A report issued by the Pension Benefit Guarantee Corporation (PBGC) is warning that unless reforms are made to private, multi-employer pension plans, many of them could become insolvent by 2025.

Washington Examiner:

The problem is simple: Too many of the plans have not been adequately funded. "While multi-employer plans are typically less well funded than single-employer plans, most multi-employer plans are projected to remain solvent over the next 20 years. However, a core group of plans appears unable to raise contributions sufficiently to avoid insolvency," the report said.

An estimated 14,000 multi-employer plans cover 10 million people in the U.S. The multi-employer pension system is funded at only 41 percent, which translates to an estimated $610 billion in unfunded liabilities, according to the House Education and the Workforce Committee.

 

Rep. John Kline, R-Minn, chairman of the House Education and Workforce Committee, said the report "put in stark detail" the risks to both workers and taxpayers.

"Today is a reminder of the urgent need to enact additional reforms to strengthen multi-employer pensions, reforms that would modernize the system for workers and provide PBGC additional resources to meet its obligations. There have never been any easy answers, and it's time for those who oppose recent reforms to be honest about these challenges and put forward responsible solutions," Kline said.

Multi-employer plans involve several companies and unions jointly managing a pension fund for all their workers. The plans are favored by unions because they remain with workers even if they switch jobs. However, they are risky for businesses because if one employer goes bankrupt, the others are legally obligated to cover its contribution. Reports of the financial woes of some plans have prompted many companies to try to get out of the system. In 2006, the United Parcel Service paid $6.1 billion to pull out of the drastically underfunded Teamsters' Central States plan.

Pension obligations for companies have been soaring due to rising health insurance costs and shrinking workforce. But unfunded liabilities of more than $600 billion not only threatens retirees, but also the taxpayer. In addition to private pension shortfalls, there are also hundreds of public pensions being threatened by insolvency. Taken together, the bill that could be presented in the future to taxpayers could top $1 trillion.

The time to deal with these threats is now while fixing the problems can be done with little pain. If we wait until the crisis is fully upon us, the resulting bailouts could add trillions to the deficit and severely effect the economy.