Upside Down Pension Math

President Joe Biden went big and brought home the bacon with his $1.9 Trillion rescue package. Beyond the $1,400 checks, extension of unemployment benefits, and money towards vaccinating the willing, a portion of the bill annoyed the Republicans to the collective point of ‘nay.’ 

That portion calls for $86 billion to provide a, as the New York Times reports, “bailout for about 185 union pension plans that are so close to collapse that without the rescue, more than a million retired truck drivers, retail clerks, builders and others could be forced to forgo retirement income.”

Mary Williams Walsh and Alan Rappeport explain, “The bailout targets multiemployer pension plans, which bring groups of companies together with a union to provide guaranteed benefits. All told, about 1,400 of the plans cover about 10.7 million active and retired workers, often in fields like construction or entertainment where the workers move from job to job. As the work force ages, an alarming number of the plans are running out of money.”    

Democrats make the oft heard case that pensioners are not to blame for their pensions to be going broke leaving them with bare cupboards after toiling for decades. Republicans call it a give-a-way to the left. The theory being that union members vote Democrat and must be done a solid in return. 

Obviously, there are just plain math problems with defined benefit pension plans. But, beyond that, see this tiny item in today’s Almost Daily Grant’s, “On Tuesday, the Danish Financial Supervisory Authority issued an executive order that cuts the maximum interest rate that pension providers can promise investors in guaranteed-rate products to minus 0.5% from the current 1%, effective July 1.”

No need to hide pension bailouts any more. Central bank financial repression will make bailouts as common as booms and busts.