New Analysis Finds Composite Plans Would Have Fared Better During the Coronavirus than Traditional Multi-Employer Retirement Plans

AGC and other contractor associations seeking multiemployer pension reform jointly released a new study on June 1 finding that composite retirement plans would have fared better during the coronavirus pandemic and related market declines than traditional defined-benefit multi-employer plans, allowing participants to receive higher benefits and attracting more employer participants. The study makes it clear that employees and employers stand to benefit once Congress authorizes the use of composite plans.

Necessity Breeds Innovation: How Composite Plans Can Bring Sustainability to the Multiemployer Pension System was commissioned by the following organizations:  the Associated General Contractors of America; FCA International; International Council of Employers of Bricklayers and Allied Craftworkers; Mechanical Contractors Association of America; National Electrical Contractors Association; Sheet Metal and Air Conditioning Contractors’ National Association; Signatory Wall and Ceiling Contractors Alliance; and The Association of Union Constructors.

“Composite plans are a voluntary approach with built-in guardrails to keep plans on track that would give plan sponsors a much-needed option as they look for ways to provide sustainable lifetime income to participants,” concluded the study’s author, Josh Shapiro with the Groom Law Group. “Our case study illustrates how the key composite plan features can provide greater long-term benefit security than current pension plans.”

The plans are a retirement reform designed to provide benefit security through conservative funding principles and early corrective action. Unlike 401(k) plans that typically pay lump sums, composite plans pay all benefits as lifetime annuities, so participants do not need to worry about outliving their accounts and being left without a source of income. Unlike traditional multiemployer defined-benefit plans, they do not expose contributing employers to withdrawal liability.  While these plans successfully benefit millions of middle-class retirees across the developed world, they have not yet been authorized for use in the United States.

“The composite plan model is a much more flexible, self-adjusting plan as compared with the traditional defined benefit plan model,” Timothy J. Brink, CEO, Mechanical Contractors Association of America, explained. “The composite plan calls for contributing employer investment of a 20 percent overfunding cushion, in exchange for greater flexibility in annual 15-year funding projections. The composite plan model also calls for immediate remedies of small manageable problems before they devolve into the types of deep underfunding challenges traditional plans are experiencing now.” Brink added that “it's much better for both contributing employers and plan participants to be safe early rather than very sorry much later.”

The study was designed to evaluate how a composite plan would have performed during two recent economic crises, the downturn of 2008 and the more immediate coronavirus pandemic. The study found that while a multi-employer retirement plan that was certified in “critical and declining” status suffered significant financial setbacks that are likely to result in the insolvency of the plan despite the recent implementation of a 15 percent benefit cut, a comparable composite plan would have performed more successfully. The participants in a similarly situated composite plan would have experienced a 5 percent reduction in benefits applied immediately after the 2008 crisis, which, in conjunction with the higher funding target, returned that plan to solvency.

The study also found that composite plans will achieve greater long-term employer participation than traditional pension plans. That is because the composite plans provide employers with the cost predictability they need to be successful in their businesses. This greater participation, the study’s author concludes, will further enhance benefit security for retirees by allowing the plans to stay more financially stable. The attractiveness of composite plans is one reason that some of the largest construction unions support them.

“This new report makes it clear that composite plans offer workers the kind of security and stability that too many traditional multi-employer retirement plans promise but are unable to deliver,” said Stephen E. Sandherr, CEO of the Associated General Contractors of America. “Hard-working construction professionals deserve a stable and secure retirement, and composite plans offer a superior path to providing that security.”

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