There has been another article written by Rachel Greszler this one appearing in the Daily Signal that attacks legislative efforts to save struggling multiemployer pension plans. I have many issues with this article, such as the claim that H.R. 397, which is now before the Senate, would put taxpayers on the hook for $638 billion. That sum is a ridiculous exaggeration. That value is assuming that all multiemployer plans fail while using a risk-free discount rate to determine the potential unfunded liability.
She also claims “insolvent union pension plans would receive taxpayer dollars to invest in the stock market, as well as loans to cover their broken pension promises.” This is just not correct! Plans that are designated as in Critical and Declining status can file for a loan. The amount of the loan will be determined by the cost to defease all of the retired lives. The proceeds from the loan MUST be used to immunize those retired lives. The proceeds will not be used in a traditional asset allocation like the proceeds from pension obligation bonds (POBs). Plans are NOT allowed to play the arbitrage game between the interest rate charged on the loans and the targeted ROA.
I find it very funny that she can complain about the legislation’s $48 billion price tag spread over 10 years, but little is heard from her regarding the $1+ trillion deficits that the Republican Senate continues to create on an annual basis. Does she forget that the failure to provide this earned benefit will push most of these pensioners onto the Federal safety net? The cost of a pay-as-you-go safety net is far greater than providing a lifeline through a loan program in which nearly all of the plans are expected to repay the loan in 30 years. The original analysis done by Cheiron had only three plans needing additional assistance through the PBGC.
There are problems in how these plans have been managed over the years, but much of that has been the fault of the accounting standards that forced plans to operate in a certain way. For anyone who doubts this impact, I would encourage you to please read Ronald J. Ryan’s outstanding book, “The U.S. Pension Crisis”.
Unfortunately, we live with the consequences. However, we now must address this major problem, and the loan program within H.R. 397 is the very best plan to solve this crisis before roughly 1.3 million American workers find that the promise that they were given is totally empty!