Sold as a bill to protect retired coal miners’ pensions, the Miners Pension Protection Act (H.R. 935) and the American Miners Act of 2019 (S. 27) would force taxpayers to cover the entirety of $6.5 billion in bad pension promises made by one particular coal-mining union—without taking a single measure to fix the problems that allowed such reckless underfunding to occur. Besides the United Mine Workers of America’s (UMWA) pension plan, nearly 1,400 other union, or multiemployer, pension plans across the U.S. have set aside only 42 cents on the dollar of their promised pension benefits. Bailing out one private pension plan would only lead to further requests for other private-sector and public-sector pension plans.
Bailouts reward bad actors and unfairly punish taxpayers, bailouts without reform encourage further recklessness, and selective bailouts that pick winners and losers are unjust. The Miners Pension Acts are all three of these.
There are better ways to protect mineworkers along with 10 million other workers in underfunded multiemployer pension plans—and to do so without shifting the burden to the 150 million workers who do not have private union pensions. Those reforms include maintaining the Pension Benefit Guaranty Corporation’s (PBGC) pension insurance safety net, enacting sound funding rules to prevent this problem from happening again, and protecting taxpayers who have their own retirements to finance.
The UMWA Pension Plan
The UMWA is a union representing coal miners. Currently, it represents coal miners who account for about 10 percent of total coal production in the U.S. The UMWA, jointly with employer representatives, manages a deeply insolvent pension plan that includes about 96,000 participants. Only 3,500, or 3.6 percent of them, are active workers. The plan has promised $6.5 billion more in benefits over the past seven decades than it will be able to pay—and that figure has been growing year by year. In 2022, the plan will almost certainly run out of money, and the PBGC will begin making loans to the plan to pay PBGC-insured benefit levels.
Despite what those workers’ union told them, the government had no role in their health and pension promises, nor in the insolvency of the health and pension plans. The responsibility for these broken promises lies exclusively with the union officials and employee representatives who mismanaged these plans over the past seven decades—including paying benefits to workers who had not earned them, consistently promising more than they set aside to pay, and failing to reduce benefit promises or increase contributions after shortfalls began.
The federal government never had a role in the UMWA’s pension plan management, nor did it ever make a promise to UMWA members, as has been alleged by the UMWA and proponents of the Miners Protection Act.
UMWA pensions are relatively modest. In general, workers are eligible for pension benefits after 10 years of service and upon reaching age 55, with full benefits available at age 62 and with 30 years of service. A worker with 30 years of service who retires at age 62 in 2016 would receive $2,021 per month, or about $24,250 per year, in addition to his Social Security benefit. Because many pension beneficiaries spent significantly fewer than 30 years working in the coal mines, the average pension under the UMWA is $530 per month.
Once a Pension Plan Becomes Insolvent, the PBGC Steps In
The UMWA pension plan is on track to run out of funds in 2022. As with other multiemployer pension plans that have become insolvent in the past, when the UMWA becomes insolvent, PBGC benefits will kick in. For some beneficiaries, that will mean smaller benefits. An average UMWA retiree with a $530 per month pension would receive $50 less, or $480. A retiree with a 30-year work history and a $2,020 per month pension would receive a $950 reduction in his monthly benefit, to $1,070 per month.
The PBGC is a government entity established in 1974 as a backstop against private pension plan losses. The PBGC does not have access to taxpayer funds but relies on the revenues it collects from participants to pay out insured benefits.
What Would the Miners Pension Acts Do?
The American Miners Act (S. 27) along with two House bills, the Miners Pension Protection Act (H.R. 935) and the Health Benefits for Miners Act (H.R. 934), would provide the UMWA pension fund with taxpayer funds to cover its unfunded pension benefits (which the fund has less than 30 percent of the necessary funds to pay) and add yet another round of expansion to an existing taxpayer-financed bailout of the UMWA’s unfunded health benefits. Under the proposals, the UMWA would have access to up to $750 million per year to cover both its broken health- and pension-benefit promises. Currently, the UMWA receives about $338 million per year, including $270 million from taxpayers and $68 million from the Abandoned Mine Land Reclamation Fund (AML), to cover its unfunded health benefits for certain workers. These acts would prevent the UMWA plan from going to the PBGC, and instead maintain 100 percent of promised benefits.
