The Biden administration recently disclosed its comprehensive guidelines for the bailout of hundreds of embattled union pension plans. The initiative, embedded in the Democrats’ $1.9 trillion American Rescue Plan Act (ARPA) designed to ease the financial strains of the COVID-19 pandemic, aims to secure workers’ pensions for many decades. However, this move has sparked some controversies.
The ARPA’s Special Financial Assistance Program will funnel an enormous $90 billion of taxpayer capital into the federal government’s Pension Benefit Guaranty Corporation (PBGC). This entity serves as the insurer for private-sector pensions and was on the brink of insolvency before the ARPA intervention, due to run out of money in 2026.
According to the White House, the scheme could prevent 2 to 3 million workers from facing diminished pension payments upon retirement. It would save around 200 private-sector union plans that were at high risk of insolvency. President Biden underscored the significance of this achievement during a recent speech in Ohio, where he stated that retirees who experienced cuts in their benefits would be reimbursed retroactively.
However, this ambitious plan has not been received without skepticism. Critics express concern over the revised rules permitting a third of the taxpayer-provided funds to be invested in the stock market. This approach overrules a previous restriction that generally confined them to investment-grade bonds.
Dr. Olivia Mitchell, a renowned Professor at the University of Pennsylvania’s Wharton School of Business, expressed her reservations on Twitter, deeming the move “risky.” She argued that it was improbable to keep the multi-employer plans solvent until 2051, contradicting the optimism expressed by the White House.
Adding to the critique, Derek Kreifels, CEO of the State Financial Officers Foundation, underscored that the pension funds were already in dire straits pre-pandemic, calling the initiative a politically motivated gamble for taxpayers and union workers alike.
According to Kreifels, the plan permits underperforming pension fund managers to make riskier investments, endangering both American pensions and the sizable tranche of taxpayer dollars granted to unions under the ARPA. He criticized the absence of safeguards to prevent plans from running out of funds again.
Ryan Frost, a policy analyst at Reason Foundation’s Pension Integrity Project, pointed out that while the initiative would benefit retirees by preventing benefit cuts, the absence of protective measures could lead to the recurrence of the same issues.
Moreover, Frost questioned the trade-off for the American taxpayer in bailing out these private pensions. He called on Congress to introduce protective measures to prevent further insolvency for the pension plans accepting this financial assistance, warning of the possibility of necessitating yet another ‘financial assistance’ program.
While the Biden administration’s plan is laudable in intent, it is evident that some experts harbor serious concerns about its potential implications and long-term sustainability. As the dust settles on the new regulations, stakeholders will closely watch the outcome of this unprecedented intervention in the nation’s pension system.