Democrats want to rescue union pensions from party’s failed bailout plan

Excerpts from an article that appeared in The Hill over the weekend written by Aharon Friedman, director and senior tax counsel at the Federal Policy Group.

Democrats now assert their bailout of multiemployer union pension plans in March’s American Rescue Plan Act was deeply flawed and are demanding the Pension Benefit Guaranty Corporation (PBGC) rescue multiemployer union pension plans from the act’s botched rescue.

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This is because Democrats entangled themselves in the web of multiemployer union pension plans financial alchemy and based the bailout on optimistic hypothetical investment returns, instead of the market value of liabilities. Plans use this sleight of hand to value pensions at less than half of cost and is a key reason multiemployer union pension plans, along with state and local government pensions, are severely underfunded to begin with. 

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To prevent the pension plans from speculating with taxpayer funds, which even Democrats realized was especially unseemly, the act requires multiemployer union pension plans to invest taxpayer funds in investment-grade bonds unless PBGC allows other investments. The return on such bonds is only around 2-3 percent, which means the plans will need much higher returns on other investments in order to hit 5.5 percent and pay promises through 2051. Schumer wants PBGC to ignore the American Rescue Plan Act and lower the rate to take into account the lower returns on safe investments. 

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The Democratic senators accuse PBGC of repeating the “very mistakes that have undermined the pensions for decades” by limiting the size of the bailout, but it is the statute written by Democrats and their Big Labor allies that doubles down on those mistakes instead of providing needed reforms. The letter accuses PBGC of wrongfully limiting bailout assistance based on a 5.5 percent assumption that “has failure baked in the cake,” but Democrats required that assumption. And Democrats refuse to stop multiemployer union pension plans and state and local government plans from using 7 percent or even 8 percent assumptions even more likely to fail, thus further endangering workers, retirees and taxpayers.