MEP Watch

[campbell]

http://www.pionline.com/article/2014...more-attention

A concerted effort in Washington to get more employers to offer retirement plans has raised the profile of multiple employer plans, a largely untapped market for institutional money managers and other service providers.

Unlike multiemployer plans, which serve employers in a specific industry and are typically collectively bargained and managed, a multiple employer plan is adopted by two or more unrelated employers that do not want the administrative burdens and fiduciary responsibilities of sponsoring a plan themselves.

The three types of MEPs are those sponsored by a professional employer organization such as an employee leasing company, which can offer it to clients; by a trade group for its members; or “open” MEPs co-sponsored by employers with no business connection.

....
Representatives for plan sponsor and service provider groups would like legislation to address the disconnect between the way open MEPs are treated by the IRS and Labor Department.

Officials with the American Society of Pension Professionals & Actuaries in Arlington, Va., have noted in letters to members of Congress and the Obama administration that the popularity of multiple employer plans “has increased markedly” over the last 10 years, in part because of favorable rulings by the IRS.

But ASPPA officials and others say two advisory opinions issued in 2012 by the Labor Department could stymie that growth. The opinions said certain individual plans, made up of unrelated employers, could not be considered one plan under ERISA because they lacked a common connection. The concern is that ERISA reporting and fiduciary obligations could slip between the cracks if employers do not have direct involvement and oversight.

.....
The other legal gray area that needs to be addressed is the IRS “one bad apple” rule, where one employer failing to meet tax-qualified plan criteria can disqualify an entire multiple employer plan's tax-qualified status. Several of the pending bills would require the Treasury Department to remove the one bad apple threat through regulations, while a bill introduced by Rep. Richard Neal, D-Mass., would also have the DOL issue guidance stipulating that other employers would not be liable under ERISA for acts or omissions by an employer in the plan.

Despite an overall pessimism about the likelihood of getting anything through Congress in an election year, there is some optimism for improving the regulatory landscape for multiple employer plans, at least for smaller employers.

[campbell]

Thanks to Don Quijote for the following:
http://dealbook.nytimes.com/2014/04/...ype=blogs&_r=0

The pensions of millions of Americans are being threatened because of trouble in a part of the retirement world long considered so safe that no one gave it a second thought.

The pensions belong to people in multiemployer plans — big pooled investment funds with many sponsoring companies and a union. Multiemployer pensions are not only backed by federal insurance, but they also were thought to be even more secure than single-company pensions because when one company in a multiemployer pool failed, the others were required to pick up its “orphaned” retirees.

Today, however, the aging of the work force, the decline of unions, deregulation and two big stock crashes have taken a grievous toll on multiemployer pensions, which cover 10 million Americans. Dozens of multiemployer plans have already failed, and some giant ones are teetering — including, notably, the Teamsters’ Central States pension plan, with more than 400,000 members.

In February, the Congressional Budget Office projected that the federal multiemployer insurer would run out of money in seven years, which would leave retirees in failed plans with nothing.

“Unless Congress acts — and acts very soon — many plans will fail, more than one million people will lose their pensions, and thousands of small businesses will be handed bills they can’t pay,” said Joshua Gotbaum, executive director of the Pension Benefit Guaranty Corporation, the federal insurer that pays benefits to people whose company pension plans fail.

“If Congress allows the P.B.G.C. to get the money and the authority it needs to do its job, then these plans can be preserved,” he added. “If not, the P.B.G.C. will run out of money, too, and multiemployer pensioners will get virtually nothing. This is not something that can wait a few years. If people kick the can down the road, they’ll find it went off a cliff.”

So far, efforts to keep multiemployer plans from toppling, and taking the federal insurance program down with them, are giving rise to something that was supposed to have been outlawed 40 years ago: cuts in benefits that workers have already earned.
.....
The law she was referring to is the Employee Retirement Income Security Act, or Erisa, the landmark federal employee-benefits law enacted in 1974. It contains a well-established provision known as the anticutback rule, which holds that companies can freeze their pension plans at will, stopping their workers from building up any additional benefits, but they cannot renege on benefits their workers have earned through work already performed.

In the multiemployer world, the anticutback rule was amended in 2006, permitting the weakest plans to stop paying certain benefits to people who had not yet retired, including disability stipends, lump-sum distributions, recent pension increases, death benefits and early retirement benefits. The goal was to help those plans conserve their money while they try to rehabilitate themselves. Experts say the measures have helped, but some multiemployer plans may still fail if they cannot cut payments to retirees as well.

