Earlier this year a group of more than 40 labor and employer representatives, the Retirement Security Review Commission (RSRC), issued a report directed at the U.S. Congress, Solutions Not Bailouts, about the future of the multiemployer defined benefit pension plan system. The report describes problems with the existing system and makes recommendations for plans to continue providing lifetime retirement security to participants.
Today, there are roughly 1,500 multiemployer defined benefit plans providing portable, industry-based (rather than company-specific) retirement benefits for approximately 10.37 million active, inactive and retired workers and their survivors. These plans are the product of the collective bargaining process that depends on the ability of the parties to reach agreement on the workers' wage and benefits package while enabling their employers to remain profitable.
Over the last several decades, as retirement plans have matured and demographics have changed, they have become more dependent on investment income rather than on contribution income to meet obligations. The financial crisis of 2008, however, resulted in a median net investment loss among multiemployer plans of 22.1 percent that year. The fact that the more stringent funding requirements in the Pension Protection Act of 2006 (PPA) also came into effect in 2008 was bad news to employers during the Great Recession.
The recession led to the formation of the RSRC under the leadership of the National Coordinating Committee for Multiemployer Plans and recognition by both sides of the bargaining table of the need to reduce or eliminate the contributing employers' financial risks. Doing so, they agreed, would not only help prevent existing employers from exiting the system, but also encourage the entry of new employers. With the expiration of the PPA in 2014, the timing was right for the RSRC to put forth a consensus approach for reform.
The commission's recommendations fall into three categories. The first enumerates provisions to preserve and strengthen the current system primarily through technical corrections and enhancements to the PPA and prior laws and by allowing mergers and alliances of plans to improve their financial health. The second sets up requirements and an approval process for the most troubled plans facing insolvency (about five to 10 percent of plans) to suspend accrued benefits thereby reducing liabilities.
The third recommendation attempts to...