The Labor Department announced that 235 union multi-employer-multi-employee pension funds are “endangered,” meaning they lack the assets to pay 80 percent of their promised benefits.
About 150 of those insolvent union pension plans are now in “critical status,” since they lack the assets to pay even 65 percent of their promised benefits. Every state has endangered funds, but 29 are in California.
Norman Stein, Drexel University Law School Professor and Senior Policy Adviser to the Pension Rights Center told the Washington Examiner, “These are lists of plans whose own funding [levels] puts the plan at risk.” Under U.S. law, the “critical” insolvency status now obligates trustees to consider the option of cutting some benefits as part of a rehabilitation plan to restore solvency.
The union pension plan solvency determinations are based on the certified actuarial reports that are required by the Labor Department to be filed and publicly posted online. The filings do not detail exactly how insolvent the plans actually are, since they just indicate plans that are below the 80 percent and 65 percent thresholds.
Several filings admitted that plans have been insolvent for many years:
- The report by the Indiana State Council of Carpenters Pension Plan actuary report stated, “This is the fourth year the plan has been in critical status. The law permits pension plans to reduce, or even eliminate, benefits called ‘adjustable benefits’ as part of a rehabilitation plan”;
- The Southern California United Food & Commercial Workers Unions and Food Employers Joint Pension Trust Fund actuarial report states that the fund has been in critical status for five years;
- The International Brotherhood of Electrical Workers Pacific Coast Pension Fund’s actuarial report reveals the plan is in its sixth year of critical status.
Obfuscated in the December $1.1 trillion federal spending bill as an amendment was legislation to shore up union pension solvency by allowing benefit cuts to more than a million retired and current truck drivers, construction workers, and others.
Despite opposition from the powerful American Association of Retired Persons (AARP), the proposal was backed by a number of Democrats as “ the only available option” to save multiemployer pension plans from defaulting.
The legislation allows plans that are projected to run out of money in the next 10 to 20 years to cut the benefits they pay to both current and future retirees. Benefits can only be partially cut for those between 75 and 80 years old. No cuts are allowed for disabled pensioners or those 80 years and older.
The Pension Benefit Guaranty Corporation that insures pension plans is itself projected to run out of money in the next decade. The PBGC blames 10 percent of the 1400 multiemployer union pension plans that are insolvent for putting a deep financial strain on their ability to pay future pension claims.
Some analysts believe the problem is much worse than the unions and their allies are willing to disclose. A recent study by Boston College’s Center for Retirement Research estimates that 27 percent, or about 378, multiemployer union pension plans are in “critical status” and another 14 percent, or about 196, are endangered. With approximately 574 union pension plans unable to pay 20 percent or more of their promised benefits, millions of union pensioners are facing risks of big benefit cuts.