At Work

A sad tale of lost pensions from a union pension fund

Central States, Southeast and Southwest Areas Pension plan’s propose to cut retired workers benefits. If you are not directly involved with this union, you may be inclined to say, so what? However, besides the human suffering this will cause, there are lessons here.

Multi-employer Union plans pay $27 per participant for federal pension insurance (private employer plans pay $64 per participant) to protect a portion of earned pensions.

From heritage.org

Absent reform of union pensions and the PBGC’s multiemployer program, current workers and retirees could be left with mere pennies on the dollar in promised pension benefits, or taxpayers could be forced to bail out the often reckless actions of union pension trustees.

Many union pensions have taken advantage of favored rules and regulations, engaging in reckless actions and assumptions that contributed to financial shortfalls and insolvencies.

IMG_2864In other words, if Congress does not act, you may foot the bill. Read the paragraph I have highlighted below. That is a good description of a similar problem facing Social Security; there is no longer enough tax revenue to pay the benefits to people who are retired.

In the final analysis, both these problems have as their root cause inaction by Congress or poor or poorly enforced regulation. Remember that the next time a politician bemoans the plight of the middle-class.

As the deadline for submitting comments nears, close to 2,000 participants in one of the nation’s biggest multi-employer pension plans are voicing their concerns about the financially troubled Central States, Southeast and Southwest Areas Pension plan’s proposal to cut benefits.

“I worked at United Parcel Service for 30 years. I gave them 100% every day. Now that I’m retired, I expect 100% of the pension that I earned and was promised me under our contract for life. I was told I would have to take a 50% cut. A cut of this size will destroy our quality of life,” plan member Wade Blackwelder of Bessemer City, North Carolina, wrote to the U.S. Treasury Department.

His comment is among the nearly 2,000 letters that participants have sent to the federal agency that has the final say on the plan’s proposal to cut benefits to prevent its insolvency. Earlier, the financially distressed plan, which has more than 400,000 participants, reported that it had $35 billion in liabilities and just $17.8 billion in assets at the end of 2014.

Source: Pension participants weigh in on Teamsters’ plan to cut benefits | Business Insurance

From Pension Rights Center

A variety of factors led to Central States Pension Fund’s dire underfunding problem:

  • The deregulation of the trucking industry in the 1980s resulted in the loss of more than 10,000 employers that used to contribute to the Fund. The challenges in our industry continue today, and we’ve experienced the loss of many employers even in the past five years.
  • Many employers went bankrupt or out of business without making their full contributions to the Fund. About half of all benefit payments currently go to “orphaned” retirees, whose employers never fully paid the Fund to cover their pensions.
  • Since 2008, Allied Systems, Hostess Brands and Leaseway/E&L Transport went bankrupt, leaving the Fund short $1.7 billion. Recently, employers such as YRCW have substantially scaled back their contributions and many other employers have withdrawn completely.
  • Baby Boomers are retiring in record numbers and the union workforce has been steadily declining for years. As a result, for every $3.46 that the Fund pays out in pension benefits, only $1 is collected from employers, resulting in an annual shortfall of $2 billion. That math simply doesn’t work.
  • Additionally, two major recessions since 2000 torpedoed the U.S. economy, driving down the Fund’s investment assets and pushing many contributing employers out of business or into bankruptcy.

If action is not taken soon to address this funding problem, by 2026, Central States Pension Fund will run out of money and be unable to pay any benefits to current and future retirees.

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4 replies »

  1. I don’t have any sympathy or empathy for these folks. Their own union leaders conspired with management to shortchange funding. It was deliberate and it was all but “criminal”. The federal pension law that created the PBGC was signed into law by President FORD in 1974. It has been 40 years. Where is the funding? It is obvious that they intentionally depleted funding from these multiemployer plans.

    As I have said before, pension promises without funding are mere dreams!

    Deficits in the Pension Benefit Guaranty Corp’ single-employer and multiemployer insurance programs both increased in fiscal year 2015.., single employer plans increased to $24B (up from $19B), multiemployer plans increased to $52B (up from $42B). The increase on the single employer side came from a decrease in interest rates, adding $4.7 billion in liabilities, plus $3.3 billion increase in the esttimated cost of already accrued liabilities. The decrease in interest rates added $4.3B in multiemployer plan liabilities. The rest of the increase is attributable, for the most part, to 17 new plans that recently terminated or are expected to go insolvent in the next year, adding $4.6B in new liabilities.

    But, how did Congress respond? The response to permit reductions in benefits in multiemployer plans seems like the best of three alternatives – benefit reductions, premium increases (which would cost jobs) or a federal taxpayer bailout. The idiots in Congress however, made the wrong choice for single employer plans by raising the annual premium for reasonably well funded single employer plans from $57 per person to $78 per person. Over time, well funded plans will simply exit the system instead of buying insurance they don’t need. The better option would have been to privatize the PBGC – forcing plans to purchase insurance from a private insurance company. Remember, the initial PBGC premium 40 years ago back in 1976 was $1 per person, and just 10 years ago, 1996, was $31 per person. Remember, this is the premium rate for reasonably well funded plans.

    Bottom line, this is another situation where the government creates a process for taxpayers to take it in the neck to buy votes by encouraging bad behavior and collusion between union leaders and management. Remember, today’s “average” everyday wage earning taxpayer will have $0 in defined benefit pension benefits when she retires. So, any taxpayer bailout will have taxpayers with no pension benefit bailing out those who lied, misrepresented, and deliberately underfunded their plans.

    Sounds like a typical government vote-buying operation to me.

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    • Not unlike the unholy alliance between union leaders and politicians (mostly Democrat) at the state level for public pensions. The workers get the short end of the stick.

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      • We must remember that the union and company have no use of you once you retire, so what do you expect. There should be a law against this kind of thing, instead there is a law that allows this kind of ripoff.

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  2. I feel sorry for the people who worked 30 years and now may have to take a 50% cut. If history of these kinds of cuts hold, the plan will get approved by the government and the workers will get the shaft once again. No one is looking out for the little guy any more. The Unions and Corporations get the best representation money can buy from D.C. If these cuts go through the people affected should at least get their remaining pension coded tax free state and federal, it would be the least we could do.

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