Among a raft of potential problems looming on the multi-employer plan horizon, according to a U.S. General Accounting Office (GAO) study: a regulatory framework some employers may view as financially riskier and less flexible than those for other plan types (with benefit levels often fixed by union contract), a continued long-term decline in collective bargaining trends, and a likewise continued decline in use of defined benefit plans in general.
The plans focused on in the GAO study, which now cover more than 9.7 million of the 44 million workers insured by the federal Pension Benefit Guaranty Corporation (PBGC) – the private pension insurer, are generally operated jointly by labor and management of more than one employer.
Other potential roadblocks for multi-employer plan prospects identified by the GAO include workers’ increasing life expectancy which will step up benefit costs and the continued run up in health-care coverage expenses which will expand employers’ overall compensation and benefit costs.
The multi-employer plans may have fared better than single-employer programs, but that doesn’t mean they’ve entirely escaped the effects of the bear market and the recession and low interest rates; the PBGC reported a $261 million net 2003 deficit in its multi-employer program – its first since 1981 (compared to an overall $11.2 billion overall 2003 deficit).
Also, the agency estimated in its 2003 annual report that the multi-employer programs face an aggregate $100 billion unfunded liability and upped its forecast of plans that will need federal help from 56 in 2001 to 62 in 2003.
“The declines in interest rates and equities markets, and weak economic conditions in the early 2000s, have increased the financial stress on both individual multi-employer plans and the multi-employer framework generally,” GAO researchers observed.
There are also significantly fewer such plans out there, the GAO pointed out, with more than 2,200 in 1980 to fewer than 1,700 currently. Only five new multi-employer plans have been formed since 1992, the GAO said. There are now 1.4 million fewer workers covered by the multi-employer programs than in 1980 with the percentage of the private-sector workforce covered dropping from 7.7% in 1980 to 4.1% in 2001.
The GAO warned lawmakers that proposals to shore up the multi-employer system could have unintended consequences and that such legislative suggestions needed careful study. For example, the GAO said suggestions to make it easier for employers to exit multi-employer plans “could help a few employers or participants but erode the existing incentives that encourage interested parties to independently face up to their financial challenges.”
Besides, the GAO pointed out, the PBGC multi-employer program has limited ability to cope with a major plan insolvency with a potential multi-billion price tag with only about $25 million in annual revenue and a trust fund of less than $1 billion.
The full report is available at http://www.gao.gov/new.items/d04423.pdf .