MoneyPalooza Monstrosity! Looking at the Multiemployer Pension Provisions

An unlimited bailout tucked inside the bill

So I hear Pelosi’s HEROES bill passed on Friday, but no word on what the Senate is up to. [Well, evidently McConnell is full-throttle on confirming judges, but that’s about all I can see.]

By the way, if you were wondering what was in that $1 trillion that Pelosi said she cut, drastically thinning the $4 trillion ask down to a manageable $3 trillion, read this piece. We missed out on such excellent ideas as guaranteeing income.

Okay, this may be an exercise in futility, because it seems McConnell has no interest in touching this at all. So the showdown itself may be interesting, but it’s not like these items are going to actually happen.

The summary of MEP provisions

The summary of the bill [90 pages long] really needs a summary, frankly.

I am not going to give you the whole thing. It shows up in Division D, Title I, and starts like this:

Title I – Relief for Multiemployer Pension Plans

Sec. 101. Special Partition Relief. About 10 million Americans participate in multiemployer pension plans and about 1.3 million of them are in plans that are quickly running out of money. Many of these troubled multiemployer plans cover workers who are on the front lines of the COVID-19 public health crisis, such as trucking, food processing, grocery store workers, and others. Even before the pandemic, workers, businesses, and retirees faced a crisis and were in dire need of our help. With work drying up around the country and the market downturn, the economic catastrophe resulting from COVID-19 has exacerbated the multiemployer pension crisis and threatened the hard-earned pensions of even more workers and retirees. This threatens to bankrupt the Pension Benefit Guaranty Corporation (“PBGC”), impose damaging liabilities on thousands of businesses, and devastate communities across the country.

Under current law, PBGC has limited authority to partition certain troubled multiemployer pension plans. In a partition, PBGC takes on the financial responsibility of some of the benefits of an eligible plan, so that the plan can stay solvent. EPPRA creates a special partition program that would expand PBGC’s existing authority, increase the number of eligible plans, and simplify the application process—allowing more troubled plans to obtain much-needed relief. Just like the bipartisan Butch Lewis Act (H.R. 397), eligible plans would include: plans in critical and declining status, plans with significant underfunding with more retirees than active workers, plans that have suspended benefits, and certain plans that have already become insolvent. In contrast, EPPRA allows plans to become eligible for the special partition program through 2024. Because the COVID-19 crisis has already caused significant investment losses to pension plan assets and decreased the number of hours worked, plan funding may deteriorate
over time. Consequently, plans may need to access the special partition relief program in coming years.

Those are two paragraphs. I’ve had enough at that point.

So let me make a short list of the items in the summary:

Section 101: Partitioning — being able to lop off parts of the pension fund, for example, having all the retirees before a certain date in one fund, which would be separately managed from active workers. But here’s the sweetener… and because you’re not going to believe it, I’m going to quote the key part:

Under the special partition program, a plan would receive enough financial assistance to keep it solvent and well-funded for thirty years*—with *no cuts to the earned benefits of participants and beneficiaries.

That’s right – a complete bailout of the MEPs. Hidden in the bill.

Sec. 102. Repeal of Benefit Suspensions for Multiemployer Plans in Critical and Declining Status.

Basically, this undoes the Multiemployer Pension Reform Act from 2014, a bill that allowed MEP benefits to be cut before funds completely ran out of money [and to provide a sustainable amount of benefits that was above the PBGC guarantee level).

The next couple [103,104] are temporary measures to allow funds to avoid being officially labeled being in bad condition or gives them more time to try to get out of it.

Sec. 105. Adjustments to Funding Standard Account Rules.

I’m going to quote the next bit, because I think it’s nuts.

Funding shortfalls as a result of investment losses are generally required to be made up over a period of 15 years. Following the financial crisis of 2008, multiemployer plans were allowed to amortize investment losses from
2008 or 2009 over a period of 30 years.

That’s numbers on paper, and seriously… 30 years is way too long to amortize that sort of thing. Even 15 years is pushing it.

Basically, they want to allow MEPs to do the same here.

Sec. 106. PBGC Guarantee for Participants in Multiemployer Plans.

Back to the summary text.

PBGC provides a maximum guaranteed benefit of $12,870 to a participant in a multiemployer plan, if that participant had 30 years of service.

….
This legislation would double the guarantee to 100% of the first $15 in monthly benefits per year of service and 75% of the next $70 in monthly benefits per year of service, and indexes it thereafter.

So, why would any plan have to go to this low guarantee level, which is still pretty low after doubling, if they could partition and get completely covered for thirty years?

I’m sure some lawyer could explain the logic in the full 1800-page bill, but I am just tired reading the summary.

