WASHINGTON, D.C. - The Pension Benefit Guaranty Corporation has started providing financial assistance to the Road Carriers Local 707 Pension Fund, a newly insolvent multiemployer pension plan based in Hempstead, New York. The financial assistance will help pay the guaranteed portion of pension benefits earned by nearly 4,000 participants.
For the past year, the 707 Fund has been unable to pay full benefits at the levels promised under the plan, and reduced retirees' benefits to levels that were supportable by available plan assets. However, starting February 1, 2017, benefits to retirees were cut back further to the PBGC guarantee limits set in law for insolvent multiemployer plans.
The full benefit promised to current retirees and beneficiaries in the 707 Fund averages $1,313 per month, but the average guaranteed benefit is $570. Forty-two percent of the 707 Fund retirees and beneficiaries have benefit reductions of more than half, compared to the amount of their promised benefits. Only 7 percent of current retirees and beneficiaries will receive their full plan-promised benefit amount.
The 707 Fund is among a number of troubled multiemployer plans that have projected they will run out of money during the next 20 years and will likely call on PBGC for financial assistance. Guaranteed benefits for the 707 Fund retirees, and participants in other insolvent multiemployer plans, will be reduced even further if steps are not taken to address the deteriorating financial condition of PBGC's multiemployer insurance program. The PBGC program is likely to run out of money by 2025. If this happens, PBGC's premium income will only provide retirees with a small fraction of their benefit.
"Over a million people participate in multiemployer pension plans that are expected to run out of money over the next 20 years," said PBGC Director Tom Reeder. "The insurance program for insolvent multiemployer plans is in dire financial condition and, absent reform, is likely to run out of money by 2025. I am committed to working with the Administration, Congress and other stakeholders to find solutions that stabilize multiemployer pension plans and make the pension insurance program one that people can rely on well into the future."
PBGC will initially provide assistance of $1.7 million per month to the 707 Fund. That amount, together with employer contributions and other income, will allow the pension fund to pay retirees' benefits at the level guaranteed under federal pension law. The amount of PBGC's future financial assistance will vary based on changes in the plan's income and cash needs for guaranteed benefit payments and administrative costs.
Unlike PBGC's program for terminated single-employer pensions, PBGC doesn't take over administration of insolvent multiemployer plans. The 707 Fund will continue to administer the plan. Participants with questions about their benefits should contact the Fund Administrator.
Like other financially troubled multiemployer plans, the poor financial condition of the 707 Fund is the result of several trends. They include a steady decline in the number of participating employers and aggregate employer contributions, increases in plan benefit levels that were not adequately funded, and investment losses suffered in the 2008-2009 financial crisis. The 707 Fund covers retired and current truck drivers represented by the Teamsters Local Union 707.
PBGC's Multiemployer Program PBGC runs two separate pension insurance programs: single-employer and multiemployer. The programs differ significantly in the level of benefits guaranteed, the insurable event that triggers the guarantee, and premiums paid by insured plans. The two programs are financially separate.
Unlike the agency's program for single-employer pensions, PBGC doesn't take on the administration of insolvent multiemployer plans. Instead, the agency provides financial assistance so the plans can pay benefits at no more than the PBGC guarantee level. The guarantee limits for failed multiemployer plans are significantly lower than for terminated single-employer plans. The PBGC guarantee limits for people in multiemployer plans are based on years of service and the rate that benefits are earned under the plan.
The insolvency of the 707 Fund is the first among a number of larger financially troubled multiemployer plans with benefit levels that significantly exceed the PBGC guarantee limit. In the past, failed multiemployer plans tended to be small plans or promised relatively modest benefits. A 2015 PBGC study found that twenty-one percent of participants in already insolvent multiemployer plans experienced a reduction in benefits when the guarantee limits were applied. However, the risk and magnitude of participants' benefit losses increases dramatically in the future when larger plans with higher benefits become insolvent and apply the guarantee limit.
In FY 2016, PBGC paid $113 million in financial assistance to 65 multiemployer plans that cover the benefits of over 86,000 participants.
PBGC protects the pension benefits of nearly 40 million Americans in private-sector pension plans. The agency is currently responsible for the benefits of about 1.5 million people in failed pension plans. PBGC receives no taxpayer dollars. Its operations are financed by insurance premiums, investment income, and with assets and recoveries from failed single-employer plans. For more information, visit PBGC.gov.