MEP Watch

[campbell]

http://stream.wsj.com/story/latest-h...9/SS-2-204461/

Some companies are pushing to withdraw their workers from a giant Teamsters pension plan that faces a deep funding shortfall and questions about its long-term viability.

Investment losses during the financial crisis and hard times for trucking companies that pay into the Teamsters’ Central States Funds have sapped the fund of money it uses to pay promised benefits.

With just 60 cents of assets for every $1 in obligations, the Teamsters pension fund is considered in “critical” status by the Pension Benefit Guaranty Corp., the federal agency that backstops failed pensions.

Central States has about $18 billion in assets, ranking it the nation’s second-largest multiemployer pension plan. Such funds get contributions from numerous companies.

The Teamsters pension fund pools money from about 1,900 companies, and its investments have been overseen by advisers jointly approved by representatives for union and management.

Recent efforts by Republic Services Inc. to pull out about 800 sanitation workers from Central States show the uphill battle facing a pension plan founded by the late Teamsters President Jimmy Hoffa.

[exactuary]

Originally Posted by campbell

http://stream.wsj.com/story/latest-h...9/SS-2-204461/

Note the matter-of-fact way that the WSJ says the fund has "60 cents of assets for every $1 in obligations"

Shouldn't it occur to the WSJ that the obligations for multi's are calculated using EROA while corporate plans, also federally regulated and PBGC insured, use corporate bond rates -- a difference of, maybe, 200bps -- which, if applied to multi's would drop funding to well under 50%.

I am complaining about the flat-footed language which fails to use hedge words like "reported obligations."

[campbell]

GAO report

http://www.gao.gov/products/GAO-13-240

What GAO Found

The most severely distressed multiemployer plans have taken significant steps to address their funding problems and, while most plans expected improved financial health, some did not. A survey conducted by a large actuarial and consulting firm serving multiemployer plans suggests that the large majority of the most severely underfunded plans--those designated as being in critical status--either have increased or will increase employer contributions or reduce participant benefits. In some cases, these measures will have significant effects on employers and participants. For example, several plan representatives stated that contribution increases had damaged some firms' competitive position in the industry, and, in some cases, threatened the viability of such firms. Similarly, reductions in certain benefits--such as early retirement subsidies--may create hardships for some older workers, such as those with physically demanding jobs. Most of the 107 surveyed plans expected to emerge from critical status, but about 25 percent did not and instead seek to delay eventual insolvency.

The Pension Benefit Guaranty Corporation's (PBGC) financial assistance to multiemployer plans continues to increase, and plan insolvencies threaten PBGC's multiemployer insurance fund's ability to pay pension guarantees for retirees. Since 2009, PBGC's financial assistance to multiemployer plans has increased significantly, primarily due to a growing number of plan insolvencies. PBGC estimated that the insurance fund would be exhausted in about 2 to 3 years if projected insolvencies of either of two large plans occur in the next 10 to 20 years. More broadly, by 2017, PBGC expects the number of insolvencies to more than double, further stressing the insurance fund. PBGC officials said that financial assistance to plans that are insolvent or are likely to become insolvent in the next 10 years would likely exhaust the insurance fund within the next 10 to 15 years. If the insurance fund is exhausted, many retirees will see their benefits reduced to an extremely small fraction of their original value because only a reduced stream of insurance premium payments will be available to pay benefits.


Experts and stakeholders cited two policy options to avoid the insolvencies of severely underfunded plans and the PBGC multiemployer insurance fund, as well as other options for longer term reform. Experts and stakeholders said that, in limited circumstances, trustees should be allowed to reduce accrued benefits for plans headed toward insolvency. Also, some experts noted that, in their view, the large size of these reductions for some severely underfunded plans may warrant federal financial assistance to mitigate the impact on participants. Experts and stakeholders also noted tradeoffs, however. For example, reducing accrued benefits could impose significant hardships on some retirees, and any possible financial assistance must be considered in light of the existing federal debt. Options to improve long term financial stability include changes to withdrawal liability--payments assessed to an employer upon leaving the plan based on their share of unfunded vested benefits--to increase the amount of assets plans can recover or to encourage employers to remain in or join the plan. In addition, experts and stakeholders said an alternative plan design that permits adjustments in benefits tied to key factors, such as the funded status of the plan, would provide financial stability and lessen the risk to employers. These and other options also have important tradeoffs, however.



