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Controversial pension bailout plan completed

The White House on Wednesday heralded the completion of a hotly debated plan to stabilize ailing pensions.

President Joe Biden announced final rule to implement a financial support program for multi-employer pension plans in a speech in Cleveland, where he was joined by union workers and retirees. “Those retirees who lost their benefits will have them back retrospectively,” Biden said. “We turned a broken promise into a promise kept.”

The American Rescue Plan, passed early last year, commissioned the program and allowed certain underfunded plans by several employers to apply for taxpayer-funded assistance that can help them stabilize their finances and restore previously cut benefits. The Pension Benefit Guaranty Corp. The interim rules for the program that were issued drew criticism from pension advisors, plan administrators, and other experts who feared that the method used to calculate financial assistance was not generous enough to ensure the plans’ long-term survival.

The rule responds “to public comments” and includes some important changes, such as: Taken together, changes in the final rule are intended to ensure that all plans receiving support receive sufficient funds to remain solvent and pay full benefits through at least 2051, the White House said in a statement.

Some 1,400 multi-employer pension plans, created through agreements between unions and two or more employers, cover nearly 11 million participants, many of whom are workers and retirees in sectors such as construction, transport and manufacturing. Many of the plans have been hit hard by a drop in unionisation, employers’ withdrawal from the plans and lost investments, and a 2014 law allowed some troubled plans to cut benefits for current retirees – a move favored by critics derided as undermining the basic protections enshrined in the Federal Pensions Act.

Prior to America’s bailout, more than 200 multi-employer plans were on the brink of bankruptcy, threatening to leave 2 to 3 million participants without their full earned benefits, the White House said. The financial assistance program also extended the solvency of the PBGC’s multi-employer insurance program to 2055, which was previously expected to run out of funds in 2026, according to the White House statement.

As of Wednesday, the PBGC has approved over $6.7 billion in financial assistance for plans for over 127,000 workers and retirees. The agency, which insures defined benefit plans, expects it will ultimately distribute $74 billion to $91 billion in financial assistance to multi-employer plans.

The final rule allows plans to invest up to a third of their financial support funds in stocks and other higher-yielding assets, while the transitional rule generally required that money to be invested in investment-grade bonds. “It looks like they’re reversing some of the very strict requirements of the interim rules,” said Gene Kalwarski, CEO of actuarial consulting firm Cheiron.

However, including more aggressive investment options raises some concerns, said Russell Kamp, chief executive of investment management firm Ryan ALM. Although stocks can be expected to outperform over the long term, he said, “What happens if the US falls into either stagflation or recession in the short term, which dramatically lowers stock valuations?” The final rules, he said, “should have retained the original mandate”.

The new 33 percent limit on stocks and other higher-yielding investments will allow plans to grow their grant funds “and increase the potential to pay benefits through 2051, while limiting the overall risk of taxpayer-funded aid,” the PBGC said in his last rule. The final rule allows only “responsible” yield-oriented investing, the White House said, noting that funds “must be invested in publicly traded assets in liquid markets to ensure responsible stewardship of federal funds.”

House Education and Labor Committee Chairman Robert C. “Bobby” Scott, a Virginia Democrat, said in a statement Wednesday that America’s bailout plan “delivers on promises made to retirees, saves businesses and saves taxpayers.” a pension collapse for several employers protects against even higher costs.”

Some Republicans in Congress on Wednesday criticized the final rules. Democrats “have opted for a deeply flawed bailout of a select group of privately managed retirement plans,” Republicans Virginia Foxx of North Carolina and Rick Allen of Georgia said in a statement, adding that the American bailout “provides perverse incentives for further mismanagement.” and underfunding creates and leaves the taxpayer pocket in hand.”

https://www.marketwatch.com/story/controversial-pension-rescue-plan-finalized-11657155778?rss=1&siteid=rss Controversial pension bailout plan completed

Brian Lowry

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