Democrats eye union pension rescue as part of coronavirus aid

House Education and Labor Chairman Robert C. Scott plans to introduce legislation Thursday to provide tens of billions of taxpayer dollars to rescue failing union pension plans. The bill would also allow struggling companies to delay tens of billions of dollars in contributions to their nonunion plans.

House and Senate Democrats agree that budget reconciliation is the most viable path for the package, according to a Democratic aide on the committee. The expectation is that the pension measures will be attached to President Joe Biden’s $1.9 trillion coronavirus relief plan through the reconciliation route, which bypasses the Senate’s normal 60-vote requirement, instead allowing passage with a simple majority.

Leaders of all four committees with jurisdiction — Scott’s panel, House Ways and Means, Senate Finance and Senate Health, Education, Labor and Pensions — have signed off on the legislation and the strategy of trying to hitch a ride on Biden’s bill, the aide said.

Ways and Means Chairman Richard E. Neal, D-Mass., is introducing the legislation separately since his panel shares jurisdiction with Education and Labor, but the provisions are largely the same, according to summaries of the bills.

Both measures contain provisions similar to a 35-page insert in House Democrats’ two COVID-19 packages that chamber passed in May and in October, which the Congressional Budget Office estimated at the time would cost about $60 billion over the first decade. The core of the plan would beef up the Pension Benefit Guaranty Corporation’s powers and funding to separate failing plans into two parts through a process known as partition.

The problem for many of the failing plans is that they are responsible for benefit payments to “orphaned” retirees, whose employers are no longer contributing to plans due to bankruptcy or other financial difficulties. Removing the orphans from the equation through partition would leave behind presumably healthier pension plans now able to meet their obligations.

Under the proposal, the PBGC, which is the federal insurer and regulator for traditional pension plans, would receive direct transfers of funds from the Treasury in order to keep benefits flowing and at-risk plans solvent for 30 years.

In addition, the bill would boost benefit amounts the PBGC would pay to participants in troubled plans that don’t qualify for partition relief, and provide similar relief granted during the 2008 financial crisis such as more time for plans to improve their funding status and make up for investment losses.

The $60 billion cost doesn’t account for added taxpayer contributions in later years, but advocates say doing nothing would lead to even higher costs for a system that the PBGC estimates faces an $82.3 billion shortfall through the end of fiscal 2029 and more afterward. The Teamsters’ Central States fund, with some 360,000 participants, is expected to be insolvent in 2026.

The potential nationwide human cost is staggering, as 124 pension plans with some 1.3 million participants are projecting they will run out of money by 2040. The failure of the PBGC’s multiemployer guaranty fund, projected to coincide with Central States’ insolvency, could also jeopardize at some point the nearly 1,300 relatively healthy plans and their 9.5 million participants that the PBGC also guarantees.

The cost of rescuing the union plans, though, will have a sizable offset. Separate provisions allowing employers to delay pension contributions to their individual plans would result in higher taxable profits at those companies, producing $17 billion in additional revenue based on last year’s cost estimate. That would bring down the net cost of the pension provisions to $43 billion under the 10-year budget window used last year.

There has been an understanding throughout the last year that pension relief for nonunion plans would be tied to the multiemployer issue, in part because the nonunion provisions subtract from the net cost, said Lynn Dudley, senior vice president at the American Benefits Council, which represents large U.S. companies that still pay into defined benefit plans.

“It’s not just the money,” Dudley said, noting that many large employers have both union and nonunion employees. A big manufacturer might pay into union plans for machinists and truckers as well as a separate plan for its nonunion workers.

“We’re sort of all in this together,” she said.

The single-employer provisions allow a six-year extension of an Obama-era law known as interest rate smoothing, which allows companies to put less money into their plans because they can value their plan liabilities based on higher interest rates that prevailed before the recent extraordinary lows.

It also allows companies to come up with 15-year rather than seven-year plans to address pension shortfalls. Both provisions allow for lower pension contributions during those periods, translating into higher taxable income.

Erin Hatch, communications director for Neal, wrote in an email that the multiemployer issue could still go through committees as a standalone bill. No decision has been made on reconciliation “so it may be premature to say that a multis fix will be part of reconciliation specifically,” she wrote.

Neal spoke Tuesday with Speaker Nancy Pelosi “and emphasized that he thinks a multi[employer] solution should be included in the next COVID relief package Congress considers,” through regular order or reconciliation, Hatch wrote.

Reconciliation route

Reconciliation is still a work in progress as lawmakers and aides are talking to experts on the complicated process. They are also consulting the Joint Committee on Taxation and the CBO about the bill, the House Education and Labor panel’s Democratic aide said.

Putting the bill out Thursday will allow union and business groups to show their support, while staff works to mold the legislation to meet reconciliation requirements, the aide said. That could include pushing the costs inside of a 10-year budget window, since Senate rules prohibit legislation that increases long-term deficits from being included in reconciliation.

“There may have to be some redrafting to address the issue, but it can be done,” Dudley said.

That the federal government is on the hook for these failing pension plans has long been the position of Scott, D-Va., who describes that obligation in mandatory terms.

“I believe it essentially having sold insurance, that the PBGC is morally obligated to pay the bills” when a plan fails, Scott said in an interview with CQ Roll Call last year. “Whether they have the money or not, the federal government has a moral obligation to make good on the promise.”

“That they didn’t charge enough premiums, that’s not the fault of the people paying the premiums,” he added.

Scott has repeatedly pointed to a 2019 estimate by the National Coordinating Committee for Multiemployer Plans, a group representing plans, members and employers, that forgoing a rescue and simply allowing pension plans to fail would cost the federal government $170 billion in the form of lost taxes and increased safety net costs, particularly for Medicaid.

“Doing nothing is the worst and most expensive option on the table,” Scott said in a statement Wednesday.