Recent Developments in the Joint Select Committee on Solvency of Multiemployer Pension Plans
The solvency crisis bearing down on the multiemployer pension plan system has captured the attention of Capitol Hill. Since March, the Joint Select Committee on Solvency of Multiemployer Pension Plans (the “Committee”) has held a series of hearings examining the multiemployer pension system. Although it is unclear whether the bipartisan Committee ultimately will agree on legislation, the hearings represent the most significant focus on multiemployer pension plans since Congress passed the Pension Protection Act in 2006.
The Committee was established by the Bipartisan Budget Act of 2018 (P.L. 115-123) and is comprised of 16 members—8 from the House, and 8 from the Senate. Committee members are tasked with devising recommendations and legislative language that will “significantly improve the solvency of multiemployer pension plans and the Pension Benefit Guaranty Corporation” (PBGC). In furtherance of this mission, the Committee has held hearings exploring the inner workings of the multiemployer pension system, the role of the PBGC, and the ways in which contributing employers are affected.
At the Committee’s inaugural session on March 14th, members expressed hope that a bipartisan solution could be reached—yet the potential for a partisan divide was evident. The Committee held its first substantive hearing on April 18th, at which members received a primer on multiemployer plan issues from experts from the Joint Committee on Taxation and the American Academy of Actuaries.
The Committee’s May 17th hearing focused on the impending solvency crisis facing the PBGC. PBGC Director W. Thomas Reeder cautioned the Committee that the PBGC multiemployer insurance program is headed toward insolvency. According its projections, the PBGC needs $16 billion over the next ten years to stay afloat. Director Reeder emphasized that if the multiemployer insurance program becomes insolvent, the PBGC will be able to fund only a small fraction of the benefits it currently guarantees—which, in many cases, are already significantly less than the amount promised in a pension. Committee members inquired into the structure underlying the broader multiemployer pension system, and examined the primary controls available to Congress—a loan program and PBGC premium increases—that could help remedy the PBGC’s looming insolvency.
In June, the Committee shifted its attention to contributing employers’ perspectives on multiemployer plans. Most of the witnesses agreed that a long-term, low-interest-rate federal loan program for troubled plans would be a significant step in the right direction. Some Republican Committee members expressed precedential concerns about creating a loan program, as well as misgivings over Congress’ ability to ensure that loans would be repaid. Some Democratic members indicated that a loan program—such as that proposed in the Butch Lewis Act (S. 2147, H.R. 4444) sponsored by Sen. Brown (D-OH) and Rep. Neal (D-MA)—should be part of a legislative solution.
The Committee is anticipated to hold additional hearings, including a field hearing in Columbus, Ohio, on July 13, and a hearing featuring participants and retirees in late July in Washington, DC. November 30 is the Committee’s deadline to vote on a report, which, if approved, will be submitted along with legislative language to the President, Vice President, and congressional leadership. As the Committee accelerates its negotiations over final recommendations and advances toward its statutory deadline, Covington will continue to monitor these developments closely.
republican suffolk county legislator kevin mccaffrey president of teamster local 707 which has been taken over by the pbgc
Puerto Rico Bondholders Win Ruling Against U.S.
Federal judge upholds lawsuit seeking U.S. compensation for Puerto Rico bond losses
Demonstrators protested austerity measures, including cuts to the public pension system, in San Juan, Puerto Rico, last August. PHOTO: CARLOS GIUSTI/ASSOCIATED PRESS
A federal judge has refused to absolve the U.S. government of liability for investors’ losses on Puerto Rico bonds, a potential blow to efforts to write down the U.S. territory’s $73 billion debt load.
The ruling issued Friday by Judge Susan G. Braden of the U.S. Court of Federal Claims is an incremental victory for hedge funds fighting to get repaid on the $3 billion in Puerto Rico pension bonds These creditors have targeted the U.S. directly, saying the federal government should make them whole for enacting a 2016 law that set them up for losses.
The lawsuit strikes at the heart of the rescue law, known as Promesa, designed to tackle the U.S. territory’s fiscal crisis. Promesa was designed to avoid a taxpayer bailout of Puerto Rico, creating a court-supervised process for wringing debt reductions from creditors instead.
The legislation, passed by a Republican Congress and signed by President Barack Obama in 2016, also installed an federal board to oversee Puerto Rico’s finances and, if necessary, drive down the debt through the courts. The oversight board placed the territorial government and some public agencies under bankruptcy protection last year and has been wrangling with creditors since over repayment terms. Puerto Rico’s Employees Retirement System entered court protection to restructure its obligations to bondholders and retirees.
The retirement system had sold $3 billion in debt in 2008 to keep itself afloat and buy time for its investment portfolio to grow. Proceeds from the issuance were supposed to help the pension system continue paying benefits until elderly pensioners died off and younger public employees began retiring with leaner benefit packages. Bondholders were assured they would be repaid ahead of retirees from Puerto Rico’s employer contributions to the pension fund.
But the investment portfolio earned less on its investments than the interest it had to pay on the bonds, accelerating the pension system’s collapse into insolvency.
After Promesa was enacted, contributions to the system were moved out of creditors’ grasp. Oaktree Capital Management LP and other bondholders sued in the Court of Federal Claims, the tribunal that handles compensation demands against the U.S.
Bondholders have been suing Puerto Rico and the oversight board since 2016 over an escalating series of debt defaults. But the Oaktree-led creditors were the first group that sought to put U.S. taxpayers on the hook.
Judge Braden’s decision characterized the oversight board as a creature of the federal government, contradicting the judge presiding over Puerto Rico’s restructuring, who earlier Friday said the board was a local entity.
Both the bondholders and the Justice Department declined to comment.
Judge Braden also stayed the case pending the outcome of a separate constitutional challenge to the installation of the oversight board. Creditors would need to show their property rights were violated before she could award any compensation from taxpayers.
Write to Andrew Scurria at Andrew.Scurria@wsj.com
Appeared in the July 17, 2018, print edition as 'Creditors To Puerto Rico Set Back U.S..'
