The Commission had two primary objectives. One was to ensure that multiemployer pension plans would continue to provide regular lifetime income to the participants they cover. The other was to restructure the existing system to reduce or eliminate the financial risks to contributing employers.
On Tuesday, February 19, 2013, after 18 months of collaboration, the NCCMP Commission released a report summarizing its proposals. The report, entitled Solutions Not Bailouts, provides background on the current state of the multiemployer pension plan system, discusses ideas presented by various experts in the multiemployer and pension communities, and then describes the Commission’s proposals.
The following points summarize the Commission’s recommendations. For more detailed information, refer to the Commission’s report.
1. Technical Corrections and Enhancements to PPA and Prior Laws: The Commission proposes several changes to provisions in the Pension Protection Act of 2006 (“PPA”) affecting multiemployer plans. Some of the proposed changes seek to enhance the ability of multiemployer pension plan trustees to improve their plans’ funding levels. Other proposed changes seek to correct inconsistencies in the current law.
2. Other Recommendations to Strengthen the System: The Commission suggests that Congress explore innovative ideas to provide multiemployer plans with additional tools to recover from the recent financial crisis, as well as to encourage participating employers to fund existing “legacy” liabilities. The Commission suggests guarantees, bond offerings, and temporary tax benefits as means to encourage additional contributions to fund legacy liabilities. The Commission also suggests giving plan trustees the option of opting out of PBGC guarantees in exchange for a special bond from the U.S. Treasury.
3. Mergers and Alliances: The Commission proposes reconsideration of the legislation originally proposed by Congressmen Pomeroy and Tiberi and Senator Bob Casey regarding mergers and alliances for multiemployer pension plans. The legislation created the concept of a plan “alliance,” which would allow large plans to partner with small plans for purposes of administration and investments, without the plans sharing in each others’ unfunded liabilities. The legislation also gave explicit authority to the PBGC to provide monetary assistance to facilitate the merger of two or more multiemployer plans, if the PBGC believes that doing so will reduce its long-term financial exposure.
4. Harmonize Normal Retirement Age with Social Security: The Commission proposes that plans be allowed to harmonize their normal retirement ages (age 65 at the latest) with Social Security (now age 67 for younger workers), thus reflecting the “new normal” view of working later and living longer after retirement. Any change would not apply to participants who are either in payment status or who are within ten years of the plan’s current normal retirement age. Further, the increase in the plan’s normal retirement age would be limited to two years. (For example, a plan could increase its normal retirement age from 62 to 64 for a participant whose Social Security normal retirement age was 67.) It is important to note that the proposal would make any changes to a plan’s normal retirement age an optional tool for its trustees; the change would not be mandatory.
5. Additional Tools for Deeply Troubled Plans: The Commission proposes special remedial measures for the five to ten percent of multiemployer plans that are facing insolvency and cannot return to financial stability using the tools provided by current law. The Commission proposes that the trustees of eligible plans be allowed to temporarily suspend accrued benefits, including those already in payment status. In order for a plan to be eligible for a suspension of benefits: (a) it must be projected to be insolvent in the next 15 years, or 20 years if the ratio of inactive participants to active participants is at least 2-to-1; (b) it must be projected to avoid insolvency following the benefit suspensions; and (c) its trustees must have exhausted all reasonable measures under PPA to rehabilitate the plan’s funded status. Further, plan trustees must request approval to suspend benefits from the PBGC, and the suspensions must not reduce any benefit below 110% of the PBGC guarantee levels. As part of the approval process, the PBGC will consider whether the suspensions are distributed equitably and whether they protect the most vulnerable participants. It is important to note that the Commission’s proposal is for these benefit suspensions to be an optional tool available to the trustees of plans facing insolvency; the benefit suspensions would not be mandatory.
6. New Plan Design Structures: The Commission proposes changes to current law, as needed, to allow for two new plan designs: the “variable annuity plan,” and the “target benefit plan.” These alternative plan designs would apply prospectively only, and therefore they would not address any unfunded “legacy” liabilities. Further, these alternative plan designs would not be mandatory; they would be subject to design by plan trustees and adoption by bargaining parties. Nevertheless, they provide options for reducing financial risk and funding volatility going forward.
a. Under a variable annuity plan, a “floor” benefit is determined using a conservative investment return assumption, and an additional “variable” benefit is provided to the extent that actual investment returns have exceeded the floor return. A variable annuity plan would be bound by the same minimum funding requirements that apply to traditional multiemployer plan designs.
b. Under a target benefit plan, benefits are paid for the lifetime of participants (as with traditional plan designs), but investment risk is borne entirely by plan participants. A target benefit is defined based on a conservative investment return assumption and a target funded percentage of 120%. If the plan becomes underfunded and cannot remedy the shortfall based on reasonable increases in employer contributions and reductions in the rate of future benefit accruals, the trustees would have the ability to reduce accrued benefits not in payment status to the extent necessary. Under a target benefit plan, there is no employer withdrawal liability, and there are no PBGC benefit guarantees.
For more detail on the NCCMP Commission’s proposals, please review the Commission’ report. Contact your Horizon Actuarial consultant to discuss how these proposals – if they become law – may affect your multiemployer pension plan.
- – – – – – – – – – – – – – – – – – – – – – – – – – – – -
NCCMP Commission Report: SOLUTIONS NOT BAILOUTS
- – – – – – – – – – – – – – – – – – – – – – – – – – – – -