CIO Magazine has published an article that cites the Congressional Budget Office (CBO) indicating that the proposed pension legislation “The Rehabilitation for Multiemployer Pensions Act of 2019” (H.R. 397) won’t be enough to protect and preserve all of the plans. In fact, a CBO “study projected that approximately one-quarter of the pension plans that would be eligible for loans through the bill would become insolvent over the next 30 years and would not fully repay their loans. For those plans that do repay their loans, the CBO projects that they will become insolvent within ten years of repayment.” What’s the issue?
At present, there are roughly 125 multiemployer pension plans that are defined as critical and declining. With no action, all of these plans are expected to become insolvent within the next 15 years. By providing loans to these struggling plans, we are extending the payment of benefits by 30+ years. If 25% fail to repay the loan in 30-years, so be it. We’ve renegotiated terms on a number of government-funded programs, why should this be any different.
The CBO estimated that the Pension Rehabilitation Administration (PRA), which would be established to issue the loans, would only have to provide $39.7 billion in funding. Seems like a drop in the bucket when compared to TARP. Furthermore, they estimated that only $7.9 billion would be returned. I’d love to understand the inputs that they used in creating this analysis. When Cheiron, a leading pension actuary, conducted their analysis on the original 114 plans, only 3 – the Central States, Coal Miners, and the Bakery, Confectionery, Tobacco Workers – would need extra support from the PBGC. In fact, the remaining 111 plans could meet current benefit payments, interest on the loan, future pension liabilities, and the balloon payment in 30-years while earning only 6.5% on their investments.
Given the modest cost of this loan program and the economic benefit of continuing to provide pension payments to nearly 1.3 million American workers, it seems like a no-brainer to me. What is the economic benefit? According to Congressional testimony, the “cost of doing nothing in terms of lost tax revenue and increased social safety net spending is estimated to be between $170.3 billion and $241.3 billion over the 10-year budget window, and between $332 billion and $479 billion over the next 30 years.”
So, please explain to me why we, as taxpayers, wouldn’t want to “invest” $39.7 billion in a loan program that has, in my humble opinion, a high degree of success, when not doing so would potentially result in a “loss” of nearly $500 billion in economic activity in the next 30-years? I would hope that ideology isn’t getting in the way of making a rational decision to finally tackle the pension problem that has existed for decades and one that will only get worse with the passage of more time.