Failed Plan Members May Receive Only Fraction of PBGC Minimum  

PBGC says it would only be able to pay less than one-eighth the minimum benefit.

The Pension Benefit Guaranty Corp. (PBGC) is in such financial dire straits that members of failed multiemployer pension plans would likely receive only one-eighth of the minimum benefits they are supposed to be guaranteed, warned PBGC Executive Director Thomas Reeder during a congressional hearing last week.

During the hearing before the joint House-Senate Select Committee on Solvency of Multiemployer Plans, Sen. Sherrod Brown (D-OH) questioned Reeder about what would happen if plans fail, and PBGC insurance kicks in without help from Congress.

If you do nothing today, workers and retirees will continue [to] lose the benefits that have been promised to them,” said Reeder. He said the administration has laid out a proposal for increased premiums to pay the benefits that have been promised. But he said “the longer we wait to put that money into the PBGC, the more that money will have to be over a shorter period of time.”

The PBGC acts as an insurance company for multiemployer pension plans, but it is severely underfunded. As a result, the more plans that fail put an increasing strain on the organization’s finances.

When asked if the PBGC would be able provide the minimum guaranteed benefit to failed plan members without congressional action, Reeder said “no,” adding that the PBGC would have to cut it to about one-eighth the minimum benefit, or less.

“If they’re making $8,000 in guaranteed benefits today, they’d get less than $1,000,” said Reeder.

Reeder said that without help from Congress, propping up the PBGC could cost taxpayers $16 billion over 10 years, and that would only keep the organization going for another 20 years.

When asked about the impact on the withdrawal liability for businesses, Reeder said he didn’t believe most plans facing insolvency in the near future would terminate, so he doesn’t expect a mass withdrawal.  

“But they will have a continuing obligation to make a contribution to a plan that has already become insolvent,” he said, “so they’re making contributions for active workers for benefits that they will never get.”

Although the line of questioning centered on multiemployer pension plans, their struggles could also become a burden for single-employer pension plans, even though the PBGC’s single-employer pension insurance is on much more stable financial footing.

A 2017 issue brief published by the American Academy of Actuaries that offered ways the PBGC could bolster its struggling multiemployer program proposed combining the program with its single-employer program.

The single-employer program is currently in a stronger financial position than the multiemployer program,” said the brief. “However, this approach would generate potential inequities, as it adds new risks to single-employer plan sponsors and participants.”

It also warned that due to fundamental differences in how the single and multiemployer programs operate, combining the funding “could put stress on the single-employer system and further erode support for defined benefit plans.”

 

 

 

 

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