U.S. Sen. Charles Schumer, D-N.Y. (video screenshot)
[Editor's note: This story originally was published by Real Clear Markets.]
By Andrew Wilford
Real Clear Markets
In a relief bill (conservatively) estimated to cost taxpayers $1.9 trillion, what’s a hundred billion or so between friends? That’s presumably the reasoning behind the decision to tuck a massive, no-strings-attached bailout for mismanaged pension funds into a bill ostensibly about coronavirus relief.
Included in the American Rescue Plan Act of 2021 is $86 billion for federal grants to cover the costs of insolvent multiemployer pension plans. In total, these funds are intended to bail out the roughly 130 multiemployer pension plans, covering 1.3 million American workers, that are in critical situations (about one tenth of all American multiemployer pension plans and workers).
Multiemployer pension plans are collectively bargained pension programs for multiple businesses sharing some common characteristics (often geographic location or industry). In theory, consolidating the pension plans of multiple businesses makes it easier to diversify and allows workers to still receive pension benefits even if their individual business goes bankrupt. But in practice, many multiemployer pensions seem to instead count on being too big to fail.
Even before the American Rescue Plan Act’s planned bailout, employer pension plans enjoy a federal safety net in the form of the Pension Benefit Guaranty Corporation (PBGC). The PBGC functions as partial insurance for employer pensions in exchange for a small premium.
In 2019 and 2020, the PBGC actually made money protecting single employer pension plans, with a net gain of $8.7 billion and $15.5 billion respectively. Yet multiemployer pensions, on the other hand, are consistently a financial drain, costing the PBGC (and taxpayers who fund it) $65.2 billion in 2019 and $63.7 billion in 2020.
Unfortunately, Congress has consistently resisted any efforts at structural reform. Issues identified by the Government Accountability Office (GAO), including the PBGC’s failure to tailor premiums to the risk exposure each specific insured pension plan creates and declining participation in defined benefit plans have remained ignored.
Instead, Congress has sought repeatedly, as it is attempting again to do now, to bail out pension plans. Just as with past proposals, this bailout makes no attempt to require insolvent pension plans to make changes to ensure they don’t jeopardize workers’ retirements in the future — in fact, Congress has declared that PBGC can’t precondition funding on changes that would address financial stability.
Past efforts at addressing multiemployer pension plan insolvencies had at least pretended that the bailouts weren’t a blank check. Legislation introduced in 2019 would have issued the bailouts as loans (even if there was little effort to ensure the loans issued to structurally flawed pension funds would be repaid). In that sense, this bill is just a straight-up bailout with no pretense that it’s anything but a gift to mismanaged pension plans.
Putting taxpayers on the hook for bailing out pension funds which had been structurally flawed for decades is bad enough. Making no attempt whatsoever to demand accountability from these funds receiving federal aid is far worse. If taxpayers get deja vu decades down the line with yet another multiemployer pension fund bailout, this bill will be the reason why.
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