The Pension Benefit Guaranty Corporation, the federally chartered agency that protects private-sector pension plans for an estimated 10 million people, said in a new report that the insurance program that covers multiemployer pension programs likely will run out of money by 2025.
Should their plans falter, those millions of former workers would receive only a small percent of their current guarantees.
“Absent changes in law or additional resources, this year’s report projects that the Multiemployer Program’s [fiscal] 2016 deficit of $59 billion will increase, with the average projected deficit (looking across multiple economic scenarios) rising to almost $80 billion (in nominal dollars) for FY 2026,” the PBGC reported.
The cause of the problem is “the increasing demand for financial assistance from insolvent plans” — i.e., plans are going belly-up at a rate rapidly depleting the money needed to cover those losses.
“Most of the risk of the program running out of money falls during the years 2024 to 2026. It is more likely than not that the Multiemployer Program will deplete its assets by the end of fiscal 2025. The risk of program insolvency grows rapidly after 2025, exceeding 99 percent by 2036,” the report noted.
Multiemployer plans involve several companies and unions jointly managing a pension fund for all of the workers. The plans are favored by unions because they remain with the workers even if they switch jobs. However, they are risky for businesses because if one employer goes bankrupt the others are legally obligated to cover its contribution. Reports of the financial woes of some plans have prompted many companies to try to get out of the system. In 2006, the United Parcel Service paid $6.1 billion to pull out of the drastically underfunded Teamsters’ Central States plan.
In a rare example of bipartisan unity, Congress passed and former President Barack Obama signed the union-backed Multiemployer Pension Reform Act in late 2014. Few people were eager to tout the reform, however, since its chief function was to allow businesses to cut back benefits in multiemployer plans if necessary to prevent the plan’s insolvency, a move that was previously illegal.
The 2014 reform also required regular reports to Congress on the solvency of the PBGC program, which steps in to provide plan recipients with payments if their own plan becomes insolvent.
The PBGC is not federally funded. It is an independent agency where revenue comes mainly by insurance premiums paid by nearly 24,000 insured defined benefit pension plans. However, its directors are appointed by the president and confirmed by the Senate. Both would face considerable pressure to bail out the fund should it become unable to provide adequate payments. Should the agency become insolvent, it would not stop making payments entirely, but they would have to drastically reduced.