The Central States Teamsters Pension Plan, United Mine Workers Pension Plan, and 128 other collectively bargained pensions that are projected to be insolvent within the next two decades can only be saved by one thing: a lifeline from the federal government and tax payers.
“Nothing will help them but for an infusion of cash,” said Thomas Reeder, director of the Pension Benefit Guaranty Corp.
In a hearing before the Joint Select Committee on Solvency of Multiemployer Pension Plans, Director Reeder explained the structural deficiencies that have put the pensions of 1.3 million workers and retirees at imminent risk, and created a massive deficit in PBGC’s multiemployer insurance program, which is expected to run out of reserve assets by 2025.
The UMWA Pension, which provides retirement benefits for 107,000 workers, is projected to be insolvent in 2022. The Central States Plan, which provides benefits for nearly 400,000 workers, is projected to be insolvent in 2025.
Those insolvencies would exhaust PBGC’s $2 billion cash reserve. By the end of 2025, PBGC would only have annual premium revenue as cash flow to insure benefits.
After its cash reserve is exhausted, PBGC will only be able to insure about one-eighth of what it can now guaranty under federal law. Participants in the Central States Plan would see pensions cut by 90 percent.
The Trump administration has proposed raising $16 billion in new premium revenue for PBGC by applying a variable rate premium.
Under current law, multiemployer plans pay only a fixed-per-participant premium, which has been too low for too long, said Reeder. Congress—not PBGC—sets premium rates for the plans.
That $16 billion in new premium revenue would keep PBGC afloat for the next two decades, he said. It would amount to about a 5.5 times increase in premium obligations. That would create “sticker shock” for employers, who are pushing back against the idea, said Reeder.
But premium increases would likely not be applied to the 130 plans in critical and declining status, because the increases would only accelerate insolvency. For those plans, the premium increases would be too little too late.
No big stick at PBGC
The Joint Select Committee was established in this year’s omnibus spending bill. Comprised of 16 Republican and Democrat members in the House and Senate, it is charged with advancing proposed legislation that would potentially issue loans from the Treasury Department to critical and declining plans, and give PBGC new oversight tools.
The Committee has until the end of November to advance legislation. Five Republicans and five Democrats will be needed to advance legislation.
The Butch Lewis Act, sponsored by Sen. Sherrod Brown, D-OH, who co-chairs the Joint Select Committee, would create new Treasury securities that would be sold to institutional investors. Proceeds would be channeled as low-interest 30-year loans to critical and declining plans.
That would succeed in keeping more multiemployer plans off PBGC’s doorstep, said Reeder, who acknowledged the loan proposal is “charged with controversy.”
But addressing structural issues at PBGC and how benefits are negotiated in plans would be needed along with cash infusions, Reeder said.
“We don’t have a big stick to require employers to make necessary contributions, and (plan) actuaries to make reasonable assumptions,” said Reeder. “We don’t have those tools.”
Reeder suggested limiting the “broad discretion” plan trustees and unions have when negotiating pension benefits. He also said that plans that have negotiated the ability to lower benefits during bad times have been able to better “weather the storm.”
AIG, GM, Bank of America, JP Morgan….
Sen. Heidi Heitkamp, D-ND, who, along with committee members Sen. Brown and Sen. Manchin, D-WV, is facing a tough reelection bid in a state carried by President Trump, said the recent precedent of corporate bailouts more than justifies federal assistance for pension plans.
Bailouts to AIG, General Motors, Bank of America and others after the Great Recession totaled over $600 billion in federal assistance, noted Sen. Heitkamp.
“Today, tax payers have come out ahead,” she said. “When big corporations get in trouble, the answer has been clear—we help them out.”
Sen. Heitkamp and others addressed the macro economic implications, and potential contagion effect, of letting the pension plans, and PBGC, fail.
“Too big to fail? You know what’s too big to fail? Those pensioners,” said Rep. Donald Norcross, R-NJ, who is also up for reelection this November. “The cost of doing nothing is unacceptable.”
Sen. Joe Manchin suggested the contagion affect of massive plan failures on the overall economy could be as substantial as the 2008 financial crisis.
“We are four months into this and we don’t have one solution yet,” said Sen. Manchin. “The public needs to know what we agree on and what we don’t agree on. Short-term premiums won’t solve my miners’ problem. A loan program, an infusion of cash, is the only way to do this. We’re not asking for a bailout. We’re asking for a bridge.”
At several points during the hearing, Director Reeder cautioned the problem for PBGC, multiemployer plans facing insolvency, and ultimately tax payers, will only get worse as time passes.
He also acknowledged the broader economic impact of plan failures. “There would be dire consequences on communities where many of these people live.”