We are pleased to bring to your attention the fact that Congressman Richard Neal’s proposed legislation, H.R. 397 – Rehabilitation for Multiemployer Pensions Act – is getting support from members of both parties. In fact, there are currently 19 co-sponsors of this legislation, including 7 members from the Republican party. The legislation that will be considered seems to be getting a more favorable response this time around then those which were floated in the previous Congress (115th).
Obviously, we need to see significantly more support coming from the House, but it is a good start. We are at a point in time when further delays could be devastating to the future of many of the struggling multiemployer plans. As we’ve reported before, the universe of “Critical and Declining” (C&D) plans has already expanded from 114 to 121, and that was before the poor performance of markets during the fourth quarter.
There is no way that these C&D plans can earn their way to solvency given the significantly negative cash flow situations that these plans are in. The loan program that is once again being considered addresses the short-term liquidity needs while extending the investment horizon for the balance of the assets and future contributions to meet future liabilities, interest on the loans, and the balloon payment of the loan in year 30. They are a necessary bridge to future solvency. Please reach out to your representatives in both the House and Senate to garner their support for this critical legislation.
Vanguard Group predictd 5-10% market gains in the next 5 years. Under Butch Lewis, Central States indicated they had needed 20 to 25 billion up front. So with the market downturn in the 4th quarter, I’m sure a loan program under this pension rehabilitation bill woud not be enough, unless the loan was 50 to 100 billion. Bottom Line–the Senate is unlikely to pass this legislation as is. What is worse than hope—- delusional or false hope! I am already going to plan B or C and not relying on the government. Just my opinion—most active participants are going to have a MUCH worse retirement than the current retirees, in reguards to pensions. Have a nice day, Russ.
Good morning, Tom. I hope that you are doing well. The beauty of the loan program is that it extends the investing horizon to 30 years! You don’t have to worry about the next five years, as you now have the liquidity to meet the promised benefits. The fourth quarter will have hurt the funded status for many plans, which is why we need to get off the return rollercoaster and begin to derisk these C&D plans. I can’t argue with you regarding future retirees. Always happy to share my views with you, Tom.
How can you base a market turndown in the fourth quarter of 2018 the only benchmark on whether loan program will succeed? The market has gained about 300 pecent since the 2008 down turn and Dow is only one small indicator pension investments.Where did you get these figures that are three times what the CBO has estimated for all distressed funds to be about 34 billion.Keep in mind only 9-10% of MEP’s are in financial trouble and many of that percentage are many years in the future.The IRS has a lot to do with their stress. Care to commment on this anyone? Future retirees will not have a much worse retirement if accrual rates rise like they should and contributions also. Inflation although low will pick away at about 50% buying power every fifteen years. For retirees in all sectors especially for their benefit is fixed without COLA increases. Even pensions such as the NYSRF that have COLA the increases are minimal however help because they simply exist.
Good afternoon, Joseph. Thank you for taking the time to reach out to me. I’m confused about your comment regarding the fourth quarter. Where did I base anything on the fourth quarter return? I was very fortunate to be part of the presentation team to both House and Senate staff in April. Furthermore, I was involved in helping to shape the legislation with regard to implementation ideas, such as cash flow matching, etc. I believed in the loan program, and still do, long before there was an equity market correction late last year. The C&D funds are nearing insolvency. There is no way for them to be saved other than to infuse a significant sum of money to help them migrate through the next 10-15 years of steep cashflow calls. By providing loans, all but 3 are estimated by Cheiron to be able to repay the loan, interest on the loan, and future liabilities in thirty years without further PBGC assistance. There is no way that these plans can earn their way out of this trouble.