We continue to see on a weekly basis opinion pieces deriding attempts to rescue “critical and declining” status multi-employer defined benefit plans. Here is another one from Tom Schatz that appeared in the January 3rd edition of The Hill. The author goes as far as comparing any future bailout of pensions to the sub-prime crisis that led to the great financial crisis, fearing that taxpayers will once again have to bail out a failing institution.
We don’t see it that way. In fact, we believe that it is imperative that these plans be rescued, as millions of U.S. workers are counting on the promised benefits to fund their retirements. Furthermore, these workers have contributed to this future benefit through deferred wages. Does the author not realize that with failure comes the need to support all of these workers through very expensive Federal and state social safety nets?
The best proposal that we have seen (The Butch Lewis Act) provides low-interest rate loans to the multi-employer defined benefit plans that are currently the poorest funded (critical and declining status). The proceeds from the loans must be used to immunize all of the retired lives so that those benefits are absolutely secured. The remaining assets in the plan will be used to meet future liabilities, as well as the repayment of the loan in 30 years.
By taking care of all of the retired lives, each plan has bought time for the remainder of the assets to outperform liability growth. In the process of securing current retirement benefits, the pension funds are far less likely to need assistance from the PBGC that is currently in no position to support these funds.
Our economy has chugged along with <3% annual growth since 2005. We need growing consumer demand to stimulate economic activity. The failure to support millions of U.S. workers will not do anything to provide them with the financial independence that they need to remain active consumers. Wake up, folks! Pension benefits are critically important to the future of our economy, especially as our labor force continues to age.
These are well-deserved benefits and are by no means hand-outs. Let’s stop with the pension envy that exists throughout the private sector and start to think of ways to increase the number of participants who have access to DB plans so that everyone benefits from the enhanced economic activity, including the tax-payer!