By Todd Mustard

The Association of Union Constructors

On Friday, Sept. 9, House of Representatives Education and Workforce Committee Chair John Kline (R-MN) released a discussion draft of the “Multiemployer Pension Modernization Act of 2016” that would amend the Employee Retirement Income Security Act of 1974 (ERISA) to allow for the utilization of composite plans. These are “a new retirement option that mirrors the qualities of both defined benefit and defined contribution pension plans,” according to a supplement to the draft.

They would “provide retirees an annuitized benefit much like defined benefit pension plans. Composite plans will also provide employers the flexibility and certainty typically associated with defined contribution plans. The trustees of a composite plan will have the ability to act in a manner that provides workers and retirees a stable, secure retirement benefit.”

The Association of Union Constructors (TAUC) has been pushing for this aspect of multiemployer pension reform for the last four years. Composite plans were originally included in the Retirement Security Review Commission’s Solutions Not Bailouts proposal, but did not get included in the final Multiemployer Pension Reform Act passed in December 2014.

Composite plan design is critical to all union contractors participating in multiemployer pension plans. Kline’s bill would give trustees the flexibility to allow contractors to significantly reduce their long-term unfunded liability. While the legacy plan and all of the benefits accrued in those plans would be required to be maintained, the new composite plans would not generate additional unfunded liabilities since those plans would have to be at least 120% funded.    

Transitioning to these plans would also reduce the amount of money union contractors pay in premiums to the Pension Benefit Guarantee Corporation (PBGC). Last but definitely not least, the careful use of composite plans could significantly improve the chance of having new union contractors join the marketplace who had previously declined to do so because of the unfunded liability they would automatically assume by joining existing multiemployer plans that are not fully funded.

So why are organizations such as the American Association for Retired Persons (AARP) so adamantly against this new plan design? They see it as a “Pandora’s Box” that, once opened, would eventually eliminate the use of defined benefit (DB) pension plans altogether. AARP and others view DB plans as the best and only way to provide true retirement security. However, the harsh reality is that even the healthiest of DB plans can be brought down by unforeseen economic and regulatory changes – and once a DB plan is in trouble, it’s very difficult to save it by relying on the tools now available to local trustees: increasing employer contributions and betting on high returns in the stock market.

There are no magic bullets to instantly save troubled plans, but there are ways to dramatically increase the odds of success by freeing up trustees to use more flexible and innovative funding methods.

Failure to authorize the use of composite plans can undermine the very DB plans advocates claim to want to protect. In the current environment, the increasing cost and unfunded liabilities and uncertainty are forcing contributing

employers to increasingly move away from DB plans towards defined contribution plans. Composite plans will allow for participants to receive lifetime benefits while providing contributing employers the cost certainty they need to remain in the plan.

TAUC member contractors want to provide retirement security for the union craftworkers who work on their jobsites, but they also want – need – to be competitive in the marketplace; otherwise, there won’t be any jobs for those workers, period. Additionally, TAUC members believe that providing good benefits – not just pensions, but also health and welfare – is critical if we want to convince high-quality men and women to join the unionized building trades.

The union construction “elevator pitch” to our customers is that we provide the highest skilled, most productive and safest option for their construction and maintenance needs. The only way we can live up to that bargain is by recruiting the best and brightest to our team. Composite plans will give contractors the edge they need to provide this secure future for craft workers while at the same time eliminate unfunded liability, which will ultimately make the entire industry more competitive.

Change is never easy. Sometimes we are forced to make difficult decisions to ensure our long-term survival. This is one of those times. The alternative -- do nothing, keep the status quo -- would be nothing short of a disaster for contractors, the hardworking union trades they employ, and the millions of Americans who rely on us to literally keep the lights on.

(From the TAUC Construction User. The writer is the TAUC senior director of membership services and government affairs).