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Sept. 22 — A draft bill that would permit significant changes to collectively bargained defined benefit pension plans may be on the menu of a year-end omnibus bill, a Democratic lawmaker warned during a committee hearing.
Rep. Joseph Courtney (D-Conn.) said a proposed bill to permit multiemployer pension plans to voluntarily form a new “modified” defined contribution plan design, known as composite plans, has a number of kinks that need to be worked out. Multiemployer plans typically are collectively bargained and involve more than one employer.
Courtney said during a House Education and the Workforce hearing on the draft proposal Sept. 22 that it’s obvious that there isn’t sufficient time left before the House goes on its election period recess to revise the proposal.
Consequently, he told Bloomberg BNA after the hearing, the draft bill could end up skirting Congressional debate while being secretly inserted into a “must pass” year-end omnibus bill, similar to how the controversial Multiemployer Pension Reform Act of 2014, also known as the Kline-Miller Act, was enacted.
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.
Such plans are designed to incorporate the best features of defined benefit and defined contribution plans. They wouldn’t, however, participate in the Pension Benefit Guaranty Corporation’s insurance system.
The PBGC, which itself is heading toward insolvency, collects premium payments from plan sponsors and, in return, provides a backstop for retirees when their plans become insolvent and can’t pay benefits.
Courtney told Bloomberg BNA that it’s “still theoretically possible for the proposal to be debated in the committee and amended during the post-election lame-duck session.”
Yet, he said he sees many parallels between this bill and the way the MPRA bill was passed two years ago as part of an omnibus bill.
During the hearing, Courtney said it’s “common sense” that there isn’t time left to amend the bill and questioned the timing of the draft bill hearing. Later, he said he suspects this bill, which is supported by many of the same groups that supported the MPRA, is part of a similar strategy used to pass that law.
Many lawmakers have complained that the resulting MPRA included a number of provisions that they were unaware of, yet felt compelled to vote for because it was shoved in to an omnibus bill.
The MPRA contained many unintended consequences, Courtney said after the hearing.
He was referring to the MPRA becoming 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.
During the hearing, employers and unions representing the construction industry expressed strong support for the draft bill. They explained how many plans in their industry were intent on exiting defined benefit plans and that composite plans would be far superior to existing replacement options, such as 401(k) plans.
David Certner, legislative counsel and legislative policy director for government affairs at AARP in Washington, was less enthusiastic.
He told the committee that before passing composite plan legislation the members needed to be sure that the law wouldn’t harm the existing legacy-defined benefit plans that employers wanted to escape from. In addition, he said that retirees’ pension benefits needed to be protected. Certner said he was skeptical that the draft bill provided such protections.
There’s no reason to rush along a bill that so significantly changes the pension plan landscape, Courtney said after the hearing.
A “pilot program” could be established in the construction industry for several years to test how composite plans function in the real world, he said. This and other ideas need to be considered by Congress before such a composite plan bill becomes law, Courtney added.
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Language of the draft bill is at http://src.bna.com/irZ.
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