In a recent letter, SMACNA urged the Senate Finance Committee to support Composite Plan design.
Recent National Pension Fund (NPF) records show SMACNA employers made contributions of over $460 Million in 2015; over $424 Million in 2014; and over $315 Million in 2012. But this increasing amount has not been enough to keep the national plan adequately funded and it currently resides in Endangered Status.
SMACNA contractors want to continue to be able to provide lifetime retirement security for their workers but unfortunately the current Defined Benefit (DB) system is unstable and contractors are worried about the viability of their businesses and many are being driven out of the system. We are also seeing large and small DB funds on the verge of collapse. This hearing alone will make clear worker pensions in the current DB system are not secure.
The Solution: Composite Plans
Labor and management came together to craft a solution which has the ability to revitalize the multiemployer system, where needed, with a new type of plan called a “Composite Plan”. Federal law currently allows only a traditional Defined Benefit Plan or a 401(k) style Defined Contribution Plan. Composite Plans are a hybrid plan designed to bridge the gap.
So far, SMACNA has not heard any opposition to the new hybrid plan design. There are good reasons for that. Employers like it, workers like it, and its use is strictly voluntary by plan trustees, which have an equal number of labor and management representatives.
Composite Plan Design Features Workers Like:
- Lifetime Benefit: Composite plan benefits would be paid as lifetime annuities – lump sums not allowed.
- Professional Asset Management: Plan assets would be professionally managed with no individual fees
- Assets & Mortality Risks would be pooled as in traditional defined benefit plans.
- Benefit Security: The flexible benefit structure would protect benefits with strict conservative investment, management and funding requirements – plan benefits would be funded at 120%. The attached Segal/NCCMP document illustrates how plans funded at 120% fare under different negative market event scenarios even without the benefit of a normal rebound effect.
- Severe Market Decline Protections: In the unlikely event, market declines exceed the worst predictions, plans would have the important early ability to reduce the core benefit but only after all other options have been exhausted. The key fact is that experience now reveals that the massive benefit reductions being discussed today could have been avoided if plans had been empowered to make modest adjustments earlier. The same protections afforded vulnerable populations in MPRA would apply to Composite Plans.
- Already Earned Benefits Protected: Composite Plans would apply only to benefits earned in the future; benefits already earned in the so-called Legacy Plan would not be lost nor cashed out. Instead, legislative language is being written in a bi-partisan way to tightly protect earned benefits in the transition rules.
Composite Plan Design Features Employers Like:
- Negotiation to Composite Plan Possible: It is a plan workers would agree to for the future – whereas they would be unwilling to negotiate to a 401(k) plan
- Cost Predictability: Composite Plans would provide cost predictability -- employers would be required only to contribute the amount negotiated in their collective bargaining agreements and would not take on outside liabilities.
- Retain and Attract Employers: By eliminating unfunded liabilities (withdrawal liability) for employers going forward, the composite design would improve the ability of plans to retain existing contributing employers and removes a significant barrier for attracting new employers
- Liabilities in Legacy Plans Cease to Grow: As time moves forward, liabilities in the legacy plans gradually diminish as benefits are paid out and participants earn accruals in the new plan.
- The Next Generation Can Take Over a Business: With a composite plan in place, employers would be able to welcome their children into their businesses with confidence or would be able to sell their businesses when they retire, without the overwhelming burden of uncontrollable, unknowable risk of unfunded liabilities.
- Affordability: The new plan would be made affordable by allowing a one-time 30-year amortization of the legacy plan.
- Private Sector Solution: The proposal is a private sector solution, not requiring government dollars and is designed to keep the current funding crisis from happening in the future.
Composite Plans will modernize and reinvigorate a multiemployer retirement system that has struggled in recent years. Once Congress authorizes the use of composite plans, the companies that sponsor multiemployer plans will be able to offer safe and secure lifetime benefits to employees without risking the survival of their life’s business. .