One of the best benefits afforded to the nation’s unionized construction workers is their defined benefit pension that awaits them in their retirement.

Given the decision by President Bush and Congress to exclude defined benefit pensions from the relief plan that passed earlier this month, what is the overall outlook for construction industry retirement plans?

According to the Construction Labor Report, the reviews on the overall health and outlook of defined benefit plans is mixed.

On the one hand, a March 25 report titled 2003 Survey of the Funded Position of Multi-employer Plans released March 25 by the Segal Co. delivered good news: the average funded ratio for the plans is 87 percent. “This average funded ratio is particularly impressive in the wake of ‘the perfect storm’ which included three straight years of disappointing equity market returns coupled with the downside effect of computing liabilities at record low interest rates,” the report said.

On the flip side, there is a long-term potential for difficulties. The Construction Labor Report quoted Terrence Deneen, assistant general counsel for the Pension Benefit Guaranty Corp. (PBGC), as saying “there may not be enough time for multi-employer pension plans to work themselves out of their problems.”

He said the major problems are time and demographics. The numbers of retirees are increasing, limiting the ability of pension plans to grow. People are living longer, and drug and medical costs are going through the roof. The overall trend in the nation is towards defined contribution plans, rather than defined benefit. In addition, stagnant or negative union penetration in the construction industry is not helping because new contributors are not being brought into the pension programs.

In addition, a March report by the non-partisan Government Accounting Office found several warning signs.

The GAO said stock market declines, coupled with low interest rates and poor economic conditions, appear to have reduced assets and increased liabilities for many plans. It said the PBGC reported an accumulated net deficit of $261 million for its multi-employer program in 2003, the first net deficit since 1981.

“Following two decades of relative financial stability, multi-employer plans as a group appear to have suffered recent and significant funding losses, while long-term declines in participation and new plan formation continue unabated,” the GAO report said.
George Buhalis is president of Michigan-based Benesys, Inc., which administers 16 defined benefit plans in the Midwest. He said it is accurate to characterize multi-employer pension plans as being basically healthy now, with long-term financial concerns.

“It’s terrible what Congress did, they completely ignored the needs of multi-employer plans,” Buhalis said. “The three- or four-year decline in the stock market was historic and it was devastating. Multi-employer plans could have used the help. Their action (in Congress) was just anti-union. I don’t see how else you could characterize it.”