Trustees of distressed multiemployer pension funds got new tools to avert insolvency in a package of reforms approved by Congress in mid-December, including the right to reduce benefits for active workers and retirees in deeply underfunded plans.
Part of a federal spending bill that President Barack Obama signed into law Dec. 16, The Multiemployer Pension Reform Act of 2014, also lets the Pension Benefit Guaranty Corp. increase multiemployer annual premiums to $26 per participant from $13.
Multiemployer pension plans are collectively bargained, typically covering a specific industry and administered by a joint board of trustees. According to the Department of Labor, there are 1,427 multiemployer defined benefit plans covering 10.5 million participants with $431 billion in assets. An estimated 10% of those plans were headed toward insolvency as of 2014.
Attention focused intently on the problems of multiemployer plans in November, following release of the PBGC's fiscal 2014 annual report, which showed a record $42.4 billion deficit in the multiemployer program and a 90% chance of insolvency by 2025.
That report “really got people's attention,” said Randy DeFrehn, executive director of the National Coordinating Committee for Multiemployer Plans, which spearheaded the Partnership for Multiemployer Retirement Security, a business and labor group promoting a package of multiemployer pension reforms known as “Solutions, Not Bailouts.” Despite staunch opposition from retiree groups and some unions, the reforms had bipartisan support on Capitol Hill, where both employer and labor trustees have spent the past two years seeking permission for new ways to fix their plans.
In the final days of the 113th Congress, Education and the Workforce Committee Chairman John Kline, R-Minn., and ranking member George Miller, D-Calif., the bill's co-sponsors, saw their chance to get the reform package approved.
For all plans, the new law makes permanent the zone designations based on funding levels that were created by the Pension Protection Act of 2006 and scheduled to expire Dec. 31. Plans funded 80% or better are in the green zone. Those classified as either endangered (yellow zone) or critical (red zone, typically less than 65% funded), must take specific corrective actions to improve their funded status.
The most controversial change creates a new category for deeply troubled plans, “critical and declining,” which allows trustees to reduce benefits even for current retirees until the funded status improves. To warrant that designation, trustees must project insolvency within 15 years — 20 years in the case of plans with more inactive than active participants — and must have tried all other measures to improve the funding level. The law doesn't permit benefits to be cut below 110% of what the PBGC guarantee would offer, which is less than $13,000 per retiree per year. Benefits for disabled plan participants and retirees older than 80 are protected and reductions of benefits for people between age 75 and 80 have to be phased in.