This fact sheet explains funding issues in multiemployer pension plans and how the guarantee limits set by the Pension Benefity Guaranty Corporation could impact your multiemployer plan pension.
Related: Read our summary of the pension cutback provisions (part of the Multiemployer Pension Reform Act of 2014) that were included in the 2014 Omnibus spending law. See a list of severely underfunded multiemployer plans that might be eligible to cut retiree benefits under the new law.
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Multiemployer pension plans are retirement plans negotiated by a union with a group of employers typically in the same industry. Collective bargaining contracts say how much the employers must contribute to the plans for their employees. The plans are run by trustees selected by the union and the employers. The trustees typically determine the amounts that the plans will pay in lifetime monthly benefits.
There are more than 10 million workers and retirees in 1,400 multiemployer plans. For more information, read this Introduction to Multiemployer Plans fact sheet from the Pension Benefit Guaranty Corporation (PBGC), the federal agency that insures most private pension plans.
The majority of multiemployer pension plans, covering most multiemployer plan participants, are adequately funded, but some plans are projected to run out of money within 20 years.
According to PBGC projections, approximately 150 to 200 plans, covering 1.5 million workers and retirees, could run out of money within the next 20 years. The PBGC estimates that roughly one-third of the affected participants are in two large plans in the trucking and mining industries.
There are a variety of reasons for funding shortfalls in certain multiemployer pension plans. Changes in the economy have resulted in a dramatic decline in union jobs, leaving many plans with many more retirees than active workers. This, together with company bankruptcies and withdrawals from plans, has caused a significant decrease in employer contributions to plans. In addition, investment losses in 2001 and again in the 2008 stock market collapse greatly reduced the amount of money in plans.
When a multiemployer pension plan no longer has enough money to pay benefits in a particular year, the plan is considered to be insolvent. At that point, two things happen: (1) the Pension Benefit Guaranty Corporation begins making loans to the plan so that it can continue paying pensions; and (2) the benefits paid by the plan are reduced to levels guaranteed by the PBGC.
PBGC guarantees for multiemployer plans are calculated by multiplying the number of years participants have worked under a plan times a percentage of the monthly benefits they have earned under the plan. If a plan runs out of money and benefits are reduced to the PBGC levels, the reductions can be substantial. To understand how much your benefit would be if it were reduced to the PBGC guarantee level, read this PBGC Multiemployer Insurance Program Fact Sheet.
Every year, your plan is required to send you a funding notice, which details financial information about the plan, including how well-funded it is. Your plan is also required to notify you if it becomes underfunded. See our fact sheets for more information about funding notices, and the types of cuts that can affect workers when plans are underfunded.
When a plan is severely underfunded, it is said to be in the “Red Zone,” and everyone in the plan must receive a critical status notice, alerting them that certain special early retirement and survivors benefits could be cut. You can find a list of plans that have issued critical status notices on the Department of Labor’s website.
The Center for Retirement Research at Boston College has compiled a list of 100 plans that may be permitted to cut benefits as a result of the new law. See the list here.
In December 2014, Congress passed the Multiemployer Pension Reform Act of 2014 (MPRA) as part of an Omnibus spending bill. The law largely reflects suggestions made by the National Coordinating Committee on Multiemployer Plans, a coalition of employers, unions and plan trustees, in its report, Solutions not Bailouts. A key part of the Act gives trustees of certain plans that are projected to run out of money within 15 to 20 years the authority to immediately cut retirees’ pensions to 110 percent of the amounts guaranteed by the PBGC. A summary of the cutback provisions of the law is here. A list of severely underfunded multiemployer plans that might be eligible to cut retiree benefits under the new law is here.
Proponents of the Multiemployer Pension Reform Act claim that cutting benefits now to as much as 110 percent of the PBGC level is preferable to reducing benefits to the PBGC guarantee level in the future. But many of today’s retirees will no longer be alive in 15 to 20 years. Imposing immediate benefit cuts will be devastating to today’s pensioners. It is also unprecedented and undermines a fundamental protection of the federal private pension law.
A number of common-sense ideas have been suggested to help ensure that financially troubled multiemployer plans will be able to continue paying pensions. These ideas include letting plans join together to save on administrative costs; relieving employers of obligations for workers and retirees whose employers are no longer contributing to the plans; and providing more money to the PBGC to help the agency assist plans and provide higher guarantees. These approaches and ones specific to different industries should be implemented, rather than reducing the hard-earned and much-needed benefits of retirees.
If you are a retiree currently receiving a pension from a financially troubled multiemployer plan, you can use our Multiemployer Pension Cutback Calculator to find out how much you could lose in benefits if your pension were cut back to 110 percent of the amount guaranteed by the PBGC.
Are you a retiree in a multiemployer plan whose benefits might be cut under the Multiemployer Pension Reform Act of 2014? If so, share your story on our Story Bank.