By Ilyse Wolens Schuman, © Littler Mendelson
The U.S. House Subcommittee on Health, Employment, Labor, and Pensions discussed the funding crisis faced by many multiemployer pension plans and received testimony from expert panelists on proposed solutions during an Oct. 29, 2013, hearing.
Collective bargaining agreements establish these multiemployer defined benefit pension plans, which are administered jointly by employer and union official trustees. Factors such as multiple investment downturns, an aging workforce and fewer contributing employers have threatened the long-term sustainability of the multiemployer plan system. Moreover, multiemployer plans are becoming increasingly reliant on the Pension Benefit Guaranty Corporation (PBGC)—which is itself underfunded—for financial assistance.
Because of this predicament, several hearing witnesses spoke in favor of reforming the multiemployer pension system, as suggested in a report by the National Coordinating Committee for Multiemployer Plans (NCCMP). The report recommended the following, among other proposals:
- Provide plan trustees with the authority to take early corrective actions when plans are exhibiting financial distress, including the partial suspension of accrued benefits for active and inactive vested participants, and the partial suspension of benefits in pay status for retirees.
- Adopt special protections for vulnerable populations including PBGC oversight and approval of any proposed actions.
- Enact legislative and/or regulations to facilitate the creation of new plan designs that will provide secure lifetime retirement income for participants, as well as reduce or eliminate the financial exposure to contributing employers.
Thomas C. Nyhan, executive director of the Central States Southeast and Southwest Areas Pension Fund, said that in the trucking industry there are approximately five inactive pension participants for every active participant, which has exacerbated the financial strain. Nyhan testified that his pension fund is experiencing a $2.1 billion shortfall and is projected to become insolvent in 10-15 years absent “timely, concrete, and realistic” proposals to reverse course. Nyhan also noted that the current tools to ease the financial strain are to raise contributions or reduce benefits. He said that the NCCMP report offers some tools that might be helpful, but that they are “not prescriptive.” He instead called for Congress to draft and enact legislation to address the funding shortfalls.
Carol Duncan, president of the General Sheet Metal Works, similarly noted that unfunded liability is a big issue and that such liabilities make it hard to attract new employers into struggling plans.
Sean McGarvey, president of the Building and Construction Trades Department of the AFL-CIO, said that a key suggestion in the report is to give the pension plan board of trustees the authority to make changes and adjustments to keep the plans solvent. Another recommendation advocated by David Certner, legislative counsel and legislative policy director of AARP, is to reduce adjustable benefits before reducing accrued benefits. While doing so is not ideal, he said, the former is a legal option. Certner also recommended that Congress give the PBGC the tools to encourage mergers between relatively healthy and unhealthy plans.
Subcommittee Chairman Phil Roe (R-Tenn.) concluded the hearing by pointing out that many provisions of the Pension Protection Act sunset at the end of 2014, furthering the need for legislative action.
A complete list of panelists and links to their testimony can be found here.
Ilyse Wolens Schuman is a member of the government affairs practice at the law firm Littler Mendelson and works with employers in multiple industries. © 2013 Littler Mendelson. All rights reserved. Republished with permission.
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