As the primary season gets underway, one candidate, President Trump, doesn’t seem particularly worried about which presidential hopeful wins which state. He has a strong economic record to run on and he can seemingly easily expose the follies of his opponents’ big government plans. But he has a potential Achilles’ heel: failing multiemployer pension plans. Unless Trump embraces a sensible approach to managing millions in underwater pensions, people in the United States may have to deal with a President Biden … or Sanders.
Normally, “pension woes” are reserved for underfunded public pensions run into the ground by Democratic machine politicians in dysfunctional cities such as Chicago. Private pensions are doing fine for the most part. But their stellar returns, driven by meteoric economic growth, are being undermined by failing multiemployer plans.
In theory, these pensions are supposed to be supported by multiple companies in a defined industry or geographical region. The basic idea is that, even if a company goes belly-up, other, similar businesses are still there to pick up the slack and form a pact that safeguards all employees in a given industry or area.
But this theory of mutual aid often fails to hold up in practice. Companies participating in multiemployer plans are exempt from the strict reporting requirements and asset-liability valuations to which regular private pension plans are subjected, and multiemployer plans can “discount” their liabilities using cheery economic assumptions that may never come true. To prevent accounting shenanigans from harming retirees and destroying entire industries, Congress created the Pension Benefit Guaranty Corporation for multiemployer plans in 1974.
The PBGC insures multiemployer pensions in exchange for participating companies paying the PBGC a premium for each worker covered. But the premiums paid by companies don’t even come close to offsetting multiemployer plans’ cascading liabilities, resulting in large and growing deficits for the PBGC. The federally chartered corporation faced a deficit of more than $60 billion at the end of fiscal year 2019, owing to flat-rate multiemployer premiums that simply don’t reflect the risks of insuring these underwater pensions. And as more and more workers near retirement, PBGC deficits and debts will only get worse. These problems are particularly pronounced in states such as Wisconsin, Michigan, and Pennsylvania, where once-powerful companies in industries such as trucking have closed en masse. According to some back-of-the-envelope calculations, approximately 440,000 people in Michigan are trapped in underperforming multiemployer plans. That figure is 155,000 in Wisconsin and 495,000 in Pennsylvania.
If these retirees don’t get their due, it’ll be a pox on the house of whichever incumbent holds the levers of power. Politicians could, of course, take the “easy way out” and rescue these plans via a $100 billion taxpayer bailout. However, this policy move wouldn’t exactly ingratiate Trump and his congressional allies with citizens already tired of rampant taxation (especially in high-tax states such as Michigan and Wisconsin). Plus, it would simply set the stage for more reckless behavior and another bailout down the road.
Fortunately, Senate Finance Committee Chairman Chuck Grassley and Sen. Lamar Alexander released a proposal last year that can fix the issue without bilking taxpayers. Their suggested fix strengthens reporting requirements for these plans, ensuring that pension sponsors cannot continue to underreport liabilities and leave everyone else with the bill.
Additionally, the plan introduces variable premiums that the PBGC can charge multiemployer plan providers based on the actual risk involved in insuring said products. No longer would companies be able to insure highly risky plans by paying bare-minimum premiums and hoping that others will pick up the tab.
The Grassley-Alexander proposal may not be perfect, and some watchdog groups will inevitably complain that the government is too active in managing multiemployer liabilities in the first place. But the plan provides the only feasible, real-world alternative to runaway bailouts and pension cuts while sparing retirees from the recklessness of their former employers.
By supporting these bold proposed reforms, Trump can send a message to graying Rust Belt workers that he has their back and is willing to go to bat for them. And, taxpayers can rest easy knowing that their hard-earned dollars are safe from ill-advised bailouts. This makes for good politics, but most importantly, the proposal provides peace of mind for millions of people without breaking the bank.
Ross Marchand is the director of policy for the Taxpayers Protection Alliance.
