Legislation designed and intended to cure insolvency troubles for several multiemployer pension plans is being examined more closely in an effort to understand its practical impact.
The Rehabilitation for Multiemployer Pensions Act of 2019 (HR 397), works to establish a new agency called the Pension Rehabilitation Administration, which is tasked with disbursing loans to multiemployer defined benefit pension plans that are at risk of insolvency.
A congressional budget office study projected that approximately one-quarter of the pension plans that would be eligible for loans through the bill would become insolvent over the next 30 years and would not fully repay their loans. For those plans that do repay their loans the CBO projects that they will become insolvent within ten years of repayment.
To create its projections, the CBO ran 500 simulations each with different variables examining how they impact pension plan solvency rates.
As for the cost of the legislation, the CBO concluded that the government would disburse $39.7 billion in loans to multiemployer pension plans in financial trouble, and would be expecting to receive loan repayments in total of $7.9 billion – a net subsidy cost of $31.8 billion.
According to congressional testimony, the cost of doing nothing in terms of lost tax revenue and increased social safety net spending is estimated to be between $170.3 billion and $241.3 billion over the 10-year budget window, and between $332 billion and $479 billion over the next 30 years.
The bill passed the House of Representatives earlier this but may face hurdles advancing given the result of the CBO examination. Lawmakers are working to come up with solutions following recent statements from the Pension Benefit Guaranty Corporation that multiemployer programs are in “dire financial condition”.
Representative Richard Neal, chairman of the House Ways and Means Committee, voiced concerns facing multiemployer pension plans earlier this year. “About 1.3 million Americans are in plans running out of money, because of forces of the marketplace,” Neal contended.
The aggregate funded ratio of multiemployer pensions dropped to 74% from 81% during the second half of 2018. Actuarial and consulting firm Milliman attributed the drop to poor investment returns.
Opponents of the bill argue that a loan structure is not an appropriate solution to the problem. “Forcing hand-picked plans to accept crushing balloon payment loans they can never hope to repay, while putting off the necessary reforms to make them solvent for their workers, hurts workers, businesses, and innocent taxpayers who did nothing to create these failed plans,” said Kevin Brady, head Republican of the House and Ways Committee.
“These plans are failing at an alarming rate,” says AARP, an advocate for the bill. “About 12% of workers with vested multiemployer pensions are in plans expected to run dry within 20 years. And the plans’ weak safety net is getting weaker.”
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