A new report from the Congressional Budget Office reviews the serious problems facing the Pension Benefit Guaranty Corporation’s (PBGC) multiemployer program and analyzes proposed solutions.
The PBGC is a government-owned corporation with a critical role: Insuring pension benefits for people in private employers’ defined-benefit plans. A multiemployer plan is one that is provided by a group of employers.
“Many multiemployer pension plans have large funding shortfalls,” the budget office warns. “In all, multiemployer defined-benefit plans have promised nearly $850 billion worth of benefits to their participants but have assets worth only $400 billion.”
Many plans hope to make up their funding gaps through investment returns and larger employee contributions. But the budget office says a “small but growing number” of these plans report that they probably will not be able to make up their shortfalls.
If not, those plans would eventually file claims for assistance that “are likely to exceed the resources that PBGC will have available to pay them.” The budget office projects that the multiemployer program will become insolvent in 2025.
That could mean reduced benefits for millions of retirees and additional pressure on the federal budget.
Although lawmakers approved some changes in 2014 that “modestly improved” the outlook for PBGC’s multiemployer program, the budget office says, “claims for financial assistance are still projected to greatly exceed the program’s resources over the next 20 years.”
Obviously, further changes are needed soon.
Proposed solutions analyzed in the new report include altering the terms of PBGC’s insurance or pension plans’ funding rules, recapitalizing PBGC, and restricting plans’ investments in risky assets.
External links:
Options to Improve Financial Condition of PBGC’s Multiemployer Program (CBO)
