At the end of this year, some aspects of the Pension Protection Act of 2006 are going to end -- "sunset," as they say in legislative jargon. The American Academy of Actuaries, which advises on the stability of pension plans, is particularly concerned about the impact of sunset on the solvency of multiemployer pension plans.
Multiemployer pension plans are a holdover from the days when most workers in industries like trucking and mining were unionized. The plans required all union employers to pay a small amount into a group pension fund, covering union workers for all companies. As the businesses have changed and fewer workers are unionized, some of these plans have been increasingly underfunded. A few of them are in big trouble, threatening the retirement planning of millions.
Companies that are still participating in the plans are being asked to pay more -- so much more in some cases, the survival of some businesses is threatened. If these companies seek exit plans -- because their owners are planning retirement themselves or their businesses have changed -- they are often faced with enormous pension liabilities that scare away potential buyers. Meanwhile, the number of union employees continues to shrink.
The trucking trade magazine Logistics Management pointed to the International Brotherhood of Teamsters' Central States pension plan as a particularly dire example. It said that there is only one active worker contributing to the plan for every four retired workers collecting benefits. The Central States plan is underfunded by at least $24 billion. Some of its retired members with 30 years of seniority are able to draw as much as $36,000 a year each -- more than double what the Pension Benefit Guarantee Corp, or PBGC, guarantees.
The PBGC, a quasi-government organization that guarantees corporate pensions, treats multiemployer plans differently than it does single employer plans. The maximum guarantee for a multiemployer participant with 30 years of service is $12,870 per year without an index for inflation. In contrast, the maximum guarantee set by law for single-employer participants at age 65 is $59,320 in 2014. Because that amount is indexed for inflation, it rises every year.
In a March letter to both houses of Congress, the chair of the Pension Practice Council Eli Greenblum asked Congress to act promptly so the PBGC, union officials and employers jointly have the tools to continue to develop solutions to this problem. Greenblum pointed out that if key parts of the rule actually sunset and the PBGC depletes current assets, "Participants in these plans could see their benefits reduced to less than $125 per month."
"The system as it stands now can't continue," Greenblum says. "Serious proposals have been made, and we are encouraging Congress to start to focus on this."
Meanwhile, Sanford Rich, chief of negotiations and restructuring for the PBGC, told Logistics Management, "The only thing that will help (multiemployer plans) is funds -- dollars."
Read more about multiemployer pension plan problems.