Taxpayers, businesses will also lose if pensions go bust

America is facing a multiemployer pension crisis. And it’s not just unionized workers in those plans that are going to suffer if nothing is done.

While the retirement nest eggs of some 1.5 million workers and retirees are at risk, companies that have upheld their end of the bargain by paying into these plans could also face uncertain futures. Just as importantly, taxpayers could end up paying more if nothing is done to fix this pension nightmare.

This problem is unprecedented. As the U.S. Chamber of Commerce noted in a 2018 report on the topic, “the sheer number and size of plans headed toward [insolvency] during the next decade present the system with challenges of a size and scope never before seen.”

Employers cannot leave these plans without making massive payouts or declaring bankruptcy. The result is they remain on the hook for making payments for pensions likely to collapse anyway, putting them at a competitive disadvantage. And if the plan goes belly up? It could be even worse for companies, as they could be assessed an immediate withdrawal liability or subjected to minimum funding rules that could drive them out of business.

More broadly, the economic ripples caused by numerous multiemployer pension failures would be substantial — and costly. As a report released by the National Institute on Retirement Security earlier this year explains, each pension benefit dollar paid out supported $2.13 in total economic input in 2016. During that year, $41.8 billion in pension benefits were paid to 3.5 million retired Americans.

Those expenditures collectively supported:

• Nearly 543,000 American jobs;
• $89 billion in total economic output; and
• $14.7 billion in federal, state and local tax revenue

What will become of those jobs and tax dollars if these pension plans are allowed to die? Affected communities will see less business in their stores, which will reduce the need for workers there as well as tax revenue. And this doesn’t even address the increased need for social services that retirees who have their benefits slashed will experience, costing taxpayers even more.

But all hope is not lost. The bipartisan bill H.R. 397, the Rehabilitation for Multiemployer Pensions Act, would boost financially troubled multiemployer pensions so they don’t fail. It would create a new agency under the U.S. Treasury Department that would sell bonds in the open market to large investors such as financial firms.

The agency, the Pension Rehabilitation Administration (PRA), would then lend money from the sale of the bonds to the financially troubled pension plans. Plans that are deemed “critical and declining,” as well as recently insolvent but non-terminated plans and those that have suspended benefits, would be eligible to apply for the program. For those plans needing additional help, the Pension Benefit Guaranty Corporation (PBGC) would be available to make up the difference. That PBGC payment obligation, however, would be just a small down payment compared to what would be paid if no changes to the current system were made.

Pension plans borrowing from PRA would be required to set aside money in separate safe investments such as annuities or bonds that match the pension payments for retirees. Those applying for loans to the PRA would also have to submit detailed financial projections. The PRA would be charged with approving all loans before they could be issued. Pension plans that have borrowed money are audited every three years and would have to submit a financial report every year to the PRA to show that the loans are working.

As it stands, there are more than 300 multiemployer plans around the country that are in danger of failing. Congress needs to find a solution that will deliver for hardworking Americans and businesses that are paying, or have paid, into the pension pool and are playing by the rules. Everyone has something to lose if nothing is done.

America’s workers are our greatest asset. Government’s primary responsibility is to prevent harm not merely respond to it. Now is the time for Congress to come together — Republicans and Democrats to get the president a bill he can sign.