Multiemployer Pension Fund Remains at Risk, Says PBGC
The multiemployer pension plan program administered by the Pension Benefit Guaranty Corporation (“PBGC”) may run out of funds to pay benefits by 2025, according to the agency’s Fiscal Year 2016 Annual Report.
The PBGC reported a deficit of $58.8 billion in its multiemployer plans for the fiscal year 2016, up from $52.3B in fiscal year 2015 and $42.4 billion in 2014. This is the highest deficit in the multiemployer program’s history and “needs significant reform in order to remain viable,” according to the agency.
By contrast, the PBGC’s deficit for single-employer plans was $20.6 billion in FY 2016, down from $24.1 billion in FY 2015. The agency’s single-employer program, which insures about 34 million participants, provided $5.7 billion in benefits to almost 840,000 retirees covered by more than 4,700 single-employer plans now administered by the PBGC, in FY 2016, according to the annual report.
Overall, the PBGC provides insurance protection to nearly 26,000 pension plans covering up to 44 million Americans.
Actions to Strengthen Multiemployer Pension Plans
The PBGC is taking a number of steps to assist multiemployer plans through both financial assistance and administrative actions, including:
-- Review plan termination filings and plan merger notices
-- Consider requests for approval of transactions governed by the multiemployer provisions of ERISA’s Title IV
-- Provide technical assistance on the interpretation of complex ERISA provisions, such as payment of Qualified Pre-Retirement Survivor Annuities (QPSA)
-- Increase annual premium rates per participant to offset future costs
-- Implement changes mandated by the Multiemployer Pension Reform Act of 2014 (MPRA)
MPRA BENEFIT REDUCTION REQUESTS PROVE CHALLENGING
The MPRA does allow trustees of multiemployer plans to apply for benefit reductions by demonstrating that the plan would be insolvent within 15 years, and after exhausting other means of protecting benefit levels. The application process for benefit reduction is not easy, however, as demonstrated by the 2016 denial of several requests indicated below.
-- Teamsters Local 469 Pension Plan, based in Hazlet, NJ, was denied a request to reduce benefits beginning in 2017. The Treasury Department determined that the plan used unreasonable financial projections of a 7.25% rate of return for the entire 45-year forecast period.
-- Iron Workers Local 16 Pension Fund, of Towson, Md., was denied approval of a plan to also reduce benefits in 2017. The Treasury Department determined in this case that the fund’s assumptions regarding mortality rates and hours-of-service were not reasonable.
-- Road Carriers Local 707 Pension Fund of Hempstead, N.Y. was advised by the PBGC in June that its proposal to partition the plan and establish a different retirement plan for terminated vested and retired participants was denied on the basis of unreasonable future assumptions. The PBGC cited the MPRA requirement that applications for benefit changes be based on reasonable projections that the plan would remain solvent.
Earlier this year the PBG issued a proposal to facilitate mergers between distressed multiemployer plans as one way to protect longer-term viability. The agency continues to work with the Departments of Labor and Treasury to implement various MPRA provisions.
OVERVIEW OF MULTI-EMPLOYER PENSION PLANS
The construction, trucking, and hospitality industries, which rely on a large base of employees who tend to move from one employer to another within the industry, represent the largest number of multiemployer plans. Each multiemployer plan is established through a collective bargaining agreement between multiple employers and a labor union. These plans are also known as Taft-Hartley plans.
Up to 10 million workers and beneficiaries in approximately 1,400 pension plans are covered by the PBGC’s multiemployer program. While most of these plans are adequately funded, the PBGC estimates that 10 to 15 percent of plan participants are enrolled in multiemployer plans that are at risk of being depleted within 20 years.
ABOUT THE AUTHOR: Mark Johnson, J.D., Ph.D.
ERISA expert Mark Johnson, Ph.D., J.D., is a former ERISA Plan Managing Director and plan fiduciary for a Fortune 500 company, He has practical knowledge of plan documents as well as an in-depth understanding of ERISA obligations. Dr. Johnson works as an expert consultant and witness on 401(k), ESOP and pension fiduciary liability; retiree medical benefit coverage; third party administrator disputes; individual benefit claims; pension benefits in bankruptcy; long term disability benefits; and cash conversion balances.
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Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer.For specific technical or legal advice on the information provided and related topics, please contact the author.