Pension Bill Designed to Shore up Multiemployer Plans

The House is preparing to vote on a measure that could rewire a major part of the U.S. retirement finance system: H.R. 397, the “Rehabilitation for Multiemployer Pensions Act of 2019” bill.

The bill’s drafters want to provide financial assistance that the managers of the 1,400 multiemployer pension plans in the United States could use to transfer pension obligations to private insurers by purchasing group annuities. If the bill becomes law and works as the drafters predict, a new Pension Rehabilitation Administration (PRA) and Pension Rehabilitation Trust Fund could keep more than 1 million of the 10 million multiemployer pension plan participants from losing access to the benefits they were promised.

Here’s more detail on the legislation and the problem it is designed to solve:

The Multiemployer Pension Plan Problem

The Pension Benefit Guaranty Corp. (PBGC) is the federal agency responsible for insuring private pension benefits. Separate laws govern how the PBGC provides coverage for single-employer pension plans and for multiemployer pensions. Analysts say that the typical single-employer plan is reasonably well-funded, but that many multiemployer plans look shaky.

Members of Congress have been talking about the problem for years. They included a provision creating a Joint Select Committee on Solvency of Multiemployer Pension Plans in the Bipartisan Budget Act of 2018.

In April 2018, Ted Goldman, a pension actuary at the American Academy of Actuaries, told a hearing of the joint select committee that about 100 of the 1,400 PBGC-insured multiemployer plans appear to be likely to fail within the next 20 years, and that those plans now serve about 1 million participants and beneficiaries.

The PBGC has about $2.2 billion in assets available to support all multiemployer plan obligations, and it needs $67 billion just to support obligations to participants in the multiemployer plans that have already failed, Goldman said.

What’s in H.R. 397?

In January, Rep. Richard Neal, D-Mass., the chairman of the House Ways and Means Committee, introduced H.R. 397, which has been dubbed the Butch Lewis Act.

The bill would provide about $32 billion in multiemployer pension plan rehabilitation loans from 2020 through 2029. The bill would also provide about $39 billion in additional financial assistance over the same 10-year period. The bill classifies that assistance as loans, but the Congressional Budget Office (CBO) says that, under its rules, those payments count as a form of cash assistance, rather than as loans.

Multiemployer plan managers could choose between using the PRA loans to buy group annuities and creating their own bond portfolios. H.R. 397 would give managers a strong incentive to buy group annuities, by keeping managers that created their own portfolios under the oversight of the PRA. Managers that created their own portfolios would have to report on the performance of the portfolios every three years. The PRA could require them to take remedial action to cure any inadequacies.

H.R. 397 has attracted 209 co-sponsors, nine of whom are Republicans. Many are in the Northeast, but Rep. Jeff Fortenberry, R-Neb., and Rep. Bill Huizenga, R-Mich., are in the Midwest. H.R. 397 has already been approved by the House Education and Labor Committee and the House Ways and Means Committee. Members of the House Rules Committee are meeting at 5 p.m. EDT today to package the bill for floor action.

House leaders say on their House floor bill consideration website that they could bring H.R. 397 up for a vote on the House floor this week.

Objections to the Bill

H.R. 397 received many votes of support from Republicans at the House Education and Labor Committee, but it received no votes of support from Republicans at the House Ways and Means Committee.

Critics have argued that the current version of the bill is not really bipartisan, that it is not funded in a realistic way, and that the amount of assistance it would provide is too small.

PBGC figures show that multiemployer plans were just 43 percent funded, overall, in 2015, according to an analysis from Rep. Kevin Brady, R-Texas, that was included in the House Ways and Means Committee’s official report on the bill. Moreover, about 95 percent of multiemployer plan participants were in plans that were less than 60 percent funded. Brady said PBGC-insured multiemployer plans need about $722 billion to be fully funded.

“Committee Democrats are moving a partisan bill they know has no chance in the Senate,” Brady said.

Nevertheless, the fate of H.R. 397 is worth following. Even if it fails, the bill could end up shaping any multiemployer pension legislation that does become law.

From: ThinkAdvisor

Resources

• The House Rules Committee site for its H.R. 397 meeting, which includes links to several versions of the bill, is available here.
• A CBO analysis of the bill is available here.
• Joint Committee on Taxation analyses of two versions of the bill are available here and here.