WASHINGTON – Rep. John Kline of Minnesota has proposed a new pension reform law that he said can save troubled multi-employer retirement plans from dissolution or insolvency by making benefits more flexible.
Kline, the Republican chairman of the House Education and Workforce Committee, offered a “discussion draft” of the law Friday. Supporters plan to conduct a public hearing to discuss the proposal before Congress adjourns for the November presidential, House and Senate elections.
The bill allows multi-employer pension plans to transition from guaranteeing monthly payments to paying flexible benefits based on investment results. The program is somewhat similar to a 401(k) plan except that trustees, not employees, will make investment decisions for contributions.
Significantly, the bill does not allow retirement plans that are on the brink of failure to participate. This excludes the nation’s two most troubled multi-employer plans — the Teamsters Central States Pension Fund and the United Mine Workers. Both take far less in contributions than they pay out in benefits. Both are seeking allocations from Congress to keep from having to make deep benefit cuts to current retirees.
Kline said the new bill is the result of lengthy negotiations with labor, management and retiree advocates and is designed to keep multi-employer plans that have funding issues but are not at imminent risk of failure from deteriorating the way Central States and the United Mineworkers have.
“This will encourage people to stay in multi-employer plans,” Kline said. “We require robust funding levels so that the plans don’t find themselves at the last moment in dire straits.”
The new “composite” multi-employer plans Kline’s bill envisions would base monthly retirement pay on contributions and investment resulting in a benefit that can fluctuate similar to a variable annuity. To keep those payments as stable and sustainable as possible, the law makes multi-employer composite plans maintain assets equal to 120 percent of benefit obligations projected 15 years out. When assets fall below that level, the plans must immediately adjust by either increasing contributions from workers and employers and/or reducing their accrued benefits.
Cuts in benefits to current retirees would be a last resort that the bill’s designers believe are much less likely than the current situation facing many underfunded traditional multi-employer plans that pay out more than they take in.
Another potentially controversial piece of the new plans is that they are not insured by the Pension Benefit Guaranty Corporation (PBGC). The PBGC is supposed to insure a minimum level of payment to pensioners when their private plans fail but is underfunded and faces insolvency risks of its own without new sources of revenue.
Kline promised “an open process with an emphasis on discussion.” He plans to schedule a subcommittee hearing on the bill within three weeks. He could not say how or when the bill might come to a vote in the House.
In 2014, Kline attracted criticism by attaching to the federal budget an amendment that let failing multi-employer pensions cut some current retiree benefits to avoid insolvency.
His latest attempt at pension reform has already drawn the fire of five unions and three advocacy groups who sent a letter to House members expressing their “strong opposition” to Kline’s proposal.
“We understand the parties involved are trying to alleviate current financial pressures and encourage employers to join and remain in multi-employer plans,” said the letter signed by the AARP, International Association of Machinists and Aerospace Workers, International Brotherhood of Boilermakers, International Brotherhood of Teamsters, National Retirees Legislative Network, Pension Rights Center, United Steelworkers and Western Conference of Teamsters. “But Congress should not support a proposal that jeopardizes the current pension benefits earned by retirees and provides inadequate protections to workers.”
A spokesman for the United Mine Workers said the new law “would not offer any benefit to our contracts.”
Central States Fund Executive Director Thomas Nyhan said the composite plans were part of the 2014 pension reform negotiations but were left out of the 2014 bill. Composite plans were never intended to help pensions in Central States’ condition, Nyhan said.
“I don’t take any umbrage at the fact that we were excluded,” he said.
Still, Nyhan is not sure if the new law will confuse or distract from the congressional attention the Teamsters need.
“Will it murky the waters?” he asked. “I can’t predict.”