Improvements Needed for Multiemployer Pension System

The hearing, “Strengthening the Multiemployer Pension System: How Will Proposed Reforms Affect Employers, Workers, and Retirees?” was held on October 29 by the U.S. House Subcommittee on Health, Employment, Labor and Pensions. The subcommittee’s chair, David P. Roe (TN), set the tone. In the opening statement for the hearing, Roe pointed to the recession and still-sluggish economy as factors that have impacted multiemployer plans, which face such challenges as having “nearly $400 billion in unfunded benefit liabilities, a Pension Benefit Guaranty Corporation (PBGC) on the brink of insolvency, employers stretched thin by current pension obligations, and both workers and retirees fearful they will lose what they worked so hard to achieve.”

Roe cautioned that inaction could have a chilling effect on the current problems. “The pain inflicted on workers and retirees will be far greater if we fail to act in the coming months.” While he acknowledged that a number of multiemployer plans are recovering, Roe reminded hearing attendees, “We cannot lose sight of the sizeable number of large plans that remain in financial trouble.”

In addition to his cautions about inaction, Roe reminded attendees that any solutions need to be balanced with their impact on employers. “Improving the multiemployer pension system is not only about retirement security. It’s also about saving jobs and protecting the competitiveness of America’s workplaces.” He said that raising employer contributions and premiums to “punitive levels” would simply compound the existing problems with the system.

Many of those who testified at the hearing referred to a report generated, earlier this year, by the National Coordinating Committee for Multiemployer Plans’ Retirement Security Review Commission. The report, “Solutions Not Bailouts: A Comprehensive Plan from Business and Labor to Safeguard Multiemployer Retirement Security, Protect Taxpayers and Spur Economic Growth,” examined the issues facing multiemployer retirement plans (see “Report Offers Suggestions for Multiemployer Plan Security”).

One of those who testified, Carol Duncan, CEO for General Sheet Metal, based in Clackmas, Oregon, said, “Too many plans face funding and demographic issues that worry the employers contributing to them. Funding issues are beyond the control of contributing employers and, significantly, employers ultimately hold all the risk for plan funding. The majority of issues cannot be solved without structural changes to the defined benefit system.” She added that with regard to demographics, the number of retirees drawing benefits is growing and that plans are losing contributing employers, resulting in a “progressively unfavorable active participant/retired participant ratio.”

In terms of solutions, Duncan recommended that the subcommittee review the “Solutions Not Bailouts” report, since it “outlines plan designs that maintain the best characteristics of a defined benefit model” but that don’t put employers at risk.

David Certner of the Washington, D.C.-based AARP advocated that the needs of employees should not be forgotten in these deliberations. Also referring to aforementioned report, Certner said, “Promises to retirees are under unprecedented stress at all levels, public and private. Recent proposed changes have become more aggressive, with many proposals now designed even to reduce the benefits of people who are retired, in pay status, and living on fixed incomes.”

Certner said that while AARP agrees with attempts by the report to address real problems faced by multiemployer plans, it is not convinced that alternatives to cutting accrued benefits have been adequately considered. “Nor are we convinced that an ill-conceived design will serve to make plan benefits any more secure,” he added. “We are convinced that should a package emerge, far greater protections for participants and beneficiaries must be required.”

R. Thomas Buffenbarger, president of the International Association of Machinists and Aerospace Workers, said he strongly opposed any changes to the system that would reduce benefits to current retirees. “Raiding pension plans and robbing seniors of retirement benefits is not the way to solve any financial crisis.”

The Pension Rights Center also advocated for the needs of employees, releasing a statement that cautioned Congress not to support a proposal that would “slash benefits of men and women who are already in retirement and have no opportunity to replace lost benefits.” The center urged Congress to “undertake a far more serious exploration of alternatives” to retiree benefit cuts.

While Sean McGarvey, president of North America’s Building Trade Unions, agreed that employees’ needs must be recognized, efforts must also be balanced with the larger needs of the plan. “In order for individual pensioners to receive benefits from plans, the plans themselves must be preserved.”

Part of that solution, said McGarvey, is tied into solving issues being encountered by the PBGC. “We in the multiemployer community recognize the agency will need additional resources to address their commitments to participants of plans which become insolvent. We believe that any methodology for revising premium structures must be coupled with, and recognize the cost savings to the agency by enabling significant numbers of plans to avoid insolvency by enactment of the other tools included in the [“Solutions Not Bailouts”] report.”

Thomas C. Nyhan, executive director and general counsel of the Central States Southeast and Southwest Areas Pension Fund, concurred with the viewpoint that while the needs of the plan and the employees need to be balanced, the overall preservation of the plan is of paramount importance.

He recommended that legislation be enacted that permits plans facing imminent insolvency to suspend benefits, as suggested in the “Solutions Not Bailouts” report. “Such an approach would preserve the maximum possible benefits for participants in plans facing insolvency, allowing them to maintain benefits far above what they would otherwise receive under existing law. While these benefit suspensions are not to be undertaken lightly, they reflect the economic realities, while still preserving the benefits of retirees to the greatest extent possible.”

Nyhan also echoed Roe’s concerns about inaction. “Doing nothing at this juncture would result in the worst possible outcome. Without timely intervention, workers in the most deeply troubled plans are at risk of seeing the benefits they have earned drastically reduced or even eliminated entirely.”

More information about the hearing, including a video and the text of witness testimony, can be found here.