I am not generally a big fan of lame-duck sessions because such a large number of soon-to-be former senators and congressmen are voting on their way out the door. But Congress must do something about a looming multi-employer pension plan disaster or we could see very difficult economic times ahead.
Multi-employer pension plans have more than $600 billion of unfunded liabilities and are dangerously close to failing. Once these endangered plans fail, others will not be far behind. Additionally, state and local governments have about $6 trillion in unfunded pension promises. If these potential failures come to fruition, it could be a disaster far worse than the 2008 housing bust.
The White House understands the risks and has met with the chief players on Capitol Hill, encouraging them to work together to find a lasting solution.
It is hoped the Joint Select Committee on Solvency of Multiemployer Pension Plans realizes what is at stake. Its work could either hasten an economic crash like the one we experienced in 2008, or if it does its job, it could prevent such a crash.
The Joint Select Committee has made progress reforming the Pension Benefit Guaranty Corporation, providing greater transparency, and requiring all stakeholders to help share in the costs of the solution. Unfortunately, some of the “solutions” being discussed aren’t actually solutions at all. In fact, some of the so-called solutions will actually hasten the impending financial disaster. You can’t save the patient if you’re administering lethal doses of poison.
For example, whatever cost-sharing mechanisms are put in place, and whatever interest rates are applied, they must be realistic and gradual because the goal has to be eventual and long-term financial health. The fixes must not force the pension system into cardiac arrest. But some of the current proposals on the Hill are precisely that.
It is hoped that senators Orrin Hatch, R-Utah, and Sherrod Brown, D-Ohio, chairman and co-chairman, respectively, of the Joint Select Committee, will push the committee to stop playing politics and find a lasting solution.
Anyone claiming to be worried about fiscal issues should see resolution of this problem as an absolute must. After all, if this problem is not solved, the resulting disaster will become the basis for a gargantuan budget-busting bailout and the welfare state will grow and expand, as will the regulatory regime.
The responsible thing to do is solve this problem before it becomes a crisis. A workable solution that will actually solve the problem should include the following four elements.
First, Congress must reform the law governing the affected pension plans by requiring them to meet new, more rigorous and realistic actuarial standards. Pension plans must be required to operate in sustainable ways.
Second, stakeholders must share in the costs of returning pension plans to a firm footing. Retirees must accept modestly reduced benefits during the time period required to get the plan back on an actuarially sound foundation. The costs cannot be put disproportionately on any one party. Once the difficulty has passed, retirement benefits can return to levels that reasonable and responsible actuarial standards permit.
Third, for pension plans that make the needed and required reforms and demonstrate that they are serious about actuarial soundness, Congress should authorize short-term loan guarantees. With these loans, pension plans can get back on a firm financial and actuarial footing. These loans would be repaid because only those pension plans that did what was necessary to get back on a firm financial footing would qualify for them. In the end, the taxpayers will not be on the hook for the loan guarantees, or federal bailouts motivated by a financial crisis, or increased welfare expenditures caused by retirees losing their pensions. This is the fiscally responsible thing to do.
Fourth, Congress must reform the Pension Benefit Guaranty Corporation to make it function like a real insurer where risks and costs balance out. If nothing is done, the PBGC will be bankrupt within the next six years, leaving taxpayers on the hook to make good on its promises. That would cost taxpayers hundreds of billions. So reform is a must!
Americans of every political stripe and income group call upon the Joint Select Committee to work night and day in the coming weeks to find a long-term solution to the multiemployer pension plan crisis. Failure to do so would be an act of colossal political malfeasance. Conversely, by finding a fair and reasonable long-term solution, lawmakers will rightfully earn the praise of the nation.