You know the Biden administration’s special-interest giveaways are out of control when an additional $4.5 billion is met with hardly any criticism.
The Congressional Budget Office released a report on Sept. 30 that says President Joe Biden’s changes to the rules of a recent taxpayer bailout of select private union pension plans will add $4.5 billion in costs, bringing the taxpayers’ tab to $90.4 billion over the 2022-2032 period.
And that’s likely just the tip of the iceberg.
Ordinarily, $4.5 billion in additional spending as a result of administrative action would elicit scrutiny and challenges. After all, Congress—not the administration—has the powers of the purse, and the Biden administration’s Pension Benefit Guaranty Corporation has directly altered the law passed by Congress.
The American Rescue Plan, passed by Democrats through reconciliation in March 2021, provided a taxpayer bailout of the worst-funded private union pension plans, granting them one-time lump sum payments to keep those plans afloat through 2051.
To date, 49 plans have submitted applications for bailouts, ranging from $4 million to $35 billion, and plans that have already received cash infusions have begun submitting revised applications seeking even more money that’s now available because of changes under the final rule.
For background, there are close to 1,400 private union or multiemployer pensions across the U.S., representing workers across multiple different employers within a single industry, such as construction, mining, and trucking.
As of 2018—the most recent year for which data is available—those plans had accumulated $757 billion in unfunded pension promises and were on track to pay workers only 42 cents on the dollar in promised benefits.
Since the enormous cost of union pensions’ broken promises made a full bailout not feasible, policymakers intentionally limited the bailout—kicking the can down the road without enacting a single reform to actually solve the problem.
Congress crafted the bailout so that it covers only 11% of union pensions’ shortfalls ($85.7 billion out of $757 billion) with bailouts available for about 15% of the unfunded pension plans. Since 96% of workers are in plans that are less than 60% funded, that leaves out a lot of workers and retirees.
Congress specified that the Pension Benefit Guaranty Corporation must “use the interest rate used by the plan” in its most recent status certification. The initial rule governing the bailout specifically stated that the “[Pension Benefit Guaranty Corporation] does not have authority to provide a different rate or bifurcate the statutorily mandated interest rate.”
While this seems pretty clear-cut, a group of seven Democratic senators nonetheless pressured the Pension Benefit Guaranty Corporation to revise its rule to bifurcate the interest rate—allowing different rates for calculating the plan’s baseline assets and another for bailout assets—and to allow for a different, lower interest rate than the one specified by statute when calculating how much taxpayer money the plans receive.
That translates into higher costs for taxpayers.
Even as taxpayers now have to pick up the tab for presumed lower rates of return, the final rule allows plans to invest up to one-third of their bailout funds in “return-seeking” assets. The Congressional Budget Office estimates that this will result in higher returns and prolonged plan solvency (though with greater risks).
But those higher returns are ignored when calculating how much money the plans receive from taxpayers.
In a letter that sought (successfully) to persuade the Pension Benefit Guaranty Corporation to interpret the interest rate that they specified in law to be something different than what they wrote into the law, the seven Democratic senators argued that the required interest rate “has failure baked in the cake and repeats the very mistakes that have undermined pensions for decades—insufficient capital and the pursuit of outsize returns to compensate for this lack of capital.”
Ironically, those senators are precisely right: Union pension plans have repeatedly undermined the benefits they’ve promised to workers by assuming unrealistically high rates of return. That’s the crux of the $757 billion shortfall.
But while Democrats argued for lower rate assumptions for plans that get taxpayer bailouts, they failed to prevent plans that don’t receive bailouts from continuing to use excessively high return assumptions that allow them to promise lots but put aside little to fund workers’ pensions.
As a former counsel at the Department of Treasury and for the House Ways and Means Committee, Aharon Friedman, wrote:
There is no limiting principle on the spending of taxpayer money if agencies can disregard the law with the hope no one has the standing to obtain judicial review.
[The Pension Benefit Guaranty Corporation’s] rationale that the American Rescue Plan’s goal to keep plans going through 2051 justifies overriding the statute to change the interest rate would also justify illegally pumping additional billions into plans if they run out of money before 2051.
Fortunately, some congressional Republicans are attempting to hold the administration accountable. In a letter to Pension Benefit Guaranty Corporation Director Gordon Hartogensis, Republican Reps. Virginia Foxx of North Carolina and Rick Allen of Georgia wrote:
Given this administration’s track record, we are compelled to underscore the implications of West Virginia v. EPA and to remind you of the limitations on your agency’s authority.
After explaining how the Pension Benefit Guaranty Corporation’s final rule disregards the American Rescue Plan Act’s statutorily defined limits, the letter warned:
As the committee of jurisdiction overseeing [the Pension Benefit Guaranty Corporation], we assure you we will exercise our robust investigative and legislative powers not only to reassert our Article I responsibilities forcefully, but also to ensure the administration does not continue to exceed congressional authorizations.
The lawmakers requested additional information by Oct. 17 regarding the specific congressional authority upon which the Pension Benefit Guaranty Corporation is relying regarding its final rule on union pension bailouts and on pending and expected rule-making.
Biden’s spending through administrative action is out of control, and taxpayers will pay the price.
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