Wyatt Employment Law Report


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PBGC Releases Annual Report: Multiemployer Program Deficit Overshadows Single-Employer Improvement

By Rachel K. Mulloy

The Pension Benefit Guaranty Corp. (PBGC) issued its annual report on Monday, November 17, 2014, presenting a mixed bag of good and (mostly) bad news. The PBGC was created in 1974 as a government insurance program for traditional employer-paid defined benefit pension plans. If an employer can no longer support its pension plan, the agency takes over the assets and liabilities and pays promised benefits to retirees up to certain limits. The federal agency, which insures pensions for about 41 million Americans, saw its deficit nearly double from $36 billion to about $62 billion in the latest fiscal year. The agency has run deficits for twelve straight years but this is the widest deficit in its 40-year history. The gap grew wider in recent years because of the weak economy, which triggered more corporate bankruptcies and failed pension plans. The PBGC’s pension obligations grew by $30.9 billion in 2014, to $151.5 billion, while assets used to cover those obligations only increased by $4.9 billion, to $89.8 billion. The agency stated the increased deficit is largely due to the worsening finances of some multiemployer pension plans.

The report projected the deficit in the multiemployer pension insurance program rose more than five-fold over the past year, from $8.3 billion in 2013 to $42.4 billion this past year. A multiemployer plan is one in which groups of businesses join with unions to provide pension coverage for workers. There are currently a total of approximately 1,400 multiemployer pension plans covering about 10 million workers. The increase in the program’s deficit is due in part to the estimate that several large pension plans will become insolvent over the next decade. The PBGC’s report further predicted that, unless Congress makes some changes, the multiemployer insurance program faces a greater than 50% chance of collapsing within the next eight years. That likelihood increases to 90% by 2025. If these projections prove true, millions of workers could be left without pensions and with only a fraction of the insurance payouts they had anticipated.

The PBGC’s maximum insurance benefit for retirees in multiemployer plans is less than $13,000.00 a year compared to the more than $59,000.00 for those in single-employer plans. The agency has said this means that workers with a $20,000.00-per-year pension and thirty years of service would lose more than $7,000.00 in annual benefits if the plan fails. And if the PBGC becomes insolvent, the agency would be left with only incoming premiums, causing payments to be just a fraction of previous levels. John Kline (R-Miss), Chairman of the House Education and Workforce Committee, has called the multiemployer pension system “a ticking time bomb that will inflict a lot of pain on workers, employers, taxpayers, and retirees if Congress fails to act.”

Policymakers have been debating fixes to the nation’s growing retirement security problem for the past several years. The Obama administration proposed in its latest budget to raise the insurance premiums, which are set by Congress, and tailor them to the size of companies and their level of financial risk. Congress has not yet acted on this proposal. The PBGC acknowledged that some of the multiemployer plans that are critically underfunded have taken steps on their own to help avoid insolvency, but such action is not enough. The PBGC urges Congress and stakeholders to work together to “provide solutions and additional tools to help preserve these critically important multiemployer plans.” One risk of Congress delaying to take action is that employers may simply leave the pension plans before the system collapses. While federal law requires employers that leave the system to make an exit contribution, the loss of employers weakens the system for those who remain.

Apart from this dire news about multiemployer pension plans, the PBGC report noted finances have improved for its other pension insurance program, which is offered by individual companies, as a result of the surging stock market, higher insurance premiums, and an improving economy. The long-term deficit for this program, which insures 22,300 pension plans covering 31 million Americans, sank by nearly one-third over the past year, from $27.4 billion to $19.3 billion.


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New Workforce Development System Passed by Congress and Signed Into Law

By Edwin S. Hopson

According to a July 22, 2014 press release issued by the House Education and Workforce Committee, the Congress has passed and President Obama has signed into law the Workforce Innovation and Opportunities Act (WIOA).

Noting the following problems:

“By 2022 the United States will fall short by 11 million the necessary number of workers with postsecondary education, including 6.8 million workers with bachelor’s degrees, and 4.3 million workers with a postsecondary vocational certificate, some college credits or an associate’s degree.

Fifty-two percent of adults (16-65) in the United States lack the literacy skills necessary to identify, interpret, or evaluate one or more pieces of information; a critical requirement for success in postsecondary education and work.

Individuals with disabilities have the highest rate of unemployment of any group, and more than two-thirds do not participate in the workforce at all.”

The House Committee noted:

“WIOA is bipartisan, bicameral legislation that will improve our nation’s workforce development system and help put Americans back to work. Now more than ever, effective education and workforce development opportunities are critical to a stronger middle class. We need a system that prepares workers for the 21st century workforce, while helping businesses find the skilled employees they need to compete and create jobs in America.”

