President Joe Biden’s rescue package will help the federal government’s insurance program for multiemployer pensions stay solvent longer than expected — but the money will still run out, according to news reports.
The program — which provides retirement benefits for more than three million retirees from industries like trucking, food processing and construction — was going to run out of money in the mid-2020s, FA-IQ sister publication FundFire writes.
But thanks to the $86 billion taxpayer bailout for multiemployer pension plans — passed as part of Biden’s $1.9 trillion stimulus package — hundreds of union pension plans will collectively obtain between $66.1 billion and $147.4 billion in special financial assistance over the next three decades, according to FundFire.
Nonetheless, the Pension Benefit Guaranty Corporation, the agency that oversees the program, projects a “high likelihood of insolvency,” with the median projected date as 2055, the publication writes.
Gene Kalwarski, chief executive officer and principal consulting actuary at actuarial consulting firm Cheiron, is certain insolvency will hit in the mid-2040s, according to FundFire.
James Naughton, a pension expert and actuary who teaches at the University of Virginia’s Darden School of Business, says the recent rescue package is “just putting a big delay in there,” the publication writes.
That’s because when the plans face employers pulling out or going bankrupt, plan sponsors need to turn to riskier strategies in the hopes of boosting returns — and the government package offers no incentive to change that, Naughton told FundFire.
The bailout money in fact comes with a stipulation that the fund be invested in investment-grade bonds, according to the publication. PBGC estimates that plans will be able to get 5.5% annual returns — but in reality, investment-grade bonds only deliver 2% to 3%, FundFire writes.
“Given the restrictions on how SFA assets must be invested, achieving an investment return of 5.5% on the SFA assets is next to impossible,” trustees for the Road Carriers Local 707 Welfare and Pension Funds wrote, according to the publication.
The local, which covers nearly 4000 retired and current truck drivers in Long Island, New York, went insolvent in 2017, the publication writes.
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