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Sept. 9 — Draft legislative language that would create a controversial form of multiemployer pension plan was released in the House Education and the Workforce Committee.
The draft bill, released Sept. 9, would permit plans in the troubled multiemployer system to use newly created “modified” defined contribution plans—known as “composite plans”—designed to be successors to existing multiemployer defined benefit plan structures. Multiemployer plans typically are collectively bargained and involve more than one employer.
Composite plan legislation has been a “priority” for committee Chairman John Kline (R-Minn.), who will be retiring at the close of the present Congress. Kline said in a Sept. 9 statement that the bill would enhance retirement security and reduce the need for a taxpayer bailout of the financially troubled Pension Benefit Guaranty Corporation.
Composite plans wouldn’t participate in the PBGC’s defined benefit plan insurance system, which provides a backstop for retirees when their plans become insolvent and can’t pay benefits.
Even before the release of the draft language, a coalition of consumer groups and unions had already indicated their opposition to the bill in a letter to the House.
Composite plans are designed for industries, such as construction, in which plan sponsors were already seriously exploring a move away from defined benefit plans to defined contribution plans, Randy DeFrehn, executive director of the National Coordinating Committee for Multiemployer Plans, told Bloomberg BNA Sept. 9.
Defined contribution plans, such as 401(k) plans, would limit the contributions sponsors would be required to make, but would transfer much risk to plan participants, he said.
Composite plans, however, are designed to be superior to defined contribution plans and retain components of defined benefit plans, DeFrehn said. They would eliminate individual accounts used in 401(k) plans, pool longevity risk and require benefits to be paid in a life annuity.
In addition, he said composite plans would have their investment assets professionally managed at presumably low negotiated fees, prohibit account leakage and install a funding mechanism that both limits employer obligations and seeks to protect participants from investment market risk.
The NCCMP, which is a coalition of business and labor groups, has been working to pass the bill as one of the components of its “Solutions, Not Bailouts” proposal. An earlier component was enacted as part of the Multiemployer Pension Reform Act of 2014, also known as the Kline-Miller Act.
The MPRA has become a lightning rod for some plan trustees and their retirees. Although the law was designed to help multiemployer plans in serious financial difficulty avoid insolvency, it did so by permitting plans to significantly reduce the promised pension benefits of retirees.
When the Central States, Southeast and Southwest Areas Pension Fund sought to use that law to avoid insolvency, its retirees organized a campaign to convince Congress to stop the Treasury Department from approving massive benefit cuts. That effort succeeded when Treasury in May rejected Central States’ application.
The current draft bill also appears to have strong opposition.
Two days before the draft bill was released, groups including AARP, the Pension Rights Center, the International Brotherhood of Teamsters and the International Association of Machinists and Aerospace Workers were already urging Congress “not to take up flawed legislative proposals to create `composite‘ multiemployer pension plans.”
The groups expressed concern in a letter to lawmakers that the bill would “permit employers and plans to adopt new plans while putting at greater risk the funding of already unfunded pension promises in existing plans.”
The draft bill would “reduce current funding requirements and enable many employers to escape from withdrawal liability even when a plan is underfunded,” the groups said. “These and other provisions would substantially increase the risk that those already retired will not receive their earned pensions. Without adequate plan funding, the legislation will not only put retirees’ pensions at risk, but will add significant new liabilities to the Pension Benefit Guaranty Corporation’s already underfunded multiemployer insurance program.”
DeFrehn said that participants migrating to composite plans under the bill would be more secure than under the 401(k) plan arrangement they were destined to have. In addition, he said the bill would require funding of legacy defined benefit plans and that the PBGC wouldn’t necessarily be harmed. Although the agency wouldn’t receive plan insurance premiums from composite plans, the PBGC wouldn’t be responsible for their financial problems, he said.
The PBGC declined to comment Sept. 9 on the draft bill and referred Bloomberg BNA to the White House. The White House, in turn, also declined to comment.
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