Hoffa: Bill Shows Two Pension Plans Aren’t Better Than One

By Teamsters General President James P. Hoffa
​Published in the Detroit News, Oct. 5, 2016

Almost two years ago, Congress approved language that gave multiemployer pension plans the ability to dramatically cut benefits to their participants. Now some of those same lawmakers are threatening the retirement security of thousands again.

Rep. John Kline (R-Minn.) authored the Multiemployer Pension Reform Act (MRPA) that ultimately was included in the fiscal 2015 omnibus funding bill. Soon thereafter, the Central States Pension Fund (CSPF) attempted to take advantage of the provision to cut the pensions of hundreds of thousands of retired Teamsters by as much as 70 percent. The union stood up and vigorously opposed both MRPA and the pension cuts. And the U.S. Treasury Department ultimately ruled against CSPF’s proposal last May.

So now Kline, chairman of the House Education & Workforce Committee, is trotting out legislation that changes pension funding rules by allowing multiemployer pension administrators to transition their defined benefit pension plans to a new “composite” plan. The bill, which was the subject of a hearing late last month, would have the effect of creating two underfunded pension plans that shortchange participants.

First, it would significantly reduce contributions to the legacy pension plan. Under the proposal, pension administrators are permitted to refinance plan liabilities and pay them off over 25 years, about double the time permitted under current law. The same market forces facing legacy plans would create funding shortfalls for composite plans, requiring plans to either increase contributions, or probably more likely, deeply cut benefits.

Given the same contributions are used to fund two plans, even devastating cuts to the benefits of composite plan participants in times of market volatility might not be enough to save the legacy plan from painful benefit cuts.

In addition, Kline’s legislation would permit unprecedented cuts to retirees’ benefits. It doesn’t even contain the few procedural protections for plan participants offered under MRPA, making it much easier for composite plans to massively slash benefits.

The proposal would also increase the likelihood of employers withdrawing from legacy plans. Under current law, a company’s withdrawal liability payments are calculated based on its pre-withdrawal contribution rate, ensuring that withdrawing employers are still paying their fair share of pension obligations.

But under the Kline bill, the pre-withdrawal contribution rate is lower than it would be in a traditional defined benefit plan. By allowing employers to dramatically cut their legacy contribution rate, the proposed measure would also significantly reduce the cost of withdrawing from a legacy plan.

While action is needed to ensure retirement security for hard-working Teamsters and others who have paid into these plans for years, this is simply not the right fix. This legislation provides inadequate funding for composite plans and weakens the funding base for existing plans. That’s not going to help workers or retirees.

Beyond the issue of inadequate contributions, the proposed legislation is also flawed because composite plans are not protected by the Pension Benefit Guaranty Corporation (PBGC), which insures pension benefits. Such pension changes would also have the effect of reducing PBGC premium contributions dramatically, further depleting its already limited funds.

Taken together, this legislation is a significant departure from retiree protections granted under the Employee Retirement Security Act. Millions of workers whose retirements are at stake deserve a fair, thorough and open process to address these looming challenges. But given the serious ramifications for worker and retiree retirement security, Congress should not act on such a complex and consequential proposal in the short time remaining this year.