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Editorial

Just say no to multiemployer plan bailout

Congress must soon address the crisis in the multiemployer pension plan system. Not only are several large multiemployer plans — including the Central States Teamsters and the United Mine Workers — in danger of insolvency, an additional 200 multiemployer plans are considered likely to fail in the near future.

In addition the Pension Benefit Guaranty Corp.'s multiemployer plan insurance program has a 50% chance of running out of money by 2025 and a 98% chance of running out by 2035.

The longer Congress waits to address the crisis, the more fiscally painful for union retirees, union workers, employers and possibly the U.S. taxpayers any solution will be.

One possible solution to address the crisis, the Butch Lewis Act, has been introduced in the Senate, with a companion bill in the House.

It would establish a new agency within the Treasury Department, the Pension Rehabilitation Administration, to issue bonds and use the proceeds to make low-interest loans to troubled multiemployer plans to pay retiree benefits. The plans would pay only interest for 30 years with a balloon payment at the end of that period.

Sen. Sherrod Brown, D-Ohio, the author of the bill, insists it is not a taxpayer bailout, yet plans that have trouble making good on the loans after 30 years would be eligible for forgiveness.

That sounds like a bailout, and this feature alone makes this a poor proposal. The prospect of forgiveness after 30 years gives plan officials no incentive to put money aside for the ultimate repayment. The checkered history of the Central States plan provides no confidence that it would play according to the rules.

Of course, if Congress passes a bill to bail out the multiemployer plans, it would be a terrible precedent. One can imagine the hugely unfunded state and local government pension plans lining up to try to get similar relief.

Congress should work harder at designing a rescue plan for the troubled industry funds, one less likely to leave future taxpayers on the hook.

One place to start would be to give the PBGC's multiemployer program a capital infusion. Pensions & Investments has argued since the establishment of the PBGC that it should have had an initial capital infusion. No one starts an insurance company without raising capital, yet Congress provided no initial capital.

Providing such an infusion now would ensure the solvency of the PBGC and provide more time to address the problems of the multiemployer plans. It would not provide an incentive for more multiemployer plans to seek — and even public employee plans to consider seeking — relief.