Download production-quality video of Senator Brown’s opening remarks and questions during the hearing HERE.
WASHINGTON, DC – U.S. Senator Sherrod Brown (D-OH) joined Senator Orrin Hatch (R-Utah) today to chair the third hearing of the bipartisan, joint House-Senate committee tasked with solving the pending pension crisis threatening small businesses and 1.3 million workers and retirees nationwide. More than 60,000 Ohio workers and retirees are at risk.
During the hearing, Senator Brown questioned Executive Director of the Pension Benefit Guarantee Corporation (PBGC), Thomas Reeder, on exactly what is at stake as he continues to urge his colleagues to pass a solution this year. Reeder confirmed that congressional action is needed to prevent devastation for workers, retirees and businesses and prevent a taxpayer bailout of the PBGC.
PBGC serves as the insurance company for multiemployer pension plans. Brown explained in his opening statement that, like any insurance plan, PBGC won’t kick in until after the damage is done – after plans fail, businesses are forced to close and jobs are lost. And even then, retirees would only be covered for a tiny fraction of the retirement they earned over a lifetime of work. What’s more, Brown explained, the PBGC itself is severely underfunded, so allowing just one of the major plans to fail could put enough strain on the insurance system to bring down the entire PBGC multiemployer system. And if that happens, taxpayers could be on the hook for tens of billions of dollars.
Brown is urging the Committee to find a solution to prevent that from happening and ensure workers and retirees get the full pension they earned.
“Ask anyone who’s ever totaled a car or dealt with flooding or fire in their homes – you’re sure glad you have insurance. But you’d much rather have avoided the disaster in the first place. We have the opportunity to do just that – to keep those businesses open, to save those jobs, and to ensure workers get the entire retirement they earned,” Brown said. “Simply propping up the PBGC is not enough. We can’t take our hands off the wheel, close our eyes and allow this car to crash, simply because we bought an insurance policy. We can’t do that to the retirees and businesses whose plans are in crisis, and we can’t do that to the multiemployer system.”
Reeder confirmed to Brown during questioning that if plans are allowed to fail and PBGC insurance kicks in, the insurance could only pay about one-eight of the minimum benefit retirees are supposed to be guaranteed. Senator brown pointed out that minimum benefit is already is already much lower than the retirement these workers earned, that they bargained for and gave up pay raises for – that they budgeted for when taking out mortgages, and that they count on to pay their bills. Cutting it down to one-eight is unsustainable and could force retirees into poverty.
Numerous Ohio pension plans, including the massive Central States Teamsters Pension Plan, the United Mine Workers Pension Plan, the Ohio Southwest Carpenters Pension Plan and the Bakers and Confectioners Pension Plan are currently on the brink of failure. The Ironworkers Local 17 plan has already had to cut benefits. If nothing is done to the plans, they will fail and retirees will face massive cuts to the benefits they earned over decades of work.
Brown has been fighting to solve the pension crisis for years and has introduced his own solution, the Butch Lewis Act. Earlier this year, he secured the creation of the Committee as part of the overall budget compromise. At Brown’s urging, the Committee will have instructions to report a bill by the last week of November, and will be required to hold at least five public meetings, including the option of field hearings outside of D.C., so members of Congress can hear directly from retirees, workers and businesses affected by the pension crisis. The solution the Committee produces will be guaranteed an expedited vote in the Senate without amendments.
Text of Senator Brown’s complete opening statement is available here.
A transcript of Senator Brown’s questions to PBGC Director Thomas Reeder follows below.
Brown: The task in front of the Committee is not easy. But our success is critical for millions of workers, retirees, and the companies they work for across the country. Mr. Reeder, I’d like to ask you a series of questions to help us understand just what’s at stake. What happens to these plans and the benefits of retirees if nothing is done? Walk us through the fallout not just for your agency, but also for retirees and current workers.
Reeder: If you do nothing today, workers and retirees will continue lose the benefits that have been promised to them. That’s the red zone in the crescent shaped chart I show earlier, people will continue to lose this red benefit and it will be dire consequences. If you do nothing for the next couple of years, you will erase the green part without a significant infusion of cash to the PBGC. Right now the administration has laid out a proposal for increased premiums to pay the benefits that have been promised and that’s at $16 Billion spread out over 10 years. The longer we wait to put that money into the PBGC, the more that money will have to be over a shorter period of time.
Brown: What would be the impact on the withdrawal liability for businesses who employ these workers if nothing is done?
Reeder: If you do nothing, the withdrawal liability which is already significant will not go away. But I believe that most, and I think the consensus at PBGC, is that most of plans that will be facing insolvency in the near future will not terminate and they will continue on so there will not be a mass withdrawal. And so employers won’t incur withdrawal liability but they will have a continuing obligation to make a contribution to a plan that has already become insolvent so they’re making contributions for active workers for benefits that they will never get.
Brown: The minimum guaranteed benefit the PBGC pays to retirees if a plan fails is already much lower than the retirement these workers earned, that they bargained for and gave up pay raises for – that they budgeted for when taking out mortgages, and that they count on to pay their bills. Absent Congressional action, would the PBGC even be able pay that minimum guaranteed benefit?
Reeder: No. We would be cut to about 1/8th about what the minimum benefit is –
Brown: Talk more about that, so the minimum benefit which would be markedly less than what they were promised, what they negotiated, what they were getting, what they thought they were getting. That minimum benefit is already small, relatively, you’d be force to cut the average benefit how much?
Reeder: If they’re making $8,000 in guaranteed benefits today, they’d get less than $1,000. I’m talking about an annual number.
Brown: So it would be cut to 1/8th perhaps.
Reeder: Or less.
Sherrod: 1/8th of a smaller number already?
Reeder: Yes. These were modest benefits to start with as I showed you earlier in the 707, the highest benefit there that was promised, it was earned under the plan, was about $40,000, which is a rich plan in the multi-employer world but it’s a modest benefit. As you can see most benefits, more than half of the benefits were less than that about $15-16,000. Our guarantee cuts it way down from there cuts it by 50% or more, and if we can’t make good on that guarantee, it’s going to cut that low amount by 1/8th.
Brown: So that may have been, when you said 40, it may have been 3,000+ a month and then your guarantee is maybe 1,200 a month and this would cut it by 70-80-90% below that, beyond that.
Reeder: You’re faster than I am at math.
Brown: More or less, no I’m not. So after that devastation of Congress, after all that devastation, so we have the PBGC guarantee which is much less, we have companies going out of business because of withdrawal liability issue, we have PBGC paying way less then we normally paid, if congress then steps in to insure the minimum PBGC benefit what’s the potential cost to tax payers then? So we do nothing, after all that devastation we have done nothing, the congress needs to step in to insure the minimum PBGC benefit what is the potential cost to tax payers then?
Reeder: The number that’s out there now that we’ve produced is 16 billion over 10 years beginning today so if we delay, that number’s going to move. But that keeps PBGC alive for approximately 2 decades, and it may need more after 2 decades.
Brown: So you talk about what inaction means, what you’re saying is after pensions have been cut, the businesses have suffered, the workers have lost their plan, after all that taxpayers still have to pay a massive price to keep the PBGC in operation.
Reeder: If congress elected to provide that: right now we’re not backed by the full faith and credit of the U.S. Government. Congress could elect not to do that.
Brown: Well, I can’t imagine. Thank you.