With time running out for the 115th Congress, a controversial solution to a looming pension crisis has emerged.
The crisis involves the Pension Benefit Guaranty Corporation’s (PBGC) Multiemployer Program, which currently has a deficit of $53.9 billion, and while that is down from $65.0 billion at the end of FY 2017, the PBGC estimates that the program could be insolvent by the end of FY 2025. The Multiemployer Program covers plans created through a collective bargaining agreement between employers and a union.
The proposal – first reported by the Washington Post – was, according to Politico, written in secret by the co-chairs of a “supercommittee,” specifically Sens. Orrin Hatch (R-UT) and Sherrod Brown (D-OH), as well as Sen. Rob Portman (R-OH), according to the report, citing an analyst with knowledge of the talks.
The supercommittee of 16 lawmakers (more formerly referred to as the “Joint Select Committee on Solvency of Multiemployer Pension Plans”) was formed earlier this year to consider the issue and propose solutions by Nov. 30.
The proposal – said to be one of several under consideration – would:
- Repeal the Multiemployer Pension Reform Act of 2014 (a.k.a. the Kline-Miller Act). That legislation allowed reductions in pension benefits, so long as the proposed benefit suspensions were reasonably estimated to allow the plan to avoid insolvency – or as the alternative question posed by the Treasury Department asked, did the proposed benefit suspensions take a plan off the path to insolvency?
- Create a new structure of for multiemployer premiums, with retirees in distressed plans paying a larger share.
- Require that unions and employers participating in multiemployer plans would have to pay a premium of $2 per participant every month to the PBGC.
- Require an annual transfer from Treasury equal to the lesser of $3 billion or the amount of partition payments. (This is the government bailout part.)
- Effectively trim benefits from the Teamsters' Central States Pension Fund (one of the largest multiemployer plans in the country, covering 400,000 workers), while redirecting cash from other plans to the PBGC in order to build up cash reserves at the PBGC in the event that Central States fails.
- Employers in the program would have to pay hefty penalties to exit pension plans, equal to 20 times their proportional share of premiums.
- Cap the funding discount rate at the corporate long bond rate +2% for all plans, limit asset smoothing, require stress testing for significant financial declines, with established funding “triggers.”
Last month at the 2018 ASPPA Annual conference, PBGC Director Tom Reeder told attendees that “the multiemployer insurance program is in dire straits.” Unlike the single-employer plan, Reeder said, “it is not possible to earn your way out of this deficit.” He added, “It’s a critical crossroads we’re going to have to cross over very soon.”
Whatever plan the Joint Select Committee proposes will need to have the support of at least five of the committee’s eight Democrats and five of its eight Republicans to be considered an official committee recommendation.