In a move to save the retirement benefits of nearly 350 former workers of the bankrupt Hostess bakery, the Pensions Benefit Guaranty Corp. for the only the third time ever has divided a multiemployer pension plan.
The bankruptcy last year of the maker of Twinkies and other treats left the benefits of more than 700 participants in the Baltimore-based Bakery and Sales Drivers Local 33 Industry Pension Fund imperiled.
By partitioning the plan – taking over benefits payments to the Hostess workers and moving others into a different plan – the PGBC said it better protects the retirement payments of all workers.
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The PGBC has limited authority to partition multiemployer pension plans, only allowed to do so when a company has gone through bankruptcy. While the strategy has been rarely used, only in 1983 and 2010, the agency said it is watching dozens of troubled plans.
"We see a growing need for the authority to partition plans, " said Sanford Rich, chief of negotiations and restructuring for the PGBC. Every time a company declares bankruptcy another [plan] is added to the list."
Because of the danger to so many multiemployer plans, Rich said the PGBC needs broader authority to partition plans before they are officially bankrupt. The agency he said would only use such power, which must be granted by Congress, in cases where a pension fund was stressed because some participants no longer had a company contributing to their plan.
Although the PGBC wants that authority, it would come with a cost. Rich said the agency's costs would rise in the short term. Costs in the agency's multiemployer insurance program are a big concern. In its annual report for fiscal year 2013, the PBGC said assets in the program were $1.7 billion compared to liabilities of $9.9 billion.
The budget deal passed by Congress included premium hikes for single-employer plans. Multiemployer plans pay the same flat rate of $12 per participant this year as last.
Rich said premium hikes are needed to ensure the stability of the agency and ultimately the pensions it insures.
For instance, by taking over the Hostess plan, the agency will pay out $2 million per year. The effect could be multiplied many times if more plans are partitioned.
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