The federal Pension Benefit Guaranty Corp. has warned that its program to help financially troubled multi-employer plans has weakened dramatically.
Multi-employer plans are important in unionized construction, covering nearly four million workers and retirees.
In its latest annual report, released on Nov. 17, PBGC said its multi-employer program deficit had widened to a record $42.4 billion in fiscal year 2014, which ended on Sept. 30, from $8.3 billion in 2013.
The main reason for the bigger deficit is that more multi-employer plans are expected to become insolvent over the next 10 years, said PBGC Acting Director Alice C. Maroni.
The report’s release comes just weeks before provisions of the 2006 Pension Protection Act lapse. Sections of the law that would help to expire multi-employer plans newly categorized as “severely distressed” for plan years starting on Dec. 31.
In the report, Maroni said, “Plans covering over one million participants are substantially underfunded, and, without legislative changes, many of these plans are likely to fail.”
The multi-employer program is responsible for 10.3 million workers and retirees in about 1,400 plans in construction, trucking and other industries.
Construction-industry plans accounted for 55% of all multi-employer plans and 37.5% of the people those plans covered in 2010, PBGC said in a 2013 report on the Pension Protection Act.
House Education and the Workforce Committee Chairman John Kline (R-Minn.) said, “The multi-employer pension system is a ticking time bomb that will inflict a lot of pain on workers, employers, taxpayers and retirees if Congress fails to act.”
Kline added, “For months, we have tried to reach consensus on a package of reforms that would give trustees new tools to avoid insolvency and protect retirees. The time to enact responsible reforms is now, before the bomb goes off.”
Senate Finance Committee Chairman Ron Wyden (D-Ore.) and the panel’s top Republican, Orrin Hatch (Utah), said, “We’re committed to addressing the problems with the multi-employer system.” They pledged “to do everything feasible” to make sure retires receive pension benefits to which they are entitled.
In April, Senate Finance approved a package of extensions of expired tax incentives that also included a one-year extension for multi-employer pension-fund rules.
An aide to Hatch said via email, "If that package would move through the Congress in the [lame-duck session], Congress would have an additional year to work on the reforms." The aide added, "Senator Hatch is working to find a viable path forward to have a tax extenders package addressed by the end of the year, though negotiations are ongoing."
In a report issued in June, PBGC said if current premiums that support the multi-employer program do not change, there is “a significant risk of running out of money in as little as five years.” PBGC said the multi-employer program has a more than 50% chance of insolvency by 2022 and a 90% chance of insolvency three years after that.
In February 2013, a National Coordinating Committee for Multiemployer Plans (NCCMP) commission, which includes construction industry and union members, released a detailed proposal for revamping the multi-employer program.
That commission's "Solutions, Not Bailouts" proposal includes allowing trustees of troubled plans to take corrective steps, such as suspending some benefits; raising plans’ retirement age closer to that of Social Security's; and allowing large plans to combine with small plans but without taking on the small plans’ unfunded liabilities.
Randy G. DeFrehn, NCCMP executive director, said via email, "From our standpoint, this latest [PBGC] report simply underscores the urgency for Congress to act on the multi-employer community's proposal … to provide the stakeholders with the additional tools necessary to address the structural problems which face the entire system but which are especially crucial for the small, but significant, minority of plans facing insolvency."
He added, "There is still time to address this issue before the lame-duck session ends, and discussions are continuing. We are hopeful that their discussions will be fruitful."