This story appears in the May 22 print edition of Transport Topics.
Lawmakers on Capitol Hill again introduced legislation to address problems plaguing the multiemployer pension system, including truck drivers in the Central States and New York State Teamster funds.
Sen. Bernie Sanders (I-Vt.) and Rep. Marcy Kaptur (D-Ohio) introduced the Keep Our Pension Promises Act, or KOPPA, for the third straight year. Rep. Pete Sessions (R-Texas) proposed the Multi-Employer Pension Plan Partnership Act.
KOPPA would abolish the Multiemployer Pension Reform Act of 2014, which allows the Department of the Treasury to approve applications to slash benefits in order to protect pension funds against insolvency.
KOPPA also would raise more than $30 billion to pay benefits to orphans through the Pension Benefit Guaranty Corp., an insurance agency for troubled funds.
Pension orphans refer to employees or retirees who earned benefits through companies that have since gone out of business.
Central States has 199,776 retirees receiving benefits, and about 14% of them have at least 90% of their benefits tied to out-of- business trucking companies, administrators told Transport Topics.
The New York State Teamsters has 23,894 retirees and term- vested employees, of which about 34% are orphans, the fund said. But some union leaders dispute the numbers because there are various categories of orphans.
“We can win this fight, but we’re not going to win it unless millions of people who have been royally screwed by what happened a few years ago … stand up and fight back,” Sanders said at a news conference May 9.
“People who have worked for decades, did everything that was expected and played by the rules are suddenly confronted many years into retirement with losing more than half of their earned benefits. KOPPA will allow these plans to continue to pay full benefits,” said Karen Ferguson, director of the Pension Rights Center.
But Randy DeFrehn, CEO of DeFrehn and Associates, believes that KOPPA has almost no chance to pass in 2017. He also said that the Multiemployer Pension Reform Act was a reasonable bill that balanced the dire scenario of bankruptcy against the plight of the retirees.
“The current proposal is a waste of time for everybody. It encourages people who have to start taking a realistic view that without getting [Treasury Department] relief, especially Central States, they’re going to end up in worse shape than they are now,” DeFrehn said.
“There were 42 different groups at the table, including Central States and Teamsters, and they spent 18 months trying to figure out a long-term solution. That’s how the Multiemployer Pension Reform Act was crafted. It was carefully negotiated, including with some of the stakeholders that are complaining right now,” he added.
KOPPA would raise the revenue by eliminating tax breaks on 1031 Exchanges and instituting a cap on tax-free money in defined contribution accounts, such as individual retirement accounts and 401ks.
A 1031 Exchange refers to the section of the tax code that allows people to postpone paying taxes on the gains of a sale of business property if they reinvest the money in a “like-kind exchange.” For example, one building for another, a painting for a painting, or a stamp for a stamp.
However, the Internal Revenue Service applies strict rules to qualify for the break. The business must specifically identify potential replacements within 45 calendar days in a signed document, then complete the exchange within 180 days of the original sale. The business also must use a qualified intermediary to control the money used in the transactions.
Opponents argue that the like-kind exchange rule is used to avoid paying capital gains taxes.
Supporters counter that investors are deferring the taxes and the transactions support the economy.
KOPPA also would set a $5 million limit on tax-free money in retirement accounts, treating anything in excess as income subject to taxation.
The Sessions bill would address the issue of withdrawal liabilities, the amount an employer can pay to exit a fund altogether. Under the Multi-Employer Pension Plan Partnership Act, the longer an employer contributes to a plan, the less it would pay to leave at a later date. It would allow pension administrators to give employers credits to remain for a certain number of years but leaves the rulemaking up to them.
The bill wouldn’t help Central States or the New York State Teamsters, but supporters argue that it could stop or slow down the decline of plans heading in the same direction.
“Job creators and employees across the country are being forced to the edge of the cliff as the threat of insolvency of their pension plans looms,” Sessions said. “This legislation is a common- sense solution that provides sponsors of multiemployer pension plans the flexibility they need to provide incentives to retain their currently contributing employers as well as protects newly contributing employers.”