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About 1.3 million Americans could have their retirement funds at risk if Congress cant come up with the money to pay the benefits people were promised.
That is because a number of multiemployer pension plans are on the brink of running out of money.
This week, Congress took a stab at solving the problem with the markup of the Rehabilitation for Multiemployer Pensions Act.
Though it garnered far less attention than the testimony of Federal Reserve Chairman Jerome Powell, who was on Capitol Hill talking about interest rates and the economy, it was no less important. Retirees financial futures hang in the balance if nothing is done, according to lawmakers.
"These are American workers who planned for their retirement and now, after working for 30-plus years, they are facing financial uncertainty at a time when they are often unable to return to the workforce," said Rep. Richard Neal (D-Mass.), chairman of the House Ways and Means Committee, which held the hearing.
Certain provisions already exist to help keep multiemployer pension plans functioning. The Pension Benefit Guaranty Corporation, a federally chartered entity, will step in when a plan fails so that retirees benefit payments — up to a maximum level defined by federal law — continue. Those guarantees typically range from 20% to 90% of plan benefits, according to the Society of Actuaries.
But it is estimated that the PBGC will use up its assets by the end of 2025.
Previously, the Kline-Miller Multiemployer Pension Act of 2014 established a process through which multiemployer pension plans could temporarily or permanently reduce benefits.
The new bill would let pensions borrow money to remain solvent so that they can continue to pay retirees for "decades to come," Neal said at the hearing. The program and loans would be funded by the sale of Treasury-issued bonds to financial institutions. The Treasury Department would lend the money from those bond sales to pension plans that need the funding.
The proposal is also known as the Butch Lewis Act, named for a trucker driver who worked for USF Holland for 40 years. Lewis was a participant in the Central States Pension Plan, which is now underfunded. When Lewis died of a stroke a few years ago, his wife took a 40% cut to her joint survivor benefit.
"Sadly, many workers and retirees have stories similar to Mrs. Lewis story," Neal said.
While both sides of the aisle agreed that something is needed to be done to fix the problem, there was some dissension as to whether or not this bill is the best plan to tackle it.
The Butch Lewis Act aims to help the plans to recover over time by lending them money at low rates like the Treasury interest rate, letting them invest those funds and keep the difference if they get a higher return, according to Joshua Gotbaum, guest scholar for economic studies at Brookings Institution. Gotbaum previously served as director of the PBGC from 2010 to 2014.
Republicans, meanwhile, have proposed providing funding directly to the PBGC instead of lending money to the plans. The PBGC could then use that money to fund pension benefits for so-called orphans, or workers whose plans no longer exist.
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Some opposing lawmakers called the proposal to lend money to pensions a bailout. Yet supporters of the legislation, such as Hasan Solomon, national legislative director at the International Association of Machinist and Aerospace Workers, disagree.
"A bailout is what they did for Wall Street and big banks," Solomon said. "This is a loan for retirees who gave up raises, who gave up work rules, who have up benefits in order to keep their pensions."
Critics include Rep. Kevin Brady (R-Texas), the lead Republican on the committee.
"Unfortunately, this bill today doesnt make these failing plans more stable, doesnt end underfunding or make them more solvent over time," Brady said.
One of Bradys complaints is that it wouldnt increase accountability for companies providing the pensions, or prevent the situation from getting worse, he said.
Brady noted that the plans were underfunded by $638 billion in 2015, up from $193 billion in 2007. Meanwhile, the PBGC had a $54 billion deficit in 2018, up from $739 million in 2006.
An amended version of the bill passed through committee by a vote of 26 to 18. Now, it will be considered by the full House, where it currently has 197 cosponsors.
The challenge will be getting it passed by House and Senate Republicans, Gotbaum said, who are more likely to back funding the PBGC. Any bipartisan agreement to address the problem wouldnt likely happen until this fall, he said.
Meanwhile, Rep. Bobby Scott (D-Va.) said in a statement that he is "hopeful" that the bill will be considered on the House floor in the coming weeks. "Retirees, workers, employers and taxpayers are counting on Congress to address the multiemployer pension crisis, and we must deliver a solution for them," Scott said.