These pension plans may go bankrupt. Legislators need a solution

About 1.3 million Americans could see their retirement funds threatened if Congress could not find the money to pay the benefits promised to people.

Indeed, a number of multi-employer pension plans are on the brink of exhaustion.

This week, the Congress tried to solve the problem of marking the law on the rehabilitation of multi-employer pensions.

Although this attracted far less attention than the testimony of Federal Reserve Chairman Jerome Powell, who spoke of interest rates and the economy at Capitol Hill, this is not the case. was not less important. The financial future of retirees weighs in the balance if nothing is done, according to lawmakers.

"These are American workers who have planned their retirement and who, now after more than 30 years of work, are facing financial uncertainty at a time when they often can not return to the labor market," said the representative. Richard Neal (D-Mbad.), Chair of the House Ways and Means Committee, who held the hearing.

Some provisions already exist to help maintain multi-employer pension plans. Pension Benefit Guaranty Corporation, a federally chartered entity, intervenes in the event of plan default so that retiree benefits – up to the maximum defined by federal law – continue. According to the Society of Actuaries, these guarantees typically represent between 20% and 90% of plan benefits.

But it is estimated that the PBGC will use its badets by the end of 2025.

Previously, Kline-Miller's Multi-Employer Pension Plan Act of 2014 provided a process for multi-employer pension plans to reduce their benefits on a temporary or permanent basis.

The new bill would let pensions borrow money to stay solvent so they can continue to pay retirees for "decades to come," Neal told the hearing. The program and loans would be financed by the sale of bonds issued by the Treasury to financial institutions. The Treasury Department would lend money from these bond sales to pension plans that need financing.

The proposal is also known as the Butch Lewis Act, named after a truck driver who worked for USF Holland for 40 years. Lewis was a member of the Central State Pension Plan, which is now underfunded. When Lewis died of a stroke a few years ago, his wife suffered a 40% reduction in her joint survivor benefit.

"Unfortunately, many workers and retirees have stories similar to those of Ms. Lewis," said Neal.

Although both sides of the aisle agreed that something had to be done to fix the problem, there was some disagreement about whether or not this bill is the best plan for solve it.

The Butch Lewis Act aims to help the plans to gradually recover by lending them money at rates as low as the Treasury's interest rate, allowing them to invest these funds and to keep the difference if they get a higher return, according to Joshua Gotbaum, visiting researcher at Economic Studies at the Brookings Institution. Gotbaum previously held the position of PBGC Director from 2010 to 2014.

The Republicans, for their part, proposed to directly fund the PBGC instead of lending money to the plans. The PBGC could then use this money to fund the retirement benefits of so-called orphans or workers whose plans no longer exist.

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Some opposing lawmakers have called the money loan proposal for pensions a bailout. However, supporters of legislation, such as Hasan Solomon, National Legislative Director of the International Association of Machinist and Aerospace Workers, disagree.

"A bailout is what they did for Wall Street and the big banks," Solomon said. "This is a loan for pensioners who have waived wage increases, who have given up their work rules, who are entitled to allowances to keep their pension."

Critics include Rep. Kevin Brady (R-Texas), the chief Republican of the committee.

"Unfortunately, this bill does not make these failed plans more stable, does not end underfunding and does not make them more creditworthy over time," said Brady.

One of Brady's complaints is that it would not increase the liability of companies providing pensions, nor prevent the situation from worsening, he said.

Brady noted that the plans were underfunded by $ 638 billion in 2015, up from $ 193 billion in 2007. At the same time, the PBGC's deficit rose to $ 54 billion in 2018, from $ 739 million. dollars in 2006.

An amended version of the bill was pbaded by a vote of 26 to 18 in committee. The bill will be examined by the Plenary Chamber, which currently has 197 Cosponsors.

The challenge will be to get it pbaded by Republicans in the House and Senate, said Gotbaum, who are more likely to support PBGC funding. Any bipartisan agreement to solve the problem would probably not materialize until this fall, he said.

In the meantime, Representative Bobby Scott (D-Va.) Said in a statement that he "hoped" that the bill would be considered in the House in the coming weeks. "Retirees, workers, employers and taxpayers are counting on Congress to tackle the multi-employer pension crisis, and we need to provide them with a solution," Scott said.