PBGC report reveals need for significant revenue increase for multiemployer pension system

The multiemployer pension program’s current assets are only a small fraction of the amount needed to cover guaranteed benefits for more than one million people in plans expected to run out of money in the next decade, according to the Pension Benefit Guaranty Corporation (PBGC). The PBGC has released a study of revenues needed for PBGC to continue to protect participants in multiemployer plans that are likely to run out of money.

“Without changes, the multiemployer insurance program is likely to run out of money by 2025,” said PBGC Director Tom Reeder. “This report offers vital information for Congress as it considers how to stabilize the program and put it on sound financial footing.”

Although the Multiemployer Pension Reform Act of 2014 (MPRA, P.L. 113-235) increased multiemployer plan premiums, the PBGC projections of premiums at legislated rates plus current assets and likely returns on those assets only appear sufficient to cover the PBGC’s existing multiemployer program cash flow needs for the next five to nine years, but not for an extended period. The report illustrates the effects of increasing premium revenues on the PBGC’s continued solvency under a variety of scenarios reflecting different assumptions as to how many plans would suspend benefits or apply for partition under MPRA. Under each scenario in the study, the likelihood that the multiemployer program will be insolvent before 2034 exceeds 50% percent, even if premium revenues are doubled.

The PBGC notes that President Obama’s 2017 budget proposal would give the PBGC Board the authority to adjust premiums to better account for the risk posed by different sponsors and plans, after considering a number of factors. The Budget assumes that the Board would raise revenues for the multiemployer program by using its premium-setting authority to create a variable-rate premium (VRP) and an exit premium in the multiemployer program.

The PBGC concludes that, although the timing of the PBGC multiemployer program’s insolvency appears to be delayed until after the next Multiemployer Five-Year Report, the PBGC is at risk of not having the funds to continue to pay benefits beyond the next decade under the multiemployer insurance program. The PBGC states that the Budget’s proposed VRP and exit premium, along with authority for the Board to raise premiums, provide a path to solvency for the multiemployer program.

Source: PBGC News Release No. 16-04, March 31, 2016. “PBGC Insurance of Multiemployer Pension Plans: A Five Year Report,” March 2016.

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