Compliance May 15, 2019

Congress Called (Again) to Get Serious About Union Pension Crisis

Apart from discussing the RESA legislation, witnesses and Senators at a Finance Committee meeting spoke about the pressing need to address severe funding shortfalls faced by some union pension plans.

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During a meeting of the Senate Finance Committee on Tuesday, Committee Chairman Chuck Grassley said that passage of the Retirement Enhancement and Savings Act (RESA) remains a top priority for himself and Finance Committee Ranking Member Ron Wyden during the current Congress.

While RESA was the main focus throughout the hearing, other topics beyond that particular piece of legislation repeatedly came up and underscored some of the other areas where Senators said they soon hope to make progress. For example, during her questioning of the experts, Michigan’s Democratic Senator Debbie Stabenow stepped back from RESA to urge the Committee to find some real urgency on the multiemployer union pension crisis. Senator Mike Enzi, R-Wyoming, agreed, noting that 150 such plans could become insolvent within a matter of years.

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“We need a hair on fire moment about the union pension issue,” Stabenow said. “In my lifetime, I cannot believe that we are seeing folks who have lost or will lose a pension benefit they have paid for over decades. This is a whole generation of union workers who are in danger of not receiving the benefits which they have been promised, and which they have paid for.”

Anyone who has listened in on the various public meetings held by the Joint Select Committee on the Solvency of Multiemployer Pension Plans will have noticed the dire testimony given time and again by various stakeholders in the multiemployer pension space. In previous testimony on this matter and in comments made this week, witnesses suggested that less than 1% of multiemployer plans are 100% funded when using reasonable actuarial assumptions. Others noted that, just 10 years ago, the generally agreed upon figure was that multiemployer pension plans as a whole carried a funding gap of about $200 billion. Today, it is more like a $680 billion shortfall, and growing.

Hearing witness Joan Ruff, board chair of the AARP, was asked by Senator Stabenow to elaborate on the issues her organization’s members have discussed in terms of union multiemployer pension funding gaps.

“When it comes to the union multiemployer pension crisis, there is so much concern from our members voiced over the funding situation,” Ruff said. “We beg Congress to come up with a working solution, and soon. Benefit cuts have already happened and those who are already retired do not have any easy way to make up for a loss in anticipated income.”

Both Senators and hearing witnesses pointed to the fact that even optimistic investment return assumptions have limited impact on the projected insolvencies among these plans, primarily because stressed union pension plans’ net cash flow positions tend to be significantly negative. This fact is supported by recent Society of Actuaries research showing multiemployer pensions commonly have negative cash flows equal to 10% or more of their total asset pool, meaning that unless these plans’ assets earn at least 10% per year, the assets will continue to decline. A subset of plans have negative net cash flows around 20% or more of their assets, demonstrating that outside financial intervention will clearly be necessary to save such plans.

During the hearing, Senator Rob Portman, R-Ohio, predicted that, unless significant Congressional action is taken within five years, it is possible that the multiemployer pension funding crisis could cause important insurance programs at the Pension Benefit Guaranty Corporation (PBGC) to fold entirely. It is even possible the full PBGC could face financial hardship thanks to the union pension funding shortfall. 

“I’m not just talking about an impact on union plans, but on all pension plans that work with the PBGC,” Portman said. “The two most troubled funds right now are the mine workers plan and the central states teamsters plan. Those two plans going under would cause the PBGC multiemployer insurance program to go under, based on all the analysis we’ve seen. We need to continue the work of the Joint Select Committee and ensure this does not happen.”

Another Senator who spoke during the hearing on the topic of multiemployer pension funding challenges was Sherrod Brown, D-Ohio. “No discussion of retirement security is complete without addressing the workers who spent their lives doing the backbreaking work of ironworking, truck driving, baking, mining, and more,” Brown said. “They followed all the rules but they are now facing the prospect of seeing their pension plans collapse. They aren’t asking for a bailout but for what they have already earned by giving up wages for future retirement security—something we want everyone to do when they have the opportunity. We need to solve this problem before the end of the year.”

Compliance May 15, 2019

RESA, RSSA, SECURE Act and More Pile Up in Congress

Sources say the SECURE Act could pass the House this month, potentially setting the stage for a reconciliation process that could bring together common elements of multiple pending bills.

