The Pension Benefit Guaranty Corp. raised alarms about the viability of the multiemployer defined benefit pension system in the U.S. when it sent three long-awaited reports to Congress on Jan. 29.
Those reports got the immediate attention of key legislators with jurisdiction over pension issues, who are now planning hearings on possible reforms. But multiemployer plan experts are raising the caution flag against a one-size-fits-all solution.
“(Multiemployer plans) are in all different shapes and sizes. The war (against underfunding) is going to be fought plan by plan,” said Eli Greenblum, senior vice president and actuary with The Segal Co., a multiemployer plan expert.
PBGC Director Joshua Gotbaum, whose reports came with no recommendations, agreed that the industry itself will meet the challenges. “The history of decision-making with regard to multiemployer pension systems is that it is best done at the initiative of the industry ... figuring out what they thought made sense.”
Given the combined news in the PBGC reports to Congress, they will have to get busy. Multiemployer plans had a 48% aggregate funding ratio, based on the PBGC's conservative interest rate assumptions. One of the most alarming statistics was the fact that only 39.3% of participants are active workers. Out of roughly 1,500 plans, 21% were in the “red zone” and facing significant, immediate funding problems.
It wasn't good news for the PBGC either. At current premium levels and economic conditions, the PBGC multiemployer pension insurance program has a 35% probability of being insolvent by 2022, and a 91% chance of insolvency by 2032, according to one of the PBGC reports. While the PBGC expects to collect $1.3 billion in the next decade in total premiums from multiemployer plan sponsors, potential new obligations of $37.6 billion could vastly eclipse that.