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Wall Street Journal: Federal Pension-Plan Safety Net Faces Severe Funds Squeeze

Pension Benefit Guaranty Corp. Estimates the Program Could Collapse Within 10 Years

The federal safety net for a type of private-sector pension plan common in the transportation, construction and other industries is at risk of collapse in coming years, according to a report released Monday.

Such an outcome has the potential to affect more than a million people.

The federal Pension Benefit Guaranty Corp. program that covers multi-employer pensions "is more likely than not to run out of funds in eight years, and highly likely to do so within 10 years," the agency said in releasing new projections. The PBGC collects insurance premiums from employers that offer the pensions and helps retirees in insolvent plans by paying them reduced pensions.

But the likely failure of several big plans means that the PBGC's limited resources for helping retirees in failed multi-employer plans likely will be tapped out in coming years. This year's report estimates that the $8.3 billion long-term deficit the federal backup plan for multi-employer plans faced in fiscal year 2013 will widen to $49.6 billion by fiscal year 2023. The deficits don't mean that the backup plan can't pay now.
The PBGC's new projections "show that insolvencies affecting more than a million of the 10.4 million people in multi-employer plans are now both more likely and more imminent," the PBGC said.

This year's PBGC projections rely on a new methodology that the agency regards as more realistic about what troubled pension funds can and can't do to shore themselves up—for instance, plans could raise employer-contribution requirements, but that would tend to drive off remaining participants, accelerating the downward spiral.

The report underscores growing pressure on Congress to take action. But the options for lawmakers are politically difficult. Bailouts of troubled plans or of the safety-net program itself could spark a backlash among voters, while forcing benefit cuts on beneficiaries—particularly current retirees—would be painful and unpopular.

Republican and Democratic leaders of the House Education and the Workforce Committee Chairman took the unusual step of issuing a joint statement Monday. They have been negotiating a solution but so far without success.

"The latest PBGC report confirms in stark detail the significant challenges confronting the multi-employer pension system," said the statement from Chairman John Kline (R., Minn.) and ranking Democrat George Miller of California, along with other members. "The systemic crisis we face threatens countless workers, employers, and retirees, and could ultimately harm American taxpayers, as well. We have an obligation to advance reforms that will modernize the system, encourage employer participation, protect taxpayers, and offer new tools to help rescue troubled plans. We continue to work together to find common ground and a responsible legislative solution."

Senate Finance Committee Chairman Ron Wyden (D., Ore.) also expressed new worry.

"I'm very concerned by the findings…issued today by the Pension Benefit Guaranty Corporation," Mr. Wyden said in a statement Monday. "The report confirms what we already know—the multiemployer pension plan system is in big trouble and putting a significant strain on the PBGC. As I've stated previously, the Finance Committee is taking a hard look at the issues surrounding multiemployer pension plans, and I will work with my colleagues to address these issues in order to protect Americans' earned retirement benefits."

Problems with multi-employer pension plans—in which numerous employers in the same industry typically contribute to a single pension fund—have been recognized for years. Many of the funds were established through union contracts in industries that have undergone significant upheaval in recent decades, such as trucking and coal mining.

That restructuring has led to fewer employers making payments to the funds on behalf of fewer workers. Federal oversight also continues to be light, and the PBGC collects relatively low premiums to back up the multi-employer plans.

Posted 00:00AM on June 30 2014 by Jessica
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