WASHINGTON—The Biden administration has announced a final rule for a program intended to keep some 200 multiemployer pension funds solvent for the next 30 years and protect more than 2 million workers from having their retirement benefits reduced.
The rule, announced by the federal Pension Benefit Guaranty Corporation July 6, modifies the interim rule from last July that set up the Special Financial Assistance Program for financially troubled pension funds. It will go into effect on August 8. The program, authorized by the American Rescue Act of 2021, will provide an estimated $74 billion to $91 billion in aid to enable eligible funds “to pay retirement benefits without reduction for many years into the future,” the PBGC says.
North America’s Building Trades Unions President Sean McGarvey called the program “the most significant effort to protect the solvency of the multiemployer system in nearly 50 years.”
It “will directly aid millions of American workers, retirees, and families who faced significant pension benefit cuts, as they will now receive the full benefits they worked years to accumulate,” McGarvey said in a statement. “Prior to this critical relief, over 200 plans were on pace to become insolvent. The Special Financial Assistance Program will right the ship and provide the funding needed for plan members to retire with the security and dignity they earned, while also saving American taxpayers tens of billions of dollars in lost federal tax revenue and future social safety net costs.”
The program will allow plans to apply for aid if they became insolvent after the Multiemployer Pension Reform Act was enacted in 2014; were allowed to “suspend” benefits under that law; are in “critical and declining” status [projected to become insolvent within either 15 or 20 years] by the end of this year; or are less than 40 percent funded and less than 25 percent of the participants are current workers paying into the plan.
Those plans cover people who work for multiple employers, from ironworkers in Cleveland to musicians in San Francisco, from supermarket employees in Maryland to truck drivers in Ohio. They are generally in trouble because the number of active workers contributing declined, such as from the deregulation of trucking in the 1980s, or their investments were battered in the 2008 recession.
The PBGC estimates that about 200 of the approximately 1,400 private-sector multiemployer, union-connected pension plans it covers will receive aid. The largest is the Teamsters’ Central States Pension Fund with more than 400,000 participants.
The program will also restore benefits cut for more than 80,000 workers and retirees in the 18 multiemployer plans allowed to reduce them in order to remain solvent under the 2014 law.
The plans will not have to repay the aid to the PBGC. But without the aid, the White House said, so many plans were headed towards collapse that the PBGC’s multiemployer pension insurance program — which collects premiums from plan sponsors and uses the money to pay partial benefits to retirees if their plan collapses — was projected to become insolvent in 2026.
“Without this special financial assistance, the pension benefits of many hardworking union members and their families, through no fault of their own, were in danger,” Secretary of Labor Marty Walsh, chair of the PBGC board of directors, said in a statement.
The aid is intended to keep plans solvent until the demographic bubble of having more retirees than active workers has passed.
Reps. Virginia Foxx (R-N.C.) and Rick Allen (R-Ga.), leading Republicans on the House Education and Labor Committee, said the rule showed “the Biden administration intends to bow to Big Labor’s interests” to bail out “a select group of failing and insolvent, privately managed multiemployer retirement plans.” They said Democrats had rejected “bipartisan solutions that offer longterm structural reforms to the management of multiemployer pension plans.”
A spokesperson for the committee’s GOP members did not respond in time to a question about what those solutions and reforms were.
The plans receiving aid will generally not be allowed to increase benefits for 10 years, but could raise them after that — including retroactive payments — if they demonstrate to the PBGC that they will still remain solvent.
The changes made to last year’s interim rule include allowing pension funds to invest up to 33 percent of the aid they receive in stocks or in funds that invest mainly in stocks, to enable them to seek a higher return on their investment. The rest will be restricted to “high-quality [investment-grade] fixed-income investments,” such as bonds.
As of July 6, the PBGC said, it had approved over $6.7 billion in special financial assistance to plans that cover over 127,000 workers and retirees. The largest included plans covering 51,500 United Food and Commercial Workers members in the Middle Atlantic states and Appalachia, and 31,700 Teamster printers and graphic artists in the Chicago area.
In the New York area, it approved applications from Teamsters Local 805 in Queens and Local 701 in North Brunswick, N.J.; the Trucking Employees of North Jersey in Union City; United Auto Workers Local 365 in Englewood Cliffs, N.J., and International Longshoremen’s Association Local 1730 in Mastic, Long Island.
“This is about basic fairness,” Rep. Donald Norcross (D-N.J.) said in a statement. “If you work hard, you should be able to rely on the fruits of your labor in your golden years.”
He said that the program’s $500 million aid to Teamsters Local 641’s pension program had saved the retirements of 3,600 workers in New Jersey.