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PBGC Multiemployer Program Will Need Higher Premiums, Report Says

The Pension Benefit Guaranty Corporation Multiemployer Program will run out of money in less than 20 years, says a new report by the PBGC. Its prescription: higher premiums.

The PBGC on March 31 announced the release of “Insurance of Multiemployer Pension Plans: A Five Year Report,” the latest in the reports the PBGC is required to prepare and issue every five years. And absent action, insolvency could come much sooner, according to PBGC Director Tom Reeder, who said in a press release: “Without changes, the multiemployer insurance program is likely to run out of money by 2025.”

According to the report, the program’s current assets are only a small fraction of what it needs to cover guaranteed benefits for more than one million people in plans that are expected to run out of money in the next decade. And even the recent increase in premiums paid by multiemployer pension plans to the PBGC under the Kline-Miller Multiemployer Pension Reform Act of 2014 (MPRA), will be inadequate, says the report.

The report illustrates the effects of higher premiums on the PBGC’s solvency under scenarios that reflect different assumptions regarding how many plans would suspend benefits or apply for partition under MPRA. Under each scenario, the likelihood that the program will be insolvent before 2034 exceeds 50%. And that’s even if premium revenues are doubled.

Still, the report says that the exact timing of the multiemployer program’s insolvency is uncertain, due to variables such as how plans will use the MPRA’s suspension, partition and merger provisions and what additional changes may be made to laws governing such plans.

What’s Next

Reeder says the report “offers vital information for Congress as it considers how to stabilize the program and put it on sound financial footing.” The Obama administration expects to engage with Congress and the multiemployer community on the program, according to the PBGC; in addition, its fiscal year 2017 budget includes a proposal to further increase premium revenues for the program.