A Pension Analytics Group analysis of a proposed subsidized loan program for struggling multiemployer pension plans is flawed, the National Coordinating Committee for Multiemployer Plans said Tuesday.
"It evaluates a loan program that nobody has advocated for, structured in a way that is certain to fail from both the plan's perspective as well as the U.S. government's, and ignoring the laws, regulations and policies of the U.S. government for federal credit programs," said Michael Scott, NCCMP executive director and a former Treasury official.
The analysis, by the group of actuaries and economists, found that a loan program would save the benefits of only one-third of participants. It was conducted to help inform a special congressional committee working to solve the multiemployer pension funding crisis by the end of November.
The group's study found the proposed loan program would save plans covering an estimated 1 million participants, vs. 3.1 million at risk without the loans. The report stated that one consistent positive outcome under its analysis was significantly reduced pressure on the Pension Benefit Guaranty Corp. The Pension Analytics Group model assumed a pension plan could receive a one-time lump-sum loan equal to the plan's funding deficit, measured at a 7% discount rate, with a 2% interest rate, for 20 years.
In addition to studying loan program terms not proposed in the legislation, Mr. Scott said the Pension Analytics Group study also failed to recognize that current law limits the PBGC to paying benefits supported by premiums, which means that technically its multiemployer program is funded, but that benefits would be deeply reduced.
The study also did not factor in a tool afforded by the Multiemployer Pension Reform Act allowing some plans under certain conditions to avoid insolvency through benefit reductions to at least 110% of the PBGC's guarantee, he said. "This tool can in fact be used by plans to ensure that they never get to the PBGC in the first place, limiting the plans that would need to use a loan," Mr. Scott said.
Another factor not considered in the analysis is the cost to the government when the PBGC and systemically important plans like the $15.3 billion Teamsters Central States, Southeast and Southwest Areas Pension Fund and the $4 billion United Mine Workers of America 1974 Pension Plan become insolvent.
"When this occurs, the U.S. government's actual financial exposure to lost federal tax revenue from retirees and employment losses for active workers, and social safety net spending will dramatically exceed the cost of implementing a properly structured federal loan program," Mr. Scott said.
The NCCMP has proposed its own loan program based on lower interest rates and 30-year loans. It would keep loan proceeds in trust held for the government, and only make investment earnings available to the plan. There are safeguards for the government in case of investment or actuarial experience losses.
