David Brenner, Senior Vice President and National Director of Multiemployer Consulting at Segal said in an article by Rebecca Moore in PlanSponsor that it is too early to tell what effect the first quarter’s market volatility will have on multiemployer plans in the long term. But, “we do know that those in Critical and Declining (C&D) status will be challenged,” he says. “Even healthy plans will be challenged, but they should be able to recover.”
When David speaks about the C&D plans, he is referring to the roughly 130 plans that have a funded ratio below 65% and are likely to become insolvent within the next 15 years. Many of these were forecast to end up with the PBGC long before the 15-year window expired. Regrettably, many of the funds currently in Critical status will likely be impacted to an extent that will have them fall into the C&D bucket.
The Segal organization has prepared an additional analysis, which considered both investment losses and reductions in contribution income on the multiemployer pension universe. “They found that “depending on the severity and duration of the COVID-19 crisis, we estimate that as many as 180 additional plans could face projected insolvency in the next 20 years. That would bring the total number of plans in critical and declining status to over 300, covering over 2.5 million workers, retirees and beneficiaries.
As we have consistently reported for 2 1/2 years, this crisis is not going to go away on its own. There is no way that these plans can earn enough from their investments to overcome the severity of their negative cash flow status. These plans need the Federal government to inject a significant amount of money to cover existing retired lives while buying time for their current assets to outperform future liability growth. The Butch Lewis Act is the only legislation currently before the Senate, but Republicans are anathema to providing a “bailout” – their description.
While Washington fiddles, the multiemployer pension system is burning. Retirees deserve as much support as that which we are providing to the unemployed, small businesses, states and municipalities, and strategically significant industries. Now is not the time to play politics with the financial future for so many hard working Americans, who were given a promise and who contributed to that promise along the way.