Earlier this year, the Bipartisan Budget Act of 2018 established the Joint Select Committee on the Solvency of Multiemployer Pension Plans (“Joint Select Committee”). This Committee, made up of sixteen lawmakers (eight from the House, eight from the Senate, eight Republicans and eight Democrats), is charged with preparing a report and recommended legislative language to “significantly improve the solvency” of multiemployer pension plans and the Pension Benefit Guaranty Corporation (“PBGC”). Notably, if the Joint Select Committee gets majority approval from both sides (that is five of eight Democrats and Republicans), the resulting legislation will be guaranteed an expedited vote in the Senate, with no amendments allowed. Following the passage of the Multiemployer Pension Reform Act of 2014, which is largely viewed as failing to adequately address the multiemployer funding issues, this Joint Select Committee presents the first (and maybe the last) realistic bipartisan chance to address the issue. The Committee is required to have at least five public meetings and held its first last week. The same day that the Joint Select Committee met, the U.S. Chamber of Commerce issued a two-page document titled “Multiemployer Pension Reform Principles.” This document stresses the urgent need for a solution, stating that legislation to “save” multiemployer plans “must be passed as soon as possible.” It argues that federally-backed loans are the key to any solution, and encourages Congress to consider proposals that put “skin in the game for all.” This means benefit cuts.
Although not much was accomplished at the hearing, it is worth noting a few items. Co-Chairman Senator Hatch (R-UT) set the tone when he said that “none of this process is going to be easy. There are no magic bullets, and any solutions we come up with are bound to make at least some people unhappy.” Many of the other Committee members spoke of the necessity to act in a bipartisan manner.
This made for an interesting moment near the end of the hearing when Senator Portman (R-OH) mentioned that he felt that the committee must act not only in a bipartisan manner, but in a nonpartisan manner. In this connection, he stated that he had seen troubling reports that the Democrats on the committee had met beforehand as a group and agreed to support only one legislative proposal, known as the “Butch Lewis Act.” Senator Sherrod Brown (D-OH) seemed to admit that the Democrats had met as a group, but denied that they had only one preconceived solution. Senator Heitkamp (D-SD) also denied being wedded to any particular bill, and pointed out that while all committee Democrats were at the hearing, not all Republicans were.
Representative Norcross (D-NJ), a former electrician and participant in a multiemployer plan, said of the current multiemployer pension system “it’s not a matter of if this system is going to collapse, it’s when it will collapse.” Given that everyone acknowledges that the current system cannot last, it was interesting to hear a few comments pertaining to the principles espoused by the U.S. Chamber of Commerce.
As to the option of federally-backed loans, Representative Neal (D-MA) emphasized that his favored legislation “is not a bailout, we simply ask the federal government to backstop the risk.” And as for benefit cuts, Senator Heitkamp spoke passionately of the “human imperative” that the committee “do this in a way that keeps people whole.” Her remarks drew some applause from the audience, which seemed to be filled with union members. But given the scope of the problem, her plea to keep everyone whole is not very realistic.
One phrase that was not spoken enough at the hearing was “withdrawal liability.” Surely any legislative solution must address this huge problem for employers. While many of the committee members focused on the awful plight of the employees who stand to lose some of their pension, hardly anyone mentioned the employers who get stuck with withdrawal liability through no fault of their own. Many employers are left paying for the benefits of employees of competitors or others.
There is no reason why any employer who has made all its contributions over the years should be left holding the bag when the fund’s promised benefits do not come to fruition. After all, that employer met its obligation. If the Joint Select Committee hopes to get employers on board with any proposed legislation, it should seriously consider eliminating withdrawal liability.
This could be accomplished through the following principles:
- Federally-backed low-interest loans to multiemployer plans.
- Sliding scale of benefit cuts – protect current retirees and those closest to retirement, and trim the benefits of those further from retirement, while ultimately moving rescued plans from a defined benefit to a system that ties retirement benefits to the monies available, much like the 401(k) plans held by many Americans.
- Eliminate withdrawal liability for employers. With the movement away from defined benefits, there should no longer be any gap between the benefit and the amount available. This could also greatly reduce the burden placed on the PBGC.
The Joint Select Committee has until the end of November to approve its report and legislative language. If it is serious about its mandate, it should end withdrawal liability. It may not be a magic bullet, but it could be the key to getting something done.