Support Relief to Enable Multiemployer Pension Plans to Weather Historic Economic Downturn

Background:

• Multiemployer pension plans are employment–based retirement plans sponsored by multiple employers in accordance with one or more collective bargaining agreements and are common in the unionized sector of the construction industry. These plans allow employers to offer workers a defined benefit plan that gives them “portability” to earn continuous benefits as they go from job to job within the same industry. Of the 10.1 million participants in all 1,510 multiemployer defined benefit plans, nearly 45 percent are construction industry workers and retirees. The majority of multiemployer plans suffered significant losses as a result of the financial crisis and may require considerable contribution increases. Contributions to these plans are funded entirely by employers, not unions.

AGC Message:

• Defined Benefit Plans Have Been Negatively Impacted by the Recent Financial Crisis. Beginning in 2008, median investment losses for multiemployer plans have exceeded negative 20 percent. These losses, coming in the first year of the new, more aggressive funding rules required by the Pension Protection Act (PPA), has given rise to concerns for the projected need for crippling additional contribution increases, deep benefit cuts, or both. Certain multiemployer plans, however, have been particularly hard hit as the current financial crisis exacerbates long–term funding problems resulting from shifting demographic trends and financial problems within certain industries.
• Without Remedial Action, Contribution Increases Would Make Contributing Employers Non–Competitive. The drop in the value of pension plan assets, coupled with the current credit crunch, has placed defined benefit plan sponsors in an untenable position. At a time when companies need cash to keep their businesses open, the PPA requires huge, countercyclical contributions to their pension plans. Consequently, many companies will divert cash needed for current job retention, job creation, and needed business investments and instead contribute the cash to their pension plans to fund long–term obligations. Relief is necessary to allow contributing employers to remain economically viable and to employ covered participants, while also averting unavoidable benefit reductions that would be required to comply with the PPA.
• Protect Multiemployer Pension Plans While Preserving Fundamental Goals of the PPA. AGC remains committed to the fundamental goals of the PPA to ensure that plans are sufficiently funded to pay all promised benefits when they are due. However, the rules must be made more responsive to the recent financial crisis. Congress must enact relief to moderate the effects of the aggressive funding targets contained in the PPA by 1) providing additional time for plans that are financially challenged, but fundamentally sound; 2) providing new financing approaches to help employers meet the increased contribution requirements for plans in critical or seriously endangered condition; and 3) strengthening the Pension Benefits Guaranty Corporation (PBGC) so that is has sufficient resources, direction, and authority to achieve its stated mission of promoting defined benefit plans and the security of participants’ retirement income.
• Support Legislation to Protect Multiemployer Pension Plans. H.R. 3936, the Preserve Benefits and Jobs Act, would lessen these impacts on both contributing employers and retirees in multiemployer plans. H.R. 3936, and S. 3157, the Create Jobs and Save Benefits Act, would address more challenged plans.
• Multiemployer Pension Plan Relief Is Not a “Union Bailout.” Critics of legislation to protect multiemployer pension plans have mischaracterized the proposals as a “union bailout” and multiemployer plans as “union plans.” This is not the case. In fact, contributions to these plans are funded entirely by employers, not unions. The provisions H.R. 3936 and S. 3157 aim to correct problems associated with joint and several liability rules that govern multiemployer plans. Because of the nature of these plans, when one employer goes bankrupt, the remaining employers in the plan become responsible for paying the accrued benefits of all the workers, often referred to as “the last man standing.” As the number of contributing employers dwindles, employers remaining in the plan see their liabilities increase exponentially, forcing them to cover retirees that never worked for them. The legislation seeks to make these plans more stable for both employers and their employees.