Ms. Cascio’s pension turned out to be in a category subject to cutting: pensions for widows whose husbands died before retirement. They must be cut if their plans have fallen to “critical status,” defined as having less than 65 cents for every dollar of benefits they owe. That is supposed to save money so the plan can keep on paying other retirees their “nonforfeitable benefits” while it negotiates bigger contributions from participating companies, or tries to attract new companies into the pool.


.....
Labor officials, business groups, members of Congress and others have been quietly discussing a proposal to extend multiemployer plans’ life spans by letting them roll back even retirees’ pensions. Such plans are often found in mature sectors, in which retirees outnumber active workers and cuts affecting only the existing workers do not produce enough of a saving as a result. And once a multiemployer plan gets to that stage, officials have discovered, new companies will not join the pool, because they do not want to be stuck paying for extinct companies’ orphaned retirees.

“Arithmetic is going to trump everything here,” said Mr. Nyhan of the Central States plan, which has about five retirees for every current driver.

Not sure why people thought MEPs would be all that more sturdy if they were more flimsily funded.

Anyway, DQ, don't go chasing waterfalls. Or windmills.

[ElDucky]

Your the actuary. It's your fault.

[campbell]

a comment on the situation by John Bury

http://burypensions.wordpress.com/20...h-on-pensions/

I was skeptical when I started reading The Rule of Nobody: Saving America from Dead Laws and Broken Government by Philip K. Howard. My experience (especially in Union County where laws about not raiding Open Space Trust Funds don’t seem to apply) has not been that there are too many or too precise laws but rather that these laws are being broken, generally by another government, and there is no procedure to turn anybody in.
But after reading more than half the book, which mines New Jersey for examples of bad practice (a Franklin Township tree, the Bayonne Bridge mess, a Morristown soup kitchen) I am convinced Mr. Howard is right as regards the running of nursing homes and day care centers but when the object is not to fix a problem but to avoid actions so you can continue getting paid, as in the current situation with multiemployer pension plans that the New York Times profiled last Sunday, no action is possible because any action will damage, even to extinction, whoever takes it.
.....
There are solutions to the multiemployer pension plan problem but all of them threaten the livelihoods of the decision makers. It is not that there are too many rules or too little room for judgment in this area but that inaction is in the best interest of all parties for the next couple of years.
Below are some noteworthy excerpts from the first 100 pages of Mr. Howard’s book with the last hitting close to home ASPPA?
.....
"Professionals aren’t what they used to be, but that’s because they, too, have been degraded by legal orthodoxy into being self-interested guilds, advancing selfish agendas at the expense of their founding values. Most professional societies have all but given up enforcing subjective standards." (page 92)

[campbell]

http://www.bna.com/pension-plan-amendment-n17179890180/

May 5 --A multiemployer pension plan in critical status didn't violate provisions of the U.S. Constitution when it was amended to eliminate an early-retirement subsidy as part of a rehabilitation plan filed pursuant to the Pension Protection Act, the U.S. District Court for the Eastern District of Washington ruled.

In a May 2 opinion, Judge Lonny R. Suko dismissed claims by a pair of plan participants that the amendment--that eliminated an early-retirement scheme whereby a participant could receive full benefits before reaching age 65 by reaching a combined total of 80 when adding his or her age to the number of years in which he or she participated in the plan and contributed 400 or more working hours--violated both the “takings” clause and the equal protection guarantee of the Fifth Amendment.

The court found that the although the rehabilitation plan was created pursuant to the PPA, it wasn't a result of state action and thus wasn't an improper taking of private property by a government actor or a violation of equal protection under the law guaranteed by the Fifth Amendment.

[campbell]

http://www.bankrate.com/financing/re...nsions-be-cut/

Congress is expected soon to consider the recommendations of a coalition of unions, pension administrators and employers supporting tough measures to save its pensions. The National Coordinating Committee on Multiemployer Plans, or NCCMP, offers several solutions to the problem of pension underfunding in its report, "Solutions not bailouts."

One of its solutions calls for drastic cuts to the benefits of current as well as future recipients.