Money from Taxpayers—Not a Coal Fund
The process through which the UMWA would receive up to $750 million per year is confusing, leading many to believe the money is coming from a coal mine fund (the AML), but in reality, 100 percent of the funds for the UMWA’s pension benefits would come from taxpayers. That is because the entirety of the AML fund’s interest—an estimated $68 million in 2019—already goes towards the UMWA’s unfunded health benefits, and taxpayers are on the hook for the remaining $270 million of the UMWA’s estimated $338 million shortfall. Taxpayers have already paid nearly $2 billion to cover the UMWA’s unfunded health benefits promises and this would add even more taxpayer money for its unfunded pensions.
Under S. 27 or H.R. 95, the UMWA would receive roughly $400 million in taxpayer dollars per year to use for its unfunded pension benefits. Providing taxpayer funds to a private pension plan would be unprecedented.
Open the Door to Other Pension Bailouts
According to the Congressional Research Service, this would be the first time in history that the federal government provided financial assistance to a private pension fund. Unless Congress provides subsequent private pension bailouts or reforms the PBGC’s multiemployer program to maintain insured benefits, UMWA members would receive 100 percent of their promised pension benefits—while all other plans that become insolvent would receive as little as 5 percent of their promised benefits.
If Congress does what it never has before—bail out a private union pension plan—other plans will expect the same. That means that up to 1,400 other multiemployer pension plans that are, on average, only 42 percent funded, as well as state and local pension plans, which are collectively only 35 percent funded, would soon be knocking on Congress’s door for similar treatment. In total, multiemployer pensions have $638 billion in underfunded promises, while state and local pensions have between $4 trillion and $6 trillion in pension shortfalls.
A broader pension bailout is what many lawmakers want. In July 2019, the House passed just that—a more expansive pension bailout—through the Rehabilitation for Multiemployer Pensions Act of 2019 (H.R. 397). This bill would bail out the UMWA and 138 other underfunded plans at a cost of $100 billion. The worst part of that bailout is that it would only kick the can down the road—without doing a single thing to prevent future underfunding.
Even the plans that would benefit from the $100 billion bailout would not be fixed: According to the Congressional Budget Office (CBO), one-quarter of the plans receiving bailouts would still become insolvent within 30 years (and before repaying their taxpayer-financed loans), and most of the others would become insolvent in the following decade. Moreover, nearly 100 other deeply insolvent multiemployer pension plans that are left out of both the Miners Pension Protection Act and the Rehabilitation for Multiemployer Pension Plans would become insolvent within the next 30 years unless Congress passed subsequent bailouts for them.
Bailouts Without Reform: Exacerbating Funding Shortfalls
The multiemployer pension system is broken and in need of reform. It is not just a matter of some declining industries or a few years of subpar stock market returns: The entire structure is flawed, and without reform, it will only get worse.
According to testimony from Dr. Joshua Rauh, more than 80 percent of plans are digging themselves deeper into debt each year, which means that the $638 billion in underfunding reported for 2016 is likely larger now and will continue to grow. According to Dr. Rauh, these plans would have to increase their pension contributions by 55 percent to 60 percent just to stay afloat—and by significantly more to actually make good on their promises.
A whack-a-mole approach to the massive multiemployer pension solvency crisis would be unfair, inadequate, and counterproductive. Unless Congress wants to hold hearings with up to 1,400 other multiemployer pension plans and separately consider 1,400 other so-called “pension protection” bills, it should address the entire multiemployer pension crisis at one time.
Congress should do this by maintaining workers’ PBGC-insured benefits, fixing the rules so that this never happens again, and minimizing pension losses. These objectives are all possible without requiring taxpayers to pay for private unions’ and employers’ broken promises.
It is wrong for employers and unions to make pension promises and not set aside the funds to pay them, and it is unfair that nearly 100,000 coal miners and 10 million other workers and retirees with private union pensions across the U.S. stand to lose a significant portion of their pension benefits through no fault of their own. That is why it is crucial that Congress fixes the rules to make sure that this problem never happens again.
Employers and unions that promise pension benefits must be held liable to properly fund and fully pay those benefits. It is also essential that Congress not open the door to pension bailouts because that could unfairly force federal taxpayers to pay for up to $638 billion in private unions’ and employers’ broken pension promises—as well as between $4 trillion and $6 trillion in public-sector pension shortfalls. To protect workers and retirees and minimize pension losses, Congress should both maintain the PBGC’s solvency and provide options for plans to act sooner, rather than later, to minimize pension losses across participants.
Rachel Greszler is Research Fellow in Economics, Budget, and Entitlements in the Grover M. Hermann Center for the Federal Budget, of the Institute for Economic Freedom, at The Heritage Foundation.