PBGC’s Reeder: Guarantees ‘In Dire Straits, and Getting Worse’
“I’m focused on making sure the guarantee works,” Pension Benefit Guaranty Corporation (PBGC) Director Thomas Reeder told a congressional panel Nov. 29. He made his remarks
at a hearing of the House Education and Commerce Committee’s Subcommitee on Health, Education, Labor and Pensions
chaired by Rep. Tim Walberg (R-MI).
Setting the stage in the opening remarks, Rep. Gregorio Kilili Camacho Sablan (D-Northern Mariana Islands), who serves as the subcommittee’s Ranking Member, stressed that it is not the fault of plan participants and retirees if a plan becomes insolvent. Walberg called for comity in response to the problem, remarking, “We owe it to taxpayers to put politics aside and find a bipartisan solution.”
Subcommittee members focused on the PBGC’s multiemployer pension program, which the agency projects could become bankrupt by 2025.
If Reeder did not assuage subcommittee members’ concerns, he at least gave them the solace of knowing he shares their concern as well as an appreciation of their gravity. “The multiemployer program is in dire straits, and getting worse,” he told the subcommittee. In response to a question by Rep. Marcia Fudge (D-OH), he acknowledged that the program’s bankruptcy “could happen before 2025.”
In response to members’ inquiries as to why the multiemployer program is in such poor shape compared to the single-employer program, Reeder cited several factors, including:
- higher premiums for single-employer program protection;
- the different ways in which benefits levels are set for the two kinds of plans, and the ways in which they invest their funds;
There are a number of ways to improve the situation for the multiemployer program, Reeder indicated, though none of them would be easy to pursue. The answer is going to entail “some kind of pain,” he told the subcommittee. Steps that could be taken include the following.
Premiums. The premiums single-employer plans are paying are more realistic than those the multiemployer plans are, said Reeder. “Multiemployer premiums have been too low for too long. I think the premiums are still too low,” he told the subcommittee, noting that he believes there is a disconnect between the decisions multiemployer plans make about benefits and the premiums they pay. However, he added that premium increases would help the PBGC and its guarantees to plans and participants to stay solvent rather than helping the plans to be so. Reeder likened premium increases to a tax increase, and acknowledged that “it’s not easy to raise premiums.”
Cutting benefits. It may be hard to reach a solution without some kind of benefit cut, Reeder said, but he would not specify a figure. In response to a question by Fudge, he acknowledged that the effect on the entire community would be very bad if benefits were reduced below what people can live on if benefit cuts are a response to the multiemployer program’s financial woes.
Congressional action. Reeder said that while the “kind of teeth” that raising multiemployer program premiums would bring would help the program, it would not be enough “to get out of the hole without another funding source in addition to that.” In response to a question by Fudge, he said that there is no mechanism absent federal action that would keep the program from becoming insolvent. Rep. Suzanne Bonamici (D-OR) expressed support for such a step, saying that to her “I think it’s pretty clear that Congress must act.”
On Nov. 16, Rep. Richard Neal (D-MA) introduced H.R. 4444, the Rehabilitation for Multiemployer Pensions Act
, a bill that would provide low-cost loans to failing multiemployer plans through the PBGC. Reeder said in response to a question from Sablan that he and his staff “have not had a chance to review it fully” and that they are “looking at it closely.” He added that it is “very difficult to examine the effect and the cost of the program” because of the very specific data required in order to perform such an analysis” and that he could not predict when they would be finished with their analysis, but that when they were they would share it with Congress.