The War on Pensions Goes Federal

Congress could apply a ‘haircut’ to previously sacrosanct pensions.

Cole Stangler

Former Teamster Alex Adams, right, is one of the hundreds of thousands of retirees whose benefits could be slashed if Congress passes legislation to restructure the laws governing multi-employer pension plans.

Alex Adams, 71, worked in the truck­ing indus­try for 36 years before retir­ing in 2003. Five years lat­er, Adams was diag­nosed with can­cer in his lar­ynx and ton­sils. As a result, he now takes food through a feed­ing tube and has to deal with a num­ber of ongo­ing med­ical costs.

The NCCMP paints its proposal to cut benefits to current retirees as a tough but necessary decision. The choice, it says, is between future insolvency or difficult sacrifices now. Critics charge this is a false dilemma.

For­tu­nate­ly, as a mem­ber of the Team­sters, he reg­u­lar­ly paid in to the Cen­tral States Fund—a nation­al pen­sion fund joint­ly admin­is­tered by the union and sev­er­al dif­fer­ent truck­ing and con­struc­tion employ­ers. Now he receives a month­ly check of about $3,500 from that fund that cov­ers his med­ical expens­es and allows him and his wife, who live in the Cleve­land sub­urb of Maple Heights, to main­tain the lifestyle that we cre­at­ed for ourselves.” 

That Team­sters pen­sion was part of what drew him to a career in truck dri­ving, Adams says, and moti­vat­ed him to stay in the field in spite of the tough times that fol­lowed the industry’s dereg­u­la­tion in 1980. Work­ing most­ly out of Cleve­land, he became what’s called a casu­al” dri­ver, tak­ing short-term jobs for dif­fer­ent employ­ers when­ev­er they became available.

I want­ed that pen­sion. So I went from com­pa­ny to com­pa­ny, some­times two com­pa­nies in one day,” says Adams. Lat­er, he found more sta­ble employ­ment and rose to become pres­i­dent of Local 407 in 2000.

In addi­tion to that Cen­tral States Fund check, he receives about $1,000 in month­ly Social Secu­ri­ty ben­e­fits and anoth­er $800 a month from serv­ing on the Maple Heights City Coun­cil, but he says he can’t imag­ine liv­ing with­out his pen­sion check, since his and his wife’s most sig­nif­i­cant expens­es — like car pay­ments, life insur­ance and health­care — all depend on that income stream.

But Adams and hun­dreds of thou­sands of retirees like him may have to make do with less. Con­gress is expect­ed to take up leg­is­la­tion in the next month that would fun­da­men­tal­ly reshape the laws gov­ern­ing mul­ti-employ­er plans. A soon-to-be-intro­duced bill could allow the trustees of some finan­cial­ly trou­bled plans, like the Cen­tral States Fund, to slash ben­e­fits already promised to cur­rent retirees. It’s not yet clear how big those cuts would be.

Mul­ti-employ­er plans in the spotlight

Like the mul­ti-employ­er health plans that have become a flash­point in Oba­macare debates, mul­ti-employ­er pen­sions offer work­ers porta­bil­i­ty” — a con­struc­tion work­er, for instance, can work for a dozen dif­fer­ent employ­ers cov­ered by the same union and con­tin­ue pay­ing into the same pen­sion fund. Estab­lished in union con­tracts with employ­ers, these plans cov­er rough­ly 10 mil­lion work­ers, most­ly in con­struc­tion, but also in man­u­fac­tur­ing, retail, ser­vice and transportation. 

While the reform bill’s lan­guage has not yet been draft­ed, it is expect­ed to close­ly mir­ror a Feb­ru­ary 2013 pro­pos­al, Solu­tions not Bailouts, from the Nation­al Coor­di­nat­ing Com­mit­tee for Mul­ti-Employ­er Plans (NCCMP), accord­ing to the group’s exec­u­tive direc­tor Randy DeFrehn. The pro­pos­al calls for grant­i­ng spe­cial author­i­ty to pen­sion trustees — com­prised of rep­re­sen­ta­tives from labor and man­age­ment — to take ear­ly cor­rec­tive actions” to pre­vent the future insol­ven­cy of the plans. These actions could include cut­ting ben­e­fits to cur­rent retirees like Adams. 

