Trump’s budget proposes dramatic increases to PBGC’s multiemployer program
The budget would raise premiums that collectively bargained retirement plans pay to the Pension Benefit Guaranty Corp. by $18 billion over 10 years.
President Trump’s Fiscal Year 2020 budget would raise premiums that collectively bargained retirement plans pay to the Pension Benefit Guaranty Corp. by $18 billion over 10 years.
PBGC, which separately insures multiemployer and single-employer defined benefit plans in the private sector, faces a $54 billion funding deficit in its multiemployer program, and is expected to run out of cash reserves at the end of 2025.
The multiemployer program insures about 1,400 union pensions with roughly 10.6 million active and retired participants. By some estimates as many as 130 plans are on the road to certain insolvency.
The largest plan insured by PBGC—the Teamsters’ Central States Pension Plan—will be insolvent by 2025. That claim will exhaust PBGC’s cash, and going forward the agency will only be able to insure a fraction of the guaranties it now provides.
Last year’s White House budget proposed $16 billion in new premiums on multiemployer plans.
The $18 billion premium increase proposed this year—or an average of $1.8 billion a year over 10 years—would be an extraordinary measure. In 2018, PBGC’s multiemployer program collected $292 million in premium income, the most it has collected in the past decade, and 300 percent more than was collected in 2009. Premiums are paid out of plan assets.
The per-participant flat rate premium for multiemployer plans is $29 in 2019, up from $28 in 2018, and $9 in 2012, according to PBGC.
Details on how the new premiums would be assessed were not laid out in the budget. But it does project new premium receipts by year to PBGC’s multiemployer program. In 2021, receipts would be $1.86 billion, and grow to $4.65 billion by 2026.
“At this level of premium receipts, the program is projected to remain solvent over the next 20 years, helping to ensure that there is a safety net available to workers and retirees whose multiemployer plans fail,” the White House’s budget proposal says.
In the 115th Congress, a joint select Congressional Committee on multiemployer pension reform failed to agree on a rescue package for failing union pensions. Legislation that would extend loans through the sale of U.S. Treasuries to plans facing insolvency and preserve existing pension promises has been reintroduced in the House of Representatives in the 116th Congress.
Under the Rehabilitation for Multiemployer Pensions Act, the loan extensions are designed to keep failing plans from filing claims with PBGC, which would preserve PBGC’s cash reserves.
Congress, and not the PBGC, sets premium rates for insured pensions. The Rehabilitation for Multiemployer Pensions Act does not include premium increases on multiemployer plans. It would be all but certain to pass out of the Democrat-controlled House. But as a piece of stand-alone legislation, it would need 60 votes in the Republican-controlled Senate, and a signature from President Trump.
Some have speculated President Trump would support a rescue package for multiemployer pensions, as many of the retirees that stand to be impacted come from electorally-critical states like Ohio, Pennsylvania, Michigan, Wisconsin, and Missouri.
But the budget’s aggressive premium increases calls into question where the Trump Administration may stand on a potential rescue package that would preserve all union pension obligations.
The FY 2020 White House Budget also proposes more funding for the Labor Department’s Office of Labor-Management Standards’ investigative arm, which has been cut by more than 40 percent over the past decade. “The budget would strengthen protections for union members by supporting more audits and investigations to uncover flawed office elections, fraud, and embezzlement,” according to the White House’s budget.
Single-employer premium burden shifted to underfunded plans
The White House’s budget also proposes changes to PBGC’s single-employer insurance program.
Well-funded plans’ premiums would be frozen for one year. Underfunded plans that pose greater risk to the insurance program’s solvency would face premium increases.
The single-employer program reported a $2.4 billion surplus in FY 2018. The per-participant flat rate premium is $80 for single plans in 2019, up from $74 in 2018, and $42 in 2013.
Single-employer plans pay a variable premium rate on their unfunded vested benefits. For 2019, that rate is $43 for every $1,000 of unfunded vested benefits, with a cap of $541 multiplied by the number of participants.
Labor funding cut, as is federal workers’ retirement benefits
President Trump’s budget requests $10.9 billion in funding for the Labor Department, a $1.2 billion, or 9.7 percent cut from the agency’s existing budget.
“The Budget improves the quality of life for all workers by making targeted, evidence-based investments to help workers remain competitive in the workforce and by eliminating duplicative, wasteful, and non-essential activities,” according to the proposal.
The White House’s FY 2019 budget requested a 21 percent, or $2.6 billion cut from Labor’s books.
President Trump is also looking to save money on federal employees’ retirement plans. The budget proposes annual increases of 1 percent in employees’ pay to retirement plans.
It also would eliminate COLA increases for participants in the Federal Employee Retirement System and a 0.5 percent cut to the COLA for the Civil Service Retirement System.
Defined benefit pensions would be based on an average of the five highest salary years, instead of the existing formula, which is based on the three highest years. And the budget would reduce the interest rate on the Thrift Savings Plan G-Fund.
The adjustments to federal retirement programs would save about $102 billion over the 10-year budget window, according to the proposal. All told, the White House’s budget proposal includes $2.7 trillion in spending reductions over that time.
Read more: