Butch Lewis Watch Installment #2
By Jonathan Kantor
On May 17, the Select Committee on Multiemployer Pensions held a two-hour hearing on the Pension Benefit Guaranty Association (PBGC). The sole witness was Thomas Reeder, the current head of the PBGC.
First, a little background. The PBGC was created in 1974 when Congress passed the Employee Retirement Income Security Act, ERISA, the purpose of which was to provide pension security to Americans. Pension security rested on two pillars. One pillar was the "anti-cutback rule" which provided that a pension already earned from past labor could not be cut. The second pillar was the PBGC, a Government sponsored insurer of last resort, which would step in and pay pension benefits if the pension plan became insolvent. The idea was that, as President Gerald Ford said when signing ERISA into law, “the retirement dollars will be there when they are needed.”
For multiemployer plans, these pillars have largely crumbled because the anti-cutback rule has been repealed and the PBGC’s multiemployer fund is nearly insolvent. The anti-cutback rule was repealed by Congress in 2014 with the passage of MPRA. MPRA says that with approval from the U.S. Treasury, trustees can cut back accrued pension benefits to keep multiemployer plans solvent. As for the PBGC, according to Reeder, there is now a 90% chance that the PBGC’s multiemployer fund will become insolvent by 2025.
In the May 17 hearing, Reeder indicated that the PBGC’s multiemployer fund would need an infusion of $16 billion to keep it going another 20 years. Lawmakers heard how the PBGC’s multiemployer fund has been undercharging premiums for decades, thus starving the PBGC of the funds it needs to pay out when pension plans get into trouble. There was consensus on the panel that the problems with the PBGC had to be addressed.
The panel then looked beyond the problems at the PBGC to how the multiemployer system as a whole could be fixed. As Congressman Norcross observed, even if the PBGC were healthy, it would pay a maximum of $12,870 per annum to plan participants, which is well under the poverty level. The panel generally felt that while fixing the PBGC was important, broader reforms must take place to address the multiemployer pension crisis in the country.
In the remainder of the hearing, lawmakers began discussing broader policy solutions. Senators Heitkamp (D-ND) and Manchin (D-WV) gave full-throated endorsements of the Butch Lewis Act. Senator Heitkamp emphasized that just like banks and auto manufacturers were helped in 2009, so the workers should be helped now. She emphasized that without meaningful Government assistance, the multiemployer pension crisis could impact entire communities across the United States.
Rob Portman (R-OH) echoed Heitkamp’s warning, saying that there could be a “contagion effect” if large multiemployer pensions become insolvent and that this could impact communities and the economy at large. Congressman Norcross (D-NJ) said the same thing.
The next hearing of the Select Committee will be in July.
The Butch Lewis Watch is a new blog, written by MPS legal counsel Jonathan Kantor, which will follow the Joint Select Committee on Solvency of Multiemployer Pensions and be an ongoing source of news and commentary on Congress’ effort to solve the multiemployer pension problem. Read the complete blog here.