At Multiemployer Pension Hearing, Portman Addresses the Impact on Employers & Workers of Projected PBGC Insolvency in 2025
WASHINGTON, D.C. – At the Joint Select Committee on Solvency of Multiemployer Pensions Plans hearing this morning, U.S. Senator Rob Portman (R-OH) expressed concern about how the projected insolvency of the Pension Benefit Guaranty Corporation (PBGC) in 2025 under current law would negatively impact workers and our economy. Portman is hopeful that his colleagues on both sides of the aisle can come together to achieve a comprehensive and permanent solution that protects earned pensions, protects taxpayer dollars, prevents the insolvency of the PBGC, and alleviates pressure on employers.
The Joint Select Committee on Solvency of Multiemployer Pension Plans consists of 16 members of Congress: four Republicans and four Democrats in the both the House and Senate. The deadline for the Committee to vote on a statement of findings and recommendations, and propose legislation to carry out these recommendations, is November 30th. In order to successfully report out legislation, a minimum of five out of the eight members of both parties must support it.
Excerpts of his questioning can be found below and a video can be found here.
Portman: “Your testimony today was very sobering because it lays out clearly the huge challenge that we face. You were just talking back and forth about when PBGC might go insolvent and it sounds like 2025 is the year that you’ve kind of focused on. I understand that there might be some changes that will push that a little forward or a little back, but that’s only seven years from now. And that’s PBGC insolvency, which is sort of the most dramatic of the potential problems that we face, and to me the drastic cuts in the earned pensions. Again, you’ve talked a lot about that today and what that is, but if you go insolvent it’s about a 90 percent cut to the Central States pension fund, the teamsters, is that about right?”
The Honorable W. Thomas Reeder, Director of Pension Benefit Guaranty Corporation: “Yes.”
Portman: “And then the impacts to the broader economy. Central States has said the insolvency of its fund alone would result in less than half of the promised full benefits and, again, if 400,000 Teamsters see the PBGC go under in seven short years then it’s about a 90 percent cut is that right?”
Mr. Reeder: “Yes.”
Portman: “And how about the mine workers? As I understand it there are about 76,000 mine workers who would lose on average about 21 percent of their promised benefits if their plan goes insolvent. And of course, much deeper cuts if PBGC goes under, what would it be for the mine workers if the PBGC runs out of money?”
Mr. Reeder: “They would be cut down to about the same level.”
Portman: “About the same as the Teamsters?”
Mr. Reeder: “Well not percentage wise because their benefits are lower but the dollar amount would be cut down to the same amount.”
Portman: “Pretty modest pensions there with mine workers—average of about $600 a year right?”
Mr. Reeder: “Very small. The retirees are averaging lower than the actives, the actives would suffer more because their benefits are richer.”
Portman: “Active about 10,000 and retirees about 100,000 mine workers?
Mr. Reeder: “That sounds right”
Portman: “It’s upside down. That’s a big problem, and already, again, their benefits are very modest. Then there’s probably more than 100 additional multiemployer plans that are at risk, right? In addition to those two big ones?”
Mr. Reeder: “130.”
Portman: “And so, I don’t think most of my colleagues in the broader Congress are focused on this yet, but these numbers we’ve got to get out there and talk about them. Could you talk a little about the cost to the government in ensuring guaranteed financial assistance payments the longer we wait? In other words, for the government and I would say to the taxpayer, what’s the danger in waiting?”
Mr. Reeder: “We would just have to raise the same amount over a much shorter period of time. Right now we’re talking about $16 billion over 10 years.”
Portman: “And that’s just PBGC?”
Mr. Reeder: “I thought that was your question, but just to keep PBGC afloat, and the longer you wait the more compact that number will be.”
Portman: “So the $16 billion over 10 years is your calculation? And you’re saying if we were to wait a couple of years, we’re going to have more requirements in shorter period of time.”
Mr. Reeder: “And a shorter period of time to ramp up to the higher premiums.”
Portman: “Can you talk for a second about the contagion effect? I do have employers come to see me quite often very concerned about the impact on the solvency and if there were an insolvency by one of the big plans, certainly by PBGC, the possibility that their liability would be such that they would become bankrupt. We understand that and a lot of small businesses in Ohio are very concerned about that. Could you talk a little about a broader contagion on the economy and what do you think would happen based on your experience?”
Mr. Reeder: “We don’t have a lot of experience with big plans going under.”
Portman: “There’s actually never been anything like this ever in history, but let’s assume that we do not act and we allow the status quo to continue because we have gridlock here, we can’t get anything done, we can’t figure out a solution, all the answers are tough. And we end up with a situation where these plans go insolvent but also PBGC goes insolvent, what’s the impact on the economy?”
Mr. Reeder: “Well as I mentioned earlier, I think there will be very dire consequences for the communities where most of these people live. I do believe there is a possibility of contagion infecting other plans that are much more healthy. We can’t measure that yet and we’re working on that.”
Portman: “But talk about that, what does contagion mean?”
Mr. Reeder: “Contagion, normally here when people use it in context of the multiemployer world, is when a plan goes under but its contributing employers also contribute to other plans. There is a hypothesis that if a plan goes under and incurs mass withdrawal liability that puts those companies under, that that could affect the health of many other plans. And this is particularly true in the teamster world.”
Portman: “So let’s be specific, when the contractors were in this week talking about infrastructure, I asked them about pensions. Some of these contractors have as many as five different multiemployer plans. They may have a plan with the carpenters, they may have a plan with the teamsters, they may have plans with other operators, and you’re saying that if one the big plans goes under, let’s say the Teamsters plan, that company would not be able to make its premium payments to the other plans as well and the contagious issue is that there’s contagion with these other plans. Is that accurate?”
Mr. Reeder: “Well that’s the hypothesis. The one big variable is that a lot of these plans, such as 707, will not actually terminate and will not actually trigger mass withdrawal liabilities and employers will just keep contributing to the plan. It’s a little bit sad because they’re contributing to an insolvent plan, but it doesn’t put the employers under. I would suspect that many of the plans that go under in the future, especially the big ones, would be hard pressed to terminate and declare a mass withdrawal. So that’s the big variable in measuring how serious the impact is.”
Portman: “I think the broad impact, that’s the bigger issue we have to talk about too. As bad as it is for these retirees and for these individual plans it also has a broader impact on our economy, and not just the local communities that will obviously be affected but also the larger economy.”