CHICAGO, Jan 7 (Reuters) – The window is closing on the chance to avert a pension meltdown that will slash the retirement benefits of more than a million U.S. workers.
FILE PHOTO: The dome of the U.S. Capitol Building is seen as the sun sets on Capitol Hill in Washington, U.S., July 26, 2019. REUTERS/Erin Scott/File Photo
Lawmakers in Washington have been working on ways to protect the benefits promised to participants in multiemployer pension plans, which are created under collective bargaining agreements and jointly funded by groups of employers in industries like construction, trucking, mining and food retailing.
Last year, the U.S. House of Representatives and Senate laid out blueprints with very different visions for solutions, and failed to reach any agreement on a way forward.
Congress did slip a rescue package into the massive $1.4 trillion spending bill passed last month for one plan close to failure, sponsored by the United Mine Workers of America. (Full Story) But the House and Senate are deeply divided on how to solve the broader problem – Democrats are pushing for a package of low-interest loans to prop up the funds, while Republicans want to boost insurance premiums paid by employers, add new premiums paid by plan participants and force more conservative accounting assumptions.
The failure of lawmakers to take broader action means any solution now likely will wait until after the November 2020 elections – and that will leave precious little time to avert a very damaging outcome for people counting on pensions.
As many as 117 multiemployer pension plans covering 1.4 million participants are underfunded and sponsors have told regulators and participants that they could fail within the next 20 years, according to a report issued just before the holidays by Cheiron Inc, an actuarial consulting firm that advises multiemployer plans, public employers, nonprofit organizations and corporations.
Seven plans failed in the past year when they became insolvent or terminated after all the employers withdrew. And up to 12 more plans covering 245,000 participants signaled in filings with the U.S. Department of Labor that they are likely to fail by the end of this year. The plans are sponsored by union locals covering truck drivers, bricklayers and other workers.
In the past year, the amount of total underfunding has risen 15.7% to $56.5 billion. But with action unlikely during an election year, the problem likely will now wait until 2021 or later – and it becomes more expensive and difficult to solve as more plans fail with every passing year, said Gene Kalwarski, CEO of Cheiron.
Cheiron’s analysis notes that 44 plans expect to fail by 2025 – the year when the biggest underfunded plan – the Central States, Southeast and Southwest Areas Pension Plan – runs dry. The multiemployer fund of the Pension Benefit Guaranty Corporation (PBGC), which backstops the plans, would be exhausted in that year, as well. In 2025, the benefits of 639,400 workers will be at risk, Cheiron said.
An earlier attempt at reform was passed in 2014. But the Multiemployer Pension Reform Act has faced strong resistance from retiree organizations, consumer groups and some labor unions. That law lets troubled plans apply for government permission to make deep benefit cuts if they can show that the reductions would prolong plan life.
When plans go belly-up, the PBGC steps in to pay a portion of benefits. But insurance premiums – and benefit levels – are much lower for multiemployer plans than for single employer plans.
The PBGC guarantee is based on a pension for each year of service a person earns under his or her plan; the maximum guarantee is $12,870 for a worker with 30 years of service – far less than that person would receive from a solvent plan.
In July, the House of Representatives passed legislation to address the problem, built around providing low-interest loans to struggling plans. But in the Senate, several key committees issued a white paper with a very different focus than the House bill. It would boost substantially the premiums that plan sponsors pay into the system, and would add premiums paid by retirees as well, which would effectively act as a benefit cut. It also contains reforms to the discount rate assumptions plans use to project future health.
“Republicans view the House bill as a bailout, and Democrats think the Senate plan would make healthy plans fail,” said Kalwarski. The Republican plan “would in effect spell the end for multiemployer plans,” he added. “More plans would collapse, leaving fewer plans holding the bag to pay premiums.”
IMPLICATIONS OF MINE WORKERS RESCUE
Senate Republicans may not like the idea of low-interest loans to rescue plans, but that did not stop them from adding to the 2019 spending legislation a more outright bailout for the pensions of 96,300 participants in the United Mine Workers of America plan.
The fund is the fourth-worst funded plan in the multiemployer system, and was forecast to become insolvent in 2022 before the legislation passed. But it has a powerful political ally in Senate Majority Leader Mitch McConnell of Kentucky, and lawmakers in other major coal-mining states.
The rescue will allow the U.S. Treasury to send up to $750 million a year to the Abandoned Mine Land Reclamation Fund. The fund, supported partly by fees paid by coal companies, already is used to pay for healthcare for retired miners and will now also be used to shore up the pension fund.
The fund offered a convenient route to rescue the Mine Workers plan – but it is a taxpayer-funded bailout nonetheless. Will that have an impact on any future debates in Congress about a broader solution for multiemployer pensions? We will have to wait to see.
(The opinions expressed here are those of the author, a columnist for Reuters)
Reporting by Mark Miller in Chicago; Editing by Matthew Lewis