Outlook Improves for Multiemployer Reform in 2021, 2022

There’s an improved chance Congress will pass legislation over the next year or two to prevent multiemployer pension plans and the Pension Benefit Guaranty Corporation (PBGC)’s multiemployer insurance program from becoming insolvent, according to law firm Morgan Lewis.

In a blog post on the firm’s website, Morgan Lewis Senior Director Timothy Lynch and Partner Daniel Salemi wrote that the biggest factor that could lead to a legislative solution is the fact that the Democratic Party controls the White House and both houses of Congress. They also say the Biden administration may see greater urgency in moving for a solution due to the major economic fallout that would occur if PBGC’s multiemployer program were to become insolvent in 2026, as is currently projected.

However, what solution Congress will come up with is somewhat difficult to predict, as there are competing proposals for reforming the multiemployer system. One is HR 397, the Rehabilitation for Multiemployer Pensions Act, also known as the “Butch Lewis Act,” which would create a federally backed loan program for struggling plans. The bill passed the House in 2019, but got stuck in the Senate because Republican leaders are opposed to providing direct loans to plans.

Another proposal was included as part of the $3 trillion “Heroes Act” that was passed by the House in May but, like HR 397, was never considered in the Senate. The Heroes Act calls for a temporary partition program under which certain distressed multiemployer plans can receive financial assistance from PBGC while the remaining part of the plan remains solvent. The act would also increase the maximum PBGC benefit guarantee for a multiemployer pension plan to 100% of the first $15 of monthly benefit accrual, plus 75% of the next $70 of monthly benefit accrual.

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That means that a participant with 30 years of service would see their maximum PBGC guaranteed benefit nearly double to $2,025 per month from $1,072.50 per month. The act also provides that the maximum multiemployer guarantee will increase in future years in accordance with increases in the national average wage index.

Additionally, the act would repeal the provisions of the Multiemployer Pension Reform Act of 2014 (MPRA) that allow sponsors of critical and declining plans to apply for a suspension of benefits. Plans that have already implemented benefit suspensions would be able to receive a partition that would result in a retroactive restoration of suspended benefits, and no further plans would adopt benefit suspensions under the Heroes Act.

The proposed legislation also included language that would allow trustees of multiemployer pension plans to adopt an “alternative plan structure.” These so-called composite plans would have attributes of both a defined benefit (DB) plan and a defined contribution (DC) plan. Composite plans provide an annuity benefit to plan participants but limit a participating employer’s financial obligation without the risk of withdrawal liability.

And just last month, Sens. Chuck Grassley, R-Iowa, and Lamar Alexander, R-Tennessee, introduced the “Chris Allen Multiemployer Pension Recapitalization and Reform Act.” The act adopts the partitioning aspect of the Heroes Act but requires more stringent funding rules, plan governance, and disclosure rules, as well as significant increases in PBGC premiums, including additional payments from retirees, unions, and contributing employers. The increase in PBGC premiums is intended to bolster the multiemployer program’s finances and help it avoid insolvency.

Lynch and Salemi noted that all the key House members involved in the multiemployer pension issue will retain their seats and positions, such as Rep. Richard Neal, D-Massachusetts, who will continue as chairman of the Ways and Means Committee, and Rep. Kevin Brady of Texas, who will be the ranking Republican. Rep. Robert Scott, D-Virginia, will continue as chairman of the Education and Labor Committee, and Rep. Virginia Foxx, R-North Carolina, will continue as the ranking Republican.

Because control of the Senate transfers over to the Democrats, Sen. Ron Wyden, D-Oregon, will replace Grassley as chairman of the Finance Committee and Sen. Patty Murray, D-Washington, will replace Alexander as chair of the Health, Education, Labor, and Pensions (HELP) Committee. Sen. Mike Crapo, R-Idaho, will become the ranking Republican on the Finance Committee and either Sen. Richard Burr, R-North Carolina, or Sen. Rand Paul, R-Kentucky, will be the ranking Republican on the HELP Committee.

PBGC Multiemployer Program to Become Insolvent by 2026

Senators Unveil Plan to Bolster Multiemployer Pension System

Tags: Butch Lewis Act, Morgan Lewis, Multiemployer Pension Plans, PBGC, Pension Benefit Guaranty Corporation, Rehabilitation for Multiemployer Pensions Act

JPMorgan Chase CEO Jamie Dimon

For someone who turned in his best quarter ever, JPMorgan Chase chief Jamie Dimon is worried. About the pandemic in the near-term. And fintech upstarts in the longer term.

The market doesn’t seem to be too concerned, and beaten-down bank stocks are perking up. The banking industry’s shares were slammed during the onset of the pandemic market last year. But the KBW Nasdaq Bank Index is almost back to its level a year ago, before the coronavirus roiled the US and global economies.

The same is true for JPM’s shares, helped by the rebound from its profit slump early last year. All the big banks’ stocks should be buoyed by the Federal Reserve’s go-ahead order to resume stock buybacks and dividend increases.

JPM reported record earnings were $12.1 billion for the fourth quarter, which handily exceeded analysts’ projections. The largest US bank by assets ($2.89 trillion), it benefited from a surge in deposits from thrifty shut-in Americans, a plus enjoyed by its competitors, too.

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Nevertheless, Dimon indicated that the economy’s recovery remains fragile, which could affect demand for loans, a bank’s core profit generator. Although JPM and the others have repatriated some of the reserves they stockpiled last year against a possibly horrendous economic crash ($2.9 billion in JPM’s case), Dimon said he was cautious. His bank still has some $30 billion in the reserve account.

This vast stash, he said in the earnings release, “continues to reflect significant near-term economic uncertainty and will allow us to withstand an economic environment far worse than the current base forecasts by most economists.” He did point out that the vaccine rollout has spurred hope that the economy will be “healthy” come summer.

Beyond that, what bothers him is increased competition from the digital payments industry, which he said has an unfair advantage. Companies such as PayPal, Square, Chime, and Plaid have been doing a great business in this arena, which big banks used to dominate.

These fintech rivals have partnered with smaller banks to offer debit cards along with checking accounts with lower fees. They also have programs that permit customers to receive their paychecks a few days early.

These outfits charge big fees for debit-card swipes that banks like JPM are forbidden by law from charging. The law limits fees that banks with more than $10 billion in assets can impose.

The difference is stark. For companies exempt from the limit, fees amount to 54 cents per transaction. JPM and its Goliath ilk are capped at 22 cents.

“There are examples of unfair competition, which we will do something about eventually,” Dimon said during a call with analysts.

“Absolutely, we should be scared s—less about that,” he added. “As you look at what we’ve done, you’d say we’ve done a good job, but the other people have done a good job, too.”