AAA to Bailout Committee

The Joint Select Committee on the Solvency of Multiemployer Pension Plans (Bailout Committee)has been hearing from several fronts on the wisdom of bailing out severely underfunded multiemployer plans so that participants will not have to have their benefits cut (further). Within the actuarial community the most influential voice may be that of the American Academy of Actuaries (AAA) which sent out their letter yesterday. Excerpts follow:

Please also note that this letter focuses on solutions for distressed plans facing projected insolvency. It does not address possible changes to funding requirements for multiemployer pension plans or other measures designed to prevent a new solvency crisis from arising in the future.

Additional funding for the PBGC’s multiemployer program would enable the PBGC to more effectively take part in a broad solution to stabilize the overall system. The most direct way for Congress to improve the financial strength of the PBGC would be to increase the current premium level.

Another way to increase funding to PBGC’s multiemployer program is to deduct premium payments from benefit payments made to participants in all plans covered by the program. Currently, multiemployer pension plans pay more than $40 billion per year in benefits to retired participants and their beneficiaries, and this number is projected to rise in the coming decades. A premium equal to a small percentage of the system wide benefit payments could generate significant additional revenue for PBGC’s multiemployer program without significantly reducing retirees’ benefits.

Direct federal funding could also be part of a plan to improve PBGC finances. Multiemployer plans governed by applicable laws and regulations over the past few decades may in retrospect have been placed in circumstances with insufficient tools and resources to prevent the current funding crisis. Certain aspects of the rules, such as the tax deduction limits on plans considered to be overfunded and the ability for plan sponsors to use investment gains to offset the costs of new benefit accruals, may have contributed to the financial difficulties facing troubled plans, thereby creating the current crisis. The role of past funding rules and regulations in contributing to – or at a minimum failing to prevent  – the current funding challenges would seem to support the notion of federal funds being used as part of the overall solution.

The Committee could also consider whether the PBGC should have broader authority to proactively restructure distressed plans to enable them to remain solvent.

My questions:

  1. How many of the distressed plans facing insolvency were impacted by tax deduction limits on overfunded plans?
  2. Wouldn’t it be helpful if the AAA explained how these underfunded plans developed due to flawed funding rules (unrelated to limits on overfunded plans)?

11 responses to this post.

  1. Posted by skip3house on September 27, 2018 at 11:37 am

    Perhaps better spelled out above and your 6/8 blog, but sure seems people ignore/ignorant of arithmetic, compounding,expenses and changing interest rates, life expectancy tables….but always are in charge of Pensions…Why? Same with members who only think following the ‘rules’ will get to their promised pensions.

    Reply

  2. Posted by geo8rge on September 28, 2018 at 8:03 am

    The AAA backs a ‘pension tax’

    “Another way to increase funding to PBGC’s multiemployer program is to deduct premium payments from benefit payments made to participants in all plans covered by the program.”

    This will kind of make suckers out of retirees in plans that were fully funded, due to moderate benefits and higher salary deductions while they were working, and turned over to the PBGC before a crisis occurred.

    But why limit it to participants in the multiemployer program, most of whom are unrelated? How about a broad based ‘pension tax’ on everything from Social Security to Federal Employee benefits, Veterans benefits to state and local benefits not to mention those ‘Cadillac plans’ for corporate officers to fund a single centralized pension bailout scheme for every pension scheme? I guess you could add annuity and 401k payments to the mix while u’r at it to keep the %s smallish and the total collected largeish.

    I personally think if the teamsters are going to be bailed out, it should be funded by some sort of tax on transportation. The coal workers should be bailed out by a tax on energy.

    AAA recomments a one time lump sum payment.

    “Making Plan Benefits Adjustable as Part of Restructuring ”

    consider whether accrued plan benefits should become adjustable after restructuring

    The negotiations might be for a partial lump sum bailout which will be followed by benefit cuts.

    Reply

    • Posted by Tough Love on September 28, 2018 at 9:04 am

      Quoting …………

      “But why limit it …….”

      How about NO BAILOUT from ANYONE ……. and especially NOT from Taxpayers who had ZERO to do with these (Union/Corporate negotiated) Plans and are NOT being made whole for drops in THEIR 401K Plans.

      Reply

  3. Posted by skip3house on September 28, 2018 at 8:23 am

    Eliminating ceiling for Social Security deductions, but keeping same level of benefits, wonder how the extra dollars could be used (here?).

    Reply

    • Posted by PS Drone on September 30, 2018 at 7:44 pm

      I receive SS benefits and presume that I will be subject to a haircut unless I croak before 2034. That having been said, it would be unconscionable to make the SS “limit” unlimited. That would mean a 12.4% additional tax burden (employee and employer) which, based on a 33% or 35% max FIT rate, would represent a 30% tax INCREASE in the poor upper-class SOB’s subjected to it. That is patently unfair. What needs to be done is to raise the “full” retirement age every year by a few months and eliminate all of this SS “Disability” abuse which costs the program a lot of $.

      Reply

  4. Posted by Stanley on September 28, 2018 at 2:20 pm

    Let them eat kale.

    Reply

  5. Posted by Anonymous on September 28, 2018 at 5:29 pm

    Is that what you eat as the beneficary of a taxpayer funded Military pension. Oh yes we’ve heard it before, you’re special

    Reply

    • Posted by Stanley on September 29, 2018 at 9:37 am

      Anonymouse, we should learn to use extra good judgment when granting credit. You know, the big three: character, credit and collateral. I doubt if many people are aware that when they do work today for benefits to be paid well into the future they are in the process of granting credit. Anyway, anonymouse, it is in your interest to be real careful both how much you borrow and how much you lend and to whom. OK, buddy?

      Reply

      • Posted by Tough Love on September 29, 2018 at 10:09 am

        Quoting …………..

        “when they do work today for benefits to be paid well into the future they are in the process of granting credit”

        That MAY be a fair deal to Taxpayers, and likely was NOT granted as a result of underhanded deal-making …………. and I personally have no problem with military pensions (noting that neither I nor anyone in my family now collects or expects to collect one).

        However, State and Local Public Sector pensions (AND benefits) are a whole different matter. ALL of them are ludicrously excessive (by comparison to what comparably situated Private Sector Taxpayers typically get from their employers) and are VERY clearly the direct result of COLLUSION between the Public Sector Union and our self-interested Elected Officials who gleefully traded their favorable votes (on such pensions & benefits) for Public Sector Union BRIBES disguised as campaign contributions.

        As such, Taxpayers have every right to and SHOULD renege on the 50+% share of such “promises” that assuredly would NOT have been made in the absence of that COLLUSION.

        Reply

        • Posted by Stanley on September 29, 2018 at 3:28 pm

          The MEP funding problems are nothing to sneeze at and how they are resolved will be an important factor determining what happens to the public pension problems. The long and short of it IMO is that America is bankrupt and needs to begin a whacking everything program. What I fail to understand is how there can be such resistance to older people living a more modest retirement. If pay and benefits were over promised, it’s a no brainer that reduced benefit checks are required.

          Reply

          • Posted by Tough Love on September 29, 2018 at 4:24 pm

            Yes, and when it comes to Public Sector pensions …………. especially deserving of reversal are the many many pension “formula” and “provision” INCREASES that took place AFTER the date of hire.

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