Multiemployer Pensions: Will the Recent Bailout Destroy Pensions (in the Long Run)?

Link: https://marypatcampbell.substack.com/p/multiemployer-pensions-will-the-recent

Graphic:

Excerpt:

I think it unlikely that Congress, at least this Congress, will pass any MEP reforms. The bill allowing for MEP benefit cuts passed under Obama, during his second term – with a Republican House and a Democratic Senate.

There may eventually be MEP reforms, but with a big cash injection into Central States Teamsters, the reckoning day has been pushed off.

The real crisis was Central States Teamsters going under. It would have taken down the PBGC. The puny plans like Warehouse Employees Union Local No. 730 Pension Trust (total liability amount: $474,757,777) are drops in the bucket compared with Central States (total liability amount: $56,790,308,499).

Author(s): Mary Pat Campbell

Publication Date: 5 April 2021

Publication Site: STUMP at substack

Prelude to a State Pension Bailout

Link: https://www.wsj.com/articles/prelude-to-a-state-pension-bailout-11614547953

Excerpt:

Ordinarily, insolvency means pension freezes and benefit reductions, but multiemployer pensions are run by labor unions, a key Democratic constituency. And so the House Covid bill plans to dole out an estimated $86 billion from 2022 to 2024 to 186 pensions, enabling these plans to pay full benefits through 2051. With no incentive to cut costs, there’s little reason to think the pensions will be solvent after 2051. Look forward to more spending down the road.

Bailout supporters argue they’re helping impoverished workers make ends meet, but that doesn’t add up. The average monthly benefit from a plan like Central States is a seemingly modest $1,400. But that average is skewed downward by large numbers of employees who retired after only a few years of service. The one-third of Central States retirees who receive more than $2,000 a month — plus Social Security benefits — make a bailout expensive. No one in this group is even close to being in poverty.

….

The larger worry is that Congressional Democrats’ willingness to bail out private-sector multiemployer pensions signals they would do the same for state and local employee plans. Public-employee pensions operate under the same loose funding rules as multiemployer pensions, and public plans in Illinois, Kentucky, New Jersey, Texas and other states are no better funded than the worst multiemployer plans.

Author(s): Andrew Biggs

Publication Date: 28 February 2021

Publication Site: Wall Street Journal

THE CONSEQUENCES OF CURRENT BENEFIT ADJUSTMENTS FOR EARLY AND DELAYED CLAIMING

Link: https://crr.bc.edu/wp-content/uploads/2021/01/wp_2021-3_.pdf

Abstract
Workers have the option of claiming Social Security retirement benefits at any age between 62 and 70, with later claiming resulting in higher monthly benefits. These higher monthly benefits reflect an actuarial adjustment designed to keep lifetime benefits equal, for an individual with average life expectancy, regardless of when benefits are claimed. The actuarial
adjustments, however, are decades old. Since then, interest rates have declined; life expectancy has increased; and longevity improvements have been much greater for high earners than low earners. This paper explores how changes in longevity and interest rates have affected the
fairness of the actuarial adjustment over time and how the disparity in life expectancy affects the equity across the income distribution. It also looks at the impact of these developments on the costs of the program and the progressivity of benefits.


The paper found that:
• The increases in life expectancy and the decline in interest rates argue for smaller reductions for early claiming and a smaller delayed retirement credit for later claiming.
• Specifically, the benefit at 62 should equal 77.5 percent, as opposed to 70.0 percent, of the full age-67 benefit, and the benefit at 70 should equal 119.9 percent, instead of 124.0 percent, of the full benefit.
• The outdated actuarial adjustments are a modest moneymaker for the program – about $1.9 billion in 2018, with most of the gains coming from those claiming at 62, who are typically lower earners. Surprisingly, the correlations between earnings and life expectancy and between earnings and claiming behavior have only modest implications for both the cost and progressivity of Social Security benefits.
• Finally, the cost and distributional effects of earnings-related life expectancy and claiming cannot be addressed through the actuarial adjustments for early and late claiming. They reflect the fact that high earners get their large benefits for a long time and low earners get their more modest benefits for a shorter time.

Authors: Andrew G. Biggs, Anqi Chen, and Alicia H. Munnell

Publication Date: January 2021

Publication Site: Center for Retirement Research at Boston College

The Consequences of Current Benefit Adjustments for Early and Delayed Claiming

Abstract:

Workers have the option of claiming Social Security retirement benefits at any age between 62 and 70, with later claiming resulting in higher monthly benefits.  These higher monthly benefits reflect an actuarial adjustment designed to keep lifetime benefits equal, for an individual with average life expectancy, regardless of when benefits are claimed.  The actuarial adjustments, however, are decades old.  Since then, interest rates have declined; life expectancy has increased; and longevity improvements have been much greater for high earners than low earners.  This paper explores how changes in longevity and interest rates have affected the fairness of the actuarial adjustment over time and how the disparity in life expectancy affects the equity across the income distribution.  It also looks at the impact of these developments on the costs of the program and the progressivity of benefits.

The paper found that:

The increases in life expectancy and the decline in interest rates argue for smaller reductions for early claiming and a smaller delayed retirement credit for later claiming.

Specifically, the benefit at 62 should equal 77.5 percent, as opposed to 70.0 percent, of the full age-67 benefit, and the benefit at 70 should equal 119.9 percent, instead of 124.0 percent, of the full benefit.

The outdated actuarial adjustments are a modest moneymaker for the program – about $1.9 billion in 2018, with most of the gains coming from those claiming at 62, who are typically lower earners. Surprisingly, the correlations between earnings and life expectancy and between earnings and claiming behavior have only modest implications for both the cost and progressivity of Social Security benefits.

Finally, the cost and distributional effects of earnings-related life expectancy and claiming cannot be addressed through the actuarial adjustments for early and late claiming. They reflect the fact that high earners get their large benefits for a long time and low earners get their more modest benefits for a shorter time.

The policy implications of the findings are:

Increases in life expectancy and the decline in interest rates suggest smaller reductions for early claiming and a smaller delayed retirement credit for later claiming.

Accounting for differential mortality would involve changing benefits, and is not a problem that can be solved by tinkering with the actuarial adjustments.

PDF link to full paper: https://crr.bc.edu/wp-content/uploads/2021/01/wp_2021-3_.pdf

Authors: Andrew G. Biggs, Anqi Chen, Alicia H. Munnell

Publication Date: January 2021

Publication Site: Center for Retirement Research at Boston College