Skip to main content
MENU
Subscribe
  • Sign Up Free
  • LOGIN
  • Subscribe
  • Topics
    • Alternatives
    • Artificial Intelligence
    • Consultants
    • Defined Contribution
    • ESG
    • ETFs
    • Face to Face
    • Hedge Funds
    • Industry Voices
    • Investing
    • Money Management
    • Partner Content
    • Pension Funds
    • Private Equity
    • Real Estate
    • Regulation
    • SECURE 2.0
    • Special Reports
    • Washington
    • White Papers
  • Rankings & Awards
    • 1,000 Largest Retirement Plans
    • Top-Performing Managers
    • Largest Money Managers
    • DC Money Managers
    • DC Record Keepers
    • Largest Hedge Fund Managers
    • World's Largest Retirement Funds
    • Best Places to Work in Money Management
    • Excellence & Innovation Awards
    • WPS Innovation Awards
    • Influential Women in Institutional Investing 2023
    • Eddy Awards
  • ETFs
    • Latest ETF News
    • Fund Screener
    • Education Center
    • Equities
    • Fixed Income
    • Commodities
    • Actively Managed
    • Alternatives
    • ESG Rated
  • ESG
    • Latest ESG News
    • The Institutional Investor’s Guide to ESG Investing
    • ESG Sustainability - Gaining Momentum
    • ESG Investing | Industry Brief
    • Innovation in ESG Investing
    • 2023 ESG Investing Conference
    • ESG Rated ETFs
    • Divestment Database
  • Defined Contribution
    • Latest DC News
    • The Plan Sponsor's Guide to Retirement Income
    • DC Money Manager Rankings
    • DC Record Keeper Rankings
    • Innovations in DC
    • DC Plan Design: Improving Participant Outcomes
    • 2023 Defined Contribution East Conference
  • Searches & Hires
    • Latest Searches & Hires News
    • Searches & Hires Database
    • RFPs
  • Research Center
    • The P&I Research Center
    • Earnings Tracker
    • Endowment Returns Tracker
    • Corporate Pension Contribution Tracker
    • Pension Fund Returns Tracker
    • Pension Risk Transfer Database
  • Careers
  • Events
    • View All Conferences
    • View All Webinars
  • Print
Breadcrumb
  1. Home
  2. OPINION
March 18, 2019 01:00 AM

Debunking myths of a loan program for struggling multiemployer pension plans

David Blitzstein, Jeffrey B. Cohen, Gene Kalwarski and Judy Xanthopoulos
  • Tweet
  • Share
  • Share
  • Email
  • More

    The Rehabilitation for Multiemployer Pensions Act offers the best chance of preventing the insolvency of the 121 failing multiemployer pension plans covering 1.3 million workers.

    Unfortunately, special interest groups have targeted the bill in a bid to derail a federal rescue of troubled multiemployer pension plans.

    The bipartisan legislation, introduced by House Ways and Means Committee Chairman Rep. Richard Neal, D-Mass., and Rep. Peter King, R-N.Y., in January, is a rebranding of the Butch Lewis Act, introduced in 2017 by Sen. Sherrod Brown, D-Ohio, and co-sponsored by Mr. Neal.

    The essence of the legislation is a federal loan program that would be administered by the Pension Rehabilitation Administration, a new agency within the Treasury Department. Financially troubled multiemployer plans must not invest the loan proceeds in the stock market. They would be required to use the loans solely to pay benefits to retired workers. Pension plans must use the loans to buy annuities or low-risk investment-grade bonds matching the payout of benefits to retirees.

    Among the critics of the legislation are the Pension Analytics Group, which released a study in November 2018 that miscalculated the cost and impact of the Butch Lewis Act. Nonetheless, Pension Analytics conceded that the legislation would protect a million plan participants from plan insolvency, reduce the Pension Benefit Guaranty Corp. financial assistance by $62 billion and delay troubled plans' insolvency by an average of 16 years.

    The Pension Analytics study fails to apply PBGC financial assistance to plans that require assistance in addition to a PRA loan and ignores the anticipated recapitalization of the PBGC under the legislation to support necessary financial assistance to plans that require more than one loan.

    Finally, Pension Analytics fails to recognize the numerous mechanisms in the legislation that greatly reduce the likelihood of loan defaults.

    The Pension Analytics analysis also fails to factor in the concept of defeasement, a linchpin of the federal loan program. The legislation mandates defeasement, requiring the loan proceeds to be invested conservatively solely to meet the current retiree benefit obligations. The defeasement investment strategy uses low-risk investment-grade corporate bonds that are cash or duration-matched to pay the retiree pension obligations.

    The top part of the graph displays the current financial dilemma facing three of the largest and most troubled multiemployer plans — Teamsters Central States, Southeast & Southwest Areas Pension Fund; the United Mine Workers of America 1974 Pension Plan; and the Bakery & Confectionery Union and Industry International Pension Fund. The liabilities of the three plans total $45.4 billion, with retirees representing $29.2 billion. The lower part of the graph shows the plans' liabilities after the PRA loan and PBGC financial assistance have neutralized the retiree liability and the plans' negative cash flow.

    The PRA loans allow plans to restore financial solvency by separating the retiree liability from the plan and securing these obligations with low-risk assets. Moreover, the Treasury Department will review and oversee the federal loans.

    Finally, Pension Analytics ignored that the legislation strengthens plan solvency and reduces the likelihood of loan defaults by tightening withdrawal liability provisions and making it far more expensive for employers to withdraw. Under the legislation, employers would incur withdrawal liability as if a mass withdrawal had occurred if they withdraw from a plan within 30 years of receiving a PRA loan.

