WASHINGTON, D.C. – A small attachment to a large $1.1 trillion spending package which passed Congress this month could be the first step toward improving protections for financially troubled multiemployer pension plans. But it’s also likely to bring financial pain to some pensioners.
Approved by both Houses of Congress was bipartisan legislation struck by Reps. John Kline (R-Minn.) and George Miller (D-Calif.) – it was done with the clock ticking on the end of this legislative session and on the end of plan-friendly 2006 Pension Protection Act provisions that help financially stressed pension funds.
The Congressional plan would allow sponsors of multiemployer plans – which include all building trades union plans – that are in “critical and declining” condition to temporarily or permanently cut members’ benefits in order to allow stabilization of the plans’ finances. It also would mandate a doubling in the annual per-member premiums the plans pay to the federal Pension Benefit Guaranty Corp., to $26 from $13 now.
President Obama was expected to sign the legislation. “This bipartisan agreement gives pension trustees the tools they need to maintain plan solvency, preserves benefits for the long haul, and protects the 10.5 million multiemployer participants,” said Randy G. DeFrehn, executive director of the National Coordinating Committee for Multiemployer Plans. “With time running out on the retirement security of millions of Americans, moving this bipartisan proposal forward now is not only timely, but necessary.”
DeFrehn and a long list of union representatives sponsored a legislative blueprint last year called Solutions Not Bailouts, which is essentially what Congress adopted.Solutions Not Bailouts includes provisions to allow trustees of troubled plans to take corrective steps, such as suspending some benefits; raising plans’ retirement age closer to that of Social Security’s; and allowing large plans to combine with small plans but without taking on the small plans’ unfunded liabilities.
Without the changes, the Pension Benefit Guarantee Corp. has projected that about 200 multiemployer plans will become insolvent over the next two decades, putting the pension earnings of about 1.5 million people at risk. That’s because the PBGC itself – the federal backstop for failed pension plans – is itself nearly broke, with no real hope of a Congressional bailout. The PBGC expects to run out of money in 10 years.
Rep. Kline said collectively, multiemployer pension plans have $818 billion in benefit liabilities yet only $397 billion in assets, which means plans face a $421 billion funding shortfall. One of the largest plans, Kline said, pays $5 in benefits for every $1 it receives in contributions.
Without this legislation, failing pension plans could be forced to seek a bailout from the PBGC. Under its rules, the maximum annual benefit for retirees is capped this year at $12,870 for a worker retiring at age 65. PBGC estimates that multi-employer workers with 30 years or more of service would lose an average of $4,000 in annual benefits.
“This is the last chance that labor unions and their members have to gain some control over the future of their pensions, and this reform would give them the tools they need to rescue themselves,” said Rep. Miller in a statement.
One of the big fears held by multiemployer plan trustees is that without a path for pension plans to buy themselves more time to shore up their finances, more employers would choose simply to pay a fine and opt out of their pension obligations, further stressing the plans.
“The most important aspect of these new reform measures is that they finally provide employers and employees with the flexibility to voluntarily act to shore up multi-employer retirement plans,” said Associated General Contractors CEO Stephen Sandherr. “Without these new measures, thousands of retirees would likely have been forced to accept the savage cuts to their retirement benefits that come when the Pension Benefit Guarantee Corporation is forced to step in.”
Most, but not all building trades union leaders have aligned themselves with DeFrehn’s Coordinating Committee.
America’s Building Trades Unions President Sean McGarvey, said in a Dec. 9 letter to House lawmakers that the proposal “will strengthen the multiemployer pension system for the long term and provide hard-earned security for our members.” He added that the building trades “are concerned” with the doubling of premium payments to the PBGC, and urged Congress to “take a serious look” at PBGC funding next year.
But the plan was panned by the Boilermakers and the Laborers. “Making sweeping changes to current pension law that will affect millions of retirees without the benefit of the regular process in Congress – no hearings, no mark-ups, and no public release of the text of the legislative language now evidently being considered, and in a lame duck session no less, is extraordinary and dangerous,” said Newton Jones, president of the International Brotherhood of Boilermakers.
And the Pension Rights Center, a nonprofit group formed to protect and promote retirement security, said the legislation in Congress puts too much control into the hands of pension plan trustees.
“Plan trustees are exempt from fiduciary responsibility in making cuts,” the group wrote in a letter to members of Congress. “Retirees who are harmed cannot challenge the trustees’ actions in court, even if those actions are arbitrary and capricious, or contrary to the interests of plan participants.” The group also protested that there is no provision for restoration of pension cuts if a plan’s funding improves, and trustees have the discretion to choose whether to cut retirees’ benefits more than workers’.
DeFrehn, of the National Coordinating Committee for Multiemployer Plans, has maintained for the past two years that while the plan presented to Congress will be painful for retirees, the alternative – no action – would be disastrous for multiemployer pension plans.
“Today, leaders from both parties came together under very difficult circumstances and stood up for the employers, workers and retirees who count on multiemployer pensions,” DeFrehn said. “More than three years of hearings, events and negotiations between unions and employers, and members of Congress, finally bore fruit tonight. As a result, impacted workers will have more to live on in retirement because the insolvency of their pensions can now be avoided.”