The White House on Wednesday heralded the finalization of a hotly debated plan to stabilize troubled pensions.
Speaking in Cleveland, where he was joined by union workers and retirees, President Joe Biden announced a final rule implementing a financial assistance program for multiemployer pension plans. “Those retirees who lost their benefits will have them restored retroactively,” Biden said. “We turned a promise broken into a promise kept.”
The American Rescue Plan passed early last year mandated the program, allowing certain underfunded multiemployer plans to apply for taxpayer-funded assistance that can help them stabilize their finances and restore benefits that were previously cut. Interim rules for the program issued last summer by the Pension Benefit Guaranty Corp. drew criticism from pension consultants, plan trustees and other experts who were concerned that the method for calculating the financial assistance wasn’t generous enough to ensure the plans’ long-term survival.
The rule is “responsive to public comments” and includes some key changes such as allowing plans to invest a portion of their financial-assistance funds in higher-return assets, PBGC director Gordon Hartogensis said in a press briefing Wednesday. Taken together, modifications in the final rule are designed to ensure that all plans receiving assistance will get enough funds to remain solvent and pay full benefits through at least 2051, the White House said in a statement.
About 1,400 multiemployer pension plans, created through agreements between unions and two or more employers, cover nearly 11 million participants, many of them workers and retirees in industries such as construction, trucking and manufacturing. Many of the plans have been hit hard by a decline in unionization, employer withdrawals from the plans and investment losses, and a 2014 law allowed some troubled plans to slash the benefits of current retirees–a move derided by critics as undermining fundamental protections enshrined in federal pension law.
Before the American Rescue Plan, over 200 multiemployer plans were facing near-term insolvency, threatening to leave 2 to 3 million participants without their full earned benefits, the White House said. The financial assistance program has also extended to 2055 the solvency of the PBGC’s multiemployer insurance program, which was previously expected to run out of money in 2026, according to the White House statement.
As of Wednesday, the PBGC has approved over $6.7 billion in financial assistance for plans covering over 127,000 workers and retirees. The agency, which insures defined-benefit pension plans, expects it will ultimately distribute $74 billion to $91 billion worth of financial assistance to multiemployer plans.
The final rule allows plans to invest up to one-third of their financial-assistance funds in stocks and other higher-return assets, whereas the interim rule generally required that money to be invested in investment-grade bonds. “It looks like they’re backing off some of the very stiff requirements” of the interim rules, said Gene Kalwarski, CEO of actuarial consulting firm Cheiron.
But the inclusion of more aggressive investment options raises some concerns, said Russell Kamp, managing director at investment management firm Ryan ALM. Although stocks can be expected to outperform over the long haul, he said, “what happens if the U.S. falls into either stagflation or recession in the near term that dramatically reduces equity valuations?” The final rules, he said, “should have kept the original mandate.”
The new 33% limit on stocks and other higher-return investments will allow plans to grow their financial-assistance funds “and increase the potential to pay benefits through 2051 while limiting the total risk exposure of taxpayer-funded assistance,” the PBGC said in its final rule. The final rule allows only “responsible” return-seeking investments, the White House said, noting that the funds “must be invested in publicly traded assets on liquid markets to ensure responsible stewardship of federal funds.”
House Education and Labor Committee chairman Robert C. “Bobby” Scott, Democrat of Virginia, said in a statement Wednesday that the American Rescue Plan “keeps the promises made to retirees, saves businesses from going under, and shields taxpayers from the even greater cost of a multiemployer pension collapse.”
Some Congressional Republicans on Wednesday criticized the final rules. Democrats “chose a deeply flawed bailout of a select group of privately managed retirement plans,” Republicans Virginia Foxx of North Carolina and Rick Allen of Georgia said in a statement, adding that the American Rescue Plan “creates perverse incentives for further mismanagement and underfunding and leaves the taxpayer holding the bag.”