Gene Kalwarski, CEO, Cheiron, a leading pension actuarial firm has penned a response to Olivia Mitchell’s article regarding the multiemployer pensions crisis and the legislation that is currently before the House (H.R. 397). Gene, Peter Hardcastle and the team at Cheiron did the heavy lifting in completing the analysis to determine future solvency on each of the 114 Critical and Declining plans that existed in 2017 when the Butch Lewis Act was first presented to both the House and Senate. Gene’s response is excellent, and the complete article follows.
“Just days ahead of the House Ways and Means Committee’s planned markup of legislation that would offer government loans for struggling multiemployer pension plans, conservative academics have launched an all-out attack on the bill.
The legislation, The Rehabilitation for Multiemployer Pensions Act, is a rebranding of the Butch Lewis Act introduced in November 2017 by Rep. Richard Neal (D-Mass.) and Sen. Sherrod Brown (D-Ohio).
In a June 27 commentary in the Hill, Olivia Mitchell, an economist who teaches at the Wharton School, called the legislation “A step in the wrong direction.” Far from it.
Well before Neal and Brown introduced the bill, they asked the company where I am CEO, Cheiron Inc., to prepare actuarial projections to determine how effective the legislation would be in stemming insolvencies of struggling multiemployer pension plans.
Our projections – which have been reviewed by congressional staff, pension experts on Wall Street and other actuaries – show that the legislation would protect 1.3 million plan participants from insolvency, eliminate the need for as much as $65 billion in financial help from the Pension Benefit Guaranty Corp. and prevent insolvencies for at least 30 years.
Conservative economists maintain that the multiemployer pension crisis is more than 10 times larger than the $54 billion estimate, and that Congress would be wasting taxpayer money by lending money to struggling pension plans.
But even if all the troubled multiemployer pension plans were to become insolvent, their underfunding would be less than half that amount, according to their 2017 annual filings with regulators. That’s based on even more conservative assumptions than single-employer plans.
Conservative economists blame labor unions and employers for the financial troubles of multiemployer pension and for not contributing enough to multiemployer pension plans.
But during the 1980s and 1990s, it was the IRS tax code that limited employers’ tax-deductible contributions to multiemployer pension plans. Because the plans were constrained from contributing more to the plans while earning double-digit returns and generating large surpluses, they were forced to increase pension benefits or stop making contributions.
Conservative academics say that multiemployer pension plans pay far too low premiums to the PBGC compared with single-employer pension plans. But this ignores that the top PBGC guarantee for participants in single-employer plans is $67,295.40 a year or about five times as much as the $12,870 a year that full-career participants in multiemployer plans would receive.
Critics assert that while corporate plans that go out of business are required to cover pension promises out of company assets, bankrupt employers in multiemployer pension get a pass. But federal pension law lets corporate pension sponsors use Chapter 11 of the Bankruptcy Code to offload pension obligations on the PBGC, as hundreds of companies have done. Multiemployer plans don’t have this option under pension law. When an employer contributing to a multiemployer goes bankrupt the remaining employers and, ultimately, the participants are saddled with its unfunded liabilities.
Conservative critics argue that the Butch Lewis Act would make the multiemployer pension crisis worse by allowing struggling plans to make new pension promises and leave taxpayers on the hook if they can’t repay the federal loans.”
Great job, Gene.
Why were companies “forced to increase pension benefits or stop making contributions”? Couldn’t companies keep contribution more without the tax benefits. Couldn’t pension companies such as Central States LOWER their discount rate to lower the funding ratio to a more appropriate or reasonable level? Also, weren’t most of the retirees who are complaining now, beneficiaries of the pension increases up to this point?