Bailouts for Pensions -- ‘Through No Fault of Their Own’

On July 18, former House Speaker John Boehner and former Rep. Joe Crowley appeared together on “Fox Business” to talk with Neil Cavuto about America’s failing multiemployer pension plans (video). Boehner said there are ten million folks enrolled in such pension plans, and Crowley spoke of a looming “crisis.”

On June 19, The Hill ran “Taxpayers, businesses will also lose if pensions go bust” by Bradley Blakeman, who claims America has upwards of 300 multiemployer pension plans in danger of failing:

This problem is unprecedented. As the U.S. Chamber of Commerce noted in a 2018 report on the topic, “the sheer number and size of plans headed toward [insolvency] during the next decade present the system with challenges of a size and scope never before seen.”

Employers cannot leave these plans without making massive payouts or declaring bankruptcy. The result is they remain on the hook for making payments for pensions likely to collapse anyway, putting them at a competitive disadvantage. And if the plan goes belly up? It could be even worse for companies, as they could be assessed an immediate withdrawal liability or subjected to minimum funding rules that could drive them out of business.

That one group of companies (the employers paying into the pension plans) could be held responsible for the failure of another group of companies (the pension plans) doesn’t seem fair. If employers have been dutifully paying into the pensions, then haven’t they been upholding their part of the deal? Mr. Blakeman, however, urges enacting H.R.397 -- Rehabilitation for Multiemployer Pensions Act of 2019.

On April 30, Real Clear Markets ran “Federal Lending to Insolvent Pension Plans Is Code for Bailout” by Alex Pollock, who disapproves of H.R. 397. Pollock gets to the heart of what this bill, if enacted, would mean:

The bill’s primary sponsor, Congressman Richard Neal (D-MA), who is Chairman of the Ways and Means Committee, has stated, “This is not a bailout.”… “The federal government is simply backstopping the risk.”  But the federal government is already backstopping the risk of these pension plans through its implicit guarantee of the Pension Benefit Guaranty Corporation (PBGC)… The PBGC’s insurance program for multiemployer pension funds is itself broke… So it is not a surprise that by the time you get to the last paragraph on the last page of the bill, you find it also includes a bailout of the PBGC’s failing multiemployer program…

In theory and under its Congressional charter, the PBGC was supposed to be a financially stand-alone, actuarially sound insurance company, not guaranteed by the government and never needing any appropriated funds.  As its annual report says, “PBGC receives no funds from taxpayer dollars.”  Not yet, anyway.  The PBGC has always had an implicit guaranty from the U.S. Treasury, and we can once again observe that implicit government guarantees tend to become bailouts.

In short, the bill is a convoluted way to a simple end: to have the taxpayers pay the pensions promised but not funded by the multiemployer plans.

On July 25, the Heritage Foundation ran “The Rehabilitation for Multiemployer Pensions Act of 2019: No Solution to America’s Pension Crisis” by Rachel Greszler, and it is easily the most detailed of the analyses herein. It should be read by all who think of themselves as “fiscal hawks.” Although the report is lengthy, Greszler begins it with a short summary and with “key takeaways”:

The House of Representatives just passed [on July 24] a bill that would bail out private union pension plans by giving them taxpayer dollars to invest in the stock market, as well as loans to cover their broken pension promises, which amount to $638 billion.

Given the very long bull market in stocks, one might wonder how any pension plan could be going insolvent. One multiemployer plan, the Central States Pension Plan, has been in the news since 2015, and is expected to go belly up in 2025.

In December, Forbes ran “Understanding The Central States Pension Plan's Tale Of Woe” by Elizabeth Bauer, whose byline tells us “I write about retirement policy from an actuary's perspective.” Bauer’s analysis of Central State’s woes points to several things, among them the 1980 deregulation that left the pension plan with fewer employers contributing, and organized crime, “the Mob” (italics added):

So could Central States have managed to stay solvent, even financially healthy, had it not been beset by corruption and by a faulty benefit formula?  The plan -- as with all such plans, because of the laws governing these plans -- still lacked a crucial element that's the norm in the Dutch equivalent to multi-employer plans, the ability to adjust benefits as needed as soon as it becomes clear that the existing benefit formulas are unsustainable, rather than waiting until the plan's solvency is at stake or hoping that funding deficits can be made up for with favorable investment returns or larger contributions from the next generation.

