Retiree-Employee Ratios Are Dooming the Multiemployer Pension

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By Jasmine Ye Han

A record number of multiemployer pension plans are receiving financial assistance from the federal government this year as the burgeoning ranks of retirees dwarf the number of employees paying into the plans.

Multiemployer pension plans--which are plans in unionized industries where employers group together and contribute to a single plan on their workers’ behalf--have become the biggest drain on the Pension Benefit Guaranty Corporation, the federal agency that insures pension plans. The agency has said that its multiemployer program could be insolvent as early as 2025.

Even as Congress has taken steps to solve the multiemployer pension problem, the plans continue to face a death spiral. In fiscal year 2016, 10 multiemployer plans went insolvent and requested financial assistance from the PBGC. The federal agency is now giving financial assistance to a record-high 71 multiemployer plans.

About $112 million of financial assistance went to troubled multiemployer plans in FY 2016, the highest amount in history, according to data Bloomberg BNA obtained from the PBGC.

Draining Pool: Paying Out Without Enough Coming In

These 10 plans became increasingly dominated by retired and separated vested participants from plan year 2001 to 2015, Bloomberg BNA found after an analysis of Employee Benefits Security Administration Form 5500 raw dataset. As the number of active employees in each plan dwindled, the amount of money contributing employers made to the plans shrunk, ultimately leading to their insolvency.

Seven of the 10 plans had no active participants since 2013, although five of the seven had more than 20 percent active participants in plan year 2001. NMU Great Lakes had no active members throughout the 15 years reviewed by Bloomberg BNA.

In 2014, 94 percent of Cement Masons Local Union 681 Pension Fund participants were retired or separated vested, lower than most of the 10 insolvent plans. Cory Crandall, the Cement Masons plan’s administrator, told Bloomberg BNA, “when you have a ratio like that, it’s nearly impossible to keep up.”

After some employers left the Cement Masons plan, the local unions didn’t have enough employers contributing. “The plan was paying out benefits without enough contribution,” Crandall said.

The other nine plans that went insolvent in 2016 didn’t respond to Bloomberg BNA’s request for comments.

Bigger Problem: Declining Unions and Industries

Shrinking industries and unionization are the deeper causes behind the cashflow problem these plans had that led to their insolvency, Jean-Pierre Aubry with Boston College Center for Retirement Research told Bloomberg BNA.

Aubry, in a 2014 study, predicted that three of the 10 plans would go insolvent in 15 years, based on projected assets and liabilities.

If the plan is in a declining industry, there’s no new employer that comes in to replace an employer that leaves the plan. When this happens, the plan should be fine if the employer pays its withdrawal liability, Aubry said. But usually the exiting employer either goes bankrupt and doesn’t pay at all, or it just pays part of it. To cover the gap, every other employer that’s still in the plan would need to pay more, “but no employer does that,” Aubry said.

The shrinking of unions means fewer employers and fewer active participants are making contributions, while the plan still has the same pile of retirees it has to pay, Aubry said.

A decreasing ratio of active participants to retirees isn’t unique to just these 10 plans that went insolvent. The ratio of retirees and separated vested participants in all multiemployer plans has increased significantly from 1995 to 2013, according to a 2014 databook that Bloomberg BNA acquired from the PBGC. The ratio of retired and separated vested combined increased from 48 percent to 63 percent during this time frame. Accordingly, the number of insolvent multiemployer plans jumped from nine in 1995 to 58 in 2015, according to the PBGC databook.

Is MPRA Saving Multiemployer Plans?

The multiemployer program, with around 1,400 plans, accounted for about $59 billion of PBGC’s $79.4 billion deficit in 2016, according to a study by the Government Accountablity Office that rates the program as “High Risk.”

Congress attempted to prolong the viability of the multiemployer pension program when it passed the Multiemployer Pension Reform Act of 2014 (MPRA).

The MPRA allows the “critical-and-declining” subset of red-zone plans to apply to the Treasury Department for benefit cuts. A plan projected to go insolvent in 20 years is also critical and declining if its ratio of inactive to active participants is more than 2 to 1, or if the plan is less than 80 percent funded. Plans are required to report its risk status in Form 5500, send notices to its members and submit its notices to the Department of Labor, when it becomes a critical-and-declining plan.

There are 102 critical-and-declining plans according to the most recent data available, Aubry told Bloomberg BNA on May 3. That means these plans will do what they say: go insolvent in 15 or 20 years, if there’s no policy change, Aubry said.

Is the MPRA helping prolong plans’ solvency by allowing them to cut benefits? Not yet, Aubry said. Only one out of the 12 plans that applied has been able to go through with the cuts, excluding the five withdrawn applications.

In practice, at least for the plans that have applied, MPRA hasn’t been a solution, Aubry said.

To contact the reporter on this story: Jasmine Ye Han in Washington at

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

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