The passage and signing into law of a wide-ranging reform of our nation’s tax code has initiated a healthy national conversation about the direction in which our country should move on important fiscal issues, including retirement security.
Included among the hundreds of pages of tax changes are a handful of ideas to simplify and reform the ways in which Americans save for retirement. But, these ideas only begin to touch upon the many ways retirement savings and security should be addressed by Congress.
As part of this broader conversation, it is critical that Congress take immediate steps to address the looming crisis faced by the multiemployer pension plan system.
With over 10 million Americans participating in this system and several of the largest plans currently struggling, Congress should immediately seize the opportunity to act and strengthen these retirement plans, ensuring certainty and security for these hardworking Americans, as well as providing a means for individual companies to avoid calamitous liability issues that could potentially put them out of business.
Multiemployer pension plans were designed to allow employers of all sizes, from large companies to small mom-and-pop family businesses, to pool their resources and help provide for their workers in old age. For 70 years, middle-class workers have relied on this system to secure their retirement, but outdated rules and regulations have kept these plans from modernizing to keep pace with changes in the economy.
As a result, many of these plans are struggling, with retirees and workers facing the very real possibility of outliving their retirement savings.
In an effort to prevent this, in 2014, Congress passed legislation – known as the Multiemployer Pension Reform Act (MRPA) – that allows at-risk plans to be restructured. Unfortunately, federal regulators to date have largely refused to utilize the tools Congress provided through this legislation, leaving many American families and businesses in peril.
Furthermore, MPRA only addresses plans that are currently in crisis, and does nothing to strengthen and modernize healthy plans for the future.
That’s why North America’s Building Trades Unions (NABTU) and the Associated General Contractors (AGC) are part of a coalition comprised of large and small business owners and unions that are calling upon Congress to approve a legislative tool called “composite plans” to safeguard the multiemployer pension plan system for the future.
Composite plans, whose use can only be authorized by Congress, are a new type of retirement plan that will modernize traditional pension plans by combining the key features of defined benefit and defined contribution plans.
Once authorized, composite plans will be managed by the private sector, without the need for government intervention.
Composite plans are a voluntary tool, and are not meant to be a replacement for healthy defined benefit plans. Instead, they are designed to be an alternative to the 401(k)/defined contribution plans that are increasingly proposed when an employer can no longer assume the financial responsibilities of a defined benefit plan.
Participating pension plans would be required to maintain 120 percent funding levels, creating a cushion or “rainy day fund” for inevitable economic downturns. Plans failing to meet this target would take corrective action. All decisions regarding corrective action would be decided by a board of trustees which would consist of an equal number of employee and employer representatives, ensuring all sides have a voice in the matter.
The composite plan proposal was recommended by an independent, bipartisan commission as a private sector solution to strengthen the multiemployer system for the future.
This new structure will give peace of mind to workers who will still receive lifetime income through the composite plan, while giving employers certainty in how much they will be required to pay into the system.
Extensive stress testing of the composite plan model confirmed that composite plans are flexible enough to weather financial crises like the Great Recession in 2008, without causing serious financial harm to workers or employers participating in the system.
Composite plans are already being utilized in the Canadian multiemployer pension system, with enormous success. These plans have continued to attract additional employers, which further strengthens the system, and plans have rarely needed to adjust benefit levels.
Every day Congress waits to act, the problem is harder to solve. Including this provision in the upcoming omnibus bill will help to more fully address retirement insecurity and combat a pressing policy issue before it devolves into a systemic crisis.
Both employers and workers need to be able to provide a more sustainable and secure retirement option, and only Congress has the power to authorize composite plans. Approving this modern retirement vehicle will free employers and employees to effectively and responsibly manage their pensions.
These Americans deserve peace of mind, knowing the plans they worked so hard for will be there for them in their retirement.
Sean McGarvey is President of North America’s Building Trades Unions (NABTU) and Stephen Sandherr is Chief Executive Officer of the Associated General Contractors (AGC).