Policy Options for Multiemployer Defined Benefit Pension Plans

Summary

Multiemployer defined benefit (DB) pension plans are pensions sponsored by more than one employer and maintained as part of a collective bargaining agreement. In DB pensions, participants receive a monthly benefit in retirement that is based on a formula. In multiemployer DB pensions, the formula typically multiplies a dollar amount by the number of years of service the employee has worked for employers that participate in the DB plan.

The Pension Benefit Guaranty Corporation (PBGC) is a federally-chartered corporation that insures participant benefits in private-sector DB pension plans. Although PBGC is projected to have sufficient resources to provide financial assistance to multiemployer DB plans through 2025, the projected insolvency of many multiemployer DB pension plans will likely result in a substantial strain on PBGC’s multiemployer insurance program. In a report released in June 2017, PBGC indicated that the multiemployer insurance program is highly likely to become insolvent in 2025. In the absence of increased financial resources for PBGC, participants in insolvent multiemployer DB pension plans would likely see sharp reductions in their pension benefits.

As a result of a variety of factors—such as the recessions in 2001 and from 2007 to 2009—about 10% to 15% of multiemployer plan participants are in multiemployer DB plans that are likely to become insolvent over the next 19 years and run out of funds from which to pay benefits owed to participants.

The Bipartisan Budget Act of 2018 (P.L. 115-123), enacted February 9, 2018, created the Joint Select Committee on Solvency of Multiemployer Pension Plans to address the impending insolvencies of several large multiemployer DB pension plans and PBGC. The committee must provide to Congress no later than November 30, 2018, a report and proposed legislative language to improve the solvency of multiemployer DB plans and the PBGC. The report and proposed legislative language must be approved by (1) a majority of committee members appointed by the Speaker of the House and Majority Leader of the Senate and (2) a majority of committee members appointed by the Minority Leader of the House and Minority Leader of the Senate. P.L. 115-123 provides for expedited procedures in the Senate if the committee approves of the proposed legislative language. There are no provisions that provide any special procedures governing House consideration of such legislation.

Many policy options have been discussed in committee hearings and in the multiemployer pension plan community by policymakers and stakeholders. Not all options directly address the solvency of financially distressed multiemployer plans or PBGC, but they could be considered as part of a comprehensive package of policy options. The options include

assistance for financially troubled multiemployer plans with subsidized loans or partitions;

changes to the maximum benefit limit imposed on plans when they receive PBGC financial assistance;

changes to PBGC’s premium structure;

stricter funding rules; and

alternative pension plan designs.