"Find a better solution," says Karen Ferguson, director of the nonprofit Pension Rights Center. She calls the suggested cuts "draconian. ... They are saying to older people with no other resources -- many barely making it already -- 'We’re going to break the promise that you would have a secure lifetime income.' It's unconscionable."

.....
The Teamsters' Central States Pension Fund is one of the largest multiemployer plans -- and one of the least solvent. The plan covers 212,000 retirees and about 65,000 current workers, and it reportedly has liabilities that are nearly double its assets. If nothing is done, Central States' Executive Director Tom Nyhan told Congress in 2010 that the fund will be bankrupt in "10 to 15 years," a retirement planning disaster.

One solution crafted by NCCMP would cut average current pensions by at least two-thirds, Ferguson says. Her organization has posted two online calculators, and she is urging union members and their families to plug in what they currently are receiving or expect in pension benefits and see what the proposal would do to that number. A second calculator shows what would happen if the PBGC took over. Note that the PBGC guarantees multiemployer pensions at a much lower level than it guarantees single-employer pension plans.



Read more: http://www.bankrate.com/financing/re...#ixzz348eE1beP
Follow us: @Bankrate on Twitter | Bankrate on Facebook

[campbell]

This year's PBGC coverage of MEPs is going to die!!!! story

http://online.wsj.com/articles/feder...eze-1404169667

The federal Pension Benefit Guaranty Corp. program that covers multi-employer pensions "is more likely than not to run out of funds in eight years, and highly likely to do so within 10 years," the agency said in releasing new projections. The PBGC collects insurance premiums from employers that offer the pensions and helps retirees in insolvent plans by paying them reduced pensions.

But the likely failure of several big plans means that the PBGC's limited resources for helping retirees in failed multi-employer plans likely will be tapped out in coming years. This year's report estimates that the $8.3 billion long-term deficit the federal backup plan for multi-employer plans faced in fiscal year 2013 will widen to $49.6 billion by fiscal year 2023. The deficits don't mean that the backup plan can't pay now.

The PBGC's new projections "show that insolvencies affecting more than a million of the 10.4 million people in multi-employer plans are now both more likely and more imminent," the PBGC said.

This year's PBGC projections rely on a new methodology that the agency regards as more realistic about what troubled pension funds can and can't do to shore themselves up—for instance, plans could raise employer-contribution requirements, but that would tend to drive off remaining participants, accelerating the downward spiral.

[Arthur Kade]

Originally Posted by campbell

This year's PBGC coverage of MEPs is going to die!!!! story

http://online.wsj.com/articles/feder...eze-1404169667

I saw that this morning and thought of this thread.

[campbell]

here is the NYT version of the story:

http://mobile.nytimes.com/blogs/deal...-pooled-plans/

In 2006, Congress passed a law intended to strengthen company pensions, and the new study looked, for the first time, at how employers were responding to it. Adding this behavioral information required a major change in the pension organization’s methodology, which Mr. Gotbaum said was among the main reasons the report came out months late.

The 2006 law required severely troubled multiemployer plans to set up rehabilitation programs and file the details with the government. In general, companies were supposed to put more money into their shared investment pools, workers were supposed to build their benefits more slowly, and retirees were supposed to give up the parts of their pensions that were not considered core benefits.

But when the researchers began started tracking employer behavior, they found that a significant number of multiemployer plans were so hard hit that their trustees decided not to use all the medicine prescribed in 2006. They did not think it would do any good and might even make things worse.

Mr. Gotbaum said the agency realized this over the last year or two, because more and more plan officials had been notifying the government that they were not in compliance with their own rehabilitation plans.

“They told us, ‘It’s not that we’re not willing to do it,’ ” he said. Rather, the plan trustees told the government that they had run into limits in how far they could push their companies and workers without destroying their whole pension plans.

Much of the problem was demographic. The most troubled plans often had more retirees than active workers. Trustees of those plans realized that they were pushing the workers to tighten their own belts in order to let the retirees keep receiving bigger benefits than the workers thought they would ever get themselves. If they kept pushing, the workers or the sponsoring companies would drop out of the pool, setting up a slow but steady death spiral.

“There is a concern that if the severely distressed plans fail, that this might lead to efforts to abandon healthy plans, too,” Mr. Gotbaum said.

[campbell]

PBGC report here:
http://www.pbgc.gov/documents/Projec...eport-2013.pdf

And here are some graphs.