Since I reclaimed the gavel of the Finance Committee at the start of this Congress, one of my top priorities has been to fix the failing multiemployer pension system and help secure retirement benefits of more than 10 million workers and retirees in multiemployer plans.
This is especially important since 150 multiemployer plans have failed or terminated already and another 40 are expected to run out of money in the coming 10 years.
Many more plans are expected to fail in the decade after that. In all, more than 1.5 million Americans will be affected by the failure of these plans.
The virus has had its effects, although we don’t yet have a firm read on how much the economic downturn has affected plan funding or the Pension Benefit Guaranty Corporation’s multiemployer insurance fund. We expect more details on those issues later this summer.
The one thing we do know for sure is that this problem is only going to get worse and more costly to resolve as time goes on. And, we have a real opportunity to get it fixed this year.
Last November, HELP Committee Chairman Lamar Alexander and I released a draft plan to reform the multiemployer pension system, protect retirees, and secure the PBGC’s insurance fund.
We received many thoughtful and constructive comments, and we’ve worked over the past several months to address those comments and make our reform plan as effective and balanced as possible.
So what’s standing in the way?
The short answer is that the Democratic Leadership doesn’t seem too interested in working to find a bipartisan solution.
They seem to think the no-strings bailout they tried to force into the CARES Act in March and that now appears in the House’s Heroes Act is a “take it or leave it” proposition.
And I hope they’re not playing election-year politics with the retirement security of millions of Americans.
Delaying a solution until next year is only going to make it more costly, and it will still require bipartisan support.
We can and must do better if we want a healthy multiemployer pension system for the long run.
To put this into perspective, let’s consider what it means to do nothing and leave current law unchanged, versus what Chairman Alexander and I propose in several key areas.
First, for retiree benefits, doing nothing means that PBGC insurance fund runs out of money in 2027. If the fund goes broke, that means PBGC will only be able to pay benefits equal to the premium revenues it receives, which are minimal compared to potential claims.
That means retirees could see benefit cuts in the range of 90 percent.
Let me repeat that: 90 percent.
In contrast, our plan would preserve benefits and ensure solvency of the PBGC’s multiemployer system over the long run. It would save many failing plans by having the government pay a portion of benefits earlier than under current law.
That would help the plan to stretch its assets much longer and preserve benefits as promised under the plan.
Second, for plans that aren’t able to be saved, our proposal would increase the insurance guarantee amount from the current $12,870 maximum for a retiree with 30 years of service to over $20,000.
Benefits will be preserved with the help of additional support from employer and union stakeholders, and a modest retiree insurance premium for retirees in plans that face financial challenges.
That premium would be no more than 10 percent and eliminated entirely for older and disabled retirees, as well as for plans that are well funded. That’s far better than a 90 percent cut if we do nothing.
Doing nothing also means more and more plans will become underfunded, or worse, insolvent, resulting in major benefit cuts and only a small amount of benefits covered by the PBGC for as long as its insurance fund holds up.
The Grassley-Alexander plan would provide relief to the failing plans, and without an up-front benefit cut.
It would restore the benefit cuts that some plans chose to make under the Multiemployer Pension Reform Act since 2014, and it would increase the PBGC insurance guarantee amount by more than 50 percent.
Third, for other plans not on the brink, doing nothing would mean that the current minority of multiemployer plans that are better funded would continue to shrink, with many more likely to move into the danger zone in the coming years.
Our plan would provide significant funding reforms to help prevent that from happening.
Key variables like the discount rate that plans use to estimate future asset and liability values would be subject to new standards to help ensure that plans are funded to provide the benefits promised.
But, we have taken to heart comments that those changes need to be phased in over a sufficient period to allow plans to transition smoothly.
Our plan would institute other changes to improve the early warning system so multiemployer plans can avoid flirting with the underfunding danger zone.
It also provides needed oversight for plans in trouble. And it would provide unions and employers the opportunity to set up “composite plans,” a new type of hybrid retirement plan that enjoys bipartisan support.
The fundamental tenet of the Grassley-Alexander reform plan is that all stakeholders have a role in fixing the multiemployer pension system that has been on its current path to failure for nearly 40 years.
Employers and unions have a role in ensuring that adequate contributions are made to the plans to ensure sufficient funds to pay the promised benefits.
Plans have a role in ensuring that that the PBGC insurance fund backing up those benefits is adequately funded through reasonable premiums, with higher risk plans contributing more for that insurance backstop.
Employees and retirees have a role in contributing to the insurance coverage that protect their benefits just like they do now for auto, home, and life insurance.
And last but not least is the Federal government – yes, the government had a role in setting out the rules that have governed these plans and regulating the operation of these plans.
The government has a role in fixing the resulting situation we are in today. And that means taxpayer funds may be needed to help the PBGC provide the partition relief for plans on the brink of failing.
But those funds must come with important reforms to ensure that taxpayers are not back on the hook again in five or 10 years.
Unfortunately, no matter how sensible of a reform plan we come up with, it has no chance of success unless our Democratic colleagues are willing to sit down and discuss a comprehensive solution.
Their “my way or the highway” approach is not the pathway to a successful solution. That was clear when they tried it during the negotiation of the CARES Act in March.
I’ve invited our colleagues on the other side of the aisle, and Speaker Pelosi as well, to join me and Senator Alexander in finding a bipartisan solution. That invitation stands, and we remain ready to talk.
Let’s use the time we have to negotiate a balanced, sensible solution to this increasingly critical problem so we are ready for whenever an opportunity presents to enact that solution this year.
The retirees in each of our states, the businesses and unions that support these pension plans, and our long-term federal budget deserve no less.