Congress seeks to reform multiemployer pensions in the CRomnibus (Continuing Resolution/Omnibus spending bill), which as of this evening remains in a precarious position.
House Education and the Workforce Committee Chairman John Kline (R-Minn.) and Ranking Member George Miller (D-Calif.) offered the package as an amendment as the CRomnibus moved through the House Rules Committee. The self-enacting rule makes the amendment part of the final funding bill.
“The proposed reform was initially developed by the National Coordinating Committee for Multiemployer Plans. Representing both labor and management, the organization proposed allowing troubled plans to take action to save themselves,” states a fact sheet issued by the Committee.
The reforms strive for a balance between the wants and needs of businesses, workers, taxpayers, and the Pension Benefit Guaranty Corporation (PBGC), the federal pension insurer.
“The Pension Benefit Guaranty Corporation, which guarantees the pensions of more than 40 million Americans, has had a financial deficit for over a decade,” wrote former PBGC Director Josh, Gotbaum before he stepped last summer. (The President has not yet nominated a new director.)
Gotbaum elucidated the PBGC view:
Let PBGC, not Congress, set premiums. Let PBGC do it on a businesslike basis—based on each company’s actual risk. That’s the way it’s done by the FDIC, by other government insurance programs, and by virtually every private insurance company on the planet. Of course, it’s no surprise that businesses pressure Congress to keep premiums artificially low. They’d rather leave the taxpayers holding the bag. And, thus far, the Congress has played along.
While PBGC did not achieve the ability to set premiums in this deal, businesses did agree to double their annual contribution to the PBGC from $13 to $26 for each participant in a multiemployer pension plan. That will “place the PBGC on more firm financial footing,” states the committee fact sheet.
A couple of years ago Gotbaum offered his perspective regarding such a doubling of employer contributions:
Last year PBGC premiums represented about 3% of all pension costs. (Does anyone think auto insurance is only 3% of the cost of owning a car?) Pension costs themselves are about 3% of average labor costs. Put those together and PBGC premiums represent about one-tenth of one percent of labor costs. Even if they were tripled, the effect on American industry’s costs and competitiveness would be negligible.
For their part, workers will get to vote on proposals to reduce or suspend their benefits when their multiemployer pension plans are endangered or in critical and declining status. Section 201 of the legislation describes how the alternatives to benefit reductions and suspensions may be presented on ballots for workers to consider, including “[a] statement that insolvency of the plan could result in benefits lower than benefits paid under the suspension” and “[a] statement that insolvency of the Pension Benefit Guaranty Corporation would result in benefits lower than benefits paid in the case of plan insolvency.”
The PBGC and many others have for years recognized that the very existence of the PBGC is imperiled. The committee writes, “If the PBGC collapses, all 10 million workers with a multiemployer pension—even those in currently healthy plans—will be put at risk, and many retirees will be left with nothing.” And for multiemployer pensions, the PBGC caps its benefits at around $13,000 per year.
The concern about the PBGC results from the prospective failure of the collective bargaining agreements—contracts between labor unions and businesses—and the failure of the model of defined benefit pensions in general.
Smart money has moved from defined benefit plans to defined contribution pension plans. Many businesses have done so. States all over the nation, including Michigan, Utah, Rhode Island, and Oklahoma, have begun a definite trend toward defined contribution plans for the pensions of state government workers.
A legislative proposal being floated last week included a title, “Modernizing the Multiemployer Pension System,” to “[a]uthorize the creation of innovative pension plans that do not have the same requirements for employers as traditional defined benefit plans.” The final deal ended up being narrower in scope, but the deleted title should remain a priority for the next Congress, specifically the House Education and the Workforce and Ways and Means committees.
This week’s deal, unfortunately, goes in the opposite direction by prohibiting innovative pension plans, even for young or new employees. Section 106 states, “[T]he plan sponsor may not accept a collective bargaining agreement or participation agreement with respect to the multiemployer plan that provides for … any new direct or indirect exclusion of younger or newly hired employees from plan participation.”
If the PBGC’s insurance program for multiemployer pensions were to collapse, taxpayers should worry about whether they would be pressured into paying for the contracts between unions and businesses.
American Enterprise Institute Resident Fellow Alex Pollock writes of a taxpayer guarantee for the PBGC:
Of course, this guaranty is “implicit,” just as it was for Fannie Mae and Freddie Mac. We all know that when financial push comes to shove, “implicit” government guarantees turn into explicit taxpayer costs.
Chairman Kline has been vigilant in his concern for the taxpayers, as was former PBGC Director Gotbaum when he wrote, “For starters, let’s be clear: A taxpayer bailout is not our agenda. PBGC has never taken a dime from taxpayers and we want to keep it that way.”
Gotbaum continued in 2012, “Alex Pollock, a fellow at the American Enterprise Institute, notes accurately that PBGC was intended to be self-financing yet has a $26 billion deficit, and despairs that both the death of traditional pensions and the bankruptcy of PBGC are inevitable. Mr. Pollock writes, ‘A financial way out for the PBGC is not apparent and none is being proposed.’”
The NCCMP proposed reform, as embodied in this legislation, marks an improvement for the prospects of multiemployer pension survival and for the PBGC.
However, the legislation is not everything to everybody.
The PBGC does not get all it wants, namely to set business payment rates.
In some cases, workers may not receive 100 percent of their initially expected pension benefits.
Businesses will not keep their previously low PBGC premiums.
And the taxpayers are not completely out of the woods regarding implicit liability for failure of these collective bargaining agreements. Innovative pension plans—envisioned in last week’s draft but deleted now—would have to take root for the safety of the taxpayers.
The one group that seems largely unscathed is the unions, which have their own distinct big-money interests, distinct from the workers’ interests.
The union bosses will keep their members, and no worker dues to the unions have been cut. Thus Big Labor coffers are untouched. The union bosses not only maintain their position of power in relation to collective bargaining agreements, but legislative language actually augments the power of the agreements, as discussed. It’s no wonder that a number of unions support the deal.
The complete ledger for the bargain may only be determined years down the road.