With so many unions’ multi-employer pension funds in critical status, there is an increasing likelihood that union members expecting a pension may not actually receive one.
In fact, retired union workers are already facing ‘unprecedented’ pension cuts.
Hundreds of thousands of retired union workers are facing pension cuts that could slash their monthly payments in half — or even more.
The proposed cuts are part of a desperate effort to head off insolvency at multiemployer pension plans, pensions that typically provide benefits for workers at several companies.
In the event that a pension goes under, the federal government has a fund–similar to the FDIC, but different–called the Pension Benefit Guaranty Corporation.
Today, however, much like the pensions it is set up to insure, the problem with the PBGC is that it, too, is underfunded.
So much so, in fact, that it may not be able to cover the pensioners it was set up to protect.
The Pension Benefit Guaranty Corporation—the government organization that insures private pension plans—announced this month that its deficit grew to $36 billion, but some industry groups have taken issue with that number, saying it is artificially inflated.
The PBGC has been in trouble since the Great Recession hit. Add artificially low interest rates, a volatile stock market and the many corporations filing for bankruptcy and it has been the perfect storm for the PBGC.
Josh Gotbaum, director of the PBGC, said in the agency’s 2013 annual report that its premiums are “both too inflexible—so that some plans are unfairly paying for the risks of others—and too low to cover PBGC’s benefit guarantee levels.”
Multiemployer plans have become a major issue, with many of them suffering due to economic changes and investment market declines.
“Although the Employee Retirement Income Security Act (ERISA) allows some flexibility to avoid insolvency, for many plans that won’t be enough. Without additional changes, we project that plans covering hundreds of thousands of people will fail,” Gotbaum said. “Sadly, PBGC’s own funding is itself inadequate to pay benefits if their plans fail.”
While a lot of ideas on how to shore up the PBGC are floating around, given the current climate in Washington, it doesn’t appear the PBGC’s underfunding problem will be solved any time soon.
Read the entire post at BenefitsPro.com