The ticking of the clock you may not hear in the background is the time bomb known as the multiemployer pension plan crisis. You probably have never heard of this and likely do not even know what an MEPP is. That, however, does not alter the stakes involved.
As luck would have it, Utah has a unique position in all of this. Sen. Orrin Hatch is the senior Congressional leader of the group tasked with finding a long-term solution to the impending crisis. First, a bit on the issue.
A multiemployer pension plan is simply a retirement plan covering a single bargaining unit of a union with workers at more than one employer. For example, some employees might be at Utah Shipping, others at Zion Transfer and others still at St. George Trucking. When MEPPs were created, the idea was that there would be an efficiency of scale and spreading risk. It has not worked out that way. If an employer goes out of business, the burden to cover workers and retirees falls to the remaining employers. To depart an MEPP, an employer has to pay a withdrawal liability that often exceeds the net value of the company. None of the workers in these MEPPs or the employers still paying into them have done anything wrong. The system is simply broken.
How big is the problem? About 10 million Americans are in 1,400 MEPPs. As many as 100 plans will fail in the next several years unless something is done. When a plan fails, they become covered by the supposed federal backstop, the Pension Benefit Guaranty Corporation. That automatically means a reduction in benefits of between 50 and 70 percent. The PBGC has its problems. It is promising $100 billion in benefits already to about 1 million people with only $40 billion in benefits. The PBGC will be broke by 2025.
The plan participants are not the only people who will be impacted. A recent study of one large plan, Central States, revealed that upon insolvency, 55,000 jobs would be eliminated, slightly less than $3 billion in labor income would be lost, GDP would suffer a hit of more than $5 billion, $450 million in lost state and local income revenues, and another in $1.2 billion in federal revenues lost. Another study done by J.P. Morgan suggests, without a solution, the recent economic gains would essentially be erased without a solution.
Congress created a Joint Select Committee to come forward with a proposal by Nov. 30. The bad news is the deadline has passed. The good news is that those closest to the negotiations suggest they are near an agreement. In addition, they are committed to doing something before the next Congress convenes.
The senior Republican on the Joint Select Committee is outgoing Sen. Orrin Hatch. Working with the two Ohio Senators — Sherrod Brown and Rob Portman — the current thinking is that a deal could be had.3 comments on this story
However, an agreement is not the same as a solution. For that standard to be met, the agreement must be one that is fair and reasonable to workers, retirees and employers as well as the American taxpayer. That will require shared sacrifice by those directly affected. In addition, the idea of a straight bailout is not fair to the American taxpayer. Indeed there is a role for the federal government, but it must fully protect the American taxpayer.
The Trump administration has clearly signaled its desire to have Congress come forward with something the president can sign into law. Now is the time for Congress to do its job. For that to happen, America is depending on Hatch to once again provide the leadership that can move us from crisis to solution. Let’s all hope this is a faith well-placed.