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About Northwest labor press. (Portland , Ore.) 1987-current | View Entire Issue (May 3, 2013)
To save severely distressed multiemployer pension plans Cuts in retiree pension checks under consideration WASHINGTON, D.C. — Union and employer representatives are lob- bying Congress to modify the Em- ployee Retirement Income Security Act (ERISA) to allow severely under- funded multiemployer pension plans to reduce the paychecks of retirees and partially suspend accrued benefits for all vested participants in an effort to keep the plans from going under. Nearly 100 multiemployer defined benefit pension plans (MEPPs) are headed for insolvency as a result of the dot-com crash of 2000-02, followed by the “Great Recession” of 2008. Partic- ipants in insolvent plans get some pro- tection from the Pension Benefit Guar- anty Corporation (PBGC), but it’s only fractions on the dollar — and the agency itself is facing insolvency. About 10 million workers and re- tirees are covered by roughly 1,500 multiemployer pension plans in the United States. MEPPs are maintained under collective bargaining agreements between a union and multiple employ- ers, typically smaller businesses. At a hearing March 5 before the U.S. House subcommittee on Health, Employment, Labor and Pensions, rep- resentatives from management, labor, the federal Pension Benefit Guaranty Corp., (PBGC), and the non-partisan Government Accountability Office (GAO), painted a grim future for mul- tiemployer pension plans. Besides the two large stock market crashes, other contributing factors to struggling plans include a declining unionized workforce, more unionized employers going out of business, and – due to a still sluggish economy — fewer hours being worked by actives, thus fewer contributions going into the plans. Joshua Gotbaum, director of PBGC, said 30 years ago, three-quarters of all participants were active and only one quarter were retired or waiting to retire. “Today, the situation is largely re- versed: by 2010, 39 percent of partici- pants were active and 61 percent were inactive,” he said. PBGC estimates that in the 2012 plan year, just over half of all multiem- ployer participants were in endangered (yellow) or critical (red) status plans. Further, the agency believes that 80 to 85 plans will be unable to recover. According to a 2011 survey of 107 critical status plans conducted by the Segal Company, 28 plans had deter- mined that no realistic combination of employer contribution increases and participant benefit reductions would enable them to emerge from critical status, and their best approach is to forestall insolvency for as long as pos- sible. Among these plans, the average number of years to expected insolvency was 12, with some expecting insol- vency in less than five years, and others not for more than 30 years. The major- ity of these plans expected to go under in 15 or fewer years. Such is the case for the Western States Office and Professional Em- ployees Pension Fund. Last month the trust told participants — many of them members of Vancouver-based OPEIU Local 11 — at a special-call meeting that despite implementing a rehabilita- tion plan in 2009 that increased em- ployer contributions and reduced worker benefits, the fund will likely be insolvent by 2030. When a multiemployer plan be- comes insolvent, PBGC loans the trust money to pay participants a “statutorily guaranteed benefit” for the rest of their lives. (Unlike its insurance of single- employer plans, PBGC does not take over the plan, or its assets and liabili- ties; the agency funds the plan’s guar- anteed benefits and operating costs, and audits to ensure they are reasonable.) The problem with PBGC’s “guaran- teed benefit” is that it doesn’t cover full benefits. It calculates the benefit based on the amount of a participant’s benefit accrual rate and years of credit service earned. Specifically, PBGC guarantees 100 percent of the first $11 of a plan’s monthly benefit accrual rate, plus 75 percent of the next $33 of the accrual rate, times each year of credited serv- 7LUHG RI 3$,1" 0RVW,QVXUDQFH 3ODQV$FFHSWHG 3 528'/< 6 (59,1* 3 257/$1' : 25.(56 ) 25 2 9(5 < ($56 MAY 3, 2013 NORTHWEST LABOR PRESS (Turn to Page 4) %HHVRQ&KLURSUDFWLF :RUNLQJ LQ ice. Currently, PBGC’s maximum gu- rantee is $35.75 per month times a par- ticipant’s year of credited service. Thus, a participant who retires at nor- mal retirement age (65) with 30 years of service would receive $12,870 an- nually — $1,072.50 a month. “Without PBGC, participants would be left with nothing when a plan runs out of money,” Gotbaum said. Gotbaum said PBGC paid $95 mil- lion in financial assistance for benefits and plan expenses to participants in 49 insolvent multiemployer plans in fiscal year 2012. This allowed those plans to continue paying guaranteed benefits to about 51,000 retirees; 21,000 addi- tional participants will receive benefits from those plans when they retire. There are 61 more plans that have ter- minated and will run out of money in the next few years. Which only adds to the problem. Charles Jeszeck, director of the pen- sion section of the GAO, told lawmak- ers PBGC has been designated as a “high-risk” federal program, whose fi- nancial future is uncertain. “Existing and anticipated plan in- KHOSVEULQJWKH UHOLHI\RXQHHG 7UHDWPHQWIRUSDLQGXHWR RYHUXVHDQGUHSHWLWLYHPRWLRQ &KLURSUDFWLFDGMXVWPHQWV 7UHDWPHQWIRUDFFLGHQWDQG VSRUWVUHODWHGLQMXULHV 5HKDELOLWDWLRQH[HUFLVHV 7KHUDSHXWLFPDVVDJH ,QWHUQDOGLDJQRVLVDQGWUHDWPHQW /DEWHVWVDQG[UD\V 'U'DQ%HHVRQ&KLURSUDFWRU 6(7KLUWHHQWK$YHLQ6HOOZRRG &$// PAGE 3
