By Sean Forbes
Oct. 21 — Several options have been proposed to bolster the PBGC’s multiemployer pension program funding by altering its premium structure, but none have overwhelming appeal, and all would require some give from stakeholders, the American Academy of Actuaries said.
Many of the nation’s multiemployer plans, such as the massive Central States, Southeast and Southwest Areas Pension Plan, are facing insolvency in the near future. Meanwhile, absent legislative help, the PBGC’s multiemployer pension fund is also in danger of running out of assets.
The Pension Benefit Guaranty Corporation has projected that based on current premium levels, its multiemployer assets have a 50 percent chance of being exhausted by 2025, and a 98 percent chance of being tapped by 2035. The agency insures about 1,400 multiemployer pension plans covering more than 10 million participants.
“None of the options are ideal, and they require difficult sacrifices, possibly from parties who had no role in the creation of the problem,” the AAA said in its October brief. “But it is clear that if nothing is done, the guarantees promised to the participants in multiemployer plans will not be fully honored.”
At the end of 2014, Congress enacted the Multiemployer Pension Reform Act, an attempt to save the system by allowing plans at high risk of insolvency to cut benefits. The move, first tried by Central States’ trustees, came under immediate fire by the plan’s participants and was ultimately rejected by the Department of Treasury.
The PBGC said in a recent report that its multiemployer per-participant flat-rate premium, currently at $27, would have to increase sixfold in order to avoid insolvency over the 20-year projection period to 2035, with larger increases necessary to achieve longer-term solvency or to protect against unexpected adverse experience.
That’s a solution that many plans would find difficult to swallow, Joshua Shapiro, senior actuarial adviser at Groom Law Group Chartered, in Washington, told Bloomberg BNA Oct. 21. “If this rate were to increase significantly, it would be difficult for all plans to deal with the higher costs, but for plans that provide comparatively low benefit levels, the increase could be completely unaffordable,” he said.
“To avoid driving plans with lower benefit levels out of business, higher premium rates may need to be accompanied by a premium structure that applies reduced rates to plans that provide lower benefit levels,” he said.
“As we look at potential solutions to the challenges facing underfunded multiemployer plans, it is important to recognize that active workers have already made enormous sacrifices in many of these plans in the form of reduced wages on their paychecks and dramatically lower benefit levels,” Shapiro said. “While raising PBGC premiums may seem like a relatively painless approach, much of the increased cost would be borne by these same active workers, and there is a limit to how much more they will be willing to sacrifice before they withdraw their support for the defined benefit system.”
Changing the PBGC’s premium structure isn’t the only path forward, Karen Ferguson, director of the Pension Rights Center, in Washington, told Bloomberg BNA Oct. 21. Her group is bringing together stakeholders from across the spectrum of the multiemployer system to find a workable solution, she said. And although it’s too early to say what the solution might be, she said she’s optimistic that one will be found.
“Ultimately the important thing is bringing together stakeholders to find common ground,” Ferguson said.
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The AAA brief is at http://src.bna.com/jyd.
Copyright © 2016 The Bureau of National Affairs, Inc. All Rights Reserved.
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