The Congressional Budget Office (CBO) has finalized its estimate of the cost of implementing the Butch Lewis Act legislation aimed at solving the multiemployer pension underfunding crisis.
The CBO analysis suggests the Butch Lewis Act would cost approximately $34 billion to implement over the 2019 to 2028 period. According to Democrats in the Senate and House of Representatives, this amount is less than half of what they estimate to be the likely cost of propping up the Pension Benefit Guaranty Corporation’s (PBGC) severely stressed multiemployer pension insurance program, should no other corrective actions be taken.
Rather than allowing more multiemployer pension plans to fail and start drawing benefits from the PBGC’s already stressed multiemployer pension insurance pool, the Butch Lewis Act would see Congress dedicate a specific “legacy fund within PBGC to ensure that multiemployer pension plans can continue to provide pension benefits to every eligible American for decades to come.” Specifically, the Butch Lewis Act offers a way to preserve retiree pension benefits through an emergency loan program funded with proceeds from Treasury bonds. The revenue that would be redirected to help keep multiemployer pensions from failing would be generated by closing “certain tax loopholes that allow the wealthiest Americans to avoid paying their fair share of taxes.”
For context, in December 2014, Congress approved and President Obama signed a spending bill that included provisions that allow for dramatic cuts to financially troubled multiemployer pensions. Under these provisions, the pension benefits of retirees could be cut by 30% or more, and this has already occurred. Before the law was changed, it was illegal for an employer to cut the pension benefits retirees have earned. But even with this new avenue for cutting benefits being made available, numerous union pension plans are still on a path towards collapse. One recent report published by the Society of Actuaries (SOA) identifies more than 100 such plans “that are meant to be representative of the larger problem.” The estimated unfunded liability of these plans is $107.4 billion when measured at a 2.90% discount rate. The report identifies some 21 plans with approximately 95,000 participants that are projected to become insolvent by 2023, and 48 plans with approximately 545,000 participants are projected to become insolvent by 2028.
The Congressional Democrats base their savings arithmetic on the fact that PBGC Director Thomas Reeder last year testified before the House Committee on Education and the Workforce’s Subcommittee on Health, Employment, Labor, and Pensions. During his testimony, Reeder noted that the PBGC’s multiemployer program is “already projected to fail with a deficit of over $67 billion.” Considering other potential costs, when the PBGC multiemployer program fails, it will cost $78 billion just to make the PBGC whole, he testified. Previously, according to Congressional Democrats, the CBO has estimated the cost of backstopping the PBGC should it fail could be as much as $101 billion dollars over 20 years.
The Congressional Democrats say the Butch Lewis Act is a far better approach to this problem than just letting the PBGC multiemployer pension program continue to deteriorate, and not least because, on average, only about two-thirds of the pension benefits are guaranteed by the Pension Benefit Guaranty Corporation. While the union pensions would in effect be receiving a taxpayer funded bailout through this legislation, innocent plan participants would not lose promised pension benefits. In addition, Democrats argue, the participants would not need additional public services to compensate for the loss of pension income.