(WASHINGTON) — A new government report warned that the number of insolvent multiemployer private-sector pension plans could more than double by 2017.
The report, issued by the Government Accountability Office, included the survey results of 107 multiemployer plans, 25 percent of which were delaying eventual insolvency. Under the Employee Retirement Income Security Act of 1974, the benefits of multiemployer plans are insured by the Pension Benefit Guaranty Corp., a U.S. government agency that works to protect private-sector defined benefit pension plans.
There are about 1,500 multiemployer plans covering more than 10 million workers and retirees, the GAO said.
The PBGC’s financial payouts to failed multiemployer plans continues to increase, but the GAO warns that the insurance fund would be exhausted in two to three years if projected insolvencies of either of two large plans occur in the next 10 to 20 years. The agency also said it expects the number of insolvencies to more than double by 2017; and financial assistance to plans that are insolvent or are likely to become insolvent in the next 10 years would likely exhaust the insurance fund within the next 10 to 15 years.
Multiemployer defined benefit pension plans are created by collective bargaining agreements between labor unions and two or more employers. Industries where multiemployer plans are prevalent include trucking, construction, retail, and mining and manufacturing, according to the GAO.
For multiemployer plans, the PBGC guarantees benefits up to $12,870 per year, based on 30 years of employment. In 2013, plans pay PBGC an annual flat rate premium of $12 per participant, the premium for which is indexed for inflation.
“If the insurance fund is exhausted, many retirees will see their benefits reduced to an extremely small fraction of their original value because only a reduced stream of insurance premium payments will be available to pay benefits,” the GAO said.
The GAO recommends Congress consider “comprehensive and balanced structural reforms to reinforce and stabilize the multiemployer system.”
“Experts and stakeholders said that, in limited circumstances, trustees should be allowed to reduce accrued benefits for plans headed toward insolvency,” the GAO said. “Also, some experts noted that, in their view, the large size of these reductions for some severely underfunded plans may warrant federal financial assistance to mitigate the impact on participants.”
The recommendations come with tradeoffs, such as “significant hardships on some retirees, and any possible financial assistance must be considered in light of the existing federal debt.”
Copyright 2013 ABC News Radio
Sara Weber, Deseret News
Jethro Mullen Ivana Kottasova and Patrick Gillespie, CNN
Tara Bench, KSL.com
Ahiza Garcia, CNN