This op-ed originally appeared in Barron’s on July 20.
While the main focus of Congress right now is and should be addressing the unprecedented coronavirus health and economic crisis, we must continue to look to address problems looming on the horizon. One of those looming crises involves our multiemployer pension system that, without reform, will result in pension benefit cuts of over 90% for more than 1 million American workers and retirees, and the bankruptcy of a lot of Ohio small businesses.
Multiemployer pension plans are defined benefit plans, maintained by multiple companies and a labor union that pool together their pension assets to cover all workers and retirees in the plan. The multiemployer system now comprises roughly 1,400 plans covering 10.8 million participants and their families, but it’s on the verge of collapse. Years of bad federal policy with respect to funding and withdrawal liability rules, losses on risky investments, and failure to take proactive action have led to this crisis, and the current economic slowdown caused by the coronavirus has made the situation direr. Not only is the system underfunded by more than $638 billion, but the federal entity that insures these pensions, the Pension Benefit Guaranty Corporation, is also projected to become insolvent in less than five years. Over 1.4 million workers and retirees are in plans already in “critical and declining status,” and are facing benefit cuts over 90%.
In Ohio, we will be hit particularly hard if we don’t act. We have more than 50,000 active workers and retirees in multiemployer pension plans that are facing deep benefit cuts if we do nothing, with hundreds of small businesses contributing to these plans that could be forced to close should we fail to act. Nearly 42,000 of those Ohioans, many of them veterans, participate in a single plan, the Central States Pension Fund, which is also the largest plan considered to be in critical and declining status and is projected to become insolvent by 2025.
As a member of the Joint Committee on Solvency of Multiemployer Pensions Plans in 2018, chairman of the Senate Finance Subcommittee with jurisdiction over multiemployer pension reform, and someone who has spent countless hours meeting with retirees, small businesses and active workers affected by this crisis, I know how important it is that we solve this problem, and that remains the case now more than ever.
As bad as the pension crisis is for these retirees and for their individual plans, it also has a broader impact on our economy. If a large plan such as Central States becomes insolvent, at a minimum, contributing employers will be forced to make large annual pension contributions into an insolvent plan that their employees will never receive.
With insolvency, many Ohio employers will face the risk of being assessed immediate, unplanned withdrawal liability that is in some cases larger than the book value of their company. Based on these risk factors, the U.S. Chamber of Commerce testified to the Joint Select Committee in 2018 that “it is likely that [large] plan insolvency could lead to employers going out of business, filing for bankruptcy, or both.”
The good news is that proactive action now will reduce the cost of fixing the problem, ensuring a secure retirement for participants and their families, and certainty for employers to make investments in good-paying jobs.
We can solve this crisis and do so in a bipartisan way, but in my view that entails following three key principles. First, we are all in this together, and we need a shared responsibility approach. Democrats in the House of Representatives have proposed using only taxpayer money to rescue these plans, but that’s not the way to get bipartisan support in this Congress. Employers and participants must also share the responsibility of fixing this problem, especially since about 94 percent of taxpayers do not participate in this system, many of whom are struggling with their own retirement security. Greater employer contributions are required if multiemployer plans are to sustainably provide the benefits they promise.
Second, Congress must ensure any legislative solution on this issue safeguards the long-term financial health of the PBGC so we aren’t back in this fiscal crisis again soon. A new variable-rate premium for plans should be a component of this effort, but participants in federally rescued plans should also contribute in the form of solvency fees paid directly to the PBGC. While I believe these payments can be small, it’s important that all stakeholders are contributing to the health of the PBGC.
Finally, serious multiemployer pension reform must promote long-term solvency for all multiemployer plans. This will require structural reforms to the funding rules governing employer contributions to multiemployer plans so that Congress and the Treasury Department will not be regularly called up to bail out a large number of underfunded plans. This entails gradually phasing down the rate of return at which plans assume in budgeting for promises made to participants, and thus reducing investment risk to workers and retirees, who deserve more certainty in their plans.
I know solving this issue won’t be easy, especially given the unprecedented health crisis we all face. But putting off this difficult work today means the future becomes less certain for millions of hard-working American retirees who put in the hours at their jobs and may be left with nothing at the end of it all. Sens. Chuck Grassley and Lamar Alexander have released a proposal called the “Multiemployer Pension Recapitalization and Reform Plan.” It’s not perfect, but it has received support from the Trump administration, and is a good starting point for crafting a comprehensive, bipartisan solution. House and Senate Democrats have their own plan, recently passed by the House, and I’m open to their constructive ideas.
We have an opportunity to solve this problem once and for all this year by finding common ground. Congress owes it to the retirees, the workers and the small businesses participating in these plans to make things right. The time to act is now.