One of the most touted elements of the Biden administration’s $ 1.9 billion US bailout was a provision to save union-sponsored “multi-employer” pension plans from threatened insolvency. There are approximately 1,400 such plans in the United States, which cover the retirement benefits of approximately 10.8 million workers.
Now the rescue is turning into a political and financial disaster. It has been known for years that hundreds of these plans are struggling to meet their obligations to their beneficiaries. The largest of the struggling multi-employer plans, the Teamsters Central States Pension Fund, covers nearly 400,000 workers and retirees.
By the past year, the financial situation of many plans had become so dire that the federal program to provide supplemental insurance to beneficiaries was itself expected to become insolvent by 2026. Union-friendly members of Congress and senators, in Particularly Sherrod Brown of Ohio, pushed President Joe Biden’s team to incorporate a federally guaranteed pension plan relief plan that would provide a 30-year (forgivable) federal loan as well as other support .
The cost of the bailout was estimated by the Congressional Budget Office at around $ 86 billion, of which $ 82 billion would be spent in 2022. If all worked out, this would have been a good talking point for Democratic candidates in the election. midterm next year. , especially in the hotly contested Rust Belt states.
But rather than spelling out the actuarial details of how the bailout worked, congressional sponsors and the administration left that work to experts at the Pension Benefit Guaranty Corporation, a U.S. government agency. They may regret this decision.
When the PBGC released its ‘interim final rule’ for pension relief in July, it was greeted with a storm of outrage from employers, employees, unions, asset management companies and others. political sponsors of the rescue plan. The PBGC raised the cost estimate of the multi-employer plan bailout, first to $ 94 billion in July and then to $ 97 billion in September. No good optics.
Worse, however, the PBGC clarified that any âspecial financial assistanceâ (SFA), such as forgivable grant-type loans, should not be invested in anything riskier than high-quality bonds. According to a comment from the National Employer-Employee Coordinating Committee for Multi-Employer Plans: âToday, the expected return on a quality bond portfolio is around 2%. . . this will create a significant funding gap which will lead to the insolvency of the plans from 2037. â
Even before that, unions and employers who act as trustees of multi-employer funds are likely to face legal issues if they accept the bailout money. As the committee noted: âThe trustees of such [troubled] plans that choose to take SFA run the risk of litigation from active employees, while trustees who choose not to apply for SFA risk being sued by retirees.
In other words, what started out as a program to provide free money for the pension bailout will start a generational war between active workers and retirees. Some of us think such a war was imminent anyway, and maybe the PBGC and its actuaries are right to officially declare hostilities.
You might think the PBGC is a bit narrow-minded in specifying no riskier investments than quality bonds, but there is an important story here. Take the example of the SFA’s largest potential beneficiary, the Central States Pension Fund. The General President of the Teamsters Union is James P Hoffa, the son of Jimmy Hoffa, a notorious President of the Teamsters and founder of the Central States Fund.
there are rich people Literature and filmography of the controversies over how Hoffa Senior’s associates managed the fund in the 1950s and 1960s, including the fund’s investments in Las Vegas casinos. If the fund has since overcome this notoriety, the fact remains that its beneficiaries have suffered cuts in benefits and that its long-term solvency is still in question. So maybe the conservatism of PBGC regulation is understandable.
The bigger question now is whether the stuck bailout of multi-employer plans is a glimpse of an upcoming fight for generational equity. Even solvent and conservatively managed pension plans have high expectations of today’s young workers.
The demographic reality that working-age populations have peaked in the developed world means that the benefits and debt service payments supporting retirees are being paid by fewer and fewer people over time. I don’t think it’s sustainable.
Sadly, this year’s chaotic âbailoutâ of multi-employer plans has turned into yet another example of broken pension promises. Voters in major industrial states will notice and remember it.