Required Reading on Multi-Employer Pension Plan Crisis

10 March 13, 2010  Federal Construction, Uncategorized

Here is some required reading about Taft-Hartley plans and the problems facing multi-employer pension plans (MEPPs) by Frances Denmark at the Institutional Investor.

Update 8/19: Outstanding WSJ analysis in this editorial (8/15): “The Next Pension Bailout” (pdf)

Readers can keyword search “pensions” to review the numerous posts TheTruthAboutPLAs.com has written about the link between government-mandated project labor agreements (PLAs) and MEPPs.

Key blog posts:

As we have stated many times at TheTruthAboutPLAs.com, one of the reasons nonunion contractors are discouraged from competing for contracts on construction projects subject to PLAs is because of typical provisions in a PLA that require employers to pay employee benefits into Big Labor’s MEPPs for the life of a PLA project.

In rare instances where nonunion employees (and union employees who do not belong to unions that are favored in PLAs) and their employers participate in PLA projects, employers must make benefit contributions to Big Labor’s MEPPs on behalf of employees. These benefit contributions are forfeited to the MEPP unless employees join a union and meet vesting schedules defined in by each plan.

An October 2009 report by Dr. John R. McGowan, “The Discriminatory Impact of Union Fringe Benefit Requirements on Nonunion Workers Under Government-Mandated Project Labor Agreements,” finds that employees of nonunion contractors that are forced to perform under government-mandated PLAs suffer a reduction in their take-home pay that is conservatively estimated at 20 percent.

Besides stealing benefits rightfully earned by construction employees working on a PLA project, a PLA’s pension provision is a windfall for Big Labor’s MEPPs because the MEPPS don’t have to pay future benefits to those employees. It props up these insolvent MEPPs and hides the flawed structure and Ponzi-scheme economics of MEPPs.

The Institutional Investor articles agree that calling MEPPs a Ponzi Scheme isn’t hyperbole and neither does the evidence.

Data from Moody’s Global Corporate Finance September 10, 2009 report, “Growing Multiemployer Pension Funding Shortfall is an Increasing Credit Concern,” measures the crisis faced by construction industry MEPPs.

Using 2007 numbers as a starting point, Moody’s estimates that 2008 underfundings for construction MEPP’s ballooned to $72.484 billion or a 54 percent funded level. In other words for every dollar that these construction MEPPs owe, they hold only 54 cents of invested assets.

Not good. And with unemployment in the construction industry at 27 percent as of April 2010, it is no surprise that contractors (specifically union contractors) that participate in these MEPPs are going out of business. And when MEPP participants go belly up, the burden on employers remaining in the MEPPs becomes greater. Bankrupt contractors that can’t pay their fair share to MEPPs creates additional liability for a MEPP’s remaining employer participants, which can prevent contractors from securing the bonding needed to build projects. This will force more employers out of business, which contributes to the negative feedback loop perpetuated by the flawed structure of MEPPs.

Is there any doubt why nonunion contractors avoid participating in MEPPs? Is there any doubt why nonunion employees would rather remain nonunion and participate in 401(k) and Roth IRA retirement plans than join a union and rely on MEPPs?

With the economic downturn, decline in construction industry union membership and looming demographic problems that  point to MEPP insolvency, how much money do you think it will cost the U.S. Pension Benefit Guaranty Corporation (PGBC) or taxpayers to bailout construction industry MEPPs? $125 billion? $150 billion? $200 billion? And will a bailout provide a long term solution or is it just a short term delay of the inevitable failure of MEPPs?

This MEPP crisis calls into question the wisdom of President Obama encouraging federal agencies to require PLAs on federal construction projects costing more than $25 million via Executive Order 13502. (Learn more about the status of the final regulatory rule implementing Executive Order 13502 here.)

The U.S. Department of Labor provides a list of all Taft-Hartley plans in the critical and endangered status here. Check to see if the Taft-Hartley plan you are participating in (or your competitors pay into) are in trouble.

Comments and thoughts are welcome.

