President Joe Biden’s $1.9 trillion American Rescue Plan Act of 2021, aimed at relieving some of the economic damage inflicted by the COVID-19 pandemic, provides hundreds of billions of dollars to states and cities, some of which will fund infrastructure projects, employee retention credits for businesses and $1,400 stimulus checks to many Americans.
The legislation also gives 30 years of breathing room for another issue facing some construction firms: multiemployer pension plans that are struggling to stay afloat.
Multiemployer defined benefit pension plans, as the name would suggest, are pension plans funded, based on hours worked, by more than one union employer as part of a collective bargaining agreement. Union workers also contribute to these plans.
Depending on the terms, nonunion parties to project labor agreements can be required to pay into these plans even though nonunion workers might not receive any benefit from them down the road, which, according to Ben Brubeck, vice president of regulatory, labor and state affairs at Associated Builders and Contractors, is one of the reasons some employers object to PLAs. Workers covered by MEPs start receiving payouts for life upon retirement.
Heading toward insolvency
Of the approximately 1,400 MEPs in the U.S., about half are in the construction industry, according to Brian Turmail, vice president of public affairs and strategic initiatives for the Associated General Contractors of America. Construction industry workers make up about a third of all MEP participants.
More than 100 plans are headed toward insolvency, potentially impacting 1 million workers, many of them in construction-related plans, according to James Young, the AGC’s senior director of congressional relations, HR, labor and safety.
COVID-19 lockdowns reduced workers’ hours, thereby reducing the amount being funneled into MEPs, he said, but that really only compounded the problem for many plans that were already in trouble going into the pandemic. Investments that didn’t pan out, fewer employers becoming collective bargaining agreement signatories to replace those that exit the industry, unfriendly tax laws and other factors have contributed to the financial woes of some MEPs, Young said.
There is a safety net for retirees in the Pension Benefit Guaranty Corp., which guarantees payment of benefits. The maximum payout for retirees connected to an insolvent plan is $12,870 per year, which can constitute a significant reduction in benefits for many participants, Young said.
The problem is that the PBGC is funded by employer premiums, and if large employers go under or can’t make those premium payments, then the PBGC can go under as well. In fact, prior to the relief provided in the COVID-19 bill, the PBGC projected its own insolvency by 2026. In that circumstance, Young said, retirees could expect only a few hundred dollars a year.
The American Rescue Plan, however, takes care of that by guaranteeing the payment of benefits until 2051. The life raft, estimated to be worth $86 billion, requires funds to demonstrate their need through an extensive application process.
Past proposals to fix the pension program have included loan programs, separating out participants from plans that no longer have contributing employers attached to them.
“The problem is that this was just a straight cash injection, and it really didn't do anything to address the underlying structural flaws with most plans,” Brubeck said. “There’s going to be another call for a bailout in the future.”
The hope moving forward, Young said, is that the 30 years is enough time for the plans themselves to fix what’s wrong systemically so that they’ll be able to continue paying benefits long after the terms of the relief bill expire. Additionally, Young said, the industry will be looking for opportunities in future legislation to introduce some reforms to the plans.
Labor Department's role
If confirmed, Secretary of Labor nominee Marty Walsh could play a key role in the future of MEPs, particularly since the DOL Secretary serves as chair of the PBGC board of directors, Turmail said.
In addition, before being elected mayor of Boston in 2013, Walsh led both the Laborers’ International Union of North America Local 223 and the Boston Building Trades Unions.
“Our position,” said Turmail, “is that Marty Walsh will come to the Department of Labor with a background in the construction industry through his prior service, and certainly he’s familiar with how the multiemployer pension system works. There’s not going to have to be a long education process on the fundamentals of how a multiemployer pension system operates. I think he’ll come in with a leg up from previous secretaries of labor.”