A Closer Look at that Congressional Testimony
A claim has been made that “congressional testimony validates” the plan of across-the-board employer contribution increases of 6% to the AFM-EPF for either three or five years. This claim is based on a partial quote from Ted Goldman’s testimony to the Joint Select Committee on the Solvency of Multiemployer Pension Plans (JSCSMPP) and a partial quote from the study his statement was based on.
Looking at the larger context paints a different picture.
Ted Goldman, a member of the Society of Actuaries, was called as an expert witness before the JSCSMPP on April 18, 2018 to help the committee understand the causes of persistent underfunding of multiemployer pension funds. His main point as you will see in the quote below, was that in spite of increased bargained contributions and withdrawal liability payments that outpace inflation, the most challenged plans are losing ground.
“Employers that have significantly increased contributions or contribute to plans that have pared back benefit accrual rates and ancillary plan features (such as early retirement or disability benefits) have expressed concerns about their ability to remain competitive. Many of them are in industries that have very thin profit margins or are in competitive global markets.
A recent study indicates that aggregate contributions to multiemployer pension plans from 2009 to 2014 increased by 6.9 percent per year, significantly outpacing the average inflation rate of 2.1 percent over this period. Even though contributions are increasing, for many plans, the amount of contributions is not closing the funding gap.”
The study he refers to is the Multiemployer Pension Plan Contribution Analysis written by Lisa A. Schilling and Patrick Weise for the Society of Actuaries and published on March 10, 2016.
This study is an analysis of how contributions to multiemployer plans while generally much higher than the regulated minimum contribution rates (MCR), are nowhere near high enough to cover the unfunded liabilities in the most troubled plans. The study has nothing to do with increasing employer contributions to fix an upside down plan. Their 6% aggregate a year notably does not distinguish between bargained contributions and withdrawal liability payments which are not bargained in CBAs.
From page 2 of that study:
This study analyzes the funding progress of MEPP (multiemployer pension plans) contributions for plan years 2009-2013 and 2014 based on Form 5500 data to the extent they were available as of Jan. 5, 2016. Note that reported employer contributions include and do not separately identify withdrawal liability payments (emphasis added), which are excluded from Minimum Required Contribution (MRC) calculations. Key findings over 2009-2013 include (that) the system’s aggregate contributions (emphasis added) increased on average 6.9% per year, significantly outpacing the average inflation rate of 2.1% per year. At the same time, contributions for a large percentage of plans were insufficient to prevent their unfunded liabilities from growing, let alone to close their funding gaps.
“The focus of this report is the overall impact on the system. As a side note for readers interested in individual plans, Figure 3-C on the following page shows that contribution increases for an individual plan may have varied dramatically from year to year. Further analysis is beyond the scope of this report. However, bear in mind that reported contributions include withdrawal liability payments (emphasis added), which may be one reason for variation among individual plans. The data available from Form 5500 does not identify the amount of employer contribution attributable to withdrawal liability payments.
Over 2009-2013 the median year-over-year increase in contributions for any given year ranged from 3% to 7%. However, individual plans generally experienced something quite different from the median (emphasis added). In any given year for the 5th through 95th percentiles of plans (90% of the plans included in the study), contribution increases ranged from a 30% decrease to a 60% increase.”
It’s worth noting that the AFM-EPF experienced dramatic variation in contribution increases year to year from 2009-2013 with a low of 0.28% increase in 2010 to a high of 7.7% in 2013. This is without withdrawal liability payments.
What is missed in the claim that “congressional testimony validates this plan” citing Goldman’s testimony and the SOA study was that a 6% a year aggregate increase was
not enough to cover the underfunding which worsened every year.
did not distinguish between bargained increases and withdrawal liability. Withdrawal liability is not a significant factor in the AFM-EPF, so comparing its employer contribution increases to this 6% number is comparing apples to oranges.
the 6% was an aggregate, meaning a lot of structurally different plans were added together and individual plans experienced a lot of volatility (like the AFM-EPF)
It should be noted that withdrawal liability is a significant factor in sectors like transportation and food production which is where most of the deeply troubled plans are.
What the AFM-EPF needs more than anything else is unfettered capital, income that is not tied to benefits and goes straight to its bottom line.
Quote is on page 10
Pages 2 and 8
Full April 18, 2018 JSCSMPP hearing