Congress Passes AGC-Supported Reform of Multiemployer Pension Laws
After years of debate, Congress passed pension reform legislation on August 3. The following day, President Bush announced his intent to sign the bill “soon.” AGC supports the multiemployer provisions of the Pension Protection Act of 2006 (H.R. 4), and worked diligently with a broad-based coalition to attain passage of a bill aimed at strengthening and preserving multiemployer pension plans for the future and securing the retirement benefits for covered workers.
Following is a summary of the primary elements of the multiemployer provisions:
Increased Maximum Deductible Level For Fully Funded Plans: Many plans sponsored by AGC affiliates are fully funded and have been consistently funded between 80%-100%. For these plans, AGC worked to raise the maximum deductibility limit from 100% to 140%. Employers are legally bound to the negotiated levels set under the collective bargaining agreement. Trustees are legally bound to ensure that plans stayed under the maximum deductible level and contributing employers do not face additional taxes, often by making benefit improvements. Because of the maximum deductibility level, in the past there was no way for the plan to save for unforeseeable losses such as a stock market drop; plans had been forced to spend the excess money which had accrued.
Greater Discipline for Plans in Endangered Status: A plan is in “endangered status” for a year if: (1) the plan's funded percentage is less than 80%, or (2) the plan is projected to have a funding deficiency in the six succeeding plan years. In the case of a plan that is in endangered status because the plan's funded percentage is less than 80% but does not face a funding deficiency in the six succeeding years, the trustees are required to adopt a funding improvement plan formulated to improve the plan's funding status over time. The trustees of a plan projected to have a funding deficiency in the six succeeding years are required to: (1) adopt a funding improvement plan formulated to satisfy certain well-defined funding benchmarks over a 10-year funding improvement period, and (2) take interim steps (as permitted under current law) before the beginning of the 10-year period to increase the plan's funded percentage and postpone the funding deficiency for at least an additional year. The trustees of all plans in endangered status are required to notify interested parties of the plan’s status and cannot amend the plan so as to be inconsistent with the funding improvement plan or to increase benefits unless certain strict requirements are satisfied.
Shared Burden for Plans in Critical Status: A plan is in "critical status" when nearing bankruptcy or under 65% funded. In such cases, trustees and bargaining parties are given additional tools to bring assets and liabilities into balance. In general, a plan is in critical status if it is expected to have a funding deficiency or be unable to pay promised benefits in the near future. Employers that contribute to a plan in critical status are now required to make additional contributions, beyond what they negotiated, but are temporarily protected from automatic, severe, additional contributions and excise taxes. The trustees are required to notify interested parties and develop a rehabilitation plan to take the plan out of critical status within a 10-year rehabilitation period, if feasible. The trustees also are required to provide the bargaining parties with a schedule of benefit modifications and, if necessary, contribution increases needed for the plan to emerge from critical status in accordance with the rehabilitation plan. Such benefit modifications may include, if necessary, the reduction of certain ancillary benefits. Core benefits payable at normal retirement age could not be reduced. In addition, the benefits of participants in pay status at least a year could not be reduced, except for the rescission of benefit increases in effect for less than 60 months (as in current law). Whether those benefits must be reduced will be determined in the collective bargaining process. Plans in critical status cannot be amended so as to be inconsistent with the rehabilitation plan or to increase benefits unless certain strict requirements are satisfied. A plan cannot emerge from critical status unless it is projected to no longer have a funding deficiency within the next 10 plan years.
Faster Funding of New Obligations. The cost of any increase in benefits for past service and any net losses resulting from a change in actuarial assumptions must be amortized over 15 years (instead of 30 years), and short-term benefits payable over less than 15 years must be funded as fast as the payout period.
True Access to Existing IRS Relief Procedures. A multiemployer plan that is projected to have a funding deficiency within 10 years will receive an automatic extension of its amortization schedules for up to five years provided that, among other things, the plan develops a formal remedial plan to improve its long-term funded status. A plan can get an additional five-year extension under certain circumstances. Alternatively, a multiemployer plan may adopt the shortfall funding method or go off the shortfall funding method once every five years without IRS approval.
For more information, contact Heidi Blumenthal at (202) 547-8892 or firstname.lastname@example.org. For the complete text of the legislation, click here.
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