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Pension Promises Without Funding Are Mere Dreams

By Jack Towarnicky

First things first: Congress should begin by addressing the significant underfunding of Social Security and Medicare. States and local governments should be focused on public employee pensions. Similarly, Congress also should resolve the funding challenge of Multiemployer Pension Plans without increasing taxes or negatively impacting single-employer pension plans. All three should be prioritized before any other action on retirement. 

If you do an internet news search of “retirement crisis,” you will see more than 126,000 hits. The headlines vary.1 The many pictures and stories are compelling.2

Social Security & Medicare 

On April 20, 1983, as he signed the Social Security Amendments Act of 1983 into law, President Ronald Reagan stated, in part: 

  • “We promised that we would protect the financial integrity of Social Security. We have. Time and again, benefits were increased far beyond the taxes … that were supposed to support them. The changes in this legislation will allow Social Security to age as gracefully as all of us hope to do ourselves, without becoming an overwhelming burden on generations still to come.“

Since then, not so much. However, the 1983 Social Security legislation had obvious shortcomings. Less than 10 years later and continuing until today, a succession of presidents have confirmed that the promised benefits were not sustainable at current funding levels:

  • November 5, 1993: President Bill Clinton, by Executive Order #12878, created the Bipartisan Commission on Entitlement Reform (the Danforth Commission) to evaluate entitlement programs, specifically Social Security and Medicare. The Commission never reached consensus and couldn’t get all members to agree on even an Interim Report. Subsets of the commission members made their own proposals. None gained any traction, nor action. 
  • February 5, 2005: President George W. Bush made a reform recommendation to add personal accounts and change the COLA. These proposals triggered great criticism and no action was taken.
  • In 2010: President Barack Obama created the bipartisan National Commission on Fiscal Responsibility and Reform (often called Simpson-Bowles) to recommend fiscal reform including recommendations regarding Social Security. The Commission first met on April 27, 2010. Despite widespread popular support, the report failed to get enough support to send it to Congress for approval. 
  • June 1, 2016: President Barack Obama reminded us that Social Security’s finances needed strengthening. “We should be strengthening Social Security. It’s time we finally made Social Security more generous and increased its benefits so that today’s retirees and future generations get the dignified retirement that they’ve earned.” No proposal was ever made. 

The Social Security/Medicare Trustees project that the OASDI (Old Age Survivors and Disability Income) trust funds will be depleted in 2034 and that the Medicare Hospital Insurance trust fund will be depleted in 2026. And, as recently as October 17, 2018, President Donald Trump was quoted by the Associated Press as stating: “I’m not touching Social Security.”

So, it seems obvious that our presidents and congressional leadership have known about inadequate funding of Social Security and Medicare trusts for decades and have failed to take action to either reel in promised benefits or to increase funding via taxation. 

Multiemployer Pension Plans 
Most Americans have never heard of Studebaker. However, Studebaker's bankruptcy in the 1960s curtailed pension benefits promised to many auto workers and retirees. A decade later, Congress created the Employee Retirement Income Security Act of 1974 (ERISA,) Pub. L. 93-406, signed into law by President Gerald Ford. ERISA included the Pension Benefit Guarantee Corporation (PBGC) which was established to collect premiums that would insure pension commitments. 

In 1980 – yes, 38 years ago and just six years after ERISA – the funding challenges regarding multiemployer pension plans were apparent. So, Congress passed and President Jimmy Carter signed into law the Multiemployer Pension Plan Amendments Act of 1980 (MPPAA,) Pub. L. 96-364. MPPAA amended ERISA to "Improve retirement income security under private multiemployer pension plans by strengthening the funding requirements” and “to authorize plan preservation measures for financially troubled multiemployer pension plans and to revise the manner in which the pension plan termination insurance provisions apply to multiemployer plans." 

More than a decade ago, President George W. Bush signed the Pension Protection Act of 2006, Pub. L. 109–280, changing the funding rules for single-employer plans. However, the funding requirements for under-funded multiemployer pension plans were left mostly unchanged. Instead, the legislation commissioned a report to analyze multiemployer pension plans. That report was issued January 22, 2013. It stated, in part: 

