18 May 2018 Multiemployer Committee hearing focuses on PBGC, plan solvency Projections show the Pension Benefit Guaranty Corporation's (PBGC) Multiemployer Program is more likely than not to become insolvent by the end of FY 2025, absent changes in law, PBGC Executive Director Thomas Reeder told the Joint Select Committee on the Solvency of Multiemployer Pension Plans during a hearing on May 17, 2018. The Committee is charged with developing legislation by the end of November to address the multiemployer pension crisis, with the United Mine Workers of America and Central States plans among those closest to insolvency. Co-chair Senator Sherrod Brown (D-OH) said addressing the issue will require confronting the secondary crisis threatening the PBGC. As he did during the first public hearing last month, Senator Joe Manchin (D-WV), who has a significant mine workers plan presence in his state, said he was anxious to reach a solution. He said the Committee is four months into its work without "one agreed-on solution yet" and, while not knowing what kind of progress staff has made, there are only six months left to develop legislation that can be brought before the House and Senate. Senator Brown said in July, when the bulk of the Committee's hearings have concluded, members will have to start the process of negotiating a bipartisan solution to this crisis, and that staff has been making "major progress." The other Co-chair, Senate Finance Committee Chairman Orrin Hatch (R-UT), said in an opening statement that the Committee needs answers to some fundamental questions about the PBGC and an understanding of what those answers mean before considering any proposals to repair the multiemployer system. During his testimony, Reeder said lower funding levels in multiemployer plans reflect the less stringent funding rules than those for single-employer plans as well as financial, economic, and demographic factors. He described the President's FY 2019 Budget proposal to increase premium payments to the PBGC's Multiemployer Program by adding a variable-rate premium on unfunded benefits and an exit premium on companies that withdraw from multiemployer plans. Reeder emphasized that the PBGC benefit guarantees are much lower than the already-modest benefits promised to multiemployer plan participants and retirees. Rep. Phil Roe (R-TN) said options for addressing the issue are increased premiums, decreased benefits, increased return on investment, or a cash infusion. He asked about the Administration's Budget proposal, which Reeder said would raise $16 billion over the 10-year budget window and keep the PBGC's multiemployer program afloat for two decades. Reeder cast doubt on the potential for increasing return on investment of PBGC trust funds to help solve the problem. Senator Heidi Heitkamp (D-ND) said premium increases would not be sufficient to keep the Central States and Mine Workers plans from insolvency. Senator Brown also asked whether the Administration's proposal would do anything to prevent insolvency of the plans, and Reeder said it would not. Brown noted that the Butch Lewis Act of 2017 that would provide a loan program for multiemployer programs has significant support in the House but less in the Senate. Rep. Donald Norcross (D-NJ) emphasized the importance of providing loans to help the plans and the PBGC through the current crisis, but then changing funding rules to ensure that the problem would not happen again. Reeder agreed that only a cash infusion could save 'critical and declining' plans, and that any such approach would have to be accompanied by changes to the funding rules to prevent future crises. Senator Manchin said premiums are not going to solve the miners' problem, and the only way to address the issue is through a loan program and infusion of cash, noting that previous estimates showed $3 billion-$3.5 billion would be needed to save the miners' plan, which is a main accelerator for the PBGC multiemployer plan insolvency in 2025. He joined several Democratic panel members, including Senators Heitkamp and Tina Smith (D-MN), in expressing exasperation that the government "bailed everybody out" during the financial crisis in 2008, that under last year's tax bill "everyone got a benefit except the working people," and that if the government can come to the aid of every corporation surely it can come to aid of the people that built the nation. Senator Smith noted that the money spent on the tax bill tax cut would have paid for a multiemployer pension solution many times over. Senator Rob Portman (R-OH) drew attention to the "contagion effect" under which the failure of a multiemployer plan could cause failure of other multiemployer plans in which the affected employers also participate. Reeder's testimony said this situation would most likely occur as a consequence of the insolvency of a very large plan and, while the theory is untested, it seems plausible. During questioning from Senator Smith, Reeder said other dials aside from premium increases and loans to plans are increasing the guarantee level so that when a plan does fail reasonable insurance would be provided, and changing funding rules to make sure this doesn't happen again. Asked whether premium increases are sustainable for the businesses in the plans, Reeder said he believes so, though the increases may seem like a lot because multiemployer plans have been paying low premiums for a long time. There would be a sticker shock but premiums would go to a variable rate premium so they would only pay if underfunded, he said. Reps. Richard Neal (D-MA) and Bobby Scott (D-VA) were among panel members who quizzed Reeder on the impact of withdrawal liability in multiemployer plans and especially the 'last man standing' rule. The hearing followed President Trump's May 14 announcement of his intent to nominate, as a replacement for Reeder, Gordon Hartogensis, who the White House said is an investor and technology sector leader with experience managing financial equities, bonds, private placements, and software development. Some Committee members seemed to touch on this subject, with Senator Smith saying: "This is really complicated. It's really difficult … We need people giving us this information who know what they're doing and have a background in this area. And I would just like to thank you for your expertise in this area, if you get my drift." Senator Brown concluded the hearing by thanking Reeder for his public service and saying, "I would like to see you be there a lot longer, that's my own personal view anyway."
Document ID: 2018-1052 | |||||
