Struggling multi-employer pension plans saved thanks to coronavirus relief bill
President Joe Biden’s $ 1.9 trillion American Rescue Plan Act of 2021, aimed at alleviating some of the economic damage inflicted by the COVID-19 pandemic, provides hundreds of billions of dollars to states and cities, some of which will fund infrastructure projects, employee retention credits for businesses and stimulus checks of $ 1,400 to many Americans.
The legislation also gives 30 years of respite from another problem facing some construction companies: multi-employer pension plans that struggle to stay afloat.
Multi-employer defined benefit pension plans, as the name suggests, are pension plans funded, based on hours worked, by more than one unionized employer under a collective agreement. Unionized workers also contribute to these plans.
Under the terms, non-union parties to the project’s labor agreements may be required to contribute to those plans even though the non-union workers might not reap any benefits down the road, which, according to Ben Brubeck, vice president Regulatory, Labor and State Affairs at Associated Builders and Contractors, is one reason some employers oppose PLAs. Workers covered by MEPs begin to receive lifetime benefits upon retirement.
Of the approximately 1,400 MEPs in the United States, about half work in the construction industry, according to Brian Turmail, vice president of public affairs and strategic initiatives for the Associated General Contractors of America. Workers in the construction industry make up about a third of all MEP participants.
More than 100 plans are heading for insolvency, potentially affecting 1 million workers, many of them in construction-related plans, according to James Young, senior director of congressional relations, human resources, labor and safety of AGC.
COVID-19 lockdowns cut workers’ hours, reducing the amount going to MEPs, he said, but it only really made the problem worse for many plans that were already in the works. difficulty before the pandemic. Unsuccessful investments, fewer employers signing collective agreements to replace those leaving the industry, hostile tax laws and other factors have contributed to the financial difficulties of some MEPs, Young said.
There is a safety net for retirees in the Pension Benefit Guaranty Corp., which guarantees payment of benefits. The maximum payout for retirees tied to an insolvent plan is $ 12,870 per year, which can be a significant reduction in benefits for many participants, Young said.
The problem is, PBGC is funded by employer contributions, and if large employers go down or can’t pay those premiums, then PBGC can go down as well. In fact, before the relief provided in the COVID-19 bill, the PBGC predicted its own insolvency by 2026. Under these circumstances, Young said, retirees could only expect a few hundred dollars per year.
The American Rescue Plan takes care of this, however, by guaranteeing payment of benefits until 2051. The liferaft, estimated at $ 86 billion, requires funds to demonstrate need through an application process. thorough.
Previous proposals to correct the retirement program included loan programs, separating participants from plans to which contributing employers were no longer attached.
“The problem is, it was just a simple injection of money, and it really did nothing to address the underlying structural flaws in most of the plans,” Brubeck said. “There is going to be another call for a bailout in the future.”
The hope for the future, Young said, is that the 30-year-old will be enough time for the plans themselves to fix what is wrong systemically so that they can continue paying benefits long after the end. expiration of the terms of the relief bill. In addition, Young said, the industry will look for opportunities in future legislation to introduce reforms to the plans.
Role of the Ministry of Labor
If confirmed, Labor Secretary Marty Walsh’s candidate could play a key role in the future of MEPs, especially since DOL secretary serves as Chairman of the Board of Directors of PBGC directors, Turmail said.
In addition, before being elected mayor of Boston in 2013, Walsh led both Local 223 of the International Union of Workers of North America and the Boston Building Trades Unions.
“Our position,” said Turmail, “is that Marty Walsh will come to the Department of Labor with experience in the construction industry from his previous service, and he certainly knows how the multi-employer pension system works. It won’t take a long process of educating yourself on the fundamentals of how a multi-employer pension system works, I think it will come a step ahead of previous Secretaries of Labor.