In 2016, private-sector multiemployer defined benefit (DB) plans paid $41.8 billion in benefits to 3.5 million Americans, according to a report from the National Institute on Retirement Security (NIRS), “Pensiononics 2018: Measuring the Impact of Multiemployer DB Pension Expenditures.”
Although the average benefit paid to retirees was $11,935 a year, expenditures out of these pension benefits support the economy in a big way; these benefits resulted in $89 billion in total economic output and $50 billion in value added to the gross domestic product (GDP). NIRS calls this the “ripple effect, as one person’s expenditures become another person’s income.”
For example, NIRS says, “A retired carpenter uses his pension money to buy a new lawnmower. As a result of that purchase, the owner of the hardware store, the lawnmower salesman and each of the companies involved in the production of the lawnmower all see an increase in income and spend the additional income. These companies hire additional employees as a result of this increased business, and those new employees spend their paychecks in the local economy.”
In fact, NIRS says, for every dollar in multiemployer pension benefits paid out in 2016, $2.13 in total economic output was supported.
Furthermore, the benefits resulted in $14.7 billion in federal, state and local tax revenue and supported 543,000 American jobs that paid $28 billion. The largest employment impacts were in the real estate, food services, health care and retail trade sectors.
In conclusion, NIRS says, “Because DB pensions provide steady, secure income to retirees, retirees are able to spend their paychecks regularly in their local communities. The economic gains are considerable, and support the national economy with jobs, incomes and tax revenue. Pension benefits play an important role for both retires Americans and the communities in which their retirement checks are spent.”
That said, there is a multiemployer union pension crisis that could result in retirees losing these benefits. By some estimates, 150 such plans could become insolvent within a matter of years. The shortfall is estimated to be $680 billion—and growing.
As a result of this crisis, The Pension Benefit Guaranty Corporation (PBGC) is amending its multiemployer reporting, disclosure and valuation regulations to reduce the number of actuarial valuations required for smaller plans terminated by mass withdrawal, add a valuation filing requirement and a withdrawal liability reporting requirement for certain terminated plans and insolvent plans, remove certain insolvency notice and update requirements, and reflect the repeal of the multiemployer plan reorganization rules.
The agency says the rule reduces costs by allowing smaller plans terminated by mass withdrawal to perform actuarial valuations less frequently and by removing certain notice requirements for insolvent plans. This reduces plan administrative costs and, in turn, may reduce financial assistance provided by PBGC.