Terry O’Sullivan has a problem. General president of the Laborers’ International Union of North America, O’Sullivan thinks the half-million union members he represents at $35 billion LIUNA are headed for disaster. That’s because, as insured members of the Pension Benefit Guaranty Corp., they’re paying into a mandatory program with a whopping $52.3 billion deficit.
The PBGC, the Washington-headquartered federal insurance agency that provides modest replacement income for multiemployer pension participants whose defined benefit pensions have become insolvent, estimates that unless changes are made, it will run out of money by 2025. Last year, in an attempt to prop up the PBGC, Congress doubled annual premiums for the agency’s 10.4 million multiemployer participants, from $13 per person to $26; it will probably keep hiking them for the foreseeable future. (The PBGC has no official comment on its plans.)
“We’re not for premium increases to an entity that we believe is doomed,” says Washington-based O’Sullivan. “We think Congress will recklessly increase premiums.”
But it’s more than a premium rise that is nettling O’Sullivan. He wants a wholesale exit from the PBGC and asserts that his union can take care of participants who fall victim to employer bankruptcies without help from the troubled federal agency. Multiemployer pensions have long disagreed about mandatory PBGC participation. “It’s always been a debate,” says Randy DeFrehn, executive director of the National Coordinating Committee for Multiemployer Plans (NCCMP) in Washington.
Consumer advocacy groups such as AARP and the Pension Rights Center have been calling for a taxpayer bailout of severely underfunded multiemployer pensions, along the lines of the financial and auto industry rescues after the 2008–’09 global financial meltdown. But Congress has no appetite for such an answer to an impending retirement crisis affecting middle class workers. As a result, the union world has been left to craft its own solutions.
When the PBGC was formed as part of ERISA, the comprehensive pension legislation enacted in the mid-1970s, many multiemployer officials didn’t want to join its insurance program. Their plans, which have an equal number of union and employer trustees, already had a way to deal with employer bankruptcies: Pay the benefits of affected workers by keeping them in the pension. Officials also viewed the PBGC as having been created with single-employer plans in mind.