Confusion Infusion in Multiemployer Bailout

Last week Karen Friedman gave a speech as part of the Retirement Security Panel at the United Steelworkers Rapid Response Legislative Conference that laid out how a bailout of multiemployer plans would work. This week Pensions & Investment (P&I) editorialized against a bailout but wound up suggesting just that……..unless I’m missing something.

From the Friedman speech:

Here’s how the Butch Lewis Act works: The bill would create a new division in the Treasury Department, called the Pension Rehabilitation Administration (PRA). The PRA would sell new Treasury bonds in the open market to large investors. Then the agency would lend the money earned from the sale of the bonds to the troubled plans. Among the most protective features of the bill is that the pension plans would be required to use the loans to pay the full benefits of retirees either by buying annuities from an insurance company or by matching pension obligations with investment grade bonds. By relieving plans of having to pay retiree benefits means that there will be enough money in the plan to continue to pay the full promised benefits of active workers and save the plans for the future.Plans that have already cut benefits would be permitted to restore full benefits by using the relief offered by the bill. The PRA would lend the money for 30 years at low interest rates, around three percent. The 30-year loans would buy time for the pension plans, so they can invest for the long term and survive.

My P&I came in the mail today with this editorial:

So the repayments would be interest-only for 30 years? Let’s follow the money with an example.

  1. PRA gets $1 billion from investors
  2. $1 billion gets doled out to multiemployer plans who need it to pay participant benefits
  3. Multiemployer plans that got the money pay PRA $30 million to cover the annual interest payment to investors

Steps 2 and 3 might even be combined as the PRA would only dole out $970 million to multiemployer plans while giving $30 million back to investors in that first year. But my question is: where are you going to find investors willing to pay $1 billion up front to get $900 million back over time with the return of principal being problematic?

P&I was appropriately skeptical of this scheme but then, out of the blue, suggested that a better idea would be to give the PBGC a ‘capital infusion’ so they can pay participants in multiemployer plans. What P&I did not delineate was where that ‘capital infusion’ would be coming from. Would it be the same investors lining up to buy PRA bonds?

8 responses to this post.

  1. Posted by Tough Love on May 30, 2018 at 9:12 pm

    Sounds like under the PBGC Capital Infusion, the Bonds would be regular Treasury Bonds, unteathered to any Multiemplyer deal.

    I still believe ANY Taxpayer-funded “bailout” (and the proposals at hand are INDEED a “bailout”) is outrageous………….

    (a) the Taxpayers had ZERO role in these Plans
    (b) the Multiemployer Plans (in addition to SS and and personal savings) are the “retirement security” of the Mulitemployer Plans participants. If you bail THEM out (by making THEIR underfunded Plans whole), what is the justification for NOT doing the SAME for those who lost money in 401K Plans … which is THEIR “retirement security” ?


  2. Posted by NJ2AZ on May 30, 2018 at 10:25 pm

    the starting point for a “federal bailout” (if there is to be one, which i don’t even necessarily agree with) should be all remaining assets of these plans are transferred to SS and the individual participants granted some benefit not to exceed the social security maximum

    as a taxpayer, i’m fine with preventing the old cliche of retirees having to eat canned cat food, but that’s about it.


  3. Posted by skip3house on May 31, 2018 at 12:22 am

    Beyond sending all involved in these pensions eighth grade arithmetic books, i can think of no positive solutions…


    • Posted by Stanley on May 31, 2018 at 8:52 am

      Also send them a copy of “Baking Cakes for Dummies”. Or, “Panhandling Signs that get Results”.


  4. It comes down to making younger generations who don’t even get pensions sacrifice to pay for older generations who got both pensions and Social Security without fully paying for either.

    They should be honest and just take the money out of the Social Security Trust fund and then cut the benefits of those born after 1957 by 50 percent. Instead of pretending that isn’t where things are going.


  5. Posted by geo8rge on May 31, 2018 at 3:00 pm

    “would be required to use the loans to pay the full benefits of retirees”

    Does this include inflation adjustments and whatever else?

    The fear of the retirees with benefits near or above the PBGC maximum benefits is that they will lose all the amount above the maximum benefit. Maybe the Senate should just bail out the PBGC and raise the maximum for the multi employer plan retirees.

    Since the original pension schemes were in the highly regulated unionized world before the 1980s deregulation, require all truckers on federal highways to be Teamsters and part of the Teamster multi employer plan and use that money to support the retirees.


    • Posted by NJ2AZ on May 31, 2018 at 4:30 pm

      i imagine requiring all truckers on federal highways to be teamsters would wreak much more havoc on the economy than would the collapse of their MEP


  6. […] had a similar skeptical response to the P&I editorial to what Hoffa started out with but then he lost […]


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