Employee Benefits News examines legal developments that impact the employee benefits and executive compensation employers provide, including federal and state legislation, rules from federal...
By Sean Forbes
Aug. 3 — The federal agency that insures benefits coverage for 41 million people in multiemployer pension plans is living on borrowed time, according to the nonpartisan Congressional Budget Office.
The Pension Benefit Guaranty Corporation’s multiemployer program has enough liquid assets to cover immediate obligations through 2025, after which it will become insolvent, the CBO said in an August report.
Despite a law passed in 2014 to improve the outlook for struggling multiemployer plans and the PBGC's future, claims for financial assistance will likely outstrip the agency's resources over the next 20 years, the CBO said.
The 2014 law, called the Multiemployer Pension Reform Act, allows plans under certain conditions to cut pension benefits in order to prolong their viability, or in some cases, postpone insolvency.
The CBO projected the PBGC’s future out to 2036. Claims for financial assistance are expected to total $35 billion from 2027 through 2036. Only $5 billion of those claims would be paid under current law if the program becomes insolvent in 2025. Through 2036, the CBO projected the PBGC would have $11 billion in assets to pay $45 billion of benefits.
The PBGC’s fortunes—or lack thereof—are tied to a flailing multiemployer pension world.
In all, multiemployer pension plans have promised nearly $850 billion worth of benefits to their participants measured by market valuations, but have less than half the assets to meet those promises, holding only $400 billion, the CBO said.
The PBGC also said in its 2015 annual report that its multiemployer fund will likely be depleted in 2025.
Lawmakers have proposed several ways to improve the PBGC’s multiemployer program finances, including:
Those options have caveats, the CBO said.
For example, the first solution would have plans take steps such as sharply raising premiums or increasing employers’ contributions to significantly underfunded plans. However, better-funded plans can sometimes afford to withdraw from the system, so options that rely on higher contributions may not improve the multiemployer program’s outlook as much as options that also impose “sizable losses” on beneficiaries, the CBO said.
In some cases, “sizable losses” can be an understatement. The MPRA allows for cuts to as much as 110 percent of the PBGC’s maximum allowable benefit. The maximum straight-life annuity for a 75-year-old individual in a plan that terminates in 2016 is $15,234.53.
Most plans with funding shortfalls aim to make up those gaps by earning investment returns on their assets and with higher contributions, the CBO said. However, a small but growing number of plans that collectively have $100 billion in liabilities but only $40 billion in assets for about 1 million participants have reported they likely won’t be able to close the gap, the CBO said.
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The CBO report is available at http://src.bna.com/hop.
Copyright © 2016 The Bureau of National Affairs, Inc. All Rights Reserved.
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