What's Wrong With Buying 30 More Years?

Forbes published an article by Elizabeth Bauer on December 6, 2018, titled, "Could The Butch Lewis Act Solve The Multiemployer Solvency Crisis? The author concludes that despite the fact that "the Butch Lewis Act (BLA) is projected to have an overall positive impact, but because "it will only, on average, provide a partial solution" that it isn't worth consideration. How troubling.The article raises many of the same arguments that we've already addressed in previous blogs - impact on the deficit, as the CBO initially estimated a cost of $100 billion, declining union membership that will impact future contributions, changing investment managers "into a profit-seeking endeavor to build up profits from government loans", and most troubling she claims is the fact that the government loans will actually become bailouts."Finally, the bills supporters emphasize that these are loans, not bailouts, but there's fine print: If a plan is unable to make any payment on a loan under this section when due, the Pension Rehabilitation Administration shall negotiate with the plan sponsor revised terms for repayment reflecting the plan's ability to make payments, which may include installment payments over a reasonable period and, if the Pension Rehabilitation Administration deems necessary to avoid any suspension of the accrued benefits of participants, forgiveness of a portion of the loan principal."  Heavens!The Butch Lewis Act's loan program is designed to extend the life of these "critical and declining" plans by at least the life of the loan (30 years). As a reminder, these plans are forecasted to collapse within the next 15 years, with many expected to become insolvent before that, impacting potentially more than 1 million American retirees. The fact that the loan extends the benefits to the participants of these troubled plans for 30 years should be hailed, and not vilified. The economic benefits to local communities from the receipt of these important benefits far outweigh the potential cost.  How many times have America's corporations had to renegotiate loan provisions because of an economic or business hardship?When Cheiron (actuaries) did their analysis of the then 114 critical and declining plans, they determined that all but 3 of the plans would be able to repay the loan principal, interest, present retiree liabilities, and future liabilities needing only to achieve an annual return on assets (ROA) of 6.5%, which is much lower than most of the C&D plans are attempting to generate at this time. The 3 pension systems that can't meet this goal without assistance from the PBGC will need far less in support than what the PBGC would be on the hook for should all of these plans collapse: a strong reality given their negative cash flow situation today.The continuing delay in addressing this crisis is leading to more and more plans falling into C&D status, and that was before the dramatic events of the fourth quarter when the S&P 500 fell 9%, and other equities declined far more. The social and economic implications are grave. If you remain skeptical, may I please refer you to the blog post "The Deniers Need to Read This Post!"