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