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Stakeholders Should Share Cost of Shortfalls in Multiemployer Pension Plans

Jan 7 | 2019  by

Some multiemployer pension plans are in serious trouble. According to the Detroit Free Press, 121 employer pensions are in critical status. According to the Pension Benefit Guaranty Corporation (PBGC), there are around 1,400 total multiemployer plans, meaning around 8-9% of multiemployer plans are in trouble. Although the PBGC was created by federal law to insure pensions in the event of a fund failure, the PBGC itself is slotted to run out of money by the year 2025.

Pension Plans Legislation

Eventually, the legislature is going to have to make a policy decision as to who should make up the shortfall-a losing proposition for everyone. If the workers bear the risk, then relatively low-wage earners will have to accept lower benefits at a higher cost, and fixed-income retirees may also have to make do with less. Similarly, if employers bear the risk, the steep deficit could force them out of business, or they might transfer the additional cost to workers (via negotiations) or customers (through pricing their products and services).

Frankly, it’s impossible to simply lay the blame on the workers or management: Both sides share some of the blame. Pension boards, composed of equal numbers of union and management representatives, often mutually bargained for or decided benefits. But the blame doesn’t lie solely with pension-plan decision-makers: out-of-control market forces have also played a significant hand.

Proposed Solution

The solution, therefore, should be a shared one. It isn’t fair to make drastic changes to fixed-income retirees who already held up their end of the bargain. It also isn’t fair to bail out pension plans since taxpayers have nothing to do with these plans. Let’s not forget that we created the PBGC specifically to handle this exact situation. Thus, the PBGC should revitalize itself to effectively perform its job. But how it does that is a matter of some debate.

Heritage Foundation Reforms

The right-leaning Heritage Foundation posted 12 reforms that would help pension plans recover without the use of any tax dollars to fund a bailout. The Heritage-endorsed ideas would require sacrifices from all stakeholders. The ideas relate to benefit freezes, changes to collective bargaining, employer and employee premium increases, and allowing workers a buy-out option, among others. These reforms, according to Heritage, would improve pension funding, improve PBGC funding, and minimize benefit cuts.

Brotherhood of Teamsters Reforms

James Hoffa, president of the International Brotherhood of Teamsters, supports a bill that would allow the U.S. Treasury to sell bonds on the open market to cover the PBGC-funding shortfall. Hoffa says the plan will save the PBGC around $20 billion. Hoffa argues the implementation cost is justified because failed pension plans and bankrupt PBGC would result in millions of government dependents. That would be a huge taxpayer burden. Introduced by Sen. Sherrod Brown (D-Ohio) and Rep. Richard Neal (D-Mass.), it has some bipartisan support. But since 2017, it hasn’t gained the necessary traction.

Our country is typically divided by party lines; surprisingly, both sides agree that action must be taken. The years 2017 and 2018 saw some meaningful discussion but no real action. With a Democrat House and Republican Senate, pension plans are in a precarious position, with no apparent solution in sight.