The $1.9 trillion COVID relief bill passed by Congress in March contains a provision to bail out failing multiemployer pension funds. Many of these pension funds were underperforming before the pandemic, indicating that this inclusion in the “COVID relief bill” is less about COVID relief than it is about long standing projects for some lawmakers.
According to the Congressional Research Service, as of 2017 nearly 36 percent of multiemployer pension funds were endangered or in critical condition of becoming insolvent. These plans had a combined deficit of $673 billion by the end of that year. The multiemployer pension system is in need of reform, but the COVID stimulus bill passed by Congress provides the pensions with $86 billion in funds without any real reforms or pre-conditions. This allocation of taxpayer money does not serve the purpose of providing relief to a problem caused by the COVID-19 pandemic, but instead bails out an already failing system.
One reason the pension plans are failing is because of badly formed federal and accounting rules and standards. Single-employer pension plans have to adhere to strict enforcement of rules and regulations that multiemployer plans don’t. In multiemployer plans, the pension’s funds are often based on collective bargaining agreements with unions. Employers often want to keep expenditures to a minimum and employees often want higher wages. One result is the reduction of labor costs for employers and more money for worker salaries, but fewer dollars put into the pension plan. Oftentimes pension amounts promised to the worker aren’t available to them when they retire.
Until recently, the Pension Benefit Guaranty Corporation (PBGC), a government organization, was able to restore some of the benefits. But the PBGC is 78 percent likely to reach insolvency by 2026 and almost certainly will by 2027. The failure of the PBGC would mean retirees would get less than $1,000 per year in benefits, much less than the value of their pensions.
Because of the new bailout in the American Rescue Plan, though, taxpayers are being held responsible for billions of dollars directed to failing pension plans that, according to the American Academy of Actuaries, only a million Americans are a part of. It is deeply unfortunate that Congress would bail out these failing plans without any reforms that address the underlying failures.
NTU outlined many reform options for Congress in a 2018 letter to the Joint Select Committee on Solvency of Multiemployer Pension Plans:
“Avoid the bailout mentality. Infusions of cash from the Treasury with few restrictions tend to characterize overreaction rather than corrective action.
Require PBGC to more fully embrace risk pricing and other management tools to safeguard against liability surprises in the future. Portions of PBGC’s operations have appeared on the Government Accountability Office’s High Risk List for over a decade, one reason being PBGC’s uneven implementation of these risk management practices.
All stakeholders must be required to contribute to a solution. This includes a uniform, significant benefit reduction to show good faith in the reform effort. Indeed, beneficiaries themselves have the greatest advantage in accepting this adjustment: doing so will secure their future retirement.
If the Committee is to propose Treasury loans as a bridge to solvency, the risk to taxpayers must be minimized. The loans must be collateralized with real-world assets that ensure the loans will be entirely repaid over a term measured in years rather than decades. They must also be backed by a risk reserve pool funded by modest premium increases and higher membership fees.”
The bailout from the COVID relief bill doesn't solve the problems with the multiemployer pension plans, rather it serves to delay their failure at taxpayer expense. The best way to protect these plans from insolvency is reform, not bailouts, and Congress should consider additional reforms in the future.