Multiemployer Programs Face Numerous Challenges

May 27, 2010 ( – Demographic changes and other trends in society have only served to dramatically increase the funding pressure on multiemployer pension plans, a Government Accountability Office (GAO) official testified before Congress on Thursday.

In remarks prepared for a hearing with the U.S. Senate Committee on Health, Education, Labor and Pensions, Charles A. Jeszeck, Acting Director Education, Workforce, and Income Security Issues, asserted that those pressures only make it more likely that the Pension Benefit Guaranty Corporation (PBGC) will have to step in with financial assistance for severely ailing plans.

The multiemployer programs have dwindled in number in recent years as well as suffering from a declining stream of new employers and workers – in part, because of a decrease in union collective bargaining in the U.S., Jeszeck said.

According to the Bureau of Labor Statistics cited by Jeszeck, union membership—a proxy for collective bargaining coverage—accounted for 7.2% of the U.S. private sector labor force in 2009. In contrast, in 1990, union membership in the private sector accounted for about 12%, and in 1980, about 20%.

Because there are fewer active participants paying into the fund to others who are no longer contributing, plan liabilities have decreased, Jeszeck said. For example, multiemployer plans had 1.6 million fewer active participants in 2006 than in 1980, according to PBGC.

All of that has left many multiemployer plans with serious funding issues. The aggregate funded status in multiemployer plans insured by PBGC declined from 105% in 2000 to 66% in 2006, the last date for which PBGC data is available. The aggregate position of these plans has further diminished because of investment market declines and the recession beginning in 2007, the GAO official pointed out.

Looking into the near short term future,  PBGC’s ability to assist multiemployer plans is contingent upon its insurance program having sufficient funds to do so. PBGC’s net position for its multiemployer pension insurance program has steadily declined since its highest point in 1998 as program liabilities outpaced asset growth. In fiscal year 2009, the multiemployer program reported an accumulated deficit of $869 million.

However, in fiscal year 2009, Jeszeck said, PBGC’s estimates of exposure to future losses from underfunded multiemployer plans rose to $326 million (up from $30 million in 2008 and $73 million in 2007). PBGC reported that most plans considered at risk are in manufacturing, transportation, services, and wholesale and retail trade. PBGC’s estimate of the exposure to future losses from underfunded multiemployer plans could reach $5.5 billion over the next 10 years, he said.

“But, similar to their single-employer cousins, multiemployer plans are suffering some serious short-term financial stresses within the larger context of a longer-term structural decline,” Jeszeck said in the prepared remarks. “Congress has given PBGC tools to monitor the overall financial health of multiemployer plans and a means to provide financial assistance to help these plans weather difficult financial times.“

Jeszeck’s remarks are available here

The Senate panel called the hearing to consider a proposal by Senator Bob Casey (D-Pennsylvania) offering the multiemployer programs funding help via the PBGC (see Multiemployer Plan Relief Bill Subject of Senate Hearing).