  • “Because benefits generally cannot be reduced after they are earned, underfunding can be made up only with prospective actions affecting active workers: contributions can be increased and/or accruals of future benefits for active employees can be reduced so that future contributions exceed the cost of future benefit accruals. The larger the needed charge, the more difficult it is to attract new employers and employees into the plan (which in turn increases the per participant charge) and the more likely employers are to withdraw. Employers and active employees agree to implement such an additional charge with great reluctance, especially if the bulk of the benefit goes to retirees. The employers and employees are even less likely to support such a charge if many of these retirees are “orphan participants” (i.e., they formerly worked for companies that no longer contribute to the plan.) The situation is made worse by withdrawing employers that often do not pay their full obligations. Although plans can and do assess withdrawal liability, the law limits the annual amounts that an employer must pay. The more employers that withdraw without paying their share of underfunding, the larger the underfunding burden placed on employers and employees who remain. For all these reasons, many plans’ benefit obligations continued to grow even as asset values plummeted, and the level of underfunding in multiemployer plans – which had remained well below $50 billion for the previous 30 years – jumped to just over $100 billion in 2002 and exceeded $200 billion for the first time in 2004. By 2009 and 2010, however, total underfunding had increased to $346 billion and $391 billion, respectively. The average funding ratio for all plans fell to 49 percent in 2009 and 48 percent in 2010.”

Soon thereafter, Congress passed the Multiemployer Pension Reform Act of 2014, Pub. L. 113-235, which was signed into law by President Barack Obama. It allows multiemployer plans whose funding is "critical and/or declining" to take steps to improve long-term solvency, including permanently reducing benefit promises. However, since then, only 34 plans have applied to reduce benefit promises and only seven reductions have been approved.6 It appears that some plan trustees are waiting for a taxpayer bailout. 

James P. Hoffa recently stated: "As of now, the Teamsters' Central States Pension Fund is facing an unfunded liability of $17.2 billion. Other threatened multiemployer plans face a total shortfall of $19.2 billion."7 However, the PBGC's 2017 annual report states the "multiemployer program’s net position (is a funding deficit of) $65,052 million, an all-time high for the multiemployer program." That's more than $65 billion! And, not at all surprisingly, according to a 2018 Congressional Budget Office study, the unfunded liability continues to increase: 

  • “In 2015, multiemployer DB plans that filed Schedule MB had $477.7 billion in assets and owed participants $1.038 trillion in benefits, resulting in total underfunding of $560.3 billion."

So, it seems obvious that multiemployer pension plan trustees, plan sponsors, unions, employees, and the PBGC have known about inadequate funding for decades and have failed to take action as part of the collective bargaining process to either reel in promised benefits or to increase funding. 

State Public Employee Pension Plans
Lest they be left behind, states have taken action on retirement. But, their actions are as varied as are their circumstances. As of fiscal year 2016 (which features the most recent data available,) states reported a combined $1.4 trillion in state pension plan funding deficits. Many states have comparable funding deficits with respect to promised retiree medical benefits. While some states are making progress, for all 50 states combined, these deficits continue to increase. 

Yet some states with poorly funded state employee pension plans (e.g., Connecticut with 41 percent, Illinois with 36 percent, Massachusetts with 58 percent, Maryland with 65 percent, New Jersey with 31 percent, Vermont with 64 percent and etc.) that have failed to fully fund its own pension promises to its own public employees, have adopted state mandated retirement plans for private sector employers and employees.

Bottom line, if there is a “retirement crisis” in America, it isn’t the result of private sector employees having less access to defined benefit pension plans or the dominance of 401(k) plans. No, if we have a “retirement crisis” in America, it isn’t the result of the decline in single employer, private sector defined benefit pension plans. It isn’t the result of increased adoption of 401(k) plans. And also it isn’t because wage earners don’t have access to a tax-favored, individual account retirement savings plan. In America, we call that the Individual Retirement Account or IRA.

Instead, it is the result of federal and state government promises of pensions and entitlements that far exceed funding/taxes. And, it is the result of pension promises made in collective bargaining that far exceed funding. But most importantly, it is the result of Congress and prior administration’s promises of Social Security and Medicare benefits that far exceed the funding/taxation.

Start there, first. 

1All accessed 10/29/18: 

  • Topic:  Access to an employer-sponsored plan.  Article title: The numbers you need to know about the retirement crisis, and Article title:  America’s coming retirement crisis,; 
  • Topic:  Inadequate Social Security and Medicare Funding.  Social Security won’t be able to pay all promised benefits beginning in 2035 … 34% of retirees in 2015 were receiving 90% or more of their income from their monthly Social Security benefits.  Article Title: Ric Edelman: Retirement Crisis Is 14 Years Away, and GAO:  The Nation’s Retirement System:  A Comprehensive Re-evaluation Is Needed to Better Promote Future Retirement Security.;  
  • Topic: The retirement crisis may be overstated. Article Title:  Do We Face a Retirement Crisis? - Articles - Advisor Perspectives, and Article title: Is There a Retirement Crisis?,   

2Owen Daugherty, Thousands gather at (Ohio) Statehouse for rally to save pensions, The Columbus Dispatch7/12/18,   


4See:     See also:   



7J. Hoffa, Unions want to be heard in fight to protect pensions, 7/12/18,

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