The Pension Bailouts Begin - WSJ

Photo: Getty Images/iStockphoto Democrats ...




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Getty Images/iStockphoto

Democrats left no liberal interest group behind in their $1.9 trillion spending bill this month. That includes private unions whose ailing multi-employer pension plans will get an $86 billion rescue. This is the first of many such air-drops to come.

It was perhaps inevitable that Congress would bail out multi-employer pensions for the Teamsters and other private unions after doing so for coal miners in 2019. But the Democrats’ spending bill does nothing to fix the structural problems that have made these union pensions funds so sick.

Multi-employer pension funds became common after World War II in industries like trucking, construction, manufacturing and retail. They allow employers with a common union to join together and offer collective pension plans. Labor and management collectively bargain benefits and contributions as well as jointly administer the plans.

Unions like the plans because workers continue to accrue benefits if they switch employers. If one business goes bankrupt, others must pick up the cost for worker benefits. Workers also don’t lose benefits—at least not immediately—if union-driven costs contribute to putting employers out of business.

But the plans are riddled with perverse incentives that make them risky. Employers award generous benefits and make paltry contributions so they can pay higher wages. Pension funds invest in riskier assets to achieve higher returns to support generous benefits and low contributions, but their investments often underperform. As a result, 430 or so multi-employer plans are now at risk of failing.

The federal Pension Benefit Guaranty Corp. (PBGC) insures pension benefits up to $12,870 annually for participants with 30 years on the job. But because more and more multi-employer pension plans over the years have collapsed, the PBGC is also now in imminent danger of failing, which would result in most retirees receiving less than $1,000 per year.

Believe it or not, Congress passed bipartisan legislation in 2014 to head off this tsunami. The Multiemployer Pension Reform Act allowed ailing plans to reduce benefits and make other changes to avoid insolvency. Twenty or so plans have taken advantage of the law’s flexibility, but most haven’t, betting instead on a bailout from Congress.

The Obama Administration also blocked benefit cuts by the Teamsters’ Central States Pension Fund, which is projected to fail in the middle of this decade. That fund’s liabilities could take down the PBGC too. The Democratic spending bill heads off this disaster by allowing the PBGC to make lump sum payments through 2025 that keep the sickest 185 or so plans solvent through 2051.

Yet it prohibits the PBGC from conditioning aid on reforms to governance, funding rules or benefit cuts. There’s also nothing in the law that forbids benefit increases. The upshot is that many of these bailed out plans may need another cash infusion not too many years from now. Other sick but not yet moribund plans will have little incentive to make reforms that could make them healthier.

The Congressional Budget Office projects this pension rescue will cost a cool $86 billion, but that’s merely the start. The 430 or so at-risk plans have some $300 billion in unfunded liabilities. Government unions in Illinois, New Jersey and Connecticut are also sure to cite the precedent to demand that their employee pensions be bailed out too.

Perhaps the only silver lining is that private employers can now more easily exit multi-employer plans and move to 401(k)s because their “withdrawal liability” will shrink due to the federal infusion into the funds. But, as usual, taxpayers are getting stuck with the bill.

Main Street: For criticizing H.R.1 as an “unconstitutional power grab,” Mike Pence is accused of spreading Donald Trump’s ‘big lie.’ Images: AFP via Getty Images/AP Composite: Mark Kelly

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