Benefit Preservation FAQ

Who developed the proposal?
What are the objectives of the proposal?
Was benefit preservation a concern in development of the proposal?
Are all multiemployer pension benefits at risk today?
What does it mean for a plan to be deeply troubled?
What happens when a plan exhausts its assets?
If my plan becomes insolvent, will I receive the same benefits from the PBGC?
What if a participant has a benefit that is higher than what PBGC pays?
How can we avoid dramatic benefit cuts?
Doesn’t the PBGC have enough money to support its multiemployer insurance program?
What happens when the PBGC multiemployer insurance program runs out of money?
What authority would “Solutions Not Bailouts” grant to plan trustees?
How would “Solutions Not Bailouts” affect a participant with a monthly benefit of $2,000 in a plan that will exhaust its assets?
Are benefit suspensions mandatory?
How are the 90% of plans that are not deeply troubled affected by benefit cuts?
Would benefit cuts be permanent?
What needs to happen now?

Who developed the proposal?
"
Solutions Not Bailouts: A Comprehensive Plan from Business and Labor to Safeguard Retirement Security for Multiemployer Plan Participants, Protect Taxpayers and Spur Economic Growth” is the result of an 18-month long process undertaken by more than 40 stakeholders from both business and labor who comprised the NCCMP’s Retirement Security Review Commission.

What are the objectives of the proposal?
“Solutions Not Bailouts” is comprised of private sector recommendations to ensure that multiemployer plans continue their decades-long mission of providing cost-effective and reliable retirement benefits to millions of working class Americans, while enabling the employers who fund them to remain strong contributors to the national economy. These recommendations will strengthen the existing system, preserve at-risk benefits for plans in severe trouble, and foster innovative plan structures for the future.

Was benefit preservation a concern in development of the proposal?
Throughout the entire process, the Commission sought to find solutions that would ensure that multiemployer plans are able to continue providing regular and reliable lifetime retirement income to plan participants to the greatest extent possible.

Are all multiemployer pension benefits at risk today?
No – more than 90% of plans are sufficiently healthy that there is currently no risk to participant benefits. Only a small number (between 5-10%) of the most severely distressed plans are considered to be deeply troubled, placing participant benefits at risk without action. These deeply troubled plans cover approximately 1.5 million participants.

What does it mean for a plan to be deeply troubled?
A deeply troubled plan is one that will exhaust its assets within the next 20 years, with too few financially strong employers currently in the plan to fund the shortfall.

What happens when a plan exhausts its assets?
When a plan exhausts its assets (becomes insolvent), the Pension Benefit Guaranty Corporation (PBGC) steps in and provides the plan with a minimal level of funding to continue paying benefits at a dramatically reduced rate.

If my plan becomes insolvent, will I receive the same benefits from the PBGC?
No. If a plan becomes insolvent, as illustrated in a recent GAO report, for a participant with 35 years of service retiring at age 65, the maximum benefit the PBGC will pay is $1,251 per month. This amount is reduced if the participant has less service or retires prior to age 65.

What if a participant has a benefit that is higher than what PBGC pays?
When a pension plan exhausts its assets, all benefits will be reduced immediately to no more than the PBGC maximum. To the extent that a participant was receiving a benefit from the plan above this level, the amount over the PBGC guarantee is permanently forfeited. The recent GAO report illustrates how a participant currently receiving a benefit of $2,000 per month would experience a reduction of nearly 40% when the benefit declines to $1,251 per month.

A core objective of the “Solutions Not Bailouts” proposal is to find a way for plans to preserve benefits above the PBGC guarantee level.

How can we avoid dramatic benefit cuts?
By taking action on the proposals offered in “Solutions Not Bailouts,” dramatic benefit cuts can be prevented in most cases. For example, in the case of a plan where the PBGC maximum guarantee would result in a $2,000 monthly benefit declining to $1,251 when insolvency occurs, in some instances, it may be possible for the plan to maintain a benefit level of $1,700 indefinitely if action is taken prior to insolvency. Whether this is possible or not for a particular plan will depend on factors such as the length of time before insolvency occurs, the demographics of the plan, and the level of benefits provided.

Doesn’t the PBGC have enough money to support its multiemployer insurance program?
No. Recent analysis released by both PBGC and GAO indicate that in the near future (10-20 years) the PBGC multiemployer program is highly likely to run out of money given current projections, leaving future insolvent plans with no safety net.

What happens when the PBGC multiemployer insurance program runs out of money?
The result would be devastating. Participants in insolvent multiemployer plans will receive only what the PBGC can provide on a pay as you go basis, which the GAO estimates to be no more than $125 per month. Preventing this disaster is a major reason why the “Solutions Not Bailouts” benefit preservation measures are so critical.

What authority would “Solutions Not Bailouts” grant to plan trustees?
Under “Solutions Not Bailouts,” the proposals that impact the most deeply troubled plans would be available only as a last resort, under strict oversight, and only if the result were materially better for workers than insolvency. In these dire cases, our proposals allow trustees of deeply troubled plans to suspend a portion of the benefit payments truly as a last resort in order to keep the plan solvent, would only occur under strict oversight with agreement from both labor and management, provided this can be done with benefits remaining above the PBGC maximum guarantee level.

How would “Solutions Not Bailouts” affect a participant with a monthly benefit of $2,000 in a plan that will exhaust its assets?
Under current law, this participant would experience a decline in benefits of nearly 40% when the plan exhausts its assets (becomes insolvent) and receives minimal funding from the PBGC, and potentially a catastrophic decline to $125 per month when the PBGC runs out of money. Under “Solutions Not Bailouts,” plan trustees would have the option of early intervention action which would allow the plan to maintain a benefit of $1,700 per month for this participant.

Are benefit cuts mandatory?
No. This provision would be available to the trustees of deeply troubled plans once they have exhausted all other measures for improving the funding levels, but there would be no obligation for the trustees to take this action.

How are the 90% of plans that are not deeply troubled affected by benefit cuts?
In order to exercise this provision, plans need to certify that they have taken every possible measure to improve their funding yet are still projected to exhaust their assets within 20 years. This would not be the case for the more than 90% of plans who do not project near-term insolvency. As noted above, these provisions are intended to be used only as a last resort measure available to only the most highly distressed plans, would only occur under strict oversight with agreement from both labor and management and only if the result were materially better for participants than the PBGC guarantee.

Would benefit suspensions be permanent?
Not necessarily. If the funding of the plan improves, the trustees would be obligated to include reinstatements of suspended benefits as part of any future improvement in the plan.

What needs to happen now?
To preserve benefits and strengthen the system, we need Congress to adopt measures that will allow multiemployer pensions to continue their decades-long mission of providing cost-effective and reliable retirement benefits to millions of working class Americans and enable the employers who fund them to remain strong contributors to the national economy. The “Solutions Not Bailouts” approach provides early intervention for the small percentage of multiemployer plans that are deeply troubled, while strengthening for the long-term the majority of plans that have successfully weathered the recent economic crisis.