The Pension Practice Council of the American Academy of Actuaries has released a new issue brief that guides multiemployer plans, regulators, and policy makers in honoring the Pension Benefit Guaranty Corporation’s (PBGC)’s policy of guaranteed minimum payments for participants under its multiemployer program.
According to the Council, the program is projected to become insolvent in about eight years if necessary changes are not made.
“Recent changes aimed at bolstering the multiemployer program’s financial condition may have improved its position going forward, but not nearly enough to support existing guarantees,” says Academy Senior Pension Fellow Ted Goldman. “None of the remaining choices available to ensure the guarantees is without disadvantages, and all of them require sacrifices.”
The Multiemployer Pension Reform Act (MPRA) increased per-participant program premiums, established a process for plans to apply for benefit suspensions, and made other program changes. The program continues to be challenged, however, by inadequate plan premium levels and employer withdrawal liability payments, plan contribution and investment strategies that have been a factor in lower-than-needed revenues, declining plan contribution bases, changes within multiemployer plan industries and the effects of the Great Recession.
The brief, Honoring the PBGC Guarantee for Multiemployer Plans Requires Difficult Choices, outlines opt ions for addressing the program’s financial condition.
It proposes a change in premiums. The paper reads, “To avoid insolvency over the 20-year projection period through further premium changes alone would necessitate, at a minimum, a six-fold increase in premiums, but increases could cause additional stress to distressed plans and motivate a shift toward defined contribution plans that weakens the program.”
It also suggests changes in premium structures. “If flexibility were enabled, premiums could change from a flat per-participant rate to another structure such as a variable rate or a withholding of premium from withdrawing employers or from payments made to participants. Each alternative structure has advantages and drawbacks.”
Furthermore, the Council proposes alternative legislative approaches. “Lawmakers could authorize general revenue, new targeted taxes on transactions, asset transfers from the single-employer PBGC program, or combination of the PBGC single employer and multiemployer programs, to address the multiemployer program’s financial condition. Each of these options introduces controversial issues that would impact various stakeholders in different ways.”
The issue brief can be downloaded by clicking the “Public Policy” tab at actuary.org.