Mary F. Calvert for The New York TimesJoshua Gotbaum, director of the Pension Benefit Guaranty Corporation. It seems unlikely the weakest plans will be bailed out.
More than a million people risk
losing their federally insured pensions in just a few years despite
recent stock market gains and a strengthening economy, a new government
study said on Monday.
The people at risk have earned pensions in
multiemployer plans, in which many companies band together with a union
to provide benefits under collective bargaining. Such pensions were long
considered exceptionally safe, but the Pension Benefit Guaranty
Corporation reported
in its study that some plans are now in their death throes and cannot recover.
Bailing out those plans seems highly
unlikely. But if they are simply left to die, the collapse of the
federal insurance program is all but inevitable, the report said,
leaving retirees in failed plans with nothing. It added that the program
“is more likely than not to run out of money within the next eight
years” as plan after plan collapses.
The
multiemployer pension sector,
which covers 10 million Americans, represents a mixed bag of financial
strength and weakness. The aging of the work force, the decline of
unions, deregulation and two big stock crashes have all taken a grievous
toll. Ten percent of the people covered are in severely underfunded
plans, the study said.
The federal insurer is not making any
recommendations about what to do at the moment, said Joshua Gotbaum, its
director. “This is a legally required actuarial report whose purpose is
solely to project the range of outcomes for plans and the P.B.G.C.”
The agency does such a projection every year, but this year’s version was unusually late and unusually dire.
Congress has already held several hearings on
multiemployer plans, and for months the unions and companies that
jointly sponsor them have been meeting with Congressional staff members
to come up with responses. One working proposal calls for retirees in
multiemployer plans to give up part of their core benefits to save
money. That idea is extremely controversial because federal law has
sheltered retirees from such cuts for decades. Proponents say it is the
only way to keep some plans going.
Even if the new report spurs them, no legislative initiative is expected until after November’s elections.
The report’s dire prognosis was limited to
the multiemployer pension insurance program. The federal insurer has a
separate program for the pensions offered by single companies, and the
report said it was not at risk. In fact, its finances have improved over
the last year, the report said.
The multiemployer insurance program works
differently from the single-employer one, and the report expressed
concern that the people at greatest risk were unaware of how deeply
their pensions could be cut if the situation deteriorated. The maximum
insurance benefit is less than $13,000 a year, and that is only for
people who have at least 30 years of service. In some plans, notably the
Teamsters’ troubled Central States plan, many workers and retirees have
already earned pensions well above the insurance maximum.
Congress never gave the program a lot of
resources, paradoxically, because in the past the plans were considered
so healthy that they did not need as much insurance protection.
Employers pay much smaller premiums and the insurance coverage is much
more limited than for single-employer pensions. And the P.B.G.C. itself
has no power to step in and rescue a dying plan, the way it can if a
single-employer plan is at risk of failing. It can only sit on the
sidelines and get its meager checkbook ready.
The strength of multiemployer pensions grew
out of the fact that they pooled the resources of many companies. If one
company in the pool went bankrupt, the others were required to pick up
the cost of the resulting “orphaned” retirees. In the past, new
unionized companies would join the pools over the years, keeping them
strong.
Those factors began to change as the work
force aged, unions dwindled and whole sectors of the economy were
deregulated. And then came the dot-com crash of 2000, which pummeled
many pension investment pools.
In 2006, Congress passed a law intended to
strengthen company pensions, and the new study looked, for the first
time, at how employers were responding to it. Adding this behavioral
information required a major change in the pension organization’s
methodology, which Mr. Gotbaum said was among the main reasons the
report came out months late.
The 2006 law required severely troubled
multiemployer plans to set up rehabilitation programs and file the
details with the government. In general, companies were supposed to put
more money into their shared investment pools, workers were supposed to
build their benefits more slowly, and retirees were supposed to give up
the parts of their pensions that were not considered core benefits.
But when the researchers began started
tracking employer behavior, they found that a significant number of
multiemployer plans were so hard hit that their trustees decided not to
use all the medicine prescribed in 2006. They did not think it would do
any good and might even make things worse.
Mr. Gotbaum said the agency realized this
over the last year or two, because more and more plan officials had been
notifying the government that they were not in compliance with their
own rehabilitation plans.
“They told us, ‘It’s not that we’re not
willing to do it,’ ” he said. Rather, the plan trustees told the
government that they had run into limits in how far they could push
their companies and workers without destroying their whole pension
plans.
Much of the problem was demographic. The most
troubled plans often had more retirees than active workers. Trustees of
those plans realized that they were pushing the workers to tighten
their own belts in order to let the retirees keep receiving bigger
benefits than the workers thought they would ever get themselves. If
they kept pushing, the workers or the sponsoring companies would drop
out of the pool, setting up a slow but steady death spiral.
“There is a concern that if the severely
distressed plans fail, that this might lead to efforts to abandon
healthy plans, too,” Mr. Gotbaum said.
Both federal insurance programs were designed
to be self-supporting, and while the pension agency has operated for
years at a deficit, it has not needed to turn to the taxpayers for
assistance. Giving it the means to rescue failing multiemployer pension
plans now would almost certainly require an act of Congress to put more
money into the agency’s coffers.
Given the political climate in Washington,
Congress would not likely support such a bill without first seeing that
workers, retirees and unionized companies had already made serious
sacrifices.
Culled from New York Times
