January 2019

New Bi-Partisan Bill to Address Pension Difficulties in Congress

January 22, 2019

The new new year has brought good news for the AFM & Employers Pension Fund. In its first action in the 116th Congress, the House Ways and Means Committee introduced a bipartisan bill that would address the serious challenges faced by the AFM-EPF and other multi-employer pension funds.

Introduced by Rep. Richard Neal, D-MA, the newly minted chair of the House Ways and Means Committee, the Rehabilitation for Multiemployer Pensions Act has a total of 10 sponsors, five from each party.

A rebranded version of the Butch Lewis Act that was first introduced in the Senate by Sherrod Brown, D-OH, in 2017, the bill would establish the Pension Rehabilitation Administration within the Treasury Department.

The PRA would operate the Pension Rehabilitation Trust Fund, which would include proceeds from specially issued Treasury bills sold to institutional investors, and loan and interest repayments made from borrowing pensions. Payments to institutional investors in the Treasury bills would be paid from the Trust Fund.

Pensions in “critical and declining” status that are projected to be insolvent within 20 years would be channeled enough assets to fund pension obligations for all participants in pay status at the time the loan is made.

No benefit cuts would be required to qualify for the loans. Pensions that have already suspended benefits under the Multiemployer Pension Reform Act would be required to apply for loans.

Loans would be extended over a 30-year period. Borrowing pensions would make interest payments for 29 years, and in the 30th year full principal repayment is due.

As was the case with the Butch Lewis Act, the latest iteration of a rescue package for upwards of 130 multiemployer plans includes a provision that allows for loan forgiveness if a plan is unable to repay the principal.

The PRA will have the authority to renegotiate revised repayment terms to avoid benefit suspensions.

The latest action comes after a bipartisan joint select committee failed to advance a rescue package at the end of the 115th Congress.

Democrats on the select committee had lobbied for the Butch Lewis Act as the basis for a rescue package. But Republicans on the committee voiced concerns over the funds’ ability to repay the loans. And negotiations reportedly stalled over the question of benefit cuts.

“This is not a bailout,” Chair Neal said in a statement. “These plans would be required by law to pay back the loans they receive from the PRA – the federal government is simply backstopping the risk. Importantly, my bill does not allow for any cuts to the benefits these workers and retirees earned through years on the job. Americans need our help, and it’s time to answer that call.”

Under the terms of the loans, plans can’t increase benefits, and employer contributions to the plans can’t be reduced. Loan approvals would be made in consultation with the Treasury Department, Labor Department, and Pension Benefits Guaranty Corp.

Assets from the loans would be managed separately from existing plan assets. The borrowed money could be used to purchase an annuity from an insurance company with at least an A rating to continue to fund the pensions for participants in pay status. Or the loans could be privately managed and invested in a duration matching portfolio. Asset management firms hired to invest the loans would have to agree in writing to be a fiduciary.

In the last Congress, the Butch Lewis Act had substantial support from Republican members. With Democrats now holding the majority in the House, it is all but certain to pass out of that chamber if it is brought to a floor vote.

Sixty votes would be required in the Senate, as well as a signature from President Trump, to make the Rehabilitation for Multiemployer Pensions Act into law.