There are roughly 1,400 multi-employer plans in the US. Unfortunately, for many of these plans there have been a variety of factors that have lead to a deterioration in their funded status. Some of these factors include the loss of business due to the poor economic environment and competition, benefit promises that were too rich to maintain, shrinking union populations and the loss of jobs due to deregulation, and legislation. Recently, the PBGC estimated that 175 of these multi-employer plans were so poorly funded that they would likely run out of assets, forcing the PBGC to take responsibility for the pension liability. However, it is estimated that the benefit liability is $10 billion, while the PBGC has about $1.2 billion in available funding. Clearly, this is an untenable situation.
What to do? There is no magic potion or silver bullet that will quickly eradicate this issue. However, prudent steps can be taken to begin to right the pension ship. Despite the fact that contributions are determined based on the ROA objective, plans should begin to focus on their specific liabilities to drive asset allocation and funding decisions. Regrettably, many union plans continue to reduce their plan’s exposure to fixed income further exacerbating the mismatch between the assets and liabilities. We at KCS have a unique approach to meeting this challenge, and we’d be happy to discuss our thoughts with you at your convenience.