Pension Reform Plans are On the Table
By Kevin Comerford, Director of Professional Development, Construction Advancement Foundation
About 10 million people in this country have had one big question on their minds for the last few years: “Am I going to lose my pension?”
It’s a seriously stressful concern that was brought to the forefront of pensioner’s minds last year when the Pension Benefit Guaranty Corporation (PBGC) – an insurance program that acts as the safety net for multiemployer pension plans – published a report that described rapidly approaching insolvency.
About 125 multiemployer plans are expected to run out of money over the next 20 years and would affect over 1.3 million participants. The PBGC, which was supposed to back those plans, will likely be dragged down with them. Those 125 failed plans will trigger an increase in claims that will deplete the program’s assets, leading to insolvency by 2025, according to the PBGC. The organization projects a negative position of $90 billion by FY2028.
Understandably, this has a lot of people worried. Experts around the country have been urging congressional leaders to implement solutions to repair the system. So far, two distinct courses of action have been described.
About midway through last year, the House Democrats passed their pension reform plan – mostly along party lines. 20 republicans voted in favor, but the proposal is not expected to pass the republican controlled Senate. Called the Rehabilitation for Multiemployer Pensions Act (H.R. 397), the Democrat’s plan calls for granting federally-backed loans to underfunded multiemployer plans. Critics wasted little time in referring to the measure as a taxpayer bailout for private sector pension plans.
Later, near the end of last year, Senate Republicans released their own pension reform proposal called the Multiemployer Pension Recapitalization and Reform Plan. It seeks to avoid the collapse of underfunded multiemployer pension plans by granting the PBGC new powers, and to prevent future funding shortfalls by implementing new rules.
The proposal places the cost burden onto the private sector. “Given that the plans represent private-sector financial contracts, the costs of reforms should be born principally by the stakeholders within the multiemployer system,” the authors said.
According to the Senate Finance Committee, the proposal creates new authority for the PBGC to take on liabilities from financially troubled multiemployer pension plans to help the plans pay their financial obligations to retirees and current workers. There are also regulatory changes intended to assure participants that retiree benefits are appropriately funded and properly managed.
“This crisis is severe and gets worse every day. We need to act quickly, but we can’t just pour money into failing and mismanaged funds. Our plan will provide relief and reform now, without it our retirees will be left without the future they worked for,” said Sen. Chuck Grassley (R-Iowa), chairmen of the Senate Finance Committee.
“Chairman Grassley and I have a balanced proposal to shore up the PBGC’s role as an insurance company with a limited infusion of taxpayer dollars instead of an open-ended bailout, and institute important structural reforms so this does not happen again,” said Sen. Lamar Alexander (R-Tenn.), chairmen of the Senate Health, Education, Labor and Pensions Committee.
Five key components of the plan include:
- Stabilizing plans in immediate danger of failure
- Securing worker and retiree benefits
- Increase PBGC guaranteed benefit levels
- Strengthen the PBGC’s ability to backstop the multiemployer system
- Increase PBGC funding through shared responsibility
- Put the multiemployer system on a stable path for the long-term
- Reform the funding, liability measurement, and zone-status rules
- Reform withdrawal liability rules to encourage employers to stay and new ones to join
- Improve plan-governance rules and PBGC supervisory authority
- Ensure fiscal responsibility
- Funding reforms and stakeholder contributions
- Front-end federal contribution offset through additional revenue
Along with the announcement, the Senate Finance Committee also published accompanying White Paper and Technical Explanation.
Components of the republican plan were based on past assistance models that were used for financial institutions and was developed from research from the Senate Finance Committee and the 2018 Joint Select Committee on the Solvency of the Multiemployer Pension System. Through this information, congressional members were able to gain an understanding of the flaws in the current multiemployer pension system and the legal framework involved.
Though it goes without saying that considerable debate and likely numerous changes will happen before any of these plans are fully put into place, legislative momentum has begun to grow. Although the phrase “the wheels are turning” is likely not going to allay the immediate fears of pensioners, progress toward a solution is beginning to take shape. There’s a long road ahead still, but at least we’re moving in the right direction.
