Thread: MEP Watch
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Old 03-22-2015, 01:03 PM
Jeremy Gold Jeremy Gold is offline
Join Date: Jul 2003
Location: New York City
College: Wharton PhD 2000
Posts: 448

Originally Posted by campbell View Post

I'm curious what other solutions they had in mind.

I mean, the prior solution was wait until the pension was put to the PBGC, and as MEPs do not get treated all that generously by the PBGC, get whacked even more. Do I have that right?
The NCCMP was formed of employers, unions, actuaries, lawyers, and lobbyists. It drove the legislation. Their program was outlined in a document called "Solutions, Not Bailouts." It contained few real solutions other than cutting benefits and it did contain some relatively unimportant hidden bailouts. It was constrained by an unmovable position against any overt bailouts of the plans or the PBGC (which has nowhere near the capacity to deliver all of the potential MEP guarantees, even those these are a small fraction of the levels in single employer plans).

PBGC guaranty levels would only cover a small fraction of the average benefit under the Central States plan but would cover a significant portion of the (much smaller) benefits of the Coal Operators MEP.

Not surprisingly, the plans are underfunded for many of the same reasons as the public plans are underfunded. The employers don't want to pay more and the employees didn't want smaller promises, and actuarial assumptions catered to both sides. When PPA put all of the single employer plans on bond-based discount rates, MEPs were still allowed to use EROA.

Important difference from the public plans, however, is that MEPs are funded by multiple employers in troubled industries rather than the entire taxpaying public. Thus push has come to shove more quickly for MEPs.

My testimony last year pointed out that this problem cannot be solved without limiting the continued underfunding of currently accruing benefits. In other words, while trying to deal with the giant hole in the ground, MEPs are still digging.

I don't think that the Congressional no-bailout position is fully justified. Congress wrote the rules that governed these plans at least since 1974 (and back to 1947 as well). Congress set MEP PBGC premiums at unsustainable levels and allowed EROA and extended amortizations in shrinking industries.

ERISA may not have been all that well designed but its message was clear: making good on pension promises was both an employer duty and a societal commitment (PBGC). When it all blows up, has society (via Congress) no responsibility?

I have suggested that there is another approach that, as a taxpayer, I think may be a bargain for me and a better deal for the plans. It contains two parts: (1) get the liability measurement on a market basis and insist that all newly accrued benefits be fully paid for as earned (hedging would be nice too). This would reduce future accruals and increase funding. (2) In exchange for a much more disciplined process and market measurement (i.e., we stop digging immediately), Congress can provide a fractional bailout on our collective behalf. As a taxpayer, I think this tradeoff will cost less in the long run than failure to properly constrain future accruals and funding.

In my testimony, I claimed agnosticism with respect to how much to cut benefits versus increase funding and I was silent on a partial bailout. I focused on proper measurement. This should surprise no one on the AO.
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