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10 Responses to Required Reading on Multi-Employer Pension Plan Crisis

BenBrubeck March 13, 2010 at 10:14 am

This is a great point from F. Denmark about how Big Labor hates it when you call MEPPs “union” plans:

“Just don’t call them union plans, or risk rankling labor executives, who are quick to explain that these collectively bargained plans are managed by boards of trustees staffed with equal numbers of union and employer representatives. But keep in mind that a typical ten-member Taft-Hartley pension fund board consists of five trustees who are members of the same union and five trustees who likely represent competing employers in the same industry.”

Industrial Coatings March 13, 2010 at 1:22 pm

I agree fully with the article. A bailout isn’t the solution. Like stated in article – it will only delay the inevitable.

BenBrubeck March 14, 2010 at 12:04 pm

I failed to mention that the Pension Benefit Guaranty Corp (PBGC) – sort of an “FDIC” for pension plans – presents failed MEPP participants some level benefits.

The PBGC is a federal corporation created under the Employee Retirement Income Security Act of 1974. Through its separate insurance programs for single-employer and multiemployer pension plans, the PBGC guarantees basic pension benefits earned by 44 million American workers and retirees participating in over 29,000 private-sector defined benefit pension plans.

If a plan ends (this is called “plan termination”) without sufficient money to pay all benefits, PBGC’s insurance program will pay to beneficiaries the benefit provided by a pension plan up to the “benefit guarantee limits” set by law (The formula that the PBGC guarantees for multiemployer pension plan benefits depends on the type of benefit, the dollar amount of the benefit, and the date on which the benefit provision was adopted. Learn more at http://www.pbgc.gov/practitioners/multiemployer-plans/content/page13111.html).

PGBC financing comes from insurance premiums paid by companies whose plans the PGBC protects, from PGBC investments, from the assets of pension plans that PGBC takes over as trustee, and from recoveries from the companies formerly responsible for the plans, but not from taxes. The PGBC covered plans are insured even if an employer fails to pay the required premiums.

Unlike PBGC’s protection of plans sponsored by a single employer, the agency does not take over insured multiemployer plans, but instead sends financial assistance to insolvent plans. After a multiemployer plan notifies the agency that it has become insolvent, the PBGC begins to fund the plan to ensure guaranteed benefits are paid. The frequency of the payment schedule is based on the size of the plan. Generally smaller plans are paid on a quarterly basis, while larger plans receive monthly assistance.

Federal pension law, however, sets forth limits on retiree benefits in insolvent multiemployer plans. Individuals who retire after 30 years of service may be eligible for a guaranteed benefit of up to $12,870. This amount may be significantly smaller than what was promised or expected by MEPP participants. Under the law, the guaranteed benefit limits are imposed by the plan administrator, not the PBGC, and are triggered when a plan becomes insolvent.

Currently the PBGC gives assistance to 40 insolvent multiemployer plans.

The PBGC multiemployer insurance program protects the benefits of about 10 million workers and retirees in almost 1,500 multiemployer defined benefit pension plans. At the end of fiscal year 2009, the program had assets of $1.5 billion to cover about $2.3 billion of financial assistance expected to be paid in the future
Source: http://www.pbgc.gov/media/news-archive/news-releases/2010/pr10-22.html

Here is an example of the PGBC giving out assistance to the Southern California, Arizona, Colorado and Southern Nevada Glaziers, Architectural Metal and Glass Workers Pension Plan in El Monte, Calif., which has about 5,200 participants:

http://www.businessinsurance.com/article/20100128/NEWS/100129921

If the PGBC does not have enough money to protect all of the MEPP plans it insures, some theorize taxpayers will be asked to bailout the PGBC.

For more on the PGBC, see:
http://www.pbgc.gov/media/key-resources-for-the-press/content/page13544.html

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charlie smith September 27, 2011 at 11:26 pm

I’ve been part of a union now for the past 16 years. I’ve been unemployed now for 16 months. I was wondering if there is any way to start to draw my pension. We have an early out, but i got in 6 months to late. The early out date is July of 1995 I joined in December of 1995. I have almost 27 credits and we only need 25 to retire. Hoping someone could help me in Las Vegas?

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floyd morgan May 17, 2015 at 3:40 pm

i floyd morgan, was injured on job,working for olson glass co.ho has file bankrupcy in 1986, and my union benefits or cut down 50% to 330.54cent /i have lost my mortgage home and savings.

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