The federal insurance fund that protects the pensions of more than 10 million Americans is fast deteriorating, a government report said Monday, increasing pressure on Congress to come up with a plan to shore it up before employers abandon it altogether.
The Pension Benefit Guaranty Corp. said in its annual report that the projected deficit in its multiemployer insurance program rose more than five-fold over the past year, in part because several large pension plans are on course to become insolvent over the next decade.
If that happens, the entire system could be thrown into jeopardy, leaving millions of workers without pensions and only a fraction of the insurance payouts they previous anticipated, the report said.
Unless Congress makes changes, which could include raising insurance premiums for multiemployer plans or the controversial move of allowing for preemptive pension cuts in struggling plans, the program faces a greater than 50 percent chance of collapsing within the next eight years, the PBGC said. It added that the chance of insolvency would be 90 percent by 2025.
The workers affected are enrolled in multiemployer plans, in which groups of businesses join with unions to provide pension coverage for workers. The plans are concentrated in certain industries, including construction, mining, supermarkets and trucking. The plans’ finances have suffered over the past decade in large part because of stock market plunges and a decline in employment and union membership, leaving the plans with a growing share of retirees to current workers.
Although the vast majority of the 1,400 multiemployer plans are healthy, more than one in 10 workers covered by them are enrolled in ones that are on shaky financial ground — adding another layer to what many advocates call the nation’s growing retirement security problem.
Most observers consider a taxpayer bailout a political non-starter, and policymakers have been debating other fixes for a couple of years. In its latest budget, the Obama administration has proposed a premium increase for pensions insured by the plans, but Congress has not acted on the proposal.
“Some multiemployer plans that are critically underfunded have taken the steps that they can to avoid insolvency, but the steps that these plans can take on their own are not enough,” Labor Secretary Thomas Perez wrote in the annual report. “Congress and stakeholders need to work together to provide solutions and additional tools to help preserve these critically important multiemployer plans.”
A coalition of unions and businesses has been pushing for reforms, including more flexible coverage structures and pension cuts in financially struggling plans. They have warned that if action is not taken soon, employers might simply leave the pension plans before the system collapses. Federal law requires those that leave the multiemployer system to make an exit contribution capped at two years of annual contributions.
“The longer Congress waits to take action, the more participating employers will leave the multiemployer system. Facing growing risks, employers are forced to consider paying their withdrawal liability, cutting special deals or in some cases, bankruptcy, to exit the system and leave retirees behind — while also weakening the system for other participating employers,” the National Coordinating Committee for Multiemployer Plans said.
When multiemployer plans fail, many pensioners suffer significant benefit cuts. The PBGC’s maximum insurance benefit for retirees in multiemployer plans is less than $13,000 a year compared with the more than $59,000 for those in single-employer plans. That means workers with a $20,000-per-year pension and 30 years service would lose more than $7,000 in annual benefits, the agency has said.
If PBGC becomes insolvent, the agency would be left with only incoming premiums, meaning payments would be just a fraction of previous levels.
“The multiemployer pension system is a ticking time bomb that will inflict a lot of pain on workers, employers, taxpayers, and retirees if Congress fails to act,” House Education and the Workforce Committee Chairman John Kline (R-Minn.) said in a statement. “Today’s report is a sober reminder that time is running out and should serve as a wakeup call for those few naysayers who believe this is too hard to get done.”
While the PBGC report had dire news about multiemployer plans, it noted that finances have improved sharply for its other insurance program for pensions, offered by individual companies, because of the surging stock market, higher insurance premiums and an economy on the mend. The long-term deficit for that program, which insures 22,300 pension plans covering about 31 million Americans, sank by nearly one-third over the past year.