Multiemployer Pension Plans: Composite Plans
Construction Employers of America (CEA) Position:
Congress should move this year to enact an alternative plan design option/Composite Plans to provide employers and employees participating in collectively bargained, multiemployer benefit plans with more choices in retirement plan models. The Composite Plan option is critical to the long-term viability of construction industry businesses and is key to avoid jeopardizing the retirement benefits for millions of active and retired construction craft workers.
Employer exits, bankruptcies and ensuing mass withdrawals are a threat to the system. No employer wants to be “the last man standing.” Providing a new hybrid option for plans will prevent more plan failures.
Composite Plans are self-help remedies that plans can voluntarily adopt going forward to put their retirement benefits on sound and sustainable footing without taxpayer dollars and without any worker losing already earned benefits. There is no compelling, sound public policy reason to postpone action on Composite Plans. Enacting Composite Plans would forestall the failure of more plans and stabilize funding volatility in the future and should be done this year.
If Congress does move to address critical and declining plan shortfalls and the PBGC funding crisis, CEA would oppose Congressional action that would impose crippling funding requirements on plans which would further destabilize plans. CEA would also oppose substantial PBGC premium increases. Premium should be capped at a level affordable for the bargaining parties to present erosion of the contribution base.
In the 115th Congress, the bipartisan, bi-cameral Joint Select Committee on the Solvency of Multiemployer Plans, charged with finding solutions for failing plans and PBGC solvency issues, failed to find a bipartisan solution before the end of the session. Reps Roe (R-TN) and Norcross (DNJ), the 2018 primary cosponsors of the Composite Plan bill, the GROW Act, both served on the Joint Select Committee and they did not want to act prematurely on Composite Plans, outside the select Committee. Since Joint Select Committee efforts did not end until the end of the session, Composite Plan legislation died with it.
It appears the House will move on the Butch Lewis Act, a loan program for plans, without a firm guarantee of repayment. The Senate is headed in a different direction that is likely to include benefit reductions for rescued plans and changes in funding rules for plans. With the two different directions on solutions for failing plans, it is unclear if comprehensive reform can be achieved this year and once Congress enters 2020, a general (presidential) election year, compromise for a “grand” solution will get more difficult if not impossible.
- It is important to take action to keep more plans from going insolvent. There are 1400 plans. Expected insolvent plans number approximately 130. Construction industry plans are 54% of plans and approximately 37% of participants. Very, very few construction plans are critical and declining.
- CEA contractors want to continue to be able to provide lifetime retirement security for their workers but the current Defined Benefit (DB) system is unstable and contractors are worried about the viability of their businesses and are being driven out of the system.
- Employer exits, bankruptcies and mass withdrawals in the multiemployer system are continuing threats which will result in more plan failures, exposing more workers to drastically reduced benefits and jeopardizing the solvency of the Pension Benefit Guaranty Corporation (PBGC).
- Composite Plans are supported by construction employers who like the cost predictability of Composite Plans and by many building trades unions which support the lifetime benefit provisions, pooling of risks and professional fund management.
- Composite Plan use is strictly voluntary by plan trustees, and plans have an equal number of labor and management representatives and is a private sector solution with no need for taxpayer dollars.
- Composite Plans funding requirement provide benefit security. The flexible benefit structure would protect benefits with strict management and funding requirements – most notably plan benefits would be required to be funded at 120% -- a funding cushion of 20%. There would be safeguards against adverse market experiences and advance protections for severe market declines that would allow for modest reductions early to prevent catastrophic benefit reductions later. Stress testing models show the funding cushion protects plans against moderate and severe market losses with no changes to core benefits.
- Already earned benefits are 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, the 2018 legislative language was written in a bi-partisan way to tightly protect earned benefits in the transition rules.
- Private Sector Solution: Composite Plans would provide a private sector solution, not requiring government dollars and is designed to keep the current funding crisis from happening in the future. Composite Plans do not solve the problems of critical and declining plans or the PBGC.
- Honors the Collective Bargaining Process: Contractors and their labor partners are wellversed in the art of collective bargaining. The GROW Act would leave the decision to transition in the hands of labor and management trustees. In a world where employers are deserting the defined contribution model for 401(k) plans, this Composite Plan design legislation, keeps pension benefit issues as a negotiated issue, not a mandate.
- Liabilities in Legacy Plans Gradually Diminish: With Composites, legacy plan liabilities gradually diminish as benefits are paid out and participants earn accruals in the new plan and the legislative language is written so that legacy plans cannot be “starved.”
- PBGC Premiums to Legacy Plans Continue: As long as there are remaining participants in the legacy plans, the plans must pay premiums to PBGC.
Composite Plan legislation has not yet been re-introduced but the 2018 bill was sponsored by Republican Phil Roe and Democrat Donald Norcross, a retired IBEW member.
Committees of Jurisdiction:
Senate Finance; Senate Health, Education, Labor and Pensions (HELP); House Education and Labor; and House Ways & Means