Letter to Senators
Congress Must Solve the Multiemployer Pension Crisis -- Every American Worker Who Earned a Pension Through Hard Work Should Keep It, Without a Dollar in Benefit Cuts
[PLEASE READ THE INFORMATION BELOW AND THEN COMPLETE THE BLANK TEXT BOXES TO SEND A PRE-WRITTEN ELECTRONIC MESSAGE DIRECTLY TO YOU SENATORS]
In the decades after World War II, “multiemployer” pension plans
such as the GCC/IBT National Pension Fund (NPF) were sponsored and administered
by joint boards of trustees consisting of an equal number of both union and
company management trustees usually within the same or related industries and
a labor union. These funds are often referred to as "Taft-Hartley funds."
The Taft-Hartley name refers to the Taft-Hartley Act of 1947, also known as the Labor-Management Relations Act. The Act was passed by Congress to regulate organized labor practices and define standards for union pension and benefit funds. Taft-Hartley funds were typically the only way a small employer could provide comprehensive benefits to their employees in a cost effective manner, since such funds create cost-savings due to centralized administration and pooling of resources.
Printers, truck drivers, coal miners, carpenters, ironworkers, bakers, steelworkers, sheet metal workers, roofers, bricklayers, painters, musicians and many other American workers agreed to lower wages in return for their employer paying contributions into these plans and delayed immediate financial gain for the promise of a safe and secure retirement for themselves and their families. For decades, these plans offered working-class Americans a nest egg in their retirement.
But today, everything has changed. Many unionized industries have seen significant transformations over time. In some industries like the printing industry, the technological advances have resulted in a significant decrease in the number of workers needed to operate modern equipment and produce printed materials. Other industries have seen declines in the number of workers needed due to global competition, automation, or broad declines in the industry. In addition, much of the workforce has shifted to more non-union employees as a result of restructurings or regulatory changes. Such declines in the active workforce have resulted in a diminished economic base for collectively bargained employer contributions into these pension plans. Furthermore, the financial markets crash of 2008 dealt these pension plans a devastating financial blow.
Now, with pension plans in every state in the country in jeopardy, millions of retired workers are facing a financial nightmare – cuts to the hard-earned retirement savings they depend on to survive. If the pension plans are allowed to fail, not only will they no longer be able to pay promised benefits, but taxpayers could be at risk of having to pay billions when the Pension Benefit Guaranty Corporation (PBGC) collapses. The PBGC is the arm of the federal government that insures pension plans.
Workers and their families who rely on these plans would lose benefits earned over a lifetime of work through no fault of their own. The result is that the pensions of these workers could be cut down to the bone—putting their families’ financial security and future at risk.
A Better Deal to Save Our Pensions would:
1. Provide financing to put failing pension plans back on solid
ground to ensure they can meet their commitments to retirees today and workers
for decades to come.
2. Prevent a single dollar of cuts to benefits retirees have earned.
3. Put safeguards in place so pension plans remain strong in order to be there for today's workers when they retire.
Some of the nation’s largest multiemployer pension plans are on
the verge of collapse because they don’t have enough money to pay promised
pensions to retirees and workers for the reasons set forth above. These
multiemployer plans are paying out more money each year in pensions than they
are receiving through employer contributions and investment earnings.
The biggest of these financially troubled pension funds is the Central States Southeast and Southwest Areas Pension Plan (Central States) which covers approximately 400,000 active and retired Teamsters. It expects to run out of money in 2025. The GCC/IBT National Pension Fund is projected to go insolvent sometime between May 1, 2022 and April 30, 2023. Therefore, a fix is needed much sooner in order to bring these pension plans back to solid footing. These troubled pension funds are considered to be in either a “Critical and Declining” or “Critical” condition by the U.S. Department of Labor. That means that these plans are on a path to insolvency over the next 20 years.
