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Editor's Note: Below is an excerpt from a recent institutional research note written by our Demography analyst Neil Howe. To access his research email sales@hedgeye.com.

Insolvency Coming? The Multiemployer Pension Crisis - zoco

New estimates show that the federally chartered U.S. multiemployer pension insurance system is on track to be insolvent by 2025.

While much attention has been paid to the severe shortfall faced by many state plans, a similar crisis is happening in multiemployer plans, which are now paying the price for setting wildly optimistic discount rates that understated their true liabilities.

If you want an object lesson in myopic, can-kicking government dysfunction, just read this report and weep.

Multiemployer pension funds, a monstrous "pooled" creation of unions and many employers, were never intended to be solvent. From the very beginning, they were able--like state and local plans--to choose whatever discount rate they found convenient (the higher the better, boys!).

What's more, member firms were allowed to drop out of these plans without paying anywhere near the cost of their remaining liabilities. This created a free-rider incentive to quit and hurried the financial unraveling of these funds.

Sure, the Great Recession and the subpar recovery of construction added to the burden. But these plans were never as healthy as single-employer plans.

Some Democrats are backing measures (like the proposed Butch Lewis Act) that would bail out these plans, and the PBGC, by issuing low-interest Treasury debt. Thus are the majority of taxpayers, who do not have DB plans, supposed to shore up the benefits of an aging cadre of workers who do while letting the companies and unions off the hook.

Hey, if the U.S. Treasury has access to free money, why not spread it around to all of us?

Insolvency Coming? The Multiemployer Pension Crisis - zneil

Insolvency Coming? The Multiemployer Pension Crisis - market brief