Several recent reports on the multiemployer pension system have underscored the depth of the financial crisis facing these plans.
The GAO recently issued a report on the Central States Pension Fund. The report explains that Central States is underfunded due to numerous factors, including changes in the trucking industry and demographic shifts resulting in significantly more retiree than active workers in plan. For example, Central State’s active participants made up about 69 percent of all participants in 1982, but accounted for only 16 percent in 2016. This GAO report corresponds with a Chamber report attributing demographic shifts and certain industry changes to the underfunding crisis throughout the multiemployer system.
Milliman’s Spring 2018 Multiemployer Pension Funding Study found that the aggregate funded percentage of all multiemployer plans improved from 81% to 83% over the last six months. This is a definite improvement even though still lower than the aggregate funded percent of 85% a decade ago. This figure is bolstered by an improvement in the finances of plans not in critical status, which had a funding percentage of 93% currently, compared with 90% a decade ago. For critical plans, however, the situation is getting drastically worse. Indeed, the aggregate funded percentage of these plans was just 60% as of December 31, 2017, a steep drop from the 76% funded status they achieved a decade ago. The report notes that the healthier plans benefit from a lower active employee to retiree ratio and lower negative cash flow, which allows for more contributions to be allocated to unfunded liabilities. Critical plans that lack these characteristics are unlikely to improve their funded status.
At the end of May, the PBGC issued its FY 2017 Projection Report estimating that the multiemployer program has a very high likelihood of insolvency during FY 2025 and near certainty of insolvency by the end of FY 2026. The increased risk of insolvency is due primarily to the changes in the largest troubled plan (the Central States Pension Fund), which “eliminates most of the uncertainty about when the plan will require PBGC financial assistance.” Therefore, the impending insolvency of the largest plan will lead to the insolvency of the PBGC.
These reports do not include recommendations or advocate specific policy prescriptions. Instead, they present only the facts. These facts are that: (1) Central States, the largest multiemployer pension plan, has a demographic issue which will only get worse, causing further underfunding and most likely eventually insolvency; (2) the funded status of the most dire plans—those in critical status—is getting worse; and (3) the PBGC, which is a federal backstop for these plans, is predicted to become insolvent in less than 10 years. The facts are clear, and Congress must provide a comprehensive solution to avoid a deepening crisis in the multiemployer pension plan system. Without such a comprehensive solution, the insolvency of certain multiemployer plans and the PBGC will have a devastating impact on employers, retirees, and workers in these plans.