Concrete producers operating as union shops across America are well-versed in the potential liability of underfunded multiemployer pension plans. Unions and employers have begun a bilateral effort focused on shoring up about 10% of the roughly 1450 multiemployer pension plans in the country.
The plans, funded by groups of construction, trucking, and other employers, pay out monthly checks that are the backbone of retirement security for 10.3 million retirees and current workers. More than half of such plans are funded to at least 80% of their liabilities. But as many as 150 multiemployer plans are headed toward insolvency, according to government projections.
The nonprofit National Coordinating Committee for Multiemployer Plans has assembled a labor-management coalition that recommends a new type of plan. It would carry less risk for employers than a defined-benefit pension. The assets would be pooled, rather than held in individual accounts, to provide more retiree security than a 401(k). Employers would contribute a negotiated amount, but wouldn’t be liable for more payments if funding levels dropped, as they are now.
For the most troubled plans, unions and employers propose rewriting the Employee Retirement Income Security Act (ERISA) of 1974 to reduce benefits for current retirees. This would give investments a chance to recover in the market, while guaranteeing the benefits would not fall below 110% of the base level as assured by the Pension Benefit Guaranty Corp., the federal agency that backs these plans. Without that fix, plans will run out of money and retirees will retain only a fraction of their benefits if the government takes over the plans.
Why are retirement funds at risk?
The first multiemployer plans were created during World War II, when wages were controlled by the War Labor Board. Pensions were offered to unions as fringe benefits. At first, company contributions were the sole source of income. Funding problems in the 1960s were addressed by the 1974 ERISA law, which required advance funding.
By the 1980s, some plans were so well-funded that companies faced with losing the tax-exempt status of contributions increased retiree benefits to levels that have never been reduced. Multiemployer plans recovered from the bursting tech bubble in 2000, but were devastated by the 2008 market crash.
Now it will be harder to make a comeback, because recent investment gains are based on a smaller asset base. Employer contributions are made per hour worked, and have lagged behind as employment has remained weak. Many plans have more retirees drawing benefits than active workers contributing. Some companies have withdrawn from plans to get the liability off their books, so fewer employers are paying into plans.
The efforts of union and business interests can only yield a common good. While there may be bitter pills to swallow, it’s in our best interest to ensure the health of our industry’s pension plans.