Meet Jason Russell, Senior Vice President Segal Consulting

Meet Jason Russell, senior vice president and actuary with Segal who works with multi-employer pension plans across the country. Jason deals with a wide range of benefit plans, both healthy and distressed, in various industries.

Our conversation is about the immediate need to reform Defined Benefit Plan regulations. Jason explains the various proposals that could provide much-needed aid to sustain multi-employer plans. Not surprisingly, the economic impact of the coronavirus pandemic has heightened the need to include these plans in one of the proposed stimulus packages.  

Before the economic crisis caused by the coronavirus pandemic, there was 130 plan in critical-declining status with another 200 in critical condition. Jason explains the potential macroeconomic impact due to the strain on social safety nets in America if too many of these plans go insolvent. For additional information on the macroeconomic impact visit:

NCCMP: Cost of doing nothing

https://nccmp.org/wp-content/uploads/2018/05/Multiemployer-Pension-Crisis-The-Cost-of-Congress-Doing-Nothing-Updated-March-7-2019.pdf

Central States economic impact

https://www.voicesforpensionsecurity.com/economic-impact

Transcript

Meet Jason Russell, Senior Vice President of Segal Consulting

Narrator: 00:00:00

This is The World of Multiemployer Benefit Funds podcast with Tracy Dority-Shanklin. If you're interested in labor and union benefit funds, well, you've landed in the right place. We are a go-to source for all things union benefit fund related, and we are going to bring you interviews with key decision makers and fund professionals that guide these plans. They'll share their insights, experience, unique perspectives, all of the latest developments, and tips to unlock the mysteries of multiemployer benefit funds. Time is short. So, let's get started today.

Traci Dority-Shanklin: 00:00:37

Today, we are speaking to Jason Russell, who is a senior vice president and actuary with Segal Consulting. He is based in the Washington DC office and works with multiemployer pension plans across the country.

Traci Dority-Shanklin: 00:00:50

Jason deals with a wide range of plans, both healthy and distressed in various industries. Until late last year, Jason served as the chair of the multiemployer plan committee for the American Academy of Actuaries. He is currently the vice-chair person for the Academy's pension practice counsel. Of course, today is the economic impact of the coronavirus on multiemployer benefit plans. 

Traci Dority-Shanklin: 00:01:16

Since the market disruption of 2001, multiemployer benefit plans have weathered significant volatility concerning funding liabilities. Employer/Employee benefit plans are critical to the economic security of our society. As an actuary, Jason has a unique understanding of the health of these plans and their sustainability without aid.

Traci Dority-Shanklin: 00:01:39

Jason's perspective can help us understand where these plans are heading, and we hopefully quickly will move into a post coronavirus environment. Jason, thank you so much for being with us today. 

Jason Russell: 00:01:53

Sure thing. And thank you so much, Traci, for inviting me to do this podcast. We certainly are in unprecedented and uncertain times. And, um, and I think it's good just to talk through what plans are going through right now. Uh, we don't have a whole lot of answers. There's a whole lot of, uh, just unknowns ahead of us. Um, but again, I think it's just good for everyone to be thinking about, uh, you know, once all of this shakes out, you know, what are the best decisions that, uh, trustees and participants and service providers can be making with respect to, um, these very important multiemployer pension plans.

Jason Russell: 00:02:27

So, as an actuary, and an actuary who focuses on multiemployer pension plans, you know, we're one of several advisors to multiemployer pension plans. You know, there's the plan administrator, there's legal counsel, the attorney, the investment advisors, accountants, and the actuaries. And the actuaries, uh, basically just advise the plan trustees on the funding levels for their multiemployer pension plans, tell them where the plan is headed.

Jason Russell: 00:02:55

You know, there's certain things that actuaries have to do under law. Like, you know, we have to do an annual actuarial evaluation that measures the funded status of the plan, and, uh, says, you know, what zone the plan is in for example: a critical status, red zone; and dangerous status, yellow zone; or being in the green zone.

Jason Russell: 00:03:12

So, you know, actuaries are there on every single multiemployer pension plan that's out there. And, you know, one of the - the key things that I guess it's good to keep in mind, uh, when actuaries are advising their client funds, is that they're there basically to break it down into very simple terms. They're trying to make sure that everything is in balance with the pension plan, meaning that not just for the next year, but over the lifetime of the fund, that the benefits and administrative expenses that are gonna be paid out by this pension fund are covered by the contributions and investment returns that are - that are coming in. 

Jason Russell: 00:03:47

So, you know, that equation of balance has to hold. And if it doesn't, then that's when plans become distressed and might head towards insolvency. 

Traci Dority-Shanklin: 00:03:56

So, with solvency in question from many of these plans, we know that the coronavirus pandemic and current market disruption will harm many more of these plans. Do you have a sense of how many plans were already in a critical territory? 

Jason Russell: 00:04:12

Yeah, absolutely. So, there are about 1,250 multiemployer pension plans out there. And actually, before the current crisis, we had identified, and I say, we just, as the, you know, the folks who are focused on plans that need help, you know, I think the consensus was out of the 1,250 multiemployer plans in total that about 130 of them are in what's called critical and declining status.

Jason Russell: 00:04:36

Um, and then there's another, almost 200 plans that are in critical status, but not declining. And critical and declining and made for shorthand, we can just call it declining status for this conversation. You know, that's an area of focus because these are the plans that are projected to run out of money in 20 years.

Jason Russell: 00:04:55

And actually, a lot of the plans in declining status are projected to run out of money a lot sooner than that. And for all of the discussions that have been going on for the past few years on Capitol Hill saying that we need relief for these plans, we need a solution to keep these plants solvent. Well, that's really been focused on these plans that are projected to run out of money because they have already exhausted all reasonable measures to try to avoid insolvency.