Why GAO Did This Study

Multiemployer pension plans--created by collective bargaining agreements including more than one employer-- cover more than 10 million workers and retirees, and are insured by the PBGC. In recent years, as a result of investment market declines, employers withdrawing from plans, and demographic challenges, many multiemployer plans have had large funding shortfalls and face an uncertain future.

GAO examined (1) actions that multiemployer plans in the weakest financial condition have taken to improve their funding levels; (2) the extent to which plans have relied on PBGC assistance since 2009, and the financial condition of PBGC's multiemployer plan insurance program; and (3) options available to address PBGC's impending funding crisis and enhance the multiemployer insurance program's future financial stability.
GAO analyzed government and industry data and interviewed government officials, pension experts--including academics, actuaries, and attorneys, multiemployer plans' trustees and administrators, employers and trade associations, unions, advocacy organizations, and other relevant stakeholders.

What GAO Recommends

Congress should consider comprehensive and balanced structural reforms to reinforce and stabilize the multiemployer system. PBGC generally agreed with our findings and analysis.

[Guerilla poster]

http://www.marketwatch.com/story/pen...ees-2013-04-15

[ElDucky]

For a second I thought you misspelled meep.

[campbell]

No, I did not.

Anyway, to provide some relevant quotes from GP's link:

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 last week, the Government Accountability Office said the number of insolvent multiemployer pension plans could double by 2017.

Something must be done to shore up about 10% of the roughly 1,450 multiemployer 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 multiemployer 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.

Advocates say early cuts can stave off deeper ones down the road. Under the proposal, trustees from labor and management would determine how deeply to cut benefits to return the plans to solvency. One labor official said the cuts could take effect within a year of the decision.
....
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. She said she thinks legislation should make sure retirees have input in the cuts, and that Congress should consider alternatives to the cuts.

....
David Blitzstein, who oversees multiemployer plans for United Food and Commercial Workers, said cutting benefits remains controversial for unions, companies and members of Congress. He participated in the 18 months of talks that led to the proposals. “It was a very tough bullet to bite for everyone in the room,” he said. Blitzstein said the majority of unions in the coalition supported cutting retiree benefits. The UFCW has openly endorsed it. It has retirees in about 60 multiemployer plans, covering 1.4 million people. He said cutting retiree benefits could be the only way to save about five deeply troubled plans, and added that it wasn’t clear how much benefits would have to be cut. “We haven’t modeled it yet in some of these really sick plans.”

[campbell]

http://www.michigancapitolconfidential.com/18574

When he was forced to downsize his last, part-time unionized trucker, George Kerver said he was charged nearly half a million dollars to help bail out the Teamsters union pension fund.

"We got the bill and it was for $465,774," said Kerver, president of Fastdecks Inc., a concrete forming company in Walled Lake. "We have made three payments so far. The first one was due five days after our receipt of their demand. Three sets of lawyers have all warned us that this law is pay now and ask questions later."

Teamsters Central States Pension Fund sent the bill to Fastdecks. Although the company had employed hundreds of union workers since its founding in 1964, the $465,774 bill resulted from just one employee being laid off.

.....
Kerver said the company was "lucky" its liability was assessed as of 2011. If it had been assessed as of 2012, he said the bill would have been well over $550,000 because the cost of withdrawing from these union pension funds is skyrocketing.

....
"As companies leave the pool of contributors each remaining company's percentage of the growing shortage gets larger," Kerver said.

In other words, the $465,774 that Fastdecks owes the Teamster Central States Pension Fund is not based on what is owed by the company for the former truck driver's benefits. It is based on the fact that the pension fund is about $25 billion in the hole.

"That means, theoretically, that the withdrawal liability for the last company that stays in the pool will be $25 billion, or however much the entire fund is underfunded," Kerver said.

[ElDucky]

Obviously the solution is the keep one trucker on staff forever.

[zeus1233]

Originally Posted by ElDucky

Obviously the solution is the keep one trucker on staff forever.

And manage your downsizing to avoid partial withdrawal charges.

[Runner]

In other words, the $465,774 that Fastdecks owes the Teamster Central States Pension Fund is not based on what is owed by the company for the former truck driver's benefits. It is based on the fact that the pension fund is about $25 billion in the hole.

"That means, theoretically, that the withdrawal liability for the last company that stays in the pool will be $25 billion, or however much the entire fund is underfunded," Kerver said.

That's totally false. The whole point of assessing the withdrawal liability as companies downsize or leave is so that the last company that stays in the pool will not be stuck with the whole $25 billion debt.