As regular readers of this blog know, Ron Ryan and KCS are intimately involved in helping craft one of three potential implementations for the Butch Lewis Act (BLA) loan recipients. Multi-employer pensioners are already facing an uphill climb with many of the “solutions” calling for potentially massive cuts to existing benefits. They certainly don’t need misinformation from the media adding to this burden.
In a recent article by Rachel Greszler, The Heritage Foundation, the author correctly highlights the fact that “a million or more workers and retirees now stand to lose a significant portion of their promised pension benefits.” Unfortunately, she goes on to say that the Butch Lewis Act (as well as other potential solutions) are nothing more than tax-payer bailouts. She estimates that these bailouts could amount to as much as $1 trillion. I don’t know where she has gotten this figure, but it is not close to reality.
First, Ms. Greszler defines the potential recipients of these loans as the entire universe of multi-employer plans totaling roughly 1,375 with a current unfunded liability of $500 billion. However, the Butch Lewis Act is only designed for those plans that are currently designated as “Critical and Declining” which number about 110. The total amount of underfunding for this cohort is roughly $70 billion. A far cry from the $500 billion that she highlights.
Furthermore, she claims that the $1 trillion figure is a possibility “because it would not only bail out all of the multi-employer pensions’ broken promises to date, but it would encourage private union plans – including responsible ones that haven’t broken their promises – to continue promising more than they can afford to pay, raising the taxpayers’ tab even higher down the line”. Not true!
Again, the BLA is only for those plans that find themselves in a difficult and deteriorating funded status at this time. Furthermore, any multi-employer plan that receives a loan provided by the Pension Rehabilitation Administration (PRA) is forced under the law’s provisions to make the annual required contributions (ARC), cannot alter the promised benefits either up or down, and must use the loan’s proceeds to defease all of the plan’s current retired lives. These requirements are key to ensuring good behavior on the part of the plan sponsors.
Given the author’s concern for the million or so union workers whose benefits may be trashed, she certainly doesn’t propose any solutions other than to say that a “bailout” is a horrible way to go. If these plans don’t receive assistance, they are likely to fail, placing a greater burden on the Pension Benefit Guaranty Corporation (PBGC), which is already financially troubled.
If pension benefits are slashed, how realistic is it that these retirees can reenter the workforce to make up for the lost benefits? We would say that it is very unlikely that a 70+-year-old will be able to find employment, which means that the country’s social safety net will have to make up the difference. Doesn’t that mean that the taxpayer is on the hook?
Retirement benefits stimulate economic activity, and usually on the local level. The loss of retirement benefits will have a direct impact on these economies. Also, these benefits are taxed, which helps pay for a portion of the loans. Doing nothing is not an answer. I applaud the effort of those individuals who are driving the Butch Lewis Act. I encourage everyone to reach out to your legislatures to educate them on the BLA and to gain their support. There are millions of Americans who need your support. Thank you!