Economic Impact on Multiemployer Pension Plans

Multiemployer pension plans have been facing significant difficulties over the past several years, and the COVID-19 pandemic continues to add more barriers to keep these plans afloat. Sponsors of these pension plans have to manage workforce availability as employees are out sick, business interruptions due to lockdowns and closures, and investment uncertainty. 

Organizations that participate in multiemployer pension plans may have workers in nonessential businesses that closed temporarily or permanently during the year, leading to reductions in work being performed and difficulty making contributions to the pension plan. Other industries that were deemed essential may be impacted by shortages of employees available to work, and may look to bring back recent retirees. Due to these troubling circumstances, many multiemployer pension plans could become bankrupt within the next 5-15 years.

To touch on some of the most recent government action taken related to these plans, in 2014, President Obama signed the Multiemployer Pension Reform Act (MPRA). This Act extended some of the original actions set in the Pension Protection Act (PPA) of 2006, and added a new funding zone called “critical and declining.” This status means that the plan has funding and/or liquidity problems. If a fund is in this zone, a plan may suspend benefits; however, there are certain requirements that must be met in order for this to occur, which include, but is not limited to, an application to the Secretary of the Treasury and notification to participants.  Additional plans in a critical and declining status are required to adopt a rehabilitation plan. 

As of September 2020, there were approximately 125 funds that were “critical and declining” that are predicted to be bankrupt in 20 years. This impacts approximately 1.3 million participants. If a multiemployer pension plan becomes bankrupt, the Pension Benefit Guaranty Corporation (PBGC) offers financial assistance and may pay a portion of the benefit obligations that were guaranteed by the plan. The main concern with this solution is the PBGC’s latest Projections Report shows the Multiemployer Program is expected to run out of money by 2026. 

With all of these concerns arising surrounding pension plans, specifically multiemployer pension plans, all parties generally agree that some action needs to be taken.  

For more information on multiemployer plans or other employee benefit-related services, our team is here to help. Contact a member of the ERISA group at Schneider Downs for additional information.