PBGC reports reveal financial strains in multiemployer pension system

Three reports issued by the PBGC detail the growing financial strains faced by the multiemployer pension system. The reports, issued on January 29, 2013, provide information on the financial health of multiemployer plans and the PBGC’s multiemployer insurance program, but make no recommendations.

According to one report, PBGC Insurance of Multiemployer Pension Plans: Report to Congress Required by the Pension Protection Act of 2006, plans have $757 billion in benefit liabilities and unfunded obligations of $391 billion, representing a 48% funding ratio using PBGC’s interest rate assumptions. The report noted that 319 plans out of about 1,500 were certified in “red zone” critical status in 2011, indicating the plans face significant and immediate funding problems.

A second report, PBGC Insurance of Multiemployer Pension Plans: Report to Congress required by the Employee Retirement Income Security Act of 1974, as amended said that “[W]ith existing premium levels and economic conditions, PBGC projects a 35 percent probability its multiemployer pension insurance program will be insolvent by 2022 and a 90 percent probability of insolvency by 2032.”

The third report, the PBGC’s annual Exposure Report, examines the future solvency of the PBGC’s insurance programs. According to the Exposure Report, the PBGC is expected to collect $1.3 billion in premiums from multiemployer plans over the next decade. However, the agency estimates its potential new obligations could increase by $37.6 billion.

House committee members respond

Bipartisan leaders on the U.S. House Education and the Workforce Committee responded to the PBGC reports by calling for congressional action.

Committee Chairman John Kline (R-MN) said, “I stand ready to work with my colleagues across the aisle on responsible reforms that will strengthen the multiemployer pension system. We have some difficult choices to make, but working together I am confident we can get the job done.”

Senior Democrat George Miller (D-CA), echoed this view, saying that “it is clear that Congress will have to come together to secure the multiemployer pensions system for the millions of current and future retirees, the businesses that contribute to these important plans, and taxpayers who provide the final backstop.”

Rep. Phil Roe (R-TN), Chairman of the Health, Employment, Labor, and Pensions Subcommittee, promised bipartisan action. “Over the last two years,” he said, “our subcommittee has held hearings to examine the hard truth facing multiemployer pensions. We have also begun discussing possible solutions that will support workers without discouraging participation in the voluntary pension system. Today’s reports have given new urgency to the difficult task before us and I look forward to continuing this bipartisan effort in the months ahead.”

Source: PBGC website, “Multiemployer Plan News and Info”; House Committee on Education and the Workforce, news release, January 29, 2013.

For more information, visit http://www.wolterskluwerlb.com/rbcs.

For more information on this and related topics, consult the CCH Pension Plan Guide, CCH Employee Benefits Management, and Spencer’s Benefits Reports.

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