PENSION REFORM
The United Food and Commercial Workers International Union (UFCW) supports strengthening multiemployer defined benefit pension plans in the pension reform legislation being considered by the House and Senate.
Hundreds of thousands of UFCW members receive their pension through a multiemployer pension plan run by joint boards of trustees; equally divided between union and employer. The boards have a fiduciary duty to act in the best interests of plan participants and a standard of care approaching expert level for decision-making. There are 76 UFCW Taft-Hartley defined benefit pension funds covering over 1.2 million active, retired, former members and their eligible dependents. For them, pension reform is more than an issue ─ it is survival.
As a result of the steep decline in the investment markets in 2000-2002, some multiemployer pension plans are now facing a technical “funding deficiency” which, for contributing employers, would trigger significant excise tax penalties plus potentially ruinous mandatory additional pension contributions. Imposing these costs could bankrupt some employers and drive others away from plan participation. This would jeopardize the survival of the pension plans and shift the liability to the Pension Benefit Guaranty Corp. (PBGC), where benefits for participants in these plans would be seriously reduced to PBGC guarantee levels.
The Multiemployer Pension Plan Coalition, which includes the UFCW and a broad group of employers, employer associations, unions and multiemployer plans, are unified in the need for shared responsibility in supporting funding reforms that would modify multiemployer plan funding rules while protecting the pensions of millions of Americans. The result of the Coalition’s efforts are the Pension Security and Transparency Act of 2005 (S.1783) and the Pension Protection Act of 2005 (H.R. 2830). While both bills contain much of what the Coalition needs to achieve multiemployer reform, the Senate bill structure is more workable from a technical standpoint for purposes of the Conference. UFCW strongly supports the following changes in Conference:
- The trustees of a multiemployer plan in critical status (plans with less than 65 percent funding) must be provided with the necessary tools to correct the plan’s financial situation. Specifically, the legislation must include authority for critical status plans to protect retirement benefits at normal retirement age by permitting the reduction of certain ancillary, non‑core benefits and requiring employer surcharges.
- Grandfather protections should be provided to amortization extensions and any other modifications applied for by
- Contributing employers to a critical status multiemployer plan that has adopted and is complying with a rehabilitation plan must be protected from potentially devastating, extra‑contractual contribution requirements and excise taxes that could trigger bankruptcies, the transfer of liabilities to the PBGC, drastic reductions in participants’ benefits and, eventually, plan failures.
- Grandfather protections should be provided for agreements made prior to enactment of the legislation to restore unpopular but responsible benefit reductions, including cases where the agreement was made by the contract parties.
- For endangered plans (plans with 65–80 percent funding), the Trustees are required to develop one or more funding improvement plans. However, the timing requirement for changes to benefits and contributions should be delayed until contracts expire and pension contributions are open for modification. This would avoid mandating immediate benefit reductions for plans that are meeting the funding requirements and allow the parties time to choose between alternatives that properly address long term funding concerns.
- For critical status plans, required benefit reductions should include an equal proportion of contribution increases. To avoid requiring large contribution increases, the amounts could be limited based on a percentage of wages of the covered group.
- The PBGC’s multiemployer insurance program should have consistent inflation adjustments for both premiums and guarantee levels. This consistency would maintain the guarantees at a minimum adequacy level.
- Specified modifications to withdrawal liability rules are important to restrain an employer’s ability to exit the multiemployer plan in a manner that inequitably shifts funding responsibility to other employers.
- The final bills should specify a procedure for unwinding amortization extensions to control the disruption to minimum funding requirements. If the procedure created balloon payments, it could inhibit even moderate benefit improvements. Fixed dollar benefits must be improved to maintain the purchasing power of pension benefits and to sustain participants’ interest in continuing and increasing a portion of their compensation package to the pension plan.
- The threshold for emerging from critical status must also be addressed. This would be reached for plans that have significantly improved their funding position to pass the threshold to endangered plan status and are expected to comply with the funding requirements for several years.
- The funding ratio used in making determinations for endangered and critical status plans should be based on the unit credit method, as provided for in the Senate bill.
The United Food and Commercial Workers supports multiemployer pension plan reform and urges House and Senate Conferees to accept the Senate language as well as the above modifications in the final Conference language.
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