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.
“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.”