More On Multi-Employer Pension Plans, Unions, Politicians, Employees, Retirees and Taxpayers

If it weren't so sad, this multi-employer pension funding fiasco would be fun to watch. And while it's too serious to be fun, it is quite instructive. You see, the retirement funding problem is a big one involving all Americans, directly or otherwise.

To begin the story, unions want guaranteed pensions and employers want limited and known liability for the payments they make to multi-employer pension plans.

Retirees want what they're being paid and workers want to receive the benefits they've been promised. But there's not enough money in the till to do all that.

Thus, the "game" revolves around who receives less or pays more, as the case may be. Will it be the taxpayers, the retirees, the workers or the companies?

All we know for sure is that among those paying more or receiving less won't be any of the outspoken union leaders or politicians. They don't have their own skin in the "game" and never do.

Union-Employer Proposal Would Hit Some Retirees has the story of the game of "hot potato" pension payments now being played:

 "A coalition of unions and employers is proposing changes to the federal law that governs the pension plans of about 10 million people, including reducing benefits paid to retirees, the first time in four decades that such cuts would be allowed.

The proposal, which would undo guarantees put in place by federal law in 1974, is already stirring controversy among pension-rights advocates and rank-and-file union members. It was developed by some of the nation's biggest unions, including the Teamsters and United Food and Commercial Workers, and industry trade groups such as the Associated General Contractors of America. . . .

The plan is the latest to address a chunk of the nation's creaky retirement infrastructure. President Barack Obama's budget proposal this past week could also lead to a reduction in Social Security benefits for retirees. And on Monday, the Government Accountability Office said the number of insolvent multi-employer pension plans could double by 2017.

Something must be done to shore up about 10% of the roughly 1,450 multi-employer pension plans in the U.S., pension experts say. The plans, which are funded by groups of employers in construction, trucking and retail food, and pay out a monthly check known as a defined benefit, are the backbone of the retirement security for 10.3 million retirees and current workers.

More than half of such plans are funded to at least 80% of their liabilities. That is up from one out of five plans at that level in late 2008, after the stock market tanked. But a minority is in far worse shape. As many as 150 multi-employer plans are headed toward insolvency, according to government projections.

For those troubled plans, unions and employers are proposing that the Employee Retirement Income Security Act of 1974 be rewritten so that benefits for people who are already retired can be reduced. Without that fix, advocates argue, the plans will run out of money and retirees will end up with a fraction of their current benefits when the government takes over the plans. . . .

The cuts would depend on each plan's finances and could reduce benefits to as little of 110% of the level guaranteed by the Pension Benefit Guaranty Corp., the federal agency that backstops private-sector pensions. The 110% level amounts to $12,870 a year for people who retire at age 65 with 30 years of service.

"What we're really trying to do is salvage the system," said Randy DeFrehn, executive director of the National Coordinating Committee for Multiemployer Plans, a nonprofit group that assembled the labor-management coalition.

The coalition is recommending additional changes to multi-employer pension plans. It is also proposing a new form of pension plan that would carry less risk for employers than a defined-benefit pension, but is designed to provide more security for retirees than a 401(k). The assets are pooled, rather than held in individual accounts, reducing the investment risk to retirees. Employers would contribute a negotiated amount but wouldn't be liable for additional payments if funding levels dropped, as they currently are with multiemployer pensions.

Mr. DeFrehn said cutting retiree benefits is the controversial proposal, but noted that lawmakers have said they don't intend to bail out the pension plans. "This is kind of a reverse bailout," he said. "It shifts a lot of liabilities away from the public sector and the taxpayer."

Retiree advocates are raising red flags. Karen Ferguson, director of Pension Rights Center, a Washington, D.C., group that advocates for employees and retirees, said the union and management interest in the long-term survival of plans might conflict with the interests of older retirees who can't afford to lose their income now. . . .

Greg Smith, 64 years old, a Norton, Ohio, truck driver who retired in 2011 after working 31 years, agrees. He now receives a monthly check for $3,019 from a Teamsters pension plan that is projected to become insolvent in 2024. If that happens, the PBGC would take over and his benefit could be cut to as low as $1,100 a month.

Under the new proposal, his benefits could be trimmed before funds run out, giving the plan's investments a chance to recover in the market. His benefits would be guaranteed not to fall below $1,210 a month, 110% of the PBGC level.

"It's a precarious position for a lot of us retirees," Mr. Smith said. "Let's come up with a plan that doesn't trash the retirees and put them in the poorhouse."

A spokeswoman for the Teamsters, which participated in the coalition, declined to comment on the plan or whether the union endorses it. . . .

Over time, numerous factors have hurt the ability of plans to fund benefits. Bankruptcies have cut the number of employers paying into some plans, economic downturns hurt investment returns, and some policy decisions intended to strengthen plans ended up weakening them. . . .

Big and small companies now say their future is threatened by underfunded plans. The problem is also holding down wages and benefits for current workers in industries like trucking.

Judy McReynolds, president and chief executive of Arkansas Best Corp., is among executives who back the coalition's proposals. The company's ABF Freight System unit participates in 25 multi-employer plans, and has 7,500 Teamster employees, two-thirds of whom are enrolled in troubled plans. She said half of ABF's annual pension contributions of $132 million are for people who never worked for the company, and that its contributions are 14 times greater than those of competitors. "This is not sustainable," she said. "It is imperative that we find concrete solutions.""

Summing Up

And therein lies the problem.

The strong companies end up paying for the weak companies, just like the taxpayers end up paying for the non-taxpayers.

Until the strong become weak and can't pay any more.

Then the whole system of "government guarantees" goes down.

And when that happens, it's always the taxpayer who must come to the rescue.

We need a retirement system that both works and is affordable. That means we need to accept personal responsibility and become a nation of financial literates.

Although it's not widely understood, the simple fact is that 401(k) plans will work and work better for all Americans than the existing pension plans. When properly implemented, managed and understood, they're not that risky. Instead they're rewarding.

All we have to do is give these plans a chance and help give our fellow Americans a clear understanding of the inevitable linkages between traditional American values such as hard work, education, personal responsibility, private sector ownership, savings and investing, and our nation's wealth creating abilities.

Government as nanny is a losing proposition. And union provided pension security is no security at all.

In the end, government "certainty" is never certainty for individuals.

Faith in our American future and investing in that future is the only way to provide old age security for ourselves and our kids and grandkids

The rest is just talk.

That's my take.

Thanks. Bob.