America’s pension crisis demands action by Congress

America’s pension crisis demands action by Congress
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We are approaching a crisis that threatens the retirement future of millions of hardworking middle-class Americans. Today, Wednesday, this assessment will be confirmed in testimony by the director of the Pension Benefit Guaranty Corporation (PBGC), Tom Reeder, before the House Committee on Education and the Workforce. Director Reeder will detail the systemic issues threatening multiemployer pension plans and argue for raising PBGC premiums.

While it is encouraging that Director Reeder and Congress recognize the need for immediate and decisive action to strengthen and protect the multiemployer system, the proposal to raise premiums will bankrupt the system, not save it. Higher premiums are not economically viable for participating employers, plans or even industries given the size of PBGC’s net deficit. Nor are they a lasting or sustainable solution given the structural challenges affecting the system.

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The PBGC serves as a backstop for retirees in distressed multiemployer pension plans. By the time a plan requires PBGC assistance, it has already begun to fail its plan participants. We need to find ways to strengthen the overall system and reduce potential calls on the PBGC backstop.

Multiemployer pension plans were designed to allow employers of all sizes, from large companies to small mom-and-pop family businesses, to pool their resources and help provide for their workers in old age. For 70 years, middle class workers have relied on this system to secure their retirement, but outdated rules and regulations have kept these plans from modernizing to keep pace with changes in the economy. As a result, the crisis Director Reeder has described may soon become a reality — with millions of retirees and workers receiving between 2 cents and 6 cents for every dollar promised if struggling plans are permitted to fail.

But it does not have to end this way. The government has solutions available to it that would allow at-risk plans to restructure their pension obligations and protect much of the benefits that retirees have earned over a lifetime of work. These solutions would help to restore plans’ solvency, thereby reducing the PBGC’s net deficit and stabilizing the system. But we will not know what portion of the PBGC’s net deficit is unresolvable or what is an appropriate level for PBGC premiums until these solutions are permitted to work.

The Kline-Miller Multiemployer Pension Reform Act (“MPRA”) is one such solution. Passed in 2014, MPRA provided critical and declining status plans with a new tool to suspend benefits at levels higher than the PBGC guarantee. Unfortunately, Treasury rejected the MPRA application of the largest, most systemically important plan, Central States. That one rejection is driving a significant portion of the crisis we now face today, including the looming insolvency of the PBGC.

New legislation is also being proposed to fix the ambiguities in MPRA so that it can be used as intended by plans to restore solvency while protecting retirees from the massive benefit cuts they will otherwise see if the PBGC intercedes.

My organization, National Coordinating Committee for Multiemployer Plans (NCCMP), has also developed a new federal loan program in conjunction with federal credit experts for plans like Central States, the Mine Workers, and others, for instances when MPRA is no longer an option. This program would provide highly secured loans to eligible plans, enabling them to use investment returns to earn their way to solvency while assuring full repayment of the loan.

While Congress is rightly focused on the approximately 10 percent of multiemployer plans in financial distress, strengthening the multiemployer system for the future is also critical. To achieve this, NCCMP, and a coalition of workers, large and small business owners, and unions, support legislation authorizing composite plans. These plans will modernize traditional pension plans by combining key features of defined benefit and defined contribution plans.

Recommended by an independent, bipartisan commission, this new structure is meant to give peace of mind to workers who will still receive lifetime income, while giving employers certainty in how much they will be required to pay into the system. Composite plans are voluntary, and healthy defined benefit plans will not be required to adopt this model.

Under the composite model, participating plans would be required to maintain 120 percent funding levels, creating a cushion or “rainy day fund” for inevitable economic downturns. Once authorized, composite plans will be managed by the private sector, without the need for government intervention.

Every day Congress waits to act, the problems affecting multiemployer plans become harder to solve and the risk to workers, retirees and their families ever greater. Collectively, these solutions are more effective and sustainable than higher PBGC premiums, and will create a stronger, more durable multiemployer system far less reliant on the PBGC.

Michael D. Scott is the executive director of National Coordinating Committee for Multiemployer Plans (NCCMP).