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Dec. 2 — The White House opposes a discussion draft bill that would permit significant changes to collectively bargained pension plans, and is urging Congress not to include the measure on the menu of a year-end budget bill.
The draft bill as currently constructed undermines defined benefit plans and isn't well-designed, the administration said in a recent letter obtained by the pension consumer advocate Pension Rights Center. Instead, the White House urged Congress to hold hearings to permit analysis and debate on the proposal.
It’s widely believed that House Education and the Workforce Committee Chairman John Kline (R-Minn.) is seeking to have Republican Party House leadership include the proposal in a must pass year-end budget bill.
Karen Friedman, executive vice-president of the Washington-based PRC said that it will be an “outrageous betrayal of retirees” if the draft bill becomes law under a year-end budget bill. She added that the proposal needs to first get full input from all interested parties so it can become part of a comprehensive solution to resolve the crisis affecting many multiemployer plans and their participants.
Multiemployer plans are generally collectively bargained and involve more than one contributing employer.
Under the draft bill, certain multiemployer plans would be permitted to create new hybrid pension plans that proponents say incorporate the best features of defined benefit and defined contribution plans. These multiemployer plans could establish composite-defined contribution-type plans in addition to existing legacy defined benefit plans.
Proponents of the draft bill say that it will provide more protection for plan participants than if their employer were to withdraw from the plan and replace it with a 401(k) plan. Opponents dispute that notion.
“Under the draft legislation, a current defined benefit plan would have first call on retirement plan contributions before they could be allocated to a composite plan. There is no provision of comparable strength under current law, and the administration’s comments fail to recognize the extent to which this requirement strengthens the funding of current defined benefit plans,” Joshua Shapiro, senior actuarial adviser at Groom Law Group Chartered in Washington, told Bloomberg BNA in an e-mail.
Shapiro previously was the deputy executive director for research and education at the National Coordinating Committee for Multiemployer Plans in Washington. The NCCMP has lobbied on behalf of the proposal.
In a Dec. 2 statement to Bloomberg BNA, Bethany Aronhalt, press secretary for Kline’s committee, said that the committee appreciates “all the support, feedback, and ideas for improving the discussion draft” it has received.
"Employers and union leaders have long expressed the urgent need to provide America’s working families new options to plan for retirement, and we welcome the administration’s interest in an effort that is vitally important to workers, employers, and taxpayers,” she said.
In its letter posted on the PRC's website, the Obama administration said it was concerned that the bill “would put workers’ and retirees’ existing pension benefits at greater risk and that the new type of pension it would create would unacceptably shift the risk to workers without adequate safeguards or transparency.”
The “draft neither provides for appropriate governance for composite plans nor does it include an appropriate regulatory and enforcement structure for either legacy or composite plans. It also weakens protections for plan participants by depriving them of insurance in case their plan fails,” the administration said.
Composite plans, like defined contribution plans, would relieve plan sponsors of investment and interest rate risk. They wouldn’t, however, participate in the Pension Benefit Guaranty Corporation’s plan insurance system.
Friedman said that the letter was being circulated among legislators. In addition, she said that groups representing “angry retirees” who oppose the draft bill intend to meet with members of Congress during the week of Dec. 5 in an attempt to prevent the measure from becoming part of the budget bill.
The lame-duck legislative session is expected to adjourn on Dec. 9.
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The White House document is at http://www.pensionrights.org/sites/default/files/images/white_house_discussion_draft_on_composite_plans.pdf.
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