One of the final pieces of legislation passed by the last Congress included provisions to help troubled multiemployer pensions and, it is hoped, shore up the Pension Benefit Guaranty Corp.
Called the Multiemployer Pension Reform Act of 2014, it lets employees and retirees approve cutting their own benefits to help plans avoid insolvency. The legislation had its critics, but there was much bipartisan as well as union-management support.
Among the leading advocates was Randy DeFrehn, executive director of the National Coordinating Committee for Multiemployer Plans. An industry veteran, DeFrehn has been a member of the Department of Labor’s ERISA Advisory Council, has testified numerous times before Congress, and is frequently called on to consult with government officials.
Here, DeFrehn addresses some of the key issues facing troubled multiemployer pensions after the passage of the new law for BenefitsPro.com’s Advisor Corner.
1. What is the biggest unresolved issue on troubled multiemployer pensions even after the passage of the Kline-Miller amendment, also known as the Multiemployer Pension Reform Act of 2014?
The Multiemployer Pension Reform Act of 2014 provides additional tools for multiemployer pension trustees to address a variety of issues – including providing the ability for a limited group of “critical and declining” plans to take action to avoid insolvency and the devastating benefit reductions that would follow.
While the bulk of the attention following the act’s passage has been focused on that aspect, one provision that was removed from the proposed legislation shortly before enactment provides perhaps the greatest potential for strengthening the long-term retirement security of workers. That provision governs new plan designs. Specifically, the “composite” plan design is intended as an alternative for industries in which the traditional defined benefit structure is no longer a feasible option and the only alternative – the current individual account, defined-contribution system – provides insufficient retirement income. The composite plan addresses many of the shortcomings of the current defined contribution system; will provide higher benefits than can be achieved from the current defined contribution alternatives; and will remove disincentives for current employers and for new employers to participate in multiemployer plans, thereby enabling plans to grow and provide greater stability by enrolling new employers and broadening the contribution base.
While this particular provision did not get included in the MPRA, it continues to be the multiemployer community’s primary legislative priority to complete the pension reform initiative in 2015.
2. What steps would you advise multiemployer pensions to take immediately to avoid insolvency?
To put this issue in perspective, it must be noted that most multiemployer plans have returned to financial stability following the Great Recession and the sluggish economic recovery that followed. According to recent studies, approximately two-thirds of all plans are back in the “green zone.” Nevertheless, it has been estimated that anywhere from 100 to 200 such plans covering as many as 10 percent of the approximately 10.4 million participants in multiemployer plans are at risk of becoming insolvent in the near term. For those facing funding challenges, referred to as “endangered” or “critical” status plans under the Pension Protection Act of 2006, the law requires plan trustees to adopt, and contributing employers to comply with, stricter “funding improvement” or “rehabilitation” plan schedules to return their plans to financial health within specified time periods. For critical status plans, that may include making reductions in “adjustable benefits” (e.g. subsidized early retirement, or subsidized joint and survivor benefits). Those plans which are at risk should become familiar with each of the new tools available under the MPRA, including mergers, elective critical status, and redefined partition in addition to the benefit preservation provisions (if applicable) to determine what, if any, of these tools are available and helpful under their specific circumstances.
3. With the law now passed, can the Pension Benefit Guaranty Corp. now really be saved without a government bailout funded by taxpayers?
The act contains a doubling of the 2015 multiemployer plan guaranty insurance premiums and requires the PBGC to perform a premium adequacy study during 2016 to evaluate the levels of premiums that will be needed over the next 10 and 20 year periods in order to make that determination.
4. Can the approach used in the Kline-Miller amendment be used for troubled single-employer pensions?
No. The provisions of the MPRA which are exercised by boards of trustees on an entirely voluntary basis are specific to the joint, labor-management structures unique to the multiemployer system.
5. What surprised you the most about opponents’ statements/actions during the events leading up to the passage of the Kline-Miller amendment?
Rather than rehashing the political debate, it is more important that the focus turn to a more productive, factual discussion of what new tools have been created to preserve multiemployer plans; which plans are at risk; and what participant protections are built into the legislation which will ensure that participants receive higher long-term benefits than they would have under prior law in order to allay any unnecessary fears generated among retirees who have nothing to fear.