Under current law, PBGC backs a modest portion of multiemployer plan benefits. For instance, a union employee in the Central States Plan with 20 years of service is only guaranteed $8,580 from the PBGC. (Photo: Shutterstock)
The massive deficit in the Pension Benefit Guaranty Corp.'s multiemployer insurance program exploded by $11.3 billion in fiscal year 2019, reaching a record deficit of $65.2 billion.
The moribund program that insures the pensions of 1,400 collectively bargained defined benefit pensions plans covering 10.8 million workers and retirees is projected to be insolvent by 2025.
The more than 20 percent increase in the deficit is owed to decreases in the interest rate used to assess future liabilities of individual plans headed to insolvency. Eleven new plans were added to PBGC's list of probable insolvencies in 2019; four multiemployer plans became insolvent in 2019.
The multiemployer program collected $296 million in premiums, and earned $442 million in investment gains.
All told, the program's liabilities are $68 billion. Its cash reserve is $2.9 billion.
|1.5 million workers and retirees will see dramatic benefit clawbacks
In 2019, 89 multiemployer plans received $160 million in assistance.
That number is expected to grow in the next six years. In 2019, 52 pension plans filed critical and declining status notices with the Labor Department and PBGC. Those plans are expected to be insolvent in the next 20 years.
The largest plan among them, the Teamsters Central States Plan, is projected to be insolvent in 2025.
The Central States Plan is less than 40 percent funded. In 2016 it had about 385,000 participants, about 84 percent of whom were inactive retirees.
The insolvency of the Central States Plan will amount to the straw that breaks the PBGC's back. Under current law, PBGC backs a modest portion of multiemployer plan benefits.
For instance, a union employee in the Central States Plan who has 20 years of service is only guaranteed $8,580 from the PBGC.
But even that modest amount will be greatly reduced when PBGC's cash reserves are exhausted in 2025. About 1.5 million workers and retirees are projected to see their benefits dramatically reduced.
About $65 billion will be required to cover plans on PBGC's probable insolvency list. The 10 largest plans account for $53.6 billion in liabilities.
|Trump Administration ready to work with Congress
"The alarm bells are ringing, and legislative changes are necessary," said PBGC Director Gordon Hartogensis of the agency's multiemployer program, in a statement.
"The Administration stands ready to work with Congress to protect retirees in multiemployer plans, prevent the collapse of the multiemployer pension system, save the PBGC backstop, and prevent this crisis from recurring in the future," he added.
Last year, a Congressional Joint Select Committee created by the Bipartisan Budget Act of 2018 failed to advance legislation to rescue collectively bargained plans and PBGC.
The Rehabilitation for Multiemployer Pensions Act of 2019, a re-branded version of legislation the Joint Select Committee failed to advance, passed the House of Representatives in July by a 264 to 169 margin. All House Democrats backed the bill, along with 29 Republicans.
The bill would establish the Pension Rehabilitation Administration within the Treasury Department, which would issue loans to PBGC's probable plans over 30 years. It prohibits benefit clawbacks, and includes a provision that would relieve plans of their obligation to pay the loans back. Cost estimates of the package were as low as $36 billion, and as high as $68 billion.
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Nick Thornton
Nick Thornton is a financial writer covering retirement and health care issues for BenefitsPRO and ALM Media. He greatly enjoys learning from the vast minds in the legal, academic, advisory and money management communities when covering the retirement space. He's also written on international marketing trends, financial institution risk management, defense and energy issues, the restaurant industry in New York City, surfing, cigars, rum, travel, and fishing. When not writing, he's pushing into some land or water.
