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Stakeholders Should Share the Cost of Shortfalls in Multiemployer Pension Plans

Jan 7 | 2019  by

By Beth Florkowski of Fausone Bohn, LLP posted in Business on Monday, January 7, 2019.

Brandon Grysko, Esq.

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

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 risk falls to the workers, then relatively low-wage earners will be forced to accept lower benefits at a higher cost, and fixed-income retirees may also have to do more with less. Similarly, if the risk shifts to employers, then they may be driven out of business by the steep deficit, or employers may simply pass the added cost onto workers (through bargaining) or customers (through product and service pricing).

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

The solution, therefore, should be a shared one. But it isn’t fair to make drastic changes to fixed-income retirees who already held up their end of the bargain. And it isn’t fair to give pension plans a taxpayer-funded bailout since taxpayers generally have nothing to do with these plans. Let’s not forget that the PBGC was created to deal with the exact situation in which the red-zone pensions find themselves. Thus, the PBGC should be revitalized so it can do its job. But how it does that is a matter of some debate.

The right-leaning Heritage Foundation posted 12 reforms that would help pensions to 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.

Writing for the left side of the aisle, 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 cost to implement the program is justified because failed pension plans and a bankrupt PBGC would result in millions of people becoming government dependent. That would be a huge taxpayer burden. The bill was introduced by Sen. Sherrod Brown (D-Ohio) and Rep. Richard Neal (D-Mass.) and has at least some bipartisan support, but since 2017, it has not gained the necessary traction to become law.

In a country often divided on party lines, it may come as a surprise that both sides agree that something must be done to avoid a complete meltdown. The years 2017 and 2018 saw some meaningful discussion but no real action. With 2019 upon us, and with it a Democrat-controlled House and Republican-controlled Senate, multiemployer pension plans are in as precarious a position as ever, with no readily apparent solution in sight.