On May 12, 2020, the Associated General Contractors and other construction contractor groups called on Congress to address the growing multiemployer pension crisis in a letter. While Congress debates the next round of COVID-19 related stimulus legislation to address the unprecedented public health emergency the multiemployer pension crisis has been growing. Construction industry plans account for over half of all multiemployer defined benefit plans and cover nearly four million multiemployer defined benefit participants.
The growing urgency for multiemployer pension reform can be attributed to plans experiencing drastic reductions in hourly contributions and substantial market losses. Multiemployer pension plans are funded through hourly contributions and as cities and entire states shelter in place, many public and private construction projects are slowing or shutting down. When construction projects pause, the plans lose the hourly contributions they need to survive and when coupled with market downturns this is devastating to plans.
Prior to the COVID emergency more than 100 plans were facing insolvency along with the Pension Benefit Guaranty Corporation which put the entire 10 million participants retirement security in jeopardy. Congress has been debating how to address the looming failure and how to structure a system that won’t fail and require federal assistance again.
In response, AGC and its stakeholder partners are urging Congress to provide direct funding to the PBGC to avert plan failures; allow actuarial smoothing so plans can better weather the unprecedented global health crisis; reform funding rules; give plans faster access to funding tools; and authorize a new hybrid plan design, Composite Plans, which are better structured to withstand market downturns in the future, while simultaneously protecting both employers and participants.
Composite plans, whose use can only be authorized by Congress, are a new type of retirement plan that will modernize traditional pension plans by combining the key features of defined benefit and defined contribution plans. While they would be new in the United States, they have been used with success throughout Canada. Going forward, these plans would provide better protections for participants than a typical 401(k) but also would allow employers to better prepare for future financial obligations, which will be critical in the coming months and years as employers must be on a sound financial footing to put workers back to work.
AGC believes Composite Plans are a key component to any pension legislation as they offer needed certainty to contributing employers and workers in these uncertain times. They also provide the needed structural reforms that many have rightfully insisted be part of any legislation that addresses pension reform.