Commentary from Elizabeth Bauer

Elizabeth Bauer, being a pension actuary, is more knowledgeable about these issues than I am.

Let’s see what she has to say.

Hidden in the HEROES Act, A New Multiemployer Pension Plan Bailout

When Democrats in the House proposed their alternative to the Senate’s CARES Act, it included the Butch Lewis Act. I’ve criticized this repeatedly as a bailout which merely pretends not to be, with low-interest loans which wouldn’t necessarily save these plans, and, in any case, are forgivable after 30 years. But the Emergency Pension Plan Relief Act is far more expansive. I’ve said repeatedly that a rescue package for multiemployer pension plans will need to be a compromise, with give-and-take on all sides. This proposal is all “give” and no “take” (or all “take” and no “give” depending on your perspective).

….
But the Emergency Pension Plan Relief Act promises that there will be no benefit cuts for any participants. In addition, benefit cuts which had already been implemented for plans using MPRA to avoid insolvency would be restored for plans applying for a “special partition” (including retroactive payments) and no new benefit cuts would be permitted in any case.

…..
What’s more, current law restricts benefits covered when PBGC takes over insolvent plans to a fairly low maximum. This bill would nearly double that limit (section 40106).
….
How much would this cost? There is literally no limit to the money to be expended: “there is appropriated from the general fund such amounts as necessary.”

I have a feeling that this item is not explicitly being counted in the $3 trillion.

A reminder: MEPs need a bailout

Even before COVID-19, there were several MEPs that were running out of money, the most important being the Central States Teamsters Fund… and that’s important because over 100,000 people would be affected.

Also, when Central States finally officially goes under, it will bankrupt the PBGC, even with the super-low guarantees on benefits.

Here are some semi-recent STUMP posts on the need for a MEP bailout:

• Feb 2018: MEP Watch: About Those Plans to Bail Out Union Pensions – about the Butch-Lewis Act, or what I called the half-assed bailout

• Nov 2018:
  Multiemployer Pensions: Waiting for the Bailout Report – I consider bailout options

• Nov 2018:
  MEP Bailout Quickie: Collapses Like a Flan in a Cupboard – the report didn’t come

• Nov 2019: A New Plan to Deal with Multiemployer Pensions – more about reform than bailout

As you can imagine, this is getting a bit desperate for some plans.

News coverage of MEP need for help

Here are a few stories on the plea for help:

Senators Urge Pelosi to Include Pension Fix in Next Stimulus Package

US Sens. Sherrod Brown, D-Ohio, and Gary Peters, D-Michigan, are calling on House Speaker Nancy Pelosi, D-California, to include relief for multiemployer pension plans in any future stimulus package related to the COVID-19 pandemic. While the senators are likely to get support from the House leader, they may find it more difficult convincing members of their own chamber, particularly Senate Majority Leader Mitch McConnell, R-Kentucky.

…..
And the Pension Benefit Guaranty Corporation (PBGC)’s multiemployer insurance program, which is the lifeboat for struggling pensions, is itself projected to become insolvent in 2025.
…..
Pelosi has previously expressed support for legislation to help struggling multiemployer pension plans. Last July, she made a speech on the House floor in support of the Butch Lewis Act, a bipartisan bill that aims to prevent the collapse of the nation’s multiemployer pension plans. The bill passed the House but has yet to be passed in the Senate.

“I urge a strong, bipartisan vote to protect the pensions of workers and retirees and I urge Senator McConnell to immediately take up this bill so we can send it to the president’s desk and give comfort to so many families in America,” Pelosi said in her speech.

However, McConnell has yet to put the Butch Lewis Act up for a vote, and recently expressed his unwillingness to include any kind of pension reform in congressional packages intended to help with the economic effects of the pandemic.

Look, if he’s not going to shovel money to the states… well, he might actually try to help MEPs.

But, as I said, it sounds like the HEROES bill is a total non-starter in the Senate.

Multiemployer Plans Urgently Need Help to Avoid Catastrophe

MANY MULTIEMPLOYER PLANS were already on the brink of collapse before the market downturn caused by COVID-19 came in like a wrecking ball.
…..
Some plans are already struggling because there are more retired than active participants and they cover employers in industries that are already declining, Flaherty says. He explains that a small active participant base means there is a lower influx of contributions to offset market losses.
…..
U.S. Senator Patty Murray, D-Washington, ranking member of the Senate HELP Committee, released a statement about the need to address the multiemployer pension crisis in light of the COVID-19 pandemic: “Through no fault of their own, millions of workers and retirees are at risk of losing the pensions they have earned at the worst possible time. We can’t let that happen. This COVID-19 crisis is already making it harder for families and businesses to make ends meet—we need to do everything we can to ease the burden, and that includes solving the multiemployer pension crisis so workers and retirees aren’t thrown into even greater uncertainty. I’ve been pushing to negotiate a bipartisan solution that can solve this crisis once and for all, and I’m absolutely going to keep at it.”

