Pension insolvency crisis only grows as Congress sits on its hands

Earlier this year, Congress formed a joint select committee to address the looming insolvency crisis facing the multiemployer pension system. The stakes for this committee could not be higher. Failure to safeguard the multiemployer system poses an unacceptable economic risk and cost not only to the millions of workers and their families who paid into these pension plans over the lifetime of their careers, but also to the American taxpayer.

That is why the committee should utilize all the tools at its disposal to strengthen the multiemployer system, including reforming the Multiemployer Pension Reform Act (MPRA) and designing a loan program that is fiscally responsible, transparent, and accountable. The National Coordinating Committee for Multiemployer Plans (NCCMP), which I advise, has proposed such a loan program.

{mosads}This is the only approach that can successfully limit the amount of damage to multiemployer pensions, reduce the financial exposure and risk to taxpayers by hundreds of billions of dollars, and solves this crisis over the long run. This is the only approach that can safeguard the multiemployer system and pass Congress.

Private, employer-provided retirement plans form a cornerstone of our nation’s retirement system. Multiemployer pensions support millions of retirees and workers across multiple industries, including construction, food, healthcare, mining, trucking and retail. No state or region would escape unscathed if the system collapses.

But why should Congress intervene in a market-based, private retirement system?

Because the federal government created this crisis.

The multiemployer system has principally suffered from poorly designed federal laws and regulations. During periods of robust market growth, rather than build reserves for market downturns, plans were forced to increase benefits to avoid tax penalties imposed by the IRS. These misguided laws incentivized plans to pay out unstainable benefits. Unfortunately, ERISA also tied the hands of plan trustees, eliminating their ability to adjust these benefit commitments to maintain the solvency of plans.

In 2014, Congress passed MPRA to remedy these missteps. The law enabled plan trustees to adjust benefits to prevent insolvency, but the Treasury Department failed to enact MPRA as intended. Treasury rejected an application from the Central States Teamsters Pension Plan, the largest and most systemically important plan in the multiemployer system. That rejection and Central States’ impending failure now threaten the entire system, which includes 1,300 plans and 210,865 employers.

A series of unprecedented economic crashes, downturns in key industries, and the unfavorable demographics facing public and private pension plans have compounded these problems.

The crisis that government created now threatens the entire country as well. We all stand to lose if Congress allows the multiemployer system to fail. In 2015 alone, the multiemployer system provided $2.2 trillion in economic activity, supported 13.6 million American jobs, contributed more than $1 trillion to U.S. GDP, and paid $158 billion in federal taxes and $82 billion in state and local taxes.

Systemic failure imperils these economic contributions. And the human toll would be devastating. Workers and retirees who have worked for years, deferring wages to ensure a dignified and secure retirement, will be left with pensions worth literally pennies on the dollar and forced to rely on the social safety net. Business owners will also suffer devastating losses. Because employers often participate in several multiemployer plans, the failure of just one or two of the largest plans risks a catastrophic domino effect across the system — saddling employers with untenable liability. Some will be forced into bankruptcy or liquidation, laying off workers and placing additional fiscal pressures on federal, state and local governments.

It is incumbent upon Congress to act now. The joint select committee must correct MPRA, ensuring it serves as the solvency restoration tool that Congress intended. The committee must also authorize a loan program that provides the multiemployer system with the tools it needs to work through this crisis, particularly for plans that can no longer be saved from insolvency through MPRA alone. Structured properly, such a program can restore the solvency of at-risk plans and the Pension Benefit Guaranty Corporation (PBGC), the federal backstop for multiemployer pensions, while staying true to fiscally conservative principles — ensuring taxpayers are not left footing the bill.

In concert with NCCMP, the U.S. Chamber of Commerce recently released a set of principles to help guide the committee and Congress towards a solution to the multiemployer crisis. The principles recognize that financial assistance through loans is a necessary part of multiemployer reform, and all parties should contribute to the resolution of this crisis.

What does this mean in practice?

Only multiemployer plans that can demonstrate a fiscally sound path to solvency should be eligible. NCCMP’s proposal would not ask taxpayers to assume undue risk, minimizing the risk of loan default by segregating the loan account from plan assets and requiring eligible plans to use credible assumptions — including conservative assumed rates of return — that demonstrate their ability to repay the loan in full.

Congress should also ensure that all parties bear some of the burden. For the plans, this may be achieved by requiring benefit modifications or employer surcharges. For the federal government, this means authorizing the loan program and assuming some moderate costs. Compared to the other loan proposals under consideration, NCCMP’s approach is the only one that can work and is flexible enough to allow for Congress to make the policy choices that is its prerogative.

Ultimately, a loan program will be far less costly to taxpayers than a bailout. A reformed MPRA and a properly structured and implemented loan program can be effective tools, provided the committee and Congress act without delay. The longer lawmakers wait to act, the harder it will be for plans and the PBGC to recover. Congress must move swiftly to protect workers, retirees, employers and ultimately — taxpayers. The cost of inaction only grows the longer Congress waits.

Dr. Tom Coburn is a former two-term U.S. senator from Oklahoma and advisor to the NCCMP.