Witnesses Urge Lawmakers to Take Action for Multiemployer Plans

June 13, 2013 (PLANSPONSOR.com) – Hearing witnesses recommended reforms lawmakers should consider to strengthen the multiemployer plans system.

Much of the testimony at the House Committee on Education and the Workforce Subcommittee on Health, Employment, Labor and Pensions (HELP) hearing centered around a report, “Solutions not Bailouts: A Comprehensive Plan from Business and Labor to Safeguard Multiemployer Retirement Security, Protect Taxpayers and Spur Economic Growth,” released by the Partnership for Multiemployer Retirement Security, and developed by the National Coordinating Committee for Multiemployer Plans’ Retirement Security Review Commission (see “Report Offers Suggestions for Multiemployer Plan Security”). Randy G. DeFrehn, Executive Director National Coordinating Committee for Multiemployer Plans (NCCMP) reminded the House Committee on Education and the Workforce Subcommittee on HELP the report includes recommendations for technical corrections to the Pension Protection Act (PPA) designed to strengthen those plans that are recovering or have recovered from the 2008 recession, largely by building on the tools provided in the PPA and subsequent legislation. These recommendations are described under the provisions for preservation.  

The report also includes recommendations for remediation measures to address the problems of, and provide solutions for, the limited number of plans which, despite having taken all reasonable measures, are projected to become insolvent within specified time parameters. Lastly, the recommendations include provisions that encourage the creation of innovative alternative designs to eliminate many of the current incentives for employers to exit the system and reverse the trends which, unless addressed, will only exacerbate the current decline in the pool of continuing employers. These include alternatives that will permit the adoption of alternative plan designs to significantly reduce or eliminate the unpredictable and unacceptable residual costs associated with the current system of withdrawal liability.  

In a report issued in April, the Government Accountability Office (GAO) also recommended alternative plan designs (see “Congressional Action Needed for Multiemployer Plans”).

General Secretary Eric Dean of the International Association of Bridge, Structural, Ornamental and Reinforcing Ironworkers added that some measures to help preserve the multiemployer plans system include allowing plans to harmonize retirement age with Social Security, facilitating mergers so smaller plans can have larger economies of scale, removing the disincentive for employers to fund the plan—a higher withdrawal liability for a higher contribution rate, and allowing troubled plans to access red zone tools earlier.  

Teresa Ghilarducci, from the Bernard and Irene L. Schwartz Professor of Economics Policy Analysis, and chair of the Economics Department, at The New School for Social Research, in New York City, said it is important to preserve multiemployer plans because they allow employers and workers to optimize labor contracts in situations when employers cannot or will not commit to long-term contracts with employees, but still depend on skilled workers loyally attached to the industry and craft. “What needs to be emphasized is that multiemployer pension plans, health plans, and importantly apprenticeships plans … create a framework enabling many types of workers—who otherwise would be without—obtain a decent wage, training, and employee benefits. In short, workers, who in other countries are at the bottom of the labor market, can be in the United States near middle-class,” she said.  

Michele Murphy, executive vice president of Human Resources and Corporate Communications for SUPERVALU Inc., pointed out some flaws with current law governing multiemployer pension plans. The “last man standing” rule saddles employers that remain in a multiemployer plan with potential liability for pension obligations of workers and retirees that never worked for the remaining employers, she noted. This includes not only those who worked for a competitor of the remaining employers, but also, in many cases, those who worked in a completely different industry than the remaining employers. As an example, Murphy pointed out that the Hostess bankruptcy in 2011 increased the remaining employers’ share of the unfunded liability of the Teamster’s Central States, Southeast and Southwest Areas Pension Plan (“Central States Pension Fund”) by almost $600 million (see “Hostess Proposes Suspension of DB and MEPP Contributions”). SUPERVALU’s share of these unfunded liabilities was about $9 million even though SUPERVALU comprises less than 2% of the Central States Pension Fund. “SUPERVALU’s contributions to Central States are funding about $9 million of unfunded liabilities attributable to Hostess employees and retirees—even though they never worked for SUPERVALU, and in fact, worked in a different industry,” she stressed.


Shifting risk to the remaining employers places an unfair burden on the remaining employers and, depending on the employer’s financial condition, could threaten the continued viability of these companies, too, Murphy contended. “Given the impact of the 'last man standing' rule, it is not surprising that multiemployer pension plans are not attracting new employers. Employers do not want to join a multiemployer plan that could expose them to future withdrawal liability on benefits earned by employees of other employers, including benefits earned long before the employer joined the plan.” 

Murphy also pointed out the disparity in the way the government insures single employer pension plans versus multiemployer pension plans. If an employer in a multiemployer plan goes bankrupt and cannot pay the withdrawal liability, the first step is for other contributing employers to assume the unfunded liabilities of failed employers and essentially pay for these liabilities through higher contributions to the multiemployer pension plan. The Pension Benefit Guaranty Corporation (PBGC) only steps in after the plan becomes insolvent.  

If a multiemployer plan becomes insolvent, the PBGC loans money to the plan to pay benefits, and the pension payments must be reduced to the extent they exceed the PBGC statutory maximum. Currently, the maximum PBGC multiemployer guarantee is $12,870 per year for a retiree with 30 years of service at age 65. This is far different from a failing single employer plan, Murphy noted. First, with the failed single employer plan, the PBGC steps in and assumes the plan’s liabilities and assets and pays the pension benefits. Second, the benefits in a single employer plan are subject to a maximum guarantee of about $57,477 per year, much higher than the multiemployer plan guarantee level.  

The Pension Benefit Guaranty Corporation (PBGC) has submitted several reports to Congress about its multiemployer pension plan program (see "PBGC Warns of Trouble for Multiemployer Program”). Last month, the agency announced its intent to issue a survey of multiemployer plans (see “PBGC to Issue Multiemployer Plans Survey”).  

More information about the hearing, including a webcast recording, is here.