Biden Stimulus Plan Shores Up Weakest Multi-Employer Pension Plans Rather than Taking on Private Equity Abuses

Yves here. I don’t mean to be hard on Tom Conway, the international president of the United Steelworkers Union. The Democrats have taken organized labor for granted for so long that the gestures made by Biden so far, that of speaking out in favor of interference-free union elections, meaning scolding Amazon, and now shoring up a private pension guarantee fund, must seem like a sea change from the posture of the Democrats under Clinton and Obama. Hence it makes sense for Conway to applaud Biden moving in a better direction. However, his headline, The American Rescue Plan is for Real, is out over its skis.

To switch metaphors, just as one robin does not make a spring, so to do are one-off measures not sufficient to change economic and power relationships. Yet the Biden Administration, like the Obama Administration, is committed to preserving the status quo, but is willing to spend bigger to do so.

Despite the sweeping headline, the post is entirely about the partial rescues of really sick multi-employer pension plans, yet doesn’t explain clearly what the program is or how it works. Note that there are roughly 1,400 multi-employer plans and about 10% are in bad shape.

I had assumed the funds were going to the Pension Benefit Guaranty Corporation, which backstops these plans but its multi-employer program is projected to run out of money by 2026 or 2027. Instead, as CNBC explained, the $86 billion set aside for these troubled pension schemes will be for grants that go directly to the funds themselves, as opposed to the PBGC.

From CNBC:

The American Rescue Plan, which now heads to the House, would let certain pensions apply for federal grant funding, which would be used to help pay retirement benefits to workers….

However, 124 multi-employer pensions are in “critical and declining” status, according to the Pension Benefit Guaranty Corporation. They’re projected to have insufficient funds to pay full retirement benefits within the next 20 years.

About 1 million workers are in such plans, according to the American Academy of Actuaries…

Grants offered by the American Rescue Plan would cover full pension benefits for workers in ailing plans over the next three decades. The relief measure would also reinstate any benefits that had been suspended for recipients.

Multi-employer plan sponsors can apply for the aid through 2025. The PBGC can’t condition the aid on pension changes like benefit reductions or new funding requirements.

The funds must be invested in investment-grade bonds. They, along with any investment earnings, must be segregated from other plan assets.

The remark about the PBGC not being able to mandate pension changes give the impression that the reason for not simply topping up the PBGC was so that the American Rescue Plan could force revisions. But then we have this gripe:

Sen. Chuck Grassley, R-Iowa, criticized the measure as a bailout with no strings attached.

“It’s just a blank check, with no measures to hold mismanaged plans accountable,” he said.

So was the reason for bypassing the PBGC political, that employees in salvaged plans will know the money came from the Biden Administration, as opposed to the PBGC, where the Administration’s munificence might be missed?

The Boston Globe adds:

The Congressional Budget Office estimates 185 plans would receive grants under the measure, effectively ensuring the most dire plans can cover their retirees’ benefits for the next three decades. Many of those pensions can range between $15,000 and $25,000, providing relatively small but still critical lifelines for hundreds of thousands of former blue-collar workers, [Jim] Naughton [professor of business administration at University of Virginia] said.

But by prioritizing those most “critical” plans, it ensures those who score the biggest windfall are plans that “were the worst managed, the ones who made the stupidest investment decisions, [or] the ones who collected the least contributions,” Naughton said.

“People are relying on these pensions. To do nothing is not really a palatable option,” he said. “But it is absolutely a transfer from taxpayers to pension plans.”

Conversely, as part of the total $1.9 trillion package, state and local governments are barred from pouring their share of $350 billion in aid into their own public pension funds.

This $86 billion rescue will cover over a million workers. For a reference point, CalPERS has about $440 billion for its 1.9 million members and even on its best recent day is only 70% funded.

Regardless, Conway fails to mention that a reason so many private pensions have gotten in trouble is the tender ministrations of private equity firms, although the Supreme Court is about to hear an appeal of a 2012 case, decided in favor of Sun Capital, which had upheld Sun walking away from the pension liabilities of a company it bankrupted. Having Congress require investors to make good on the pension funds of the companies they wreck would considerably reduce how many pension funds get hopelessly under water.

