A Quiet Revolution in Pension Reform

A historic vote was announced overnight that signals a new era for large pension reform. As is often the case, "reform" here means that ordinary, hard-working folks will suffer a significant amount of pain as big companies are relieved of some liabilities, but the hope is it will be less painful than the alternative. The revolution began in 2014, when Congress adopted the Multiemployer Pension Reform Act (MPRA).  The Pension Benefit Guaranty Corporation guarantees a portion of the benefits due to participants in pension plans that have become insolvent, but as a result, it is also facing a nearly $100 million shortfall in its ability to cover the projected volume of its existing guarantees. Congress attempted to avert disaster by allowing particularly large and especially distressed pension funds to slash benefits themselves in order to maintain solvency. Ordinarily, this extraordinary action would, if possible at all, require an insolvency filing and court oversight of some kind, but the MPRA allows plans who aggregate benefits for many companies (multiemployer plans) to apply to the Treasury Department for administrative permission to abrogate their pension agreements and cut benefits with no court filing or general reorganization proceeding. There are, of course, restrictions on the level of distress required for such a move and the degree of proposed cuts, but the MPRA allows large pension funds to reduce the pension benefits of thousands of beneficiaries with simple administrative approval. The plan participants get a vote on such proposals, but the law builds in a presumption: Treasury-approved cuts go into effect unless a majority of plan beneficiaries votes to reject the cuts.

The Obama Treasury rejected the first five applications and approved only one during the course of 2016. A change in administrations has predictably turned this around, as the Trump Treasury has approved two more applications and rejected none in the first nine months of 2017. The most notable approval was for the New York Teamsters Conference, a $1.2 billion fund covering nearly 35,000 beneficiaries of nearly 200 companies. The Trump Treasury wasted no time in approving within less than three months the New York Teamsters fund's May 2017 application for benefit cuts of about 20% for active participants (a small minority) and about 30% for retired participants (the great bulk of beneficiaries). Plan beneficiaries were polled on this approved application, and more than 2:1 voted against it. But as in the other two cases of approved cuts, about two-thirds of participants failed to cast a ballot, so the presumption of approval was not rebutted; that is, a majority of voters did not reject the cuts, as non-voters were counted as "yes" votes.

This is a massive change in direction for pension reform and the process by which it is achieved. An anti-labor Trump administration can be expected to approve many more of these benefit cut applications--for better or worse--and a quiet revolution in pension reform will occur with very little neutral oversight.  Maybe this is better than watching many multiemployer plans collapse under the weight of a growing pension burden, possibly bringing the PBGC down with it, but this is a disturbing development no matter how one feels about pension reform generally.   

Comments

[Adam Levitin]

Do the plans themselves provide for majority governance? And do they specify how non-votes are to be counted? If not, why isn't there a Contracts Clause problem here?

[Adam Levitin]

A _really_ quick glance at the PBGC website suggests that the requirement that a majority vote against the amendment is from the legislation. That's got to be a Contracts Clause problem.