The Multiple Employer Insurance Program administered by the Pension Benefit Guaranty Corporation (PGGC) is projected to become insolvent by 2026, according to the 2020 Annual Report recently released by the PBGC.
At current levels, the multi-employer pension program is underfunded at $ 63.7 billion. This is a slight improvement over the previous year, but the PBGC cautions that legislative reform is required to change the perspective. Program liabilities total $ 66.9 billion as of September 30, 2020, with only $ 3.1 billion in assets.
PBGC provided $ 173 million in financial assistance to 95 multi-employer plans in 2020, compared to 2019 levels. More than 79,000 participants in insolvent multi-employer plans received benefits in 2020, an increase from 66,900 participants in 2019. It is expected that Participants receive future benefits from insolvent multi-employer plans totaling 27,600 in 2020.
The Multiple Employer Insurance Program is one of two administered by PBGC, and the other is the Single Employer Program. The two plans protect the pensions of 34 million participants covered by plans valued at more than $ 3 trillion. The multi-employer plan individually represents 10.9 million workers and retirees in approximately 1,400 private sector defined benefit pension plans.
The Sole Employer Insurance Program has a positive net financial position of $ 15.5 billion, although it has future exposure to underfunded pension plans from weak companies.
Legislative Perspective for Multiple Employer Funding Relief
Industry observers agree that Congressional action is needed to address the serious underfunding in the PBGC’s Multiple Employer Insurance Program. While intensive talks took place in 2020, members of the United States House and Senate were unable to reach an agreement. Efforts to reform the multi-employer pension system are expected to continue in 2021.
The “Multi-Employer Pension Recapitalization and Reform Plan” is a proposed solution that was introduced in November 2020 by Senate Finance Committee Chair Chuck Grassley (R-Iowa) and Health, Education Committee Chair. , Senate Work and Pensions, Lamar Alexander (R-Tenn.). The proposal is based on five key objectives: 1) stabilize plans in immediate danger of failure; 2) ensure the benefits of workers and retirees; 3) strengthen the PBGC’s capacity to support the multi-employer system; 4) put the system on a long-term stable path; and 5) ensure fiscal responsibility.
2020 notices on declining and critical multi-employer plans
According to the Employee Benefits Security Administration, multi-employer pension plans determined by the fund actuary to have funding or liquidity problems must notify plan participants, beneficiaries, PBGC, Department of Labor and the negotiating parties.
In 2020, multiple employer plans issued the following types of notices:
• Critical and declining notices were issued to 52 plans. This notice is issued when a plan is expected to become insolvent during the current plan year or any of the subsequent 14 or 19 plan years, subject to certain conditions.
• Danger notices were sent to 44 plans, indicating that the percentage funded for that plan year is less than 80 percent.
• Critical status advisories were generated for 90 plans, indicating that the funded percentage of the plan is less than 65 percent.
The metrics for determining the status of a multi-employer plan as listed above are complex and the primary measure indicated is one of many.
Options for financially distressed multi-employer plans
Plans deemed “critical and declining” may petition the Treasury Department for a suspension of benefits, with certain exceptions based on the age and disability benefits of qualifying participants.
Severely underfunded plans may also request “partition assistance” from the PBGC. With this approach, a successor plan is created to provide guaranteed monthly benefits to a subset of the plan’s participants and beneficiaries.
One or more employers may retire from a multi-employer plan, but are then assessed for a retirement obligation for continuing obligations based on a formula of past contributions and their share of unfunded earned benefits.
The Multiple Employer Pension Reform Act of 2014 (MPRA) allows underfunded plans to be merged with a more financially sound plan. The first merger facilitated by PBGC under the MPRA took place in 2020 with the merger of the North American International Workers Union 1000 Pension Fund and the Local 235 Workers’ Pension Fund.
PBGC Financing
The PBGC does not receive funds from general tax revenue. Rather, it is financed with insurance premiums from defined benefit pension plans established by Congress, investment income, and related sources.
According to the PBGC, the multi-employer plan is projected to soon spend more on financial assistance than it receives on premium income. When multi-employer plans deplete your current assets, there is currently no additional funding for benefits beyond existing insurance premiums.
Background to multi-employer pension plans
Congress passed the Multiple Employer Pension Plan Amendments Act of 1980 (MPPAA) to provide oversight and support for multiple employer plans. This legislation expanded and strengthened PBGC’s insurance programs that were established under the Employee Retirement Income Security Act (ERISA) in 1974.
The PBGC’s Multiple Employer Program oversees defined benefit pension plans that are created through one or more collective bargaining agreements (CBAs) between employers and one or more employee organizations or unions. Up to 10 million American workers participate in 1,400 multi-employer defined benefit pension plans. The plans are often governed jointly by a board of trustees consisting of labor and management representatives.
Multi-employer plans are more common in unionized, labor-intensive industries, where workers move from one employer to another throughout their careers. Construction, transportation, hospitality, manufacturing, and entertainment are leading industries where multi-employer plans are often present.
The “multiple employer” plan should not be confused with the “multiple employer pension plan” (MEPP). A “multiple employer” plan is defined as follows:
“A plan maintained by more than one employer that allows pooling of plan assets for investment purposes and reducing the cost of managing the plan. A multi-employer plan maintains separate accounts for each employer so that contributions provide benefits only for employees of the contributing employer. There are no collective bargaining agreements that require contributions in a multiple employer plan. “
“Multi-employer plans” are 401 (k) plans, so there is no PBGC role or potential PBGC liability.
