The US bailout and multi-employer pensions


  • There are approximately 1,400 multi-employer pension plans covering approximately 10 million active and retired workers.
  • Collectively, these plans hold approximately $ 496 billion in assets but face $ 1.2 trillion in liabilities for a net liability of $ 672 billion.
  • Despite years of bipartisan and good faith negotiations to responsibly resolve this issue, the House of Representatives is considering legislation to use taxpayer funds to bail out the most underfunded private pension plans, without any reform to prevent the problem does not recur.


Multi-employer pension plans are collectively negotiated defined benefit pension plans. There are around 1,400 such schemes covering 10 million active and retired workers. Many of these plans are severely underfunded, jeopardizing the retirement benefits of covered workers. Meanwhile, the federal safety net for these plans – the Multi-Employer Revolving Fund of the Pension Benefit Guaranty Corporation (PBGC) – will run out in 2027 and will not have the resources to protect retirees if the finances of the multi-employer system continue to deteriorate. Despite years of deliberate and sincere political negotiations to responsibly address this challenge, Democrats in Congress have decided that a multibillion-dollar bailout by taxpayers of union pensions is essential to tackle the coronavirus.

The Challenge of Multi-Employer Pension Plans and the Policy Development Process

Serial underfunding of some plans has pushed the multi-employer system and federal beneficiary safety net, the PBGC, to the brink of collapse. There are approximately 1,400 multi-employer pension plans covering approximately 10 million active and retired workers. Collectively, these plans hold approximately $ 496 billion in assets but face $ 1.2 trillion in liabilities for net liabilities of $ 672 billion. The Congressional Budget Office (CBO) has estimated that the PBGC fund which guarantees part of pensioners’ benefits will be sold out by 2027.

It has been an apparent, predictable and measurable problem for years. Agency reports, think tank white papers, Congressional hearings and even a special congressional committee sounded the alarm bells on this challenge.

The Butch-Lewis Law

The opening offer from Congressional Democrats to address this process was the Butch-Lewis Act (HR 397), in various iterations. Along a largely partisan vote, the House passed HR 397, which provides taxpayer-funded grants to severely underfunded plans and taxpayer loans that can be forgiven to struggling multi-employer pension plans. . The taxpayer’s commitment has been estimated at nearly $ 70 billion over 10 years, but without structural reforms of the system to avoid the need for a bailout in the future. Indeed, the CBO noted that “most multi-employer pension plans that received loans under HR 397 would become insolvent a few years after the end of their loan repayment periods.”

The US Action Forum considered a separate proposal that combined a loan architecture similar to that of Butch-Lewis with benefit cuts and better stakeholder funding. The policy reflected the reality that there was simply no way Congress would let hundreds of thousands of retirees in Pennsylvania, Ohio, and elsewhere draw pennies on their pension dollars. Indeed, Congress has a robust story wait until the last minute to fix a foreseeable problem; and possibly simply commit taxpayer dollars to insolvent entities.

Republican Senate proposal

Recognizing that a counterfactual scenario involving a taxpayer bailout was more likely than a no-cost plan, Senate Republicans moved away from general opposition to commit taxpayer funds to help the multi-employer system. The Senate approach has proposed key reforms to the way the multi-employer system is governed. Importantly, the Senate reform plan recognized the need to tighten the measurement of the plans liabilities. Multi-employer plans are allowed to estimate their liabilities with much more flexibility than single employer plans. The policy change proposed by the Senate is long overdue and very consequent for lasting reform. As desirable as this policy is, gradual implementation may be necessary to avoid precipitous failures of the plan. The Senate approach also recognized this reality and proposed a gradual cap on the discount rate that plans can use to value liabilities. Beyond this crucial change, the Senate’s approach includes other key reforms that some of the root causes the crisis of the multi-employer pension system. These include simplifying and improving the lump sum payment – known as withdrawal responsibility – that companies must pay when they leave the sponsorship of a plan. The proposal would also be increase the PBGC guarantee for multi-employer schemes, a change which can only be accompanied by other reforms and additional funding. It should be noted in particular that the Senate proposal was based on increased funding flows from stakeholders: plan sponsors, participating unions and individual beneficiaries. While the Senate proposal provided for taxpayer funds as part of the solution, they were not the solution.

A scalable approach

Along the way, as good faith negotiations between decision-makers and relevant stakeholders took place, the political approach evolved. Where the Conservatives were initially opposed to the idea of ​​a role in helping taxpayers, they recognized that the federal government was already involved. Where progressives once championed a taxpayer loan program that would not solve the problem, they developed their thinking in the form of a sharing program that shared an architecture similar to the Republican Senate proposal and affirmed the political goal. to guarantee the solvency of beneficiary plans. In short, a divided government was deliberately working towards a lasting solution.

But that progress was supplanted by a crass bailout. In the House reconciliation bill, Congress Democrats have abandoned any pretext for reform, accountability, or recognition of moral hazard. “Retirement Aid” is not the open-ended loan program of earlier versions of Butch-Lewis, nor a taxpayer partition with large stakeholder contributions. Rather, the Democrats’ pension relief measure simply provides the less well-funded plans with a commitment from taxpayers to fund their deficits for the next 30 years.

Whereas the Democrats’ partition plan in the HEROES Act at least tied partition aid to long-term funding goals for the plans receiving aid,[1] assistance to multi-employer plans is as simple as it is misguided:

The amount of financial assistance paid to a multi-employer plan eligible for financial assistance under this section is that required for the plan to pay all the benefits due during the period beginning on the date of payment of the assistance payment. financial under this article and ending on the last day of the plan year ending in 2051, without reduction of the accrued benefits of a member or beneficiary from that date of adoption …

This is the definition of a bailout. While the CBO estimated that the pension relief contained in HEROES would cost $ 58 billion, the more open-ended commitment of reconciliation legislation is likely to be both more costly and more likely to encourage sustained underfunding in the multi-employer pension system.


The multi-employer pension system has been struggling for years and is, as you might expect, under pressure. The federal backstop, the PBGC, is also insolvent in the medium term. Congress has slowly and deliberately moved towards a consensual solution to this challenge that strikes an appropriate balance between the protection of taxpayers and the interests of retirees. Under the guise of COVID-19 relief, Democrats in Congress have decided to forgo a lasting solution to the challenge and simply write those plans a check to cover their costs for the next 30 years. This is a very expensive way not to fix a problem.

[1] SECOND. 4233A (g):

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