Why must politicians always complicate a problem that has a rather simple solution? H.R. 397 passed the House with bipartisan support in July. Unfortunately, nothing has been done in the Senate to pass this important legislation needed to protect the promised retirements to so many hard-working Americans. Regrettably, we get a proposed piece of legislation from Republican Senators Grassley and Alexander, that takes the simple solution that addresses the needs of the roughly 125 Critical and Declining plans and proposes onerous changes to all multiemployer plans that might very well thrust a significant percentage of healthier plans into a funding crisis. Why? What is the ulterior motive?
As we’ve discussed, the current array of Critical and Declining plans have a significant negative cash flow. They need a lifeline, as these plans can not invest their way to solvency. H.R. 397 proposes a loan program that would force plans to calculate how much it would need to fully defease the plan’s current retired lives. They would then borrow the money through a government agency called the Pension Rehabilitation Administration (PRA). The retired lives are defeased, while the current assets of the plan and any future contributions would go to funding the future liabilities, interest payment, and the principal loan repayment (30-year maturity). The investing horizon has been dramatically lengthened providing for a much longer investment horizon for less liquid assets to capture the liquidity premium. Simple!
The roughly 90% of multiemployer plans that are not in C&D status would continue to operate under the current rules. Have they always done everything right – NO! But, we have an immediate need to fix those plans that are in dire straights so that roughly 1.4 million Americans don’t lose their economic freedom.
However, as we previously stated, Washington DC doesn’t like simple! Instead of focusing on the crisis at hand, Grassley and Alexander want to “fix” every plan, whether they need it or not. Instead of providing loans that would extend the viability of these plans by 30 years, they prefer to have these plans fail and ultimately become the responsibility of the PBGC. Since when are the Republicans the party of big government? Why on Earth do we want to make the PBGC more relevant, as opposed to permitting these plans to stand on their own?
Instead of a simple loan program, Grassley and Alexander are now proposing to partition orphan participants from active lives, significantly reduce discount rates for the calculation of plan liabilities, change the formula for withdrawal liability, dramatically raise costs by ramping up PBGC premiums, provide tax incentives for the adoption of Composite plans, and on and on and on… It certainly makes it seem as if they want to drive multiemployer plans out of business, whether it is healthy or not. This is not a solution. I would hope that members from both parties can see through this charade before the entire multiemployer pension universe is crippled. Enough for now.