Central Pension Fund

PBGC’s Multiemployer Program Remains Strong

In November 2004 the Pension Benefit Guaranty Corporation (PBGC) released its annual report which revealed that the agency’s single-employer plan program had incurred a net loss of $12.1 billion in fiscal year 2004, and that the program’s overall deficit had more than doubled from $11.2 billion to $23.3 billion. This revelation produced widespread media coverage and a spate of legislative proposals to address the PBGC’s deficit.

What was lost in the media coverage, and overlooked in the legislative proposals, was the fact that the multiemployer plan program of the PBGC is in a comparatively strong position --- with no need whatsoever for legislative relief. While there is a small deficit in the multiemployer program, it shrank in 2004, and is for all practical purposes insignificant.

Indeed, during legislative debates in 2004 aimed at improving the funding of defined benefit pension plans generally, Congress found little need for any multiemployer plan relief. During the debates Republican Congressman John Boehner of Ohio, who serves as Chairman of the House Education and the Workforce Committee, successfully argued that, while single-employer plans were in need of relief, multiemployer plans were healthy. In Mr. Boehner’s words,

“[T]he multiemployer system has essentially remained sound and financially healthy despite the much more significant underfunding we see among single-employer plans.”

The health of multiemployer plans results from their fundamental design. The Central Pension Fund is a perfect example. It was designed to permit thousands of small employers to make contributions on behalf of their employees in industries characterized by intermittent employment, frequent job changes and regular closing and opening of new businesses. And so, as one small employer closes, another opens in the continual ebb and flow of employment typical in the construction and building maintenance industries.

At any given point in time, the Central Pension Fund receives contributions from more than 6,000 individual employers, doing business at 9,000 separate locations. When employers come and go in the industry, there is no impact on the Fund. The Fund operates independently of the health of any individual employer. And it is comforting to remember that neither the construction nor building maintenance industries can be outsourced to China.

It is the independence of multiemployer plans from the health of any individual employer that makes them so much stronger and secure than single-employer plans, which are totally dependent on the health of the company that sponsors the plan. When employers such as Bethlehem Steel, LTV Steel, Kaiser Aluminum, Pan American Airlines, United Airlines and US Airways go bankrupt, they terminate their pension plans and hand them over to the PBGC.

It is because of this fundamental difference in the structure of single and multiemployer plans that in the 30-year history of the PBGC, it has been taken over only one multiemployer plan, while in 2003 alone it took over 26 single-employer plans.

As Congress seeks ways to address the PBGC’s problems with single-employer plans, it must carefully avoid damaging the health and vitality of our nation’s 1,660 multiemployer plans.

February 2, 2005