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Federal Insurance for Multiemployer Pensions in Peril

Program protecting 10 million Americans is likely to be insolvent by 2025

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Many multiemployer pension plans are now struggling because they have far more retirees and fewer active workers contributing to the plans.

The federal Pension Benefit Guaranty Corporation's Multiemployer Insurance Program, which protects the retirement benefits of 10 million Americans, is under "severe stress" and has an estimated 90 percent likelihood of becoming insolvent by 2025, according to a report recently sent to the White House. That ultimately could lead to drastic cuts in some workers' pension benefits.

If the program doesn't collapse in 2025, it is 99 percent certain to fail the following year, the report said. The prediction was based upon a computer model that ran 500 different simulations of how changing economic conditions might affect the plan's financial health. 

The current federal program protects 10 million workers and retirees enrolled in 1,400 different multiemployer pension plans, which are collectively bargained programs involving one or more labor unions and multiple companies, generally in the same industry. If a multiemployer pension plan runs low on funds to cover its guaranteed benefits and expenses, the federal program pumps money to that plan to keep it going. Though the funding technically is a loan, in practice the money is almost never repaid, according to the report.

Many multiemployer pension plans have been struggling because they now have far more retirees and fewer active workers contributing to the plans. About 130 multiemployer plans with 1.3 million participants already have declared that at some point in the next 20 years they'll be unable to raise contributions enough to keep paying benefits at the present level, the report said. 

With increasing demands on its resources, the federal insurance program itself will rapidly run out of money to help them. When that happens, the pension plans could be forced to cut their benefits, on average, to an eighth or less of their current level, financial news website reported.

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