<!-- Swiftype Variables -->

Pension Funds

Multiemployer loan program will not help all, analysis says

As a special congressional committee works to solve a multiemployer pension crisis by the end of November, a new analysis by the Pension Analytics Group says that a leading idea of a subsidized loan program will save only one-third of participants in struggling plans.

Pension Analytics Group represent actuaries and economists who say they are worried "the clock might run out" before a viable solution is implemented.

With its Multiemployer Pension Simulation Model, the white paper projects about 200 multiemployer pension plans covering 3 million participants will become insolvent over the next 30 years, and that the Pension Benefit Guaranty Corp.'s multiemployer fund will be exhausted by 2027.

The loan program idea introduced in legislation earlier this year is considered a way for some critically underfunded plans to extend projected insolvency dates and reduce the risk to the PBGC.

The model analyzed by the Pension Analytics Group assumes a pension plan could receive a one-time lump-sum loan equal to the plan's funding deficit, which would be measured at a 7% discount rate.

The proposed new loan interest rate is 2%, and the term would be 20 years, when full repayment plus interest is due.

The analysis used 500 trials with asset returns varied stochastically to model plans projected to become insolvent within 30 years. According to the analysis, the average total number of participants in plans projected to become insolvent is 3.1 million in the baseline scenario, and 2 million if the loan program is implemented.

"Thus, on average, the loan program prevents plans covering over 1 million participants from becoming insolvent," the paper states.

In 30% of the trials, the loan program has little or no impact on the number of plans projected to become insolvent.

"Considered in isolation, the loan program is expensive," with the net cost defined as the present value of lending to plans minus the plans' repayments, averaging $56 billion across the 500 trials, said the paper.

A consistent positive outcome in many scenarios was significantly reduced pressure on the PBGC.

In 55% of the stochastic trials, the projected reduction in the present value of PBGC assistance payments exceeds the net present value cost of the loan program; for the remaining 45% of the trials, the projected reduction in the present value of PBGC assistance payments is less than the present value cost of the loan program, leading to increased costs to taxpayers.

In addition to the loan program idea, "a variety of options are available to prevent the guarantee fund's exhaustion, such as empowering plans to take stronger actions to avoid insolvency, reducing the level of the PBGC's benefit guarantee, and increasing the revenue flowing into the guarantee fund through premium increases or by securing additional revenue sources," said the white paper.

The group conducted its latest analysis of government-backed bailout loans in response to recent proposals from lawmakers and retirement industry professionals suggesting a long-term, low-interest-rate loan program could save the most troubled multiemployer pension plans without imposing undue hardship on participants, contributing employers, the PBGC, the federal government, taxpayers or healthy plans.

Supporters of this approach contend it buys time for struggling pension funds to get back on their feet. Eventually, it is hoped, a plan receiving a loan will regain its strength, pay off its loan and avoid insolvency.