Just days ahead of the House Ways and Means Committee’s planned markup of legislation that would offer government loans for struggling multiemployer pension plans, conservative academics have launched an all-out attack on the bill.
The legislation, The Rehabilitation for Multiemployer Pensions Act, is a rebranding of the Butch Lewis Act introduced in November 2017 by Rep. Richard NealRichard Edmund NealDemocrats confront 'Rubik's cube on steroids' Biden pushes back at Democrats on taxes Want a clean energy future? Look to the tax code MORE (D-Mass.) and Sen. Sherrod BrownSherrod Campbell BrownSenate Democrats seeking information from SPACs, questioning 'misaligned incentives' Senate advances Biden consumer bureau pick after panel logjam Centrist state lawmaker enters Ohio GOP Senate primary MORE (D-Ohio).
In a June 27 commentary in the Hill, Olivia Mitchell, an economist who teaches at the Wharton School, called the legislation “A step in the wrong direction.”
Far from it.
Well before Neal and Brown introduced the bill, they asked the company where I am CEO, Cheiron Inc., to prepare actuarial projections to determine how effective the legislation would be in stemming insolvencies of struggling multiemployer pension plans.
Our projections – which have been reviewed by congressional staff, pension experts on Wall Street and other actuaries – show that the legislation would protect 1.3 million plan participants from insolvency, eliminate the need for as much as $65 billion in financial help from the Pension Benefit Guaranty Corp. and prevent insolvencies for at least 30 years.
Conservative economists maintain that the multiemployer pension crisis is more than 10 times larger than the $54 billion estimate, and that Congress would be wasting taxpayer money by lending money to struggling pension plans.
But even if all the troubled multiemployer pension plans were to become insolvent, their underfunding would be less than half that amount, according to their 2017 annual filings with regulators. That’s based on even more conservative assumptions than single-employer plans.
Conservative economists blame labor unions and employers for the financial troubles of multiemployer pension and for not contributing enough to multiemployer pension plans.
But during the 1980s and 1990s, it was the IRS tax code that limited employers’ tax-deductible contributions to multiemployer pension plans. Because the plans were constrained from contributing more to the plans while earning double-digit returns and generating large surpluses, they were forced to increase pension benefits or stop making contributions.
Conservative academics say that multiemployer pension plans pay far too low premiums to the PBGC compared with single-employer pension plans. But this ignores that the top PBGC guarantee for participants in single-employer plans is $67,295.40 a year or about five times as much as the $12,870 a year that full-career participants in multiemployer plans would receive.
Critics assert that while corporate plans that go out of business are required to cover pension promises out of company assets, bankrupt employers in multiemployer pension get a pass. But federal pension law lets corporate pension sponsors use Chapter 11 of the Bankruptcy Code to offload pension obligations on the PBGC, as hundreds of companies have done. Multiemployer plans don’t have this option under pension law. When an employer contributing to a multiemployer goes bankrupt the remaining employers and, ultimately, the participants are saddled with its unfunded liabilities.
Conservative critics argue that the Butch Lewis Act would make the multiemployer pension crisis worse by allowing struggling plans to make new pension promises and leave taxpayers on the hook if they can’t repay the federal loans.
But current law already prohibits failing multiemployer pension plans from increasing benefits. The legislation goes even further and would forbid plans that receive government help to increase benefits or lower contributions. Moreover, pension plans that receive the government loans would be required to set aside the money in dedicated portfolios to pay off their obligations to retirees. Struggling plans would not be able to invest the loans in the stock market.
Finally, the critics would require the PBGC to charge multiemployer plans higher and risk-related insurance premiums. But higher variable risk-related PBGC premiums for single-employer plans are widely blamed for causing hundreds of corporate sponsors to freeze their plans or shutter them completely and buy annuities from insurance companies to pay the promised pension benefits.
Raising PBGC premiums for multiemployer pension plans would similarly hasten the decline of these plans.
The multiemployer pension system generated $14.7 billion in federal, state and local taxes, and added $50 billion in value to the GDP in 2016, according to a study by the National Institute on Retirement Security. If Congress fails to act soon, taxpayers will have to foot a huge bill for millions of pensioners who lose their benefits.
Gene Kalwarski is ceo of Cheiron Inc., an independent pension and healthcare actuarial consulting firm. He is one of the nation’s leading actuaries to multibillion-dollar multiemployer and public-sector pension plans.