This week the Senate Finance Committee held a hearing titled, “The Multiemployer Pension Plan System: Recent Reforms and Current Challenges”, which examined benefit suspension tools for deeply troubled plans under the Multiemployer Pension Reform Act of 2014; the proposed benefit suspensions for participants in the Central States Pension Fund; the funding challenges of the United Mine Workers Pension Plan; the projected insolvency of the Pension Benefit Guaranty Corporation (PBGC); and the proposed new composite plan design.
AGC has promoted the 2014-encated Multiemployer Pension Reform Act (MPRA) as an important step in reforming the multiemployer pension system and warned that any attempts to roll back this law would impose far greater benefit reductions for participants in troubled plans. AGC has also urged Congress to authorize composite plans, which would modernize retirement benefit plans and create a sustainable system for contributing employers and their workers and retirees. AGC sent a letter to members of the committee ahead of the hearing as did a broad, multi-industry coalition of employer organizations.
The former director of the PBGC, Josh Gotbaum, testified at the hearing that participants in the Central States were not alone in receiving benefit reductions and the situation was a compilation of factors. Gotbaum reiterated that MPRA offers a chance to preserve the greatest benefits for the greatest number of participants and that repealing MPRA would make the system worse and jeopardize the entire multiemployer pension system. He also urged Congress to authorize composite plans as a way to “allow plans to survive.”
Gotbaum and Andrew Bigss, American Enterprise Institute scholar, did raise questions with the composite plan design. Gotbaum is concerned that the composite plans will pay PBGC premiums and therefore could erode the base of funding. He also raised concerns with some of the actuarial assumptions. Biggs testified that he was skeptical that the composite plans could deliver the benefits they promise because of the reliance on investment in stocks and that the actuarial assumptions evaluate the volatile returns accurately. Biggs is a proponent of direct contribution or 401(k) plans and believes that defined benefit plans are an antiquated model.
AGC will continue to educate the stakeholder community on composite plans as a viable alternative and the only option to offer a sustainable system for its contributing employers. AGC is also working with actuaries to show that proposed actuarial assumptions in the composite plan model are sound and that the plans actually have the ability to pay benefits rather than making promises that last only as long as plans have assets. The Biggs testimony failed to highlight that the plans will have 20 percent funding cushions, and his views that 401(k) plans are the panacea to retirement security are flawed. AGC will continue to work with our partners in the building trades to implement realistic reforms to the pension system that provide lifetime income security for participants and eliminate financial risk for employers.
For more information, please contact Jim Young at youngj@agc.org or (202) 547-0133.