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New Study Shows Resiliency of Composite Plans

Jun 04, 2020

Pension-529523323 600x400SMACNA, in conjunction with a construction industry coalition, commissioned a new study designed to evaluate how composite plans would perform during an economic crisis. The study’s author, actuary Josh Shapiro of Groom Law Group, notes the sustainability of a retirement system cannot be measured during easy times. 

The detailed case study evaluates how a composite plan would have performed during the downturn of 2008 and the more immediate coronavirus pandemic. The report makes clear that composite Plan design offers workers the kind of security and stability that too many traditional multiemployer defined benefit plans promise but cannot deliver, and shows employees and employers stand to benefit once Congress authorizes the use of composite plans.  

Report to Be Shared with Congressional Staff

The results of the study, released June 2, will be rolled out in a special webinar event for Hill staff on June 9. Lobbying efforts have shown resistance by some in Congress to the composite plan model by those who see traditional defined benefit (DB) plans as the gold standard and do not want other options made available, despite a growing number of failed plans. Others want to be sure the federal government will never again be on the hook for failed plans and are skeptical about the composite plan model. The goal of the commissioned report is to help parties in both houses understand that composite plans provide security and stability for workers, retirees, employers, and taxpayers even under adverse economic conditions.

Analysis 

The report analyzes a hypothetical plan that is 75 percent funded immediately before the 2008 market crash and traces the experience of this plan as a traditional DB plan and then considers how it would have fared differently under composit plan funding rules. It shows the composite plan model has greater resiliency in the long-term.

The traditional pension plan, in the wake of the 2008 market collapse, was unable to take sufficient action to return it to financial health, despite drastic measures. Under the same conditions, the composite plan was able to stabilize and recover from both the 2008 crash and get through the pandemic, taking less dire action.  

The study makes clear that retirement plans can only achieve success as long as employers continue to participate in them. The number of active employees covered by the defined benefit system has steadily declined. Plans have also seen large reductions in the number of contributing employers because the ability of employers to absorb the cost of unfunded pension liabilities is limited and employers are being driven out of the system.

Conclusion

In conclusion, Shapiro states, “the multiemployer system needs to be open to new ideas in order to evolve and meet the needs of future generations.” SMACNA CEO Vince Sandusky echoed that sentiment, stating, “the multiemployer system needs new ideas and creative thinking to meet the needs of future generations of workers and retirees.” He expressed the hope that Congress will “put an energizing new retirement option, composite plans, on the table for the future.”

Read the study.

View the press release.