View From McDermott: Multiemployer Union Plans Implement Aggressive Litigation Strategies to Fill $390 Billion Funding Deficit

While the funded status of single-employer corporate defined benefit pension plans has improved, the funded status of multiemployer union pension plans has remained stagnate and, in some cases, further deteriorated. The Pension Benefit Guaranty Corporation recently reported to Congress that the aggregate funding ratio of all multiemployer plans was 48 percent. From the most recent data available, the PBGC reports that multiemployer pension plans have $366 billion in assets to satisfy $757 billion in vested liabilities—in short, a funding deficit of $390 billion.

Of even greater concern, active participants in multiemployer plans constitute less than half of the total multiemployer plan population.3 In mature multiemployer plans, there are significant challenges to address these funding deficiencies. Prudent investing can make up only a portion of the underfunding deficit. A contraction in the percentage of active participants means that fewer dollars are coming into the plan for active work and more dollars are leaving the plan to pay pensions for a growing retiree population. Moreover, bankrupt employers have had their multiemployer plan liabilities discharged in bankruptcy. For example, in the Hostess bankruptcy, $1 billion in liability was discharged with respect to The Bakery and Confectionery Union and Industry International Pension Fund, where Hostess represented 13 percent of the multiemployer plan’s contributions.

Originally published in Bloomberg BNA Pension & Benefits Daily on January 9, 2014.

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