Post-PPA: What’s in store for plan sponsors

The Pension Protection Act of 2006 has helped to reduce costs and limit liabilities for multiemployer plans. But the landmark legislation will sunset at the end of the year, which has many stakeholders and consultants predicting future retirement uncertainty for the more than 10 million participants in multiemployer plans across the nation.

After Dec. 31, with some exclusions, the PPA will no longer be a national regulation that plan sponsors and administrators have to follow.

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The inevitable winding down of the PPA is a “major concern” for multiemployer plan sponsors and fiduciaries, according to José M. Jara, principal and national practice leader for multiemployer plans at Buck Consultants at Xerox. He said Buck Consultants recommends that employers act now to improve their plans for the benefit of their participants rather than wait for legal guidance from Washington, D.C.

James K. Estabrook, shareholder in law firm Lindabury, McCormick, Estabrook & Cooper, told attendees at the International Foundation of Employee Benefit Plans’ 60th Annual Employee Benefits Conference, that “a sunset means the law basically goes out of business.”

“It stops being effective [and] you don’t have to comply with a law when it sunsets,” Estabrook explained.

He indicated that the sunset was embedded within the law to allow enforcement agencies such as the Department of Labor, the Pension Benefit Guaranty Corporation and the Internal Revenue Service to track how the PPA fared over its eight years of existence.

“The purpose of the sunset, I think, was basically to have the DOL, the PBGC, the IRS take a step back at this particular date and see how the PPA has done, in particular with its impact on small employers,” Estabrook said, while complimenting the law by saying that it “forced us [multiemployer plans] to deal with our problems a lot sooner than we did in the past [when] a lot of plans found themselves diving off a cliff” due to insolvency.

Randy G. DeFrehn, executive director of the National Coordinating Committee for Multiemployer Plans, noted that the sunset was built into the bill because of needed checks and balances from lawmakers and pension interests.

“It was simply to say, ‘we’re making some significant changes here, maybe we should step back [and review],’” DeFrehn said.

Multiemployer pension plans reduced their funded deficit by $45 billion in 2013, which led to a 9% improvement in funded status for all U.S. plans, according to recent data from consulting and actuarial firm Milliman. Meanwhile, 15% of these plans remain less than 65% funded, Milliman said in its inaugural Multiemployer Pension Funding Study.

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Even with these gains, the PBGC, spawned from the Employee Retirement Income Security Act of 1974, says 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.

According to Milliman, plan maturity plays a major part in multiemployer pension plans’ crawl toward improved funding status. Between 2002 and 2012, the percentage of active participants in these plans fell from 48% to 37%. And NCCMP’s DeFrehn agreed that more needs to done to improve the future retirement situations for employers and employees in multiemployer plans by adding to the pension pool.

“The general consensus in Washington [that an extension of PPA] is it’s not going to happen,” said DeFrehn. “We believe as a community that we have some basic structural issues that we should deal with. We know how difficult it is to bring new employers into this system.”

In 2011, the NCCMP convened the Retirement Security Review Commission, a body that included union leaders, employee associations, individual and multiemployers to address these problems. Through a new voluntary flexible benefit plan proposal – similar to a defined benefit plan, yet with no withdrawal liability or PBGC insurance – DeFrehn said employers and participants can benefit for a very long time. The commission’s focus is centered on preserving the current system, helping deeply troubled plans faster and developing innovative ways to create new plans. 

“We could take action earlier to make sure the plans stay in place and the participants receive more money in the long run, because isn’t that’s what it’s all about?” DeFrehn said. “We want to continue to have plans providing good benefits without driving employers out of the system.”

Despite Congress being in recess until after the Nov. 4 midterm elections, and the next Congress scheduled to convene in January, DeFrehn remains optimistic.

“We believe the lame duck [Congress session] has some opportunities for some movement on our particular issues,” he said.

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