US Pension Insurer Issues Dire Warning on Pooled Plans

More than a million people risk losing their federally insured pensions in just a few years despite recent stock market gains and a strengthening economy, a new government study said on Monday.

The people at risk have earned pensions in multiemployer plans, in which many companies band together with a union to provide benefits under collective bargaining. Such pensions were long considered exceptionally safe, but the Pension Benefit Guaranty Corporation reported that some plans are now in their death throes and could not recover. The aging of the work force, the decline of unions, deregulation and two big stock crashes have taken a grievous toll on multiemployer pensions, which cover 10 million Americans.

Bailing out those plans seems highly unlikely. But if they are simply left to die, the collapse of the federal insurance program is all but inevitable, the report said, leaving retirees in failed plans with nothing. It added that the program 'is more likely than not to run out of money within the next eight years' as plan after plan collapses.

The federal insurer is not making any recommendations about what to do at the moment, said Joshua Gotbaum, its executive director. 'This is a legally required actuarial report whose purpose is solely to project the range of outcomes for plans and the P.B.G.C.,' he said.

The agency does such a projection every year, but this year's version was unusually late and unusually dire.

Congress has already held several hearings on multiemployer plans, and for months the unions and companies that jointly sponsor them have been meeting with Congressional staff members to come up with responses. One working proposal calls for retirees in multiemployer plans to give away part of their core benefits to save money. That idea is extremely controversial because federal law has sheltered retirees from such cuts for decades. Proponents say it is the only way to keep some plans going.

Even if the new report spurs them, no legislative initiative is expected until after November's elections.

The report's dire prognosis was limited to the multiemployer pension insurance program. The federal insurer has a separate program for the pensions offered by single companies, and the report said it was not at risk. In fact, its finances improved over the last year, the report said.

The multiemployer insurance program works differently from the single-employer one, and the report expressed concern that the people at greatest risk were unaware of how much their pensions could be cut if the situation deteriorated. The maximum insurance benefit is less than $13,000 a year, and that is only for people who have at least 30 years of service. In some plans, notably the famous Teamsters' Central States plan, many workers and retirees have already earned pensions well above the insurance maximum.

Congress never gave the program a lot of resources, paradoxically, because in the past the plans were considered so healthy that they did not need as much insurance protection. Employers pay much smaller premiums and the insurance coverage is much more limited than for single-employer pensions. And the P.B.G.C. itself has no power to step in and rescue a dying plan, the way it can if a single-employer plan is at risk of failing. It can only sit on the sidelines and get its meager checkbook ready.

The strength of multiemployer pensions grew out of the fact that they pooled the resources of many companies. If one company in the pool went bankrupt, the others were required to pick up the cost of the resulting 'orphaned' retirees. In the past, new unionized companies would join the pools over the years, keeping them strong.

Those factors began to change as the work force aged, unions dwindled and whole sectors of the economy were deregulated. And then came the dot-com crash of 2000, which affected many pension investment pools, the study said.

In 2006, Congress passed a law intended to strengthen all company pensions, and the new study looked, for the first time, at how employers were responding to it. Adding this behavioral information required a significant change to the P.B.G.C.'s methodology, which Mr. Gotbaum said was one of the main reasons the report came out months behind schedule.

The 2006 law required severely troubled multiemployer plans to set up rehabilitation programs and file the details with the government. In general, companies were supposed to put more money into their shared investment pools, workers were supposed to build their benefits more slowly, and retirees were supposed to give up the parts of their pensions that were not considered core benefits.

But when the researchers began started tracking employer behavior, they found that a significant number of multiemployer plans were so hard hit that their trustees decided not to use all the medicine prescribed in 2006. They did not think it would do any good and might even make things worse.

Mr. Gotbaum said the agency realized this over the last year or two, because more and more plan officials had been notifying the government that they were not in compliance with their own rehabilitation plans.

'They told us, 'It's not that we're not willing to do it,'' he said. Rather, the plan trustees told the government that they they had run into limits in how far they could push their companies and workers without destroying their whole pension plans.

Much of the problem was demographic. The most troubled plans often had more retirees than active workers. Trustees of those plans realized that they were pushing the workers to tighten their own belts in order to let the retirees keep receiving bigger benefits than the workers thought they would ever get themselves. If they kept pushing, the workers or the sponsoring companies would drop out of the pool, setting up a slow but steady death spiral.

'There is a concern that if the severely distressed plans fail, that this might lead to efforts to abandon healthy plans, too,' he said.

In recent years, the P.B.G.C. has occasionally 'partitioned' a dying multiemployer plan, pulling out the orphaned retirees and taking over the payment of their pensions while leaving the rest of the pool intact. But to partition all of the severely troubled multiemployer plans would cost more money than the agency has ever had.

Both federal insurance programs were designed to be self-supporting, and while the pension agency has operated for years with a deficit, it has not needed to turn to the taxpayers for assistance. Giving it the means to rescue failing multiemployer pension plans now would almost certainly require an act of Congress, to put more money into the agency's coffers.

Given the political climate in Washington, few members of Congress would probably support such a bill without first seeing that workers, retirees and unionized companies had already made serious sacrifices.

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