mulitemployer regulations change healthcare

By: Hazel Bradford, Pensions & Investments (Business Insurance) February 2016

With three multiemployer pension plans moving to cut benefits, pension advocates are pushing to derail the law that made such steps possible before there are more, while other experts press for new plan designs.

The Pension Benefit Guaranty Corp., the federal agency charged with insuring private-sector pensions, estimates that 1.5 million people are covered by severely underfunded multiemployer plans at risk of becoming insolvent. And the PBGC’s own program for backstopping multiemployer plans is projected to be insolvent in as little as 10 years.

For many current and future retirees, the possibility of their plans going to the PBGC represents an unappealing option. Unlike the single-employer maximum guarantee of $60,136 annually, the most a multiemployer participant with 30 years of service could receive is less than $13,000.

“There is a brewing crisis. It’s going to end up being a huge mess for the country,” said Karen Friedman, executive vice president at the Pension Rights Center, Washington. “There are a lot of people affected who don’t know they’re affected.”

Drexel University law professor Norm Stein, a senior policy adviser to the center, worries that between the new multiemployer law and efforts in many states to trim public-sector pensions, “cutting benefits is seen by some as the solution. It’s rather frightening.”

Critical and declining plans

Under the Multiemployer Pension Reform Act of 2014, multiemployer plans deemed “critical and declining” can cut benefits for current retirees by no more than 110% of the PBGC guarantee, with more protections for disabled or older retirees.

If trustees exhaust other means to avoid insolvency, but the plan still is likely to be insolvent within 15 or 20 years, plan officials can file a benefit suspension plan with the Treasury Department. A key criterion is that the benefit cuts must be large enough to save the plan, at least on paper. Weaker plans would be forced to wind down until assets are gone.

So far, three plans have filed MPRA applications, starting in September with the $17.9 billion Teamsters Central States, Southeast & Southwest Areas Pension Fund, Rosemont, Illinois. As of 2014, the plan was 48% funded and projected to be insolvent by 2026.

Benefit cuts are expected to be approved in the spring. Under the law, the U.S. Treasury Department is required to grant approval if a plan’s potential claims would cost the PBGC $1 billion or more.

The $92 million Iron Workers Local 17 Pension Fund, Cleveland, and the $123 million Teamsters Local 469 Pension Plan, Hazlet, New Jersey, also have filed for benefit suspensions.

The pension benefits of as many as 275,000 participants could be reduced under the three pending applications.

And earlier this month, trustees of the $1.46 billion New York State Teamsters Conference Pension and Retirement Fund, Syracuse, told participants that they, too, are considering applying for MPRA relief.

That has retiree groups like the Pension Rights Center and AARP braced for much more.

So far, the Pension Rights Center has identified 52 multiemployer plans that have notified the Department of Labor of their “critical and declining” status, which allows them to consider applying for MPRA relief if certain conditions are met. The Center for Retirement Research at Boston College identified 100 plans that could fall into that category.

Varying impacts

In Central States’ application, covering 407,000 participants, individual impacts vary widely. Participants 80 and older or disabled would be fully protected, but 43,400 “orphans” who worked for companies that didn’t pay upon withdrawing from the multiemployer plan could see their benefits cut by 70% or more, depending on years of service. Other participants could see benefits cut in half, or more.

Cutting retirees’ benefits “is the last thing that anybody wants,” said Randy DeFrehn, executive director of the National Coordinating Committee for Multiemployer Plans, Washington. NCCMP, whose multiemployer pension reform ideas led to passage of MPRA, supports the application process as a way to avoid deeper cuts in the long run for plans without options.

“What people fail to remember is that it is not an opportunity to cut benefits; it’s an opportunity to preserve benefits. That’s the message that gets lost,” Mr. DeFrehn said.

“We’d love to see someone write a big check, but we’ve been told repeatedly there is no money. The (MPRA) relief for those plans provides more money for all participants than they will get when they go to the PBGC,” he added.

Retiree advocates, worried the MPRA approach eventually would make it easier to cut benefits in other types of pension plans, are lobbying hard to stop Treasury from approving the applications.

They also are trying to convince Congress to consider other measures, including giving PBGC more money to provide richer benefits or doing more partitions — a process that allows multiemployer plans to isolate a group of participants from a troubled employer, with PBGC providing financial assistance to a new successor plan while keeping the original plan intact.

The less likely outcome is passage of legislation introduced by Sen. Bernie Sanders, I-Vt., and Rep. Marcy Kaptur, D-Ohio, that would prohibit MPRA cuts, but pension advocates are hoping for some compromise.

“Any mitigation would be helpful. Just saying no doesn’t solve the problems, but it does set the basis for solving the problems. It’s worth fighting for,” said Ken Paff, national organizer for the Teamsters for a Democratic Union, a grass-roots organization of members of the International Brotherhood of Teamsters whose multiemployer plans make up a large share of plans on the critical list.

One possible silver lining is the NCCMP’s proposal to Congress to allow new types of multiemployer plans that have both defined benefit and defined contribution features.

Inspired by “shared-risk” models in other countries, these composite plans would allow existing plans to have two parts: a “legacy” DB plan that would have to be fully funded with no future accruals and a new composite benefit for future accruals, with pooled management.

Convert to DC

While better-funded multiemployer plans are not interested in leaving the “gold standard” defined benefit plans, “many industries that are heavily depending on access to credit markets, especially construction, are looking at how to convert DB into DC to reduce their exposure to unfunded liabilities over which they have no control. It’s one of the few things that can get bipartisan support,” said Mr. DeFrehn.

He is optimistic that Congress could act this year on additional multiemployer pension reforms, including allowing for innovative plan designs, modernizing the multiemployer system and giving the PBGC more resources.

Meanwhile, the Education and the Workforce Committee, chaired by John Kline, R-Minn., the original co-sponsor of MPRA who is retiring this year, is working to develop legislation for those additional reforms.

“Composite plans are a good idea,” said Ted Goldman, senior pension fellow at the American Academy of Actuaries in Washington, and a member of its multiemployer subcommittee. “The trick is the transition,” he said. “What do we transition to, how do we manage the risk, and still provide benefits, and how do we still keep employers in the game.

Hazel Bradford writes for Pensions & Investments, a sister publication of Business Insurance.

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