Union members and pension advocates seeking to stop severely underfunded multiemployer defined benefit plans from cutting pension payments to retirees face a challenge — identifying viable financial resources to close the funding gap and prevent reductions.
Sponsoring protest demonstrations across the Midwest and the East Coast, opponents of the pension cuts, through political lobbying and other campaigns, have won the embrace of some politicians but so far have failed to meet the funding challenge.
Derailing the Multiemployer Pension Reform Act, the law enabling such cuts, will only postpone the reckoning for plans unlikely to recover and also will hurt participants, especially younger members who face the risk of a quicker drain of pension assets, leaving fewer resources to finance their retirement.
Instead of objecting, dissenting union members and pension advocates should take up in a constructive way the challenge of the situations that offer little chance of a plan returning to full funding without benefit reductions. They should look to innovations in plan design and embrace ideas such as those suggested by reformers, including the National Coordinating Committee for Multiemployer Plans, a Washington-based coalition of business and labor groups.
Without innovations, more multiemployer plans are likely to face insolvency.
The Boston College Center for Retirement Research identified 100 multiemployer plans that could be unsustainable and need MPRA assistance. But innovation will take new legislation and regulations to implement. That will need cooperation, not confrontation. Plan participants as well as advocates should embrace workable pension plan redesign and voice support for the necessary new legal structures under ERISA and other legislation to bring them to fruition.
Already three pension funds have filed for proposed reductions under the reform act: the Central States, Southeast and Southwest Areas Pension Fund and two smaller multiemployer plans. The Central States plan was 48% funded with $17.9 billion in assets as of Dec. 31, 2014, and projected to be insolvent in 10 years.
The latest to consider cuts under the law is the New York State Teamsters Conference Pension and Retirement Fund, Syracuse. As of Jan 1, 2014, its most recent 5500 filing, it was 46.6% funded with $1.46 billion in assets.
The pension funds essentially are seeking to enter bankruptcy protection under the act and develop plans to reduce pension benefits under the oversight of the Pensions Benefit Guaranty Corp. and the Treasury Department. Their oversight would help ensure benefits are reduced in an equitable manner, while making the plan potentially sustainable for a longer term to ensure existing retirees as well as active and inactive participants will have a share of the assets. As in a bankruptcy workout plan, the MPRA enables plans in danger of running out of funds to reduce benefits to conserve the remaining assets to pay participants in a fair fashion.
Turning back the law is not a solution. It will only delay the inevitable reductions, resulting in fewer assets remaining to support a plan's benefit promise and worsen the outcome for many participants.
“What people fail to remember is that it is not an opportunity to cut benefits; it's an opportunity to preserve benefits. That's the message that gets lost,” Randy DeFrehn, NCCMP executive director, told Pensions & Investments.
It is an opportunity to preserve benefits and with innovative plan designs — such as hybrid ideas of risk sharing that combine the defined benefit feature of an assured retirement income with the defined contribution feature of a more predictable contribution level.
Changing pension law and regulation is an often-protracted process. Achieving change will take cooperation of legislators and policymakers to adopt whatever laws and regulations are necessary to facilitate such moves. The faster participants and pension advocates get behind such an effort, the faster pensions can be strengthened, or the necessary benefit cuts minimized.
At other severely underfunded pension plans, inaction by their boards, jointly trusteed by employer and union leaders, could result in severe benefit reductions for current employees when they reach retirement. The ramifications of a dynamic, competitive economy upending trucking and other industries, as well as the exodus of employers whose employees are represented by Teamsters and other unions, put retirement income promises at further risk if action isn't taken now to develop new plan designs.
With the PBGC projecting potential insolvency of its own multiemployer support fund in 10 years, trustees need to hasten reform, as the guarantee could eventually disappear.
The failure by Congress to provide the PBGC, at its creation or in the years afterward, with a stronger capital base and income stream left the government pension insurance entity vulnerable to weakened industries that turned out to be unable to sustain sufficient contributions to the multiemployer plans. The failure was a tradeoff that business and labor leaders made to preserve the multiemployer plan ideal, which is a cooperative model that faced economic and specific business risk to its sustainability from the start.
The MPRA will cut benefits. As unwelcome as such action is, it is a necessary measure to save plans. New plan designs won't prevent the immediate reductions. But they would strengthen pension benefits looking forward. The sooner participants and pension advocates get behind innovations, the better the retirement income security.
Those opposing MPRA have an obligation to present their own politically viable plans to restore funding stability to troubled plans by rebuilding their asset bases. Companies in dying industries cannot increase their contributions, and Congress is unlikely to provide taxpayer support to failing funds.
If the opponents cannot propose better ideas, they should get behind MPRA. n