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Without additional legislative changes, the Pension Benefit Guaranty Corp.’s insurance program that partially guarantees benefits to multiemployer pension plan participants is likely to fail within the next decade, the PBGC said Thursday.
By 2025, the likelihood that the multiemployer insurance program will go broke is more than 50%, while the program has a more than 90% likelihood of becoming insolvent by 2032, according to the PBGC report.
“Without changes, the multiemployer insurance program is likely to run out of money by 2025,” PBGC Director Thomas Reeder said in a statement.
The basic problem is the assets in the PBGC’s multiemployer insurance program are a fraction of its liabilities. In 2015, the insurance program had a whopping $52.28 billion deficit, with just $1.92 billion in assets and $54.21 billion in liabilities.
The Obama administration though, has proposed several changes — all of which would require legislative approval — to improve the financial position of the insurance program.
Those changes include requiring multiemployer plans, much like single-employer plans, to pay an additional premium to the PBGC based on their level of underfunding. In addition, the agency proposed that employers leaving underfunding plans pay a so-called exit premium to the agency.
Those proposals, along with another one giving the PBGC’s board of directors authority to raise PBGC multiemployer plan insurance premiums, “provide a path to solvency for the multiemployer program,” the report said.
In 2014, Congress approved several changes to the PBGC multiemployer insurance program, including one that allows financially troubled plans to cut participants’ benefits after receiving authorization from the U.S. Treasury Department.
Currently, one major multiemployer plan — the Central States, Southeast and Southwest Areas Pension Fund — is seeking Treasury Department permission to cut benefits earned by well over half of the plan’s more than 400,000 participants.
The Treasury Department has until May 7 to make a decision on the proposal by the plan, which at the end of 2014 had $35 billion in liabilities and just $17.8 billion in assets.
Democratic members of the Senate Finance Committee want Congress to take another look at a 2014 federal law that allows financially troubled multiemployer pension plans to cut participants' benefits after receiving regulatory permission, but the panel's Republican chairman is defending the law.