Employers say multiemployer plans need taxpayer-funded loan

Update 6-15-18 – Correction: A previous version of this story cited Egger Steel Company’s withdrawal liability at $9.1 million, when it is actually $2.1 million.

Three executives from businesses invested in multiemployer pension plans and a representative from the U.S. Chamber of Commerce told members of the Joint Select Committee on the Solvency of Multiemployer Pension Plans that exorbitant withdrawal liabilities on employer-sponsor balance sheets are crushing employers’ ability to compete.

Mary Moorkamp, chief legal and external affairs officer for Schnuck Markets, told lawmakers the company’s withdrawal liability has been assessed at $281 million. Of Schnuck’s 13,000 employees, only 200 are union workers in the Central States Pension Plan.

That liability has affected the company’s credit rating, increased its borrowing costs, and limited the company from expanding, Moorkamp said.

“It makes no sense for a company that has made every required payment for 60 years to have a withdrawal liability that approaches this amount,” she said.

Burke Blackman, president of Egger Steel Company in Sioux Falls, South Dakota, said his company carries a $2.1 million withdrawal liability. The company has contributed to the Boilermaker Blacksmith Pension Trust since 1971, and currently has 34 union employees in the pension plan.

Blackman said the company’s annual contributions to the plan create an 8 to 11 percent increase in labor costs relative to non-union competition. The company has been able to secure credit, but only because Blackman has personally backed the loans.

“We need to admit the era of defined benefit plans is over,” said Blackman in his testimony. He offered a plan that would allow the company to divert 5 percent of the 14 percent in wages the company pays in contributions to the pension to a defined contribution plan for workers. The remainder of the contributions would continue to be paid to the multiemployer pension, but benefit accruals in the plan would stop.

“I want an exit door. I want to stop making new promises. I need Congress to help me with that,” he said to lawmakers.

All of the witnesses, with the exception of Blackman, offered support for a plan that would issue long-term, low interest rate loans to plans facing impending insolvency that would be backed by taxpayers. Blackman said he would only support loans to plans if they came with structural changes to multiemployer plans.

Chris Langan, vice president of finance for UPS, said his company has designed a loan program for the Central States Pension Plan that would include up to 20 percent reductions in promised pension payments.

Coupling pension reductions with taxpayer-backed loans would assure plans could gain enough investment returns on the loans to assure they would ultimately be paid back, said Langan.

The Butch Lewis Act, introduced by Sen. Sherrod Brown, D-OH, ranking member of the Joint Select Committee, would raise capital for the 130 multiemployer plans projected to be insolvent within 20 years by selling Treasury notes to institutional investors, and channeling the proceeds in 30 year loans to the plans.

Today’s hearing was the third held by the Joint Select Committee, which is comprised of 16 lawmakers—four from each party in each chamber of Congress.

Two more hearings are scheduled in Washington, D.C., and another hearing is scheduled at an as yet undisclosed location for the public to participate.

The Joint Select Committee has been tasked with developing legislation to address the 130 multiemployer plans facing insolvency and the projected insolvency of the Pension Benefit Guaranty Corp.’s multiemployer insurance program.

The Committee’s deadline is the end of November. Five Republicans and five Democrats will be needed to advance legislation out of committee. Sen. Brown said he expects the committee to start negotiating solutions by the end of July.

If Congress does nothing, Blackman said the Boilermaker Blacksmith plan would continue to deteriorate, due in part to what he said is the plan’s questionable actuarial assumptions. His company’s contribution rates would likely increase, along with the company’s withdrawal liability.

Available credit would dry up, and the company would not likely survive the next recession, said Blackman.

Moorkamp said she was unsure how Schnuck’s creditors would react if the Central States Pension Plan was allowed to fail, but added that that prospect should not be entertained.

“Failure is not an option,” said Moorkamp. “This committee must succeed in its mission.”

BenefitsPRO related reading:

Composite plans re-emerge as an alternative for multiemployer plans

PBGC’s latest Multiemployer Program figures even more grim than last year

For many multiemployer pension plans, the writing is on the wall

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