Ideas for Broken Pension Plans

Federal lawmakers are trying to come up with a way to protect the pensions of more than one million union workers. Several options have been offered, none have been accepted. The latest offer comes from union crony Ohio Senator Sherrod Brown and Massachusetts Representative Richard Neal. Their bills came the same day the Pension Benefit Guaranty Corporation – the federal agency that insurance pension plans – released a report saying the agency is running a $65.1 billion deficit and will be bankrupt by 2025.

Legislation by Brown and Neal is called the Butch Lewis Act. It would create a Pension Rehabilitation Administration, a new federal office within the Treasury Department (making government bigger) that would sell bonds to financial institutions to raise money to fund loans to financially troubled plans.

The UPS Loan Proposal is another option. UPS has a proposal that would provide up to three successive low interest long-term federal government loans to troubled pension plans to cover their cash flow shortage or 5 years each.

A third option is the New Design from NCCMP (National Coordinating Committee on Multi-employer Plans). There, the loan program would lend funds to qualifying “critical and declining” status pension plans at 1% interest for 30 years. The loans would be interest only for the first 15 years, and then require a level payment of principal and interest for the remaining 15 years.

Another option is funding from credit union profits. This proposal comes from the American Families for Pension Security nonprofit group. The group wants to create a federally chartered special-purpose credit union for the more than 10 million members of multi-employer plans and their families. The credit union would use its profits from loans and credit card operations to build a reserve pool to help plans repay and secure the loans.

There are drawbacks to each of the proposed plans. None have been accepted, and there is no telling whether any for of any of the plans will be implemented.

Matt Austin owns Austin Legal, LLC, a boutique law firm based in Ohio that limits its representation to employers dealing with labor, employment, and OSHA matters. You can reach Matt by calling him at (614) 843-3041 or emailing him at Matt@MattAustinLaborLaw.com.

Union Pension Payouts are Getting Cut and Retirees Threaten Militant Action

The Teamsters pension plan (Central States Pension Plan), widely criticized as being extremely underfunded and unable to pay a fraction of its obligations to retirees, is set to be cut in the coming weeks. The Central States Pension Plan last year became the first financially troubled pension fund to seek relief with the federal government under the Multiemployer Pension Reform Act that was passed in late 2014. The law was designed to keep multiemployer plans solvent and continue to pay retirees, but at a reduced rate. Without substantial changes, Central States will be insolvent within 10 years.

This reduced benefits amount has employees angry and threatening to “go old-school on their ass,” referring to Congress. Other suggestions from Akron-area retirees included a nationwide strike, blocking or occupying the U.S. Treasury Department building, and, as one member suggested, to “shoot them.”

Most companies I represent get out of the union defined benefit contribution plans because most of them are headed for the same fate as Central States. Workers are then free to invest in company sponsored 401k plans or some other option on their own. I feel bad for the workers who believed the union organizers that promised them a lucrative retirement if they voted for the union and paid into the union’s pension plan. Decades later, after the workers lived up to their end of the bargain, the union broke its promise.

Matt Austin is a lawyer based in the Columbus, Ohio office of Roetzel & Andress, LPA who limits his practice to representing employers dealing with labor, employment, and OSHA matters. You can call Matt at (614) 723-2010 or email him at maustin@ralaw.com.

Big Three Union Retiree Medical Fund Suffering $20.7 Billion Shortfall

In 2007, the UAW created a trust fund that provides healthcare benefits for retired UAW members of the “Big Three” automakers. The fund is intended to help control healthcare costs for former workers and their families. This trust was supposed to be the answer to rising healthcare costs for retirees and the shrinking pool of active employees subsidizing the retirees’ costs. The union and automakers provided the fund with $59 billion in 2010, but the fund’s assets have only increased to $60 billion since then. In other words, the fund has made almost no progress in the past four years. Because healthcare costs are projected to continue increasing, this rate of progress will not be sufficient to continue paying for the retirees’ rising healthcare costs.