If pension plans in the private sector are failing, then what about pensions for public employees? In April of 2018, Investor's Business Daily ran an editorial headlined “Bankrupt Public-Employee Pensions: The Next Big Financial Crisis?” The editorial looks at the mess state and local governments have gotten themselves into, which some believe the federal taxpayer should bail out:

The standard answer provided by progressive politicians and labor unions is “bite the bullet.” “You made the deal with the workers,” they say, “so now live with fewer services and much higher taxes as a result.”

Another is to just have the federal government bail out insolvent pensions. Will states that took care of their pension problems really want to pony up for those that didn't?

Surely that’s a rhetorical question. What the editors at IBD recommend is a move away from “defined benefit” plans to “defined contribution” plans. Amen to that. But pensioners will balk at such a move, and they’ll invoke the contracts that protect them but which have put the innocent taxpayer on the hook.

If pensioners and unions are not willing to renegotiate and accept reduced benefits, then let the pension plans fail. We shouldn’t expect federal income taxpayers to yet again bail out ill-conceived systems, nor should we accept that pensioners be kept “whole” by printing the money for bailouts. Congress has already run deficits that add up to $22T, and now that Nancy Pelosi is again Speaker of the House, the deficit for 2019 is expected to top a trillion.

The rhetoric, however, is that pensioners have come to their sorry situation “through no fault of their own” (Crowley used this trope on Fox). Well, then whose fault is it? We need to become immune to such tripe. Folks have known about these problem pension plans for years, so all along the pension plans were banking on government bailouts.

It’s said that Congress cannot bind a future Congress. If so, then how can voters bind future voters, and create crippling liabilities for them? Congress is the party that needs to “bite the bullet.” Pelosi’s crazed Democratic Congress has gone beyond “moral hazard” and careened pell-mell into the realm of moral lunacy.

If Democrats can “forgive” trillions in federally-guaranteed student loans, then bailouts for pension plans won’t cause them to bat an eye. If America still has a free press, every Democrat vying for office will be asked what they’d do about the pension plans hurtling towards insolvency.

Jon N. Hall of ULTRACON OPINION is a programmer from Kansas City.

On July 18, former House Speaker John Boehner and former Rep. Joe Crowley appeared together on “Fox Business” to talk with Neil Cavuto about America’s failing multiemployer pension plans (video). Boehner said there are ten million folks enrolled in such pension plans, and Crowley spoke of a looming “crisis.”

On June 19, The Hill ran “Taxpayers, businesses will also lose if pensions go bust” by Bradley Blakeman, who claims America has upwards of 300 multiemployer pension plans in danger of failing:

This problem is unprecedented. As the U.S. Chamber of Commerce noted in a 2018 report on the topic, “the sheer number and size of plans headed toward [insolvency] during the next decade present the system with challenges of a size and scope never before seen.”

Employers cannot leave these plans without making massive payouts or declaring bankruptcy. The result is they remain on the hook for making payments for pensions likely to collapse anyway, putting them at a competitive disadvantage. And if the plan goes belly up? It could be even worse for companies, as they could be assessed an immediate withdrawal liability or subjected to minimum funding rules that could drive them out of business.

That one group of companies (the employers paying into the pension plans) could be held responsible for the failure of another group of companies (the pension plans) doesn’t seem fair. If employers have been dutifully paying into the pensions, then haven’t they been upholding their part of the deal? Mr. Blakeman, however, urges enacting H.R.397 -- Rehabilitation for Multiemployer Pensions Act of 2019.

On April 30, Real Clear Markets ran “Federal Lending to Insolvent Pension Plans Is Code for Bailout” by Alex Pollock, who disapproves of H.R. 397. Pollock gets to the heart of what this bill, if enacted, would mean:

The bill’s primary sponsor, Congressman Richard Neal (D-MA), who is Chairman of the Ways and Means Committee, has stated, “This is not a bailout.”… “The federal government is simply backstopping the risk.”  But the federal government is already backstopping the risk of these pension plans through its implicit guarantee of the Pension Benefit Guaranty Corporation (PBGC)… The PBGC’s insurance program for multiemployer pension funds is itself broke… So it is not a surprise that by the time you get to the last paragraph on the last page of the bill, you find it also includes a bailout of the PBGC’s failing multiemployer program…

In theory and under its Congressional charter, the PBGC was supposed to be a financially stand-alone, actuarially sound insurance company, not guaranteed by the government and never needing any appropriated funds.  As its annual report says, “PBGC receives no funds from taxpayer dollars.”  Not yet, anyway.  The PBGC has always had an implicit guaranty from the U.S. Treasury, and we can once again observe that implicit government guarantees tend to become bailouts.

