By Don McIntosh
The U.S. Labor Department on July 9 unveiled its rules for a new $94 billion program to rescue failing union pension plans. The program was one small part of the American Rescue Plan Act which passed in March, and it’s expected to help more than 3 million union members and their spouses.
“Every working person deserves to retire with dignity and receive all the benefits they earned during their career,” said U.S. Secretary of Labor Marty Walsh in a press statement as the rules were announced. “Unions … have been fighting for years for what these workers have earned.”
The rescue is Congress’ biggest-yet response to a crisis afflicting about one in seven multi-employer pension plans. Multi-employer plans are collectively bargained plans that include at least two employers and are jointly overseen by employer and union trustees. They’re most common in industries like construction, trucking and janitorial that have lots of small union employers. In all, there are about 10.9 million union workers and retirees enrolled in about 1,400 multi-employer pension plans. The plans are heavily regulated, and most of the time they’re able to provide workers a secure retirement at a fairly affordable rate for employers. But in the last two decades, the plans’ investments have lost value in financial crashes. Most of the 1,400 plans have been able to recover, but 100 to 200 plans, especially in industries where the union workforce is aging and declining in number, have been unable to make up the losses.
All told, the Pension Benefit Guaranty Corporation (PBGC) estimates over 200 pension plans will be eligible for the assistance, including over 100 plans that would otherwise have become insolvent during the next 15 years. PBGC is the government agency that insures pension plans. Without the rescue, PBGC itself was headed for insolvency by 2026.
As laid out in the newly announced program rules, the plans with the most immediate need will be the first to receive rescue funds. Applications are now open for 25 pension plans that are already insolvent or that were projected to become insolvent by next March.
Next in line will be 18 pension plans that were given permission to cut their pension benefits under the 2014 Multiemployer Pension Reform Act (MPRA). Those include two pensions for workers in the Portland area—Plasterers Local #82 Pension Plan, and Western States Office & Professional Employees Pension Fund. Those plans will be allowed to apply for assistance starting Jan. 1, 2022, or sooner if PBGC processes the first group quickly enough. Importantly, those pension plans can restore full benefits immediately for current retirees, and don’t have to wait until the rescue funds arrive. Once the aid arrives, they’ll also be able to pay back retirees for any benefits they lost thanks to the cuts.
“All of us trustees are ecstatic about it,” said Kent Sickles, business manager of Plasterers Local 82.
After those two groups, PBGC will give priority to the giant Central States Teamsters Pension and to the 25 multiemployer pensions that are projected to become insolvent in the next five years. The final group will be all other multi-employer pension plans that are forecast to run out of money by 2051.
Once plans apply for the aid, PBGC will process their application within 120 days, and issue payment within 60 days after that. The rescues will come in the form of a single lump sum payment. The payment amount will be calculated to be enough that, together with the plans’ existing assets, they’ll be able to pay all pension benefits that are due through 2051. There’s no requirement that the plans repay the aid. Pension plans will have to keep the government rescue funds separate from their other assets, and can only place them in low-risk investment-grade bonds.
The money does come with some conditions. Pension plans that get the assistance won’t be allowed to retroactively increase previously earned pension benefits, and they can only increase future benefits if those are funded with new contributions.
One group that won’t get relief under the rules is contributing employers. When they got into trouble, many underfunded plans imposed significant surcharges on participating employers that were intended to make up for the investment losses. PBGC’s rescue plan rules say that employers can’t reduce the amount of contributions they’re currently making under their collective bargaining agreements.
PBGC has begun scheduling online informational sessions to explain the program to pension trustees and practitioners.