This Committee Could Try to Bail Out Private Pensions With Taxpayer Funds
By Rachel Greszler, Research Fellow in Economics, Budget and Entitlements at The Heritage Foundation.
The Bipartisan Budget Act made headlines earlier this month for raising federal spending caps by $300 billion over just two years.
What is less well known is that it created a committee that could potentially bail out private union pensions with taxpayer funds to the tune of half a trillion dollars.
That figure, $500 billion, is the shortfall between what multiemployer (or union-run) pensions have promised their workers and what they’ve actually set aside to pay them.
The newly established committee is called the Joint Select Committee on Solvency of Multiemployer Pension Plans.
Originally, unions and employers who hold those $500 billion in unfunded promises tried to include a bailout for private pensions in the budget bill. Instead, they got a joint committee tasked with addressing the problem, as well as the Pension Benefit Guaranty Corp.’s looming insolvency.
The joint committee consists of 16 lawmakers, with four appointees named by the speaker of the House, the House minority leader, the Senate majority leader, and the Senate minority leader, respectively.
The House members sitting on the committee include Reps. Virginia Foxx, R-N.C.; Phil Roe, R-Tenn.; Vern Buchanan, R-Fla.; David Schweikert, R-Ariz.; Richard Neal, D-Mass.; Bobby Scott, D-Va.; Donald Norcross, D-N.J.; and Debbie Dingell, D-Mich. A Senate staffer said that the names of senators to sit on the committee are not yet confirmed.
The joint committee’s marching orders include producing a report and legislative recommendations that will improve the solvency of both multiemployer pensions and the Pension Benefit Guaranty Corp. (specifically, it’s multiemployer program) by Nov. 30.
The multiemployer system consists of about 1,300 private union pension plans that, collectively, have promised $500 billion more in pension benefits than they have set aside to pay.
The Pension Benefit Guaranty Corp.’s multiemployer program is a government entity that provides mandatory but limited pension insurance to all multiemployer pension plans. It has a $65 billion to $101 billion deficit and is on track to run out of funds by 2025.
The $500 billion multiemployer pension shortfall did not crop up overnight. Reckless mismanagement and failures to confront growing gaps between promises and reality have been decades in the making.
Certain industry declines and periods of lower-than-expected investment returns quickened many pension plans’ demise, but only because they were already broken.
The root cause of pension plan shortfalls is plan managers’ failure to align current contributions with promised benefits, and to adjust those terms appropriately over time when plans’ assumptions don’t match economic realities.
With equal representation from union representatives who want to deliver deluxe pension benefits and employer representatives who want to minimize contribution costs, it’s no wonder many plans didn’t cut benefits or increase contributions as needed.
Consequently, a million or more workers and retirees now stand to lose a significant portion of their promised pension benefits.
Congress’ new joint committee on multiemployer pensions can change this by proposing legislation that will minimize pension losses and that will prevent the same problems that contributed to current shortfalls from continuing in the future. That includes protecting taxpayers from bearing the cost of private union pensions’ broken promises.
The committee’s task includes producing a report and legislative proposal that—if it gains the approval of a majority of both Democrat and Republican members of the commission—will receive an expedited process for a Senate vote by the end of 2018.
Committee members have relatively few existing proposals to draw from in crafting their own recommendation, and the few proposals that do exist are massive taxpayer bailouts that would exacerbate, rather than improve, the root problem.
The Butch Lewis Act, for example, would provide both taxpayer loans (including the option of loan forgiveness) and direct cash bailouts to multiemployer pension plans. And it would convert the Pension Benefit Guaranty Corp. into a taxpayer-financed entity.
This would cost hundreds of billions of dollars—perhaps even closer to a trillion dollars—at the end of the day. That’s because it would not only bail out all of multiemployer pensions’ broken promises to date, but it would encourage private union pension plans—including responsible ones that haven’t broken their promises—to continue promising more than they can afford to pay, raising taxpayers’ tab even higher down the line.
Committee members and all lawmakers should reject any form of taxpayer bailout—whether by loans or direct cash assistance—for private pensions.
Instead of passing the buck to taxpayers, committee members should contain costs within the system that created cost overruns. A combination of benefit reductions and contribution increases for troubled plans, as well as higher, risk-based premiums for the Pension Benefit Guaranty Corp., would accomplish this goal.
Additionally, the committee should not set a precedent that would exacerbate future underfunding and set the stage for a $6 trillion bailout of unfunded state and local government pensions.
Avoiding these outcomes requires denying any form of pension bailout, subjecting union pensions to the same funding rules as non-union pensions, and holding pension trustees accountable to make sound financial decisions.
*To read this commentary on The Daily Signal, click here.