The Savings GameMultiemployer pension plans need savingMultiemployer pension plans need savingThe Savings Game August 21, 2019
In this space, I have frequently written of the potential difficulties facing those preparing for retirement who do not have the advantage of a defined-benefit pension. Today I’d like to address a different crisis: the potential insolvency of pension funds that cover millions of people who have lived, worked and planned their retirement on the assumption that their pension would be there.
At particular risk are multiemployer pension plans. These cover pools of union workers working typically in the same union but for different companies. Currently, there are approximately 1,400 plans funded jointly by employers and unions. About 10 million participants are covered.
Unfortunately, about 130 of these plans are in trouble, covering more than a million employees. These plans cover truck drivers, iron workers, warehouse workers and others. These plans are failing at a high prate, and employees covered by these plans do not have very much protection. According to Karen Friedman, executive vice president of the Pension Rights Center, 12% of these plans ae expected to run out of assets within 20 years.
These plans are backstopped by the Pension Benefit Guarantee Corporation (PBGC), a government-sponsored enterprise that guarantees private defined-benefit pension plans. However, multiemployer plans do not have the same protection with as pension plans covered by one employer. For example, PBGC pays no more than $12,870 a year to an employee with 30 years of service if his plan fails. PBGC itself is also in danger of running out of funds.
In December 2014, Congress passed the Multiemployer Pension Reform Act (MPRA), as part of an omnibus spending bill. The law reflects suggestions made by the National Coordinating Committee on Multiemployer Plans, a coalition of employers, unions and plan trustees. A key part of the Act, which was opposed by AARP, gives trustees of certain plans that are projected to run out of money within 15 to 20 years the authority to immediately cut retirees’ pensions to 110% of the amounts guaranteed by the PBGC.
There are several reasons why so many plans are running into financial problems. Many employers have gone out of business or faced bankruptcy. The reduction of union jobs has meant that there are often way more retirees than current workers paying into the funds. Lower interest rates for many years have reduced the returns of many plans. In addition, stock market volatility has created investment losses.
Because of these factors, there is an immediate need for legislation that will provide more funds to the PBGC to assist multiemployer plans that are now running out of assets, or that expect to in the foreseeable future. A bill, the Rehabilitation for Multiemployer Pension Act (aka the Butch Lewis Act) has passed the House of Representatives in a bipartisan vote. However, the Senate has not reviewed the legislation yet, and there may be some opposition there because of the proposed cost, which is estimated at $64 billion from 2020 to 2029. The purpose of the Act is to allow failing pension plans to borrow from the PBGC in order to ensure that they meet their commitments to retirees and workers.
This legislation is important not only to the fate of multiemployer plans but also to the other pensions guaranteed by the PBGC, namely single-employer plans. Interest rates are likely to remain low, and stock market returns are likely to remain volatile. For these reasons, many pension plans will face underfunding in the future, and that will cause more plans to depend on PBGC guarantee.
I urge you to contact to your congressional representatives and point out the need to pass legislation that will stabilize the PBGC, so that a painful crisis can be averted.
(Elliot Raphaelson welcomes your questions and comments at firstname.lastname@example.org.)
Jeff Sodoma, MPA, Esq. is a lawyer based in Virginia Beach, Virginia
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