The new Trump administration will face challenges on the macro level in reviving a weak economy and low-returning investment markets, and raising interest rates whose near-zero level has been ineffective in stimulating business expansion while undermining defined benefit plans' funded status.
On a micro level, Donald Trump's administration will have to grapple with the challenge of applications from severely underfunded multiemployer defined benefits plans to be allowed to reduce pension benefits under the Multiemployer Pension Reform Act of 2014. Applications from seven multiemployer plans are pending at the Treasury Department of the Treasury, which makes the determination. So far the department has rejected three applications, all this year, including the proposal of the Teamsters, Central States, Southeast and Southwest Areas Pension Plan, which has $16.1 billion in assets and $35 billion in liabilities.
The Obama administration is letting the next administration deal with consequences of the plans running out of assets.
In addition, the new administration will have to come to grips with the United Mine Workers of America 1974 multiemployer pension plan, whose $4.1 billion in assets and $9.7 billion in liabilities makes it too severely underfunded to qualify for MPPA reductions.
The distressed plans cannot rely on the Pension Benefit Guaranty Corp. to assume pension payments. The PBGC, with $1.8 billion in assets and $44.2 billion in liabilities, is itself at risk of running out of money within 10 years.
The Trump administration will have to resist calls for a bailout from participants in distressed multiemployer plans and the PBGC. The groups involved have to be encouraged to work out solutions themselves. Otherwise, taxpayers will face the moral hazard of pension plans avoiding financial discipline by enjoying a pension put option to pass off pension liabilities to Congress for bailouts.
The new administration should embrace risk-based premiums and authorize the PBGC to set rates, rather than Congress. But the best way to improve funding is through a strengthened economy, a strong market and higher interest rates.
On a broader level of retirement issues, aside from reforming the endangered Social Security program, the new Trump administration should encourage greater private-sector retirement plan coverage. In 2013, 51.3% of employees worked for employers that sponsored a retirement plan, up only 1 percentage point from 2010, according to the Employee Benefit Research Institute. But only 40.8% of employees participated in an employer-sponsored plan in 2013, up from 39.7% in 2010.
Secure choice defined contribution programs initiated in some states are just getting off the ground and are too new to know their impact on retirement plan coverage. Lower taxes would keep more capital in business and in the pockets of employees, allowing more opportunity for employers to expand businesses, and to raise pay levels, as well as for pension development and contributions.