AGC Pension Update: Industry Letter to Congress

Source:  Email sent Aug. 13 by AGC’s Senior Director, Congressional Relations for Labor, HR and Safety James Young

As many of you know, Congress established the Joint Select Committee on Solvency of Multiemployer Pension Plans (JSC or “Committee”) to improve the solvency of multiemployer pension plans and the Pension Benefit Guaranty Corporation (PBGC). The Committee has a statutory deadline to present a legislative solution this fall. However, many details of any possible solutions can change depending on the outcome of the mid-term elections.

A concern to AGC is some members of the JSC have expanded their interest from finding a legislative solution involving a loan program for critical and declining plans to suggesting plans change discount rates from the long-term rate of return to a more conservative corporate bond rate or 30-year Treasury rates. Either change would pose many challenges to otherwise healthy plans by forcing them into red zone status, thereby requiring employer contributions to increase up to three times. None of that increase would translate to any increase in benefits for participants. There has also been discussion of massive PBGC premium increases.

Because of the threats the JSC pose to the current system, AGC—along with other construction employer associations—delivered a letter to Congress today that focuses entirely on construction employers. The letter outlines the case for composite plans; the case against investment assumption mandates (a real threat to plans viability); and the case for not raising premiums. In addition, it outlines the efforts contractors have taken for years to address funding issues and emphasizes that time is running out.  The letter also reminds everyone that both labor and key legislators agreed to actively pursue composite plans after enactment of the Multiemployer Pension Reform Act in 2014.

AGC remains fully committed to having Congress authorize the composite plan design, as outlined in the GROW Act. In addition, the association continues to play defense against bad ideas. The members of the JSC are listed below. AGC will be reaching out to Chapters and members represented by these committee members on how to engage with them between now and the election.

16 Members of Joint Select Committee on Solvency of Multiemployer Pension Plans
Senate GOP Members Senate DEM Members
Chairman Orrin Hatch (R-UT) Chairman Sherrod Brown (D-OH)
Lamar Alexander (R-TN) Joe Manchin (D-WV)
Rob Portman (R-OH) Heidi Heitkamp (D-ND)
Mike Crapo (R-ID) Tina Smith (D-MN)
   
House GOP Members House DEM Members
Rep. Virginia Foxx  (R-NC) Richard Neal (D-MA)
Phil Roe (R-TN) Bobby Scott (D-VA)
Vern Buchanan (R-FL) Donald Norcross (D-NJ)
David Schweikert (R-AZ) Debbie Dingell (D-MI)

Laborers Retirement Plans

Indiana Laborers have two retirement plans: one is a Defined Contribution (DC) plan, and one is a Defined Benefit (DB) plan.

The DC plan was created in 2014, and each Laborer that works under an Indiana Laborers Agreement has money contributed by their employers to this fund. Here is the Summary Annual Report from the Board of Trustees for the Indiana Laborers  Defined Contribution Trust Fund Plan.

Annually each November (or late October) a fund statement is mailed to each Laborer, telling them how much is in their account. This fund is like a 401k for each Laborer, so it’s their money, when they retire. Here is a redacted sample Statement of Individual Account.

Contractors that employ Laborers here in Indiana should be aware of this new fund, especially since many Laborers may not be aware of this additional growing retirement fund that will help fund their retirement.

In addition the Indiana Laborers also have a DB retirement fund, Indiana Laborers Pension Fund, that in 2014 was determined to be in the critical status Red Zone. In August 2017 ICI learned that this fund, is now certified to be safe (neither endangered or critical), and we are told this fund should be fully funded by 2023.

Two-Pool Withdrawal Liability

Source: Pension Benefit Guaranty Corporation (PBGC)

The Pension Benefit Guaranty Corporation is publishing a request for information (RFI) in the Federal Register seeking input on proposed “two-pool” alternative withdrawal liability arrangements. These arrangements involve an alternative method for measuring the withdrawal liability amount and the annual payment amount that an employer would owe the plan. PBGC wants input from the general public and all interested stakeholders, including multiemployer plan participants and beneficiaries, plan sponsors, and employers on these types of actions. For more information, visit: Request for Information: Two Pool Withdrawal Liability. To read the full request for information and provide input, please visit Requests for Approving Certain Alternative Methods for Computing Withdrawal Liability; Settlement of Withdrawal and Mass Withdrawal Liability.

Pension Benefit Guaranty Corporation Annual Report Shows Deficit

Source: Pension Benefit Guaranty Corporation (PBGC)

PBGC Fiscal Year 2016 Annual Report Shows Increasing Deficit in Multiemployer Program

WASHINGTON – The Pension Benefit Guaranty Corporation today released its Fiscal Year 2016 Annual Report showing the deficit in its multiemployer insurance program rose to $58.8 billion. The increase was driven by additional multiemployer plans that are expected to run out of money within the next 10 years, and by decreases in interest factors used to value PBGC’s liabilities.

PBGC’s single-employer insurance program showed improvement; its deficit narrowed from $24.1 billion, at the end of FY 2015, to $20.6 billion at the end of FY 2016. This was primarily due to investment and premium income and a low level of plan terminations during the year.

