Without Proactive Reforms, a Funding Deficiency Crisis Could Bankrupt Many Small Businesses in the Central States Pension Fund

WASHINGTON, D.C. – At the Joint Select Committee on Solvency of Multiemployer Pensions Plans hearing this afternoon, U.S. Senator Rob Portman (R-OH) expressed concern about how the pending insolvency of the Pension Benefit Guaranty Corporation (PBGC) could harm employers in the Central States Pension Fund and even result in contagion across the multiemployer system if the Committee fails to pass proactive reforms to address the immediate crisis. Under current law the PBGC is projected to run out of money in 2025, but uncertainty over rising withdrawal liabilities and future minimum required contributions is already affecting many small businesses, thereby constraining the labor market and economic growth. Portman believes that both sides of the aisle must 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: “I’m going to first talk about something general, which is there’s been discussion here when I was here earlier and even in my absence when I went to vote about who’s for what and you’re for loan programs or not.  And I just hope we don’t take things on and off the table. I think we need to keep everything on the table at this point. We have a huge problem ahead of us, and I know there’s been discussion about having a hearing here where we talk about solutions and I’m for that but I want to be sure that we have the data to be able to do it. So I would hope that if we have a hearing about solutions, that we have the data and information that we need, particularly an analysis from PBGC and from CBO on the options. A lot of us have requested that for that last several months and we still don’t have the numbers that we need to be able to make important and informed decisions. 

“Ms. Wong, I want to ask about the rules here and one particular one that troubles me, which is the convoluted rule that could actually result in hundreds, maybe even thousands of employers, particularly small employers, going bankrupt if this isn’t addressed. That’s what you talked about a little in your testimony, the uncertainty regarding minimum funding considerations. We talked in the last hearing about this and we talked about the fact that employers in healthy plans have got to meet their minimum required contributions every year based on new promises that they’ve made to new employees, promises they make to current workers particularly in addition to accrued deficiencies they have in the plan’s funding standard account. But once that plan goes into critical status that changes doesn’t it? I think it’s something to focus on in terms of the law, maybe an inadvertent but a potentially negative consequence because then the trustees are required to come up with the rehabilitation plan which can include exempting them from needing to contribute the required contributions, at least under normal accounting standards. Additionally, employers have the excise tax liability enforcing payment of these minimum required contributions waived as well.  So once you go into that status and employers from Central States, my understanding is that employers are currently paying less than half of what their minimum required contributions are, as an example – at least what they would be doing under normal accounting standards. Once that plan becomes insolvent it might no longer technically be in critical status, right? What happens there? It’s unclear to me looking at the legal part of this, the actual statutory language, what happens with the excise tax then? 

“We asked the Joint Tax Committee this in anticipation of this hearing. We’ve heard that Treasury has never issued guidance on this issue, the statute’s ambiguous, and I think it’s enormous uncertainty and potential for catastrophe for a lot of businesses. You noted that a multiemployer plan must satisfy certain code provisions, the rehabilitation plan, and you said that if a multiemployer plan fails to make scheduled progress under the rehabilitation plan for three consecutive plan years or fails to meet the requirements applicable for plans in critical status within the rehabilitation period for excise tax purposes, the plan is treated as having a funding deficiency. Let’s translate this a little bit just for our purposes today. It looks to me like once an insolvent plan can’t show improvement or meet rehabilitation plan requirements once Central States becomes insolvent, doesn’t that mean that employers would have to meet their minimum contribution requirements and possibly pay excise taxes?” 

Ms. Aliya Wong, Executive Director of Retirement Policy, U.S. Chamber of Commerce: “And that’s what the law says. The purpose of the rehabilitation plan was to allow and give plans time, and employers time, to make those plans whole again and make them solvent. The concern is that, again, we were involved with PPA and making that happen, we didn’t foresee what would happen in the time before that so the thought wasn’t given to what would happen if there was an insolvency at the PBGC, what would happen if there was a major plan insolvency that would impact those rehabilitation plans or the entire system like we’re facing now. So I think it was an oversight in terms of how those rules work together. In the report we issued today that is what we point out, that legally there is the ability for the IRS and the PBGC to come in and re-impose those minimum funding standards in the excise tax. If it will happen we don’t know.” 

Portman:Aren’t you really saying that you’re hoping that the IRS does not enforce the law? That they don’t read the letter of the law, which would require massive contributions and the potential insolvency of hundreds of businesses, just in Central States as an example?” 

Ms. Wong: “We think it’s unclear and that they can definitely come in and assess it but it is unclear on how or if or when they can come in and do that.” 

Portman:Mr. Langan, how would uncertainty regarding the possible funding deficiency crisis affect the mass withdrawal?” 

Mr. Chris Langan, Vice President of Finance, UPS: “A mass withdrawal is defined. It is not insolvency that creates a mass withdrawal, it’s when all the employers leave or substantially all the employers leave, or it can be triggered by the trustees making that decision.” 

Portman: “But this could be a result right?” 

Mr. Langan: “Yes, it could. What would happen, in essence, that a lot of folks are concerned about is that people will start leaving. They’ll see that there are no benefits for their participants that are in the plan, they’ll see that there is no hope and that this plan is going under and they will start heading for the exits.” 

Portman: “Which would lead to the meltdown of the entire multiemployer system, probably.” 

Mr. Langan: “Yes.” 

Portman: “Anyway, I think it is something that we are going to have to address as part of whatever solution we come up with, certainly at least adding clarification to it.” 

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