On Senate Floor, Portman Discusses Consequences of Inaction on Multiemployer Pension Reform
WASHINGTON, DC — Today on the Senate floor, U.S. Senator Rob Portman (R-OH) discussed the current multiemployer pension crisis that threatens the retirements of millions of Americans, and the consequences of ongoing inaction. The federally run guarantor of those plans, the Pension Benefit Guaranty Corporation, is set to become insolvent within five years, further jeopardizing the retirement security of at least 1.4 million Americans.
Portman also underscored the need for any bipartisan multiemployer pension reform legislation to address both the immediate crisis with respect to the PBGC, and the longer-term structural issues that created the conditions for the persistent underfunding of multiemployer pension plans in the first place. He also emphasized that any solution to address the immediate crisis must involve a shared responsibility approach, with contributions from not just general public funds, but also employers and plan participants within the multiemployer pension system.
Transcript can be found below and a video can be found here.
“I’m here to talk about a complicated, but really important issue and it’s one that Congress and the administration needs to address before it results in a devastating financial impact on millions of retires, raises costs for thousands of businesses, some of which are going to go insolvent or bankrupt unless it’s dealt with, and it’s an issue that can harm the overall economy if it’s not dealt with. The presiding officer has been very involved in this issue and I hope others will bear with me as I talk about it because it is complicated, but it’s really important.
“I’m talking about multiemployer pension reform, and as anyone who has worked on this problem can tell you, it’s something that we cannot ignore. Briefly, the multiemployer pension plans consist of multiple different companies. Usually employees in a single union, they pool their assets together, they provide a defined benefit pension. That’s the old style pensions, a guaranteed pension, so-called, to covered workers and retirees. These plans are jointly administered then between the unions and the employers are trustees, who determine the benefits and the employer contributions based on a collective bargaining process and subject to whatever statutory funding requirements they are that we provide here in the U.S. Congress and through law. So, it’s a system of a lot of different employers coming together, providing a pension under one union, typically.
“This system now comprises over 1,400 plans covering 10.8 million participants and their families, but unfortunately, it’s on the verge of collapse. The system is underfunded by more than $638 billion, and that figure has probably increased significantly due to the coronavirus epidemic and the resulting impact on the economy. On top of that, the federal entity that insures these pensions – and you know pensions are sort of a guaranteed benefit, so called, but they’re guaranteed in the sense that they’re insured by a federal entity called the Pension Benefit Guaranty Corporation. That PBGC for the multiemployer programs is projected to become insolvent in less than five years. Over 1.4 million workers and retirees are in plans already in what’s called “critical and declining status,” meaning they are facing benefit cuts over 90 percent. So that’s a problem.
“This chart can kind of show it to you. These are the assets at the start of the year 2019, 2020, 2021. This is what happens, the assets go down, the liabilities go up. This is the financial assistance provided to the various plans. So as you can see, the green is only going to last until 2025 and again, with the new economic numbers, that will be exhausted even before that which creates a real problem for those plan participants, the retirees. For the companies, they’re going to have huge new liabilities and some of whom won’t be able to handle it, won’t be able to stay in business. And for our economy because that will then have a contagion impact on the entire economy.
“So those workers who are expecting to have a benefit because they’re still working and those retirees who are facing these cuts are looking to us to find a bipartisan solution to address this crisis that faces the multiemployer pension system and the PBGC. They are counting us to put in place common-sense reforms to ensure that the hard-earned pension benefits will be there for workers and retirees during their retirement. A lot of these workers will tell you, they didn’t take the pay increases or they didn’t take the health care benefits as high as they wanted in their collective bargaining because they bargained for this. Which was the hope of having a pension. A guaranteed defined benefit pension. And now they’re seeing the possibility that that could result in a 90 percent cut in their benefits.
