Created February 20, 2018 – updating the January 5, 2018 brief on the issues.
Employee pension plans / retirement systems are regulated under federal law by the U.S. Department of Labor. The empowerment is the sweeping “ERISA” legislation of the mid-1970s.
The agency created to oversee corporate plans is the Pension Benefit Guaranty Corp (PBGC). Right now, its finance are stretched and stressed. As they have been for many years.
There reported to be about 200 U.S. “multi-employer” pension plans at risk, covering 1.5 million American workers. (Companies and worker unions co-manage the plan.)
The stress: there is not enough money in plans to cover “the promise” made to the workers — who according to all of the surveys, need the money for retirement (Americans simply do not save enough for the Golden Years, according to surveys).
The New York Times business writers had this issue in focus today.
- A bipartisan panel in the US Senate is examining the issue.
- The U.S. Chamber of Commerce is closely watching, and saying “…where do you get the money…everyone is tapped out…”
- That attitude doesn’t help; the ripple effects of a pension plan crisis would be disastrous.
- The Boston College Center for Retirement Research explains that the 1,400 multi-employer plans in existence have a half-trillion-dollar “hole” of liabilities that are unfunded ($500 billion plus).
- Most of these are in transportation, services and manufacturing sectors.
- Companies are trying to constructively deal with the issues; UPS and Kroger plans were examples in the newspaper’s coverage.
- Congress has to step up; the options are (1) do nothing; (2) make low-cost loans to the stressed funds; (3) force plans to cut benefits promised to their covered workers; (4) let the plans go bankrupt (which wipes out millions of workers’ “retirement expectations”).
- The bad news is that members of Congress are considering the implications of “doing nothing”.
And what about the PBGC, the Lone Ranger riding to the rescue of the plans (and millions of workers’ payouts)?
- By end of FY 2025, the PBGC is projected to be … out of money.
- In 2017 the agency paid out $141 million in aid to just 72 stressed multi-employer plans. (Think about 200…300…400 plans or more going belly up!)
- IF plan failure accelerates, and PBGC (whose revenues come from the corporate sector assessments on plans) could not cover the losses, taxpayers could be on the hook for hundreds of billions of dollars – in emergency relief financing for plans.
- And this while a projected half-trillion-dollars or more could quickly go vanishing in anticipated tax receipts (the “hole” created in the U.S. Treasury cash flow over a decade by the recent tax plan approved by Congress and the President).
What to do? What Are the Consequences for the American Corporate Community? For Taxpayers in under-funded plan risk? For Covered Retirees Planning on Receiving Benefits?
The U.S. employment picture has changed dramatically over the past three decades. There are vast, global supply chains supporting the major employers, and jobs that were “here” and now “there” (moved to distant corners of the globe).
Workers may become consultants, off the payroll for benefits and other considerations — and so no insurance premium is paid to PBGC for “consultants” who are not employees in the legal sense.
Automation, artificial intelligence, robotics, machine learning – these have impacted industrial and service jobs and practices and the impact is accelerating.
There is now some public dialogue on the future of work that includes consideration of a basic minimum payment to Americans as jobs disappear (see above reasons — which are not going away like jobs have been in the New World Order proclaimed by President George H.W. Bush in 1990-91).
The impact on private sector finances could be complex and multi-dimensional as the public conversation about pension plans of all types evolves in the coming months.
Affecting: The Financials (access to and cost of capital as corporate pension liabilities mount and become more visible). Economic (as in forecasting costs, profits). Internal unrest could rise (such as employee fear, lack of trust in the employer, lack of caring by the employer, protests).
Companies striving to be “sustainability, responsible, ethical, good citizens” with these issues could find themselves being challenged by stakeholders.
Taxpayers / citizens / voters will be very unhappy with still another projected massive bailout of American businesses.
The stakes are large in the corporate pension plan debate that is heating up — the action now moves to the U.S. Congress (and not welcomed in this an election year for all House members and one-third of the Senate).
No easy answers here…
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