The House is considering a program of government loans and grants for financially troubled Taft Hartley multi-employer plans. Many multi-employer plans are on the verge of insolvency. The American Society of Actuaries estimates that by 2023, 21 multi-employer plans covering about 95,000 participants will be unable to continue paying benefits. The financial troubles of multi-employer plans are longstanding. The primary causes are:
- most multi-employer plans cover employees in the smoke stack industries that have been in decline, meaning fewer and fewer contributing employers;
- benefit liabilities have often been calculated using unrealistic actuarial assumptions; and
- negotiated employer contributions have rarely been sufficient to fund the promised benefits.
In 2014, Congress attempted to address this problem by making an exception for multi-employer plans to ERISA’s longstanding rule that plan sponsors can never cut back on accrued benefits. In some cases, plans were permitted to cut benefits by more than 30 percent. However, this relief has not been sufficient. Under the proposed legislation, plans would be allowed to apply for 30-year loans along with outright grants. The most distressed plans would be required to participate in the program. Support for this legislation is sharply divided along party lines. Democrats see this as a necessary and temporary backstop. Republicans see this as a taxpayer funded bailout that does not address the underlying problems, especially mismanagement by plan trustees.
If Congress fails to act soon, the Pension Benefit Guarantee Corporation (“PBGC”) will be on the hook for benefits that multi-employer plans are unable to pay. The PBGC is a government agency established by ERISA that guarantees payment of all private pensions. The PBGC’s assets are insufficient to cover the liabilities of multi-employer plans. Thus, if Congress fails to come up with a legislative solution, it will be faced with the ugly choice of bailing out the PBGC to the tune of billions of dollars or standing by and watching a federal agency collapse.
This information was developed as a general guide to educate plan sponsors and is not intended as authoritative guidance or tax/legal advice. It is not intended to provide specific legal, tax or other professional advice. The services of an appropriate professional should be sought regarding your individual situation.
