PBGC guarantee for multiemployer plan participants will cover smaller share of benefits in future plan insolvencies


The Pension Benefit Guaranty Corporation (PBGC) has released a study that finds that, in the coming years, more than half of workers and retirees in terminated multiemployer plans will face a reduction in benefits under current PBGC guarantees if their plans run out of money. This study, PBGC’s Multiemployer Guarantee, takes a closer look at how the guarantee limits will impact the pension income of workers and retirees in multiemployer plans that will receive financial assistance from PBGC.

Financial assistance for multiemployer plans

The PBGC pays financial assistance to multiemployer plans in the form of loans in the event of plan insolvency. Plans can receive one or both types of the following financial assistance:

• periodic payments to pay guaranteed benefits to plan participants and cover the administrative expenses of the plan and
• a one-time or other non-periodic payment to purchase annuities or to facilitate merger of the plan with a healthier plan.

While about half of all plans that have received financial assistance over time got some type of non-periodic assistance, the amount paid represents less than 20% of financial assistance expenditures over the history of the program. Most financial assistance is periodic and pays for guaranteed benefits and plan administrative expenses. The number of plans receiving periodic financial assistance and the amount of total periodic financial assistance has risen sharply since 2005. PBGC projections show continued and significant growth in the amount of projected financial assistance as plans near insolvency run out of money over the next few years.

Current and future insolvent plans

For purposes of the study, multiemployer plans were divided into two statuses:

1. insolvent plans currently receiving financial assistance from PBGC (“current plans”) and
2. terminated plans which have not started receiving financial assistance from PBGC, though they are expected to in the future (“future plans”).

The statuses were determined based on the categorization of plans in the PBGC’s 2013 Annual Report and do not reflect later updates for additional plans that have terminated or have become insolvent.

Twenty-one percent of multiemployer participants in current plans experienced, or are projected to experience, a benefit reduction. However, for participants in future plans, this number is projected to be 51%. In addition, of that 51%, 54% of the time participants in future plans are projected to lose 10% or more of their benefit compared to 39% of the time for the above 21% of participants in current plans. Thus, the multiemployer plan study finds that these losses are both likely to apply to more people and likely to be larger in percentage terms as more multiemployer plans run out of money and require financial assistance from the Agency.

About the study

The study looks primarily at multiemployer plans that are insolvent or have terminated and are projected to become insolvent. The study data set covers more than half of the nearly 152,000 participants in plans that, as of September 30, 2013, were receiving financial assistance or were in terminated plans projected to receive financial assistance (80% of current financial assistance participants and 25% of participants in terminated plans projected by PBGC to receive financial assistance in the future).

The PBGC notes that the study does not examine the reductions in guarantee levels that would occur if the multiemployer insurance program were to run out of money. The multiemployer insurance fund is projected to exhaust its reserves within the coming decade, even with enactment of the Multiemployer Pension Reform Act of 2014 (MPRA). The MPRA provides certain troubled multiemployer plans with additional tools to change benefits while keeping benefits above the PBGC guarantee amount. The PBGC explains that the findings of this report are not affected by the legislation because, except with respect to pre-retirement survivor benefits, the MPRA did not change the PBGC guarantee.

Source: PBGC’s Multiemployer Guarantee, March 2015, PBGC News Release No.15-03, March 11, 2015, and PBGC Blog, March 11, 2015.

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