The Building Tradesman Newspaper

Friday, March 06, 2020

Big pension challenges remain on Capitol Hill

By The Building Tradesman



By Jim Kolb
The Association of Union Constructors (TAUC)

The first session of the 116th Congress ended with a flurry of activity in December. 

While much of the focus was on the impeachment of President Donald Trump, lawmakers chalked up numerous unexpected legislative accomplishments.

Both the House and the Senate passed the $738 billion National Defense Authorization Act for Fiscal Year 2020 and a $1.4 trillion Fiscal Year 2020 spending package — which included repeal of the Affordable Care Act’s excise tax on high-cost employer-sponsored health care plans (the “Cadillac Tax”) and addressed mineworker health care and pension benefits. The House and Senate earlier this year also passed the renegotiated U.S., Mexico and Canada trade agreement.

The full repeal of the 40 percent “Cadillac Tax” on joint labor-management health plans has been a TAUC priority since the tax was enacted in 2010. The tax would have penalized employers who provided health care benefits for factors out of their control, such as employers with a large number of workers with chronic or serious diseases or injuries or employers in areas where health care costs are high. 

Earlier in 2019 the House passed free-standing legislation repealing this tax by a bipartisan vote of 419-6, and companion legislation in the Senate had 63 bipartisan co-sponsors, demonstrating the significant support for eliminating this tax on employers. 

Pension Reform: Maybe next time. Despite all the major legislation and significant spending, federal policymakers once again did not address the looming multiemployer pension crisis. Instead, they acted to shore up just the United Mine Workers pension plan, leaving nearly 125 other failing multiemployer pension plans to find another legislative vehicle down the road. 

The October bankruptcy of Murray Energy, the last major contributing employer to the mineworkers’ pension plan, significantly increased pressure on Congress to act to prevent the insolvency of the plan. While we believe this failure to act on broad reform threatens to undermine the entire multi-employer pension system and continues the significant uncertainty for participants in these plans and the signatory employers who contribute to them, this action demonstrates that Congress recognizes the importance of federal action to address the looming crisis.

Senate proposal stokes cost concerns. In November, there was hope that Congress would include broad multiemployer pension reform in the end-of-year spending package when Sens. Chuck Grassley (R-Iowa) and Lamar Alexander (R-Tenn.) issued the Multiemployer Pension Recapitalization and Reform Plan. This discussion paper was deemed an effort to kick off negotiations and advance efforts to address failing plans and provide reforms to modernize the multiemployer pension system. 

Unfortunately, the paper raised serious concerns with stakeholders, and it became obvious that broader reform was once again going to have to wait. The core of the Grassley-Alexander proposal was to allow failing plans to partition liabilities to remain solvent. While there seems to be consensus that this approach could work to restore the solvency of distressed plans, the primary concern remains over how to pay for it. 

Grassley-Alexander would have the “system” pay the estimated $4.7 billion in annual cost for this program through premium increases, a series of fees and co-pays. Most objective stakeholders have said that the magnitude of the cost under the proposal on signatory employers would be unsustainable and would drive many employers from the multiemployer system. 

It also raises questions over whether it is to pay for the small number of plans that are projected to become insolvent. Specifically, the proposal calls for increasing PBGC premiums from $29 to $80 per participant and imposing a new variable-rate premium based on the plans’ unfunded current liability, capped at $250 per participant. 

According to the National Coordinating Committee on Multiemployer Plans (NCCMP), the proposal would increase PBGC premiums from 1.1 percent of contributions to 16.5 percent of contributions. NCCMP also calculates that this would increase revenue from $310 million in 2019 to between $4.6 billion and $4.9 billion annually. Besides increased premiums, unions and participating employers would also have to pay a monthly fee of $2.50 per active employee covered under the plan.

Finally, plans would be responsible for collecting and making copayments to the PBGC on behalf of all retirees ranging from 3-10 percent. Besides the direct cost of PBGC premiums and additional fees, the discussion paper also calls for plans to use a discount rate that is capped at no higher than 6 percent. 

Lower investment assumptions would require significantly higher employer contributions, putting more multiemployer plans at risk of insolvency. The result of these premium increases, fees and policies would dramatically drive up costs on contributing employers and increase contribution rates. 

This proposal was best described by North American Building Trades Union President Sean McGarvey as “punitive requirements on plans, participants, employers and unions.” If these new excessive premiums, fees and taxes were to take effect, the result would be to drive signatory employers and their active workforce out of the multiemployer pension system. This is the exact opposite policy objective any comprehensive multiemployer pension reform should strive to achieve. 

Hope for hybrid plans remains. The Grassley-Alexander proposal would authorize the use of hybrid composite plans. TAUC and our construction industry and building trades union partners have long  supported  legislation to authorize the voluntary use of innovative plan designs that would allow multiemployer plan trustees to ensure that plan participants continue to have lifetime retirement security in the future at no cost to the federal government or to multiemployer pension plan participants. 

Authorizing composite plans would protect contributing employers from market volatility and unfunded pension liabilities and would be critical to maintaining the viability of contributing employers and strengthening the multiemployer system. While there are serious concerns over aspects of the Grassley-Alexander discussion draft, we are hopeful this will be a starting point for bipartisan negotiations on comprehensive multiemployer pension reform. 

We look forward to continuing to work with Congress to find a path forward on efforts to not just rescue failing plans but also take steps to strengthen the entire system while not harming plans that are financially healthy. We will also continue to protect the interest of contributing employers by fighting unsustainable PBGC premium increases and contribution rate increases and authorizing the voluntary use of composite plans. The time for Congress to act is now. It is critical to the long-term viability of the multiemployer system and the competitiveness of construction employers contributing to multi-employer pension plans.

(This first appeared in The Association of Union Contractors' publication, The Construction User, Winter 2020. The writer is a partner, Summit Strategies Government Affairs LLC).