Jason Russell: 00:05:19

And even after they've reduced the rate of future benefit, accruals, the amount of cut early retirement subsidies participants, and then they've increased as much as they possibly can. They're still projected to run out of money and they can't avoid that fate unless they have some sort of federal assistance.

Jason Russell: 00:05:34

So, going into this crisis, there were about 130 plans that were in this declining category. And if you look at the other, almost 200 plans that are in critical status, but not declining, you know, once all of this, um, this crisis shakes out and we see exactly what the damage has been done on financial markets, and also on, you know, work levels, employment levels that generate contributions coming into these plans.

Jason Russell: 00:05:58

We might see a few more of those, uh, 200 plans in critical status shift over into the declining category. But, yeah, we really have to, I hate to say we have to wait and see, but we don't know how bad this is going to be until things stabilize. 

Traci Dority-Shanklin: 00:06:12

Before COVID-19 there were already 130 funds projected to insolvency, and now we have an additional 200 plans in jeopardy given the crisis. Before the crisis, was anything being done to assist these plans? Maybe you can provide us with a brief overview of the adopted or proposed legislation targeted to help these plans?

Jason Russell: 00:06:36

Right. So, I guess this is a good point to just give some history on how we got to the place where we are right now. And again, this is all pre COVID-19. But how did we get to the point where you have 130 plans out of the 1,250 that are running out of money? And then you have a, another 200 or so plans that are in the red zone? And, you know, it might have a really tough road ahead of them to get out of the red zone.

Jason Russell: 00:07:03

Well, if you go all the way back to the 1950s and sixties, that's when a lot of these multiemployer plans we're set up. That's when they were first established. In the 1970s, we had ERISA pass. And you know, one of the things that ERISA did was that it set minimum funding standards for these multiemployer plans.

Jason Russell: 00:07:21

Also did a similar thing for single employer corporate plans, just to make sure that these plans were well-funded and that the promised benefits would actually be paid. ERISA also said that now once you make a benefit promise as the plan sponsor, you make a benefit promise to your - for your workers, your employees, the plan participants, then you have to make good on that promise.

Jason Russell: 00:07:41

So, you can't cut back a benefit that you actually have promised and that someone earned. And then things were great for the years after ERISA. In the 1980s and 1990s investment returns were strong, stock market was doing well, interest rates actually were relatively high back then. And I remember when I started working as an actuary back in 2001, interest rates were over 70%.

Jason Russell: 00:08:05

And, you know, it was, it was relatively easy for a plan, a pension plan with an actuarial assumed rate of return of say seven and a half percent. Those plans could invest in relatively low-risk portfolios and have a pretty high chance of making that seven and a half percent return. They could invest more in bonds and didn't have to, you know, put it all into stocks and alternatives.

Jason Russell: 00:08:25

And, you know, with the investment, uh, returns being strong with markets doing well. By the time that we got to the late 1990s, a lot of plans were in surplus and then they actually were brushing up against, uh, due to the, uh, the tax rules at the time, they're brushing up against tax deductability limits.

Jason Russell: 00:08:44

So, single employer, corporate plans, quite simply they could take what is often referred to as a contribution holiday. Because the plan was in a state of over-funding, they just didn't make contributions because of they did. Then the contributions would not be tax deductible and contributions to a pension plan being tax deductible and that's one of the main motivations for a company to sponsor plans or to contribute to a multiemployer plan. With multiemployer plans though, a contribution holidays were, were harder to do because the - the contributions that come into a multiemployer plan are negotiated between the local unions and the employers.

Jason Russell: 00:09:22

And they're tied to the work that's being done. So, you know, the - the spigot is turned on. It's not that easy to turn that spigot off. So, uh, what a lot of plans were - were forced to do in that situation was evaluate well, you know, our plan is overfunded right now and we need to preserve the tax deductibility of these contributions, the stream of contributions that's coming in, you know, what do we do?

Jason Russell: 00:09:42

Well, you can improve benefits and make the plan, not overfunded anymore and preserve that tax deductibility. So, some plans did that just to avoid an over-funding, non-deductible contribution situation. But the problem is once those benefits, those new benefits have been promised under ERISA. They can't be taken away.

Jason Russell: 00:10:03

So, we were in a situation that, you know, in the late nineties, some plans improve benefits to avoid being overfunded. And then right after that, we had the dot com bubble burst. And then immediately plans that were in a position of being overfunded and maybe took actions to spend some of that over-funding, now they found themselves underfunded.

Jason Russell: 00:10:21

And then there were also situations that were going on with different industries where, you know, you think about trucking with the deregulation of that industry with US manufacturing, um, starting to go overseas. Then some plans and some industries also saw that in addition to now being underfunded because of the losses that they took in the early 2000s with the dot com bubble burst that, you know, now they're just in a - in a much tougher position in terms of being able to make up that underfunding.

Jason Russell: 00:10:49

But the still they did. You know, through the 2000s, plans increased contributions, may have adjusted the rate of future benefit accruals downward, and at the same time, on the other side, the single port corporate plans, some of them were in really bad shape. We had some key bankruptcies. For example, you know, where you can just think about, you know, some of the bankruptcies of the airlines. United Airlines going bankrupt in the mid-2000s.

Jason Russell: 00:11:11

Enron happened in the early 2000s. And then this actually highlighted, well, you know, when a company goes bankrupt, then - and it can't fund its pension plan, then the pension benefit guarantee corporation, this federal agency that insurers private pension plans, has to step in and make good on, on guaranteed benefit payments.

Jason Russell: 00:11:31

So, that actually contributed to PPA, the Pension Protection Act, where discussions started happening in 2005 on do we need tighter funding rules for single employer and multiemployer plans just to prevent these plan insolvencies, to protect benefits and to limit exposure to PBGC. And when PPA came along, Congress wisely decided that single employer rules should be different from multiemployer rules.

