WSJ Highlights AWF’s Efforts in the Ongoing Pension Bailout Battle
The following article was published by the Wall Street Journal May 28, 2010:
WASHINGTON—U.S. lawmakers are laying the groundwork for a possible federal bailout of some faltering pension plans that are jointly run by companies and unions.
The effort reflects a worrisome new problem in the nation's troubled retirement-savings system: the grim financial condition of such pension plans, known as multi-employer plans. They are common in the hotel, construction, trucking and other industries, and cover about 10 million workers, or almost one in four workers who have a private pension.
Many multi-employer plans are struggling after years of financial hits and relatively light regulation. In the past two years, almost 400 plans have announced they are in bad condition, according to lawmakers.
In response, some lawmakers are pushing a plan that would provide federal aid to a few of the ailing pension funds. But some conservatives and anti-union groups oppose the aid effort, arguing it could lead to a broader taxpayer bailout of the whole class of pensions, costing tens of billions of dollars.
A 2009 study from ratings firm Moody's Investors Service estimated that the country's largest multi-employer plans have long-term deficits of about $165 billion. Some employer groups that are supporting efforts to help the plans question whether that estimate accurately reflects the government's potential exposure, however.
At a Senate hearing Thursday on the matter, Sen. Mike Enzi (R., Wyo.) termed the possibility of a broader taxpayer bailout "extremely dangerous." While expressing concern for workers, Mr. Enzi added: "We have to ensure the taxpayer is not on the hook."
Legislation sponsored by Sen. Bob Casey (D., Pa.) would provide federal financial assistance to a few of the more troubled multi-employer plans, including a Teamsters Central States fund and another Teamsters pension plan in western Pennsylvania. Labor officials said another 10 to 20 smaller plans also could benefit, though they would add relatively little to the proposal's cost.
Mr. Casey said his approach is not a federal bailout. He said troubled plans taking advantage would have to pay the first five years' worth of retiree benefits themselves.
His bill would make a federal agency, the Pension Benefit Guaranty Corp., responsible for the longer-term costs, and would cost taxpayers an estimated $8 billion over the next decade. It would cover workers in the plans whose employers have gone out of business. It also would boost benefits available to affected retirees to about $20,000 a year. Currently, when the PBGC helps a beneficiary of a multi-employer plan, the benefits are limited to $12,870.
A separate provision moving through Congress would buy time for struggling private pension plans through accounting changes that would let them spread recent losses over longer periods. That provision is part of a bigger economic-relief package sitting in Congress.
Although the outlook for Mr. Casey's proposal is uncertain, Congress likely will be forced to address the problem soon. The Moody's study estimated that multi-employer plans in the construction industry are only about 60% funded, with long-term liabilities of $158 billion versus assets of $85.5 billion. In the transportation industry, including many Teamsters plans, the overall funded status was 58.6%.
Multi-employer plans sprang up in industries where workers shifted jobs frequently and employers were typically small—hotels, retailers, trucking and construction firms. In recent years, multi-employer plans have been hurt by changes in the U.S. economy, such as deregulation of trucking, as well as by the financial crisis of 2008 and other factors.
Many employer groups are supporting lawmakers' efforts. A letter on Thursday from a wide array of employer groups, including the U.S. Chamber of Commerce and a number of construction and transportation groups, encouraged lawmakers to "continue to work…to find appropriate solutions. … Without a real resolution to this problem, more employers will be forced into bankruptcy and more workers will be left without a secure retirement."
A number of conservative groups, including the Alliance for Worker Freedom and the Competitive Enterprise Institute, wrote in a letter to lawmakers this week: "Using taxpayer funds to pay for private pensions would be a first" for the federal government.
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