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Jerry Geisel

Congress faces pressure to resolve multiemployer pension woes

August 31, 2014 - 6:00am

Congress faces pressure to resolve multiemployer pension woes


When federal lawmakers passed the Employee Retirement Income Security Act in 1974, they put aside a key issue affecting a big slice of the pension universe: multiemployer plans.

These 1,400 plans with about 10.4 million participants provide coverage to employees working for different companies and are members of trade unions. The plans are run by a joint board of union and employer representatives. When drafting ERISA, lawmakers punted on a crucial issue affecting employers contributing to the plans: What would be their financial obligations if they left underfunded plans?

In 1980, Congress came up with the answer: Employers leaving the plans would be liable for a share of the plans' unfunded liabilities. That obligation — known as withdrawal liability — was a core part of a new law called the Multiemployer Pension Plan Amendments Act, which amended ERISA.

Now, 34 years later, a movement is gaining traction in Congress to amend the multiemployer law, driven by fears that dozens of multiemployer pension plans may be in danger of collapse and guaranteeing the benefits to those plans' participants could itself swamp the Pension Benefit Guaranty Corp.

Indeed, 175 multiemployer plans are in such financial trouble, the PBGC reported last year that it expects the plans to run out of assets and need money from the agency to pay participants' benefits.

The agency has warned that the cost of paying the promised pensions would be nearly $10 billion, five times more than the federal agency has in its multiemployer pension plan insurance fund. Without changes in law and/or premium increases, the PBGC's insurance program “is more likely than not to run out of funds in eight years and highly likely to do so within 10 years,” the PBGC said in a summer report.

A key part of many of the plans' problems is withdrawal liability, experts say.

The amount of withdrawal liability can be so great that it has discouraged new employers from joining the multiemployer plans. That, in turn, is creating a death spiral for plans as employer participants shrink when companies go out of business.

“While many employers continue to withdraw from multiemployer plans, new employers have not been attracted to the plans to replace the leaving employers, mainly due to the unfavorable economics around the ultimate exit from the plan,” said Jack Abraham, a principal with PricewaterhouseCoopers L.L.P. in Chicago.

“The path we are on will destroy the retirement security of families across the country,” U.S. Rep. John Kline, R-Minn., chairman of the House Education and Workforce Committee, said at a conference in June.

But whether lawmakers will act anytime soon remains to be seen.

 



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