In a recent editorial entitled the "Union Pension Bomb," the Wall Street Journal described the "big trouble" facing multiemployer pension plans. The editorial noted a study by analysts at Credit Suisse, which found multiemployer pensions are collectively underfunded by approximately $369 billion, and only a small fraction of these plans are considered stable and healthy.
It is important to note this study is based on a rate of return on investments not reflected in existing law. Some have argued the study makes assumptions that better reflect the current state of the multiemployer pension system and, as with any debate, others have disagreed. Regardless of the methodologies used, this is not the first time the challenges facing the multiemployer pension system have drawn the public's attention.
According to an analysis by the benefits consulting firm Segal, more than 25 percent of plans are in "critical status," due to severe financial deficiencies. A report by the Pension Benefit Guaranty Corporation reveals multiemployer pensions are increasingly dependent upon the agency's financial assistance. In fact, PBGC projects that its future obligations to these plans total $4.5 billion -- a 48 percent increase from previous estimates. The corporation also expects the number of insolvent plans to more than double over the next five years. Finally, there are the warnings by plan managers and trustees who fear the pensions they oversee will become insolvent in the years ahead.
While some plans have made responsible decisions to help ensure their long-term success, an aging workforce, weak economy, investment losses, and unsustainable promises are placing a great deal of strain on the multiemployer pension system. The resultant uncertainty is an ongoing source of angst for many workers and employers. Some workers have little confidence the benefit they were promised will be there when they retire. And employers trying to keep their businesses open are also trying to keep up with their growing pension obligations.
Policymakers continue to struggle with this pension problem as well. In 1980, changes to federal pension law were adopted, including reforms that promoted greater responsibility among employers and union officials for the promises they make to workers. More recently, the Pension Protection Act enhanced the accountability of the multiemployer pension system, establishing classifications to better identify a plan's financial strengths and weaknesses and requiring more detailed disclosure of the plan's financial status.
Despite these well-intended efforts and past attempts to provide relief, problems still persist. A number of provisions in existing law are set to expire in 2014, which means Congress will need to take action once again to help address the shortfalls of the multiemployer pension system. While some pension plans are financially sound and prepared to meet their obligations, it is becoming increasingly clear the depth and breadth of the challenges facing the system will demand significant reform.
With a deadline of two years, it may seem like time is on our side. However, we cannot ignore the impact this issue has right now on the health and strength of our nation's economy. Thousands of job-creators participate in the multiemployer pension system and more than 10 million Americans depend on these benefits to help provide the financial security they deserve in retirement. We must use the months ahead to ensure we get this right. I look forward to today's discussion, and expect it will pave the way to future conversations on this very important subject.