Much like their single employer brethren, multiemployer plans have fallen on hard times since 2000. According to PBGC estimates cited by the GAO, the 2003 annual report that aggregate deficit of underfunded multiemployer plans had reached $100 billion by the end of 2003, up from a $21 billion deficit at the start of 2000.
Additionally, the PBGC reported a net accumulated deficit for its own multiemployer program of $261 million for fiscal year 2003, the first deficit since 1981 and its largest ever. Further, the GAO found the percentage of multiemployer plan that were fully funded fell to 67% in 2002, from 83% in 2001 (See PBGC FY 2003 Deficit Triples to $11.2B ).
All of which is magnified by the fact that the multiemployer participant base has decreased as the number of retirees pulling from the system continues to swell. In 2001, only 4.1% of the private sector workforce was composed of multiemployer plan participants, compared to 7.7% in 1980. This leaves only 1.7 active participants per retiree in 2001, compared with 4.3 in 1980. Even though this trend is found in single employer plans, the GAO said it is particularly biting in multiemployer schemes since the ratio of active workers to retirees affects multiemployer funding more directly because worker contributions are tied to active employment.
However, the GAO found the level of exposure the PBGC faces from this liability with multiemployer plans is nowhere near that of single-employer plans (See GAO Offers Long-Term PBGC Fixes ). This is due to the regulatory framework in place for these plans that distributes financial risks toward employers and employees and away from the federal government. Not only does the architecture of these plans and their regulatory environment clear the PBGC of much of the liability, but it also creates “important incentives for all interested parties to resolve difficult financial situations that could otherwise result in plan insolvency.”
Thus, the GAO recommends careful deliberation on the part of the US Congress before any proposals aimed at multiemployer plans’ funding stress are floated. As an example the GAO cautions that a proposal to shift plan liabilities to the PBGC could only help a few employees while eroding the current incentives that encourage interested parties to fix the situation in house.
A copy of the GAO’s report can be found at http://www.gao.gov/new.items/d04542t.pdf.
« Fund Ownership Costs Wane