By Tom Conway, the international president of the United Steelworkers Union . Produced by the Independent Media Institute

The closer Doug Kamerer got to retirement, the more he feared that he’d never be able to afford it.

Kamerer steadily built up a pension during 35 years as a die setter at Etched Metal Company in Solon, Ohio, where he and his coworkers often accepted lower raises in return for contributions their company made to a multiemployer retirement fund.

But that fund began failing years ago, and if it crashed, Kamerer knew he and his wife, Toni, would end up spending their senior years just trying to scrape by.

All of those worries evaporated when President Joe Biden signed a historic stimulus package on March 11 that will not only lift America out of the COVID-19 recession but also help secure the nation’s future.

Biden and congressional Democrats vowed to make working people their top priority, and they delivered on that promise with legislation that addresses the pain and uncertainty the pandemic inflicted on the entire nation.

The $1.9 trillion American Rescue Plan delivers one of the boldest, most comprehensive investments in working people since the New Deal of the 1930s, and the United Steelworkers (USW) worked alongside other labor unions to ensure Congress passed it.

And just as the New Deal both stabilized a country in crisis and fostered prosperity, the stimulus bill will strengthen America for years to come.

The package extends $300-a-week unemployment benefits and health insurance to workers laid off during the COVID-19 recession, provides $1,400 stimulus checks and tax credits to millions of struggling families, earmarks funds to help schools operate safely and allocates billions for controlling the coronavirus.

But it isn’t enough to confront current hardships. It’s also essential to head off impending threats to the nation’s progress.

That’s why the stimulus includes $86 billion to stabilize about 130 multiemployer pension funds and secure the retirements of 1.3 million workers and retirees, including Kamerer, a member of USW Local 1-243 who’s enrolled in a plan that could go broke in a decade.

“This is huge,” Kamerer, who hopes to retire in four years, said of the pension support. “It’s such good news. What a weight off my mind.”

Multiemployer pension plans combine contributions from two or more employers in fields such as manufacturing, retail, truck driving and entertainment. Companies pay into these funds as part of their workers’ wage and benefit packages and promise to pay retirees pensions based on their wages and years of service.

Although many of the 1,400 multiemployer plans around the country remain financially stable, about 130 are speeding toward insolvencybecause of factors such as corporate bankruptcies, industry consolidation and investment losses.

The COVID-19 economic downturn put these plans in deeper peril, threatening the futures of workers already struggling because of the recession as well as those who put their lives on the line to keep the nation functioning during the pandemic. Kamerer is among those who reported for work each day while millions of other Americans did their jobs remotely.

“This is our money,” stressed Kamerer, a former local union officer who helped negotiate contracts in which he and his coworkers sacrificed wage increases for pension benefits they’d receive years down the road. “This is part of our compensation package. It’s important that’s understood.”

If the plans collapsed, workers and retirees would lose virtually everything they spent decades building. And a nation that experienced soaring unemployment and poverty during the pandemic cannot afford to let still more citizens get knocked off their feet.

The USW and other unions first sounded the alarm about failing multiemployer pension plans years ago—and fought to save them ever since.

Jim Allen, a retired Appleton Papers worker and USW Local 266 president whose survival depends on his pension, was among many union members who held rallies, lobbied Congress and testified in support of legislation to save the plans.

The Franklin, Ohio, resident and other advocates scored a partial victory last year when the Democratic-controlled House passed the Butch Lewis Act—named for a late union member who championed pension security—to shore up the funds. But the Republican-controlled Senate refused to even consider the legislation, leaving Allen and other pension plan participants ever more concerned about their futures.

“We had to not only hope but pray every day that they’d finally come to their senses and do something,” Allen said.

The Republicans never did, and when the pandemic hit, these plans took yet another blow as companies laid off workers and reduced payments to the funds.

But Biden and congressional Democrats, who gained control of the Senate after the last election, worked with organized labor to make pension security an integral part of the nation’s recovery. In signing the stimulus into law, Biden said the legislation will give “the people who built the country” a “fighting chance.”

While his pension hung in the balance, Kamerer hesitated to think too much about his golden years.

Now, he’s one of millions of Americans who can look to the future with hope because of a stimulus package that will heal the nation and build prosperity.

“People are hurting enough already,” said Kamerer, who plans to travel with his wife and spend more time with family during retirement. “They don’t need more worries about the future.”