms—the specific reforms that you have addressed here. We must know that one of the chief and brilliant aspects of multi-employer plans is that they are jointly trusteed by an employer group and an employee group. And this brilliance, this wisdom means that they are highly adaptable to their specific situation.

It actually gives a break to Congress. You don’t have to legislate in every industry and every region. The trust agreement and the collective bargaining agreement and the relations between employer and employee lets that regulation happen. That’s why any rule that says it is 90 percent funded, there should be no benefit increases makes really no sense when you look at the whole economic logic of these things. So don’t do that. There’s no need to restrict benefits.

As far as withdrawal liability, I wrote a book several years ago interviewing most employers and employees on multi-employer plans, and I was really struck with how they’ve used withdrawal liability. If there, indeed, is a crisis in some plans because too many employers left, guess what the drastic solution is? To get more employers into the plan. The employers and the unions will have a reason to do that if the withdrawal liability is too great or if they’re funding too many people who aren’t contributing.

In Las Vegas auto shops are now organizing into a pension plan and to a health plan in a way they never did before under multiemployer plan agreement, because they’re good deals. If auto shops in Las Vegas can do it, then other multi-employer plans surely will find a way to expand. So tinkering with the withdrawal liability would really have these unintended consequences on these longterm agreements.

The other point I want to make is—has been agreed upon—you were right—Mr. Andrews was right. This is really non-partisan. We should have pension rules that let people accumulate funds in good times, so that when there are bad times they can draw on it. So we should raise those deductibility limits or eliminate them completely for multi-employer plans.

But I’m here as a professor, and I’d like to offer some blue-sky ideas, ideas that representatives through organizations might not be able to. One is an idea that actually has been played around here, and that is to allow employees to contribute to defined benefit plans. And multi-employer plans it’s probably a little bit easier to do that, because you have defined contributions coming in, but, actually, feedback on employees’ defined benefits. So multi-employer plans are actually structured to let employees contribute. That’s a great idea.

We should also find ways to encourage the creation of defined benefit plans. When I was at the PBGC, we always explained the conversion from DC to DB is because the vendors sell 401K plans. There’s profits to be made there but not enough vendors sell DC plans.

Last, we should investigate the consultant industry for how they got us into this what’s been called—and I think inaccurately—the Perfect Storm of low interest rates and high—well, low interest rates and low returns. The consultants told us—and I was a trustee on the Indiana Public Employee Relations Funds—told us that we would have high stock returns as far as the eye could see, and, therefore, we should load up our funds.

Well, they weren’t being prudent. That industry needs some accountability and needs some investigation. The SEC is doing it now, and I think it’s—I think Congress and this Committee would be well served to show that this Perfect Storm wasn’t an act of God and unpredictable. It wasn’t a quirky incidence. It was built into the structure of pension fund consulting.”