“Over the past several years, we’ve been working on this. I’ve been involved with it. I’ve been working on solutions with the Finance Committee which is the committee here in the Senate that has responsibility for this issue. In 2018, so going back two years ago now, I was participating in hearings as a member of the Joint Committee on Solvency of Multiemployer Pensions Plans. It was a one year committee. It was House and Senate, Republican and Democrat. We were supposed to get to a solution for this problem before it gets worse and we spent countless hours trying to do that. I’ve spent countless hours in meetings with beneficiaries, retirees, spouses of theirs. Ohio is one of the states that is hardest it. And I’ve heard their stories about how years of mismanaged pension plans have put them on the hook for unthinkable cuts in the pensions that they just assumed were going to be there.
“Let me spell out how precarious this is for my home state of Ohio. We have more than 60,000 active workers and retirees in multiemployer pension plans at immediate risk of becoming insolvent. Probably more than any other state in the country. Many of these Ohio plans have already been forced to drastically reduce benefits, by the way, including the Iron Workers Local 17 in Cleveland, the Southwest Ohio Regional Council of Carpenters, and the Toledo Roofers Local 134. Some are already insolvent, like the Teamsters Local 416 of Cleveland Pension Fund. So for some, unfortunately, this insolvency has already happened. The Central States Pension Fund, which is the single largest plan that’s in this critical and declining status, is projected to become insolvent in 2025, the same time PBGC is because when it goes under, PBGC goes under. It’s that big. They have has 44,000 participants in that plan in Ohio, so again, more than any other state. The majority of Central States retirees are veterans, by the way, according to the National United Committee to Protect Pensions. They [in Ohio alone] receive about $360 million in annual benefits from their pensions and, by the way, that money goes right back into the economy. They spend it.
“Unfortunately, years of bad federal policy with respect to funding and withdrawal liability rules, losses on risky investments, and failure to take proactive action have brought many of these pension plans to the brink of insolvency. The result is that these hardworking Ohioans in Central States again face pension cuts over 90 percent if no action is taken. That’s unacceptable, we can’t let that happen. And by the way, it’s not just a retirement security issue, as I said earlier, – it’s a jobs issue. The multiemployer pension system consists primarily of smaller businesses, who face uncertainty and a higher cost of doing business due to liability they will face called the withdrawal liability. More than 200 small businesses are in Central States alone in my home state of Ohio. 200 businesses that face huge withdrawal liabilities, many of which are much bigger than the book value of the company. Meaning, of course, that they’re not going to make it.
“In fact, if a systemically important plan like Central States were to become insolvent, contributing employers face the risk of being assessed unplanned withdrawal liabilities that will result in a wave of bankruptcies and a contagion effect across the economy as plans with overlapping contribution bases also fail. So it won’t just be that plan, it’ll be other plans as well because the companies pay into different plans. Even if they are not assessed withdrawal liability, employers will be forced then to make contributions to an insolvent plan, making those companies not uncompetitive in the labor market. They won’t be able to pay their employees as much because they’re making payments into the insolvent plans.
“These jobs are essential to our economy, right now more than ever. Many of the current workers in the Central State Pensions Plan, as an example, are truck drivers. These are the very truck drivers who are keeping our grocery stores stocked. They are the supply lines running during the coronavirus crisis. They’ve put their health on the line for us — we need to do our very best to protect the pension benefits they have earned, rightly earned are going to be there for them. While these problems were well known before the current economic downturn, this slowdown is only going to accelerate the pension crisis in our country. As CBO, that’s the Congressional Budget Office here, non-partisan Congressional Budget Office, they projected in late April, the second quarter of this fiscal year is projected to mark the largest percentage drop in economic output recorded history, with GDP projected to fall 40 percent on an annualized basis. That has a real impact on these pensions. As chair of the Senate Finance Subcommittee with jurisdiction over these multiemployer pension reform, I’ve been working on this issue with Democrats and Republicans alike. And I believe a balanced, pro-growth solution to this problem is possible. I also know that it’s needed. As bad as the pension crisis is for these retirees we talked about, and for those individual plans, it also has a broader impact on our economy. So all of us should be interested in solving this problem.
