Terry OSullivan has a problem. General president of
the Laborers International Union of North America,
OSullivan thinks the half-million union members he
represents at $35 billion LIUNA are headed for disaster.
Thats because, as insured members of the
Pension Benefit Guaranty Corp., theyre paying into a
mandatory program with a whopping $52.3 billion deficit.
The PBGC, the Washington-headquartered federal insurance
agency that provides modest replacement income for
multiemployer pension participants whose defined benefit
pensions have become insolvent, estimates that unless changes
are made, it will run out of money by 2025. Last year, in an
attempt to prop up the PBGC, Congress doubled annual premiums
for the agencys 10.4 million multiemployer participants,
from $13 per person to $26; it will probably keep hiking them
for the foreseeable future. (The PBGC has no official comment
on its plans.)
Were not for premium increases to an entity that
we believe is doomed, says Washington-based
OSullivan. We think Congress will recklessly
But its more than a premium rise that is nettling
OSullivan. He wants a wholesale exit from the PBGC and
asserts that his union can take care of participants who fall
victim to employer bankruptcies without help from the troubled
federal agency. Multiemployer pensions have long disagreed
about mandatory PBGC participation. Its always been
a debate, says Randy DeFrehn, executive director of the
National Coordinating Committee for Multiemployer Plans (NCCMP)
Consumer advocacy groups such as AARP and the
Pension Rights Center have been calling for a taxpayer
bailout of severely underfunded multiemployer pensions, along
the lines of the financial and auto industry rescues after the
200809 global financial meltdown. But Congress has
no appetite for such an answer to an impending retirement
crisis affecting middle class workers. As a result, the union
world has been left to craft its own solutions.
When the PBGC was formed as part of ERISA, the comprehensive
pension legislation enacted in the mid-1970s, many
multiemployer officials didnt want to join its insurance
program. Their plans, which have an equal number of union
and employer trustees, already had a way to deal with employer
bankruptcies: Pay the benefits of affected workers by keeping
them in the pension. Officials also viewed the PBGC as having
been created with single-employer plans in mind.
Mandatory PBGC inclusion was held in abeyance until a study
in the late 1970s convinced the agency that multiemployer
pensions needed a safety net in the then-unlikely event of
failure. Congress responded by shepherding multiemployer plans
into the insurer via the Multiemployer Pension Plan Amendments
Act of 1980.
From 1980 through 2003 the PBGCs multiemployer program
was fully solvent. That started to change after the dot-com
bubble burst, and worsened in the wake of the financial crisis.
Congress began raising premiums to reduce the growing deficit.
The Kline-Miller Multiemployer Pension Reform Act of 2014
(MPRA) sought to prevent seriously troubled plans, those
calculated to become insolvent within 20 years, from folding.
In a controversial move, the MPRA gave multiemployer plan
trustees the power to reduce participant benefits despite the
fact that ERISA forbids such cuts.
In its multiemployer program during the 2014 fiscal year,
the PBGC paid $97 million in financial assistance to 53 pension
plans covering the benefits of 52,000 retirees. An additional
23,000 people in these plans will receive benefits when they
Not every multiemployer plan official is seeking to sever
ties with the PBGC. Charles Storke, lead attorney for
Western Conference of Teamsters Pension Trust (WCTPT), has
ongoing discussions with Congress and the agency. The
question is, how much more do they need to be effective without
putting pressure on the system and, in particular, the plans
that are not as strong as Western Conference? says
Storke, a partner with San Francisco law firm Trucker Huss, of
premium increases. We dont relish seeing those
premiums double or even triple.
Storke believes such fees are the price of belonging to the
multiemployer pension community. With 550,000 participants
spread across 13 states, the WCTPT handed the PBGC $14.3
million in premium payments last year. At $35.7 billion in
assets, the well-funded San Ramonbased plan is too big
for a PBGC bailout even if it were needed, Storke notes. But
the WCTPT wants to support smaller pension funds that the
agency could help, assuming it returns to fully funded status.
Wed rather work with Congress and with the
regulators and find a solution to this extremely difficult
problem, Storke says.
LIUNAs OSullivan sees an opening to a PBGC exit
with Congresss potential enactment of a new pension
model. This plan design originated in a February 2013 report
Not Bailouts, by the NCCMPs Retirement Security
Review Commission. The report, assembled by 40 multiemployer
stakeholders, also included a recommendation that resulted in
the MPRA legislation allowing benefit reductions for
participants in plans nearing insolvency. The NCCMPs
proposed pension model wouldnt require PBGC insurance.
Dubbed the Composite Plan, it would be a hybrid of defined
benefit and defined contribution, a voluntary retirement
savings and income delivery framework that multiemployer
pensions could adopt individually after negotiating at the
union-employer level. The legacy pension would continue to
receive some new assets, while the rest would
flow into the new plan.
The NCCMPs DeFrehn, who expects a draft bill from
Congress this spring, points out that a 21st-century pension
plan would make union membership more attractive to employers
and employees. Theres got to be a different
way, OSullivan says, calling for what he describes
as tools, time and flexibility: We have to reinvent how
we provide retirement security.
Follow Frances Denmark on Twitter at @francesdenmark.