Update 374: Worker Retirement Security:
Multiemployer Pension Bill and Its Prospects
The legislative prospects for any big-ticket economic policy bill that is not “must-pass” (such as a budget) clearing Congress and getting signed by the White House seem remote right now. But on July 24, the Rehabilitation for Multiemployer Pensions Act, H.R. 397, passed the House in a 264-to-169 vote, 29 Republicans voting in favor.
With bipartisan support in the House, pension reform may have life in the Senate. Beyond that, who can say? We look at H.R. 397 and the prospects for pension reform this Congress in depth below.
Multiemployer pension plans (MEPs) first emerged in the 1930s to administer retirement benefits for workers in occupations employing low- and medium-income earners, such as the needle trades, building trades, and coal mining industries. The Taft-Hartley Act of 1947 formalized joint labor and trustee management, and MEPs grew to prominence until participation peaked in 1989, with over 10 million active workers. There are 1,400 defined benefit (DB) MEPs in the U.S., representing around 10.6 million total participants, including current workers and retirees today.
DB pension plans guarantee cash benefits for a retiree’s life and differ from defined contribution (DC) retirement plans, such as 401(k)s, whereby employers make contributions only when employees voluntarily contribute. DC plan participants are responsible for investment decisions and bear the risk of losses and fluctuations. They receive the account balance upon retirement — whatever that value is.
The Pension Benefit Guaranty Corporation (PBGC) was established by Congress in 1974 to encourage the continuation and maintenance of DB pension plans. It administers insurance programs for both single employer pensions and MEPs, and has authority to “take over” failing plans and pay out benefits. PBGC pays a maximum amount of $12,870 annually to a retiree whose MEP has failed — a big shock to pensioners expecting to receive $20,000 a year or more. PBGC is funded solely through the premiums paid by pension plans. As participation in MEPs decline, the same forces undermining MEPs are ballooning the PBGC’s MEP insurance program deficit; the agency’s own projections suggest that insolvency within the next 6 years is “highly likely.”
House Passes Pension Rehabilitation Bill
The Rehabilitation for Multiemployer Pensions Act of 2019, H.R. 397, establishes the Pension Rehabilitation Administration (PRA) within the Department of Treasury, which would lend money to financially stressed pension plans. Loans would be long-term and low-interest, buying much-needed time for failing MEPs. The legislation also provides direct cash assistance to bankrupt MEPs.
In 1981, more than 61 percent of pension plan participants were in DB plans — that number declined to 27.7 percent in 2015, due substantially to employers offering cheaper plans and less responsibility. As unions declined in all sectors, they did not have the bargaining power to maintain DB plans in traditional sectors – mining, transportation, utilities, etc. — or demand them in new growth sectors. MEP DB plans fund their obligations to retirees through contributions from active workers.
Pension funds are drying up as more workers retire and fewer covered workers enter. About 4 million active workers are financially supporting 6.2 million retirees across all MEPs. In the next 20 years, 10 to 15 percent of MEP participants are in plans are projected to become completely insolvent.
H.R. 397, sponsored by Rep. Richard Neal, does enjoy some bipartisan support. Twenty-nine House Republicans, many of them from the Midwest, voted to pass the Act. Republican buy-in was mainly due to the impending insolvency of one of the largest MEPs in the country; the Central States Pension Fund, representing 407,000 working and retired truck drivers across middle America, is due to become insolvent by 2025 without immediate action by Congress.
Republicans opposing the pension relief legislation cite ongoing mismanagement on the part of union leaders and pension trustees. They argue that the proposed loan program amounts to a “bailout” and would not address underlying problems in the MEP system.
Chairman Neal and Democrats in Congress attest that H.R. 397 is a first step in addressing the MEP crisis. More than one million pensioners belong to failing pension plans, and may lose more than 80 percent of their benefits. These plans need relief immediately. Giving relief to failed and failing plans would also provide financial breathing room for the PBGC and delay the agency’s collapse.
Any Future in the Senate?
Ways and Means Committee Ranking Member Kevin Brady voted against the bill and spoke for some of his Republican Senate colleagues when he cast doubt on the overall viability of H.R. 397. While Brady may be wrong on the effectiveness of H.R. 397, it is hard to argue with his political prognosis — i.e. death by inaction in the Senate, at least in its current form. When Senator Brown introduced his version of H.R. 397 last Congress, he failed to secure a single Republican cosponsor.
In the hopes of passing something through a divided government, Brown is also working hand-in-hand with his fellow Ohio Senator and Republican Finance Committee Member Rob Portman on a compromise. Such a compromise may include loans and grants to MEPs, while also addressing structural problems of MEPs. Some provisions will be hard to stomach for some Democrats. Chairman Neal seems open to accepting Republican changes, saying the House passage of H.R. 397 “starts the conversation.”
The Path Forward for MEPs
According to the CBO, inaction would cost the federal government between $170-240 billion over ten years in tax revenue and increased social safety net spending. This figure dwarfs the CBO’s cost projection of H.R. 397, currently estimated to cost from $34 to $100 billion over ten years. Inaction would also lead employers to exit MEPs, further exacerbating the plans’ financial distress. The failure of these plans would also hurt local communities, as benefit payments from MEPs support $89 billion in annual economic output and 543,000 jobs.
Some Democrats have stated that allowing further pension plan benefit cuts beyond what is currently permitted by law is off the table. Republicans argue that may be the only way to prevent MEP systemic failure. With the straightforward loan and grant proposal seemingly DOA in the Senate, all eyes are on a possible Brown/Portman compromise that can secure 60 votes in the chamber without peeling off a substantial number of Democrats in the House.