PBGC report underscores increased risks to some multiemployer plans

Despite substantial economic and market gains, multiemployer pension plans covering about 1.5 million people are severely underfunded, threatening benefit cuts for current and future retirees, according to the “FY 2013 Projections Report” released on June 30, 2014 by the Pension Benefit Guaranty Corporation (PBGC). However, the financial condition for private single-employer plans is projected to improve.

Single-employer plans

The financial condition of the PBGC’s insurance program for single-employer plans is likely to improve over the next decade. Under current estimates, the fiscal year (FY) 2013 deficit of $27.4 billion is projected to narrow to, on average, $7.6 billion by FY 2023. It is highly unlikely that the single-employer program will run out of funds in the next 10 years, according to the PBGC report.

Multiemployer plans at risk

In the past year, economic conditions improved significantly and most multiemployer plans are projected to remain solvent. However, despite the improving economy and strong asset returns in 2013, some already distressed plans remain critically underfunded and will not be able to further raise contributions or reduce benefits sufficiently to avoid insolvency, states the report. Using a new methodology that takes this into account, the PBGC’s new projections show that insolvencies affecting more than a million of the 10.4 million people in multiemployer plans are now both more likely and more imminent.

The report estimates that the failures of these plans will drain the PBGC’s multiemployer program of its assets, leaving the PBGC unable to pay guaranteed benefits. The PBGC estimates that, absent premium increases and/or changes in the law, the program is more likely than not to run out of funds in eight years and highly likely to do so within 10 years. Participants in failed plans are likely to experience significant benefit reductions under the PBGC’s current guarantee program, since its multiemployer guarantees are much lower than those in its single-employer program. If, as projected, the PBGC itself becomes insolvent, then guarantees will be cut much further.

Wyden voices concern

Senate Finance Committee Chairman Ron Wyden (D-OR) immediately issued a statement saying that he is “very concerned” about the shortfall. “The report confirms what we already know—the multiemployer pension plan system is in big trouble and putting a significant strain on the PBGC,” said Wyden. “As I’ve stated previously, the Finance Committee is taking a hard look at the issues surrounding multiemployer pension plans, and I will work with my colleagues to address these issues in order to protect Americans’ earned retirement benefits,” he added.

Source: PBGC press release No. 14-08, June 30, 2014.
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