In the short term, Brenner notes, multiemployer plans could use some funding relief, as was provided in previous recessions. He notes that the Worker, Retiree and Employer Recovery Act of 2008 (WRERA) permitted multiemployer plans to use their prior year zone status certification in the current plan year and permitted plans in endangered or critical status to extend their recovery periods. The Pension Relief Act of 2010 (PRA) permitted eligible plans to recognize investment losses from 2008 and 2009 over a longer period of time.

From the Pension Rights Center: Pension rescue is no-brainer for next pandemic response legislation

Multiemployer pension plans, which are run jointly by a union and two or more employers, cover 10 million workers and retirees. Most plans are financially stable but about 130 of them are spiraling toward insolvency, threatening the benefits of more than 1.4 million retirees – and that was before the stock market tumbled. Now with COVID-19 halting the economy, a new study by the Segal Company projects “an additional 180 plans could face insolvency over the next 20 years,” bringing the number of plans careening toward failure to over 300, potentially affecting 2.5 million workers, retirees and spouses.
…..
Those most at risk of losing benefits in these multiemployer plans are the very same workers who are risking their lives to protect us in this time of crisis. They are the truck drivers who are transporting food and supplies, the nurses and health care workers at the front lines, the grocery store workers who are keeping us fed, the laborers who are building our hospitals, and the musicians who, despite social distancing, keep on playing for us online to soothe our anxiety.

These are America’s unsung heroes who do – and did – the essential jobs that we all are depending on in this time of lockdown.

If Congress does not act, many of these workers and retirees stand to lose as much as half of their pensions, or more. Tens of thousands have already had their benefits cut. Lawmakers should not abandon these American heroes in their time of need.

Congress must act now to save severely underfunded plans, protect the full benefits of workers and retirees and put on sound footing the federal agency that insures pensions—the Pension Benefit Guaranty Corporation (PBGC).
…..
There is also another proposal being considered, one that Congress should not include in any pandemic response bill nor in any legislation designed to address the multiemployer plan issue. Called the GROW Act, it is a proposal that, despite good intentions, would hurt both workers and retirees, be detrimental to the PBGC, and undercut the security of the entire multiemployer plan system.

This GROW Act is new to me, though it was introduced in 2018. Here is their promo:

Today, Reps. Phil Roe, M.D. (R-Tenn.) Donald Norcross (D-N.J.) introduced H.R. 4997, the Give Retirement Options to Workers (GROW) Act, a bipartisan effort that is designed to modernize and strengthen the multiemployer pension system for the future.

The bipartisan GROW Act will safeguard the multiemployer pension plan system by authorizing the creation of a new type of retirement option that combines the key features of defined benefit and defined contribution plans.

Under the GROW Act, workers will still receive lifetime income, and importantly, the benefits that workers earned under a traditional multiemployer plan are protected even after they are shifted into a “composite” plan under the GROW Act. For employers, the GROW Act offers greater stability by eliminating the uncertainty and volatility currently faced in the multiemployer system. Under the plan, employers will negotiate a fixed contribution rate and limit their risk, and employees will gain financial security. Ultimately, the GROW Act offers a fiscally responsible way forward, enabling pensions to maintain fiscal solvency. The GROW Act should be an integral part of larger reforms to the multiemployer pension system.

Okay, sounds like some sort of hybrid pension plan, but I’m sure there are other things in there. In looking it up, I found anti-GROW campaigns from unions. Here are two: The GROW Act must be removed from the next stimulus bill and Tell Congress to Protect Our Pensions, Remove the GROW Act from Stimulus Bill.

Evidently somebody tried to slip GROW in, but it wasn’t in the summary I saw.

Any more to look at?

As Elizabeth Bauer notes in her piece, the provisions for private single employer defined benefit pensions are similar to bills for temporary respite in prior crises. I’m not going to cover that.

The money machine shoveling money to local governments is similar to that of the state moneypalooza. The Tax Foundation has some highlights here. There’s not much to talk about other than the sheer amount of money involved.

And, seriously, other than as a political football, I don’t see any of these provisions going anywhere.

As a method for dividing up relief funds for governmental entities, at least for the first round of funds, it is quite reasonable. The question is the amount of funds to send to state and local governments. I will have more to say about that in the future.

But even so, it is not clear that anything is going to move forward in the Senate for now, other than judicial confirmations.

I may just have to go back to looking at mortality trends, model risk, and other geeky things.

Sounds good to me.