The Ways and Means Committee of the U.S. House of Representatives marked up and voted along party lines to advance a new bill formally titled the Rehabilitation for Multiemployer Pensions Act, setting the stage for full floor consideration and the amendment process.
The legislation is also colloquially known as the Butch Lewis Act, after the former president of Teamsters Local 100. Lewis died in December 2015, following years of advocacy on the union pension funding issue. He is survived by his wife, Rita Lewis, who has continued to work directly with Congressional Democrats on this issue.
As passed by the committee, the act would provide funds for 30-year loans and new financial assistance, in the form of grants, to financially troubled multiemployer pension plans. As detailed in the text of the legislation, the program is designed to “operate primarily over the next 30 years.”
Financially stressed multiemployer pension plans of the type sponsored by many unions would apply for both the loan and grants jointly. Certain plans in the direst financial situations would be required to apply. The loans and grants would be available only to plans that are currently severely financially troubled; other plans would be eligible only for financial assistance available under current law.
While members of the Ways and Means Committee all agreed something must be done to address the underfunding of union pensions, they fiercely debated whether the Butch Lewis Act will be effective. Democrats, led by Chairman Richard Neal of Massachusetts, generally voiced strong support. They suggested that the dire financial situation faced by some multiemployer pension systems is chiefly due to the Great Recession and long-lasting market challenges that have particularly harmed manufacturing and other blue-collar industries. They said economic conditions in the last two decades have forced many employers that offer these pensions to go insolvent themselves, which in turn left the multiemployer pension plans with fewer and more financially stressed contributing employers.
Republicans, on the other hand, led by Ranking Member Kevin Brady of Texas, were quick to cite their worries about ongoing mismanagement and even maleficence on the part of union leaders and pension trustees. They said a loan program will do nothing to solve the underlying problems that weakened many of the plans to begin with, and they commonly used the term “bailout” to describe the program.
In debating this point and others, Neal was adamant that this bill is a positive first step that can and should be built upon in a bipartisan manner. He invited committee members to submit amendments that would address their concerns. In closing the debate, he added that House leadership’s plan is to be prepared to vote on the bill as soon as the end of this month. Given the opposition of Republicans in the House, it’s far from clear that the bill will succeed in the GOP-controlled Senate, where even popular bipartisan pieces of legislation such as the SECURE Act are stalled.
“This is not a government bailout; it’s a backstop,” Neal said. “These are loans that are funded by bond sales in the open market, and we believe the administrative costs can be absorbed into the loan issuances. It’s a common-sense solution that brings together the public sector and private sector. Further inaction means many more Americans will risk slipping into poverty in retirement, even though they sacrificed throughout their careers.”
Brady stressed that union plans have different rules and requirements as to making and funding benefit promises than do single-employer pensions. Like other Republicans, he said a solution is doomed from the start that fails to address union plan trustees consistently making plan contributions insufficient to meet future benefit obligations. He suggested a more effective approach would be to put stricter rules in place as to the actuarial and investment assumptions being used in operating many of these stressed pensions.
For context, in December 2014, Congress approved, and President Barack Obama signed, a spending bill that included provisions allowing for dramatic cuts to financially troubled multiemployer pensions. Under the 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 had earned. But even with this new provision, numerous union pension plans are still on a path toward collapse.
One 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 alone 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 be insolvent by 2028.
Notably, the Butch Lewis Act as passed through the committee includes a few technical modifications versus the originally proposed version. Among these, the bill now specifically provides for the creation of a Pension Rehabilitation Authority (PRA), which will coordinate the loan and grant program with the Pension Benefit Guaranty Corporation (PBGC). Further modifications include adding a third category to be used in ranking stressed plans. The expanded proposal also provides that stressed pensions can use their loan to acquire annuities or establish portfolios for terminated vested participants—not just those beneficiaries in payment status.
Under the modified bill, the PRA would gain authority to forgive the loans, but only in the case of imminent insolvency. Finally, inadequacies in the operation of pension plans receiving loans would now have to be cured in two years, versus five in the original draft.