PBGC Warns of Trouble for Multiemployer Program

In “PBGC Insurance of Multiemployer Pension Plans,” the agency says although the timing is uncertain, currently it is at risk of not having the tools to help sustain multiemployer plans or the funds to continue to pay benefits beyond the next decade under the multiemployer insurance program. The multiemployer program has a deficit of $5.2 billion as of Fiscal Year 2012, the result of liabilities of $7.0 billion and assets of $1.8 billion.  Because the multiemployer program has only a small base of assets, the program’s large negative net position carries a substantial risk of exhaustion of multiemployer fund assets in the foreseeable future.

Based on the agency’s projections, and assuming no changes either in multiemployer plans or in PBGC’s multiemployer program, there is about a 35% probability that the assets of PBGC’s multiemployer insurance program will be exhausted by 2022 and about a 90% probability of exhaustion by 2032.

“These high probabilities of insolvency and the current program net deficit suggest that current premium levels will not support an increase in the multiemployer guarantee level,” the report says.

(Cont’d…)

In “Multiemployer Pension Plans,” the agency notes that plans have reported $757 billion in benefit liabilities and unfunded obligations of $391 billion, representing a 48% funding ratio. While there are several reasons for this, one problem is the demographic of multiemployer plan members: Only 39% of participants in the pension plans are active employees, while 61% are retired or vested participants separated from employment.   

Because benefits generally cannot be reduced after they are earned, underfunding can be made up only with prospective actions affecting active workers: Contributions can be increased and/or accruals of future benefits for active employees can be reduced so that future contributions exceed the cost of future benefit accruals. However, the report notes employers and active employees agree to implement such an additional charge with great reluctance, especially if the bulk of the benefit goes to retirees. The report adds that the situation is made worse by withdrawing employers that often do not pay their full obligations.    

In an exposure report, the PBGC said it 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.