A crisis is a wonderful time for bad actors to ram through bad legislation. With the Phase 3 corona-stimulus package – or CARES Act – the one most conservatives have pointed at was the pointless $25 million gift to the Kennedy Center. Indeed, while a lot of the stimulus was good or at least necessary, it’s been a veritable Christmas Tree for leftist handouts.
Excuse me: non-denominational holiday tree.
But a time of crisis is also an opportunity to draw attention to substantive, long-term problems that have otherwise been too easy to ignore. One of these is the persistent need for reform of multiemployer pension plans, which must be a priority for the next phase of corona relief for protecting vulnerable retirees. Congress needs to shore up these plans while enacting structural reforms to aid long-term solvency to help retirees and the companies trying to make their pension contributions.
Similar to a 401(k), a multiemployer retirement plan is dependent on investment funds and sponsor contributions. Such plans are collectively bargained and maintained by more than one employer, usually within related industries, and a labor union.
Many of the people keeping our corona-economy running today do so at the risk of contamination from the virus are covered under such plans – like trucking and transportation industries. Other affected industries include retail trade, service, manufacturing, mining, and construction. All told there are about 1,400 multiemployer defined benefit pension plans, covering about 10 million participants.
Even before the coronapocalypse, multiemployer plans were facing significant long-term funding challenges, while a small subset face near-term insolvency. Some policymakers suggested the federal government provide credit assistance at favorable terms to plans that are struggling – note: favorable terms means they are a kind of investment, like Treasury bills, not a bailout.
Retired Americans who worked their whole lives with the hope of a pension to ensure a comfortable retirement are the most vulnerable to market downturns. Given the drastic market downturn and a continuation of the historically low interest-rate environment, addressing underlying weaknesses to pension issues is critical. This is particularly true for smaller employers that have been stretched to the breaking point by the pandemic.
The president voiced support to address multiemployer pension plans in the CARES Act – the Phase 3 coronavirus relief bill – but Senate Republican Leader Mitch McConnell wanted to see more support from his caucus before adding such provisions. That seems to be building, as Congress searches for the best way to craft a long-term solution.
Conservatives in the Senate and elsewhere need to support the president’s efforts to solve the multiemployer pension problem before it causes a meltdown of the economy like we saw in 2008 when the housing crisis caused a recession.
Two Senate Republicans – Chuck Grassley and Lamar Alexander – published such a solution last year, well before the coronavirus was even a twinkle in Xi Jinping’s eye. In a white paper, they suggested expanding “partition” powers for the Pension Benefit Guaranty Corp. to take over parts of failed union pensions and keep benefits to retirees flowing. Under a partition, responsibility to a plan’s “orphaned” retirees is switched to the PBGC. This would leave behind a healthier pension plan now able to meet its obligations.
In 2017, Grover Norquist with Americans for Tax Reform proposed long-term, low-interest loans for troubled pension plans. These loans would cover plans’ cash-flow shortage for five years, after which they would repay their loans, paying only the interest for the first five years. In addition, these plans’ benefits could be reduced up to 20%. No one wants to see benefits reduced, but the alternative would be insolvency.
In the past, Republicans have bristled – frequently not without cause – at dealing with labor unions. However, with the Trump revolution, members of these groups are migrating away from the Democrat Party, which makes no effort to hide its desire to replace them with cheap, imported labor. This is a wonderful opportunity for Republicans to put historic differences aside, embrace a new voter base, and provide long-term stability the federal government to what should otherwise be a reliable asset class.
Jared Whitley is a longtime D.C. politico, having worked in the U.S. Senate, the Bush White House, and the defense industry. He has an MBA from Hult International Business School in Dubai.