NECA TransmissionsNotes from the front lines of the electrical contracting industry

A New Model for Multiemployer Pensions

Posted on Sep 06, 2011 by John M Grau

In the union segment of the construction industry, multiemployer pension plans are the norm. In addition to covering construction workers, these plans are also commonly found in coal mining, trucking, retail trades, printing, health care and performing arts. All told, more than 10 million Americans participate in multiemployer pension plans.

Special rules under the Pension Protection Act of 2006 apply to multiemployer plans, and they are scheduled to sunset in 2014. While that’s still over three years away, it has generated a lot of activity among policymakers and those interested in shaping the future of these plans.

I recently attended the formation meeting of a new coalition of multiemployer pension plan stakeholders. This group, comprised of both employer plan sponsors and unions, is attempting to draft and promote legislation prior to the 2014 sunset that will fundamentally reform the multiemployer pension plan model. The one thing on which everyone in the room agreed was that the current models for multiemployer pensions aren’t working and aren’t sustainable.

Right now, the choices for multiemployer pension are either defined benefit plans or defined contribution plans (or some variation thereof). Neither is performing very well in today’s financial environment. When interest rates are near zero, pension plan savings don’t benefit from the “miracle” of compound interest. Liabilities mount without offsetting fund increases. In defined benefit plans, the shortfall becomes a burden for contributing employers. In defined contribution plans, the participant bears that responsibility.

If the purpose of these plans is to attract workers to and keep them in an industry, as well as to provide them with retirement security, then they are coming up short no matter which type of plan is being used. A big part of the problem is risk. A big part of the solution will be sharing responsibility for, and managing, that risk.

That’s why we need a new model. Apparently, they exist. Multiemployer pension arrangements exist in other countries that aren’t at the same crossroads faced by U.S. plan sponsors and participants. Currently, our laws don’t allow some of these alternatives. So we may need to blow up the current system and fundamentally rewrite our multiemployer pension laws, as well as make substantial changes to ERISA, the tax code, and labor laws. That’s the task this new coalition has started down the road to accomplish.

For those wanting a quick fix to our pension plan problems, this isn’t it.  But ultimately, this effort promises a more permanent and sustainable solution. Stay tuned.

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NECA Transmissions is a collaborative effort from CEO John Grau and NECA staff to provide insight and feedback on key issues from the front lines of the electrical contracting industry.

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