PBGC’s latest Multiemployer Program figures even more grim than last year

The Pension Benefit Guaranty Corp.’s Multiemployer Program, which insures the pensions of about 1,400 collectively bargained retirement plans, has a more than 90 percent chance of becoming insolvent in 2025, and a 99 percent likelihood of insolvency by 2026, according to the agency’s newly released FY 2017 Projection Report.

Those odds represent a grimmer picture than what was painted in last year’s report, which put the chance of insolvency at 60 percent for 2025.

The “significant increase” in the insurance program’s probable insolvency is due to the “largest troubled plan” transitioning its investment portfolio towards a 100 percent allocation to fixed income, PBGC’s report says.

As a practice, PBGC refrains from naming plans publicly. But the Teamsters’ Central States Pension Plan, which covers the retirement benefits of about 400,000 retirees and active participants, is widely understood to be the referenced plan.

In an April letter to the U.S. District Court for the Northern District of Illinois, counsel for the Central States plan reported that 65.5 percent of the fund’s assets had been transitioned to fixed income in the effort to protect assets from precipitous drops in equity markets.

In 2017, the fund reaped a 12.7 return, and had total assets of $15 billion by the end of the calendar year, which was about $12 billion less than what the fund was worth before the 2008 financial crisis. In recent years, the fund has been running annual deficits of more than $2 billion a year. The Central States plan is projected to be insolvent by 2025.

When the Central States plan runs out of money, PBGC says it, too, will exhaust its $2 billion in asset reserves. At that time, the partial guaranty PBGC’s program provides will be cut for all plans receiving assistance.

Union membership plummets

The latest projections show that PBGC has a more than 40 percent chance of exhausting its cash reserves by 2024.

The number of active participants in multiemployer plans has seen a severe decline in recent years. PBGC says all plans have experienced a 12 percent decline in active participation over the past six years. Employer contributions to the plans are based on head count. “Continued decreases in active participation will have a devastating impact on troubled plans and their ability to recover,” PBGC’s report says.

PBGC projects its mean present value deficit will be $68.9 billion for FY 2027, a $10.3 billion increase from previous projections. But when factored in nominal terms to reflect inflation, PBGC puts the 2027 deficit at $90.6 billion.

To date, 19 plans on a path to insolvency have applied to the Treasury Department to suspend some benefits under a program created by the Multiemployer Pension Reform Act of 2014. Treasury has approved four applications. PBGC expects benefit suspensions to have a “modest” impact on its 10-year deficit projection.

About 130 multiemployer plans, covering 1.3 million active employees and retirees, are expected to be insolvent in the next 20 years.

The condition of the overall multiemployer plan universe has improved slightly, PBGC says. Analysis from Segal Consulting, which surveyed 200 plan clients, showed 65 percent of plans in the “green zone,” meaning they have a funded status of over 80 percent.