Multiemployer Pension Program’s Deficit Soars to Record High

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By David B. Brandolph

Nov. 16 — The PBGC, which backstops defined benefit pension plans, has seen its multiemployer plan insurance program’s deficit rise by $6.5 billion in the last fiscal year to a record-high $58.8 billion.

The agency’s multiemployer program is projected to become insolvent by 2025 or earlier, PBGC Director Tom Reeder said in a Nov. 16 press call announcing the Pension Benefit Guaranty Corporation’s fiscal year 2016 annual report. Multiemployer plans are generally collectively bargained and involve more than one employer.

The 12.4 percent increase in the multiemployer program deficit was driven by the 11 additional plans that are expected to run out of money within the next 10 years, and by decreases in interest rate factors used to value PBGC’s liabilities, Reeder said.

To prevent the multiemployer program from becoming insolvent, “reform is urgently needed,” Reeder said. Congress needs to permit the PBGC to raise plan premiums, he said.

The Obama administration’s FY 2017 budget proposes a $15 billion increase in multiemployer premium revenues over the 10-year budget window. “Such an increase would eliminate most of the risk of the multiemployer program becoming insolvent within 20 years,” PBGC’s press secretary Marc Hopkins told Bloomberg BNA in an e-mail.The insolvency threat of the multiemployer program would be reduced if Congress were to pass pending bipartisan legislation ( S. 1714) that would allow transfers of unspent money from a fund for cleaning up abandoned mines to the United Mine Workers of America 1974 Pension Plan, Reeder said during the call.

The PBGC’s annual report had better news for the agency’s single-employer plan insurance program. That program improved by 14.5 percent over the last year. The deficit dropped $3.5 billion from $24.1 billion at the end of September 2015 to $20.6 billion one year later, the report said.

This improvement resulted primarily from increased investment and premium income and a low number of plan terminations, Reeder said.

Obama Administration Takes Heat

Reaction to the annual report focused on both the need for Congress to step up and take action to resolve the multiemployer program crisis and on the blame for the Treasury Department’s rejection of tools available under current law.

The agency’s deficit “illustrates the continued need for Congress to pass a comprehensive solution to the problem of underfunded multiemployer plans that will also strengthen the PBGC,” Karen Friedman, executive director of the Pension Rights Center in Washington, told Bloomberg BNA in an e-mail.

The report is a reminder of the “serious threat facing workers, retirees, employers and taxpayers,” House Education and the Workforce Committee Chairman John Kline (R-Minn.) said in a statement. He used the opportunity to blame the Obama administration for undermining the tools available for plans to avoid insolvency under the Multiemployer Pension Reform Act, also known as the Kline-Miller Act.

Kline was referring to the fact that the Treasury has thus far ruled on four multiemployer plan suspension of benefit petitions authorized under the act as a means to avoid insolvency. The department has rejected all four.

“Trustees must be afforded the opportunity to use the tools they have under current law to save plans from insolvency,” Kline added.

Kline, who will be retiring at the close of the present Congress, has made passage of composite plan legislation to aid multiemployer plans a priority. Such plans are designed to incorporate the best features of defined benefit and defined contribution plans. Draft legislation Kline supports would permit certain multiemployer plans to establish, in addition to existing legacy defined benefit plans, composite-defined contribution-type plans.

Composite plans, like defined contribution plans, would relieve plan sponsors of investment and interest rate risk. They wouldn’t, however, participate in the PBGC’s insurance system.

It’s widely believed that Kline will seek to have Republican Party House leadership include composite plan legislation in a must pass year-end omnibus bill.

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

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

For More Information

PBGC’s fiscal year 2016 annual report is at http://src.bna.com/j7e.

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