“It won’t be easy, especially given the unprecedented health crisis we now face. But putting off this difficult work today means greater costs tomorrow. The costs compound, so it gets worse. The multiemployer program deficit is projected to rise significantly if we wait until this period. Around 2024 and 2025. Even if we didn’t have this pandemic, this is an issue we owe to our constituents to take proactive action. We have come some way on this project and we’ve made some progress over time. In 2018, Senator Sherrod Brown and his Co-Chair Senator Orrin Hatch, and myself put together a framework while serving on this Joint Select Committee on Solvency of Multiemployer Pension Plans. I think that framework can effectively address the crisis. We called it the bipartisan framework. It would have provided PBGC enough resources to prevent its own insolvency, and put in place structural reforms to the funding rules and the way plans are governed to ensure a long-term solution going forward.
“Unfortunately, the joint committee was not able to reach final agreement on the reforms and therefore we were not able to stabilize the PBGC and put it on a stronger financial footing. But I strongly believe that the mechanism to address the immediate crisis that’s in this framework, this bipartisan framework, still offers the right way forward for us to get this done. In fact, I’m pleased that there is a renewed interest in addressing this crisis using this framework right now. The House-passed HEROES Act – that’s the legislation the House passed to deal with the COVID crisis - includes a proposal to try to fix this problem, and again it’s a step in the right direction in that they have chosen to adopt the approach of partitioning at-risk plans to help address the immediate crisis. That’s the approach that we took. This is a step away from their previous plan in the House and among a lot of Democrats in the Senate — which employed a loan structure for all inactive liabilities and based on CBO analysis would not have prevented the PBGC from becoming insolvent. So this new structure makes more sense and it’s closer to the Senate bipartisan framework. The new House plan therefore costs a little less, and retirees also get more certainty from it. There are some flaws in the House Democrats’ approach that still make it a non-starter over here in the Senate.
“First, there’s no shared responsibility when it comes to strengthening the financial condition of the PBGC — it’s entirely relies on taxpayers. So $59 billion of taxpayer funds over the next ten years. Some on our side of the aisle of course find that to be a bailout by the taxpayers, when in fact there ought to be more shared responsibility. This is particularly important now, as there is more and more concern about the public money that’s being spent. Second, the House proposal includes no structural reforms whatsoever to the rules governing how multiemployer pension plans operate, how employer contributions are determined, and corrective actions that trustees can take to improve plan solvency and protect participants. What we don’t want to do is solve the problem with a Band-Aid and have the problem come back again. We want to get this right.
“The reforms have to address the underlying flaws in the system and ensure PBGC can function as a self-sustaining entity rather than a new line item in the federal budget funded by permanent entitlement spending. This has got to be something that solves the problem long-term. We can’t put in place a partial solution that will require Congress to come back again and again in the future. And unfortunately, the House Democrats’ plan fails to achieve this. In my view, any plan we make to reform the multiemployer pension system needs to adhere to three main principles. Number one, we do need shared responsibility to address the crisis. We should not pass a legislative solution where the bill is entirely footed by taxpayers. Employers and participants must share the responsibility of fixing this problem; not taxpayers alone, especially since 94 percent of taxpayers aren’t participating in this system. A recent poll by McLaughlin & Associates of 2,700 likely voters in Midwestern states found that 76 percent of voters support a shared solution based on a combination of financial contributions from employers, retirees, and taxpayers. A CBO 2017 Working Group Paper found that both various exemptions from government employer contributions and accounting standards used by multiemployer plans played a significant role in allowing PBGC to become insolvent. So both exemptions from the employers putting money in and the accounting standards are the reason, they say, that PBGC become underfunds. So greater employer contributions are part of getting these plans back on track.
