The Central States Pension Fund, a multi-employer pension plan covering current and retired workers from over 1,500 companies, is projected to become insolvent within the next 10 years when the benefits of an estimated 407,000 participants will be at risk.
Earlier in May, the Treasury Department rejected Central States’ rescue plan, which called for a 60 percent reduction in benefits for some enrollees, on the grounds that the fund would still become insolvent.
Following Treasury’s rejection, the fund’s director, Thomas Nyhan, announced that without the help of the federal pension insurance fund — Pension Benefit Guaranty Corp. (PBGC) — pensioners would be left with “virtually nothing.”
PBGC was created by Congress in 1974 with the Employee Retirement Income Security Act and is funded primarily by insurance premiums paid by the pension plans and investment income — not taxpayer dollars.
With $2 billion in net assets and $3.7 billion in 2015 revenue, PBGC still does not have enough in its coffers to cover payouts to pension-holders for plans that are projected to run out of money over the next 10 years.
Central States Pension Fund pays recipients approximately $2.8 billion per year.
The financial woes of the private pension plans are the result of a slower growing economy and a greater share of retired participants; PBGC’s multi-employer insurance fund was structured on the premise that payouts would rarely have to be made, and therefore charged lower premiums to clients.
Now that two financial crashes in 2000 and 2008 have put the brakes on the economy, causing more pension funds to fail, either higher insurance premiums must be set or tax-payer money must be used to fund PBGC at adequate levels — both actions being the responsibility of Congress.
Currently, companies participating in pension funds pay $27 per recipient. In March, PBGC reported that premiums need to be increased to $156 per payee for the fund to have a 90 percent chance of staving off insolvency over the next two decades.
While a law passed in 2014 allowing pension benefits to be cut, some Democratic legislators on Capitol Hill are pushing for a more compassionate solution which would allow pensioners to receive most, if not all, of their retirement money.
In 2015, Sen. Bernie Sanders (I-VT) proposed the Keep Our Pension Promises Act, which would increase PBGC funding through the closure of an estate tax loophole and ending a tax exemption on the sale of artwork and collectible items.
Sanders’ bill was never brought to the Senate floor for a vote, and critics say that similar legislation would also be a long-shot in a conservative Congress.
In 2010, when the Democrats had majority-control of the Senate, a legislative effort to replenish PBGC’s funds with taxpayer money also failed.
[CNN] [Washington Post]