Jason Russell: 00:12:00

That multiemployer plans - it's not appropriate to have these mark-to-market measurements. There should be more of a long-term focus and where the plan is headed, understanding that these are plans with several employers, not just one, that they are collectively bargained. And it's more important where the plan is headed, as opposed to where is it on a snapshot date.

Jason Russell: 00:12:18

So, multiemployer plans got PPA zone status rules, you know, putting them into this red, yellow, and green classification system. And if you're in the yellow zone or the red zone as a multiemployer plan, then you have to develop an action plan to get better funded. Well, just as PPA was taking effect - the first year was 2008 - then we had the financial market collapse and that created sort of a perfect storm in a very bad way for a lot of multiemployer plans where they had to deal with these new funding rules at the same time, they're trying to recover from what happened with the financial market collapse of 2008 and then the following great recession.

Jason Russell: 00:12:56

So, it became pretty clear after PPA passed and Congress did pass two funding relief measures. One in 2008 and another in 2010 to, you know, basically give multiemployer plans more time to recover. But really that was just, you know, giving them more assets moving, giving them longer so-called amortization periods and that's just relief on paper.

Jason Russell: 00:13:20

It doesn't actually inject more money into the - into these, um, plans. And it became clearer after PPA in the few years after PPA that PPA wasn't enough for some distressed plans. And people who saw that this was happening started asking, uh, for congressional help, you know, as early as 2009 saying, you know, "Hey, we need some sort of relief for these - these plans that are not going to succeed on their own." You know, Central States, mine workers, for example.

Jason Russell: 00:13:47

And some of the proposals that were introduced back in 2009 and 2010 were to fund up PBGC and give it more authority to do a partition of liabilities for distressed plans. And a partition because that term is going to come up a little bit more in our discussion is basically when PBGC says, you know, we're going to, if you're a distressed plan and we're worried that you're going to become insolvent and then become our entire burden to make good on those guaranteed benefit payments.

Jason Russell: 00:14:16

When you run out of money, then we can partition off some of your liability. Some of those benefits that you promise your members. And we will pay that portion of the, the benefits that is partitioned off and the remaining plan will be stronger and able to survive. But, yeah, this was over 10 years ago that these ideas were first introduced, but it does cost money.

Jason Russell: 00:14:36

This would fall on the backs of the U S taxpayer and nothing happened. So, then we wound up in 2013 with the NCCMP, the National Coordinating Committee for Multiemployer Plans, convened a group that developed this proposal that they called Solutions Not Bailouts. You know, understanding that - that bailouts from Congress to use the B word, a lot of people don't like the B word bailouts, but understanding that, uh, federal money is part of a solution for multiemployer plans that are failing was not on the table.

Jason Russell: 00:15:08

They came up with a proposal called Solutions Not Bailouts, which led to, uh, MEPRA, the Multiemployer Pension Reform Act of 2014 passed, right at the end of 2014, took effect in 2015. And MEPRA, the key aspect of MEPRA, that if you're a plan that is in this new category of declining status that you're projected to run out of money in the next 20 years or sooner that you could actually reduce benefits that have already been accrued.

Jason Russell: 00:15:35

You're going to cut benefits that have already been earned, which is just going against that sort of fundamental that was there under ERISA of the anti-cutback rule. But in order to do that, you'd have to apply to the US Department of Treasury for approval. Then the proposed suspension of benefits is what they would call them would have to go to the participant population for a vote.

Jason Russell: 00:15:53

And then if you cut benefits, then presumably that would be enough to enable the plan - now with lower benefits - it would enable that that plan to survive. But MEPRA didn't work as it was, as it was supposed to some of the biggest plans that applied for relief under MEPRA to cut benefits did not get that approval that they saw it.

Jason Russell: 00:16:13

And so, they just continued on their path toward insolvency. So, you know, here we are now with, you know, still there’s 130 plans covering about one and a half million people in declining status. And really there's no way that they could use MEPRA a lot of them to preserve their solvency. So, before the current COVID crisis that we were looking at right now, there had been discussions on is a loan program appropriate for these distressed plans to enable them to remain solvent. 

Jason Russell: 00:16:43

Maybe we can go back to that partition idea that we were talking about before, but that's basically how we got to where we are right now is, you know, PPA was designed to enable troubled plans to preserve their solvency and become better funded over time, but it did not anticipate 2008 happening and the great recession happening in certain industries like trucking and manufacturing, drying up with respect to the, uh, their work levels, the incoming contributions.

Jason Russell: 00:17:09

So, that's now why even before the current COVID crisis, we're at the point where you have to look at a big federal solution to preserve these benefits for these millions of hard-working Americans. 

Traci Dority-Shanklin: 00:17:20

Given the need for stimulus in many sectors of our economy from small businesses up the ladder, do you think there is going to be an appetite to help these plans?

Jason Russell: 00:17:29

Yeah, that's a good question. And you know, when we were first talking about doing this podcast, I initially expressed some hesitation about doing it too soon, just because things to be, it seems to be changing on a day by day basis. And they really are, you know, this wasn't made public, but you know, I think we will work its way through the various communication channels that with the stimulus bill, I haven't checked the news recently. But, you know, right now it's 12:47 PM on Wednesday, March the 25th, and I guess Congress last night reached a - a deal on phase three of the stimulus package. And I don't know if it's passed, it's officially passed Congress as of the time that we're speaking now, but I think it's eminent. Well, there was an effort at the end of last week and over the weekend to try to include some relief for both multiemployer and single employer plans in the stimulus package, phase three.

