The Joint Select Committee on Solvency of Multiemployer Plans is set to deliver its recommendations to Congress by Nov. 30 on how to address 114 of the nation’s 1,400 multiemployer pension plans covering 1.3 million workers being underfunded by $36.4 billion.
Of the $36.4 billion in unfunded liabilities, half of it or $17.2 billion is for just one plan, the Teamsters Central States fund.
The rest includes Baker and Confectionary Union at $3.2 billion of unfunded liabilities, United Mine Workers of America at $2.3 billion, New York State Teamsters Conference Pension & Retirement Fund at $1.65 billion, Felra & UFCW Pension Plan at almost $1.1 billion, Western Pa Teamsters & Employees Pension Plan at $836 million, Gcc/IBT National Pension Fund at $835 million and $10 billion for a number of smaller plans.
The committee came into being via the Budget Act of 2019 that was signed into law in February, and provides for expedited, fast-track consideration for whatever the committee comes up with. The proposal would need to be voted on in the Senate prior to the end of the current session if the committee approves the recommendations and legislation. If unanimous consent could not be reached, the legislation would still need 60-vote cloture in the Senate, however.
Assuming that happens, there is no such special consideration in the House of Representatives, but there is a lame duck Republican majority. The question House Speaker Paul Ryan (R-Wis.) and Majority Leader Kevin McCarthy (R-Calif.) need to answer is whether what the joint committee comes up with will be better or worse than what the incoming Democratic majority in the House will demand when it takes over.
It is also worth considering what potential reforms can be extracted from the unions as part of a long-term fix for the nation’s ailing defined benefit pension systems. These were borne out of collective bargaining arrangements that offered benefits far in excess of contributions and market returns. The legislation could address these concerns, and if it really has an eye towards real reform, could do away with the defined benefit formula once and for all.
In addition, if Congress decides on a loan program to address the shortfalls, it could require unions to have skin in the game and sharing 50/50 with corporations on any risk pool. Annual external audits for all affected multiemployer pension plans could be included, and companies should be allowed to exit and decertify the union by replacing the lump sum payment with payments over a longer period of time.
There may be a diminishing window of opportunity for reform. After 2018, all Congress may be up to is yet another big bailout. According to the Pension Benefit Guaranty Corporation annual report released in Nov. 2017, there’s not enough money to cover the pensions: “As of September 30, 2017, PBGC reported in its financial statements net deficit positions (liabilities in excess of assets) in the Single-Employer and Multiemployer Program Funds of approximately $11 billion and $65 billion, respectively.” In 2016, it projected a 90 percent chance the agency would run out of money by 2035, and 50 percent chance by 2025.
That’s still a ways off, but in the event of another major recession, those dates could come much sooner. The point is there’s still time to address these shortfalls before the PBGC is called into action.
Sensible critics will argue that doing nothing is a perfectly fine option. The pensions made bad investments and regular investors don’t get their retirement plans bailed out when markets go south. In a perfect world, Congress would not be addressing private pensions.
The danger with that line is that in all likelihood Congress won’t do nothing. Realistically, it’s either going to act now or it will act when Nancy Pelosi is House Speaker when the crisis hits.
Others will argue to let Pelosi and the Democrats deal with it next year, and then they’ll get blamed for the fallout politically.
The problem there is that the last time Congress was dealing with big bailouts with a Republican president in the White House, at least temporarily, Democrats benefited handsomely politically. In 2008, Republicans were wiped out and Democrats were awarded with a filibuster-proof majority in the Senate.
And there is no question this is going to be a political hot potato come 2020. President Donald Trump is going to want to shore up his support in traditionally blue, densely union areas of Pennsylvania, Ohio and Michigan. Trump’s political team would probably much prefer that this issue will have already been addressed by Congress.
So, it’s now or most likely later.
If Congress acts now, Trump can get a better deal for taxpayers, and some reforms to boot that can long-term shore up the multiemployer pensions and unwind the unsustainable defined benefit pension formula. Those reforms will be needed to help Republicans stomach the bill. They need to be reminded that the risk of doing nothing now is that next year what Pelosi comes up with could and most likely will be much, much worse.
Robert Romano is the Vice President of Public Policy at Americans for Limited Government.
