UA EVP Rick Terven Testifies at House Hearing on Composite Pension Plans
United Association Executive Vice President Rick Terven testified before the House Education and Workforce Committee on September 22nd on Chairman John Kline’s proposals to modernize multiemployer pensions.
In his testimony, Terven stressed that “If composite plans are not made available, we believe that many existing defined benefit plans will eventually be replaced with defined contribution plans. The opportunity for creative solutions to our retirement income challenges is within our grasp. We strongly encourage Congress to take advantage of it and expand available offerings to enable labor and management to find solutions which best meet their specific needs.”
The Committee press release answering questions on the Chairman’s proposal can be found here. The discussion draft, which was released two weeks ago, contains new multiemployer composite plan designs that were part of the Solutions Not Bailouts proposals held back when the Kline-Miller pension reform law was enacted in 2014. The composite plans were developed by the National Coordinating Committee for Multiemployer Plan’s Retirement Income Security Review Commission, which included MCAA and the United Association.
Chairman Kline has invited interested parties to provide input into the draft’s features. He has also requested comments and proposals on how to shore up funding for the Pension Benefit Guaranty Corporation (PBGC) multiemployer plan insurance fund, which is headed for insolvency within 10 years without major changes to its program and insurance premium funding.
In releasing the discussion draft Chairman Kline stated:
“For years, the committee has worked on a bipartisan basis to improve multiemployer pensions and safeguard the retirement security of workers and retirees. We have already made significant progress, and the draft proposal released today represents the next step in this important effort.
This proposal will provide more retirement choices for workers, more flexibility for employers, and greater protection for taxpayers. It reflects the input of business and labor leaders, as well as retiree advocates who have long recognized the need to strengthen the retirement security. I encourage other concerned individuals to share their views and ideas.
There is still a lot of work to be done, including tackling the fiscal challenges facing the PBGC. Improving the multiemployer pension system is an urgent priority for employers and labor leaders that will benefit America’s workers and taxpayers. I hope my colleagues in the House and Senate will make it an urgent priority as well.”
The composite plans are new plan design options that plan sponsors can choose to adopt or not in plan amendments. The discussion draft envisions adoption of a composite plan by amendment to a traditional multiemployer defined benefit plan that suspends future accruals into the former (legacy) plan (Red Zone plans cannot convert). All future accruals then flow into the new composite plan.
In the new composite plan, annual one-year and 15-year funding projections must maintain 120% funding. Shortfalls must be addressed by added contributions, future accrual cuts, and other benefit adjustments to meet the 120% funding safeguard. The legacy plan also must be funded under current funding rules, and there are minimum funding requirement contributions for all employers that enter the composite plan. And, because the benefits in the composite plan are not insured by PBGC, no PBGC premiums are paid on those participants. Legacy plan participants still pay the PBGC premiums at whatever new higher level may be imposed.
The UA and MCAA also submitted a joint statement of support to lawmakers on Capitol Hill. Chairman Kline’s call for urgent Congressional action is fully warranted, as the composite plan models have been thoroughly vetted in Congress over the past several years. Action this year will stem the need for consideration by the next Congress, which would take a year or more, and thereby diminish the remedial benefits of the composite plan model for the entire system. MCAA, the UA and the NCCMP coalition continue to press lawmakers to honor Mr. Kline’s perseverance on this most important issue and to heed his call for timely and effective action this year, even though time is short.