CBO: Proposed Bailout of Failing Union Pensions Funds Won’t Work, as Loans Will Go Unpaid
September 10, 2019 Updated: September 10, 2019
WASHINGTON—Dozens of seriously underfunded trade union pension plans won’t repay millions of dollars in tax-funded government loans intended to help them regain financial integrity and pay promised benefits, according to the Congressional Budget Office (CBO).
“CBO projects that about one-quarter of the affected pension plans would become insolvent in the 30-year loan period and would not fully repay their loans,” the federal agency told Sen. Mike Enzi (R-Wyo.) in a Sept. 7 letter.
“Most of the other plans would become insolvent in the decade following their repayment of their loans,” CBO told Enzi. The Wyoming Republican is chairman of the Senate Committee on the Budget.
The Rehabilitation for Multiemployer Pensions Act of 2019 was approved by the House of Representatives in a 264–169 vote on July 24, with 29 Republicans joining 235 Democrats in voting for the measure, which was first introduced by Rep. Richard Neal (D-Mass.).
Neal is chairman of the House Ways and Means Committee, which writes tax legislation. So far in the 2020 election cycle, more than half of Neal’s campaign contributions have come from political action committees, according to opensecrets.org. A fourth of those contributions have come from individuals making large donations.
The measure would create within the Department of the Treasury a new Pension Rehabilitation Administration (PRA) to establish and manage a Pension Rehabilitation Trust Fund, which would make tax dollars available through loans and direct cash assistance to insolvent union pensions to invest in the stock market and pay benefits.
The main beneficiaries of the measure, if it becomes law, would be pension programs of more than 130 trade unions that represent employees from multiple companies within an industry.
Such pension plans were exempted by Congress from the government’s requirement that private sector companies fully fund promised benefits. The exemption allows the union plans to set aside funding for less than 100 percent of projected benefit costs.
As a result of the exemption, among the union pension plans on the Pension Benefit Guaranty Corp. (PBGC) list of critically underfunded funds are those of the United Mine Workers of America (UMWA), which can only cover 33.2 percent of benefits promised, and the Bakers & Confectionery Union and Industry International Pension Fund, which can only cover 36.6 percent. Both plans actively lobbied for the House Democrats’ bailout measure.
Other ailing union pension plans are in worse shape, with the United Food and Commercial Workers Union plan able to cover no more than 17.6 percent, and the New England Teamsters and Trucking Industry Pension with funds available to cover just 17.7 percent.
Given the dozens of critically unfunded union pension funds, taxpayers could be liable for as much as $638 billion, by one estimate, if H.R. 397 or something substantially like it is approved by the Senate and signed by President Donald Trump.
Trump hasn’t taken a position on the issue to date. The president’s opposition to the plan can’t be assumed, because he gained unexpected support in key states such as Wisconsin, Ohio, and Pennsylvania, whose residents include many of the union members whose pensions are at risk.
The exemption also allows the union pension plans to pay sharply reduced premiums to PBGC, which uses income from those payments to fund benefit insurance. Due in part to the reduced union plan premiums, the PBGC itself also is nearing the threshold of financial insolvency.
The congressional agency estimated that the measure would cost taxpayers at least $31.8 billion in new spending, after only $7.9 billion is repaid by the unions receiving loan assistance.
“The subsidy cost for all loans (regardless of the estimating approach) would be recorded as direct spending,” CBO told Enzi.
Rachel Grezsler, a Heritage Foundation pensions expert, told The Epoch Times that the CBO study highlights how the House Democrats’ measure would only delay insolvency for the underfunded pensions, without solving the basic problem.
“The CBO report shows the Rehabilitation for Multiemployer Pensions Act leaves hundreds of other multiemployer plans that will become insolvent at later dates looming for subsequent bailouts by future congresses,” Grezsler said on Sept. 10.
“And at that point, state and local pension plans could be bankrupt and asking for up to another $4 trillion to $6 trillion in taxpayer bailouts.
“In short, the CBO report confirms this is a terrible deal for taxpayers and it’s no good for pensioners—particularly younger ones—who will still end up with insolvent pension plans.”
Contact Mark Tapscott at mark.tapscott@epochtimes.nyc
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