Editor's note: A hearing was held in Congress this fall on the use of “composite plans” as a supplement to existing multiemployer pension plans. They are fundamentally akin to annuity plans, which involve making a lump sum payment or series of payments to an insurance company in return for regular disbursements beginning either immediately or at some point in the future. Such plans could be set up alongside traditional multiemployer pension plans like those found in the Teamsters and in the building trades unions.

This letter from Iron Workers International President Eric Dean appeared in the Oct. 18, 2016 Detroit News as a response to Teamsters President James Hoffa’s Oct. 5 Labor Voices column “Two pension plans aren’t better than one."

Hoffa argued against composite plans, saying that they would significantly reduce contributions to the legacy pension system, are not insured by the PBGC, and simply create two under-funded pension plans that shortchange participants.

Hoffa misleads readers.

Multiemployer composite pension plans are voluntary tools that bargaining parties can employ to strengthen retirement security - not two pension plans that weaken it. As employers continue to abandon traditional defined benefit pensions, composite plans provide a better alternative for workers than the current 401(k) option. Composite plans eliminate the disincentives of the current system, pay higher benefits than 401(k) plans by pooling longevity risk, and provide lifetime income and professional investment management, all at lower costs.

Despite claims to the contrary, composite plans actually strengthen legacy plans by removing obstacles to new employer participation.

There is a lot at stake for multiemployer pension participants but we can agree on two things: unfortunately, doing nothing is not an option, nor is counting on Congress to bail out our most troubled pension plans.

Composite plans put trustees and participants in control of their future. Isn’t that a better path toward a secure retirement?

Eric Dean, President

International Association of Bridge, Structural,

Ornamental and Reinforcing Iron Workers

Pension premium hike gamble won't help construction industry

By Jim Kolb

Partner, Summit Strategies Government Affairs LLC

On May 6, the U.S. Department of Treasury rejected the rescue plan submitted by the trustees of the $16.8 billion Teamsters Central States Pension Fund.

This was the first proposal submitted under the pension preservation tools authorized by the Multiemployer Pension Reform Act (MPRA) of 2014.

While Treasury’s decision provides a temporary reprieve for the 270,000 Central States participants slated for benefit reductions under the proposal, the rescue plan was the last hope to avoid catastrophic plan failure and to prevent plan participants from being thrown into the Pension Benefits

Guarantee Corporation (PBGC), the federal backstop for multiemployer pension plans.

This decision will have significant real-world impacts on union contractors and multiemployer

 pension plan participants. Treasury’s rejection threatens the entire multi-employer pension system, leading to greater uncertainty for the plan trustees, contributing employers, and plan participants.

The reality facing Central States is simple math: it has only half of the resources needed to fully   meet its future retirement  obligations, and it continues to lose billions every year, as it has far more retirees receiving pensions than it has active participants.  

Current projections show the Fund will become insolvent by the end of 2025.  If this were to occur, it would bankrupt the PBGC multiemployer program. PBGC, meanwhile, is facing its own solvency   crisis. There are serious questions over its ability to protect retirees over the long-term.   In a report just issued last month, the PBGC found that its resources are significantly below the amount necessary to cover guaranteed benefits. Despite the doubling in premiums included in MPRA, the multiemployer program is expected to run out of resources prior to 2025.  

To address this looming crisis, some in Congress - backed by the Teamsters and pension rights   advocates - have called for a federal bailout of multiemployer pensions. Total price tag: more than $30 billion. While The Association of Union Constructors (TAUC) has supported such legislative proposals in the past, the likelihood of such a proposal passing in the current legislative environment is nearly zero.   Even a compulsive gambler would avoid those odds. Yet, participants in troubled plans are being sold a bill of goods – namely, that they will not have to face benefit reductions. Those claims have no basis in reality, and put those participants at a much greater risk of much deeper reductions. The political leaders selling these proposals are gambling with the pension benefits and retirement security of multiemployer plan participants.     

With the likelihood of a federal bailout of the multiemployer  program bleak  –  to say the least   –   the PBGC and some in Congress have called for increasing annual premiums paid by multiemployer plans.  While there is not a specific proposal to increase premiums, the recently released PBGC report found that “substantial increases in premium revenue will be needed to avoid cuts in multiemployer  

insurance program guarantees.”     

The report projects that premiums will need to increase to over four and one half times the current rates in order for the PBGC to meet average projected financial assistance obligations though 2035.  

An increase of that magnitude would have a huge impact on union contractors, driving up their costs and significantly undermining their ability to compete for work.  

TAUC is working to oppose such an increase, which would be unfair to contractors participating   in healthy plans, and shortsighted and counterproductive to the long-term health of the overall multi-employer pension system. Such a large premium increase would make it harder to get new employers to join these plans, and could lead to contractors exiting pension plans altogether to avoid the premium   increases and growing unfunded liabilities. Even worse, such an increase could force others into bankruptcy. TAUC is also continuing to work with other construction industry trade associations and our   building trades partners to urge Congress to enact legislation to strengthen the multiemployer pension system by authorizing the use of new benefit plan designs known as hybrid or composite plans.  

Authorizing the use of these plans would provide employers an incentive to stay in the system by allowing trustees to voluntarily develop plans that offer participants lifetime benefits at a predictable fixed cost to employers. The ability to negotiate such benefits would provide joint labor-management trustees the flexibility they need to address instability in the current multiemployer pension benefit model.  

One thing is very clear: doing nothing and waiting for more pension funds to fail is a dangerous   proposition for the long-term viability of many multiemployer pension funds. The rejection of the Central   States’ rescue proposal and the pending insolvency of that Fund should drive home the threat of this looming crisis with lawmakers. Let’s hope they get the right message from Treasury’s decision before retirees, plan participants and contributing employers end up being dealt out of the game.

(From The Association of Union Constructors, The Construction User)