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Members of the House and Senate have put forward many ideas for modernizing the laws governing retirement plans, but so far they have failed to achieve the sweeping reform that has been discussed over multiple Congresses.

During a meeting of the Senate Finance Committee on Tuesday, Committee Chairman Chuck Grassley said that passage of the Retirement Enhancement and Savings Act (RESA) remains a top priority for himself and Finance Committee Ranking Member Ron Wyden.

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In his comments opening the meeting, Grassley called on the House to send its version of RESA to the Senate for reconciliation, but at this juncture, the most likely route for RESA’s many provisions to make it into law could instead be via the SECURE Act, which has already been approved by the House Ways and Means Committee and mirrors much of RESA.

As shown on the House’s legislation tracking website, the lower chamber’s version of RESA was last addressed on February 6th, when the bill was referred to both Ways and Means as well as the Committee on Education and Labor. The referral was open-ended and will last “for a period to be subsequently determined by the Speaker, in each case for consideration of such provisions as fall within the jurisdiction of the Committees.”

Encouraged by the fact that the SECURE Act zipped through the Ways and Means Committee in less than a week, sources engaged in retirement industry lobbying say they cautiously expect full House passage of the SECURE Act potentially within the month. If or when the SECURE Act advances through the House in this session, it would then remain to be seen whether Republican leadership in the Senate would agree to work within the SECURE Act’s framework, as opposed to the RESA legislation. 

While the path ahead remains uncertain, industry advocates say the opportunity for rectifying one or more these bills is supported by the fact that both the SECURE Act and RESA (and various other bills pending in Congress) enjoy broad support from the retirement plan and asset management industries—and from more grassroots advocates, including independent small-business owners, members of the gig economy and part-time workers. However, another variable thrown into the mix this week was the reintroduction by U.S. Senators Rob Portman, R-Ohio, and Ben Cardin, D-Maryland, of the Retirement Security & Savings Act (RSSA), which they describe as a broad set of reforms designed to strengthen Americans’ retirement security. Like the SECURE Act, the bill echoes key provisions of RESA.

Industry Urges Progress, Not Just More Bills

In public comments issued this week, retirement industry providers say they support any sensible legislation that will make it easier for more employees to access high-quality retirement plans at work. They urge the Senate and House to take advantage of the fact that a critical bipartisan mass of lawmakers has publicly and consistently voiced support for bills like RESA and the SECURE Act.

“We commend Senators Portman and Cardin for introducing a bipartisan bill that includes so many common-sense changes to current law that improve individuals’ ability to save for retirement,” said Robert Higginbotham, head of global distribution at T. Rowe Price.  “Among many other things, it encourages sponsors to adopt automatic contribution plans with higher contribution rates, simplifies disclosures, and allows individuals saving through large 403(b) plans to enjoy the same lower costs that participants in larger 401(k) plans enjoy through the use of collective trusts. For the benefit of the millions of Americans who save and invest for their retirement, we urge Congress to clear the way for the passage of this important bill.”

Wayne Chopus, Insured Retirement Institute president and CEO, expressed strong support for RESA and urged the Senate to quickly advance the measure and then begin working with the House to approve a final version for President Trump’s signature.

“The House and Senate legislation are close to identical and both chambers would likely need only a short time to work together to resolve their differences and finalize a bill for the president,” Chopus added. “IRI is grateful to Chairman Grassley and Senator Wyden for their commitment and leadership to help improve the opportunity for millions of American workers to achieve a financially secure and dignified retirement.

Chpous said both RESA and the SECURE Act would remove critical barriers that discourage small business employers from banding together in an open multiple employer plan (MEP) to achieve economies of scale and delegate responsibility for sponsoring the plan to a professional plan fiduciary, thereby facilitating the offering of a retirement plan to their workers. 

“To help workers ensure that they do not outlive retirement savings, the measures clarify fiduciary responsibilities of employers that will allow them to make lifetime income products available as an option within their retirement plan,” Chopus said. “A related technical provision will ensure the portability of lifetime income products. Current law jeopardizes the guarantees associated with those investments if their employer changes recordkeepers. RESA and the SECURE Act will permit plan participants to preserve their lifetime income investments and avoid surrender charges and fees.”

Chopus and other advocates highlight that both bills will help savers make more-informed decisions regarding their finances by providing lifetime monthly income estimates on benefit statements. Further, the bills will increase opportunities for workers to save by enhancing automatic enrollment and escalation features.

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