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Multiemployer plans: evaluating a proposal to spread the pain

Published online by Cambridge University Press:  23 January 2018

ALICIA MUNNELL ,
JEAN-PIERRE AUBRY ,
WENLIANG HOU  and
ANTHONY WEBB
ALICIA MUNNELL
Affiliation:
Boston College, Center for Retirement Research, Chestnut Hill, MA, USA (e-mail: aubryj@bc.edu)
JEAN-PIERRE AUBRY
Affiliation:
Boston College, Center for Retirement Research, Chestnut Hill, MA, USA (e-mail: aubryj@bc.edu)
WENLIANG HOU
Affiliation:
Boston College, Center for Retirement Research, Chestnut Hill, MA, USA (e-mail: aubryj@bc.edu)
ANTHONY WEBB
Affiliation:
Schwartz Center for Economic Policy Analysis (SCEPA) at The New School, New York, USA
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Abstract

The Multiemployer Pension Reform Act (MPRA) allows multiemployer plans facing insolvency to apply for approval from the Treasury to cut accrued benefits of plan members to prolong plan solvency—a departure from the benefit protections of Employee Retirement Income Security Act. To assess the law's impact, this paper models Central States Teamsters – by far the largest – plan to have applied under the new law to reduce benefits. Using a stochastic model of future investment returns, the probability of insolvency within 10 years drops from 50% (without cuts) to 6% (with cuts). While benefit cuts increase the overall welfare of participants by extending the plan's life, the welfare of younger retirees (under age 75) worsens and welfare of workers improves.

Keywords

J32MPRAunion pension planscentral states teamstersrisk aversion analysisutility modelPBGCpension benefit guaranty corporationmultiemployer pension reform actmean-variance efficient investment allocation
Type
Article
Information
Journal of Pension Economics & Finance , Volume 18 , Issue 1 , January 2019 , pp. 124 - 139
Copyright
Copyright © Cambridge University Press 2018 

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Footnotes

The research reported herein was supported by the Center's Partnership Program. The findings and conclusions expressed are solely those of the authors and do not represent the opinions or policy of the partners or the Center for Retirement Research at Boston College.

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