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BNA: Multiemployer Plan Group Issues Suggestions On Bolstering System, Saving Troubled Plans

 A new group consisting of labor and business organizations released recommendations Feb. 19 aimed at strengthening the multiemployer pension plan system and assisting plans on the brink of insolvency.

The Partnership for Multiemployer Retirement Security released a report from the Retirement Security Review Commission of the National Coordinating Committee for Multiemployer Plans (NCCMP) that offers ideas for multiemployer plans designed to help them be more creative in the way they address obstacles they face under the current model.

In the report, titled Solutions Not Bailouts, the commission separated its recommendations into three categories: preservation, remediation, and innovation.

Speaking at a Bloomberg Government breakfast with reporters and editors, Randy G. DeFrehn, executive director of NCCMP, said the commission's goal was to look for “alternatives that will provide incentives for people to be more creative in designing systems that allow people to put away enough money to survive in their retirement.”

By Kristen Ricaurte Knebel

“We believe that there can be some new models that provide support for both employers and employees to get past the shortcomings of [the defined benefit and defined contribution] systems where the entire risk isn't completely with the employers, nor is it with the individuals,” he said.

“Part of our proposal deals with some alternative structures going forward that would be creative, and we're encouraging the government to adopt policies that do encourage even more diverse kind of suggestions than we have,” DeFrehn said.

PPA Fixes

The commission's recommendations aimed at preserving the current multiemployer system include making several “technical changes” to the Pension Protection Act, DeFrehn said.

PPA's funding rules have vastly improved the financial health of multiemployer plans during the past four years, DeFrehn said. According to the report, 62 percent of all multiemployer plans were categorized as financially healthy in 2012, compared with 20 percent at the end of 2008.

The commission's suggestions for tweaking PPA will help the financially stable plans “grow even stronger,” as well as allow other plans to regain their financial strength, DeFrehn said.

Aside from the technical modifications to PPA, the report recommended several other changes, including allowing private-sector plans the flexibility to “harmonize” their normal retirement age of 65 with Social Security's normal retirement age of 67.

 ‘Deeply Troubled Plans.'

The “remediation” portion of the commission's recommendations offered an option for “deeply troubled plans” that would save the plans before they faced complete insolvency, the report said.

Under the commission's recommendation, plans that meet certain criteria would be allowed to suspend benefits by applying for approval from the Pension Benefit Guaranty Corporation, the report said. PBGC would have 180 days to respond to an application, the report said.

“We're suggesting [this] for plans that are certified to be headed to insolvency, where all reasonable measures have been exercised in terms of raising contribution rates and everything else you can do,” DeFrehn said.

“The current rules are simply that you spend the money, everybody's benefits … remain in place until the plan falls off the cliff, the assets are completely depleted, and then you drop the benefits to the levels that are sustainable under the [PBGC] guarantee levels,” DeFrehn said.

Vincent R. Sandusky, chief executive officer of the Sheet Metal and Air Conditioning Contractors' National Association, one of the organizations involved in the work of the commission, said the commission was looking for a way to allow plans on the edge of insolvency to be able to reduce benefits in fair and equitable way.

However, allowing plans to suspend benefits “isn't carte blanche to the trustees. It's very measured, it's very controlled, it's equitable, and it has oversight,” Sandusky said.

DeFrehn said the overall goal would be for such plans to be able to survive in the long term and eventually come back to financially healthy status.

“This isn't a way for employers to balance their books by simply cutting pension benefits. This is a very, very narrowly prescribed group of plans that would be involved here, but it does have the long-term potential of allowing that plan to survive for future generations instead of having it fail,” DeFrehn said.

Innovation and Flexibility

One of the commission's goals was to promote “innovation in the creation of new ‘flexible' plan designs that substantially reduce or totally eliminate withdrawal liability,” the report said. Although the commission did not expressly endorse a specific course of action, it was offering two “alternative” approaches to plan design: the “variable annuity” plan and the “target benefit” plan, the report said.

The target benefit plan approach would “combine the retirement income security and economic efficiency of defined benefit plans with the predictable employer costs of defined contribution plans,” the report said.

“This model is very much like a [defined benefit plan], looks, smells, feels like a DB plan in the way it's administered. Pooled longevity risk, the professionally managed assets that allow you to have a higher rate of return long term, and the fees … would also be subject to negotiation,” DeFrehn said.

Sandusky described the commission's variable annuity plan as a “hybrid type of design which has a core guaranteed benefit” and a variable aspect added to it.

While the commission provided two options, the ultimate choice is up to the plan trustees, Sandusky said.

“All of this we're talking about is up to the trustees; none of this is legislatively mandated. We're creating options for the trustees, that know their plans and their populations well, to adopt these options, should they choose. They can stay with their existing plan if they wish, but this gives them options to act in a prudent fashion,” Sandusky said.

Congressional Action

DeFrehn said he was confident that Congress would take on the issues facing multiemployer plans, in part because the multiemployer funding provisions of PPA sunset in 2014.

“Congress is either going to have to take action to change those rules or reauthorize the rules. I don't think anybody anticipates that they would simply let them go back to the old rules,” he said.

A bill encompassing the commission's recommendations has yet to be introduced, and DeFrehn said language is still in the works. Ideally, DeFrehn said, he would like a bill of some kind to be enacted before the end of 2013, or before Dec. 31, 2014, at the latest, when the PPA provisions sunset.

Posted 12:58PM on May 24 2013 by
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