“Over a million people participate in multiemployer pension plans that are expected to run out of money over the next 20 years,” said Pension Benefit Guaranty Corporation (PBGC) Director Tom Reeder, in an announcement that the agency has started providing financial assistance to the Road Carriers Local 707 Pension Fund, a newly insolvent multiemployer pension plan based in Hempstead, New York.
The PBGC has been warning of trouble with its multiemployer program for years, and Reeder reiterated this in the announcement. “The insurance program for insolvent multiemployer plans is in dire financial condition and, absent reform, is likely to run out of money by 2025. I am committed to working with the Administration, Congress and other stakeholders to find solutions that stabilize multiemployer pension plans and make the pension insurance program one that people can rely on well into the future,” he said.
For the past year, the 707 Fund has been unable to pay full benefits at the levels promised under the plan, and reduced retirees’ benefits to levels that were supportable by available plan assets. However, starting February 1, 2017, benefits to retirees were cut back further to the PBGC guarantee limits set in law for insolvent multiemployer plans. The financial assistance will help pay the guaranteed portion of pension benefits earned by nearly 4,000 participants.
Like other financially troubled multiemployer plans, the poor financial condition of the 707 Fund is the result of several trends. They include a steady decline in the number of participating employers and aggregate employer contributions, increases in plan benefit levels that were not adequately funded, and investment losses suffered in the 2008-2009 financial crisis. The 707 Fund covers retired and current truck drivers represented by the Teamsters Local Union 707.NEXT: Retiree benefits cut drastically
The full benefit promised to current retirees and beneficiaries in the 707 Fund averages $1,313 per month, but the average guaranteed benefit is $570. Forty-two percent of the 707 Fund retirees and beneficiaries have benefit reductions of more than half, compared to the amount of their promised benefits. Only 7% of current retirees and beneficiaries will receive their full plan-promised benefit amount.
The 707 Fund is among a number of troubled multiemployer plans that have projected they will run out of money during the next 20 years and will likely call on PBGC for financial assistance. Guaranteed benefits for the 707 Fund retirees, and participants in other insolvent multiemployer plans, will be reduced even further if steps are not taken to address the deteriorating financial condition of PBGC's multiemployer insurance program. If the PBGC program runs out of money by 2025, PBGC's premium income will only provide retirees with a small fraction of their benefit.
PBGC will initially provide assistance of $1.7 million per month to the 707 Fund. That amount, together with employer contributions and other income, will allow the pension fund to pay retirees' benefits at the level guaranteed under federal pension law. The amount of PBGC's future financial assistance will vary based on changes in the plan's income, and cash needs for guaranteed benefit payments and administrative costs.
Unlike PBGC's program for terminated single-employer pensions, PBGC doesn't take over administration of insolvent multiemployer plans. The 707 Fund will continue to administer the plan.