Jason Russell: 00:18:18

But it's my understanding that it did not work out. So, is there going to be a phase four? You know, will there be bailout fatigue as some people have said, and that was a term that came up during the last financial crisis that we had, which, you know, looks in some ways similar to this one, but, and then a lot of other ways is quite different.

Jason Russell: 00:18:36

You know, we don't know. There definitely are good ideas out there. And right now, from what I gather happened late last week and over the weekend, and what we've seen happen for the really the past two years leading up to now, there really needs to be, I guess, a movement between the Republicans and the Democrats to find some common ground because they - they both agree that a fix is needed.

Jason Russell: 00:19:00

They both appreciate the problem and the impact of not taking action, that it's just gonna make things worse if there isn't some relief of these plans. But they disagree on exactly how to provide relief to the troubled plans. And they disagree about what measures are necessary to keep a new solvency crisis from emerging. You know, are there rules that need to be changed to strengthen funding for the plans that don't currently need assistance, so that they aren't in a position where they have to come and ask for assistance in the future. So, we'll - we'll see. 

Traci Dority-Shanklin: 00:19:31

Okay, so this question might be out of your wheelhouse, but from a more macro standpoint, if help isn't provided for these plans and more plans enter the critical declining status, what is the macro economic impact? 

Jason Russell: 00:19:46

I certainly have been involved with conversations with people who know more about this than I do. Um, and there have been studies done to try to predict what the macro economic impact of letting these plans that are troubled go insolvent - what that would do. The NCCMP, National Coordinating Committee for Multiemployer Plans, actually has commissioned a study that they posted on their website that that gets into what the economic impact is.

Jason Russell: 00:20:10

So, actually I would just refer to, you know, to their study and others that are out there. But the bottom line is if these plans go insolvent and actually at a point that we've glossed over is that the pension benefit guarantee corporation its multiemployer program is not in a strong financial state itself.

Jason Russell: 00:20:28

Um, it's projected to run out of money in 2025. So, we're not talking about a situation where, you know, these 130 plans covering nearly a hundred or one and a half million participants and beneficiaries. We're not talking about just those a modest reduction in their benefit levels. And we're talking about PBGC, not being able to pay, but pennies on the dollar of its guaranteed benefits.

Jason Russell: 00:20:49

So, we're really talking about maybe a 95% reduction in benefits going to these folks, and you know, the amount that they contribute to the economy, you know, this is a consumption-based economy and the consumption power for these people who are affected. I mean, it's going to go away significantly. I mean, they, you know, they would basically, most of them just be relying on social security and then some smart people who know more about this than I do.

Jason Russell: 00:21:15

And then highlighted that - that might put some of these, uh, these retirees without the benefit of their pension. It might put them in a - in a situation where they're now having to rely on other social safety net programs, and all that they have to live off of is social security. So, there are good studies out there that I would just, uh, defer our listeners to go and look up. For example, on the NCCMP website, the bottom line is, you know, letting these plans run and money would have a very negative macroeconomic effect. 

Traci Dority-Shanklin: 00:21:44

So, we will provide links to all of this information in the show notes. You mentioned retirees. Do you have any advice for those who are planning to retire now or in the next three to six months? Especially if their fund is weak? 

Jason Russell: 00:22:02

Normally, actuaries don't get into advice for individual retirees, but we do advise the trustees for these plans. And if you're thinking about it as a participant, who's looking at retirement, just know that, um, right now the trustees are doing their best to figure out, you know, what is the right direction for their plans and - and retirees and participants can - they can take comfort in the fact that we're still talking about the defined benefit pension plan. Defined benefit pension plan that is designed to pool risk across all the participants in the plan and across all the employers that contribute. And this is not like a defined contribution plan, where you, the individual, have to worry about market timing.

Jason Russell: 00:22:47

So, this isn't about worrying, "Do I need to pull my money out of the market? Cause you think that the stock market's going to keep tanking.” This is something where defined benefit pension plans are designed to weather storms over time. Now, under current law, there are rules that if a plan enters the red zone for the first time, you know that the trustees can take certain actions. You know, that they can start to look at reducing early retirement subsidies, but they can't do that overnight. And when a plan first enters the red zone, let's say, then they would have to notify the participants that that change in status has happened.

Jason Russell: 00:23:23

They would have to notify the participants that these are some of the benefits that could be reduced, but largely when a plan enters the red zone for the first time, the people who are already in pay status are protected and, you know, any changes to early retirement benefits those are not going to apply to people who are in pay status.

Jason Russell: 00:23:41

So, this is not to say that they're, you know, if you're worried that your plan is going to go into the red zone, that you should file an application already. And I think it's important to, you know, be calm and understand that the - that the trustees are going to look at whatever means that they have to get the fund pointed in the right direction.

Jason Russell: 00:23:58

You know, once we know how bad this current crisis is, and what's long-term impacts on these funds are going to be, and then there also could be some relief. Uh, at the federal level, uh, I'm not talking about providing funding to plans that are currently projected to run out of money, but I am talking about, um, you know, plans that are currently healthy, or maybe they're in the yellow or red zone.

Jason Russell: 00:24:20

And, you know, they've got an action plan to get better funded over time, but the current crisis that we're in, maybe they just need a little more time to get better funded. You know, that's the type of relief that Congress has provided before following the 2008 market collapse and the great recession. Um, you know, it's pretty easy for Congress to pass a measure that would just enable plans more time to get better funded.

Jason Russell: 00:24:44

And that's all a lot of these plans are gonna need is just more time. So, you know, I would just say to participants who are worried about how this would affect their plans and every plan is different. The trustees are going to do their level best to get the plan pointed in the right direction. Uh, read the notices that come out to you that the plan has to send.

