The congressional Joint Select Committee on Solvency of Multiemployer Pension Plans failed to produce a bipartisan solution to the financial crisis in those plans by its self-imposed Nov. 30 deadline, and that is a good thing. A bill of this importance should not be rushed. If the committee had met the deadline to produce a solution, the bill would have been eligible for expedited floor procedures so it could be passed before Congress was scheduled to adjourn on Dec. 7.
The new Congress will return on Jan. 3, with split control, and again will pick up the onerous task of resolving competing interests. Much is at stake. That's why it is critical that whatever solution emerges be debated thoroughly by Congress.
As members of the committee themselves acknowledge, there is much work ahead. There are many stakeholders other than beneficiaries who could be affected by any bill passed to help the multiemployer plans that are in danger of failing, including taxpayers, and the companies and employees supporting healthier plans.
The final measure also needs to ensure that it does not chase away healthy multiemployer plans. The joint select committee reportedly had been working with five goals: shore up the Pension Benefit Guaranty Corp.'s multiemployer program, which faces obligations of $60 billion to $70 billion if the financially ailing plans fail; fix the multiemployer program to prevent future shortfalls; minimize pension losses for workers and retirees covered by multiemployer plans; prevent taxpayers from having to pay for the unfunded pension promises; and avoid encouraging other plans to seek similar relief, that is, avoid moral hazard.
While the text of the bill the committee has been working on has not been released, an initial draft of the proposal's discussion points circulated in Congress late last month. Among other things, the draft offered several measures to help struggling plans protect retiree benefits, including increasing the PBGC minimum guarantee level to $70 per month per year of service, and at least $3,000 per year.
It also reversed benefit cuts already authorized by the Treasury Department under the Multiemployer Pension Reform Act of 2014, but plans within five years of insolvency would cut to the minimum benefit level and then be terminated.
The PBGC would gain more authority and resources to take financial responsibility for struggling plans. The draft called for a 30-year promise of $3 billion in federal funding per year to allow it to do more partitioning, a new variable-rate premium for plan sponsors, a new "stakeholder" premium to be paid by retirees in struggling plans and a new exit premium for employers.
In addition to those new premium costs, the draft called for plans to be required to use a more conservative discount rate when measuring liabilities. While 7.5% is a typical rate used by plans today, the proposal calls for a cap of the corporate long-bond rate plus 2%, which today would be roughly 100 basis points lower.
Those last two changes had some multiemployer plan experts warning that many healthy plans could suddenly become classified as endangered and force employers to consider getting out, or trustees to think about shifting to defined contribution plans.
While one proposal, the transfer of $3 billion a year to the PBGC, would help the agency meet its current obligations, other aspects of that draft measure would increase those obligations, according to an analysis by the Heritage Foundation.
The Heritage Foundation notes the proposals do little to fix the multiemployer system to prevent future shortfalls. For example, there are few if any consequences for employers that fail to make their required contributions.
The draft also fails when it comes to shielding taxpayers from having to pay for the unfunded pension promises. Taxpayers would pay for the $3 billion in annual transfers to the PBGC — a total of $90 billion over 30 years — and they would become responsible for the PBGC's current $54 billion deficit.
The doubling of the PBGC maximum benefit likely would increase costs that would eventually fall on to the taxpayers.
In short, it's good that the committee missed its deadline. When the committee reconvenes next year, part of its debate must include the future viability of the multiemployer defined benefit plan in a highly competitive, deregulated, globalized and increasingly high-tech world where companies and jobs can disappear with little warning.
The debate must include consideration of whether or not defined contribution make more sense for both employer and employees in industries with many small and midsized companies, and if so, how a switch to DC plans might be achieved over time.
The retirees and employees covered by multiemployer plans must be helped. But such help must not leave the basic problems unaddressed. That would invite additional problems in the future — and set a precedent for other deeply troubled pension plans, corporate or public employee, to seek relief from the federal government.