As the 40th anniversary of the landmark Employee Retirement Income Security Act (ERISA) is noted, an article by Allen B. Roberts featured in the Winter 2014 Benefits Law Journal observes that participating employees and contributing employers – as the primary stakeholders in the fortunes of multiemployer defined benefit pension plans – may not be among the celebrants. Employees who should benefit from retirement contributions and the employers who fund the payments are encountering a world different from that anticipated with the passage of ERISA. Increasingly, employers and their employees are questioning whether the promise of retirement security can be delivered cost effectively — or at all — by defined benefit pension plans maintained under union contracts. While some employers have avoided, or moved away from, the defined benefit plan model – favoring defined contribution plans or other retirement programs – those having ongoing commitments must face the current and prospective realities of the multiemployer defined benefit plans to which they are obligated to contribute.
When ERISA was enacted, Congress did not foresee certain dramatic shifts that have come to affect the fortunes and allure of the multiemployer defined benefit pension plans for which unions negotiate in collective bargaining. Some iconic companies that once were bedrock industry participants collapsed and disappeared as their fortunes reversed, or they relocated or outsourced previously unionized operations or lost market share (and opportunities to maintain and create jobs) to nonunion domestic and offshore competitors. As a consequence of these and other factors, private sector union membership — on which multiemployer pension plans depend for a sustaining flow of participants — plummeted from 23.4 percent in 1974 to 6.6 percent in 2014. All the while, employers in growth sectors that remain relatively union-free have designed benefits packages that appeal to the different demographics of a workforce favoring individual elections, geographic and upward mobility, and portability. For many multiemployer defined benefit pension plans, the result has been inversion of a model that should be a broad-based pyramid in which active participants outnumber retirees; there are fewer dollars flowing in from fewer employers and for fewer active employees, while the number of individuals having vested benefits for themselves and their spouses swells.
At the start of ERISA’s fifth decade, multiemployer defined benefit pension plan trustees and actuaries, investment managers, attorneys, and the negotiators on both sides of labor-management relations face a dramatically different future to provide promised retirement security at a cost and value that makes sense for the workforce of today and tomorrow. The Benefits Law Journal article addresses the following topics:
- The shift in fundamentals for multiemployer defined benefit pension plans
- The value of plans relative to dollars contributed
- The actuarial assumptions that drive the substance and appearance of plan soundness
- Fiduciary responsibilities in the current circumstances of plans
- Plans in “critical” or “endangered” status
- Employer options to continue plan contributions or withdraw
- Plan self-help and other intervention to separate historic participants, employers, and experience from the future
- Whether an independent presence is necessary to address acute plan problems
A link to an update of the Benefits Law Journal article is available here.