The fix for multiemployer pension plans
It's no secret that pension plans around the country are in trouble. The old-fashioned defined benefit plans in both the public and private sectors face funding shortages, and some radical solutions have been proposed to fix them.
The trouble extends to so-called multiemployer pension plans that provide benefits -- or promise them -- to more than 10 million union members, including those of the Teamsters, the United Food and Commercial Workers International Union, and the National Electrical Contractors Association. Some are running alarmingly short on money, prompting a coalition of union officials and industry executives to put aside their differences and hammer out what they hope is a potential solution that involves compromises from all involved, including existing retirees.
The National Coordinating Committee for Multiemployer Plans, a coalition of unions and companies that employ union workers, has released its report, "Solutions Not Bailouts," which recommends taking these and other drastic steps.
- Raise retirement ages in line with those of Social Security.
- Allow trustees of the most troubled pension plans to suspend some benefits and even cut benefits that current pensioners already receive.
- Create new types of plans, such as variable annuity plans in which the benefit would rise or fall depending on investment performance but provide a minimum "floor" using conservative return assumptions. This would reduce employers' liability.
Some of these solutions run afoul of pension regulation put in place nearly 40 years ago that rendered pension plan promises sacrosanct.
What are multiemployer pension plans?
Multiemployer pension plans are different from other pensions offered by private companies in a variety of ways. These plans help union workers maintain retirement security throughout their working lives even though they may move from one job to another within their trade. Multiemployer pension plans are generally maintained by several employers within a particular industry as well as a labor union.
However, in recent years, some of these plans got into serious trouble due to a combination of deteriorating economic and market forces as well as government policies.
Earlier this year, the Pension Benefit Guaranty Corporation, or PBGC, which guarantees private pensions, reported that while it expects some multiemployer plans to recover as the economy improves, others may never be stable again.
The PBGC said it paid $95 million to participants of insolvent multiemployer plans in 2012. It projects this cost will rise to $500 million by 2022 -- accounting for just those plans that have already reported liabilities.
In March, the Government Accountability Office, or GAO, also released a report on the problems facing multiemployer pension plans. Author Charles Jeszeck, director of education, workforce and income security issues, summed up his conclusions this way: "A good chunk of the multiemployer system is healthy and should be able to provide benefits into the future. But there are some very large plans and a number of smaller plans where no reasonable combination of employer contributions and employee cutbacks will ever make them solvent."
He adds that if the PBGC is forced to step up and cover these shortfalls that it, too, will run out of money in the next 10 or 15 years.
The pension plans sponsored by the Teamsters union are among the least financially stable. Jeszeck says that without some shoring up, the situation will only get worse. "If the Teamsters came in (to the PBGC), it would whack the system," he adds.