Proposed legislation that would bail out the more than 100 multiemployer pension plans headed for insolvency would require massive infusions of taxpayer dollars, according to testimony presented to Congress this week.
When pressed for an exact figure, Thomas Reeder, director of the Pension Benefit Guaranty Corp., could not give a precise amount, but said it would be “exponentially more” than the cash needed to keep the multiemployer insurance program solvent.
“Tens of billions of dollars?” asked Rep. Tim Walberg, R-MI, chair of the House subcommittee on Health, Employment, Labor and Pensions.
“Or more,” said Reeder.
Democrats in the House and Senate have recently introduced companion bills that would allow multiemployer plans facing insolvency to borrow money from the Treasury Department over 30 years at low interest rates.
PBGC’s multiemployer insurance program is facing a $65 billion funding shortfall, and is more than likely to be insolvent by 2025, according to the agency’s annual report.
All told, the more than 1,400 multiemployer plans insured by PBGC have an aggregate funding level of about 50 percent, Reeder said.
“If you wanted to fully fund them all up, you would need a lot of money,” Reeder told lawmakers.
During the hearing, Reeder explained the confluence of factors that have accelerated the funding shortfalls threatening the retirement security of more than a million retirees and workers in some collectively bargained pension plans.
An aging workforce and poor investment returns have plagued the worst funded plans, Reeder explained.
And tax incentives encouraged higher contributions from employers when plans were fully funded, and in turn more generous negotiated retirement benefits.
“So there were overpromises to plan participants?” asked Rep. Walberg.
“That’s correct,” said Reeder.
At several points during the hearing, Reeder testified that the per-participant premium paid by multiemployer plans has been too low to adequately insure the pensions. The current per-participant premium is $28, but was as low as $9 as recently as 2009.
“We’re paying billions of dollars in obligations with millions of dollars in income,” Reeder said. PBGC already pays benefits to participants in more than 70 terminated multiemployer plans.
PBGC does not have the authority to set premiums—that responsibility rests with Congress.
Reeder also said the multiemployer insurance program has been hindered by the inability to assess variable rate premiums for poorly funded plans, as is done in PBGC’s single-employer insurance program.
The Trump administration has proposed giving the agency the power to set variable rate premiums.
But Reeder cautioned that PBGC’s deficit for the multiemployer program is so large that higher premiums may be too little too late.
“It’s difficult to raise the premiums after the accident has already occurred,” said Reeder.
“I won’t say the accident has occurred, but we’re a few hundred feet in front of the brick wall, and we’re moving at very high speeds,” he added.