Signed by President Barack Obama this week, the Multiemployer Pension Reform Act of 2014 welcomes substantial changes to the multiemployer pension system that is meant to fortify the retirement future of nearly 10 million workers.
Tacked on as amendments to the Consolidated and Further Continuing Appropriations Act of 2015, the pension reform measure passed through the House on Dec. 11 and the Senate just two days later. The President signed the bill into law on Dec. 16.
According to final version, the multiemployer pension reform agreement, first introduced as amendments by Reps. John Kline (R-Minn.) and George Miller (D-Calif.) to the Houses $1.1-trillion spending bill, is meant to protect the multiemployer retirement system and the Pension Benefit Guaranty Corporation. The retirement administration reform effort follows a prior plan created by the National Coordinating Committee for Multiemployer Plans.
One of the more controversial measures of MPRA calls for allowing trustees of severely underfunded plans to adjust vested benefits before falling into the crosshairs of a needed bailout. Meanwhile, it will also give PBGC the power to take action for failing plans and allow adjustment to current plan premium structure. Other modifications include providing protections for the most vulnerable retirees, which include the disabled and individuals aged 75 and older. All the while requiring plan participant approval on all proposed benefit adjustments including the fail-safe mechanism for needed funding assistance.
Moreover, PBGC premiums for multiemployer plans will double to $26 per participant. Also, there will no longer be a sunset of the Pension Protection Act of 2006 for multiemployer plans, a key regulation that has reduced costs and limited liabilities for remedial actions for multiemployer plans. The PPA was set to expire at the end of 2014.
David Certner, AARPs legislative policy director, states that elected officials have failed at protecting retirement benefits for the nearly 1.5 million current retirees that may face cuts due to MPRAs new changes that amend guarantees forged previously in the Employee Retirement Income Security Act.
Congress voted for the first time to allow cuts to earned and vested benefits protected by law, says Certner. Trustees of trouble plans are given broad discretion to cut benefits, and if those benefits get cut, workers and retirees are expressly denied legal recourse. AARP is committed to standing up for the earned benefits that retirees rely upon and also committed to looking for new regulatory and legislative fixes to ensure that pension law sufficiently protects beneficiaries.
While he notes that cuts permitted will only apply to troubled pension plans, Certner explains that AARP remains concerned this sets the wrong precedent, especially with the growing level of retirement insecurity in the nation.
With passage of MPRA, 40 years of ERISA law as we know it is about to change, says José M. Jara, principal and national practice leader for multiemployer plans at Buck Consultants at Xerox. Highlighting the retirement statutes past anti-cutback provision, Jara explains that this new law will now allow plans that are deeply troubled to reduce accrued benefits, including accrued benefits of retirees in pay status, to allow the plan to avoid insolvency.
We must keep in mind that this law was passed to assist deeply troubled multiemployer plans exit insolvency, Jara adds. And for those plans who are deeply troubled, there will be hard decisions to be made, but these rules were created to keep the entire multiemployer system afloat.
Figures show that portions of the multiemployer system may be slowly drowning. The PBGC disclosed previously that its multiemployer insurance program has the potential to become insolvent over the next decade. Currently, the total tally is around $1.7 billion in assets and $10 billion in liabilities. On the whole, multiemployer pension plans valued at over $473 billion reduced their funded deficit by $45 billion in 2013; this led to a 9% improvement in funded status for all U.S. plans, according to data from consulting and actuarial firm Milliman.
Currently, 15% of these plans remain less than 65% funded, Milliman said in its inaugural Multiemployer Pension Funding Study.
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