By John D. McKinnon at the WSJ.com
The federal government’s safety-net program for private pensions is running a near $62 billion long-term deficit, largely due to long-standing problems in a type of pension plan that is common in transportation, construction and some other industries, according to a new report.
The problems are likely to bankrupt the federal safety-net program for so-called multiemployer pension plans within the next decade, perhaps in the next few years. Such an outcome could hit more than 1 million people, the Pension Benefit Guaranty Corp. said.
The findings in the agency’s annual report mirror earlier projections. But the official numbers are growing so stark they are sure to raise pressure on Congress to act in the next year or two to tackle the looming crisis.
The PBGC operates by collecting insurance premiums from employers that offer pensions and paying usually-reduced benefits to retirees in insolvent plans. The PBGC has two separate insurance programs, one for multiemployer plans and a larger one for single-employer pension plans.
The multiemployer program—which is in much worse shape—insures benefits of more than 10 million workers and retirees in about 1,400 plans, the agency says. The plans typically are jointly managed by employers and unions.
But for years, those plans have been lightly regulated, and the federal safety net for them has been criticized as inadequate. Now, amid broad economic shifts in some industries, a few troubled plans are threatening not only to go broke themselves, but to bring down the entire safety-net program.
The agency said that the projected long-term deficit in its multiemployer program rose to $42.4 billion, compared with $8.3 billion last year. The increase is largely to due to the fact that several large multiemployer plans are now officially projected to become insolvent within the next decade.
The PBGC report didn’t name the troubled plans, but two have previously been identified as a United Mine Workers plan and a Teamsters Central States plan.
The executive director of the Teamsters Central States pension fund, Tom Nyhan, said the report underscores the need for legislation to help his plan avoid insolvency. United Mine Workers didn’t respond to a request for comment.
Congress has been working on a solution but hasn’t yet come up with a way to fix the long-running problems, which likely would require either a bailout or sharp benefit cuts for the plans, as well as premium increases or other new revenue sources for the PBGC insurance program for multiemployer plans.
Lawmakers face politically dicey choices. Industry-specific bailouts and benefit cuts are seen as political poison. But relying too much on premium rises could worsen the problems by hastening the decline of individual plans or the whole program.
Rep. John Kline (R., Minn.), chairman of the House Committee on Education and the Workforce, said the multiemployer pension system “is a ticking time bomb that will inflict a lot of pain on workers, employers, taxpayers and retirees if Congress fails to act.”
He called the annual report “a sober reminder that time is running out and should serve as a wake-up call for those few naysayers who believe this is too hard to get done.”
Senate Finance Committee leaders Ron Wyden (D., Ore.) and Orrin Hatch (R., Ore.) issued a statement that they remain “very concerned” about the multiemployer system and are committed to addressing its problems.
“We owe it to American workers to do everything feasible to ensure that retirees receive the promised pension benefits they worked hard to achieve,” they said. Mr. Wyden is the committee’s current chairman; Mr. Hatch is expected to take over in the next Congress.
Agency officials said they believe they have enough money to continue financial assistance to insolvent multiemployer plans for several more years, but that over time the risk of the PBGC fund running dry is increasing.
The separate, larger program for single-employer plans is much healthier. The agency said the long-term deficit in that program narrowed to about $19.3 billion from $27.4 billion in 2013. The single-employer program insures the pensions of nearly 31 million workers and retirees in about 22,300 ongoing plans sponsored by private-sector employers.