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:
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
Total participants @ 6/30/15: 103,323 including:
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:
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