The World According to Weil: Taking Care of Our Aging Workforce
Which Direction is Best for Unfunded HVAC Pension-plan Liabilities?
Two years ago, I wrote an editorial for another magazine that addressed the problem of an aging American workforce beginning to retire and the lack of funding in their pension plans. This was (and still is) a major issue across industries in the U.S. and has been an ongoing issue largely on the commercial side of the HVAC industry.
Back then, this was referred to as “unfunded liabilities,” meaning workers at unionized commercial HVAC contracting firms who had union-backed (multiemployer) pension plans faced the growing probability their retirement funds wouldn’t be there when they retired. The reason: The plans didn’t have enough savings or investments behind them to keep them solvent.
This is not good.
The multiemployer system, based on collective bargaining agreements, serves unionized employers and workers alike by providing incentives for trained employees to remain with employers who contribute to common trusts on behalf of the employee. This allows employees to accrue benefits, even as they move among contributing employers throughout their active employment and into retirement. This model has enabled thousands of small employers to provide the kind of retirement income security to their employees that otherwise could only be provided by much larger, more heavily capitalized and sophisticated firms.
But, over time, the fortunes of multiemployer plans and their participants mirrored the economic conditions of the industries they served. Older laws really put the screws to plan administrators and their ability to manage the funding of these plans, which led to a decay in their solvency. Eventually, many of these plans became unfunded, and that is where all the trouble really took root.
Every year that it goes unchecked, these unfunded liabilities get larger, negatively impacting people who are close to retirement. The promised benefits of their plans just aren’t there.
As a person in his late 50s, this would be of grave concern to me if I were in one of those plans. Keep in mind that tens of thousands of workers are in those plans.
Groups like the Mechanical Contractors Association of America (MCAA) and the Sheet Metal and Air Conditioning Contractors’ National Association (SMACNA) have been working for years to find ways to counter this troubling issue, but progress has been slow.
In mid-December last year, President Barack Obama signed into law a government budget and spending bill that included something called the Multiemployer Pension Reform Act (MEPRA) of 2014. This law has the good intention of trying to resolve the unfunded liabilities issue.
However, the MEPRA is to be managed by the Treasury Department as well as the Internal Revenue Service.
According to an article in the Feb. 9 issue of The NEWS, titled, “MEPRA Gives Admins Pension Plan Options,” the new act drastically changes how multiemployer pension plans are administered and includes many recommendations from a report called “Solutions Not Bailouts.” The report can be found online at www.solutionsnotbailouts.com. In essence the report supports three key areas for change:
• Preserving and strengthening the current multiemployer benefit plans;
• Taking corrective action to help deeply troubled plans; and
• Finding creative new plan designs that make it easier to administer them and avoid insolvency.
The recommendations of this report were based on the input of 39 trade associations, including SMACNA, MCAA, and the Associated General Contractors.
The new law allows the administrators of highly endangered multiemployer plans to adjust retiree benefits to prevent insolvency. Though this may mean less money to the retired workers, it prevents the plans from vaporizing and continues to provide income to the beneficiaries.
From a retiree’s standpoint, this isn’t a happy situation — they stand to see their benefits getting cut. In fact, Karen Friedman, executive vice president and policy director for the nonprofit Pension Rights Center, called the new law a “buzz saw on retiree pensions.” Her group published a calculator to help members figure out how much of their pension they could lose. You can read all about their concerns on their website.
I completely understand and empathize with their opinions, but, in my mind, isn’t it better to get less money than no money at all?
Dana Thompson, director of political affairs at SMACNA, told The NEWS this legislation is something the association has been working toward for nearly four years. Though Thompson stated the act isn’t everything SMACNA was looking for, it does pave the way “for getting legislation for new plan designs this year.”
The bottom line is something had to be done to stave off a disaster for a large segment of the aging population. These plans simply aren’t as stable as they used to be, and if they fall into insolvency, the increased debt created becomes another burden for the rest of us who would have to pick up the cost in the form of higher taxes.
According to Stephen E. Sandherr, CEO, the Associated General Contractors of America, this plan “represents a pragmatic, reasonable, and — most importantly for taxpayers — self-sufficient approach to preserving and protecting nearly half a trillion dollars’ worth of multiemployer retirement plans.”
In my previous editorial, I said any solution had to be a win for the retirees, for the employers, and for the U.S. taxpayer. The question is: Does this law do that? There are no winners if there are losers, and, though the MERPA will probably help part of the multiemployer plan system, it does seem those plans that are highly vulnerable may already be doomed. The devil, as they say, is in the details. Stay tuned, because this issue is far from being resolved.
I’d be very interested in hearing your comments on this issue.
Publication date: 3/23/2015