Congressional Action Needed for Multiemployer Plans

April 8, 2013 ( – Multiemployer pension plans need timely action from Congress to reinforce and stabilize them, the U.S. Government Accountability Office (GAO) says.

While the most severely distressed plans have taken steps towards addressing their problems and expect to improve their financial health, some did not, according to Private Pensions: Timely Action Needed to Address Impending Multiemployer Plan Insolvencies. A survey conducted by a large actuarial and consulting suggests that the large majority of the most severely underfunded plans have either increased or will increase employer contributions or reduce participant benefits (see “Multiemployer Plan Health Declined in 2012”).

In some cases, the GAO found, these measures will have significant effects on employers and participants. Contribution increases have damaged some firms’ competitive position in the industry, and with some, even the viability of the firm. And where there were reductions in certain benefits, such as early retirement subsidies, hardships were created for some older workers, especially where they had physically demanding jobs.

The GAO also found financial assistance for these plans received from the Pension Benefit Guaranty Corporation (PBGC) continues to increase and that plan insolvencies threaten the insurance fund’s ability to pay pension guarantees for retirees. By 2017, the PBGC expects the number of insolvencies to more than double, which could exhaust the insurance fund within the next 10 to 15 years.

The GAO recommended that in limited circumstances, trustees should be allowed to reduce accrued benefits for plans headed towards insolvency. Also, the large size of these reductions for some severely underfunded plans may warrant federal financial assistance to mitigate the impact on plan participants. The report also recommends that alternative plan design, which permits adjustments in benefits tied to key factors (e.g., funded status of the plan), would provide financial stability and lessen risk to employers.

The GAO report can be found here.