Too Underfunded for MPRA?

Pensions & Investments editorialized about the challenges Trump’s people might face:

On a micro level, Donald Trump’s administration will have to grapple with the challenge of applications from severely underfunded multiemployer defined benefit plans to be allowed to reduce pension benefits under the Multiemployer Pension Reform Act of 2014 [MPRA]. Applications from seven multiemployer plans are pending [six now]….So far the department has rejected three applications [four now], all this year, including the proposal of the the Teamsters, Central States, Southeast and Southwest Areas Pension Plan, which has $16.1 billion in assets and $35 billion in liabilities.

The Obama administration is letting the next administration deal with consequences of the plans runnig out of assets.

In addition, the new administration will have to come to grips with the United Mine Workers of America 1974 Pension Plan, whose $4.1 billion in assets and $9.7 billion in liabilities makes it too severely underfunded to qualify for MPRA reductions.

The distressed plans cannot rely on the Pension Benefit Guaranty Corp. to assume pension payments. The PBGC, with $1.8 billion in assets and $44.2 billion in liabilities, is itself at risk of running out of money within 10 years.

The Trump administration will have to resist calls for a bailout from participants in distressed multiemployer plans and the PBGC. The groups involved have to be encouraged to work out solutions themselves. Otherwise, taxpayers will face the moral hazard of pension plans avoiding financial discipline by enjoying a pension put option to pass off pension liabilities to Congress for bailouts.

The new administration should embrace risk-based premiums and authorize the PBGC to set rates, rather than Congress. but the best way to improve funding is through a strengthened economy, a strong market and higher interest rates.

The first thing that struck me was that the PBGC itself might well be excluded from using MPRA on account of their hopeless funded status but why the United Mine Workers  of America 1974 Pension Plan since their funded status looks in line with other applicants? Then I glanced at their latest 5500 filing – particularly question 4g of the Schedule H:

1974-assets

It looked as if someone had mistakenly inserted extra zeroes in the answer but, checking responses from the last few years, that number is in line. About $2.3 billion out of the $3.8 billion that the plan supposedly had in assets as of June 30, 2015 was a guess.  Combine that with $550 million in net outflow annually and it may be time to heed the words of our newest Nobel laureate:

If your money to you is worth savin’
Then you better start swimmin’, you could sink like a stone
For the times, they are a-changin’

Plan Name: United Mine Workers of America 1974 Pension Plan
EIN/PN: 52-1050282/002
Total participants @ 6/30/15: 103,323 including:
Retirees: 89,737
Separated but entitled to benefits: 6,262
Still working: 7,324

Asset Value (Market) @ 7/1/14: $4,164,994,000
Value of liabilities using RPA rate (3.59%) @ 7/1/14: $9,734,678,488 including:
Retirees: $7,833,383,081
Separated but entitled to benefits: $714,799,852
Still working: $1,186,495,555

Funded ratio: 42.79%
Unfunded Liabilities as of 7/1/14: $5,569,684,488

Asset Value (Market) as of 6/30/15: $3,808,170,600
Contributions: $97,051,007
Payouts: $618,468,782
Expenses: $30,070,206

7 responses to this post.

  1. Posted by skip3house on November 15, 2016 at 11:18 am

    Not very comforting reading our Federal Government is dumb as Trenton. Will these defined benefit pension plans be ‘retro ed’ to defined contributions, with benefits matching real values?

    Reply

  2. Posted by Sanford Rich on November 15, 2016 at 3:23 pm

    The United Mine Workers Pension Plan is not a candidate for MPRA because the benefits are, on average, lower than the PBGC guaranty levels.
    The purpose of MPRA was to help plans that had promised benefits that were higher than the PBGC guaranty levels, but have insufficient assets and anticipated funding flows to pay them. MPRA would facilitate a payment of benefits higher than the PBGC guaranty level but below the promised level if possible. MPRA relies on assets in the plans to pay reduced benefits thus avoiding insolvency and the PBGC insufficiently funded insurance program. This is a classic market clearing mechanism, similar to an out of court or in bankruptcy court liability restructuring. Unfortunately, or by political calculation, the regulation implementing MPRA is so restrictive that getting an approval is nearly impossible, or merely easily interpreted as impossible. I believe that most of these denials are the result of a belief that MPRA is unfair and not that this asset liability mismatch is not negotiable. There is nothing new about an institution that cannot meet it’s liabilities. The problem is a regulatory regimes that relies on the false precision of 30 plus year projections and legislation poorly crafted.
    Unless there is a change in interpretation of MPRA, new legislation, or a bailout the benefits payments of critical and declining ME plans will be exhausted paying out promised benefits and the insolvent plans (defined as zero assets) will be absorbed by the PBGC and the PBGC will default on the insured guaranty levels in about 9 years or insurance premiums paid by the remaining solvent ME plans will be increased to a point where the PBGC can afford to pay the guaranty levels. Premium increases currently require legislation. Recent MPRA Reporting available on the PBGC web site estimates that a 500 plus percent increase in premiums paid by ME plans is needed. I suspect that number is under estimated. Always assume false precision and accuracy and realize that the 85 percent confidence interval estimate of the ME plan deficit of the PBGC is $40 to $75 Billion, 2 years ago (PBGC reporting from 2015, pre-MPRA).

    Reply

    • Thank you for that insight. $620 million in annual payouts to 90,000 retirees comes to about $6,900 per retiree which would likely be much less than the PBGC guarantee for almost everybody. That is a much better explanation for why WMW1974 in not in the program than what P&I posited.

      Reply

  3. Posted by Anonymous on November 16, 2016 at 7:48 pm

    First they came for the factory jobs while wages were high and I did not speak out—
Because I didn’t have a factory job.
    Then they came for the pensions and I did not speak out— 
Because I did not have a pension
    Then they came for Social Security and I did not speak out— 
Because I was not yet getting Social Security
    Finally they came for me—my 401K, my IRA/SEP, my 529 and there was no one left to speak for me.

    Reply

  4. […] PBGC guarantee, so even after exhaustion of all trust assets by 2025, like the Fish Lumpers, the Mine Workers will likely have the PBGC continuing to pay most of their benefits (unless of course the PBGC […]

    Reply

  5. […] far less than the PBGC guarantee, so even after exhaustion of all  trust assets by 2025 the Mine Workers will likely have the PBGC continuing to pay most of their benefits (unless of course the PBGC […]

    Reply

  6. […] plan that may be too underfunded for MPRA just submitted their 5500 filing for the year ended June 30, […]

    Reply

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