Rep. John Kline (R-Minn.), chairman of the House Committee on Education and the Workforce, has unveiled a draft of a proposal to address issues with the nation’s multiemployer pension system.
More than 10 million individuals rely on multiemployer defined benefit pension plans, which are created by collective bargaining agreements and sponsored by multiple employers. However, in recent years a number of these plans have been confronted with severe funding challenges.
To help address these challenges, in 2013 a coalition of unions and employers led by the National Coordinating Committee for Multiemployer Plans (NCCMP) proposed a consensus set of policy recommendations to strengthen the multiemployer pension system. Many of these recommendations were enacted when President Obama signed into law the bipartisan Multiemployer Pension Reform Act. However, according to Kline, Congress did not adopt reforms at that time to modernize multiemployer pensions through the creation of a new composite plan design.
According to a press release, as part of the committee’s ongoing efforts to strengthen retirement security, Kline has put forward a draft proposal that would allow unions and employers to create “composite” pension plans. A composite plan is a new type of retirement plan that combines the flexibility and certainty of a 401(k)-style defined contribution plan with the lifetime income provided by a defined benefit pension plan. These so-called composite plans will be professionally managed, and benefits will be provided in the form of annuities. The trustees managing the composite plan will set benefit levels based on incoming contributions and conservative funding requirements.
According to the draft, if the composite plan is not expected to be 120% funded in 15 years, the plan will be required to implement a remediation strategy that may include contribution increases, benefit accrual decreases and benefit adjustments.
The proposal will ensure that existing multiemployer pension plans, also known as legacy plans, are sufficiently funded, even, according to a summary of the discussion draft, for employers and unions that choose to transition to new composite plans. Employers who contribute to a composite plan will be required to fund existing multiemployer pension commitments.
However, unlike a traditional defined benefit plan, retirement benefits offered through a composite plan will not be eligible for the Pension Benefit Guaranty Corporation insurance guarantee.
The committee is soliciting public feedback on the proposal, and it is also interested in receiving ideas for other reforms to improve the long-term fiscal health of the PBGC. A Q&A on the discussion draft is available here.
