Is the Pension Benefit Guaranty Corp. Worth Propping Up?

U.S. multiemployer pension plans disagree about the value of participating in the cash-strapped federal agency’s insurance program.


Terry O’Sullivan has a problem. General president of the Laborers’ International Union of North America, O’Sullivan thinks the half-million union members he represents at $35 billion LIUNA are headed for disaster. That’s because, as insured members of the Pension Benefit Guaranty Corp., they’re 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 agency’s 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.)

“We’re not for premium increases to an entity that we believe is doomed,” says Washington-based O’Sullivan. “We think Congress will recklessly increase premiums.”

But it’s more than a premium rise that is nettling O’Sullivan. 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. “It’s always been a debate,” says Randy DeFrehn, executive director of the National Coordinating Committee for Multiemployer Plans (NCCMP) in Washington.

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 2008–’09 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 didn’t 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 PBGC’s 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 retire.

Not every multiemployer plan official is seeking to sever ties with the PBGC. Charles Storke, lead attorney for California’s 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 don’t 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 Ramon–based 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. “We’d rather work with Congress and with the regulators and find a solution to this extremely difficult problem,” Storke says.

LIUNA’s O’Sullivan sees an opening to a PBGC exit with Congress’s potential enactment of a new pension model. This plan design originated in a February 2013 report called “Solutions Not Bailouts,” by the NCCMP’s 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 NCCMP’s proposed pension model wouldn’t 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 NCCMP’s 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. “There’s got to be a different way,” O’Sullivan 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.