The Building Tradesman Newspaper

Friday, November 15, 2013

Building trades OK blueprint to bolster pension plan administration

By The Building Tradesman

WASHINGTON (PAI) - After more than a year of work, a joint union-management group, the National Coordinating Committee for Multi-Employer Plans (NCCMP) proposed changes to laws covering multi-employer pension plans.  The plans cover more than 10 million workers, mostly in construction but also in other industries.

The changes would give plan administrators, called fiduciaries, more leeway to change or cut optional benefits.  Witnesses at an Oct. 29 hearing on the issue also suggested other cuts, such as making payouts dependent on the length of time a worker had toiled in the industry, or gearing payouts to a worker’s outside income.

Congress must approve the changes.  It also faces a deadline at the end of 2014 when multi-employer pension sections of a recent pension protection law expire.  A large number of unions – ranging from building trades unions to the Bakery and Confectionery Workers to SEIU – signed onto NCCMP’s report. 

“These recommendations come with some measure of pain for our rank and file members,” Sean McGarvey, President of the AFL-CIO Building and Construction Trades Department, admitted.   “But we need an opportunity to move” to help troubled multi-employer plans “without taxpayer dollars.”  McGarvey chairs the NCCMP.

But Machinists President Thomas Buffenbarger, who sat through the hearing but did not testify, dissented.  He said NCCMP’s proposals could hurt workers and retirees, and would apply to all pension plans, including healthy single-employer plans.

“To have legislators” enact measures “to have pensions become insecure and benefits cut is totally unacceptable,” Buffenbarger said.

NCCMP said 5-10 percent of multi-employer pension plans are in fiscal trouble.  Witnesses told the House Education and the Workforce Committee the 2006 pension protection law, imposing new requirements for declaring a plan “financially healthy,” even drove some participating companies out of the multi-employer plans.  Leaving made economic sense for those firms.

“Withdrawal liability” sections of the 2006 law “were designed to prevent employers from leaving, but it’s had the opposite effect,” McGarvey said.

The NCCMP report, entitled Solutions, Not Bailouts, recognized the federal government would not aid the multi-employer plans, so it proposed other changes.

“For the limited number of plans that, despite the adoption of all reasonable measures available, are projected to become insolvent within certain prescribed time frames, the commission recommends limited authority to plan trustees to take early corrective actions, including partial suspension of accrued benefits for active and inactive vested participants, and the partial suspension of benefits in pay status for retirees,” the NCCMP’s report, available on its website, says.

“Such suspensions would be limited to the extent necessary to prevent

insolvency, but in no event could benefits go below 110 percent of the Pension Benefit Guaranty Corporation (PBGC) guaranteed amounts.”  PBGC’s guarantee is $12,870 per pensioner per year.

Even those changes would not help the largest troubled plan, the Teamsters’ Central States, Southeast and Southwest Fund, Executive Director Thomas Nyhan said.

He said the 2008 crash clobbered Central States’ investments, just as it hit those of other multi-employer plans – and that there are a lot fewer contributing trucking firms. 

Central States’ assets declined by $9.4 billion, to $17.4 billion, in one year.  It also has only 1,800 contributing companies, compared to 10,000 before trucking deregulation.  And 70,000 active members’ contributions support 410,000 retirees.

As a result, “We collected $700 million from employers” last year “and paid out $2.8 billion,” Nyhan said.  Without relief, the fund would become insolvent in just over a decade. 

Overall, the crash cost all multi-employer plans 22 percent of their assets in 2008. 

PBGC, the federal agency which steps in when a company goes broke and turns over its pension plan, would have trouble picking up the tab for Central States, NCCMP reports.  It says just two troubled plans had combined future unfunded liabilities of close to $27 billion: $21 billion for Central States and $6 billion for a mining industry plan.

NCCMP also recommended Congress enact a new law or that the executive branch promulgate new rules “that will facilitate the creation of new plan designs that will provide secure lifetime retirement income for participants, while significantly reducing or eliminating the financial exposure to contributing employers.

“This would be accomplished through encouraging the development of new flexible plan designs,” such as variable annuities and targeted benefits.  Those new types of flexible multi-employer plans could adjust accrued benefits “in order to protect plan participants from risk.  These models would impose greater funding discipline than is required under current rules.  Adoption of such new models would be entirely voluntary and subject to the collective bargaining process,” the report says.

That still leaves one more problem that companies participating in multi-employer plans face: Dropouts.  “There is some concern that providing pension benefits is no longer a competitive advantage for employers because of the onerous funding requirements, i.e. competition from employers that do not contribute to multi-employer plans and can therefore underbid those that do…There needs to be a focus on how to attract new employers, and slow down employer withdrawals from the current system.  Employers do not want to be the ‘last man standing,’” the report says.