Last week, I walked readers through the particulars of the latest version of a bailout plan for the troubled multiemployer pension plans. I explained that the new plan, one component of the “Covid relief” reconciliation bill, was a significant disappointment insofar as it consisted wholly of plowing cash into the most-troubled plans and lacked any of the reform provisions which might provide a path for long-term financial sustainability.
I’ve now learned some new details on this legislation.
The good news:
The legislation states that its objective is “to pay all benefits due” up until 2051. However, experts with whom I spoke explained that this is not intended as a complete funding of all benefits due during the period, but only meant to fill in the gaps so that, added together with their current assets and future contributions, there will be enough funds to pay benefits for the next 30 years.
The bad news:
The text of the legislation, as written at the moment, does not spell out any of these mechanics. Is the plan to require contributions at the same level as these troubled plans are currently paying in, or more, or less? To what extent would those contributions be used to build assets for future accruals, vs. being “spent” on already-accrued benefits by being included in the calculations of federal bailout funds, as offsetting money? My expert friends did not know, and, to be honest, this is the sort of detail that, in any prior pension funding legislation, is spelled out in the law itself rather than left for the PBGC (Pension Benefit Guaranty Corporation) to sort out as regulation. This is concerning, because it risks the whole program going south very quickly.
In fact, one item in the legislation that had seemed peculiar to me in my first read-through was the degree to which assumption-setting, or changes in assumption-setting, are restricted, and, it turns out, this is not, as is typically the case, a matter of ensuring that plans don’t create overly-rosy financial pictures, but that, instead, the plans which qualify for this money will benefit so substantially that drafters were concerned about somewhat-less-troubled plans seeking to appear worse-off in order to qualify. The fact that it was necessary to institute these provisions is itself an indicator that the plan was cobbled together without the degree of fine-tuning it ought to have had.
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The other good news:
I had, last week, expressed my frustration at the complete lack of any reform provisions in this legislation; it’s nothing other than a doling out of money. My multiemployer-community colleagues, however, clarified that the nature of this bill is driven by the requirements of a bill that uses the reconciliation process, which cannot do much of anything that’s not simply spending money or collecting money. They did believe, however, that a bill might yet be forthcoming in which changes are made to funding requirements to reduce these pensions’ risk of insolvency in the future, and in which more options are provided for more flexible pension plans, such as the GROW Act I’ve discussed previously.
It almost goes without saying: will Congress truly have the will for this sort of reform without pending insolvencies pushing them to legislation? Or will the infusion of cash take away the carrot, since, after all, any version of reform to require a greater asset cushion, whether through more conservative discount rates or “prudent” funding requirements, necessarily involves greater employer/employee contributions, which, of course, plans may not be willing to agree to (or, let’s face it, Congress members who view themselves as advocating for these plans) if money has already been shipped out in a rescue plan. At the same time, it’s not as if the pending insolvencies, up until now, had been enough of a motivator to get both sides to come to an agreement, either.
We now have CBO projections of the cost of the proposed program:
Based on simulations of the data available through the PBGC, CBO projected that, in the average simulation, 185 plans would receive funds, and those funds would total $86 billion, the bulk of which, $82 billion, would be spent in 2022, with smaller amounts spent in 2023 ($2 billion) and 2024 ($0.6 billion). At the same time, the PBGC’s spending for insolvent plans would be reduced by $2 billion, and tax revenues would increase by $1.7 billion as retiree-taxpayers pay tax on benefits they would have otherwise not received.
At the same time, the bill would give single-employer, corporate pensions “funding relief,” that is, reduce the contributions they are required to pay into their funds. Because contributions are tax-deductible, this is a backdoor way of raising revenues, to the tune of $12.6 billion during this time period. And at the same time, these plans would be more poorly funded and therefore obliged to pay greater variable-rate premiums to the PBGC (which counts as government revenue), for another $7.2 billion.
What’s the significance of this? It’s hard to express the relative cost of this bailout vs. other proposals or other ways of spending money, but Marc Goldwein of the Committee for a Responsible Federal Budget observed on twitter that, in order to meet the spending limit imposed on the bill, the bill provides for one month less of extended unemployment benefits than originally planned.
The bottom line:
Heck, I don’t know. It is an ongoing frustration to me that Congress couldn’t come up with a suitable compromise “in regular order,” as they say, and I don’t have access to the necessary information to judge whether Republicans, or Democrats, or just some specific individuals were at fault for this. Whether this bill is better than the alternative, remains to be seen (and is perhaps unknowable, as we will now be unable to know whether there would ultimately have been a compromise hammered out, or not).