PBGC Tells Congress It Needs Big Hike in Multiemployer Premiums

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By David B. Brandolph

June 17 — Multiemployer pension premium increases need to be more than 4 1 2 times what they're set for under current law to keep the PBGC's insurance program for multiemployer funds from going insolvent, the agency said in a report to Congress.

The Pension Benefit Guaranty Corporation's report issued June 17 reiterated a message the agency has given before: that without big increases in premiums, the multiemployer insurance program will run out of money. The report gives Congress a roadmap that could fix the multiemployer pension system, which is failing on many fronts.

The one-time report by the PBGC is required under the Multiemployer Pension Reform Act, also known as the Kline-Miller Act.

In a separate annual projections report, the agency said that under both 10-year and 20-year projections, the multiemployer insurance program is likely to run out of money by the end of 2025, and that there is considerable risk that it could run out before that date. This echoes previous warnings the agency has issued about its multiemployer program.

The projections report had a better prognosis for the agency's program for single employer pension plans—finding that it's likely, although not certain, to improve without any premium increases.

Multiemployer plans are collectively bargained and involve more than one employer.

Former PBGC Director Joshua Gotbaum, now a guest scholar with the Brookings Institution in Washington, told Bloomberg BNA June 17 that it's been very clear that premiums assessed to multiemployer plan sponsors are too low. The PBGC's finding in its report that premiums need an order of magnitude hike isn't surprising, he said.

The report indicates that single-employer plan premiums are about seven times the level of multiemployer plan premiums, Gotbaum said. This shows that most multiemployer plans can afford the increases the PBGC has requested, he said. For the plans that can't afford such increases, Congress can create a formula in which such plans have their premium rates and hikes capped, he added.

Design of Increase Critical

The PBGC's report to Congress showed that premium income required to pay average projected multiemployer plan obligations varies substantially.

Needed premium income varies due to whether premiums are required for 10 or for 20 years and whether plans adopt suspensions and partitions, the report said. In addition, the “extent to which premiums are not paid out of existing plan assets or otherwise assessed so as to avoid accelerating the insolvency of troubled plans,” will determine how much of an increase is required, the report said.

The report said that, based on those variables, the range of potential increases is wide, ranging from 59 percent to 85 percent for 10 year solvency and from 363 percent to 552 percent for 20 year solvency.

Premium increases that are designed and structured properly may encourage additional contributions, result in continued plan participation and strengthen the multiemployer insurance system, the report said.

A poorly designed premium increase, on the other hand, may encourage employer withdrawals and quicken plan insolvency, the report said. This would increase costs to plan participants and require even larger premiums, the PBGC said.

The report said that the administration's latest budget proposed a structure than can help resolve the multiemployer program's financial woes. The PBGC’s board would have authority under the proposed budget to carefully structure premiums by assessing variable rate premiums based on a plan's funding and exit premiums that wouldn't affect a plan's solvency. Such a structure would also give the board the flexibility to avoid placing unmanageable burdens on the most troubled plans, the report said.

To contact the reporter on this story: David B. Brandolph in Washington at dbrandol@bna.com

To contact the editor on this story: Jo-el J. Meyer at jmeyer@bna.com

For More Information

The PBGC's MPRA report to Congress is at http://src.bna.com/f0Z. The PBGC's annual projections report is at http://src.bna.com/f02.