Federal lawmakers debated the merits of supplying troubled multiemployer pension plans with federal loans, and whether it’s an appropriate approach to achieve long-term solvency.
Rep. Richard Neal, chairman of the House Ways and Means Committee, advocated for legislation that would allow the government to issue loans to the troubled institutions.
“About 1.3 million Americans are in plans running out of money, because of forces of the marketplace,” Neal contended, citing that fiduciary mismanagement is not a root cause of the issue.
The bill, called the Rehabilitation for Multiemployer Pensions Act, passed the House Committee on Education and Labor last month, in a 26-18 vote, with six abstentions.
Opponents are effectively calling the move a bailout and argue that the fix is largely temporary and doesn’t address the key issues that led to the crisis in the first place.
“This is not a bailout,” Neal said during the hearing, “this is a backstop, guaranteed by the good faith and full credit of the United States. The money for the loans and the cost of running the program would come from the sale of Treasury issued bonds of financial institutions.”
“The Treasury bonds would be sold in open market, to large investors such as financial firms, and then lend the money from the sale of the bonds to financially troubled pensions.”
If enacted, the bill would create a new division in the Treasury called the Pension Rehabilitation Administration, whose key task would be to provide low-interest loans and bonds to “critical and declining” multiemployer pension plans.
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.
Kevin Brady, head Republican of the House and Ways Committee, acknowledged the crisis but disagreed with the loans, and advocated for structural reforms to pensions so “they don’t dig themselves into deeper holes.”
“In truth, the underlying problem for these plans is severe mismanagement,” Brady said during the hearing. “It’s not unforeseeable market circumstances. We know that because pension plans for single businesses have recovered from the financial crisis, plus more.”
He doubled-down on his stance and continued to push for a long-term fix in the session.
“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.”
“Workers in these insolvent managed pension plans deserve a real solution. Unfortunately this bill today doesn’t make these failing plans more stable, doesn’t end underfunding, and doesn’t make them more solvent over time,” said Brady.
Both sides agree that the crisis is tangible and must be addressed immediately. About $638 billion in aggregate needs to be shored up for workers ensnared in the insolvent pensions.
“This problem does not get better as the days go on, it gets worse,” Neal concluded in his opening remarks at the hearing.