All told, between 100 and 200 multiemployer plans could fail, many within the next 10 years. The retirement benefits of up to 1.6 million plan participants could be at risk. These workers, retirees, families and communities are at risk through no fault of their own. And the result of significant cuts to these pensions would be economically devastating. In 2015, multiemployer participants were paid $241 billion in wages and pension benefits and those participants paid over $35 billion in federal taxes and an additional $8.4 billion in state and local taxes.
The devastation would not stop there. The PBGC has an exposure of $59 billion and is itself projected to become insolvent by 2025. The Congressional Budget Office estimates that the cost of backstopping the PBGC should it fail will be $101 billion dollars over 20 years.
The Solution – A Better Deal to Save Our Pensions
House Resolution 397 – Rehabilitation for Multiemployer Pensions Act was passed by the House of Representatives on July 24, 2019 and similar legislation has been introduced in the Senate (S.2254) commonly referred to as “The Butch Lewis Act” would create a new office within the U.S. Treasury Department, which would be called the Pension Rehabilitation Administration (PRA). The PRA would allow pension plans to borrow the money they need to remain solvent and continue providing retirement security for retirees and workers for decades to come. The Senate companion bill, S.2254, is now before the Senate and now is a critical time for you to contact your Senators and urge them to support this legislation. To become law, the legislation must now be passed by the Senate and then the President must sign the legislation into law.
The money for the loans and the cost of running the PRA would come from the sale of Treasury-issued bonds to financial institutions. The PRA would sell Treasury-issued bonds in the open market to large investors such as financial firms. The PRA would then lend the money from the sale of the bonds to the financially troubled pension plans.
To ensure that the pension plans can afford to repay the loans, the PRA would lend them money for 30 years at low interest rates, around 3 percent. The 30-year loans would buy time for the pension plans so they can focus on investing for the long-term health of the plan, while the loans pay benefits owed to current retirees.
How does it work?
Pension plans borrow money from the PRA. They set that money aside and use it to purchase safe investments that will cover the cost of paying current retiree benefits each month. For example: annuities, cash matching with investment grade bonds, or duration matching with a suitable bond portfolio. Whichever approach is taken, retirees and their families are guaranteed their promised benefits and the loan proceeds may never be invested in risky investments.
While the funds borrowed from the PRA are being used to pay out retiree benefits, the underlying pension fund can focus on making smart investments to get back in long-term solvency.
In addition to prohibiting the borrowed funds from being used to make risky investments, the bill also requires plans that borrow money to submit reports to the PRA every three years to demonstrate that the plans are on track to getting back on solid footing.
How much is borrowed and on what terms?
Pension plans may borrow as much money as they need, as long as
they can demonstrate the ability to repay the loan. The interest will be
comparable to that of a 30-year Treasury bond. The rate may be slightly higher
in order to cover operating costs for the PRA.
During the first 29 years of the 30-year loans, the pension plans will pay only fixed interest rates on the money they’ve borrowed. In the last year, the pension plans will pay interest on the loans and repay all the money they borrowed.
Where does the money come from?
The money comes from the sale of Treasury-issued bonds to financial institutions. These PRA bonds will be fully backed by the Treasury. The PRA will not have trouble raising the money because investors want long term bonds that carry little risk.
What about plans that cannot borrow enough to cover the costs of paying for retirees?
In some cases, the loans will not be sufficient to cover the full cost of helping all financially troubled pension plans. Some Critical or Critical and Declining pension plans, including Central States and the GCC/IBT National Pension Fund, will likely need additional help. In those cases, the PBGC would step in to fill the gap between what the plan can borrow and the additional funding needed to meet obligations to retirees.
This would require Congress to provide funding to the PBGC. However, if nothing is done to bring these plans into solvency, the PBGC will already be on the hook for billions of dollars it cannot pay, taxpayers would be at risk for having to pay billions and the economy would be harmed immeasurably.
Under this legislation, the system will remain solvent. So please, enter your information in the text boxes on this page to send an immediate message to your Senators urging them to support this legislation. If you wish, you can revise the message any way you want.