By Theresa Ghilarducci, Forbes
Included in the $1.9 trillion stimulus bill signed by President Biden on Thursday is an $86 billion aid package for participants of about 185 to 300+ employer-union pension plans. If aid had not been available, more than a million retired retail clerks, candy makers, truck drivers, construction workers and others would have faced severe cuts in their pensions.
These plans are part of a larger system of about 1500 multiemployer pension plans covering about 10 million workers. These plans are union-negotiated among many small businesses which are too small to sponsor their own plans. The plans are typically in construction, trucking, coal mines, food stores, and entertainment industries. Former President Ronald Reagan was a member of the Screen Actors Guild multiemployer pension plan.
Joshua Gotbaum, director of the Pension Benefit Guaranty Corporation (the government agency that insures pension funds) from 2010 to 2014— wrote last week that the aid package was a surprise, but not unprecedented or ill-considered.
In contrast a New York Times article which contained crucial errors, criticized the package for not solving all the problems of the system.
Let me explain what the aid package does, what would have happened had it not been passed, who is to blame that pension funds needed aid, and whether there is a precedent for this kind of aid.
How multiemployer plans work is best explained by how they affect workers in a plan
After serving in the Marine Corps, Jack Palush, now 71, went to work for Suburban Motor Freight in 1970. He told me, “Being in my twenties, I didn't think much about pensions but after a while I saw my older, fellow workers retire and enjoy the rest of their lives. When they retired, they created an opening for someone to get a job and pay into the pension fund they were in. It was a good self-sustaining system.” (The self-sustaining system is a good model, but a number of government policy missteps broke it.)
Jack had a typical American worker journey. During his life, he was laid off from three other companies, including Kroeger, for a total of four employers in his 37 years of work. But because he was in a multiemployer plan, the CentralStates Teamster Plan, he stayed in the same pension fund during those job changes. If he wasn’t in the Central States Pension Fund, he would have faced the fate of most American workers who move from job to job, withdrawing 401(k) money along the way and unable to contribute during waiting periods, resulting in an inadequate pension.
Jack retired in 2009 with 37 years paid into the pension fund. For his diligence, he expected $4,265 per month. But in 2015, the pension plan told him his pension would be cut to $2,217 per month for the rest of his life.
The beneficiaries of the $86 billion pension aid in the American Rescue Act of 2021 are not just the pensioners, their families, and their employers who also contributed diligently to the fund. If the plans are allowed to fail, many communities in the Red/Blue heartland—Ohio, Kansas, Pennsylvania, Michigan and Indiana—would suffer. According to the National Institute of Retirement Security, in 2018 “some 3.8 million multiemployer pension plan retirees received benefits totaling $44.2 billion, for an average benefit of $11,540 per year, or $962 per month.” Each $1 spent on pension benefits supports $2.19 in economic output throughout the country. For example, a whole coal-mining town is supported by union pensioners. Almost of third of Detroit’s income comes from pensions, union retiree health, Medicare and Social Security.
The logic of multiemployer plans makes more sense than having one’s pension based on the survival and wealth of one company. The Social Security system and my professor’s fund, TIAA, is also based on accumulated service among a variety of employers. Multiemployer plans are the plans for the new workforce filled with workers who will increasingly travel between employers.
A group of nurses in a New Jersey hospital provides an example. In the late 1990s, they finally got their longstanding demand to join the multiemployer pension plan that the hospital’s operating engineers belonged to. Why operating engineers? The hospital had changed ownership so many times that each single employer plan ended when another firm bought the hospital. The employees did not move — it was the employers who were mobile. Joining the multiemployer plan let the nurses build up credits in one pension plan, or defined benefit plan.
The New York Times reporters are wrong in writing that multiemployer plans “do not have to” follow strict federal funding rules. Multiemployer funds are fiduciaries and must follow strict funding rules laid out in the federal Employee Retirement Income Security Act (ERISA) of 1974. Current law requires funds to make cuts and increase contributions if underfunded.
Whose fault is it, why did these funds need the aid?
Since 2007, multiemployer plans did all they could to right themselves. Benefits were cut and contributions increased as much as possible.
The multiemployer pension crisis was not caused by pension funds’ poor decisions. Rather, factors out of their control are responsible, including recessions, government decisions, industry deregulation (trucking for example) and quirks in the ERISA pension regulation law. Some, including the New York Times, blame the pension actuaries for high rates of return assumptions. But for most of their existence, the plans were run more conservatively than high-flying single corporate plans. Also, the Government Accountability Office (GAO) warned in 2004 that the decline in unionization would hurt the then stronger multiemployer plans; Congress made no moves to reduce barriers to free association of workers to join unions.
Because of deregulation, bankruptcies of major carriers, and the 8-year policy of the George W. Bush administration to avoid contracting with union carriers, the Central States pension fund did not have enough money to pay Jack. The 2007 financial crash, caused by inadequate government regulation, followed by the Pandemic recession, further accelerated expenses in Jack’s pension fund, one of the largest multiemployer plans.
Government regulation also did not move fast enough to shore up the plans they insured. Unlike single-employer plans where ERISA encourages the PBGC to step in and take over plans before sponsors end up in bankruptcy, there is no pre-crisis help from the government agency, the PBGC, for multiemployer plans. By not acting quickly, the aid these pensions needed increased. If the aid had come 12 years ago, the expense would have been much smaller, about $10 billion.
Is the aid fair?
As Representative Ritchie Neal (D-MA) and Senator Sherrod Brown (D-Ohio) point out, there is a lot of precedent to aid American financial institutions.
Congress has never allowed any federal insurance program to go bankrupt. Taxpayer funds have been used to prevent the insolvency of crop insurance, flood insurance, banks, savings and loans, auto companies, and airlines. It would be cruel, Joshua Gotbaum writes, “if Congress suddenly decided to draw the line now and walk away from its commitment to retirees’ pensions.” We bailed out Wall Street and the big banks in 2008, even though they caused the financial crisis.
As writer and retirement expert Mark Miller writes, “This provision of the act really reflects the changed political climate.” As one industry source told me this week: “Lawmakers came to the realization that we’ve bailed out the banks and the airlines over the years— we have the votes, why aren’t we doing that here?”
When I asked Jack Palush if the pension aid was fair, he said, “Yes its fair because it lets us keep what we have worked for most of our lives, and most importantly, it lets us keep our dignity.”