The Pension Benefit Guaranty Corporation (PBGC)—the government entity that insures private pension plans—released its 2015 annual report, showing a $14.6 billion jump in PBGC’s deficit, to $76.3 billion.
This is bad news for millions of workers and retirees with financially strapped private-sector defined-benefit pension plans. When private-sector pension plans fail and can’t pay promised pension benefits, the PBGC steps in and pays benefits up to a maximum insured level. But without massive reforms, PBGC’s $76 billion deficit means that millions of beneficiaries of failed pension plans will receive mere pennies on the dollar in insured benefits.
The situation is most dire for troubled union pensions, as PBGC projects that its insurance reserves for those plans will run dry in 2025. Union plans are part of the PBGC’s multiemployer program, which covers about 10 million workers across 1,400 union plans. Multiemployer plans have enjoyed special treatment from the PBGC, including no risk-based premium and the ability to downplay their unfunded liabilities through high interest rate assumptions. Now the multiemployer program—which represents only a third as many workers—has a deficit more than twice as large as the single-employer program. Big surprise.
The Multiemployer Pension Reform Act of 2014 was supposed to help shore up PBGC’s multiemployer program, but even with a doubling in premiums, the program’s $212 million in premiums last year is a mere drop in the bucket compared to the program’s $52.3 billion deficit.
To put PBGC’s alarming multiemployer program finances in perspective: It’s equivalent to a person who makes $50,000 a year having $12.8 million in debts.
There’s simply no way under the current circumstances that the PBGC’s multiemployer program will be able to pay promised benefits.
To increase its chances of solvency, the PBGC should be required to operate more like a private insurer, charging premiums commensurate with risk. Longer term, Congress should consider transferring the PBGC’s role to the private sector, which has proven capable of managing risks and protecting insured benefits.
Even more important, however, multiemployer pension plans themselves need reforms because PBGC solvency depends on the solvency of the plans it insures.
Congress should end preferential treatment for multiemployer plans and subject them to the same rules and regulations as single-employer plans. In particular, they must be required to use realistic interest rates to estimate future liabilities and assets so as not to underestimate potential shortfalls.
Congress should also strengthen provisions of the Multiemployer Pension Reform Act, granting increased authority for trustees to reduce benefits, and holding trustees accountable for adequately funding plans.
The failure of many private pension plans and the potential insolvency of the PBGC means that millions of individuals who worked hard and were told they could count on a secure retirement may instead face financial hardship. While pension beneficiaries had nothing to do with the failure of these plans, neither did taxpayers—and they should not be forced to bail out private-sector pensions.