Jason Russell: 00:25:02

And you know, if that's not enough, then call the fund office, call the, uh, the administrator and ask your questions. I know that some of these conversations that we're having with our boards of trustees right now, uh, for both health funds and pension funds. A lot of it is focusing on communication with the participants and focusing on the questions that they're asking now in these uncertain times.

Jason Russell: 00:25:23

So, they might not have all the answers, but they, I know that right now, they're thinking about, you know, how do we answer some of these questions that are certainly on everyone's minds? 

Traci Dority-Shanklin: 00:25:31

I want to echo what you said earlier about trustees working tirelessly to sustain and do whatever they can to improve these plans. I've had personal conversations with trustees who have plans in the critical declining status, and you can see the personal toll it takes on them. So, there is a question I want to ask. You mentioned many of the problems for these plans began during the 2001 dot com bubble. Many of these trustees have lived through now, the 2001 and the 2008 bubble.

Traci Dority-Shanklin: 00:26:05

So, they've lived through a lot of funding volatility, not just market volatility. Has this given them an education or a possible tolerance, not to overreact? And to approach this crisis more steadfastly? 

Jason Russell: 00:26:21

I think in some cases, yes. I think we're all learning. You know, whether you're a plan trustee or you're one of the plan professionals including the actuaries, and we're all learning as we go.

Jason Russell: 00:26:32

And every plan is in a different situation. So, I think some plans that are solidly green and are in an industry where let's say that they're a construction industry plan in a local market where there's lots of buildings going up and that they actually are in a pretty good position where they can ride that rollercoaster.

Jason Russell: 00:26:52

Um, and then there are other situations where, you know, plan could be in a maturing or declining industry. Um, they have fewer employers contributing than they did before. And, you know, they've gone through a lot of pain to try to keep the plan on solid footing, you know, increasing contribution rates, which by the way, pretty much all plans have done over the past 15 plus years, you know, reducing benefits to the extent that they needed to, uh, in order to keep the plan pointed in the right direction.

Jason Russell: 00:27:20

It's - it's hard because, you know, I said, uh, that some plans. You know, are going to be fine. They just need more time to continue on the path that they're on. You know, it's important to keep in mind that 2019 was a very good investment year. Uh, you know, a lot of plans returned north of 15% for 2019. And we're sitting really pretty, you know, January 1, 2020.

Jason Russell: 00:27:42

And you know, now they're seeing those gains erased and then some, but to the extent that they were on strong financial footing and to the extent that there's a bounce back that happens even before December 31 of this year. You know, these plans actually might not be that bad off, but then the reality is some of the trustees will see that, you know, their plan was already in rough shape and through the rollercoaster that they've gone through the past couple of decades, they might've already increased contributions as much as they possibly could.

Jason Russell: 00:28:13

They might have, um, reduced future benefits so that, uh, they're getting into the territory where the accrual rate that they're providing relative to the contributions. And they want to keep that in balance, so that people - that the members feel like they're accruing a decent benefit for the contributions that are coming in for the work that they do.

Jason Russell: 00:28:29

So, there are some plans that might be getting to the point where they can't do much more to correct the - the path of their plan. You know, if this, uh, this current crisis does knock them off of their trajectory and put them, instead of being pointed upward, now they're pointed downward. Some plans might not be able to do much more.

Jason Russell: 00:28:48

And so, the - and I think the trustees will understand that, you know, they've, they've been looking at that over the past few years and hoping that the investment markets cooperated. And unfortunately, you know, this is where we're going to get in the situation where some of those 200 plans, that are currently in critical status but not yet declining, that we might see some of those shifts over because unfortunately, those plans have done all they could to get to the point where they are now.

Jason Russell: 00:29:11

And this current crisis might knock them off of that trajectory and, you know, there's nothing left for them to do. 

Traci Dority-Shanklin: 00:29:17

In your opinion, what kind of reform do you think is needed to assist these funds? 

Jason Russell: 00:29:23

So, I guess there's the - the problem with the plans that are currently running out of money. And, you know, that group is likely to increase, but we don't know how much that group is going to increase as a result of the current crisis that we're in.

Jason Russell: 00:29:37

So, we need a fix for those plans that I guess the - the folks in Congress, uh, can come to an agreement on and how do you bring these - these plans back to projected solvency. And they're essentially two proposals that have been out there for a few years now. You know, one of them is a loan proposal. It's often referred to as the Butch-Lewis Act.

Jason Russell: 00:29:59

That's the Senate version of- of that proposal. And it's really been around since November of 2017 and has been introduced and reintroduced and amended a few times. And you know, so that's one proposal where you would provide federally backed loans to enabled plans to remain solvent. And then on the other side, you've got a, um, a proposal to just basically expand the PBGC's ability to partition, uh, liabilities away from plans that are distressed, leaving the remaining plan in a position where it can remain solvent.

Jason Russell: 00:30:33

And the different folks on Capitol Hill have very strong views about which was the right way to go. And actually, when I was, uh, more actively involved with the American Academy of Actuaries meeting with people on the Hill, uh, I remember in the middle of 2018, when, uh, in 2018 was the year that the Joint Select Committee for the Solvency of Multiemployer Plans. That was the year that - that joint select committee was formed with the task of coming up with some solution by the end of 2018. And I think we all know that that didn't happen, but they did float some ideas and how you might - how you might fix this problem. 

Jason Russell: 00:31:05

And I remember when we met with some of the joint select committee staffers back in 2018, they said, “Okay, you know, we - we understand the loan proposal that's out there. We get it. We see the advantages and disadvantages of it. What else you got? What are other - other ideas are out there?” And that's where the conversation turned to partitions. And - and actually partitions was an idea that was really a cornerstone of the joint select committee proposals that were released at the end of 2018, you know, no actual proposed legislation, just, you know, an outline of - of ways that we could fix this current problem that we're in or, you know, the pre COVID-19 problem.

