The Pension Benefit Guaranty Corporation (PBGC) recently reported that the Multiemployer Insurance Program will run out of money by the end of fiscal year 2025 if no legislative action is taken to address the issue of failing plans. This news reaffirms what SMACNA has known for some time and further supports the need for Congress to pass legislation to proactively address the problem of plan underfunding by allowing composite plans within the multiemployer system. SMACNA continues to work for Congressional action on composite plans.
The PBGC’s insurance program for multiemployer pensions covers over 10 million people. Currently around 125 multiemployer plans covering 1.4 million people are expected to become insolvent over the next 20 years according to the PBGC’s FY 2018 Projections Report.
As claims continue to grow from those insolvencies, PBGC’s multiemployer insurance funds will be depleted and that will lead to the program running out of money by the end of FY 2025. Under the law, PBGC would then be required to cut guaranteed benefits to “a fraction of current values.” PBGC’s current annual maximum guarantee is generally only $12,870 per year for participants covered by the multiemployer system.
The Trump Administration’s FY 2020 budget, similar to other recent Presidential budget proposals, contains a proposal to shore up PBGC’s Multiemployer Insurance Program. While the Administration’s multiemployer budget proposals won’t be part of the 2020 budget deal, SMACNA continues to work with Congress on its own efforts to address PBGC deficiencies and failing plans since some of the proposed changes would negatively impact many of our industry pension plans’ financial health.
Worries that structural changes to the multiemployer system might degrade PPA zone status, and put plans in a deeper hole, was cited by the Nation Pension Fund (NPF) as one basis for its required contribution increases in 2021 and 2022 under the NPF funding improvement plan.
Reducing the risk for pension plan insolvency and the cost associated with that for the PBGC is why SMACNA continues to lobby Congress to allow composite plans. Under composite plan design, there would never be unfunded liabilities. Any future negotiated contribution rate increases would be needed to fund the plan; however, the old plan would be frozen, and contractors would gradually be paying down the liabilities within it. Thereby preventing those plans from ending up on the PBGC’s books.
SMACNA anticipates that the GROW Act, which would allow composite plans in our industry, will be reintroduced this fall. A Capitol Hill Office Action Alert will be going out to SMACNA members to provide guidance on how to support the GROW Act. SMACNA strongly encourages members help protect our plans and the PBGC by talking to your congressperson about this issue.