President Trump’s proposed budget for fiscal year 2020-2021 has two new premiums to help sure up the Pension Benefit Guaranty Corporation’s (PBGC) multiemployer insurance pool. The White House’s Office of Management and Budget estimates that the current PBGC multiemployer pool is short by $65 billion, with only $2.9 billion in assets at this time. The PBGC estimates that their multiemployer program will become insolvent by 2025, at which time participants in failing plans will likely receive 10% or less of their promised benefit.
The first premium adjustment is a variable premium to be paid by the individual plans per participant, both active and retired, and based on the funding status of the plan. The worst the funded status the more you pay per participant. The second proposed premium is described as an exit premium that will be “equal to 10 times the variable-rate premium cap – to be assessed on employers that withdraw from a multiemployer plan to compensate the multiemployer program for the additional risk imposed on it when employers exit” (ASPPA).
This proposed premium adjustment was part of the Grassley/Alexander proposal that has been floated. Unfortunately, it does nothing to keep these plans viable, but does provide a greater safety net should a plan fail. As we’ve discussed many times, there are roughly 125 multiemployer plans that have been designated as Critical and Declining, which means that they are <65% funded and will likely become insolvent in the next 15 years.
These plans are so cash flow negative that it is highly probable that they will all fail during that period. Raising the cost per head (as much as $80 from $29) isn’t going to help with the cash flow necessary to meet the promised benefits. Also, creating an exit premium (in lieu of withdrawal liability or in addition to?) will likely lead many of these plans to seek an alternative or hybrid retirement program.
The only legislation that keeps these plans alive is the Bill passed by the House of Representatives in July (H.R. 397), which provides critical loans to these failing plans. The plans receiving loans must defease their current Retired Lives Liability thus guaranteeing that the promised benefits will be paid in full, while extending the life of these plans by 30-years. Despite passing the House in July, this legislation continues to sit within the Senate as no action has been taken. It appears that Senate Republicans have no interest in providing a lifeline to these pension plans.
Why let these important retirement vehicles die? Wouldn’t it make more sense to keep these pension funds as on-going concerns so that current and future employees could also benefit from having a DB plan? Funding the PBGC and not these cash-starved plans is like allowing the patient to die, but giving them a nicer funeral! I don’t want to see these plans die!