During a hearing conducted by the House Subcommittee on Health, Employment, Labor, and Pensions to discuss challenges facing multiemployer pension plans, Pension Benefit Guaranty Corporation (PBGC) Director Joshua Gotbaum urged Congress to develop legislation to improve the long-term viability of such plans. Multiemployer plans, which are created by collective bargaining agreements and jointly administered by a board of trustees comprising union and employer representatives, are becoming increasingly more reliant on the PBGC for financial assistance when in distress. Opening the hearing, Subcommittee Chairman Phil Roe (R-TN) stated that factors such as the aging workforce, weak economy, and fewer contributing employers are threatening the long-term sustainability of the multiemployer pension plan system. As for the PBGC’s ability to provide assistance to plans in distress, Roe claimed that unless additional measures are taken, there is a 30% chance that the agency will be insolvent in less than 20 years.

Ranking member Rob Andrews (D-NJ) emphasized that approximately 10 million Americans rely on multiemployer plans, about 25% of which are currently in financial distress. He claimed that “as market values have tumbled, so have retirement accounts.” In addition, because members of the baby boom generation are retiring, plans are paying out more than they are taking in. Any legislative solution, he said, must balance the health of small businesses, maintain fairness to present retirees, and protect tax payers.

During panel questioning Gotbaum praised the bipartisan passage of two relatively recent pension relief laws that he believes have, in part, helped stabilize more multiemployer pension plans. The Pension Protection Act of 2006 (PPA) established more stringent pension funding rules, increased transparency, and implemented a stronger pension insurance system. Notably, the PPA created “zone rules” to gauge and improve a plan’s financial health. The provisions of this law are set to expire in 2014. In addition, two years ago the Pension Relief Act of 2010 (pdf) was enacted. This measure provides retroactive pension funding relief for single employer and multiemployer defined benefit pension plans, among other provisions.

According to Gotbaum, two years ago only about a third of multiemployer plan participants were in plans that reportedly were in the financially sound “green” zone. Today, Gotbaum said that the majority of participants are in plans that are recovering. Without changes, however, some plans will be unable to avoid insolvency. Gotbaum claimed that part of the problem is that the multiemployer system has not been rethought in 30 years, and that any solution – in addition to necessitating higher premiums – will involve changes to the multiemployer system in general. Among other things, he advocated continuing to allow plans to stretch out their obligations over a greater period of time, and giving plans a “broader pallet of tools and authorities” to enable them to perform self-help measures.

Roe said that the subcommittee will look closely at this issue and work on developing legislation to address the multiemployer pension plan problem during the 113th Congress.

An archived webcast of the hearing can be accessed here.