PBGC – Too Big to Fail?

If you are a union employee, you probably have a pension plan that has promised to pay a monthly annuity for your life once you reach retirement age. What happens if the plan cannot pay your benefit when the time comes? Well, there’s insurance for that. Pension plan sponsors are required to pay premiums for insurance through a government run program called the Pension Benefit Guaranty Corporation (PBGC). Simply stated, this insurance kicks in if the employer cannot fulfill the promises made to the employees. When that happens, the PBGC pays the pension benefits, up to certain limits. However, the PBGC predicts that its multi-employer program, the program that covers most union-sponsored pension plans, will become insolvent before the end of 2026 and almost certainly by 2027.

To determine its potential obligations, the PBGC looks at the funding status of all multi-employer plans. Each year, pension plan are required to report their funding status to the Department of Labor if the funding levels fall below certain thresholds. For 2020, the Department of Labor website shows there were 55 plans reported to be in engaged status (less than 80% funded), 112 plans reported to be in critical status (less than 65% funded), and 61 plans reported to be in critical and declining status (reported as going insolvent within 20 years). Many of these plans are multi-employer plans and some are very large plans. Continued failure of these multi-employer pension plans is putting an enormous strain on the PBGC’s resources. In 2020, the multi-employer portion of the PBGC had a deficit of -$63.7B. Despite being able to turn around its deficit for the single employer program, the multi-employer program has had a deficit fluctuating between -$42.4B to -$65.2B since 2014.

The PBGC was designed to be self-supporting by requiring pension plans to pay premiums for the plan participants and by taking over the assets of failed pension plans. It does not receive any funding assistance from the Federal government which means that if the PBGC fails there is no other government funding for these failed pension plans and no current mechanism to support the PBGC.

The Bipartisan Budget Act of 2018 created a Joint Committee on Solvency of Multiemployer Pension Plans made up of members of the House and Senate. Its commission was to come up with recommendations and legislative language to improve the solvency of multi-employer pension plans and the PBGC by November 30, 2018. The date came and went with no improvement plan or legislation to avert in this crisis. We can only hope that if the PBGC fails, it will be treated like the “Too Big to Fail” companies that received government assistance during the 2007-2008 financial crisis. Without a bail-out, unionized employees who work their whole lives in expectation of receiving a pension will be hung out to dry.

If you think your union’s pension plan may be at risk, please to set up a free initial consultation with a member of Kantor & Kantor’s Pension team at 800-446-7529 or use our online contact form.

 

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