Biden’s union pension bailout: What it means, and will it work?
The Biden administration unveiled details this week of the final rules surrounding the federal bailout of hundreds of union pension plans passed as part of Democrats’ $1.9 trillion American Rescue Plan Act coronavirus relief package last year, saying it will secure workers’ benefits for decades to come.
ARPA’s Special Financial Assistance Program injects $90 billion of taxpayer funds into the federal government’s Pension Benefit Guaranty Corporation, which insures private-sector pensions. Prior to the passage of the purported COVID package, the PBGC was set to become insolvent in 2026.
The White House claims the plan will prevent 2 to 3 million workers from having their pension payments cut in retirement, by saving upwards of 200 private-sector union plans that had been in danger of insolvency.
President Biden touted the accomplishment during a speech in Ohio on Wednesday, saying that retirees in the shaky plans who have already seen cuts in benefits “will have them restored retroactively,” and that he “turned a promise broken into a promise kept.”
“We saw before the pandemic and the economic crisis that followed,” Biden said, “Millions of retirees were at risk of losing their retirement security through no fault of their own, based on conditions and unrelenting attacks on unions that were taking place.”
But some pension experts are skeptical of the plan, and are raising concerns.
One sticking point is that the rules have changed to allow one-third of the taxpayer-provided funds to be invested in stocks, which, according to The Wall Street Journal, “overrides a previous restriction that generally limited them to investment-grade bonds.”
In response to the plan, University of Pennsylvania Wharton School of Business Professor Dr. Olivia Mitchell, executive director of the school’s Pension Research Council, tweeted, “Spare me!”
She called the move “risky,” and said it is “unlikely” to keep the multi-employer plans “solvent through 2051, despite White House optimism.”
Derek Kreifels, CEO of the State Financial Officers Foundation, noted that the pension funds were in trouble long before the pandemic, asserting the move was political and a gamble for taxpayers and union workers alike.
“The White House is going to allow the same pension fund managers – who have been historically awful at their jobs – the ability to make riskier investments with not only hardworking American’s pensions, but also the nearly $100 billion worth of taxpayer dollars delivered to unions under the guise of COVID relief,” Kreifels told FOX Business.
He added, “In truth, this is a disaster of the Biden administration’s own making, putting millions of American’s retirements at risk with terrible economic policies that are reverberating throughout every facet of our lives – from the gas pumps to the grocery stores.”
Ryan Frost, a policy analyst at Reason Foundation’s Pension Integrity Project, says whether the bailout and its new rules will work is “a mixed bag.”
“Obviously it will work for these retirees as they’ll no longer be facing benefit cuts as the PBGC runs out of money, but there are zero safeguards in place to prevent the plans from running out of money again,” he said. “In fact, the bill even modifies the PBGC guarantee formula to increase the maximum potential benefits the retiree can receive.”
Frost says the question is what the trade-off will be for the U.S. taxpayer to bail out these private pensions.
“The plans will now be projected to reach 80% funded in 30 years, using some unknown discount rate that is going to vary between each plan,” he told FOX Business. “Congress needs to come back next year and put some safeguards and strings around plans who accept this money so they don’t drop further into insolvency, risking pension cuts and requiring another ‘financial assistance’ program snuck into a $1.9 trillion budget package.”