Will Congress come to the rescue of multiemployer pension funds?

Congress may give some relief to beleaguered union multiemployer pension trusts, via provisions added to the “tax extenders” bill. The provisions are similar to ones in a union-supported bill introduced by North Dakota Congressman Earl Pomeroy last October. The provisions would give underfunded pension trusts more time to make up for investment losses, a change that would reduce the immediate burden on participating union employers and lessen pressure to cut benefits.

Randy DeFrehn, executive director of the National Coordinating Committee for Multiemployer Plans (NCCMP), said the latest word is that the bill would give trusts up to 30 years to amortize the 2008-09 losses, and 10 years to “smooth” losses for accounting purposes. Under current rules, trusts generally have 10 years to amortize losses, and five years of smoothing.

Amortization is simply the amount of time it takes to pay off a loan, or in this case, replenish fund losses. Smoothing, on the other hand, is a method of accounting for market gains and losses: Trust actuaries take the gains and losses of a given year and divide those into tranches, recognizing one tranch each year for the purposes of calculating the “actuarial value” of a trust’s assets.

“Basically it’s a rolling average,” DeFrehn explained. “It takes the peaks and valleys, the market volatility, out of the equation from a funding standpoint.”

Smoothing is an especially common practice with multiemployer plans, because their contributions are based on multi-year collectively bargained contracts, and they can’t easily adjust contributions based on what’s happened in the market year-to-year.

DeFrehn said the Pomeroy bill, HR 3936, was a conversation starting point. Later, pension relief provisions became an add-on to HR 4213, a separate bill that would retroactively extend certain tax breaks for individuals and businesses that expired last year.

NCCMP is a coalition of multiemployer benefit trusts and sponsoring unions and union employer associations. Its mission is to represent the interests of trust participants in Congress, federal regulatory agencies, and the courts. The group has been campaigning for pension funding relief since 2009.

Several provisions of the Pomeroy bill are not in the tax extenders bill, however.

One would have made a difference in pension trusts that have had large employers go out of business, leaving “orphaned” groups of workers who are owed benefits. The Pomeroy bill would have allowed trusts to “partition” those groups of workers off, with the federal government’s Pension Benefit Guaranty Corporation taking responsibility for paying benefits and preserving the assets invested on their behalf. That would have relieved surviving employers in multiemployer plans of the burden of making up for investment losses for the former employees of defunct employers.

Another Pomeroy bill provision would have relaxed the “corridor” — the maximum allowable difference between present market value of assets and the actuarial value derived from smoothing. The Pomeroy bill said actuarial value had to be between 70 and 130 percent of market value; the current corridor is 80 and 120 percent.

Multiemployer pension plans are tightly regulated by the federal government to make sure pension promises are backed by adequate funds, that the funds are only used for the benefit of pensioners, and that the investments and benefits are managed by employer and union trustees in a transparent and prudent fashion. But in some cases, federal rules have created unintended effects. Tax rules prevented trusts from building up assets above a certain point, and now that they’ve lost value, pension rules are requiring benefit cuts and big increases in employer contributions.

DeFrehn hopes that Congress will pass the tax extenders bill before its Memorial Day recess.