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Purcell, Patrick. You Are Here: home unt libraries government documents department this report. Description This report discusses trends that will affect the economic well-being of future retirees. Physical Description 20 pages. Who People and organizations associated with either the creation of this report or its content.
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The percentage of 25 to year-old, employees in the private sector who participated in an employer-sponsored retirement plan rose from Further, a analysis by the CRS of the Census Bureau's Current Population Survey indicates that, among workers 25 to 64 years old who were employed in the private sector and worked year-round, full-time: The percentage of workers whose employer sponsored a retirement plan was The percentage of workers who participated in an employer-sponsored retirement plan was Only Both the dynamics of the collective bargaining process and regulatory policies that were not conducive to maintaining overfunded plans contributed to this trend.
These benefit increases ultimately became unaffordable for many plans when their assets declined dramatically in the subsequent decade. Mature plans have fewer resources to recover from investment losses as the assets grow relative to the contribution base supporting the plan. In young plans, contributions are the primary source of asset growth and investment returns are comparatively small, while the opposite is true in mature plans.
As the plan relies more heavily on investment returns, it becomes more difficult to make up for investment losses through additional contributions. Fewer workers are employed in the industries sponsoring multiemployer plans. Some unionized industries have seen significant transformations over time. In some industries the workforce has shifted to more non-union employees as a result of restructurings or regulatory changes, while others have seen declines in the number of employees needed due to global competition, automation, or broad declines in the industry.
A decline in the active workforce results in a diminished economic base for collectively bargained employer contributions. Employers have exited multiemployer pension plans, either through bankruptcy or withdrawal, leaving unfunded obligations for the remaining employers in the plans.
Typically, a combination of these factors has contributed to a plan that is projected to be unable to pay benefits. The differences in the circumstances between different plans can be important, but this overriding pattern carries important lessons for understanding the options to address the legacy problems and to preventing additional plans from entering critical and declining status.
There are two key challenges facing the multiemployer pension system. The second challenge is to deliver retirement security for employees who continue to work in industries covered by multiemployer pension plans. Addressing Legacy Pensions If the accrual of future benefits in these critical and declining plans ceased today, the pension benefits attributable to past service would still present an enormous problem.
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This legacy problem has an impact on existing and future retirees, as well as the PBGC. Many participants will experience a significant benefit reduction even if PBGC is fully able to provide the guaranteed benefits, but the PBGC multiemployer insurance program is itself in dire financial condition, and is likely to exhaust its asset reserves in approximately eight years. To deliver the existing PBGC guarantees, it will take some combination of additional revenue or reduced claims from insolvent plans.
Some of the measures discussed to improve PBGC finances—all of which would require enabling legislation—are summarized below. Increase PBGC premiums. Premiums have already increased significantly and are scheduled to continue to increase. A potential concern with this approach is that insurance premiums are generally intended to pay for ongoing risks and not past losses. To the extent that higher premiums are viewed as paying for legacy liabilities and not future risks, they may drive healthy employers and employee organizations out of the system, making the increase self-defeating.
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Higher multiemployer plan premiums represent higher plan expenses, which would adversely impact the funded status of plans over time. While there is concern about any increase in premiums, the current and historical amounts may be perceived as relatively low. In some industries where restructuring has resulted in a considerable number bankruptcies among employers supporting the pension plan while new employers in the industry did not join the plan, it may be advisable to construct a specific industry tax or premium.
This additional charge could be earmarked to pay for the orphaned liabilities left by the bankrupt employers. Another area of potential focus for a targeted charge is on industries for which the claims on the PBGC insurance fund are disproportionately large. However, in both cases, there may not be enough employers remaining in the industry, or the industry may not be healthy enough, to pay the amount needed. Charging the entire industry also means that employers that never participated in the plan would be paying a portion of the liability for the bankrupt employers that did participate in the plan.
Charge existing retirees. A modest payment collected from all existing retirees receiving multiemployer plan pensions could generate a significant amount of premium revenue, because the multiemployer system has matured and now has more retired participants than active participants. This premium, however, could face significant opposition, as retirees have never been directly charged for insurance on their pensions before, and many retirees live on fixed incomes with limited options to deal with unexpected reductions to their benefits.
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Reduce the guarantee. Congress could reduce the guaranteed benefit level to align with the amount of premium resources available. But because the guarantee is already low, the resulting pension payouts may do little to help pensioners achieve financial security. Unlike reducing guarantee amounts for savings deposit insurance, where account holders could shift their assets, multiemployer pension plan participants could not take actions to secure their benefits if the pension insurance limit is reduced.
Provide financial support backed by the government. A financial commitment could be made from the general revenues of the federal government, a specific tax, or other taxpayer-supported funding sources.
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Under this approach, the solution is spread across a broader tax base, involving many taxpayers with little or no direct relationship with the struggling pension plans. The single-employer program is currently in a stronger financial position than the multiemployer program. However, this approach would generate potential inequities, as it adds new risks to single-employer plan sponsors and participants.
In addition, there are fundamental differences in how the single and multiemployer programs operate, and combining funding could put stress on the single-employer system and further erode support for defined benefit plans. Allow the PBGC to intervene early in troubled multiemployer plans.
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Under current law, PBGC does not generally provide any financial assistance, or reduce benefits to guaranteed levels, until a multiemployer plan is unable to pay full benefits. The PBGC multiemployer plan program could be aligned with the single-employer program, where PBGC has the authority to intervene long before plans actually fail. The cost would be that participants in troubled multiemployer plans would experience benefit reductions earlier than occurs under the current multiemployer insurance program.
So doing would require some combination of additional contributions to the plans, additional investment earnings, or reductions in benefits. Pensions are just one of the economic factors facing many industries. Thus potential actions must be considered in the greater context of a given industry and the possible implications not only to pensions, but to the economic challenges facing the industry. This legislation offers troubled plans the ability to reduce benefits to as low as percent of PBGC guarantee levels for current and future retirees, if doing so is projected to achieve long-term solvency of the plan.
Of the first 12 plans to apply to the Department of Treasury for benefit suspensions under MPRA, only one has been approved. The others were either denied by Treasury or the sponsors withdrew their applications, presumably expecting denials.