Averting the Multiemployer Pension Solvency Crisis

Abstract

The Pension Benefit Guaranty Corporation (PBGC) multiemployer pension insurance program faces projected insolvency, driven by systemic underfunding of multiemployer pension plans. To address this brewing crisis, Congress has established a joint select committee to develop multiemployer pension reforms. Primary causes of the crisis include lax funding rules and inaccurate valuations of pension assets and liabilities. Explanations frequently offered for underfunding, such as financial market downturns and the declining proportion of active workers, fail to account for the relative weakness of multiemployer pension finances. Reforms should establish accurate asset and liability measurements, safeguards against further deterioration of underfunded plans, improved incentives for plan trustees, stronger funding requirements, and risk-based premiums. Legislators may wish to consider authorizing the PBGC to relieve plans of so-called orphan liabilities, subject to strict requirements that any relief must reduce projected claims on pension insurance. Lawmakers must be firm in declaring that no taxpayer funds will be used to bail out multiemployer pensions.