The federal safety net for troubled multi-employer pension funds could run out of money by 2025, according to a new report by the Pension Benefit Guaranty Corp.
The PBGC, the federal agency that insures all private pension programs, said Friday that to prevent the multi-employer pension insurance fund from running out of money, the insurance premiums for that safety net would need to increase by at least 360 percent. That would give the insurance fund $15 billion to avoid a near-absolute chance of insolvency by 2035.
“Insolvency of PBGC’s multi-employer insurance program would devastate the retirement benefits of 1 million to 1.5 million participants and their families,” Labor Secretary Tom Perez, who also serves as chairman of the PBGC, said Friday in a news release. “We must address the funding and other challenges of the multi-employer insurance plan before it is too late.”
The PBGC needs congressional approval to hike premiums for multi-employer pension plans, which are used by those who maintained a single pension fund while at different workplaces, but the burden would ultimately fall on workers to pay. President Obama included the $15 billion proposal in his budget proposal, but PBGC staff indicated during a Friday media conference call that they were not confident that the full $15 billion would be approved.
Premiums for multi-employer plans have not increased at the same rate as premiums for single-employer plans in the past several decades. Both assess flat, per-participant premiums, but single employment started to charge variable rates in 1989. That variable rate accounted for 60 percent of single-employment premiums in fiscal years 2014 and 2015.
Last year, single-employment plan premiums were 5.6 times higher than those for multi-employer plans.
The independent agency released two reports that illustrated its financial condition and the need for increased funds. One, called the MPRA Report, centered on the state of the PBGC’s insurance for multi-employer plans. It was a one-time report required by the Multiemployer Pension Reform Act of 2014 to indicate if those pensions need additional support.
The other is issued every year to project the PBGC’s status through 2035. It walks through multiple economic scenarios and demonstrates how the PBGC would run out of money for multi-employer plans in each one if Congress does not act. There’s a projected 50 percent chance of that happening by 2025 and more than a 90 percent chance by 2028.
The reports’ releases come as one of the nation’s largest multi-employer pension funds, the Central States Pension Fund, faces insolvency. Last month, the Treasury Department rejected a Central States proposal that would have tried to keep the pension plan afloat by reducing the retirement benefits by an average of 23 percent. Hundreds of thousands of former and current truck drivers and their families would have been affected. This proposal was enabled by a 2014 law that allows multi-employer plans to reduce benefits even if they have not run out of money.
If the pension fund defaults, it would overwhelm the PBGC insurance fund for such plans.
Most multi-employer pensions are financially healthy. That’s good news for the 10 million Americans who are in one. But for the 1.5 million Americans who are in failing pension funds, not so much.