Bipartisan talks are underway for an expensive bailout of failing union pension plans as worsening finances and election concerns may have broken a monthslong logjam.
Looming pension plan insolvencies in battleground states like Michigan, Ohio and Wisconsin have gotten lawmakers’ attention with just over a month until Election Day. And on Sept. 14, the Pension Benefit Guaranty Corporation reported that the financial condition of its insurance backstop for failed plans has gotten much worse over the past year as pandemic-induced lower interest rates crushed projected asset values.
Whether the political and financial conditions are enough to spur action is uncertain. Republicans and Democrats have long been far apart on how to address the growing pool of red ink at more than 100 pension plans, mostly in the transportation and construction industries. But leadership on both sides of the aisle has given negotiators the green light to try.
“At least we are sitting down talking, and we’ve been waiting eight months to sit down and talk,” said Senate Finance Chairman Charles E. Grassley, R-Iowa.
Democrats have pushed for what would be a roughly $60 billion taxpayer rescue. Republicans instead have offered benefit cuts, insurance premium hikes and rising company contributions.
But those positions are softening as pressure builds from unions and employers saddled with increasing pension costs at the same time COVID-19 continues to savage the economy.
“We’re going to have to spend some federal money,” said Senate Health, Education, Labor and Pensions Chairman Lamar Alexander, R-Tenn. He said Senate Majority Leader Mitch McConnell asked him and Grassley to put together a proposal in talks with Speaker Nancy Pelosi.
A compromise would have to include Republican-sought provisions to “shore up” and empower the PBGC, which oversees private pension plans, and “reform the law to make sure that something like this doesn’t happen again,” Alexander said.
Those GOP priorities include strengthening the governance rules for pension plans, changing how the finances of plans are measured, encouraging plans to correct problems earlier and encouraging employers to remain in plans rather than withdraw.
A bipartisan deal this year would be a tall order, but the most likely route is a lame-duck session when Congress meets to take up fiscal 2021 spending bills. There’s recent precedent for such a move: A $6 billion rescue of the failing United Mine Workers of America’s pension plan last year was folded into a year-end spending bill.
The UMWA plan had been projected to run out of money in 2020; the fix was partly engineered by McConnell, who’s running for reelection this November in a state where retired coal miners have political muscle.
Pennies on the dollar
The PBGC estimated that its insurance fund, which now has about $3 billion in reserves, will run out of money in 2026 — around the same time the nation’s second-largest union pension, the Teamsters’ Central States plan, is projected to go bust, leading to more than 400,000 people receiving “mere pennies on the dollar” on what they were promised, according to the PBGC.
In all, 124 pension plans with some 1.3 million participants are projecting they will run out of money by 2040. That could also at some point jeopardize nearly 1,300 relatively healthy plans with 9.5 million participants.
Michigan and Ohio are the Nos. 1 and 2 states for Central States pensioners, respectively, while Wisconsin has the sixth-largest population. All three states are critical battlegrounds for the White House and have concentrations of GOP lawmakers and voters who are typically more union-friendly than their party as a whole.
Republicans have two veteran legislators with a history of bipartisanship as well as personal incentives to get a deal leading the negotiations.
Grassley is the lead, according to Alexander. The senior Iowa senator isn’t up for reelection until 2022, but he just turned 87 and is in his last year as Finance chairman. Alexander is retiring after this year.
While talks have largely been dormant, there was a flurry of activity in March through May as the pension problem became part of coronavirus aid talks. Positions appeared to soften in March after Senate Democrats floated a 30-page draft plan that did not include long-standing demands from their party that failing plans simply be given around $60 billion in grants and loans.
House Democrats followed suit, dropping the loan and grant program from their $3.4 trillion coronavirus bill that passed in May. Instead, that bill’s proposed pension solution revolved around a scheme favored by Grassley and Alexander.
The GOP senators have been pushing since last year to expand the PBGC’s “partition” powers. Under a partition, responsibility for benefit payments to a plan’s “orphaned” retirees, whose former employers are no longer contributing to plans because of bankruptcy or other financial difficulties, is switched to the PBGC.
There is a strong correlation between how many “orphaned” retirees a plan covers and its financial condition. Removing the orphans from the equation would leave behind presumably healthier pension plans now able to meet their obligations.
A Grassley-Alexander partition plan floated last year would be paid for largely by huge increases in insurance premiums, particularly for troubled plans, along with benefit cuts and greater employer contributions.
Meanwhile, the Democrats’ partition plan in their May coronavirus aid bill would be paid for largely with government money, as indicated by the Joint Committee on Taxation’s $58 billion cost estimate.
‘Dance of the tarantulas’
In addition to Pelosi, Democratic negotiators include Senate Minority Leader Charles E. Schumer, House Ways and Means Chairman Richard E. Neal of Massachusetts and House Education and Labor Chairman Robert C. Scott of Virginia, according to a source familiar with the talks who requested anonymity to discuss private conversations.
It wasn’t clear how far off their initial positions the two sides were prepared to move. “As far as what will be in a bill, both sides have been pretty close-lipped,” said Chantel Sheaks, executive director of retirement policy at the U.S. Chamber of Commerce. “All we know for sure is that it will be partition.”
Rep. John B. Larson of Connecticut, a senior Ways and Means Democrat, was frustrated with the pace of the talks thus far and suggested Republicans were only engaging now because of the importance of Midwestern battlegrounds. “To date we might as well be negotiating with ourselves,” he said.
Larson compared the situation to two venomous creatures circling each other warily, afraid the other might bite: “I call it the ‘dance of the tarantulas.’”
Neal said that with elections around the corner, he isn’t surprised Republicans want to talk. Twenty-nine House Republicans voted for Neal’s initial union pension rescue bill that passed the House last year.
“And look where they all come from,” Neal said. More than half the GOP votes came from Ohio, Michigan, Illinois, Indiana, Wisconsin, Minnesota and Missouri, which all have a lot of retirees affected by a Central States plan insolvency. Four of Ohio’s 12 GOP members voted for the measure, which many other Republicans referred to as a “bailout.”
Pelosi’s office didn’t respond to a request for comment.
How much the government will chip in is the biggest question, according to Sheaks. That figure will determine the other parts of the financial equation: benefit cuts, employer contribution increases and insurance premium hikes.
The chamber was critical of the initial Grassley-Alexander proposal to nearly triple base premiums and increase by more than tenfold the premiums for more troubled plans.
Sheaks notes that for some chamber members, contributions to troubled plans have tripled in just the past few years. The chamber is hoping that government help will enable cuts to employer contributions rather than continued increases for companies already struggling from the impacts of a pandemic.
“I think the agreement is going to be something very similar to what’s in the [House aid package], but you’re going to add on some Republican priorities,” said the source close to the talks.