The fund recently reported a $20.7 billion difference between its assets and future liabilities. The report announcing the shortfall blamed future inflation and longer average life span for the projected shortfall. Notably, a solution to this deficit has not yet been articulated.

Rising healthcare costs continue to be a concern for retirees and active union members alike. It appears that the UAW’s healthcare solution will not have long-term sustainability. There is no doubt that healthcare will continue to be one of the most thoroughly negotiated provisions in collective bargaining agreements as employees do not want to eliminate coverage options and employers seek to have employees shoulder a larger percentage of the cost increases.

Matt Austin is a lawyer based in the Columbus, Ohio office of Roetzel & Andress, LPA who limits his practice to representing employers dealing with labor, employment, and OSHA matters. You can call Matt at (614) 723-2010 or email him at maustin@ralaw.com.

Long-Retired Employees See Fully Vested Pensions Drastically Cut by Multiemployer Pension Reform Act

The Multiemployer Pension Reform Act of 2014 (MPRA) was signed by President Obama on December 15th as part of a last-minute deal approved by lawmakers as they were leaving town for Christmas break. The MPRA allows funds to cut benefits for workers and current retirees if the plan is 20% or more underfunded. In other words, Congress and the President have allowed workers who are fully vested in their retirement funds to take a financial hit for union managers who failed to keep pensions fully funded. At least those over 75 years old are exempt.

The new law, a bi-partisan effort from pro-union Rep. George Miller (D-Ca) and anti-union Rep. John Kline (R-Mn) enables multiemployer plans to make deeper cuts to pensions than the 2006 Pension Protection Act allowed. More dramatic cuts to the accrued benefits for current workers and cuts to the benefits already being paid to retirees are permitted. Affected retirees could have their pensions cut by as much as 60%.

According to some, Randy G. DeFrehn, executive director of the National Coordinating Committee for Multiemployer Plans said, “After 2000, the markets didn’t start to perform very well. When the dot-com bubble burst, we started working with Congress on the 2006 PPA, which introduced some tighter constraints on plans and protected employers against unexpected contribution increases and excise taxes. That was helpful but we thought it was not going to work out in the long run. We were looking back in history and there was not three consecutive years in the markets like there were from 2000 to 2002 since the 1940’s. We believed the economists that this would be a once-in-a-lifetime experience, but then six years later we’re back in the soup in 2008 with the Great Recession.”

The MPRA was enacted after the Pension Benefit Guaranty Corp., which protects pensioners when their plans fail, reported that its funding deficit soared $8.3 billion last year to a staggering 42.4 billion. The government is allowed to enter pension plans into “critical and declining status” if they are projected to become insolvent in the next 15 years, or in the next 20 years if the plan is less than 80% funded, or if the inactive to active participants exceed a 2-to-1 ratio. Entering such status enables the government to dramatically reduce paid benefits to plan participants even before the plans fail. And that’s exactly what a lot of long-term retirees are quickly learning.

Matt Austin is a lawyer based in the Columbus, Ohio office of Roetzel & Andress, LPA who limits his practice to representing employers dealing with labor, employment, and OSHA matters. You can call Matt at (614) 723-2010 or email him at maustin@ralaw.com.

Is Scranton, Pennsylvania the Next Detroit? Public Union Pensions Driving Scranton to Bankruptcy

Scranton, Pennsylvania, home of Vice President Joe Biden, is bracing for bankruptcy because of overly generous union pension plans. According to Stephen Moore of Investor’s Business Daily Online:

The city also increased various fees, such as for garbage collection, by two-thirds. It’s becoming a tax hell. These taxpayer costs are skyrocketing, because the city’s auditors calculate that the police and fire pension fund will be completely depleted in three to five years….