“The improvement in the financial condition of the single-employer program is a welcome result. However, it is clear that more reform is needed to stabilize multiemployer pension plans and to extend the solvency of PBGC’s multiemployer program,” said PBGC Director Tom Reeder. “First and foremost, we need to protect the promises that have already been made to workers and retirees. We are committed to working with Congress on long-term solutions that include increasing multiemployer premium revenues and reforming the premium structure.”

PBGC’s mission is to enhance retirement security by preserving pension plans and protecting participants’ benefits. PBGC protects the pension benefits of nearly 40 million Americans in private-sector pension plans and PBGC is already responsible for the benefits of about 1.5 million people in failed plans who otherwise may have lost their pensions. The agency operates two separate insurance programs: one that covers single-employer plans, and another that insures multiemployer plans. By law, the two insurance programs are operated and financed separately.

Multiemployer Program Deficit Rises to $58.8 Billion

As of September 30, 2016, PBGC’s multiemployer program had liabilities of $61.0 billion and assets of only $2.2 billion, resulting in a negative net position or “deficit” of $58.8 billion, up from $52.3 billion a year earlier. During FY 2016, PBGC provided $113 million in financial assistance to 65 insolvent multiemployer plans, an increase from the previous year of $103 million paid to 57 plans. PBGC’s obligations to provide financial assistance will increase dramatically in the coming years, when more and larger multiemployer plans run out of money and require PBGC assistance to provide benefits at the guarantee level set by law.

PBGC’s multiemployer program income is very small relative to its deficit, and to the increase in its liabilities during FY 2016.  Income for the multiemployer program totaled $425 million, comprised of $282 million in premium revenue and $143 million in investment income.  In contrast, multiemployer program liabilities increased by $6.8 billion. This was primarily due to a drop in interest factors used to measure the value of PBGC’s future financial assistance payments, and the identification of 11 additional multiemployer plans that terminated or are projected to run out of money within the next 10 years.

In the most recent Projections Report, PBGC estimated that its multiemployer program is likely to run out of  money by the end of 2025, and that there is considerable risk that it could run out before then. If the multiemployer insurance program becomes insolvent, PBGC will only be able to provide enough financial assistance to pay a small fraction of guaranteed benefits in insolvent plans.

Single-employer Program Deficit Shrinks to $20.6 Billion

As of September 30, 2016, PBGC’s single-employer program had liabilities of $117.9 billion and assets of $97.3 billion, resulting in a negative net position or “deficit” of $20.6 billion. In FY 2016, the agency paid $5.7 billion in benefits to nearly 840,000 retirees from more than 4,700 failed single-employer plans. The figures are up slightly from $5.6 billion paid to about 826,000 retirees during the previous year.

During FY 2016, PBGC assumed responsibility for more than 46,000 additional people in 76 trusteed single-employer plans. As in recent years, however, PBGC did not incur any large losses from completed or probable plan terminations.

Customer Satisfaction

Providing excellent customer service is among PBGC’s top priorities. Each year, many retirees served by PBGC consistently rank the agency among the best in the public and private sectors. In FY 2016, PBGC scored 90 out of 100 among retirees on the American Customer Satisfaction Index.

About PBGC’s FY 2016 Financial Report

PBGC’s financial statements are prepared in accordance with generally accepted accounting principles in the U.S. For FY 2016 PBGC received an unmodified audit opinion on its financial statements as well as an unqualified audit opinion on internal control over financial reporting. CliftonLarsonAllen LLP performed the audit under contract with PBGC’s Office of Inspector General, which oversaw the audit.

About PBGC

PBGC protects the pension benefits of nearly 40 million Americans in private-sector pension plans. The agency is currently responsible for the benefits of about 1.5 million people in failed pension plans. PBGC receives no taxpayer dollars. Its operations are financed by insurance premiums, investment income, and with assets and recoveries from failed single-employer plans. For more information, visit PBGC.gov.

ConstructorCast Episode Explores Multiemployer Pension Reform

Go in depth on the troubles facing multiemployer pension plans, what’s being done to address the growing problems and what it means for the construction industry and the economy at large on the latest episode of the ConstructorCast. In this episode James Young, AGC’s Director of Congressional Relations for Labor, HR and Safety, offers the full story on where reform might be headed and how government can help develop long-term solutions.

DOWNLOAD THE PODCAST HERE

 

Industry reaction to Central States Pension Fund rescue plan refusal

Many ICI members are signatory to Teamsters agreements and contribute to its pension fund. The fund filed to reduce benefits so that it could avoid insolvency, but the U.S. Treasury has refused to accept the rescue plan. Read more from AGC here.

Here is the Department of the Treasury’s letter to Congress.
Here is the Department of the Treasury’s letter to the Central States, Southeast and Southwest Areas Pension Plan.

The Department of the Treasury Internal Revenue Service recently published its final rule on the Suspension of Benefits Under the Multiemployer Pension Reform Act of 2014, and it can be found here.