Standards & Legislation

Union Commissions Seek Pension Changes

Groups Push for Changes Prior to Current Policy’s Expiration

April 1, 2013

As the country continues to claw its way out of a recession, a small number of multiemployer pension plans are still teetering on the precipice of insolvency. And, if those pension plans fail, beneficiaries would be forced to rely on the taxpayer-funded federal pension insurance system, the Pension Benefit Guaranty Corp. (PBGC), which could lead to reduced benefits and added uncertainty. But, the Retirement Security Review Commission (RSRC) of the National Coordinating Committee for Multiemployer Plans (NCCMP) is rejecting the idea of a government bailout and offering up a solution, and just in time, too, as many of the provisions in the Pension Protection Act of 2006 (PPA) are set to expire at the close of 2014.

Troubling Times

In use since the 1940s, multiemployer pension plans allow pension portability for workers who tend to change employers frequently within the same industry. These plans allow multiple employers to pool contributions, benefits, and risks for their unionized beneficiaries. Of the roughly 1,500 multiemployer pension plans in the U.S., 54 percent are construction industry plans, according to John McNerney, general counsel for the Mechanical Contractors Association of America (MCAA), a member of the RSRC.

The PPA, signed into law by President George W. Bush in August 2006, was designed to strengthen PBGC while also increasing funding requirements for multiemployer pension plans in order to avoid insolvency. The legislation requires companies who have underfunded their pension plans to pay higher premiums to the PBGC, and it extends the requirement of providing extra funding to the pension systems of companies that terminate their pension plans.

But when the recession hit in 2008, many plans were dealt a crippling blow, with some losing as much as 40 percent of their value.

Many previously healthy plans were suddenly underfunded, and a handful of plans failed altogether. “About 60 percent of plans went into the red zone because of the recession,” McNerney said.

In 2011, because of continuing stock market volatility and the knowledge that many PPA provisions would expire in the near future, the NCCMP formed the RSRC — a commission comprised of more than 40 organizations representing businesses and labor groups — to craft viable solutions for the issues facing multiemployer pension plan contributors and beneficiaries. RSRC member Vince Sandusky, CEO of the Sheet Metal and Air Conditioning Contractors’ National Association (SMACNA), said the recession made it obvious that the system needed to change.

“It’s given us the ability to see more clearly what pension plans need in order to return to health and stay healthy over time,” Sandusky said. “If these plans fail, the PBGC is going to have to pick up the tab, and they don’t have the money to do it, either.”

Solutions — Not Bailouts

Luckily, the industry has a plan — a 35-page, three-part plan, to be exact, titled Solutions not Bailouts. The report recommends reforming and safeguarding multiemployer pensions as the economy continues its slow recovery.

The RSRC’s first Solutions not Bailouts recommendation involves strengthening and enhancing the current pension system through funding improvement plans and expanded tools provided by the PPA.

Second, the commission recommends allowing the “significant minority” of “deeply troubled” plans to take early corrective actions, “including the partial suspension of accrued benefits for active and inactive vested participants, and the partial suspension of benefits in pay status for retirees.” Benefits could not be cut down below 110 percent of the value of the PBGC-guaranteed amount, however.

Finally, the RSRC recommends enacting statutory language or regulations that will encourage the creation of new and innovative plan designs “that will provide secure lifetime retirement income for participants, while significantly reducing or eliminating the financial exposure to contributing employers.” Such plans would be “entirely voluntary and subject to the collective bargaining process.”

“What we’ve created here is a private-sector solution to a public-policy problem,” Sandusky said. “We’re not asking for any financial help or bailouts. All we’re asking for is to allow the law to be amended to give the trustees of this plan the tools they need to effectively manage these plans to deliver the benefits that were promised to the plan’s beneficiaries.”

Sandusky added, “If employers perceive that these plans pose a risk because of unknown liabilities, they’re going to shy away. That increases the probability that the plan may fail. We want to keep those plans healthy and keep those employers participating.”

MCAA president William “Mac” Lynch also stressed the need for reform and lauded the commission for its forward thinking.

“Over the years, a variety of policy assumptions, regulatory missteps, and narrow court decisions have all combined to create a lopsided set of risks for employers that sponsor multiemployer pension plans in the construction industry,” he said. “Finally, the RSRC marshaled the business and labor expertise required to create a proposal that will restore a sustainable balance for sponsoring employers in a way that will secure retirement benefits for workers and at the same time relieve the PBGC and taxpayers of significant risks posed by cascading plan insolvency.”

MCAA CEO John Gentille also commended RSRC’s report. “The work product of the RSRC is the result of more than a year-long deliberation of business, labor, and plan technical experts who marshaled virtually hundreds of years of experience among them to weigh all the various options and ways to put these plans back onto solid ground for the indefinite future,” he said, stressing that “the RSRC is to be commended for their skill, acumen, perseverance, and professionalism.”

An Uphill Battle

Despite its popularity, supporters acknowledge that convincing lawmakers, pension contributors, and beneficiaries that this is the best way to ensure multiemployer-defined benefit pension-plan health may not be easy. One thing working in their favor is that the government publicly acknowledges the need for additional pension reform.

In a Jan. 22, 2013 joint report to Congress, representatives from the Department of Labor, Department of the Treasury, and the PBGC closely examined the effect of the PPA legislation on multiemployer pension plans. The report concluded that, “for some plans, these tools will be insufficient to do the job,” and that “it is critical that all stakeholders undertake a serious effort to identify the current and potential future problems faced by multiemployer plans and work to identify the best ways to address them.”

“It’s now up to our associations and local affiliates across the country to make sure our lawmakers, the business community, and press give these reform proposals the fair hearing and balanced assessment they richly deserve to enact these sound proposals in due but rapid course,” Gentille said.

McNerney agreed that some of the measures, like suspending benefits for beneficiaries of the most underfunded plans, may be “harsh medicine,” but that changes are necessary in order to rebuild long-term stability for those plans. “If you allow us to solve our own problems, we will avert the risk of a PBGC bailout,” he said.

Sandusky said he hopes to see pension-reform legislation passed by the end of this year, but he said he knows it won’t be easy. “In the past, pension reform has been billed inaccurately by our opponent as a union bailout issue and portrayed as such. That makes it difficult, and it’s pretty far from the truth. This is a business issue and a social policy issue,” he said.

“Now it becomes a legislative effort. You’ve got to take the time to educate the staff and the Congressional leadership and explain why it’s a worthwhile goal to pursue. There are a lot of new players on the Hill since 2006, and we have a tough political climate.”

For more information or to view the full report from the RSRC, visit www.solutionsnotbailouts.com.

Publication date: 4/1/2013 

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