As the Super Bowl approaches, is the NFL lining up for a pension bailout?

As the Bengals and Rams prepare for the Super Bowl, the NFL may be lining up for a super pension bailout.   

The American Rescue Plan provides taxpayer cash to certain multiemployer pension plans, which are co-sponsored and managed by unions and employers. Democrats refused to accompany the bailout with even cosmetic reforms, let alone the fundamental overhaul needed to protect workers, retirees, and (now) taxpayers, including accurately measuring liabilities. 

In 2019, the House passed a multiemployer bailout bill (that did not become law) with generally similar eligibility criteria except that eligibility was to be frozen on the date the law was enacted. Even that window left time for plans to game their way in. The 2021 law is much worse, allowing plans to become eligible by deliberately becoming more underfunded even after the law is enacted, including by retroactively increasing benefits. Democrats rejected an amendment to prevent this. 

Among eligibility criteria is that for 2020, 2021 or 2022 a plan is less than 40 percent funded, active workers are less than 40 percent of total participants and the plan is in critical status — usually called the red zone. The Biden administration unilaterally expanded eligibility so a plan can meet different prongs in different years. 

IRS form 5500 filings from 2019 and 2020 show the NFL multiemployer pension plan recently reported its 2020 funding level dropped to 61 percent from 90 percent a year earlier. Actives are just 16 percent of total participants, representing serious trouble for an underfunded pension needing new contributions from workers to pay retirees. Although the plan’s reported funding is higher than 40 percent, that is under its assumed 7.25 percent rate of return. The plan is only 26 percent funded (increasing its underfunding for 2020 by $3 billion to an all-time high of $7 billion) on a fair market value basis, using Treasuries to discount liabilities, which applies for bailout eligibility purposes. This should not be surprising given that the NFL is counting new pension promises at one-fifth of their cost as measured for bailout eligibility.   

All the NFL needs to score taxpayer funding is to get into the red zone for 2022. The zone rules, enacted in 2006 at the behest of plans and their union and employer sponsors, are another key reason multiemployer plans are so underfunded. Instead of providing accurate measurement and funding of liabilities, the “reform” effectively eliminated required contributions, by deeming plans claiming they can’t meet required contributions within five (later extended to 10) years to be in “critical status,” waiving required contributions for such plans. This replaced the very sensible prior rule (still applicable to single-employer plans, which have stricter requirements) requiring plans to make required contributions or terminate. Predictably, multiemployer underfunding skyrocketed from $201 billion in 2006 to $757 billion in 2018. Instead of reconsidering this “reform,” Democrats made it a benchmark for bailout eligibility. 

Perhaps in order to meet the criteria of the promised bailout, the NFL retroactively increased benefits in 2020, helping boost its existing liabilities by an astonishing 50 percent. As a result, the NFL did not meet its required contributions, even using the 7.25 percent assumption. For 2020, the legal fiction of double-counting past contributions exceeding the minimum as part of plan assets (and also as a “credit balance” to satisfy future required contributions) kept the NFL out of the red zone. But the NFL tore through the credit balance at a pace that would eliminate it in 2026, putting the plan on track for the red zone in 2022. Even a 2031 projection from the NFL might suffice, but that would depend on the resolution of a sloppy statutory ambiguity, likely by the courts. 

The NFL’s plan year starts in April so its zone status for 2022 is unknown, but it still has a few plays left on the clock to score, and the law effectively allows it to move the goalposts while controlling the yardstick with the option of again increasing benefits. Under the convoluted bailout law, plans must use previous assumptions unless they are “unreasonable,” in which case the government must accept the new assumptions unless those are “unreasonable.” In 2021, the NFL tripled payments to its actuary, Aon, who fled to the United Kingdom in 2012 to escape President Obama’s punitive tax code and may be protected from the Organization for Economic Cooperation and Development’s proposed new international taxation rules (championed by President Biden) through the U.K.’s carveout for financial services. Appallingly, Democrats specifically prohibited the government from imposing any bailout conditions on plan governance, such as reviewing actuarial and other fees, which are to be paid by taxpayers – rejecting an amendment to remove the prohibition. 

In the recent filing, Aon changed plan assumptions, increasing liabilities by $360 million. Will the government argue those assumptions, or any Aon might subsequently make in order to get into the red zone, are unreasonable? Democrats basically handed the taxpayer checkbook over to their union allies and told them to write checks to themselves and their actuaries. 

The bailout may set a troubling precedent for state and local government plans, which are underfunded by trillions because of similar flawed practices. The administration has already increased the estimated cost to $97.2 billion, up 13 percent from the congressional score months earlier, but we won’t know the final cost, or whether the NFL will have the audacity to request a bailout, until 2025, the application deadline.  

The NFL increasing pensions for retired players may be appropriate, if funded by the NFL. But a bailout that may force taxpayers, who had no role in creating this mess, to pay wealthy NFL players pensions, promised by even wealthier owners, should cause Americans to sack other social schemes to spread around the wealth Democrats are still chasing this year. 

Aharon Friedman is a former senior advisor for tax policy at the U.S. Treasury and former senior tax counsel at the Committee on Ways & Means.