OPINION: Multiemployer pension plans face huge funding shortfallsReprints
One of the biggest — yet little publicized — issues in the pension arena involves the nation's multiemployer pension plans. Those roughly 1,400 plans cover more than 10 million employees, retirees and dependents. Regrettably, a chunk of those plans — about 175 — are in such bad shape that they will run out of assets, says the Pension Benefit Guaranty Corp., and will need federal assistance to pay participants' guaranteed benefits.
The cost of that PBGC rescue: nearly $10 billion. The PBGC, which has just $1.8 billion in its multiemployer pension insurance fund, almost certainly will be unable to pay for such a rescue. That would mean hundreds of thousands of plan participants could lose benefits they were counting on.
How did this problem develop? Certainly, one reason is that some of the plans promised more than they could afford.
In other cases, factors over which the plans had little or no control came into play. Some plans withered due to industry changes that shrank jobs, resulting in more employers going out of business and few, if any, new employers to replace them.
In other cases, changes in federal law, such as deregulation, injected more industry competition, with the result being that older, unionized firms found it difficult to compete against new companies with lower benefit costs and failed.
Indeed, as we recently reported, at one of the nation's largest multiemployer plans — the Central States, Southeast and Southwest Areas Pension Fund in Chicago — more than 600 companies in the plan have gone into bankruptcy, leaving just four of the 50 largest employers that contributed to the plan in 1980 still in business.
And finally, federal lawmakers may have contributed unintentionally to the problem. Under a 1980 law, employers that leave underfunded multiemployer plans are required to pay a share of the plans' promised but unfunded benefits.
Because many of the plans have amassed huge liabilities, the specter of being liable one day for a huge withdrawal liability tab has discouraged prospective employers from joining the plans.
We don't pretend to have the answers to solve the plans' financial problems, although easing withdrawal liability penalties strikes us as a good place to start.
We do know that with tens of billions of dollars at stake, the issue is so important that lawmakers, employers and unions need to work together — and soon — to come up with solutions.