Jason Russell: 00:31:41

And it really just came down to, for, you know, whether you provide loans or you increase partitions, a lot of folks on the Hill just saw this as, you know, optically. They didn't feel like it was a good move for them to provide more assets to plans that were troubled. Instead, they could take away benefit liabilities and get the plans to the same place and actually do it within a structure that exists in our current law and partitions are available under current law.

Jason Russell: 00:32:10

It's just - they're constrained by the fact that PBGC doesn't have the resources to actually do meaningful partitions. So, you know, whether the loan proposal, um, you know, can come back and actually gain support, bipartisan support on Capitol Hill, whether there was some partition proposal, then the question will be, you know, how's it paid for?

Jason Russell: 00:32:29

You know, what's the right balance between federal funding from the U S taxpayer to pay for a loan program or to prop up PBGC to give a cash infusion of PBGC, so it can actually do partitions. And then how much does the multiemployer system need to pay? So, you know, there was a proposal that came out at the end of 2019 from senators, Grassley and Alexander, that involved the partition program, but then basically had the cost of that partition program paid almost entirely by the multiemployer plan community. You know, through increased premiums on plans, through basically premiums or taxes on retiree benefits, and then also from stakeholders in the community on - on local unions and employers and that's another key decision that needs to be made. You know, how's all this going to get paid for.

Jason Russell: 00:33:22

And I think most people would say that there needs to be a very significant component of the funding coming from the federal government because going back to that earlier discussion that we had about, um, plans, not being able to become overfunded to bolster them the funding levels in the late 1990s.

Jason Russell: 00:33:40

And, you know, basically PPA not doing enough. MPRA not doing what it intended to do. You know, that all along the way that these plans have ridden this rollercoaster and been doing the best that they could do to remain solvent. And there have been legislative and regulatory issues, barriers that kept plans from taking the action they needed to, you know, to stay solvent. 

Jason Russell: 00:34:01

And that's an argument that - that significant federal funding needs to be part of the solution. And that's just, I'll pause there because I've just talked about the plans that are currently projected to run out of money. There is another conversation about how do we keep a new solvency crisis from emerging, but that's got several layers to it as well.

Traci Dority-Shanklin: 00:34:19

I want to make sure that I understand the federal funding component. Are you talking about hard dollars or federally backed loans?

Jason Russell: 00:34:28

It could be either. So, if you focus on the loans, you know, basically to provide a loan to a troubled multiemployer plan, there would need to be a new agency. That - that's what the proposal calls for - a new agency that would be set up. And its funding to issue these loans has to come from somewhere. So, you know, basically would just come from the U S Treasury. The Treasury would issue bonds to enable this new agency to provide loans to the troubled plans. And, you know, under the loan proposal, it isn't just the funding from the treasury department. You know, it's also the risk that the loan might not be paid back.

Jason Russell: 00:35:03

You know, there is a chance that it probably wouldn't happen in the next 10 years, maybe even 20 years, but there was a chance that you know, that the remaining plan, you know, do you get a loan, and I glossed over the point that under this proposal, you would get a loan as a distressed plan. You would use the proceeds of that loan to immunize or annuitize benefits that are payable to retirees and perhaps even terminated participants, you know, leaving potentially just the active participants who, whose benefits seem to be covered by what assets the plan does have.

Jason Russell: 00:35:34

Well, then, so the assets, the plan does already have, and then once you've used the loan to, you know, to take care of the retiree benefits, well, those assets have to both pay for the active participant benefits and then repay the loan, you know, when combined with the contribution income that's coming in, and it isn't just contribution income.

Jason Russell: 00:35:53

It's also the investments that are going to be earned on those - those assets. So, you know, if there were another market downturn, actually like the one that we're seeing right now that could put a plan that receives a loan in a tough position where it might not be able to fully repay that loan as required.

Jason Russell: 00:36:09

And so, then that's - that's a risk to the, to the U S Treasury. That's a risk to the U S taxpayer that the loans wouldn't be fully repaid. And, you know, in Congress takes that into account. When, when the CBO does it scoring, they realize that this is a cost to the federal government, you know, both, you know, issuing the loans, and then also the chance that they might not be repaid. 

Jason Russell: 00:36:28

On the partition side, you know, it really just comes down to, you know, Treasury providing PBGC with the money that it needs to do these partitions. And, so it's also money coming from the U S Treasury. But as I said, there - there's that discussion that is happening right now.

Jason Russell: 00:36:43

What's the right balance in how much should come from Treasury versus how much should come from increased PBGC premiums, let's say. And that's actually a key difference between the loan proposal and the partition proposals. Loan proposal focuses on the funding coming pretty much entirely from - from the U S Treasury. The partition proposals have varied, depending on who's making the proposal on how much Treasury pays for, to, you know, give PBGC the ability to do these expanded partitions versus how much do PBGC premiums need to be increased on plans and how much funding comes from other sources. For example, the participants themselves and the multiemployer community.

Traci Dority-Shanklin: 00:37:22

One of the things that comes up when we discuss federal programs to assist these plans is that not everyone has a defined benefit plan. Some tax payers resent the idea that their tax dollars are helping in something where they receive no benefit. Going back to our conversation about the macro economic impact, how can we educate the public to understand the impact to them if too many of these defined benefit plans become insolvent? 

Jason Russell: 00:37:54

So, I guess on the macro economic impact, um, I just have to refer back to those other reports that were done that, um, that evaluated, you know, what happens if these plans go insolvent and then PBGC, uh, also goes insolvent.

Jason Russell: 00:38:09

And then all of a sudden, these participants, that number, you know, close to a million and a half of them, and probably now quite a bit more, that would essentially go from having a, um, good income that would enable them to, you know, be a part of the consumer economy down to, you know, all they have their social security. You know, what's the economic impact there.

