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Pension Bill Could Add $70 Billion in Group Annuity Sales

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The House is preparing to vote on a measure that could rewire a major part of the U.S. retirement finance system: H.R. 397, the “Rehabilitation for Multiemployer Pensions Act of 2019″ bill.

The bill drafters want to provide financial assistance that the managers of the 1,400 U.S. multiemployer pension plans could use to transfer pension obligations to private insurers, by purchasing group annuities.

If the bill becomes law and works as drafters predict, a new Pension Rehabilitation Administration (PRA), and the PRA’s new Pension Rehabilitation Trust Fund, could keep more than 1 million of the 10 million multiemployer pension plan participants from losing access to the benefits they were promised.

If managers of most of the eligible pension plans actually use the new assistance to buy group annuities, the bill could also lead to up to about $70 billion in extra group annuity sales over a 10-year period, according to projections from the Congressional Budget Office (CBO).

(Related: Pension Risk Transfer Volume Continues to Head Toward Sky)

Here are five more things to know about H.R. 397, for agents and advisors who sell annuities.

1. The Multiemployer Pension Plan Problem

The Pension Benefit Guaranty Corp. (PBGC) is the federal agency responsible for insuring private pension benefits.

Separate laws govern how the PBGC provides coverage for single-employer pension plansand for multiemployer pensions. Analysts say that typical single-employer plans are reasonably well-funded, but that many multi-employer plans look shaky.

Members of Congress have been talking about the problem for years. They included a provision creating a Joint Select Committee on Solvency of Multiemployer Pension Solvency in the Bipartisan Budget Act of 2018.

Ted Goldman, a pension actuary at the American Academy of Actuaries, testified at a joint select committee hearing in April 2018 that about 100 of the 1,400 PBGC-insured multiemployer plans appear to be likely to fail within the next 20 years, and that those plans now serve about 1 million participants and beneficiaries.

The PBGC has about $2.2 billion in assets available to support all multiemployer plan obligations, and it needs $67 billion just to support obligations to participants in the multiemployer plans that have already failed, Goldman said.

2. H.R. 397 Basics

Rep. Richard Neal, D-Mass., the chairman of the House Ways and Means Committee, introduced H.R. 397, which has been dubbed the Butch Lewis Act, in January.

Top Republicans in Congress have joined Democrats in supporting the goal of multiemployer pension reform.

H.R. 397 has attracted 209 cosponsors. The list of cosponsors includes nine Republicans. Many are in the Northeast, but Rep. Jeff Fortenberry, R-Neb., and Rep. Bill Huizenga, R-Mich., are in the Midwest.

H.R. 397 has already been approved by the House Education and Labor Committee and the House Ways and Means Committee.

Members of the House Rules Committee are meeting at 5 p.m. Eastern Daylight Time today to package the bill for floor action.

House leaders say on their House floor bill consideration website that they could bring H.R. 397 up for a vote on the House floor this week.

3. Objections

H.R. 397 received many votes of support from Republicans at the House Education and Labor Committee, but it received no votes of support from Republicans at the House Ways and Means Committee.

Critics of H.R. 397 have argued that the current version of the bill is not really bipartisan, that it is not funded in a realistic way, and that the amount of assistance it would provide is too small.

PBGC figures show that multiemployer plans were just 43% funded, overall, in 2015, according to an analysis from Rep. Kevin Brady, R-Texas, that was included in the House Ways and Means Committee’s official report on the bill.

About 95% of the multiemployer plan participants were in plans that were less than 60% funded, and PBGC-insured multiemployer plans need about $722 billion to be fully funded, Brady says.

“Committee Democrats are moving a partisan bill they know has no chance in the Senate,” Brady says.

4. H.R. 397, Group Annuities and Self-Managed Portfolios

Even if H.R. 397 fails, it could end up shaping any multiemployer pension legislation that does become law.

The bill would provide about $32 billion in multiemployer pension plan rehabilitation loans from 2020 through 2029.

The bill would also provide about $39 billion in additional financial assistance over the same 10-year period. The bill classifies that assistance as loans, but the CBO says that, under its rules, it defines those payments as a form of cash assistance, rather than as loans.

Multiemployer plan managers could choose between using the Pension Rehabilitation Administration loans to buy group annuities or to create their own bond portfolios.

H.R. 397 would give managers a strong incentive to buy group annuities, by keeping managers that created their own portfolios under the oversight of the Pension Rehabilitation Administration.

Managers that created their own portfolios would have to report on the performance of the portfolios every three years. The Pension Rehabilitation Administration could require them to take remedial action to cure any inadequacies.

5. The Pension Rehabilitation Administration and Individual Annuities

Participants in multiemployer pension plans account for a large part of the middle-income population, and even the mass affluent population, in many communities.

A successful effort to stabilize multiemployer pension system could help financial professionals with individual retirement planning clients in those communities, by helping to stabilize entire communities.

But successful pension stabilization might decrease some plan participants’ interest in buying their own individual annuities, or in using individual life insurance to fund retirement cash needs.

LIMRA has estimated that U.S. insurers sold about $26 billion in group annuities to pension plan sponsors in 2018.

If H.R. 397 leads to about $7 billion in new pension risk transfer annuity sales in the coming years, that could increase pension risk transfer sales by about 30%. The growing group annuity market opportunity could lead some big issuers to focus more on the group annuity market and less on the individual market.


The House Rules Committee site for its H.R. 397 meeting, which includes links to several versions of the bill, is available here.

A CBO analysis of the bill is available here.

Joint Committee on Taxation analyses of two versions of the bill are available here and here.

— Read PBGC Multiemployer Pension Guarantees Are Lousy: Hearing Witness, on ThinkAdvisor.

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