How Is H.R. 397 A Bailout?

There has been an immediate and positive response to our most recent blog post titled, “Talk IS Cheap, Rep. Foxx”. One of our followers asked the following question: “If the U.S. Treasury borrows (by issuing long-term debt) the funds and then loans it to the pensions that need it (at a profit spread 25 bps > then the prevailing 30-year rate) how does this translate into a taxpayer bailout?” Good question. We are equally confused.

In the analysis conducted by Cheiron (a wonderful actuarial firm) of the 114 Critical and Declining plans that existed at that time, all but three of those plans were able to meet current benefits and future plan liabilities, the interest on the loan, and the balloon payment in year 30. To me, this translates into a loan similar to any bank transaction such as a mortgage. Why do members of Congress feel it is necessary to label this a bailout, especially when many of today’s members were quite supportive of the bank bailout in 2008 and in some other examples that pre-date the GFC.

Let’s all understand that the loss of the promised benefits will not only impact the participant who was expecting to receive their monthly retirement check, but the businesses that benefit from those checks being spent in local economies.  Furthermore, the significant loss in monthly income forces nearly 1 million additional Americans onto the social safety net. This is an outcome that I hope no one wants to witness.  The estimated cost to provide a lifeline to these struggling plans was roughly $35 billion.  As an FYI, the net interest profit for the U.S. Federal Reserve in 2018 was about $65 billion. In roughly 6 months, the pension crisis could be eradicated.

 

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