Finances are so tight in Scranton that late last year the city auditor advised city agencies that “only in the event of an extreme emergency can a purchase be made”… So now, homeowners are getting squeezed on basic city services as they pay ever-escalating property taxes. Don’t be surprised as more leave Scranton, further depleting the tax base. And who would want to move there now?

The mayor of Scranton pleaded with unions to renegotiate the soaring pension costs. So far, unions have refused, making a Detroit-style bankruptcy the only and inevitable option.

Matt Austin is a lawyer based in the Columbus, Ohio office of Roetzel & Andress, LPA who limits his practice to representing employers dealing with labor, employment, and OSHA matters. You can call Matt at (614) 723-2010 or email him at maustin@ralaw.com.

Cuts to Pension Plans Part of the 2015 Congressional Budget Bill

For the first time, Congress approved a bill that allows the retiree benefits of distressed union multi-employer pension plans to be cut. A multi-employer pension plan is where a group of employees in the same industry join unions to provide pension coverage to retirees. Of the 1,400 multi-employer plans in the U.S., hundreds either have failed or are tail spinning into insolvency. Cutting the benefits awarded to retirees is the only way to salvage pensions in plans that are in imminent danger of running out of money.

For perspective, retirees in the Teamsters’ Central States fund are entitled to $3,000 a month or more for the rest of their lives after working 30 years. Accordingly, a 30-year employee who is not yet 50 years old is likely entitled to over $1 million plus significantly subsidized health care benefits. Central States has a staggering 5:1 ratio of retirees to employees paying into the pension fund. Obviously, this model is not sustainable. The fund has $18 billion in assets, pays out $2.8 billion annually, but only collects $700 million each year. Central States’ pension plan will run out of money in the next 10 – 15 years. Without the recent Congressional changes, the plan will fail and no retiree would receive any money. Even the Pension Benefit Guaranty Corporation (PBGC), which insures union pension funds, only guarantees $13,000 per year and it too will soon run out of money.

Some of the changes that may occur to retirees who are members of pension plans that will run out of money within the next 20 years include:

  • Benefits may be cut by as much as 60% for some retirees in some plans.
  • Retirees who are 80 and over will not have their benefits cut; those who are 75-79 will receive smaller cuts than retirees under 75 years old.
  • Retirees cannot challenge the plan’s trustee’s decisions in court even if arbitrary and capricious or contrary to the best interest of the plan participants.
  • No automatic restoration of lost benefits even if the plan’s funding status improves.
  • The insurance premiums that multi-employer plans pay to the PBGC are increased from $13 to $26 per participant per year. In contrast, premiums paid to the single-employer plan program are between $57 and $475 per participant per year. The benefits guaranteed by the single-employer program are four times the maximum benefits guaranteed by the multi-employer program.

Although these changes are supported by both employers and unions (but not retirees) they are not guaranteed to become law. President Obama has not yet given it his blessing and is beginning to get heat from James Hoffa, President of the Teamsters union – the same union whose pension plan stands to gain the most from these changes. Go figure.

Matt Austin is a lawyer based in the Columbus, Ohio office of Roetzel & Andress, LPA who limits his practice to representing employers dealing with labor, employment, and OSHA matters. You can call Matt at (614) 723-2010 or email him at maustin@ralaw.com.

The Inner-Workings of the PBGC Taking Over Union Pension Plans

Many of my clients are suffocating under the weight of unfunded pension liabilities. They ask me what happens if they sell the company, what happens if they get rid of the union, what happens if they file bankruptcy, etc. While answering each of those questions depends on a myriad of specific facts and legal analysis, here is a peek behind Reichhold, Inc.’s plans to sell its assets in bankruptcy and abandon its employees’ union pension plan. The Pension Benefit Guaranty Corporation (PBGC) will take over the pension plan and pay the retirement benefits for more than 4,500 current and future retirees of Reichold. The retirement plan is 70% funded leaving a $97 million shortfall of which the PBGC will cover $90 million. Employees who retire at age 65 with a 100% vested pension will be eligible for up to $59,320 per year.