Multiemployer Pension Plans Still Viable

By Cyril Tuohy

InsuranceNewsNet

For more than 10 million participants with multiemployer retirement pension plans, the past four years have been a difficult and frightful ride. The Great Recession almost cost many of them the shirt off their backs and the projected insolvencies of some plans are expected to put stress on the government's Pension Benefit Guaranty Corp. (PBGC).

While there is still time for many of the plans to recover, the question remains whether the idea of a multiemployer pension is worth saving.

The answer is a resounding yes, according to Randy DeFrehn, executive director of the National Coordinating Committee for Multiemployer Plans, an organization of national, regional and local multiemployer pension and health and welfare plans.

According to DeFrehn, there are 148 plans representing about 1.5 million plan members defined by the PBGC to be in the at-risk group. But those 148 plans represent only a fraction of the more than 1,450 multiemployer plans around the country.

“They work because they are not pegged to the success of the individual employer, but to the industry,” he said in an interview with InsuranceNewsNet. Because there are only a handful of plans representing a large number of plan participants, the number of participants at risk jumps to more than 10 percent of all plan participants.

“Some of these plans have been merging, so plans are getting larger and you have a couple of them that are sizeable,” he said.

DeFrehn conceded some multiemployer plans have had a difficult time, as have many types of investments recently. But by comparison, “many more” single-employer pension plans than multiemployer plans ran into financial trouble following the financial crisis, said DeFrehn, a former consultant with The Segal Co., the oldest advisor to multiemployer plans.

Multiemployer plans predate the Taft-Hartley Act of 1947, but grew in prominence in the 1950s and 1960s, the result of negotiated deals between powerful unions and management. Participation in the plans leveled off in the 1990s, mirroring the long decline of union membership and the rise of defined contribution plans.

Multiemployer plans incorporate some features of defined benefit plans, but differ in that they have looser eligibility requirements. The plans, governed by boards of trustees and not individual employers, are geared to workers where the nature of the employer-employee relationship is more fluid and transitory, such as that found in the construction, lumber, steel, trucking and media industries, for example.

But the viability of multiemployer pension has come under more scrutiny over the past six months after a series of government-commissioned reports outlined some of the shortfalls of multiemployer pension plans.

In the latest report, the Government Accountability Office (GAO) found that the number of insolvencies would more than double by 2017, further stressing the PBGC’s insurance fund, and perhaps exhausting the fund entirely.

“Many plans are in declining industries that have witnessed numerous bankruptcies, leaving a considerable share of participants with no contributing employer,” the GAO wrote, in a letter to U.S. Rep. John Kline, R-Minn., chairman of the House Committee on Education and the Workforce.

Combined with an aging workforce and declining unionization, many plans face long-term demographic challenges that threaten their long-term financial outlook, the GAO said. The troubled plans may face changes to withdrawal liability, or tweaks in plan design to lessen the risk to employers and the PBGC, pension plan experts told the GAO.

In 2005, a total of 29 plans received $13.8 million in financial assistance from the PBGC, according to the GAO. That number jumped to a high of 49 plans receiving a total of $115 million in 2011, the GAO report found.

For now the PBGC’s cash flows are positive, but only because premiums and investment returns on multiemployer insurance fund assets exceed benefit payments, the GAO said. The balance is likely to change in 2017, when plan insolvencies are expected to more than double, the GAO said.

“We all recognize that there are some concerns here and we want to come up with the best solution for people who have put in a lifetime of work,” DeFrehn said.

Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. He can be reached at [email protected].

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