Multiemployer Solvency Crisis: Adjustments to the PBGC's Benefit
Guarantee to Reduce Pressure on the Guarantee Fund
Projections indicate that the PBGC's multiemployer guarantee fund will be exhausted in the near future. This paper examines options for modifying the PBGC's benefit guarantee to reduce pressure on the guarantee fund. Using MEPSIM, three types of adjustments to the guarantee were evaluated: (1) reductions of the guaranteed benefit rate, (2) the introduction of a penalty that reduces the guaranteed benefits of participants who retire before the age of 67, and (3) reducing benefits to guaranteed levels several years before insolvency, as opposed to waiting until a plan has first exhausted its assets. While none of these options are sufficient to prevent the exhaustion of the guarantee fund, they have a strong downward impact on the present value of projected PBGC assistance payments.
Multiemployer Solvency Crisis: Assessing Plans' Capacity for Self-Stabilization
This paper assesses multiemployer pension plans' capacity to avoid insolvency through benefit cuts and/or contribution increases. For each plan projected to become insolvent under our baseline assumptions, we used MEPSIM to estimate the benefit cut or contribution increase needed to achieve financial stability. We found that, for most plans projected to exhaust their assets within 30 years, a large across-the-board benefit cut -- applicable to both workers and current retirees alike -- is the only realistic option for avoiding insolvency. Given this sobering finding, we explored the impact of several possible adjustments to the Multiemployer Pension Reform Act (MPRA) to enable plans to address funding problems at an earlier stage, before they become unmanageable. For those plans that are already in an advanced state of decline, with insolvency looming in the near-term, we evaluated legislative adjustments designed to decelerate the rate of funding deterioration, thus buying the plans some additional time and, in addition, mitigating their projected impact on the PBGC's deficits.
The Multiemployer Pension System: Simulations of the Status Quo
This paper presents simulations of the multiemployer pension system under various sets of assumptions, so as to assess the range of possible outcomes should the basic features of the system remain unchanged. Metrics presented include the number of plans projected to become insolvent, the number of participants in these plans, and the projected year of insolvency of the PBGC’s multiemployer guarantee fund.