Some multiemployer pension fund executives are trying to figure out whether to take advantage of a controversial new reform law that allows potential benefit cuts for participants and retirees. Others are hoping for further reforms to allow for alternative plan designs.
The Multiemployer Pension Reform Act of 2014 — passed swiftly in December — allows deeply underfunded plans to take unprecedented steps to avoid insolvency but comes with strings attached. It also gives federal regulators some new tactics that could help save troubled multiemployer plans (Pensions & Investments, Dec. 22).
“There has been lot of misunderstanding about it,” said Diane Gleave, New York regional manager for The Segal Co. “We are hearing from clients who are hearing from their participants. The answer is, for many of them, maybe it doesn't apply. It is case by case, depending on the specifics.” Figuring out what plans can do “is going to be very time consuming,” she said.
Multiemployer advocates are also spending time pushing for further regulatory changes to pave the way for composite plan design, also known as variable or target benefits that change with investment performance or other factors, which could help both healthy and troubled plans. The Partnership for Multiemployer Retirement Security, a group of employer and labor trustees behind the reform package, was disappointed that the idea was cut for political expediency and is now back on Capitol Hill.
“It is the last major portion (of reform) and it will ultimately provide better protection for all plans,” said Randy DeFrehn, executive director of the National Coordinating Committee for Multiemployer Plans, which launched the partnership. “Some industries are very interested. We are hopeful that it will come up this year.”
If it does, participant advocates — shocked by both the benefit cuts and the law's expedited passage — pledge to push for more participant protections. “We think those could all be strengthened,” said David Certner, AARP legislative counsel and legislative policy director for government affairs. They will also be closely watching how regulators implement the new law. “The whole process, we think, is very skewed,” said Mr. Certner.
The new law removed some uncertainty for plan sponsors by making permanent the funding level “zones” — originally set to expire Dec. 31 — that allow troubled plans classified as either endangered or yellow zone (less than 80% funded) or critical red zone (typically under 65% funded) — to take specific corrective actions to improve their funded status. According to the Department of Labor, multiemployer plans cover one in four defined benefit participants and had $431 billion in combined assets as of 2014.