The SOA on Multiemployer Pension Funding

There is a new report out by the Society of Actuaries (SOA) that is putting into focus the massive funding challenge facing the multiemployer defined benefit plans designated as in “Critical and Declining” (C&D) status. These pension systems are funded at less than 65% and are likely to become insolvent within the next 20 years, but unfortunately, many are anticipated to have fewer than 10 years to insolvency.

According to the report, there are more than 1,200 multiemployer DB pension systems covering roughly 10 million active employees and 4 million retirees. Of the roughly 1,200 funds, more than 100 are designated as critical and declining, and the list continues to grow. These 100+ funds cover more than 1.4 million participants, with roughly 50% retired. Importantly, they receive benefits of more than $7.4 billion per annum. That is a lot of economic stimulus for the participants’ local economy.

Utilizing a mark-to-market discount rate (2.9%) produces an unfunded liability of nearly $108 billion. Why is outside assistance necessary, such as the Butch Lewis Act? Because the SOA forecasts that 68 of the C&D plans would still fail even if they were to generate a very unrealistic 10% / annum for the next 20 years! Regrettably, the PBGC’s multiemployer insurance fund would be overwhelmed with the failure of just a couple of these larger entities.

Given the fact that many of these plans are already nearing or are at the point of no return, Congress needs to act now! The Joint Select Committee cannot let the September 30th deadline come and go without the support of some government intervention.  We certainly prefer the loan program under the proposed Butch Lewis Act, as we feel that the provisions in the Act force good behavior on both management and union trustees and their asset consultants.

“Multiemployer pension plan insolvencies will obviously be harmful to the participants and beneficiaries of the plans in question, but the loss of the significant economic momentum provided by retirees spending their pension plan assets could also harm the wider economy.” This is not a union crisis, but potentially a national economic crisis. If these plans are allowed to fail, the fallout will be huge, and we are going to pay one way or the other.

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