STUMP » Articles » MEP Bailout Quickie: Collapses Like a Flan in a Cupboard » 29 November 2018, 17:48

The official press release:

WASHINGTON – Joint Select Committee on the Solvency of Multiemployer Pension Plans Co-Chairmen Orrin Hatch (R-Utah) and Sherrod Brown (D-Ohio) released the following statement today committing to continue their work to solve to the multiemployer pension crisis past Nov. 30. When the Joint Select Committee was created, it was expected members would vote on a package by this Friday. Hatch and Brown say that while they have made significant progress and a bipartisan solution is attainable, more time is needed and the committee will continue its work.

“The problems facing our multiemployer pension system are multifaceted and over the years have proven to be incredibly difficult to address. Despite these challenges and a highly-charged political environment, we have made meaningful progress toward a bipartisan proposal to address the shortcomings in the system to improve retirement security for workers and retirees while also providing certainty for small businesses that participate in multiemployer plans.

“While it will not be possible to finalize a bipartisan agreement before Nov. 30, we believe a bipartisan solution is attainable, and we will continue working to reach that solution.

“We understand that the longer that these problems persist, the more burdensome and expensive for taxpayers they become to address, and we are committed to working toward a final agreement as quickly as possible.

“We would like to thank all the members of the Joint Select Committee for their hard work and continued dedication to addressing the issues that plague the multiemployer system. It has not been an easy job and all of their contributions have been, and will continue to be, vital to our work.

That’s the full statement.

I assume they’re not going to do anything in December or January (I could be wrong), so they’ll wait for a new House & Senate… in which the House is controlled by Democrats (they’ll want a full bailout) and the Senate is going to be more Republican-y (some are from key states where there’s a lot of union pension pain, so they’ll want some bailout, but not a full one).

So: I predict stalemate, and that this will be a convenient issue for the 2020 campaigns.

Thing is, unions, a President can try to promise all sorts of things, and a party can promise all sorts of things, but you need to keep in mind whether you will really get bailed out. No matter what they promise.

My prior post: Multiemployer Pensions: Waiting for the Bailout Report

IN THE MEANTIME: TRYING TO SIMULATE THE BAILOUT IDEA

A new paper from The Pension Analytics Group looked at the Butch-Lewis Act (the bailout idea with “loans”) and did some simulations.

Here is the nutshell result:

Our findings suggest that the Butch Lewis Act would not be an effective mechanism for preventing plan insolvencies. In general, a loan would delay a weak plan’s insolvency, but not prevent it. Eventually, taxpayers and the PBGC will be called upon to deal with insolvency costs in the form of loan defaults and PBGC assistance payments.

From their full paper, here are more detailed results:

Across 500 stochastic trials, the average number of participants in plans projected to become insolvent is 3.2 million in the baseline scenario, and 2.3 million if BLA is implemented. Thus, while BLA is expected to have some positive effect, many insolvencies are still likely to occur.

Simulated outcomes for BLA vary widely by stochastic trial. In about 40% of trials, plans covering more than three million participants are projected to become insolvent, while in about 20% of trials we project that fewer than one million participants will be affected by plan insolvency.

Our simulations indicate that BLA would significantly reduce financial pressure on the PBGC by delaying or preventing some plan insolvencies. However, reductions in PBGC claims costs are partially offset by the cost of loan defaults.

On average, across 500 trials, BLA reduces the present value of PBGC assistance by $62 billion (from $95 to $33 billion). However, the Treasury experiences an average of $43 billion in losses due to loan defaults.

Across the 500 trials, the average loan default rate was 52%, with a standard deviation of 33%. The rate of loan default is low in those trials with generally favorable asset returns, and high in those trials with unfavorable asset returns.

While the loan maturity period is 30 years, BLA delays plans’ insolvency by an average of only 16 years. This result arises because many plans burn through their assets – including the cash received from a loan — before reaching the loan’s maturity date.

So, again, one can hold out for a Democratic president, House, and Senate in 2021… and all you will get is a 16-year respite… for some of the failing plans.

Some would fail far more rapidly than 16 years – those already in the asset death spiral may not be helped with loans. Supposedly the act requires the loan to at least theoretically to be successful… but yeah, I’m skeptical about politicians making rules that would exclude any plans from very large and influential unions.

[by the way: my title is referring to this Eddie Izzard quote]