A rescue plan for union pension plans nearing insolvency, exacerbated by plunging stock markets and skyrocketing unemployment, didn’t make it into last month’s massive COVID-19 aid package.
But together with high-level Democratic support, and an alliance of sorts with large employers that have their own pension problems, the issue is back on the table as the White House and lawmakers start discussions on another pandemic relief plan.
Unions and affected companies are lobbying for something akin to a 30-page draft bill circulated last month by Senate Democrats, which melds aid to single employers with aspects of competing union rescue plans pushed by House Democrats and Senate Republicans over the past year.
Speaker Nancy Pelosi included a version of multi-employer plan legislation that passed the House last year in the Democrats’ broader $2.5 trillion coronavirus aid proposal last month. She also included several employer-backed pension provisions.
Two of the employer plan measures made it into the law signed by President Donald Trump — language allowing companies to defer pension contributions and suspend benefit restrictions until next year.
But none of the multi-employer plan provisions made it into the final package, with the White House and Senate Republicans staunchly opposed to what they deemed a “bailout” for unions without putting in place structural changes aimed at preventing insolvency down the road.
The draft circulated by Senate Democrats during those talks had backing from numerous unions, as well as employers like Bechtel Corp. and trade groups representing engineering and construction-related industries. The coalition sent a letter to congressional leaders April 9 advocating for the hybrid plan with 48 signatories. An updated letter with more supporters is expected soon.
Unless the government picks up the tab for failing plans, the group argues, companies that remain on the hook for paying into the funds could go under and have no way to preserve benefits promised to millions of retirees as well as their current workforce.
“The existing crisis in multi-employer pensions has been deeply exacerbated by the COVID-19 market collapse and the government-mandated shutdown of the economy,” last week’s letter said.
The letter also asserts that Trump himself supported the hybrid proposal discussed last month before most of it was ultimately jettisoned in the final talks. Pelosi said much the same in a call with reporters earlier this month, blaming its removal on Senate Majority Leader Mitch McConnell.
“This is something that the language is agreed to. Even the president agreed, but McConnell, Leader McConnell, didn’t and said we’ll do it in another bill,” Pelosi said. “Well, here is another bill.”
A McConnell spokesman couldn’t be reached for comment, and White House budget office officials did not respond to requests for comment on the president’s position.
Trump’s top legislative liaison to Capitol Hill, Eric Ueland, said during late-stage talks on the $1.8 trillion package that Republicans would not agree to a multi-employer plan relief in that measure.
Drawing on GOP ‘white paper’
The Senate Democrats’ proposal, which aides familiar with the talks confirmed was authentic, was built on a different approach. It draws on a “white paper” Senate Finance Chairman Charles E. Grassley of Iowa and Senate Health, Education, Labor and Pensions Chairman Lamar Alexander of Tennessee released last last year.
The Grassley-Alexander plan would have created expanded “partition” powers for the Pension Benefit Guaranty Corp., the federal backstop that insures employer pensions against default, to take over parts of failed union pensions and keep benefits to retirees flowing.
Under a partition, responsibility for benefit payments to a plan’s “orphaned” retirees —those whose former employers are no longer contributing to plans due to bankruptcy or other financial difficulties — is switched to the PBGC. That move leaves behind a presumably healthier pension plan now able to meet its obligations.
The Democrats’ proposal offers more generous government aid to these plans than Grassley-Alexander would. The GOP proposal would allow only those plans in the most dire condition to be eligible, while Democrats would expand that pool.
Additionally, any plan that sinks into “critical and declining” status by 2024 would be eligible under the Democrats’ plan. The Grassley-Alexander plan’s cutoff would be effective at the date of enactment.
Democrats also would avoid the GOP senators’ plan to increase PBGC premium payments by contributing funds to offload some of the U.S. taxpayer burden.
That could balloon the deficit impact even further than the earlier House Democrats’ proposal, which relied on low-interest loans and grants to affected plans, originally scored by the Congressional Budget Office at $68 billion over a decade. And that was before the pandemic-related economic downturn likely added substantially to that figure.
The measure went nowhere in the GOP-controlled Senate, particularly after the CBO said 25 percent of plans covered by the new program would still go bust over the next three decades, with “most” of the rest of the plans likely to become insolvent within a decade after that.
“We are not so committed to an approach that we can’t negotiate a solution,” according to a senior Democratic aide who spoke on condition of anonymity to discuss legislative strategy.
Grassley said bipartisan work continues. He told CQ Roll Call in a statement that “any responsible proposal must include structural reforms that address the root of the funding problem so another bailout won’t be necessary in the future.”
A ‘step forward’
The Senate Democrats’ plan represents a "step forward" towards a bipartisan deal on multi-employer pensions, said Chantel Sheaks, executive director of retirement policy at the U.S. Chamber of Commerce.
Borrowing the money will widen budget shortfalls, but the amount of federal commitment to the coronavirus response since the beginning of March is already about $2 trillion. Republicans want to add another $250 billion for small-business relief, while Democrats are pushing for at least some $1 trillion in additional measures.
And aid for failing pension plans is a natural outgrowth of pandemic economic rescue measures, advocates say. The most recent relief package provided souped-up unemployment benefits for laid-off workers, for instance, but nothing for their pensions. “If there’s no hours worked, there’s no contributions being made” to pension plans, Sheaks said.
Packaged with the union rescue plan are provisions for single-employer plans that may make the package more palatable to Republicans.
Leading the push is the American Benefits Council, which represents large U.S. companies that still pay into defined benefit pensions.
In an April 7 letter to congressional leaders, Lynn Dudley the council’s senior vice president, said that the “plummet” in pension plan assets along with laws requiring how shortfalls must be made up are adding to the financial pressure on corporations. Current conditions are threatening the “health and even viability of many companies,” she wrote.
The Senate Democrats’ bill contains the two biggest changes the council is seeking: a six-year extension of an Obama-era law, known as interest rate smoothing, and allowing companies to come up with 15-year rather than 7-year plans to address pension shortfalls.
The smoothing law was set to begin a four-year phase out next year, but the Democrats’ bill would extend it through 2025 followed by a five-year phase out.
According to records filed with the Senate, companies that have lobbied for extensions of the smoothing law in recent years include Verizon Communications Inc.; Cleveland-Cliffs Inc., an Ohio-based iron ore mining firm and parent company of AK Steel; Anheuser-Busch Companies; NextEra Energy Inc.; and Navistar Inc., the Illinois-based truck and bus manufacturer.
President Barack Obama signed the pension smoothing law in the wake of the financial crisis and the new ultra-low interest rate environment that ensued. That legislation replaced a requirement to use current interest rates to determine required contributions with a rate based on a 25-year average instead.
Since 25-year averages were much higher than current rates that allowed companies to apply a much higher rate when calculating the present value of all their future pension obligations, reducing how much they would have to set aside.
“These proposals are critical to the economic recovery of broad segments of the economy and the retirement security of millions of Americans,” Dudley wrote to congressional leaders.