Despite “substantial economic and market gains,” the nation’s multi-employer pension plans “are severely underfunded, threatening benefit cuts for current and future retirees,” said a 2014 Projection Report released June 30 by the Pension Benefit Guaranty Corporation (PBGC).
As required by the Employee Retirement Income Security Act, the PBGC annually provides an actuarial evaluation of its future expected operations and financial status. This year’s report is especially important: a consortium of labor, management and interested financial entities are currently lobbying Congress to adopt a multi-part, proactive solution to the oncoming pension crisis that won’t involve a bailout by taxpayers.
All of the building trades unions have a huge stake in the outcome of the hoped-for Congressional action. Multiemployer pension plans cover about 10 million people, but the report said about 15 percent of them are in troubled plans.
Rep. John Kline (R-MN), Chairman of the House Education and the Workforce Committee, along with other senior Democrats and Republicans on the Committee, issued a joint statement following the report’s release. “The latest PBGC report confirms in stark detail the significant challenges confronting the multiemployer pension system,” they wrote. “The systemic crisis we face threatens countless workers, employers, and retirees, and could ultimately harm American taxpayers, as well. We have an obligation to advance reforms that will modernize the system, encourage employer participation, protect taxpayers, and offer new tools to help rescue troubled plans. We continue to work together to find common ground and a responsible legislative solution. The American people deserve nothing less.”
The report broke little new ground but offered substantiation to what we have been reporting over the past several months.
“Multiple sources of information confirm the increasing pressures on multiemployer plans,” the Project Report says. “The most recent complete data filings show almost 1.5 million people at risk in plans that are severely underfunded. If and when those plans fail, many participants will experience significant benefit reductions.”
To give multiemployer pension plans the greatest opportunity to remain solvent, business and labor representatives put forward a package of reforms called “Solutions, Not Bailouts.” Crafted by the National Coordinating Committee for Multiemployer Plans, the proposal reflects key principles that labor and management want Congress to put into law.
The package allows for greater employer participation in the plans by removing barriers to joining as well as providing accounting tools for plans to move back to better health. Perhaps most importantly – to get Solutions past a dysfunctional Congress – the plan does not require the use of taxpayer funds. It is hoped that Congress will take up pension reform later this year. Depending on the health of individual pension plans, freezes or reductions in pension distributions are both on the table.
Kline has called the multiemployer pension system “a ticking time bomb. The Pension Benefit Guaranty Corp., which backstops failing plans, expects to run out of money in 10 years. Kline said multiemployer plans have $818 billion in benefit liabilities yet only $397 billion in assets, which means collectively plans face a $421 billion funding shortfall. One of the largest plans, Kline said, pays $5 in benefits for every $1 it receives in contributions.
About 3.75 million building trades workers and retirees are covered by multiemployer plans, which also include unions such as the Teamsters and United Food and Commercial Workers.
Bart Carrigan, president of the Associated General Contractors-Michigan, told Michigan Construction News.com that with Michigan’s recession lasting longer than other states, multiemployer pension plans already adjusted to the leaner economic times, so auditors’ projections indicate the possibility of insolvency is currently remote for plans in our state. There are, however, some severely distressed plans.