Earlier this month, the Biden administration unveiled a regulatory tweak that could change the lives of millions of working families. The details are complex, but the result is simple: Billions of dollars will flood into union pensions that had been rapidly approaching insolvency.
“With today's actions, millions of workers will have the dignified retirement they earned and they deserve,” President Biden said on July 6, speaking to a cheering crowd of union workers in Cleveland.
The funds Biden was trumpeting had already been authorized more than a year ago as part of his pandemic relief package, the American Rescue Plan (ARP). But as many unions pointed out, an interim regulation had an inherent contradiction: it required that plans show a certain rate of return, but also demanded that they only use low-return assets, like bonds. The result was that many plans would still go insolvent in a few years.
An updated regulation called the
“We’ve seen the risk that millions of workers face when their hard-earned pensions turn into broken promises,” Biden said in Cleveland. “We’ve turned a promise broken into a promise kept.”
But not everyone is happy with the new policy. Critics have accused the Biden administration of giving unions a “blank check” without demanding any reforms in return.
“The bailout all but guarantees future insolvency or another bailout and constitutes a massive giveaway to labor unions,” wrote Howard Adler and Alex Pollock in an op-ed for the
While others have pushed back against that characterization, they still view the Final Rule more as a stopgap measure than as a complete solution.
“This isn’t a huge win for the unions,” said Chantel Sheaks, vice president of retirement policy at the U.S. Chamber of Commerce. “It’s a win that is helping retirees, current employees, and employers while we work on getting the structural reforms that are needed.”
No one disputes that multiemployer pensions had severe problems long before the COVID pandemic, and much work remains to be done to fix them.
‘Hotel California’
Multiemployer pension plans have a long and troubled history; some of the pensions affected by Biden’s policy date back to the 1950s. The main law that governs them is the Employee Retirement Income Security Act (ERISA) of 1974. That law created the Pension Benefit Guaranty Corporation (PBGC), which insures pensions. It also sets the rules by which pensions can use government funding, including the Final Rule the White House has been celebrating.
In the 1980s, ERISA was amended to create something called “withdrawal liability.” This meant that even if a company left the group of employers participating in a plan, that company was still required to pay for the pensions of those workers it used to cover. And if that was impossible because, for example, the company had gone bankrupt, the responsibility for those pensions was spread among the other employers still in the plan.
Over the years, many companies did go bankrupt, and the liability for their abandoned plans began to explode. Small employers, sometimes with just dozens of employees, became responsible for tens of millions of dollars in pension contributions.
“What ended up happening is, withdrawal liability has turned these plans for many employers into the Hotel California,” Sheaks said. “You can’t leave.”
Withdrawal liability is a major reason why multiemployer pensions were in danger of falling apart. The Central States Pension Plan, which covers the Teamsters union, at one point
‘Breathing room’
The $90 billion that would come from Biden’s pandemic law does a great deal to rescue multiemployer pensions. For one thing, the updated rule allows a third of the funds from the ARP to go toward “return-seeking assets,” including equities and equity funds. It also split the required rate of return into two different categories: one for assets from the ARP, and one for other assets, which have fewer restrictions.
The combined effect is to allow more government money to flow into pensions, for a longer period of time. The White House now estimates that over 200 multiemployer pension plans will remain solvent until at least 2051. That means 2 to 3 million union workers will enjoy the retirement they expected — and paid for — throughout their working lives.
“Today millions of union members and retirees can breathe a sigh of relief,” Liz Shuler, president of the AFL-CIO,
The measures also buy time — about three decades of it — during which Congress could potentially legislate solutions to the deeper problems facing the pensions. Or it could procrastinate.
“I think it’s going to give us all some breathing room so that we can work on structural reform,” Sheaks said.
A long way to go
By themselves, the Biden policies do not reform the laws around withdrawal liability, which frustrates many experts.
“The bailout does not solve any problems,” said Olivia Mitchell, executive director at the Pension Research Council at the University of Pennsylvania. “The ‘reform’ does not require the pension plans to contribute more to fill their underfunded gaps, nor does it require the plans to repay the taxpayers. Moreover, it allows the pension plans to invest some of the bailout money in stocks, which is highly risky.”
Sheaks argues that it would have been impossible to include structural reform in the pandemic relief package, due to rules governing laws passed through reconciliation in Congress. But she argues that such reform is necessary.
“This is a first step,” she said. “We’ve still got a very long way to go, but it has to be legislative. And Congress needs to remember that, too.”