The new law streamlines the old system by:

“Eliminating 15 existing programs.

Applying a single set of outcome metrics to every federal workforce program under the Act.

Creating smaller, nimbler, and more strategic state and local workforce development boards.

Integrating intake, case management and reporting systems while strengthening evaluations.

Eliminating the ‘sequence of services’ and allowing local areas to better meet the unique needs of individuals.”

WIOA also provides greater value, according to the Committee, by:

“Maintaining the 15 percent funding reservation at the state level to allow states the flexibility to address specific needs.

Empowering local boards to tailor services to their region’s employment and workforce needs.

Supporting access to real-world education and workforce development opportunities through:

“On-the-job, incumbent worker, and customized training;

Pay-for-performance contracts; and

Sector and pathway strategies.”

Another goal of the new law is improving coordination by:

“Aligning workforce development programs with economic development and education initiatives.

Enabling businesses to identify in-demand skills and connect workers with the opportunities to build those skills.

Supporting strategic planning and streamlining current governance and administration by requiring core workforce programs to develop a single, comprehensive state plan to break down silos, reduce administrative costs, and streamline reporting requirements.

Ensuring individuals with disabilities have the skills necessary to be successful in businesses that provide competitive, integrated employment.”

Finally, WIOA seeks to improve outreach to disconnected young people by:

“Focusing youth program services on out-of-school youth, high school dropout recovery efforts, and attainment of recognized postsecondary credentials.

Providing youth with disabilities the services and support they need to be successful in competitive, integrated employment.”

For more information in the Louisville, KY, Lexington, KY or New Albany, IN areas, contact Ed Hopson.

For more information in the Memphis, TN, Nashville, TN or Jackson, MS areas, contact Odell Horton.


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Would the WARN Act Apply in the Event of a Federal Budget Sequestration?

By Edwin S. Hopson

On July 30, 2012, an Assistant Secretary of the U.S. Department of Labor issued an advisory and guidance to federal contractors concerning the applicability of the Worker Adjustment and Retraining Notification Act (WARN Act) to possible layoffs occasioned by federal government sequestration on January 2, 2013, under the Balanced Budget and Emergency Deficit Control Act of 1985, and the Budget Control Act of 2011, should the Congress and President not come to agreement on a federal budget.  That guidance was “no” — the WARN Act would not be triggered by such action and affected, covered federal contractors would not be in violation of the WARN Act for NOT providing 60 days’ notice of mass layoffs or a plant closing affecting at least 50 employees.

The issuance of this guidance has been criticized by the Republican House Education and Workforce Chairman, John Kline, and the Subcommittee on Workforce Protections Chairman, Tim Walberg, in a letter to Secretary of Labor Hilda Solis.  They argue that the Department of Labor’s guidance has no legal effect and may be misleading employers into not following the WARN Act’s requirements.

With the recent agreement on a short-term budget extension, this issue has now been pushed off for several months.

The Labor Department’s guidance can be found at: 

http://wdr.doleta.gov/directives/attach/TEGL/TEGL_3a_12.pdf

The Kline/Walberg letter may be found at:

http://edworkforce.house.gov/UploadedFiles/08-02-12_Letter_WARN_Act_Sequestration.pdf


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House Education & Workforce Subcommittee to Hold Hearings on NLRB

By Edwin S. Hopson

On July 24, 2012, the Subcommittee on Health, Employment, Labor, and Pensions, of the House Education & Workforce Committee announced that on July 25 starting at 10 a.m. it would hold a hearing concerning possible amendments to the National Labor Relations Act (“Act”).  The hearing is to be chaired by Rep. Phil Roe (R-TN).

The House of Representatives has approved a number of proposals to modify the Act, including legislation that would preserve long-standing union election procedures and that would prohibit the National Labor Relations Board from deciding the location of businesses in the U.S. According to the Committee’s press release, “[a]dditional efforts are necessary to ensure federal labor law is fair and responsive to the needs of today’s workforce.”

The press release notes that the NLRB, among other things, has taken steps to expand its authority over Native Americans.

The hearing will involve the examination of NLRB decisions affecting secret ballot elections, worker compensation, and tribal sovereignty, as well as discuss legislative proposals intended to protect workers and Native Americans. More detail concerning the hearing can be found at http://edworkforce.house.gov/hearings

The witnesses scheduled to testify are:

The Honorable Robert Odawi Porter, President Seneca Nation of Indians Salamanca, Seneca Nation

Mr. William L. Messenger, Staff Attorney, National Right to Work Legal Defense Foundation

Ms. Devki K. Virk, Member, Bredhoff & Kaiser, P.L.L.C.

Dr. Tim Kane, Chief Economist, Hudson Institute