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| Photo courtesy of 401(K) 2013 |
On Dec. 16, 2014, President Obama signed into law an omnibus government budget and spending bill that included the industry-supported Multiemployer Pension Reform Act (MEPRA) of 2014. The act brings sweeping changes to the way multiemployer pension plans are administered and includes many of the recommendations in “Solutions Not Bailouts” — a report issued by the Retirement Security Review Commission of the National Coordinating Committee for Multiemployer Plans [NCCMP] in response to the growing need for multiemployer pension plan reform in order to prevent future plan insolvency.
The Sheet Metal and Air Conditioning Contractors’ National Association (SMACNA), along with the United Association, the Mechanical Contractors Association of America (MCAA), and many others, supported Solutions Not Bailouts as well as MEPRA.
“The multiemployer provisions of the Pension Protection Act [PPA] were scheduled to expire in December 2014. The new law permanently extends PPA, and the new MEPRA Act provisions are permanent,” said Dana Thompson, director of political affairs at SMACNA. “It’s something we’ve been working on for almost four years. It’s not everything we wanted, but we think it paves the way for getting legislation for new plan designs this year.”
Avoiding Insolvency
According to NCCMP, plans with as many as 1.5 million participants, or roughly 10 percent of all multiemployer plan participants, are heading toward insolvency. Previously, plan administrators had few options for saving these failing plans before they ran out of funds and defaulted to the PBGC (Pension Benefit Guaranty Corp.), which, according to the U.S. Government Accountability Office, is itself in danger of insolvency.
Additionally, the amount of money retirees would receive under the PBGC multiemployer guaranty fund is significantly reduced, said Randy G. DeFrehn, executive director of NCCMP. “The first $11 per month per year of service is fully protected while 75 percent of the next $33 is also guaranteed. For someone with 30 years of service, that amounts to a maximum guaranteed benefit of $12,870 per year, or $1,072 per month.”
“Current retirees can receive $24,000, $30,000, or more,” Thompson added. “Benefit reductions to a maximum of less than $13,000 would be devastating.”
With the enactment of MEPRA, plans meeting certain qualifications can be proactive and adjust retiree benefits in order to prevent a plan from reaching insolvency. “These are plans that are going to go insolvent, and even though they may not become completely insolvent for another decade, if they don’t take action in the next year or two, it’s going to be irreversible,” Thompson said. “[MEPRA] allows plan trustees to apply, only under certain conditions and procedures, for temporary or permanent reduction of retiree benefits.”
“MEPRA reflects many of the recommendations included in ‘Solutions Not Bailouts,’” reads a bulletin from Segal Consulting, which provides human resources consulting for multiemployer funds and public-sector organizations. “The one receiving the most attention is the provision that gives trustees of deeply troubled plans the ability to help their plans avoid insolvency by reducing some benefits — including benefits in pay status — subject to various safeguards and requirements.”
Proponents of “Solutions Not Bailouts” will now focus their efforts on developing and implementing new pension plans.
“Multiemployer pension plans aren’t as stable as they used to be, so we’d like to transition to a composite-type plan,” Thompson said. “They are better than a 401K because they provide a lifetime benefit, but there is not the same risk for an employer.”
Still, the old plans will continue to require funding, Thompson said. “You’re digging out of the hole that you’re in, but, going forward, you have the new plan design. That, we think, is probably better for everyone.”
Publication date: 2/9/2015
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