Collapsing union pension plans win long-sought help from rescue package

Aid for ailing multiemployer pension funds was included in the American Rescue Plan. (Photo by Giorgio Trovato via Unsplash)

WASHINGTON — Tucked in the Democrats’ massive coronavirus stimulus package was a long-awaited solution for a financial ticking time bomb: private pension funds on the brink of collapse, jeopardizing the retirement plans of millions of union members.

The $1.9 trillion pandemic relief measure included $86 billion that will be used for grants to help shore up the most troubled of those pension funds, covering the cost of retiree benefits for the next 30 years.

While union members in Michigan, Ohio and Midwestern states notably will benefit — the provision is named for an Ohio Teamsters leader — the grants will be available nationally.

Without government intervention, the largest of what are known as multiemployer pension funds — defined-benefit retirement plans covering unionized workers in a certain industry, rather than a single company — would have run dry within five years.

Those financial challenges also have threatened to upend the Pension Benefit Guaranty Corporation, the federal agency that insures pension funds.

Democratic lawmakers, business groups and union officials who support the new law’s pension relief provision have heralded it as a necessary move to ensure that workers will receive the retirement benefits promised to them.

GOP lawmakers critical of the provision describe it as a bailout that does too little to address the root causes of why these pension funds ran into fiscal crisis.

Not under dispute is the scale and immediacy of the crisis engulfing  multiemployer pension plans.

Fiscal ‘double whammy’ for retirement plans

The Teamsters’ Central States plan, which represents 360,000 retirees and workers primarily in Ohio, Michigan and other Midwestern states, has been projected to go broke in 2026.

That plan is far from alone in its fiscal challenges. The federal government has designated 65 pension plans as in “critical and declining” status, and another 121 are listed as in “critical” status — categories that make up part of the criteria for receiving help under the new law.

The retirement plans have hit deep financial trouble as a result of “a double whammy,” says Joshua Gotbaum, a guest scholar at the Brookings Institution who previously directed the Pension Benefit Guaranty Corporation.

Industrial changes have meant that companies have gone bankrupt, leaving employees still in the plan without the company around to pay the bill. That leaves the other employers in the multiemployer plan sharing a larger financial burden.

In addition, actuaries “were too optimistic about investment returns and so, like many other traditional pensions, these plans are severely underfunded.”

Roughly some 130 plans have been projected to become insolvent within the next 20 years, putting at risk the retirement benefits of 1.4 million people, according to an actuarial analysis from The Segal Group. And that was before the pandemic, which analysts say has worsened the funding crisis.

Under the new law, the most troubled plans will be able to apply for aid through 2025. Retirees in plans that have suspended benefits will see those restored if their plan receives a grant.

The federal aid must be segregated from other plan assets, and must be invested in investment-grade bonds or other investments approved by the PBGC.

The International Brotherhood of Teamsters, the union with the largest number of members in the troubled pension funds, said in a statement that it was pleased that the fiscal fix finally reached the president’s desk, describing it as “the culmination of a more than two-decades-long effort.”

The U.S. Chamber of Commerce also supported the provision, writing in an advocacy letter to congressional leaders that “allowing the system to fail will create disastrous economic outcomes.”

Pension fix stalled for years

Ohio Sen. Sherrod Brown, a Democrat, has been pushing for a pension solution, championing a bill named for a former Teamsters organizer in southwestern Ohio.

The Butch Lewis Act was the basis for the pension reform added to the pandemic relief bill. The Democratic-controlled House approved that measure in 2019, with support from 29 Republicans, but it failed to advance in the GOP-controlled Senate.

A bipartisan, bicameral special committee also tried unsuccessfully to negotiate an agreement involving federal funds in 2018.

“People in this town don’t understand the collective bargaining process — people give up dollars today for the promise of a secure retirement, with good health care and a pension,” Brown said on the Senate floor. “And for years now, they have been living in fear of drastic cuts.”

But Republicans have been critical of the pension fix, adding it to the broader arguments that the pandemic stimulus bill amounted to a “blue-state bailout” that unfairly benefited Democratic-leaning areas.

“Americans know this bill will benefit states and unions that have been poorly mismanaged,” said Rep. Lauren Boebert, R-Colo., during the House floor debate.

U.S. Sen. Chuck Grassley is a Republican from New Hartford, Iowa.

Sen. Chuck Grassley, R-Iowa, who has put forward his own proposal for addressing the multiemployer pension crisis, unsuccessfully sought to remove the pension provision from the pandemic relief bill.

“It’s just a blank check, with no measures to hold mismanaged plans accountable,” Grassley said of the Butch Lewis provision.

Grassley has argued that his approach would go further toward resolving the underlying funding issues, through changes like increasing oversight of troubled plans and other steps.

Supporters like Rep. Haley Stevens, D-Mich., whose district includes thousands of members of the endangered Central States pension fund, dispute Grassley’s characterization.

Stevens pointed to the requirement that the federal aid be invested more securely, and said she expects there will be additional hearings going forward on ensuring pensions in less-critical status are secured.

“It’s not a bailout — it’s righting a wrong,” Stevens said.