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-
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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-
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