In short, the bill is a convoluted way to a simple end: to have the taxpayers pay the pensions promised but not funded by the multiemployer plans.

On July 25, the Heritage Foundation ran “The Rehabilitation for Multiemployer Pensions Act of 2019: No Solution to America’s Pension Crisis” by Rachel Greszler, and it is easily the most detailed of the analyses herein. It should be read by all who think of themselves as “fiscal hawks.” Although the report is lengthy, Greszler begins it with a short summary and with “key takeaways”:

The House of Representatives just passed [on July 24] a bill that would bail out private union pension plans by giving them taxpayer dollars to invest in the stock market, as well as loans to cover their broken pension promises, which amount to $638 billion.

Given the very long bull market in stocks, one might wonder how any pension plan could be going insolvent. One multiemployer plan, the Central States Pension Plan, has been in the news since 2015, and is expected to go belly up in 2025.

In December, Forbes ran “Understanding The Central States Pension Plan's Tale Of Woe” by Elizabeth Bauer, whose byline tells us “I write about retirement policy from an actuary's perspective.” Bauer’s analysis of Central State’s woes points to several things, among them the 1980 deregulation that left the pension plan with fewer employers contributing, and organized crime, “the Mob” (italics added):

So could Central States have managed to stay solvent, even financially healthy, had it not been beset by corruption and by a faulty benefit formula?  The plan -- as with all such plans, because of the laws governing these plans -- still lacked a crucial element that's the norm in the Dutch equivalent to multi-employer plans, the ability to adjust benefits as needed as soon as it becomes clear that the existing benefit formulas are unsustainable, rather than waiting until the plan's solvency is at stake or hoping that funding deficits can be made up for with favorable investment returns or larger contributions from the next generation.

If pension plans in the private sector are failing, then what about pensions for public employees? In April of 2018, Investor's Business Daily ran an editorial headlined “Bankrupt Public-Employee Pensions: The Next Big Financial Crisis?” The editorial looks at the mess state and local governments have gotten themselves into, which some believe the federal taxpayer should bail out:

The standard answer provided by progressive politicians and labor unions is “bite the bullet.” “You made the deal with the workers,” they say, “so now live with fewer services and much higher taxes as a result.”

Another is to just have the federal government bail out insolvent pensions. Will states that took care of their pension problems really want to pony up for those that didn't?

Surely that’s a rhetorical question. What the editors at IBD recommend is a move away from “defined benefit” plans to “defined contribution” plans. Amen to that. But pensioners will balk at such a move, and they’ll invoke the contracts that protect them but which have put the innocent taxpayer on the hook.

If pensioners and unions are not willing to renegotiate and accept reduced benefits, then let the pension plans fail. We shouldn’t expect federal income taxpayers to yet again bail out ill-conceived systems, nor should we accept that pensioners be kept “whole” by printing the money for bailouts. Congress has already run deficits that add up to $22T, and now that Nancy Pelosi is again Speaker of the House, the deficit for 2019 is expected to top a trillion.

The rhetoric, however, is that pensioners have come to their sorry situation “through no fault of their own” (Crowley used this trope on Fox). Well, then whose fault is it? We need to become immune to such tripe. Folks have known about these problem pension plans for years, so all along the pension plans were banking on government bailouts.

It’s said that Congress cannot bind a future Congress. If so, then how can voters bind future voters, and create crippling liabilities for them? Congress is the party that needs to “bite the bullet.” Pelosi’s crazed Democratic Congress has gone beyond “moral hazard” and careened pell-mell into the realm of moral lunacy.

If Democrats can “forgive” trillions in federally-guaranteed student loans, then bailouts for pension plans won’t cause them to bat an eye. If America still has a free press, every Democrat vying for office will be asked what they’d do about the pension plans hurtling towards insolvency.

Jon N. Hall of ULTRACON OPINION is a programmer from Kansas City.