WASHINGTON — Using its partition authority for only the third time ever, the Pension Benefit Guaranty Corporation will pay retirement benefits for nearly 350 former Hostess Brands employees who were members of the Bakery and Sales Drivers Local 33 Industry Pension Fund, a distressed multiemployer plan in Baltimore.
The Bakery and Sales Drivers couldn't afford retirement benefits for former Hostess employees and asked PBGC to pay for them. Separating Hostess participants from the rest of the plan will enable the plan to avoid insolvency and preserve pension benefits for most of the plan's 700 participants.
For only the third time in its history, PBGC used its partition authority to improve retirement security for people covered by a distressed multiemployer plan. If the agency didn't separate the Hostess participants, the Bakery and Sales Drivers plan would have become insolvent.
"We're acting now to prevent a plan from failing in the future," said Sanford Rich, PBGC's Chief of Negotiations and Restructuring. "And if we had the resources, we could do this to help preserve multiemployer plans covering hundreds of thousands."
Brad Raymond, General Counsel for the Teamsters, said the union supports PBGC's efforts to preserve benefits. "Overall, we think what PBGC is doing offers the best chance for struggling pension funds to survive in the context of inadequate bankruptcy laws which permit companies to abandon their responsibilities and shift their pension commitments to PBGC, other responsible employers, and their workers. We will continue to work with PBGC to preserve our members' pensions."
"The tragic effects of the liquidation of Hostess continue," Raymond said. "Because of this company's failure, the future ability of the Local 33 Pension Fund to provide benefits to Hostess participants as well as participants employed by other companies has been put in jeopardy. We are gratified that PBGC has stepped in to help. Of course, we would prefer that the Hostess participants receive more than what PBGC will provide, but at least these benefits will now be guaranteed and PBGC's actions will ensure that the fund will not run out of money."
The new plan, with former Hostess participants, will receive financial assistance from the agency to pay PBGC guaranteed benefits of up to $12,870 a year for someone with 30 years of service. The average Hostess retiree could see a reduction in benefits to about $520 a month from $650.
The remaining 360 people covered by the Bakery and Sales Drivers plan are being merged into the Milk Drivers and Dairy Employees Local Union No. 246 of Washington D.C. Pension Fund. The Landover, Md.-based plan covers about 830 people. Plan mergers are another way to protect benefits of people in multiemployer plans. This option enables plans to combine monetary assets and administrative resources so participants have a more secure retirement future.
In FY 2013, PBGC paid $89 million in financial assistance to 44 multiemployer pension plans covering the benefits of nearly 50,000 retirees. An additional 21,000 people in these plans will receive benefits when they retire. However, PBGC's multiemployer program premiums are far below the levels necessary to meet all obligations and the agency reported a net multiemployer deficit for FY2013 of $8 billion.
PBGC protects the pension benefits of more than 42 million Americans in private-sector pension plans. The agency is directly responsible for paying the benefits of more than 1.5 million people in failed pension plans. PBGC receives no taxpayer dollars and never has. Its operations are financed by insurance premiums, investment income, and with assets and recoveries from failed plans. For more information, visit PBGC.gov.