Congress is unlikely to fix the country’s formidable multiemployer pension crisis before the 2020 elections, even though many of the plans face insolvency in the not-too-distant future.
“This crisis is severe and gets worse every day,” Senate Finance Chairman Chuck Grassley said upon introducing a plan to address the shortfall. The Iowa Republican added that “we need to act quickly.”
Rachel Greszler, a researcher at the conservative Heritage Foundation, said the urgency to act on saving these pensions is growing because more of them are nearing insolvency.
“I hear more reports about the need to do something because there are plenty of … plans out there that are approaching insolvency,” Greszler said.
The term “insolvency” does not mean that the plans will be broke with no financial resources. It refers to pensions not having a sufficient amount of resources to distribute benefits that were promised to retirees, which can mean benefit cuts to those recipients.
Since 2015, more than 20 multiemployer pensions have requested the Treasury Department cut benefits because of insolvency, according to the Pension Rights Center. On that list is the United Furniture Workers Pension, which is facing insolvency in 2021. The Treasury Department approved its benefit cuts to its more than 9,000 retirees. The Central States Pension Fund is also on the list. It has more than 400,000 participants, who are either retired or currently working, and was denied its request for benefit cuts because the reductions would not be enough to make it solvent over the long term. The fund is projected to become insolvent in 2025.
In total, as many as 117 multiemployer pension plans covering 1.4 million participants are underfunded by $56.5 billion and have informed regulators and participants that they could fail within the next 20 years. The plans don’t have enough money to pay the full promised benefits, according to Cheiron Inc., a pension actuarial firm.
“If Congress doesn’t act soon, many more plans will fail, and participants will lose their pensions,” said Joshua Davis, a principal consulting actuary at Cheiron, who analyzed the filings.
Last December, Congress approved, and President Trump signed into law, a $1.4 trillion spending bill that also rescued the 1974 United Mine Workers of America Pension Plan from insolvency. Nearly 100,000 retired coal miners depend on the fund to make ends meet, and its enactment marks the first time in more than a generation that taxpayers bailed out a pension plan, according to the New York Times.
In its effort to save more plans from insolvency, the Democrat-controlled House in July passed legislation allowing the Treasury Department to provide loans to underfunded, multiemployer pensions. The loans would stop benefit cuts to retirees and would be paid back over 30 years. But it is not clear if the pensions receiving these loans will be financially able to pay them back.
Rep. Kevin Brady of Texas, the ranking member of the House Ways and Means Committee, recently drew attention to this possibility during a committee markup of the bill.
“Forcing hand-picked plans to accept crushing balloon payment loans they can never hope to repay, while putting off necessary reforms to make them solvent, hurts workers, businesses, and innocent taxpayers who did nothing to create these failed plans,” he said in prepared remarks, adding that “to think the government can fully guarantee pension promises based on a 7 or 8% annual return — that’s the same fantasy that got us into this mess.”
A loan from the federal government that is not repaid is considered a bailout by some on Capitol Hill. The House-approved bill is not expected to pass the Senate, according to Michael Zona, communications director for Grassley’s committee.
“For any legislation to pass, it must address the root of the problem instead of simply bailing out a failed system that will end up needing another bailout down the road,” he said via email.
Grassley teamed up last November with Sen. Lamar Alexander of Tennessee on a proposal to fix multiemployer plans that do not include a bailout. It, in part, allows the Pension Benefit Guaranty Corporation, the organization tasked with saving underfunded pensions, to increase premiums paid by multiemployer plans. The senators are receiving comments on their plan before they formally introduce it.
The discussion on how to fix the multiemployer pension problem is ongoing between the House and Senate. Grassley and House Ways and Means Chairman Richard Neal, a Massachusetts Democrat, are engaged in the discussion. But Neal is pushing the House-passed bill that the Senate has shown little interest in pursuing.
“Chairman Neal has spoken with Sen. Grassley about his bipartisan multiemployer pensions legislation and is continuing to urge swift Senate passage,” a committee spokesperson said.
Until lawmakers get on the same page in terms of moving legislation that can pass both chambers of Congress, there is little chance for fixing multiemployer pensions any time soon.
