Central Pension Fund

Multiemployer Plans Adjust Expectations While Protecting Benefits

In the year 2000, when the U. S. stock market crashed from its dizzying heights of the 1990s, 401(k) plans crashed along with it. Overnight, tens of thousands who had relied upon 401(k) accounts for their retirement security found they could no longer afford to retire, and many already retired were forced to return to work.

The negative returns of 2000 only got worse in 2001 and 2002. And while the market gained back some of its losses in 2003 and 2004, by January 2005 it was still almost 10% lower than five years before.

Making matters much worse was the fact that over that same five-year period, the U. S. bond market was depressed by historically low interest rates.

Indeed, the previous period as bad as the last five years was from September 1937 to September 1942 --- 63 years ago.

While 401(k) accounts were crashing in the early 2000s, multiemployer plans remained strong because they are designed with long-term investment horizons built to withstand temporary ups and downs in the investment markets.

After five years, however, many multiemployer plans --- including the Central Pension Fund --- have begun to trim future benefits to adjust to this sustained period of underperformance in the U. S. investment markets. Such changes are necessary to properly realign assets and liabilities.

Fortunately, federal law provides protections for the benefits of multiemployer plan participants that are unavailable to 401(k) participants. Most importantly, when economic circumstances require multiemployer plans to reduce benefits, the pensions being paid to retirees, and the benefits that have already been earned by active participants cannot be reduced. While the account balances of 401(k) participants can disappear overnight, wiping out all expected benefits, the existing benefits of multiemployer plan participants are fully protected. Multiemployer plans may only adjust the rate at which benefits will be earned in the future.

Thus, while multiemployer plan participants may be disappointed that they will not earn benefits as rapidly in the future as in the past, they are always secure in the knowledge that what they have already earned is protected.

Likewise, multiemployer plan participants are not exposed to the boom-or-bust business cycles that have caused the bankruptcy-related terminations of single-employer plans at many large companies, especially in the steel and airline industries --- and may be looming on the horizon for some large automakers.

Fortunately, by their nature multiemployer plans are largely immune to such devastating business cycles. First, they do not rely upon the financial health of any one large corporation and, second, the industries covered by multiemployer plans are not exposed to global competition.

For example, the Central Pension Fund with over 6,000 participating employers does not rely upon the financial health of any single employer, but rather upon the health of the industries in which its participants are employed. And those industries, predominantly construction and building maintenance, are not susceptible to global competition. They are industries whose jobs cannot be shipped overseas.

As always, the only threat to the wages and fringe benefits of members of the International Union of Operating Engineers comes from the domestic competition of non-union employers. That threat has always been faced and combatted by the IUOE and every one of its members in only one way: the active, aggressive and informed defense of the trade union movement.

June 3, 2005