    Congressional staff worked closely with the Congressional Budget Office to write this legislation that would minimize the cost to the federal government while strengthening multiemployer plans and preserving these modest benefits for workers who earned them.

    It is evident that federal loan programs, as described by the American Academy of Actuaries in the May 2018 issue brief, offer a viable and fiscally prudent solution for underfunded multiemployer plans.

    David Blitzstein is principal at Blitzstein Consulting LLC, Jeffrey B. Cohen is partner at Bailey & Ehrenberg, Gene Kalwarski is CEO at Cheiron Inc. and Judy Xanthopoulos is principal, Quantria Strategies LLC.

    Related Articles
    Optimism sprouts over chances for retirement reforms
    House panel hears ideas for solving 'urgent' multiemployer crisis
    U.S. companies get green light on controversial pension payouts
    Legislation giving participants more say in MPRA benefit cuts reintroduced in S…
    Group disputes claims about RMPA analysis
    Senate confirms new PBGC director
    Multiemployer funding ratio slips in 2018, but many plans well-funded – Milliman
    Recommended for You
    POLL: Elon Musk's potential takeover of Twitter
    POLL: Elon Musk's potential takeover of Twitter
    POLL: Retirement provisions in SECURE 2.0
    POLL: Retirement provisions in SECURE 2.0
    POLL: Biggest concerns with crypto investments
    POLL: Biggest concerns with crypto investments
    Sustainability Strategies: Evolving Perspectives
    Sponsored Content: Sustainability Strategies: Evolving Perspectives
    Sponsored
    White Papers
    What a Fed pivot and ‘higher for longer’ mean for emerging markets
    A Guide to Home Equity Investments: The Untapped Real Estate Asset Class
    How to Modernize a School District Retirement Plan
    Q4 2023 Credit Outlook: Price Is What You Pay, Value Is What You Get
    There's More Than One Way to Be a Climate Investor
    Exploring the Commercial Application of Artificial Intelligence
    View More
    Sponsored Content
    Partner Content
    The Industrialization of ESG Investment
    For institutional investors, ETFs can make meeting liquidity needs easier
    Gold: the most effective commodity investment
    2021 Investment Outlook | Investing Beyond the Pandemic: A Reset for Portfolios
    Ten ways retirement plan professionals add value to plan sponsors
    Gold: an efficient hedge
    View More
    E-MAIL NEWSLETTERS

    Sign up and get the best of News delivered straight to your email inbox, free of charge. Choose your news – we will deliver.

    Subscribe Today
    October 23, 2023 page one

    Get access to the news, research and analysis of events affecting the retirement and institutional money management businesses from a worldwide network of reporters and editors.

    Subscribe
    Connect With Us
    • RSS
    • Twitter
    • Facebook
    • LinkedIn

    Our Mission

    To consistently deliver news, research and analysis to the executives who manage the flow of funds in the institutional investment market.

    About Us

    Main Office
    685 Third Avenue
    Tenth Floor
    New York, NY 10017-4036

    Chicago Office
    130 E. Randolph St.
    Suite 3200
    Chicago, IL 60601

    Contact Us

    Careers at Crain

    About Pensions & Investments

     

    Advertising
    • Media Kit
    • P&I Custom Content
    • P&I Careers | Post a Job
    • Reprints & Permissions
    Resources
    • Subscribe
    • Newsletters
    • FAQ
    • P&I Research Center
    • Site map
    • Staff Directory
    Legal
    • Privacy Policy
    • Terms and Conditions
    • Privacy Request
    Pensions & Investments
    Copyright © 1996-2023. Crain Communications, Inc. All Rights Reserved.
    • Topics
      • Alternatives
      • Artificial Intelligence
      • Consultants
      • Defined Contribution
      • ESG
      • ETFs
      • Face to Face
      • Hedge Funds
      • Industry Voices
      • Investing
      • Money Management
      • Partner Content
      • Pension Funds
      • Private Equity
      • Real Estate
      • Regulation
      • SECURE 2.0
      • Special Reports
      • Washington
      • White Papers
    • Rankings & Awards
      • 1,000 Largest Retirement Plans
      • Top-Performing Managers
      • Largest Money Managers
      • DC Money Managers
      • DC Record Keepers
      • Largest Hedge Fund Managers
      • World's Largest Retirement Funds
      • Best Places to Work in Money Management
      • Excellence & Innovation Awards
      • WPS Innovation Awards
      • Influential Women in Institutional Investing 2023
      • Eddy Awards
    • ETFs
      • Latest ETF News
      • Fund Screener
      • Education Center
      • Equities
      • Fixed Income
      • Commodities
      • Actively Managed
      • Alternatives
      • ESG Rated
    • ESG
      • Latest ESG News
      • The Institutional Investor’s Guide to ESG Investing
      • ESG Sustainability - Gaining Momentum
      • ESG Investing | Industry Brief
      • Innovation in ESG Investing
      • 2023 ESG Investing Conference
      • ESG Rated ETFs
      • Divestment Database
    • Defined Contribution
      • Latest DC News
      • The Plan Sponsor's Guide to Retirement Income
      • DC Money Manager Rankings
      • DC Record Keeper Rankings
      • Innovations in DC
      • DC Plan Design: Improving Participant Outcomes
      • 2023 Defined Contribution East Conference
    • Searches & Hires
      • Latest Searches & Hires News
      • Searches & Hires Database
      • RFPs
    • Research Center
      • The P&I Research Center
      • Earnings Tracker
      • Endowment Returns Tracker
      • Corporate Pension Contribution Tracker
      • Pension Fund Returns Tracker
      • Pension Risk Transfer Database
    • Careers
    • Events
      • View All Conferences
      • View All Webinars
    • Print