‘A retirement plan supposedly is an excellent reason for joining a union. Yet a March report by the U.S. Government Accountability Office reveals chronic underfunding and potential insolvency of pension plans involving a union and two or more private-sector employers within the same industry. The insurance fund covering these "multiemployer" plans, run by a federal agency, Pension Benefit Guaranty Corporation (PBGC), "would be exhausted in about two to three years if projected insolvencies of either of two large plans occur in the next 10 to 20 years." The study follows a January PBGC report projecting "current premiums ultimately will be inadequate to maintain benefit guarantee levels." That same month, PBGC, the Labor Department and the Treasury Department jointly released a separate report with troubling implications. The best option for the agency may be to phase out coverage of multiemployer plans altogether.’
‘Pension Benefit Guaranty Corporation was created by the Employee Retirement Income Security Act of 1974 (ERISA) to make good on pension promises that can't be kept. In the case of a terminated single-employer plan, PBGC takes over management functions outright. In the case of a terminated multiemployer plan, PBGC provides financial assistance but allows the plan to remain an independent entity. Funded primarily through sponsor-paid insurance premiums, the agency has never required a congressional appropriation (i.e., bailout). Congress, and not the agency, sets benefit and premium levels. And like other federal insurance agencies, such as the Federal Housing Administration (FHA), the self-financing mechanism has run up against natural limits. Every year since fiscal year 2002 PBGC has run an operating deficit. That is, assets have fallen short of projected liabilities. In 2003, the Government Accountability Office added PBGC to its list of "high-risk" agencies. And the funding gap is likely to be around for a while. The agency was about $4 billion in the red at the end of fiscal year 2002 after years of being in the black. That shortfall would rise to $23.5 billion by the close of fiscal year 2004. While it fell to $11.2 billion by the close of fiscal year 2008, it again rose, this time to nearly $35 billion, four years later.
The widening gap of the last several years, it is worth noting, has occurred in spite of a massive reform law, the Pension Protection Act of 2006. Among other things, this legislation raised annual premiums to rates more in accordance with what private-sector insurers would charge. Current rates are: $42 per worker/retiree, indexed for inflation, plus another $9 for each $1,000 of unfunded vested benefits (single-employer); and $12 per worker/retiree, indexed for inflation (multiemployer). Yet even these sensible (upward) adjustments have proven insufficient. Premiums didn't even cover half of the nearly $6 billion paid out to 887,000 retirees and family members in more than 4,500 plans during fiscal year 2012. PBGC Director Josh Gotbaum admitted last fall in the corporation's annual report: "PBGC has enough funds to meet its obligations for years. But without the tools to set its financial house in order and to encourage responsible companies to keep their plans, PBGC may face for the first time the need for taxpayer funds. That's a situation no one wants." ‘
‘So how frequent will insolvencies be over the years? The GAO concluded that by 2017, they would more than double. Financial assistance to plans that are insolvent, or likely to become so during the next 10 years, could exhaust the PBGC multiemployer insurance fund. In the event of that happening, many retirees will see their benefits reduced to a tiny fraction of their original value. To avert such a consequence, most of the experts that the GAO contacted about this scenario recommended one or both of two actions: 1) allow trustees, under limited circumstances, to reduce accrued benefits for plans headed for insolvency; and 2) provide federal loans to severely underfunded plans facing large benefit reductions. As for the second, the GAO admitted that such "loans" in the past rarely have been repaid because the plans rarely emerge from insolvency.
The PBGC report, released to Congress in January in accordance with ERISA statutes requiring an actuarial review of the multiemployer insurance fund every five years, isn't encouraging either. PBGC staff calculated that as of September 30, 2012, the fund had total assets of $1.8 billion and liabilities of $7.0 billion. In other words, it was running an operating deficit of $5.2 billion. To maintain the program, the report emphasized, "Premiums must be sufficient to cover current and future financial assistance obligations." But this negative equity carries the risk of bringing PBGC down. Based on asset and liability projections, and assuming no changes in multiemployer plans or in the PBGC multiemployer program, the study estimated there is about a 35 percent probability that the assets of the agency's corresponding insurance fund will be exhausted by 2022 and about a 90 percent probability of exhaustion by 2032.’ - New Reports Show Severe Shortfalls in Multiemployer Union Pensions. Carl Horowitz, National Legal and Policy Center, 07/02/2013
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H/T Crony Chronicles