WASHINGTON, D.C. – APRIL 14: Attendees rally on the West Front of the U.S. Capitol building with … [+]
Getty Images
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 JaneTheActuary.com!
I do not even know the way I ended up right here, but I assumed this submit was once good.
I do not know who you might be but certainly you’re going to a well-known blogger when you are not already.
Cheers!
Fantastic beat ! I wish to apprentice while you amend your website,
how can i subscribe for a blog web site? The account helped me a acceptable deal.
I had been a little bit acquainted of this your broadcast
offered bright clear idea
I’d like to find out more? I’d want to find out some additional information.
Wow, fantastic weblog structure! How lengthy have you been blogging for?
you make blogging look easy. The total look of your website is wonderful, as well as the content!
my web site … November Calendar Printable
Sweet blog! I found it while searching on Yahoo News.
Do you have any suggestions on how to get
listed in Yahoo News? I’ve been trying for a while but I never seem to
get there! Many thanks
Hi there, yes this post is genuinely pleasant and I have learned lot of things from it about blogging.
thanks.
It’s actually a nice and useful piece of info. I’m happy that you just shared this helpful information with us.
Please stay us up to date like this. Thank you for sharing.
You should take part in a contest for one of the most useful sites
online. I’m going to recommend this web site!
I simply couldn’t depart your web site before suggesting that I extremely loved the usual information an individual provide in your visitors?
Is going to be back often to check up on new posts
This article will show how evil russia is. 토토사이트
Russia needs to stop the war with ukraine
Very nice post. I just stumbled upon your blog and wished to say that I have
truly enjoyed browsing your blog posts. After all I will
be subscribing for your rss feed and I’m hoping you write again soon!
It is in reality a great and useful piece of info. I am happy that you
just shared this helpful info with us. Please stay us informed like this.
Thanks for sharing.
txyspl jmutzy voeign hiekbk qukgr vebolx
I wanted to thank you for this very good read!! I absolutely loved every bit of it.
I have you book marked to check out new things you post…
Way cool! Some very valid points! I appreciate you writing this
post and also the rest of the website is really good.
Sports betting. Bonus to the first deposit up to 500 euros.
sports betting
After looking over a handful of the articles on your
blog, I honestly appreciate your technique of blogging.
I book-marked it to my bookmark website list and will be
checking back in the near future. Please visit my web site as well and tell me
your opinion.
I am extremely inspired along with your
writing abilities and also with the format in your blog.
Is that this a paid subject matter or did you customize it your self?
Anyway stay up the excellent high quality writing, it is rare
to see a great weblog like this one today..
Hi there mates, how is everything, and what you wish for to say concerning this paragraph,
in my view its genuinely amazing in support of me.
What I can share with you are the common denominators that increase conversions through a forceful value
proposition and, more importantly how to weigh the value proposition more forcefully.
Having more people in your environment that have successfully hired an SEO specialist, will also take aay
thhe fear of the unknown. Every day, the search engine
processes over 2 billion search queries. http://Actionnews.ca/watch?v=wFqjXRuRWIM
Everything is very open with a precise explanation of the issues.
It was really informative. Your website is extremely helpful.
Many thanks for sharing!
I really like it when folks come together and share views.
Great site, continue the good work!
Appreciate this post. Let me try it out.
Take a look at my page เกร็ดความรู้
This website was… how do you say it? Relevant!! Finally
I have found something that helped me. Kudos!
I enjoy what you guys are usually up too. Such clever
work and reporting! Keep up the excellent works guys I’ve added you guys to blogroll.
great submit, very informative. I wonder why the other specialists of
this sector don’t realize this. You must proceed your writing.
I am confident, you have a great readers’ base already!
Appreciation to my father who told me about this blog, this
webpage is genuinely amazing.
Sports betting, football betting, cricket betting, euroleague football betting, aviator games, aviator
games money – first deposit bonus up to 500 euros.Sign up bonus
SexyPG1688 เว็บสำหรับเล่น บาคาร่า foxz หาเงินด้วยวิธีง่ายๆ แค่กดมือถือ Bacaratt Online.
Acquire the skills of trading and begin earning from $50 to
$5000 a day. The more you make, the greater our mutual gains.Copy Binary Options Trades