Senator Bob Casey (D-PA) has a proposal in the works. The “Create Jobs and Save Benefits Act” will bail out private sector union pension plans. The idea is to allow the Pension Benefit Guaranty Corporation, the federal guarantor of private sector pensions, to take over the pension liabilities of companies and dedicate tax dollars to paying them off.
The PBGC was established in 1974 to protect workers from the loss of their pensions. It was supposed to be self-financing through a combination of insurance premiums paid by plan sponsors and returns on pension investments. The PBGC itself is currently insolvent.
The plan being discussed would rescue multi-employer plans jointly run by companies and unions. Moody’s estimates such plans face long-term deficits of $165 billion. Senator Casey’s proposal would cover the most troubled plans including the Teamsters Central State fund.
A pension bailout would be unprecedented. And it opens the door for the bailout of state and local government pension plans, with unfunded liabilities estimated at $3 trillion. When will states begin to run out of assets to meet their obligations? Joshua Rauh estimates Illinois will be the first to run of out pension fund assets in 2018, followed by Indiana, Connecticut and New Jersey in 2019. And that’s assuming an 8% return on investments and 3% revenue growth. In other words, it could be sooner.