Federal government bailout for multi-employer pensions falls flat, critics say

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Earlier this year, Congress launched a lifeline to struggling multi-employer pension plans. But the rescue effort is entangled in regulations that could end up sinking many pension plans, pension experts say.

The Pension Benefit Guaranty Corp., which insures defined benefit pension plans, released rules earlier this month outlining a new multi-employer financial assistance program mandated by the American Rescue Plan adopted in March. The law allows some underfunded multi-employer plans to apply for taxpayer-funded financial assistance that entails no repayment obligations and can help stabilize wobbly funding and restore previously reduced benefits. The new PBGC rules, however, make it very likely that plans accepting the aid will be insolvent within 30 years, according to pension consultants, lawyers and other experts, and leave young workers with little incentive to participate in these. diets.

The PBGC has been too drastic in its approach to calculating the amount of financial aid, says Russell Kamp, managing director of investment management firm Ryan ALM. Usually, this does not allow these plans to survive beyond 2051 if they even succeed.

The American Rescue Plan provides funding to severely underfunded retirement plans that will ensure that more than 3 million American workers, retirees, and their families receive the retirement benefits they have earned over many years of hard work, said PBGC director Gordon Hartogensis, announcing the new rules. . The new financial assistance program is expected to funnel about $ 94 billion to more than 200 qualifying multiemployer plans, according to the PBGC. The agency is accepting public comments on the interim final rule until August 11.

About 1,400 multi-employer pension plans, created through agreements between unions and two or more employers, cover more than 10 million members, typically in industries such as construction, trucking, manufacturing and construction. retail.

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Declining unionization in some industries and employer withdrawals from multi-employer pension plans have contributed to the financial difficulties of these plans for years. And if one employer of a plan goes bankrupt, other employers could end up with unfunded benefit obligations. A 2014 law gave some underfunded pension plans the ability to reduce retiree benefits. Since then, 18 of these plans have received approval from the US Treasury Department to reduce benefits under this law, the Multiemployer Pension Reform Act, resulting in sharp cuts in income for some retirees.

In plans receiving the new financial assistance, these previous benefits will be reinstated. But many plans can think twice before taking help, say pension experts.

One concern: the PBGC’s interpretation of the US bailout requirement that the amount of financial assistance should be sufficient to pay all benefits due until 2051. Under the PBGC rule, the amount of aid will be equal to the difference between the obligations of the plans over the next 30 years (including benefits and administrative costs) and its resources, including current assets, contributions over the next 30 years, the gains on these amounts and the advance payments under the withdrawal obligation made by employers leaving the plan. Given this interpretation, after 30 years, you have exhausted all of your assets by 2051, says Kamp, including contributions that were intended to pay benefits beyond 2051. This calculation of financial aid says -it, is the absolute minimum you can get. under the law.

PBGC believes that the ordinary meaning of the law is that all the resources and obligations of the plan must be taken into account, the agency said when introducing the new rules.

The PBGC’s approach may reflect a desire to restrict the taxpayers tab for the program, according to pension experts. The federally funded financial assistance program is also helping to improve the precarious financial situation of the PBGC’s multi-employer insurance program, which is funded by premiums paid by the plans. At the end of last year, the insurance program was facing insolvency in fiscal year 2026.

Another concern about the new financial aid program is ingrained in the language of the law, according to pension experts. The interest rate used to calculate the amount of financial aid is significantly higher than the expected rate of return on the investment options available for this pot of money, according to experts, creating a funding gap. That drives you out of business sooner, says Gene Kalwarski, CEO of actuarial consulting firm Cheiron.

To fill the gap, plans may be tempted to invest their other assets more aggressively, pension experts say. This is an invitation to recklessly manage the regime’s resources, says an expert who asked not to be appointed while continuing to review the regulations. If you want your plan to last, you’re going to have to take a lot of risks.

The PBGC rules leave young participants in multi-employer plans and the unions that represent them in a difficult situation, experts say. If you’re a younger employee in one of these plans right now, you should consider whether you want to continue participating, says Kamp, because the plan could go bankrupt when you retire. When a multi-employer plan fails, the PBGC guarantees benefits up to certain limits, but those limits are often considerably lower than the benefits retirees would have received had the plan remained healthy.

While PBGC may still revise the regulations based on public comment, some observers doubt the end result will live up to lawmakers’ intention to enact the financial aid package. Senate Majority Leader Chuck Schumer said in early March that he would closely monitor the implementation of the new program to ensure that the plans receiving aid are not placed in a funding position. long term worse than they are today or they should be in the future. The program, the New York Democrat said, is intended to be a long-term solution to these struggling plans, one that protects retiree benefits as well as the health of the plans themselves. Schumers’ office did not respond to a request for comment.

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