Regular readers will recall that back in the fall I wrote a series of articles digging into the insolvency crisis threatening many union-sponsored multi-employer pension plans as well as the multi-employer fund of the PBGC, the Pension Benefit Guaranty Corporation. The long and short of it is that both the multi-employer PBGC fund and certain high-profile plans themselves are facing insolvency as soon as 2025; two of largest, and in the most dire condition, are the Teamsters’ Central States plan (beset by everything from 1970s mob corruption to a withdrawal by UPS just before the market crash) and the United Mine Workers (because, well, they’re miners, and only a tiny fraction of the plan’s participants are active employees), but all such plans were affected, to greater or lesser degrees, by fundamental flaws in the way Congress designed the regulatory structure for the plans, which made it difficult-to-impossible to prudently fund and manage the plans in the first place. What’s more, unlike the single-employer version of the PBGC, which will cover the unfunded portion of benefits for retirees at bankrupt companies such as Sears sufficiently-well that most retirees’ family finances should be relatively unharmed, the multi-employer PBGC program includes a much lower maximum benefit, with correspondingly higher financial pain for workers and retirees, for insolvent plans.
And, again, back in December, I discussed a legislative proposal that hoped to solve the problem, the Butch Lewis Act. Trouble is, this proposal, rather than honestly acknowledging that Congress bears part of the blame due to its past legislative failures, and constructing mechanisms by which everyone share the pain, in order to put plans on sounder financial footing going forward and allow workers in the affected industries to accrue benefits for their own retirement, simply creates a low-interest loan program, without any real path towards repayment of those loans. As a result, the Pension Analytics Group, a group of economists and actuaries, modeled the proposal and found that it would reduce the number of participants affected by plan insolvencies, but not by nearly the degree needed for a real fix of the problem. In any event, that bill could not get enough support and stalled in Congress in 2018, with a consensus that something had to be done, but that the Butch Lewis Act was not the right “something.” And I kept watching for updates to see what a new-and-improved version of a multiemployer remedy might look like, and hoping that Congress would understand that every month that they fail to act is another month’s worth of pension checks being sent out without the reductions which, if made now, can lessen the far steeper cuts which would be required in the future without action now.
Which brings us to last Tuesday, when, as reported by the National Association of Plan Advisors, the House Education & Labor Committee approved the Rehabilitation for Multiemployer Pensions Act, in the face of objections by Republicans that they had shut down debate too quickly; it now moves to the Ways and Means Committee before moving to the full House. But does Congress/do the Democrats deserve our cheers for taking action? Not really. This is not bipartisan legislation which has a real chance of providing a lifeline to affected workers and retirees. This is, quite simply, another attempt to pass the Butch Lewis Act which failed in 2018. Without any indication that there is support in the Senate, what value is there in a second try on this bill, without any rethinking of the plans?
And, no, multiemployer plans themselves are not faring any better than they were in 2018. While the PBGC isn’t due to issue its next report until the summer, the benefits consulting firm Milliman has issued its updated analysis of plans’ funding, in which, compared to 2017, the aggregate funded percentage across all plans in its analysis dropped from 83% to 74%. But that masks the fact that some plans are stable and others very troubled. Based on government-defined “zones” by color, out of 1,251 plans with 10.5 million participants in the Milliman study,
- 783 plans/6.0 million participants are in the “green zone,” with funded status of greater than 80% and no projected future funding deficiencies. On average, these plans are 87% funded (all these funded percentages are on an expected-return-on-assets basis).
- 135 plans/1.0 million participants are in the “endangered/yellow zone,” with less than 80% funded or a projected future funding deficiency. These plans are, on average, 69% funded.
- 210 plans/2.2 million participants are “critical/red zone,” with less than 65% funding, or meeting certain other criteria. These plans are on average 63% funded (because some plans with better than 65% are in this zone for other reasons).
- And 123 plans/1.3 million participants are “critical and declining/deep red zone,” in which the plan actuary projects insolvency within 14 or 19 years (varies by certain plan particulars). These plans are, on average, shockingly poorly funded, at 38%.
These plans’ issues are not going to be fixed by low-interest loans. Younger workers at employers participating in these plans deserve to be able to accrue retirement benefits that will be there for them when they retire. Older workers and retirees deserve some certainty and answers as well. And this requires that Congress be willing to find a bipartisan solution.
What do you think? You’re invited to comment at JaneTheActuary.com! And, yes, later this summer I will be revisiting the issue and telling more “tales of woe” as well.