“Second, I believe any solution must ensure sustainable solvency for the PBGC. Again this is important to ensure we’re solving this problem. Overall, premiums should be a significant contributor to the health of the PBGC, covering at least half of the cost of recapitalization. We also need our plan participants to pitch in in the form of solvency fees paid directly to PBGC, with a significant variable rate premium, by the way, we can make these solvency fees as low as 10 percent or maybe even lower. We need to think long and hard about the levels of shared responsibility that could include premiums imposed on workers, on unions and flat-rate premiums as well. These would be small contributions but significant in the sense that everybody would be participating. Everybody would do a little bit and the taxpayers would be asked to do a lot too, but the only way we can get the taxpayers to make a substantial contribution is to ensure that there is this shared responsibility.
“And third, any solution must ensure there’s sustainable solvency for the multiemployer plans into the future. Any bipartisan solution must include structural reform to the funding rules governing employer contributions to multiemployer plans so that Congress and the Treasury will not be regularly called up to bail out a large number of underfunded plans. Retirees need to know these plans are secured. This includes gradually phasing down the rate at which plans may value existing pension liabilities, which are promises to retirees that should be kept, but are being budgeted for through investments that the Congressional Budget Office says are high-risk. Without any rules on how these pension liabilities are valued, there is high risk. Here’s what the risk is now. Here’s the average multiemployer plan target rate of return. Here’s a conservative way to look at it which would the interest rate on 10-year Treasury. By the way the 10-year Treasury is now down to just about one percent so that’s done down even further. This gap is that high risk that the Congressional Budget Office is talking about. So there needs to be some solution here. I understand that this needs to phased in. It needs to be gradual, it needs to be reasonable but again we’ve got to ensure that retirees know that when they get into a plan and make contributions to a plan, it’s going to be there for them.
“The Senate Finance Committee published its own proposal in November which attempted to get at these two goals of addressing the immediate crisis through shared responsibility, and preventing a future crisis through reforms to the funding rules. This was a Republican plan put forward by Senator Grassley who spoke moments ago. That proposal is called the “Multiemployer Pension Recapitalization and Reform Plan.” It’s not perfect, but it’s worth emphasizing that the Trump Administration supports this proposal and put out a Statement of Administration Policy endorsing it, saying ‘We believe it has the potential to serve as a base for a long-term solution to the multiemployer pension crisis.’ I’ve talked with several people within the Administration and I think they are also committed to a bipartisan agreement in this Congress to try and solve this problem. Again, the plan put out by Senator Grassley and also Senator Alexander may not be perfect, but now you have two plans out there. Both of which use the same basic structure. And I think there’s an opportunity here for us to come together.
“Right now, I know some of my counterparts over in the House who worked on the multiemployer pensions proposal in the HEROES Act want to know who they should be negotiating with, because they’re not negotiating right now on how to find that compromise. Well, I would suggest talking with the Finance Committee. That’s where the jurisdiction is and that’s what the Administration has indicated as well. We’ve been working all year with the PBGC on a reasonable proposal that we believe will get support from the National United Committee to Protect Pensions, many of the Teamsters local unions, and employers who are trying to stay afloat right now.
“The Senate Finance Committee will continue to reach out to have a serious conversation with Democrats on both sides of the Capitol to help address the immediate crisis and ensure sustainable solvency for the multiemployer pension system. In order to reach an agreement on this issue, shared responsibility is necessary to make it work, in my view. To reiterate, we’re willing to put serious federal money on the table, taxpayer fund, and we’re willing to negotiate but it has to be a balanced approach.
“The time to act is now. The Senate Finance Committee has this common-sense proposal on the Republican side — again, vetted by the PBGC — that, while not perfect, is an interesting starting point for us to come together. The House has its own proposal that again has many similarities in terms of its structure. So let’s build upon those as Republicans and Democrats to ensure we can get our multiemployer pension system back in working order. We owe it to the retirees. We owe it to the workers and the participants in these plans. We owe it to the small businesses. Let’s get serious about this and ensure we can protect the retirements of hardworking Americans we represent. Taxpayers deserve proactive action now, and so do workers, and so do retirees. Let’s get it done.”