Biden economy sent retirement funds spiraling, prompting mass bailouts for union pensions

Pension funds have struggled in 2022, amid market fluctuations, in part brought on by speculation over the Federal Reserve's interest rate hikes as it seeks to combat inflation.

Published: December 27, 2022 8:45pm

Updated: December 28, 2022 11:13pm

America's pension plans are struggling to meet their financial targets amid ruinous inflation, compromising the retirement of countless Americans. The Biden administration has responded by doling out massive amounts of taxpayer money to bail out retirement funds mostly run by unions.

In 2022, the U.S. economy has had to contend with decades-high inflation figures, brought on in part by large-scale federal deficit spending. In turn, the Federal Reserve has imposed considerable interest rate hikes to combat rising inflation, resulting in substantial market volatility that has adversely impacted individual and professional retirement funds alike.

The U.S. economy in June witnessed a major market fall that saw the erasure of roughly $3 trillion from American retirement accounts. Numerous pension funds have also reported substantial losses.

The Louisiana Firefighters' Retirement System, for example, reported a $247.4 million drop in fiscal year 2022. Moreover, the Illinois Municipal Retirement Fund faces likely financial difficulties due to the collapse of cryptocurrency FTX, in which it had heavily invested. Further, a 2022 audit of local municipal pension funds in Pennsylvania discovered cases of mismanagement, with individuals being overpaid, and funds underfunded.

Such examples are far from isolated, however, and analysts have suggested a plethora of pension funds may be inordinately ill-prepared to handle both existing market volatility and a prospective rocky 2023.

Cash holdings at U.S. government pension funds, for example, currently stand lower than they did during the 2008 financial crisis, according to the Wall Street Journal. At present, cash holdings comprise 1.9% of state and local government pension funds and only 1.7% at corporate funds. The 15-year average for public funds was 2.45% while corporate funds averaged 2.07%.

Liquid assets provide a cushion to pension funds and allow their managers a degree of flexibility in the event of adverse market conditions. Low liquidity could potentially leave pension fund managers hog-tied should market volatility persist, a scenario that has already come to fruition for many ill-managed retirement funds.

Accordingly, the Biden administration stepped in to rescue a multitude of pensions via the Public Benefit Guaranty Corporation. The PBGC is a public corporation that works to provide security to pension plans. It is also the vehicle by which the government may provide a bail out to an ill-managed fund. Many of these bailouts came via the Special Financial Assistance Program created in the 2021 American Rescue Plan, President Biden's COVID-19 stimulus spending package.

As of Dec. 22, 2022, the PBGC has granted more than $45.6 billion in SFA funds to plans that cover more than 552,000 workers, retirees, or other beneficiaries. The PBGC estimated in 2021 that the ARP would ultimately provide roughly $94 billion in pension relief via the SFA.

Under this program, the White House announced in early December that it would bail out the Teamsters-run Central States Pension Fund to prevent pension cuts for more than 350,000 union workers. The bailout included $36 billion, making it the largest private sector pension bailout in U.S. history. The fund was projected to run out of money in 2025.

Texas Republican Rep. Kevin Brady denounced the bailout, saying "[t]he largest private pension bailout in American history—that only benefits a tiny minority of workers—comes thanks to Democrats allowing those who mismanaged pensions to determine whether their funds qualify for taxpayer assistance with no safeguards."

"Despite years of bipartisan negotiations and recommendations, Democrats rejected protections for union workers in other underfunded multi-employer plans that are not as politically connected as the Teamsters' Central States plan," he lamented. "Now, American taxpayers are being forced to cover promises that pension trustees never should have been allowed to make."

Former Trump economic advisor Steve Moore expressed concerns to Just the News that the SFA could both reward poor management of pension funds and create a significant burden to taxpayers should they continue to perform poorly.

Of the Biden economy, he highlighted the stock market's significant volatility as an external factor working against pension fund managers. "Pension fund money is invested in the stock market. This was the worst year since 2008 for the stock market," he said, adding that "those big losses are coming back to bite us." 

"We're already going bankrupt," he lamented.

"What worries me most as a fiscal analyst is that this could become a bottomless pit of money," he continued. "Is the United States taxpayer going to be on the [hook] for these liabilities?" Moore further warned of a scenario in which continued pension mismanagement could result in "potentially trillions in unfunded liabilities" in pensions, which might then lead to more federal bailouts.

Though the Teamsters received the largest slice of the federal bailout pie, numerous other funds benefited from PBGC rescue operations, lending some credence to Moore's concerns. At least 18 other pension funds saw their applications to the PBGC for financial assistance approved in December alone. 

For example, PBGC announced on Dec. 20 that the New York-based Management-Labor Pension Plan Local 1730 ILA would receive $6.1 million in federal assistance on top of the $62 million it was granted in May. Moreover, just last week the PBGC announced it would assist the International Association of Machinists Motor City Pension Plan under the SFA by providing $66 million in response to benefit cuts.

Various other applications for SFA relief have been approved throughout 2022. In late October, the PBGC granted $32.7 million to the Bricklayers Local 7 pension plan. Earlier in that month, it handed over $192.8 million to the Freight Drivers Local 557 plan for the Baltimore-based union pension fund.

Moore highlighted the Teamsters bailout, in particular, asserting it, along with many others, were the product of incompetence on the part of managers. "They've just promised more than they can pay. That's just financial mismanagement by the unions," he concluded.

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