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About Northwest labor press. (Portland , Ore.) 1987-current | View Entire Issue (May 21, 2010)
May 21,2010:NWLP 5/18/10 10:16 AM Page 12 Will Congress come to the rescue of multiemployer pension funds? Congress may give some relief to beleaguered union multiemployer pension trusts, via provisions added to the “tax extenders” bill. The provisions are similar to ones in a union-supported bill intro- duced by North Dakota Congressman Earl Pomeroy last October. The provisions would give underfunded pension trusts more time to make up for investment losses, a change that would reduce the immediate burden on participating union em- ployers and lessen pressure to cut benefits. Randy DeFrehn, executive director of the Na- tional Coordinating Committee for Multiemployer Plans (NCCMP), said the latest word is that the bill would give trusts up to 30 years to amortize the 2008-09 losses, and 10 years to “smooth” losses for accounting purposes. Under current rules, trusts generally have 10 years to amortize losses, and five years of smoothing. Amortization is simply the amount of time it takes to pay off a loan, or in this case, replenish fund losses. Smoothing, on the other hand, is a method of accounting for market gains and losses: Trust actuaries take the gains and losses of a given year and divide those into tranches, recognizing one tranch each year for the purposes of calculat- ing the “actuarial value” of a trust’s assets. “Basically it’s a rolling average,” DeFrehn ex- plained. “It takes the peaks and valleys, the market volatility, out of the equation from a funding stand- point.” Smoothing is an especially common practice with multiemployer plans, because their contribu- tions are based on multi-year collectively bar- gained contracts, and they can’t easily adjust con- tributions based on what’s happened in the market PAGE 12 year-to-year. DeFrehn said the Pomeroy bill, HR 3936, was a conversation starting point. Later, pension relief provisions became an add-on to HR 4213, a sepa- rate bill that would retroactively extend certain tax breaks for individuals and businesses that expired last year. NCCMP is a coalition of multiemployer benefit trusts and sponsoring unions and union employer associations. Its mission is to represent the interests of trust participants in Congress, federal regulatory agencies, and the courts. The group has been cam- paigning for pension funding relief since 2009. Several provisions of the Pomeroy bill are not in the tax extenders bill, however. One would have made a difference in pension trusts that have had large employers go out of busi- ness, leaving “orphaned” groups of workers who are owed benefits. The Pomeroy bill would have allowed trusts to “partition” those groups of work- ers off, with the federal government’s Pension Benefit Guaranty Corporation taking responsibility for paying benefits and preserving the assets in- vested on their behalf. That would have relieved surviving employers in multiemployer plans of the burden of making up for investment losses for the former employees of defunct employers. Another Pomeroy bill provision would have re- laxed the “corridor” — the maximum allowable difference between present market value of assets and the actuarial value derived from smoothing. The Pomeroy bill said actuarial value had to be be- tween 70 and 130 percent of market value; the cur- rent corridor is 80 and 120 percent. Multiemployer pension plans are tightly regu- lated by the federal government to make sure pen- sion promises are backed by adequate funds, that the funds are only used for the benefit of pension- ers, and that the investments and benefits are man- aged by employer and union trustees in a transpar- ent and prudent fashion. But in some cases, federal rules have created unintended effects. Tax rules prevented trusts from building up assets above a certain point, and now that they’ve lost value, pen- sion rules are requiring benefit cuts and big in- creases in employer contributions. DeFrehn hopes that Congress will pass the tax extenders bill before its Memorial Day recess. ...Union multiemployer pension funds (From Page 8) pension fund was left with hundreds of “or- phaned” retirees and vested participants who were employed by a company that no longer contribute to the pension. Today, the fund has over 3,100 re- tirees collecting benefits, 2,600 workers no longer employed by participating employers who are en- titled to future benefits, and 2,278 actives. The bur- den on remaining employers to make up the short- fall is forecast to rise 15 percent a year for at least the next 10 years, with all contributions off-bene- fit. “Once they get into trouble, mature plans have a hard time digging themselves out,” says Doug Holden, principal and consulting actuary at Milli- man, a top employee benefits consulting firm. “I’ve been at this for 30 years,” Holden said, “and 2008 was the worst year in the financial markets I’ve ever seen.” Pension trusts are in crisis nationwide. When s single-employer pension fails, the federal govern- ment’s PBGC (Pension Benefit Guaranty Corpo- ration) takes it over and assumes responsibility for paying benefits. When a multiemployer pension becomes insolvent, PBGC gives it financial assis- tance — long-term loans that are rarely repaid. In 2008, 42 multiemployer pension plans received as- sistance, totaling $86 million. NORTHWEST LABOR PRESS But it’s not just the prospect of insolvency or the price-tag of the bailout that are worrisome for union pensions. It’s also the potential harm to the high-wage union share of the labor market. Union employers will pay heavy pension surcharges, making them less competitive with nonunion firms. And non-union employers will be all the more reluctant to sign union contracts that com- mit them to join multiemployer pension plans that have sizable pre-existing liabilities. The traditional “defined benefit” pension, in many industries, is what separates union from nonunion employees. Will it now become an alba- tross for union employers? MAY 21, 2010
