Speaking at the 58th Annual Employee Benefits Conference of the International Foundation of Employee Benefit Plans (IFEBP), Gotbaum noted that active employees are now the minority in multiemployer plans. On average, active employees account for 40% of the multiemployer plan population, and in some plans the proportion of active employees is as low as 10%.
So, the underfunding solution of reducing active workers benefits while requiring them to contribute the same will not work, Gotbaum contended. He said workers will reject the idea that a portion of their paycheck goes to retirees and not to their own savings, so they will go to their unions to challenge such actions.
The PBGC is more limited in what it can do for a multiemployer plan than for a single-employer plan, Gotbaum explained. When a single-employer plan shows signs of financial distress, the agency can step in before it runs out of money and can take over assets and administration. With a multiemployer plan, the agency cannot legally do anything to help until the plan is out of money; the plan then becomes a burden on the PBGC. New regulations are needed to increase the standard of care for multiemployer plans.Gotbaum stressed that the PBGC can and does offer advice if an employer comes to it for help.
In addition, Gotbaum noted that the PBGC paid out twice as much in benefit payments as it received for premiums. The agency needs new premium rules to keep from going under (see “Consider PBGC Premiums Before Reducing DB Contributions”) and wants the ability to set premium rates based on risk factors (see “GAO Looks at Risk-Aligned PBGC Premiums”).
Finally, Gotbaum contended that all members of the retirement plan industry should encourage regulations that would increase flexibility for plan sponsors (see “Gotbaum Urges More Flexibility for Retirement Plans”) and reduce regulatory burdens. Plan sponsors should be able to offer employees a retirement plan option that is between one in which the employer pays 100% of the benefit and a defined contribution (DC) plan.He pointed out that accounting rules terrify defined benefit (DB) plan sponsors, and suggested they could be relaxed.He also asked whether having a different set of rules for offering annuities versus other investments in DC plans biases plan sponsors against offering these options.
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