The Pension Benefit Guaranty Corporation announced on January 14, 2020, the first merger of two multiemployer plans under the Multiemployer Pension Reform Act of 2014. The two plans are the Local 1000 Pension Fund, which covers more than 400 participants, and the Local 235 Pension Plan, which has more than 1,100 participants. Local 1000’s plan is in Critical and Declining status, while 235’s plan is in the green zone. Local 1000’s plan was forecast to become insolvent by 2026.
These two unions had merged years ago, but their plans remained separate and distinct. According to PBGC’s Executive Director, Gordon Hartogensis “Through this facilitated merger, we are preventing a failing plan from going broke and preserving benefits in a financially responsible way.” The agency will commit to providing $8.9 million in each of the next three years, which they have determined is enough to maintain the benefit levels for the participants in both plans, while saving the PBGC additional financial stress should Local 1000 collapse.
“By law, PBGC may not approve a facilitated merger that harms the solvency of the agency’s Multiemployer Program. PBGC approved this merger after determining that the merger reduces PBGC’s expected long-term loss with respect to the Local 1000 Plan and that providing financial assistance to the merged plan will not impair the agency’s ability to meet its existing financial assistance obligations to other multiemployer plans.” (PBGC Website)
On the surface, this arrangement seems like a smart approach to an on-going funding issue for many struggling multiemployer plans. Congress continues to kick the pension reform can down the road, and as we learned recently from Cheiron’s updated study, the funding problem just gets worse and worse to the tune of $750 million/month.
Of course, I have not seen any actuarial studies regarding this arrangement. It has not been announced what the funded status will be following this merger nor how this impacts future negotiated contributions from both employees and employers. In addition, I don’t know how this might change the return on asset assumption or the plan’s asset allocation. Lot’s of questions to be answered, but if benefits can be maintained for both entities, it seems like a win for all parties.
Who knows whether or not this first merger will open the floodgates to many more, but at least those participants in Local 1000’s plan can sleep better at night knowing that their benefit will be there each month as promised!