By Pension and Benefits Editorial Staff
The Pension Benefit Guaranty Corporation (PBGC) has a $54 billion deficit and is expected to exhaust all assets by 2025; 100 multiemployer plans will run out of money in the next 20 years or sooner. At a recent hearing on multiemployer pensions, members on both sides of the aisle came together to discuss the severe challenges facing the multiemployer pension system and the PBGC. The hearing was held by the House Subcommittee on Health, Employment, Labor, and Pensions.
“This crisis is one of the most important and urgent issues within our Committee’s jurisdiction, and that’s why Chairman Scott and I wanted it to be the focus of the first HELP Subcommittee hearing of the 116th Congress,” said Representative Frederica Wilson (D-FL), Chairwoman of the House Subcommittee on Health, Employment, Labor, and Pensions, said in her opening remarks.
“More than 100 multiemployer pension plans are projected to run out of money in the next 20 years, if not sooner,” she continued. “More than a million people and thousands of employers participate in these plans. These plans cover workers and retirees in every state and most congressional districts.”
Representative Tim Walberg (R-MI), Republican Leader of the Subcommittee on Health, Employment, Labor, and Pensions, said in his opening statement, “Extreme levels of plan underfunding are an urgent concern. Workers and retirees must have peace of mind when it comes to their hard-earned retirement benefits, and employers must have certainty when it comes to their obligations under these plans. It’s essential that we work together to stop the hemorrhaging of underfunded plans and minimize losses to plan participants as much as possible.”
Insolvency looms. The PBGC, which acts as the insurance backstop for imperiled multiemployer pension plans, is currently operating with a deficit of $54 billion and the agency is set to be exhausted of all assets by 2025, the Republican subcommittee members observed in a release. Solving this problem will require bipartisan cooperation, major reforms, and a commitment to protecting American taxpayers as much as possible.
Dr. James Naughton of Northwestern University testified to members about the need to reform the PBGC in order to “ensure that the current level of underfunding does not deteriorate further and [figure out] how to put the system on a sustainable path going forward. The urgency of this step is evident in the events that have occurred since legislative action was first taken to address the multiemployer pension crisis in 200—since that time, the level of underfunding has increased by approximately $400 billion on a PBGC basis.”
Solution could be difficult. While everyone agrees that something must be done to solve the looming insolvency crisis and that past efforts have proven inadequate, the solution is neither obvious nor easy. Dr. Charles Blahous, Senior Research Strategist at the Mercatus Center at George Mason University, stressed the importance of protecting taxpayers from footing the bill of privately negotiated compensation packages.
“The worst policy choice would be to exacerbate the current problem by requiring federal taxpayers to pay tens and potentially hundreds of billions of dollars to subsidize competitive advantage for those sponsors who fail to meet their benefit promises, over competitors who have responsibly funded their retirement plans,” Blahous said. “Doing so would almost certainly cause multiemployer pension underfunding to soar, as a clear incentive would have been established for plan sponsors to forego adequate pension funding.”
“Congress faces a dual challenge,” said Josh Shapiro, Vice President, Pension, at the American Academy of Actuaries. “Action is needed to address the looming crisis that will occur when both plans and the PBGC exhaust their resources and reach the point of insolvency. The multiemployer system also needs to be reformed so it can continue its invaluable mission of providing retirement income to people who need it, while also ensuring that the system does not fall into crisis again.”
Bipartisan effort essential. There are substantial obstacles ahead when it comes to solving this problem and doing so will take ingenuity and bipartisanship, as subcommittee Republicans noted.
“I am hopeful about this committee’s ability to work together on this issue. We are on the same side and want to protect workers, taxpayers, retirees, and their families,” Walberg said. “The way forward won’t be easy, but millions of Americans are counting on us. We owe it to them to set aside our political differences and come to the table to find a bipartisan solution that secures their future.”
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