Employer Contributions: The Surprise Topic at the First Hearing for the Joint Select Committee 

By Jonathan Kantor

On April 18 the Joint Select Committee on Multiemployer Pensions held a two-hour hearing at which the panel heard from two experts who provided a briefing on the history and dimensions of the multiemployer pension problem. By design, there was little discussion of possible legislative fixes to the problem. The panel wanted to understand the problem first.
The questions asked by the Senators and Congressmen included basic questions of how multiemployer pension plans are governed, how plans do actuarial projections, and the assumptions used in those projections. One area that received attention from the Republican side, particularly from Congressman Schweickert (R-AZ), was the investment return assumption. Another area of questioning was the financial condition of the Pension Benefit Guarantee Corporation.  Many lawmakers stated that the problem with multiemployer pensions was getting worse and there was a need to act soon.
But the one topic that received the most attention was employer contributions. And that makes sense. When a multiemployer pension plan gets into trouble, one way to fix that is to increase the contributions from the employers. Senator Manchin (D-WVA) and Congressman Norcross (D-NJ) made important statements on key ways that process could be improved.
As the hearing developed, lawmakers heard that the problem today is that there are too many loopholes employers can use to avoid their obligations to pension plans. One way is by declaring bankruptcy. In theory, employers must pay their share of the plan’s unfunded benefit liabilities. (This is called withdrawal liability.) In practice, withdrawal liability claims generally are unlikely to be paid in a bankruptcy proceeding. For example, the Teamsters Central States Plan has historically collected roughly 23.5 cents per dollar of assessed withdrawal liability in bankruptcies, and it projects that this figure will decline to less than 5 cents on the dollar. Employers can also evade their withdrawal liability because under the law the duration of the withdrawing employer’s payments is capped at 20 years, even if the payments do not pay the employer’s full withdrawal liability.

Ted Goldman, testifying on behalf of the American Academy of Actuaries, described the destructive effects that occur when employers don’t pay their fair share. According to Mr. Goldman,“as employers left, the liability for their employees (termed ‘orphan liabilities’) became the responsibility of the employers remaining in the plan. This could result in significant financial burdens for the remaining employers for employees who never worked for them. In addition, it could deter new employers from joining a plan.”
Congressman Norcross indicated that this situation needed to be addressed. He questioned why employers are so often allowed to walk away from the entire amount of their withdrawal liability in bankruptcy proceedings. Senator Manchin echoed the tenor of these comments in his questions. Senator Portman (R-OH) spent his entire question time on this topic.

It’s good to see that members of the Select Committee are focusing on this important issue. It raises the possibility that they will close the legal loopholes that employers have used in the past to evade their obligations to workers.