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Six months after Congress passed landmark legislation to prevent, or at least delay, the collapse of massively underfunded multiemployer pension plans and the federal insurance program that protects participants' benefits, lawmakers are drawing up proposals to attract new employers to the plans.
“We have got to get new people into the plans. A new plan structure is needed. I am committed to it,” Rep. Phil Roe, R-Tenn., said during an April conference in Washington sponsored by the Sheet Metal and Air Conditioning Contractors' National Association.
While a legislative proposal laying a new plan design has yet to be formally introduced, it is expected to draw upon recommendations earlier made by a panel of the Washington-based National Coordinating Committee for Multiemployer Plans, which represents many of the nation's 1,400 multiemployer plans.
Among other things, that panel proposed that benefits earned by multiemployer plan participants would have to be 120% funded.
If a plan became underfunded, participants' future benefits could be cut and/or employer contributions could be increased.
“It is a shared-risk plan,” said Diane Gleave, senior vice president and regional manager at The Segal Co. in New York.
Because the plans would have to be fully funded, a key feature of a 35-year-old federal law — the Multiemployer Pension Plan Amendments Act of 1980 — that many believe has backfired, would not be imposed.
That feature, withdrawal liability, requires employers that withdraw from underfunded plans to pay a share of unfunded benefits. Today, withdrawal liability tabs can easily amount to several times an employers' net worth and has discouraged new employers from joining the plans.
The removal of withdrawal liability, though, would be “revolutionary” and “would enable plans to attract new employers,” said Jack Abraham, a principal at PricewaterhouseCoopers L.L.P. in Chicago.
“Withdrawal liability does not work. As plans mature, the numbers have become astronomical. Withdrawal liability was driving employers out of the system,” said Randy DeFrehn, executive director of the National Coordinating Committee for Multiemployer Pension Plans in Washington. “Employers want to provide solid benefits, but not in a way” that can drive them out of business.
To be sure, withdrawal liability would continue to apply on benefits already earned. If employers and unions agreed on the new design, it would apply to participants' future benefits, while current requirements, including withdrawal liability, would apply for benefits earned at the time on conversion to the new design.
Whether lawmakers can agree on a legislative package remain to be seen. Rep. Roe, a member of the House Education and the Workforce Committee, which would have jurisdiction over the multiemployer legislation, conceded that a good percentage of lawmakers lack a solid understanding of withdrawal liability.
A congressional staffer who spoke at the conference and asked not be identified acknowledged that an “educational process will be needed” to pass such legislation.
Despite the “complicated” nature of the issue that has Congress “rolling back their eyes” when it is discussed, “I have great hopes that we will get this done this year,” Rep. Roe said.
The legislation would build on a measure Congress passed last year in a rare show of bipartisanship that allows trustees of financially troubled plans to cut participants' benefits, except for elderly retirees and those receiving disability benefits. It also doubled premiums the plans pay to the Pension Benefit Guaranty Corp., but left withdrawal liability intact.
The catalyst for lawmakers' action were numerous reports detailing the dire financial condition of dozens of multiemployer plans and the threat they posed to the PBGC's insurance program.
The PBGC, for example, warned that the looming insolvency of several large multiemployer plans led to a fivefold leap — to $42.43 billion — in just one year in the deficit of its multiemployer insurance program that guarantees benefits to participants in insolvent plans.
Those insolvencies eventually would overwhelm the agency's insurance program, which in 2014 collected just $122 million in premiums from multiemployer plans, which have about 10.4 million participants.
While last year's law put off the collapse of the most severely underfunded plans by allowing financially distressed plans to cut benefits, the fact that it left withdrawal liability intact did nothing to encourage new employers to join the plans
That fear of withdrawal liability “is the No. 1 reason keeping prospective employers from joining the plans,” said Josh Shapiro, a senior actuarial adviser at Groom Law Group Chtd. in Washington.
“The burden and risk is on the employers. The employer may have made all its promised contributions to its plan and then still be hit with a withdrawal liability bill worth more than the company,” said Dana Thompson assistant director of legislative affairs with Sheet Metal and Air Conditioning Contractors' National Association in Chantilly, Virginia.