Composite multiemployer pension plans that combine defined benefit and defined contribution features would have fared better after the 2008 financial crisis and so far during the current coronavirus pandemic, according to a study released Tuesday by several construction employer groups.
The study found that while a multiemployer pension plan certified to be in "critical and declining" status would likely become insolvent despite imposing 15% benefit cuts, participants in a comparable composite plan would have experienced 5% benefit cuts after the 2008 crisis and had a greater chance of returning to solvency.
"This new report makes it clear that composite plans offer workers the kind of security and stability that too many traditional multiemployer retirement plans promise but are unable to deliver," said Stephen E. Sandherr, CEO of the Associated General Contractors of America, in a statement.
Two core principles of the composite plan concept are funding targets of 120% instead of the current 100% to allow for a cushion during stressful economic periods, and the ability of fund trustees to reduce benefits if further steps are needed. "As much as that is painful option, it's much better than the alternative," said Josh Shapiro, the study's author and senior actuarial adviser with Groom Law Group.
Legislation allowing for composite plans was first introduced in 2018 as the Give Retirement Options to Workers Act, enabling plans to freeze benefit accruals in the original plan and share more investment risk with plan participants. The concept was included in the latest COVID-19 pandemic relief bill passed May 15 by the House largely along party lines.
Mr. Shapiro said the analysis was based on a hypothetical plan "but inspired by" a real critical and declining plan. The case study illustrates how the key composite plan features can provide greater long-term benefit security than current pension plans, he said.