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Pension Funds

Credit for multiemployer plans could cost $7 billion, report says

U.S. fifty dollar bills are run through a counting machine inside a currency exchange store in Mexico City, Mexico, on Monday, Feb. 15, 2016. Mexico’s peso led world gains, climbing the most in more than four years, as Banxico was said to sell dollars directly to banks to support the currency. Photographer: Susana Gonzalez/Bloomberg

Proposals to offer credit assistance to struggling multiemployer pension plans could cost taxpayers $7 billion, but allowing them to collapse would cause even bigger fiscal and economic problems, researchers at the American Action Forum said in a report released Friday.​

Advocates for multiemployer plans are putting the finishing touches on various federal proposals that would offer low-interest financing for struggling plans.

Researchers at the American Action Forum, a conservative think tank, found that 55 pension funds designated as critical and declining with a combined $28 billion in net assets at the end of 2015 would be eligible for credit assistance. Under one proposal, the gross loan disbursement would be $23.3 billion payable over five years, with the favorable loan terms costing taxpayers $7.2 billion, without factoring in default risk, the researchers said; a one-third default rate on those loans would cost $10.9 billion.

Exacerbating the problem is the projected insolvency of the Pension Benefit Guaranty Corp.'s multiemployer program by 2025.

"The intersection of the likely insolvency of multiple pension plans and the projected insolvency of the federal backstop raises the likelihood of federal intervention," the report said.

Efforts to mitigate default risk could include a risk pool to backstop the credit assistance program that would be funded by fees from plan stakeholders, employer surcharges to increase PBGC revenue, or monthly fees on unions, the report said.