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Proposed remedies divide supporters and opponents
More than a million Americans currently have their retirement savings in union-managed multiemployer pension plans that are severely distressed and headed for default in the near future, according to the House Committee on Education and the Workforce. While over the past eight years Congress and the Obama administration have made efforts to address the threat posed by underfunded multiemployer plans, the problem remains unsolved.
If these plans become insolvent, it would fall to the federal Pension Benefit Guaranty Corp. (PBGC) to provide benefits to beneficiaries, albeit at monthly payouts lower than what the plans have promised. However,
the PBGC's multiemployer program itself has insufficient funding to cover the potential insolvencies of so many at-risk plans.
Fresh efforts, however, are now under way to try to save these plans, which are maintained under one or more collective bargaining agreements to which more than one employer contributes, typically with a labor union overseeing plan administration.
On Sept. 8, Rep. John Kline, R-Minn, who chairs the House Committee on Education and the Workforce, unveiled
draft legislation to modernize the multiemployer pension system. Kline's proposal would replace financially troubled multiemployer plans with so-called
composite plans that combine features of defined-benefit and defined-contribution plans. They would, for instance, provide a lifetime income stream in retirement like a traditional pension, but participants could see the amount of their payouts reduced if the plan isn't adequately funded.
The proposal outlines how:
Critics of the composite plans, including the Pension Rights Center, which advocates on behalf of pension beneficiaries, promptly wrote a letter to House members urging them not to consider such legislation,
claiming composite plans don't provide the same level of protection as traditional multiemployer plans.
Organized labor is divided on the reform plan. Sean McGarvey, president of North America's Building Trades Unions, said in a statement that Kline's draft legislation "addresses some of the critical issues remaining that need to be solved so we can move forward and finish reforming the multiemployer pension system." But the Teamsters and other unions co-signed the letter to House member opposing the measure.
Mine Workers' Pension: Condition Critical
Separately, legislation to provide federal support for the severely underfunded United Mine Workers of America (UMWA) pension plan has highlighted the crisis faced by multiemployer plans with insufficient assets—and the political divide over what to do about them.
"If Congress does not act, thousands of coal miners … will lose their retiree health benefits by the end of December," warned Sen. Joe Manchin, D-W.Va., in a news release.
Manchin and other sponsors of the
Miners Protection Act (including
18 senators and
83 House members) are urging Congress to vote on the measure, introduced in July 2015, before year-end.
The act "will prevent a lapse in benefits that tens of thousands of retirees depend on," said
Sen. Shelley Moore Capito, R-W.Va., during a Sept. 8 rally in Washington, D.C., attended by 10,000 retired miners. "We owe it to these men and women to keep the promise that was made to them," she said.
Capito hopes to see the measure approved by the Senate Finance Committee this month. While a floor vote is unlikely before the presidential election, supporters are hopeful that the legislation will pass in November or December.
The measure would shore up the mine workers' pension by using money from the Abandoned Mine Reclamation Fund and the U.S. Treasury. But the move is opposed by some who fear the precedent of bailing out other distressed multiemployer plans with federal funds could eventually cost U.S. taxpayers billions of dollars.
UMWA trustees have failed to adequately adjust benefits and contributions over time to ensure that promised benefits would be paid," wrote Rachel Greszler, a senior policy analyst at the Heritage Foundation, a conservative think tank, in an online post. But "instead of acknowledging its failure to live up to its promises, the UMWA is attempting to pass the buck to the United States government and taxpayers."
She added, "Instead of bailing out the UMWA's unfunded pension promises and setting the stage for future bailouts—whether widespread or isolated to the government's favored few—Congress should focus on reforming the PBGC's multiemployer program so that recipients of failed union pension plans will at least receive their insured benefits."
Earlier Efforts Stymied
A previous law passed by Congress, the
Multiemployer Pension Reform Act of 2014, was intended to allow severely underfunded multiemployer plans to reduce the level of promised benefits in order to remain solvent. But last May, the Treasury Department
denied a benefit suspension application of the $17.8 billion Teamsters Central States, Southeast & Southwest Areas Pension Fund, citing flaws in the application.
Critics charged that the denial was unwarranted and was politically motivated. The Central State's plan, with $35 billion in unfunded liability, is facing insolvency by 2026.
"One unfortunate consequence of the Treasury Department's rejection of Central States' application appears to be that
many other under-funded multiemployer plans may be reluctant to expend the financial and political resources necessary to reach an internal agreement between employer and union trustees that would result in approval of the benefit reductions needed to avoid insolvency in the future," wrote attorneys Bradley G. Kafka and W. Andrew Douglass, of St. Louis law firm Polsinelli P.C., in the
National Law Review.
Separately, Sen. Bernie Sanders (I-Vt.)
sponsored the Keep Our Pension Promises Act (KOPPA), which would repeal the Multiemployer Pension Reform Act's allowing of reductions in pension benefits by underfunded multiemployer plans with no ifs, ands or buts.
But the problems of collectively bargained pension plans won't go away. "Government reports have estimated that up to 15 percent of multiemployer plans are at risk of becoming insolvent over the next 20 years and that up to 1.5 million participants are at risk from those insolvencies," Kafka and Douglass noted.
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