Should Criminal Fines Paid by Financial Institutions Go to Funding Failed Pensions? (S. 2318)

What is S. 2318?

(Updated April 28, 2019)

This bill — known as the Pension Stability Act — would generate new revenue for the Pension Benefit Guaranty Corporation (PBGC), which insures multi-employer and single-employer pension plans. It would impose a minimum of a $1 million fee on financial institutions convicted of financial crimes seeking an exemption to manage retirement plan funds. The proceeds of these fees would be collected by the Dept. of Labor (DOL) and sent to the PBGC for the multi-employer program until the multi-employer program is in a substantially similar financial condition as the single-employer program. At that point, the collected fees would be divided equally between the two programs.

If the programs’ finances diverge at a later point, the Director of the PBGC and the PBGC Board would be able to reallocate the fee revenue to match the programs’ financial needs.

For repeat offenders, the fee imposed for waivers would be increased by the number of prior waivers sought.

Argument in favor

The PBGC needs additional revenue to remain solvent. Imposing fees on financial institutions convicted of financial crimes that are seeking waivers to manage retirement funds is a sensible way to make sure that these institutions pay for their crimes while stabilizing funds that may have been harmed by their misconduct.

Argument opposed

This bill violates an existing regulation, and also does not necessarily create much new revenue for PBGC, as the minimum fee of only $1 million is a drop in the bucket against PBGC’s $76 billion deficit. Additionally, imposing fees on financial institutions seeking exemptions may just drive them away from seeking to manage retirement funds.

Impact

Financial institutions convicted of financial crimes; retirement plan managers; Department of Labor; Pension Benefit Guaranty Corporation; Director of the PBGC; the PBGC Board; and the Secretary of Labor

Cost of S. 2318

A CBO cost estimate for this bill is unavailable.

Additional Info

In-Depth: Sen. Tammy Baldwin (D-WI) introduced this bill to generate new revenue to protect the pensions of over 40 million workers and retirees by imposing fees on banks convicted of financial crimes which are seeking a waiver from the Labor Dept. in order to manage retirement plan funds:

“We must keep our promise to workers and retirees by making sure they receive the pensions they have earned. I am introducing this reform to address the financial challenges of the pension insurance program and to generate new revenue to fund worker pensions. Financial institutions convicted of a crime should have to pay a penalty that will provide funding to support workers and retirees who saw massive cuts to their pensions through no fault of their own. This reform helps us keep our promise to workers.”

Groom Law Group, commenting on this bill, raises the prospect that rather than creating revenue from new fees on financial institutions convicted of financial crimes, this bill would instead drive them away from seeking to manage retirement plan funds:

“Given the significant amount of time, costs and internal and external resources that are now required to obtain an individual exemption, asset managers that rely on the QPAM Exemption may need to carefully consider whether obtaining the exemption is worth the costs. If an asset manager has primarily a retail base of retirement clients (IRAs and small employee benefit plans) with liquid strategies and neither the asset manager nor any of its affiliates typically takes 5% or more stakes in other asset managers with ERISA Plan clients, the manager may want to consider relying upon other exemptions for the ten-year period following conviction rather than expending the resources to obtain an individual exemption that would permit continued reliance on the QPAM Exemption."

There is one cosponsor of this bill, who is also a Democrat. The Pension Rights Center supports this bill.

Of Note: The PBGC was created by Congress in 1974 to essentially act as a fail-safe for private pensions. The PBGC picks up the tab for pensions if their insured private pension plans fail. Currently, the agency delivers benefits to 900,000 workers enrolled in nearly 5,000 failed pension plans.

Currently, the Department of Labor does not charge any user fees for reviewing applications for individual financial institutions’ exemptions to allow financial firms convicted on criminal charges to manage retirement plan funds. This bill would change that practice, by directing the Secretary of Labor to establish regulations to set a user fee schedule based on the severity of the crime committed, with a minimum $1 million user fee. For repeat offenders, the user fee would be increased by the number of prior waivers sought.

At a $76 billion deficit, the PBGC’s finances are in need of shoring up, and substantially raising PBGC premiums on multiemployer plans is not a good option, as doing so would raise their expenses and exacerbate already-dire financial conditions of many of these plans, since premiums are paid out of fund assets. In their FY2016 Projections Report, the PBGC projected that the multiemployer program would run out of money in 2025, severely impacting millions of retirees’ pensions.

Qualified professional asset managers (QPAMs) that are subject to this bill are entities, such as financial services firms, that manage the interest of employee benefit plans in investment funds. Under current law, QPAMs that have been convicted of financial crimes must seek individual exemptions from the Department of Labor to continue working with retirement plan funds. The DOL has granted exemptions to all but one firm seeking these exemptions since 1997, issuing a total of 38 waivers.

Crimes committed by firms seeking QPAM waivers include: currency price fixing, false tax filings, and securities fraud.

Media:

• Sponsoring Sen. Tammy Baldwin (D-WI) Press Release