GAO: Union Pension Insurance Fund ‘Likely To Be Insolvent’ Within Decade

By Barbara Hollingsworth | February 24, 2015 | 3:18pm EST


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( – Despite recent congressional action, the Pension Benefit Guaranty Corporation’s (PBGCmulti-employer pension insurance program is “likely to be insolvent by the year 2024,” according to the Government Accountability Office’s (GAO) latest list of 30 “High Risk” government programs.

PBGC collects premiums set by Congress from employers to insure the pension benefits of more than 44 million American workers and retirees currently covered under defined benefit plans.

The agency’s “single-employer program protects about 33.6 million workers and retirees in about 27,600 pension plans,” according to the PBGC website. “The multi-employer program protects 10.4 million workers and retirees in about 1,500 pension plans” set up by collective bargaining, usually for union workers in one industry, including the airlineconstructionentertainmentminingretail, and trucking industries.

Although PBGC has one of the largest financial portfolios of any federal corporation, it “estimated that its exposure to future losses for underfunded plans was $184 billion” – or more than twice its $89 billion in assets, GAO reported.

“At the end of fiscal year 2014, PBGC’s net accumulated financial deficit was $61.8 billion—an increase of over $26 billion from the end of fiscal year 2013,” according to the report. In 2000, PBGC was $10 billion in the black.


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Last year, 150 (27 percent) multi-employer pension funds were determined to be in “critical” condition, which means they were less than 65 percent funded and faced the possibility of insolvency within the next five years, according to the U.S. Department of Labor.

Another 85 (14 percent) were classified as “endangered” because they were less than 80 percent funded and faced a significant shortfall within the next seven years.

According to a Sept. 2014 study by Boston College’s Center for Retirement Research, many union pension plans that “were once thought to be secure” are in jeopardy due to declining union membership and expanded retiree benefits.

The study identified two of the biggest union pension funds currently in trouble: the United Mine Workers of America 1974 Pension Fund and the Teamsters Central States pension fund.

However, PBGC, the federal agency that insures present and future retirees against the risk that their pension funds could become insolvent, is itself at risk of going belly up.

The agency “continues to face the ongoing threat of losses from the termination of underfunded [pension] funds, while grappling with a steady decline in the defined benefit pension system,” the GAO reported.

“With each passing year, fewer employers are sponsoring defined benefit plans and the sources of funds to finance future claims are becoming increasingly inadequate. As a result, PBGC’s long-term financial future remains tenuous,” the report warned.

After PBGC estimated that its multi-employer insurance fund would be “exhausted” by 2022, Congress passed the Multiemployer Pension Reform Act of 2014 (MPRA) as an amendment to the $1.1 trillion omnibus spending bill to address the long-term viability of the program, which GAO says “faces an immediate and critical challenge.”

MPRA doubled 2015 premiums for participants in multi-employer pension plans and made a number of technical modifications to the program, including the creation of a “critical and declining status” category for pension funds that are projected to be insolvent within the next 15 years.

The legislation allows trustees of pension funds in that category to temporarily or permanently reduce current or future benefits after demonstrating that they have made all reasonable efforts to avoid insolvency. Benefits cannot be reduced for retirees over the age of 80, and cannot fall beneath $12,870 annually for a retiree with 30 years of service.

However, PBGC officials “predicted that the changes will only forestall insolvency of the program by an additional 2 years,” the GAO noted.

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