CAWP News Issue 5-09
Underfunded Multiemployer Plans Face Negotiation, Liability Withdrawal Issues
Not only has the financial crisis that decimated world equity markets in 2008 and the first half of 2009 resulted in steep asset declines for multiemployer pension plans, but the crisis has made it increasingly difficult for employers to maintain their contribution obligations to such plans. Consequently, across all industries, multiemployer plans have become significantly underfunded, thereby threatening the long-term viability of such plans.
In the struggle to deal with such plan underfunding, collective bargaining between contributing employers and unions has become difficult, as both employers and unions seek to protect their respective interests.
Painful Bargaining Choices. In some bargaining situations, the parties have agreed to allocate both employer pension and health plan contributions to cover pension plan obligations alone. In other cases, unions have agreed to sacrifice some or all of their employees’ wage increases to maximize pension plan contributions.
Huge Jump in Underfunding Rates. A survey of multiemployer plans conducted by the Segal Co. of calendar year plans’ zone status shows that multiemployer plans across all industries are struggling to meet their funding obligations under the PPA as a result of the market collapse. In 2008, only 7 percent of plans surveyed were in the red zone, but that percentage has jumped to 32 percent in 2009.
Bargaining Adjustments. Goldfarb said the pension funding crisis and the PPA’s funding requirements are causing plan sponsors to adjust collective bargaining negotiations such that negotiated increases that normally would go toward compensation or to health care funds are being reallocated to the pension funds. This reallocation to pensions is causing other fringe benefit funds and wages to suffer because they are then losing money, he said.
Spotlight on Construction Industry. While nearly all industries with multiemployer plans have been affected by the financial crisis, the construction industry has felt keenly the bursting of the housing bubble and the contraction in home mortgages.
Construction Industry Examples. BNA spoke with a number of participants in the construction industry who detailed how they are being affected.
Pittsburgh-based Cement Masons Local No. 526, effective December 1, 2009, will reallocate an additional $1 per hour to their pension fund by reducing the contribution to the supplemental income fund and the savings and annuity fund.
The Greater Pennsylvania Regional Council of Carpenters negotiated a one-year contract with the employer associations for a $1.50 per hour increase, all going to the pension plan.
Despite the growing trend of reallocating wages and other fringe benefit monies to the pension fund, the reallocation has caused controversy in at least one instance. In Michigan, a disagreement over the reallocation of the pension money prompted a six-week strike between the Laborers International Union Local 1075 and the Associated General Contractors Michigan Chapter. The strike ended when the bargaining parties agreed that future increases required for pension contributions would come out of the negotiated wage package, with workers receiving a $0.50 per hour wage increase in the first year of the contract’s three-year term.
More Legislation Needed. AGC is working with a broad-based, labor-management group of multiemployer pension plan stakeholders coordinated by the NCCMP to develop the best solution to seek from Congress.
Source: BNA Construction Labor Report