Thursday, July 25, 2019
House Approves Pension Bail-Out Bill:
The US House of Representatives voted 264-169 on Wednesday to advance the Democrats' multiemployer pension bill, H.R. 397 (116), which would create a new Treasury agency to issue bond-backed loans to failing multiemployer pension plans. [View summary of the bill as introduced here. View draft bill text here.] Of the roughly 1,350 U.S. multiemployer plans in 2017, about 770 - or 57 percent - were in the construction industry, says Ben Ablin, a consulting actuary with Horizon Actuarial Services LLC. Such plans, typically negotiated by a labor union with multiple businesses within a particular industry, ran into financial trouble with the decline of manufacturing, trucking, and coal mining. Without a legislative fix, the multiemployer pensions' insurer, the Pension Benefit Guaranty Corporation, is facing its own insolvency in 2025 - a threat that could eviscerate millions of Americans' retirement benefits. PBGC head Gordon Hartogensis issued a statement earlier Wednesday calling on Congress to enact "a long-term, sustainable solution taking into account fairness to retirees, workers, taxpayers, and employers," adding that "Only bipartisan compromises have a chance of succeeding." The legislation faces slim odds in the US Senate, where Republicans previously declined to support a similar bill, the Butch Lewis Act, which they deemed a government bailout. Sen. Sherrod Brown (D - Ohio) reintroduced that legislation in the Senate on Wednesday.
Back in 2017 the Society for Human Resource Management (SHRM) noted that "As many as 114 multiemployer pension plans covering nearly 1.3 million workers are severely underfunded and headed toward failure within the next 20 years." Horizon updated that recently to 130 plans in "critical and declining" condition including about 35 in construction, which cover 30,000 participants. According to SHRM "The troubled plans have total assets of $43.5 billion and liabilities of $79.9 billion, leaving unfunded liabilities-future benefit payouts promised to retirees and beneficiaries for which reserve funds have not been set aside-of $36.4 billion." Is it any wonder that unions are pushing PLAs that require contractors to pay into the union's pension plans?
Just three of the pension plans account for $22.8 billion-or more than 62.5 percent-of the $36.4 billion in unfunded liabilities of failing multiemployer plans. The Teamsters' Central States, Southeast and Southwest Areas Pension Plan has the most unfunded liabilities at $17.2 billion, followed by the Bakery and Confectionary Union's plan ($3.2 billion) and the United Mine Workers' ($2.4 billion).
Sponsors of single-employer plans shouldn't be overly concerned about a spillover threat to the PBGC's single-employer system. "The PBGC's own financial reports and projections indicate that its single-employer system is strong and sound," noted John Lowell, an Atlanta-based partner and actuary with October Three, a pension advisory firm.
Conservative economists maintain that the multiemployer pension crisis is more than 10 times larger than the $54 billion estimate, and that Congress would be wasting taxpayer money by lending money to struggling pension plans. Olivia S. Mitchell, an economist who has worked on pension and Social Security reform around the world for four decades and teaches at the Wharton School of the University of Pennsylvania, noted last month: "Because of flaws in the legislation structuring the multiemployer insurance program, these pension plans and the employers who sponsor them have been permitted to:
These policies are tailor-made to create underfunded plans that would need to rely on the PBGC, while leaving the PBGC financially unable to back these plans.
- vastly understate retirement plan liabilities;
- avoid contributing what should have been paid to keep the plans solvent;
- pay far too little for the insurance premiums backing the plans in case of insolvency;
- withdraw from the business without ponying up what was owed to the plans; and
- invest in risky assets thus putting benefits in doubt.
Single-employer plans cannot follow such practices and are required to make higher contributions, address unfunded liabilities more rapidly, and pay higher premiums to the PBGC. Yet multis are permitted to take advantage of lower funding rules and continue making promises they cannot keep.
For instance, single employers that go out of business are required to cover pension promises out of company assets, while in the multiemployer system, a bankrupt employer's obligations are passed on to surviving firms.
Single-employer plans must use corporate bond rates to measure their liabilities, but multiemployer plans across the board have assumed much higher rates to cut "required" pension contribution rates.
But - with the house in control of the Democrats (or as some refer to them - the Labor Party) and with an election next year - passage in the House was a given.
So who will bail out the multis if the Democrats win the Senate and the Presidency next year? You and I and every other taxpayer in the USA.