Jason Russell: 00:38:30

And the studies show that, you know, actually providing the relief that's needed to keep these plans solvent, that costs less to the, you know, the overall U S economy. Thinking about the taxpayer's perspective of it than, you know, letting these plans go insolvent and then potentially having a lot of these retirees then have to rely on other social safety net programs.

Jason Russell: 00:38:53

So, I'm speaking in very high-level terms there, but those are the general conclusions that those studies have shown. And I guess just in the fairness or, you know, how come they have a DB pension and I don't, you know, these multiemployer defined benefit pension plans came into existence really as part of a broader wage package for folks in certain industries, you know, working for certain employers represented by certain local unions.

Jason Russell: 00:39:16

And, you know, it's all part of the, you know, the - the overall wage package that they agreed to. So, you know, they were deferring wages and throughout their working career in order to get these pension benefits. So, you know, there are - there are other folks in other jobs and different industries with different employers where they might've had more current income, they might've been saving more throughout their working careers.

Jason Russell: 00:39:43

Because they were not, you know, deferring part of their way to, to fund up the defined benefit pension plan. So, you know, I think everyone has and in a different situation and it isn't just quite as simple as saying, well, they have a defined benefit and I don't know. There were sacrifices that were made by the folks who participated in these multiemployer defined benefit plans to, you know, have contributions go to these plans for work that they did that otherwise could have gone, you know, straight into their pockets as current wages. But - but they made that decision to defer them instead. 

Traci Dority-Shanklin: 00:40:13

Is there any good news as we come out of this economic crisis?

Jason Russell: 00:40:17

Just focusing on the short-term problem that we have of, you know, finding relief, and I say short term, this is again before the current crisis. Uh, it seems that there was a chance, um, these past few days that there could have been some relief package for multiemployer plans, um, and also single employer plans, too, but there could have been a relief package, um, put into the stimulus bill. Um, the phase three stimulus bill that is probably gonna pass today. And will this current crisis that we're in, will that enable us to continue the discussion, avoid bailout fatigue, and then perhaps if there's a phase four part of the stimulus package that a multiemployer pension really can be included in that - that would be a positive outcome in my view.

Jason Russell: 00:41:01

Um, because of - if we don't get that, then you know, the path forward is uncertain. You know, there are very few vehicles between now and the end of 2020, a few legislative vehicles, where - where basically multiemployer pension funding relief could find a ride. Um, and something we also haven't talked about here is that we're really close to the point of no return on - on this multiemployer insolvency crisis.

Jason Russell: 00:41:29

If we don't find a solution in 2020, you know, we're at the point where the measures that have been proposed up to this point, whether it's loans or partitions, uh, we're getting to the point where they might not work anymore. Um, because a key thing is - is acting now and getting the relief flowing, whether it's loans or partitions, and enabling the asset base for these troubled plans to do what it needs to do to pay as much benefits as possible.

Jason Russell: 00:41:54

You know, we go another year or two, and then you factor in also the effect of this - this Covid crisis if the markets don't bounce back in a timely way. Then, we just might not have enough asset base remain for these trouble plans, so that they can actually pull themselves out of the nosedive that they're in, even with the measures that have been proposed right now.

Jason Russell: 00:42:15

So, you're just talking about a much bigger solution that would be needed. And hopefully, we don't get to that point where we're trying to figure out how much bigger does that solution need to be. 

Traci Dority-Shanklin: 00:42:24

For those of us who feel these plans are essential to our general economy and want to see the promise of these benefits continue, is there anything that we can do to activate reform? 

Jason Russell: 00:42:37

Absolutely. You know, if you have representatives or senators, you know, whether they're Democrat or Republican, and I think just sending them letters, calling their offices, letting them know the importance that these funds have on folks in their districts, in their States, the importance that these, that receiving these benefits, you know, have for the participants and participating in their local economies. That's hugely important.

Jason Russell: 00:43:01

And then also, you know, it, isn't just about saving the pensions. I mean, that's ultimately what we're going for, but you know, it's really getting the two sides to talk to each other. Cause they - I think they agree that there needs to be a fix, but they remain pretty far apart on exactly what that fix should be.

Jason Russell: 00:43:17

So, it needs to be one with balance, you know, not one that's going to be counterproductive and then give employers that are currently in the system more incentives to try to exit. And it shouldn't be so punitive that, you know, that it actually undercuts the whole point of saving these, uh, these plans.

Jason Russell: 00:43:32

You know, the participant benefits that have been promised need to be preserved as much as possible. You know, that that's the whole reason that we're doing this. So, you know, I think reaching out to your members of Congress, to your representatives and senators, uh, is important. And, you know, actually just to give a plug and Traci, I can provide you the link for this, but if Central States, um, you know, so the Central States Teamsters Pension Fund, you know, that's the biggest fund in the middle of this, uh, current solvency crisis a lot of people referred to, but they've - they've actually got an interesting website that they put up that shows where pensions they're being spent. 

Jason Russell: 00:44:07

And it's - it's actually really interesting cause it isn't just in the States, you know, where Central States' retirees are, and you actually see how, you know, folks don't always stay in the same place when they, you know, from the time that they go from working to retiring, a lot of times they moved to other places. So, you know, we need to consider where these retirees wind up to spend the golden years of their life. And, you know, in the local economies that rely on their pension dollars flowing through to keep everything going.

Jason Russell: 00:44:36

So, I think that's something that people aren't focused on. And I know that groups have, um, some groups have tried to do studies, um, in a short amount of time to figure out, you know, where are these pension dollars being - being spent, but at least, you know, the biggest fund out there that is currently in need of some support in order to remain solvent, they've done good work right now to, you know, show down to the congressional - congressional district, you know, where these dollars being spent.

