Two key Republican senators say they want to let managers of some struggling multiemployer defined benefit pension plans cut off the dead limbs.
Sen. Charles Grassley, R-Iowa, and Sen. Lamar Alexander, R-Tenn., released a rescue proposal Wednesday that includes a “partition” provision.
Under the provision, managers of designated multiemployer plans could keep responsibility for the pension obligations the plans had the assets to support, while passing responsibility for the other obligations to the Pension Benefit Guaranty Corp. (PBGC).
Multiemployer Pension Plan Background
Grassley is the chairman of the Senate Finance Committee.
Alexander is the chairman of the Senate Health, Education, Labor and Pensions Committee, to release the proposal.
The PBGC is the organization that insures U.S. defined benefit pension benefits. It charges employers to insure single-employer plans. It also charges the sponsors of multiemployer plans, which were often organized by unions, to insure the multiemployer plans.
Managers of about 125 multiemployer plans have already told the PBGC that the plans are on track to become insolvent over the next 20 years, and strand about 1.3 million participants.
How Grassley Sees the Situation
Without reforms, the PBGC itself is on track to become insolvent by 2026, Grassley said in a statement about the Grassley-Alexander proposal.
“When that happens, PBGC will not be able to pay either current or future retirees more than a very small fraction of the benefits they have been promised,” Grassley said. “Consequently, substantial reductions in retirement income are a real possibility for the millions of workers and retirees who depend on benefits from these plans.”
Helping struggling multiemployer plans quickly could save money in the long run, Grassley said.
House Democrats have also developed a multiemployer plan rescue program.
Grassley described that proposal as a “pure, no-strings-attached, bailout plan.”
That proposal would not make the pension plans or the PBGC sustainable, Grassley said.
If adopted and implemented as written, the Grassley-Alexander proposal would:
1. Make a partition available only to certain types of multiemployer pension plans:
- The Central States Plan, the Road Carriers Local 707 Pension Plan, or the United Mine Workers of America plan;
- Plans that were already in critical and declining status as of Wednesday;
- Plans in declining status that used the Multiemployer Pension Reform Act of 2014 to suspend benefits; or
- Plans that are in critical status, but not declining status, have less than 40% of the funding they need to support their obligations, and have an active-to-inactive participant ratio under 40%.
2. Require an eligible multiemployer plan that uses the partition provision to limit benefits accruals.
The plan would have to cap the monthly accrual rate at 1% of annual contributions.
3. Require an eligible employer that uses the partition provision to adopt all reasonable measures to avoid insolvency.
“All reasonable measures” could include benefit suspensions of up to 10%.
The benefits of participants and beneficiaries who were ages 80 years or older would be excluded from the suspensions.
4. Have a partition process split an eligible plan into an “original plan” and a “successor plan.”
The PBGC would help most successor plans meet their benefits guarantees, up to the PBGC guarantee level. Special rules would apply to the Central States Plan and the Road Carriers Local 707 Pension Plan.
5. Have a successor plan take enough pension benefits liability from the original plan to give the original plan the ability to stay solvent indefinitely.