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On The Multi-Employer Pension Bailout, Is Half A Loaf Better Than None?


When last I updated readers on the American Rescue Plan multiemployer pension plan bailout, back in July, the PBGC had just issued its interim final rule, subject to a comment period, and had made the decision, reasonably enough, to interpret the law, well, by following the law — or, specifically, by following “the plain meaning of the statutory language” rather than “Congressional intent.” This meant calculating the money that eligible pension plans would receive by summing up the total contributions projected to be made to the plan over the next 30 years and the total benefits projected to be paid out over the next 30 years, and handing over a sum of money equal to the present value of the difference, calculated at a discount rate that’s more or less a corporate bond rate plus 200 basis points, with the requirement that it be invested in investment-grade corporate bonds.

All of this, again, is what the legislation specifies. Plan sponsors had argued that this is patently unreasonable, in two respects:

First, it means that current employees now paying into the plan, who will be collecting benefits beyond that 30-years-in-the-future mark, will not have a penny of assets set aside for their future benefits, as it will all go to fund current and near-term retirees, and,

Second, the mismatch in the discount rates mean that plan sponsors will not be able to use the bailout money to fill the gap completely, since the amount required will be calculated at a higher rather than plans will be able to achieve with the investment restrictions.

And they’re not wrong — this is a real problem. But the PBGC nonetheless does not have the authority to rewrite the law, so they didn’t. In the short term, this means that they essentially received half a loaf, and these plans will need to increase employer contributions, though not as much as otherwise (and presumably would also manage the investment restrictions by shifting more of their non-bailout-money assets into higher-risk, higher-return investments).

With this background in mind, here’s what happened next.

First, industry groups lined up to express concern about the decision — including the ERISA Industry Committee (ERIC), the American Academy of Actuaries, the National Coordinating Committee for Multiemployer Plans, and Albertsons Cos., a food retailer and former multiemployer pension plan participating employer.

The Academy wrote in its letter, among other concerns, that,

“Due to current, low yields on investment-grade bonds, many plans may not be able to attain a total return on plan assets of at least 5.5% . . . If investment returns on plan assets fall short of the interest rate used to determine the amount of SFA, the plan would fall short of its intended funding target. … In fact, many plans that receive SFA—especially those that are already insolvent or close to insolvency—are likely to exhaust their assets six to 12 years before 2051.”

In the meantime, the PBGC has started the process of reviewing applications for funds, with the first priority given to plans which are already insolvent or projected to become insolvent before March of 2022, and further tiers of priorities for plans with insolvencies projected one year out, plans which had previously implemented benefit suspensions, particularly large sized plans (e.g., Central States), and other categories. As of this writing, the agency has received 20 applications, with 70,000 participants, requesting a total of $4.7 billion, which is still a small fraction of the total amounts expected to be disbursed, estimated at $86 billion when the legislation was passed but revised to $97 billion by September, or, more precisely, $97 billion was the average of its stochastic projections, in which they likewise concluded there was a 15% chance the bailout could amount to $78 billion or less, and a 15% chance it could be $116 billion or higher.

And finally, the potential outcome of this bailout program has gotten the attention of the Financial Times, in an article in mid-December, which didn’t beat around the bush, stating that “the rescue is turning into a political and financial disaster.”

The Times’ take?

“Rather than specify the actuarial details of how the rescue would work, the congressional sponsors and the administration left this job to the experts at the Pension Benefit Guaranty Corporation, a US government agency. . . .

“the unions and employers who act as trustees for the multiemployer funds are probaby facing legal troubles if they accept bailout money. [According to the NCCMP,] ‘Trustees of such [troubled] plans who decide to take the SFA face the risk of litigation from active employees, while those trustees who elect not to seek SFA risk being sued by retirees.’

“In other words, what started as a programme to provide some free money for pension bailouts will start a generational war between active workers and retirees. Some of us believe such a war was coming anyway, and maybe the PBGC and its actuaries are right to formally declare hostilities.”

All this being said, it would seem there would be an obvious solution: add a fix of the program into the next “must pass” legislation, or perhaps into the bipartisan Secure Act 2.0. Regrettably, in none of the reading I have done on this matter does it appear that actually legislating a fix to the problem is under consideration.

As always, you’re invited to comment at!

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