Jason Russell: 00:45:00

So, you know, whether you're affiliated with that plan or you're just generally concerned about the state of the multiemployer pension system. And I think just reaching out to your members of Congress and just emphasizing the importance of finding a solution and finding compromise with each other. That's really important right now. 

Traci Dority-Shanklin: 00:45:14

Yeah. You know, you mentioned at the beginning communication with the participants, um, my final question really revolved around what trustees could focus on when they're speaking to their members. I assume you're already having those conversations with trustees, but what advice are you providing for them as they communicate with their members? 

Jason Russell: 00:45:35

Well, we're still in the early stages of this. Cause I guess we're - we're into week two of everyone working remotely and frankly, the conversations that I've been a part of with multiemployer plan trustees, and a lot of times it's the same board of trustees that governs the pension fund and the health fund.

Jason Russell: 00:45:53

And as you can imagine, uh, for the, you know, the first 10 days or so that we've, uh, that we've been adjusting to this new norm. More of the participant communications have focused on, you know, what do you tell people about the health fund, what do you tell them about getting tested and, and treatment and how are we going to change coverage to the extent that we need to just to make sure that we're taking care of our members who, um, you know, might become infected with this virus?

Jason Russell: 00:46:17

You know, on the pension side, I really hate to just say, wait and see. But there are not many actions that an actuary could tell a pension board of trustees to take right now to deal with the current crisis, because most multiemployer plans out there - think a little better than half of them - are so-called calendar year plans.

Jason Russell: 00:46:37

And so, we, as actuaries, we measure the funded status of the plan. You know, we monitor it throughout the year, but we only measure it officially once. So, you know, as of January 1, 2020, you know, we are not reflecting any of the current mess that's going on and who knows what - what will happen between now and December 31.

Jason Russell: 00:46:56

But I think a lot of folks are hoping that - that this virus gets under control, that the crisis goes away, and the economy has time to return to some degree of normalcy. And you know, maybe there's a bit of a bounce back in the second half of 2020. That, you know, if we were to measure things right where we are right now, the plan would be in deep trouble and actually plans that might have a March 31 plan you're in, they're going to have to deal with, you know, that measurement fade. And, you know, and those plans are going to need special attention. 

Jason Russell: 00:47:26

For a plan year that ends December 31, we're waiting and seeing, you know, hopefully the bottom comes soon and then things start to pick back up. And maybe it's not that bad when we're looking at how we're measuring things January 1, 2021. So, this is just something we need to be paying attention to, and, you know, and the trustees really, I think it's - the actuaries need to be part of the discussion right now.

Jason Russell: 00:47:47

But it's more important. I would say just for them to get a sense of comfort and awareness with their investment advisors. You know, I don't think that I've heard of any investment advisors out there telling the trustees to pull out of the market or make significant changes to their asset allocations, given where we are right now.

Jason Russell: 00:48:03

But, you know, again, it's good to monitor, have the investment professionals, the actuaries, and all the other fund professionals working together to, um, and just make sure that the plans are pointed in the right direction. And importantly, you know, from the plan administration side, you know, as - as fund offices and third-party administrators, at least for the short term are having to go to a work remotely arrangement.

Jason Russell: 00:48:24

And there's gotta be a lot of focus on making sure that the pension checks get paid, that contributions get processed, et cetera, et cetera. So, there are a lot of different factors that are going on right now and really the long-term actuarial health of the plan, that's a good long-term focus, but for right now, I hate to go back to that refrain, but you know, we're still just waiting and seeing how bad this really is.

Traci Dority-Shanklin: 00:48:43

Is there anything you would like to add that I might've missed or any comments you'd like to make on a go forward basis? 

Jason Russell: 00:48:52

I think this was an excellent conversation. And again, thank you for inviting me to do this. I guess just a few final caveats, which I probably should have said at the beginning, I'm doing this interview is really Jason Russell, private citizen.

Jason Russell: 00:49:04

I might've said some things, uh, through this podcast that where my views may differ from, you know, some clients that I work with. My viewpoints on this podcast do not represent those of my employer, Segal, or the American Academy of Actuaries. But, you know, I think as we move forward, you know, really the most important thing that I hope that we all, as U S citizens, uh, have some degree of control over - U S citizens who are interested in multiemployer pension plans - is holding Congress accountable.

Jason Russell: 00:49:33

So, you know, they're doing good things by getting stimulus packages out there, or they shouldn't lose sight of the multiemployer pension problem that we have right now. And whether it's part of a stimulus package or something else, action is needed in 2020. So, you know, do what you can to get that message out there.

Jason Russell: 00:49:51

And, you know, I guess it isn't just Congress. It's also the White House, too. So, you know, we need a solution. We need a - a fix for the current plans that are facing insolvency. And we need measures in place that are going to make the system, which is very important for millions of hardworking Americans, we need measures in place that make this a viable system going forward.

Traci Dority-Shanklin: 00:50:11

Well said, I echo everything you just said. So, thank you so much to our listeners. Please stay healthy and, you know, take the recommendations of the CDC and keep social distancing until we are beyond this crisis. And with that, thank you so much for your time, Jason, I really appreciate it.

Jason Russell: 00:50:34

Thank you so much, Traci.

Traci Dority-Shanklin: 00:50:36

All right. Take care. 

Narrator: 00:50:38

And that's it for this week's episode of The World of Multiemployer Benefit Funds podcast. We would love to hear from you, and if you have any comments, questions, or suggestions, head over to www.multiemployerfunds.com and let us know. Tom and Traci, thank you for joining us. And we look forward to next time.

Narrator: 00:51:00

For even more information and resources head over now to www.multiemployerfunds.com and get involved. The World of Multiemployer Benefit Funds podcast - unlocking the mysteries of multiemployer benefit funds.