A hear­ing on the top­ic by the pen­sion sub­com­mit­tee of the House Edu­ca­tion on Work­force was sched­uled for Octo­ber 10, but has been delayed as a result of the shut­down and debt ceil­ing crises.

The NCCMP, made up of trade unions and employ­ers that admin­is­ter mul­ti-employ­er health and pen­sion plans, has poured hun­dreds of thou­sands into lob­by­ing for the bill. Its efforts are lent clout by the fact that the group, at least nom­i­nal­ly, rep­re­sents both labor and man­age­ment. DeFrehn boasts that his orga­ni­za­tion has lob­bied Con­gress with rep­re­sen­ta­tives from the labor move­ment, includ­ing the Cen­tral States Fund and sev­er­al build­ing trades unions. And a num­ber of dif­fer­ent unions with mul­ti-employ­er pen­sion plans, includ­ing the Team­sters, Inter­na­tion­al Asso­ci­a­tion of Machin­ists and Aero­space Work­ers (IAM), the Inter­na­tion­al Broth­er­hood of Elec­tri­cal Work­ers (IBEW), Ser­vice Employ­ees Inter­na­tion­al Union (SEIU) and the Unit­ed Food and Com­mer­cial Work­ers (UFCW), par­tic­i­pat­ed in the NCCMP com­mis­sion that led to the Solu­tions not Bailouts recommendations.

Of these unions, only the IAM has pub­licly bro­ken from the NCCMP’s antic­i­pat­ed pro­pos­al. Frank Larkin, IAM’s com­mu­ni­ca­tions direc­tor, calls the pro­posed change the most sig­nif­i­cant cut­back in retiree pro­tec­tions in near­ly 40 years.”

That’s not hyper­bole. If adopt­ed, the pro­pos­al would strike at the core of Employ­ee Retire­ment Income Secu­ri­ty Act of 1974, designed to keep pri­vate-sec­tor employ­ers from with­hold­ing promised ben­e­fits. Under this foun­da­tion­al pen­sion law and its 1980 amend­ment, employ­ers are some­times allowed to renege on promis­es made to future recip­i­ents, but the ben­e­fits of cur­rent retirees have long been deemed sacro­sanct — with very few excep­tions. (One of those, in rare cas­es, is bank­rupt­cy, the process by which Patri­ot Coal, a spin-off of Peabody Ener­gy, recent­ly shed oblig­a­tions to Unit­ed Mine Work­ers of Amer­i­ca retirees.) Pre­vail­ing log­ic has held that since cur­rent retirees are old and out of the work­force, they’re unlike­ly to find anoth­er job. As Adams says, I couldn’t even go to Wal­mart and be a greeter. No one would hire me at 71 with cancer.”

Larkin says he expects oth­ers in orga­nized labor to start voic­ing oppo­si­tion to the NCCMP plan soon. He tells In These Times that IAM has been meet­ing with orga­ni­za­tions and unions to raise aware­ness. SEIU and UFCW did not respond to request for com­ment on this sto­ry. An IBEW spokesper­son affirmed the union’s sup­port for mul­ti-employ­er pen­sion plans and told In These Times that its par­tic­i­pa­tion in draft­ing the report was not exten­sive,” but not­ed that the pro­posed cuts would apply in only the most dire of circumstances.”

Trou­bled times

The NCCMP paints its pro­pos­al to cut ben­e­fits to cur­rent retirees as a tough but nec­es­sary deci­sion. The choice, it says, is between future insol­ven­cy or dif­fi­cult sac­ri­fices now.

Mul­ti-employ­er plans are indeed fac­ing finan­cial prob­lems. As a whole, these funds face a rough­ly $5 bil­lion deficit, which is expect­ed to bal­loon to $27 bil­lion in 10 to 20 years, accord­ing to the Pen­sion Ben­e­fit Guar­an­ty Cor­po­ra­tion (PBGC), the gov­ern­ment-run agency that insures pri­vate pensions. 

Sev­er­al struc­tur­al fac­tors are dri­ving that deficit upwards. The nation­al trend of de-union­iza­tion cou­pled with job loss­es from the reces­sion have meant that few­er and few­er work­ers are pay­ing into funds as more and more retirees are start­ing to receive ben­e­fits. Employ­ers also have an incen­tive to drop out of these pools when they can afford to do so — pay­ing an exit fee has often proven more entic­ing than stay­ing on the hook for owed ben­e­fits. Fur­ther­more, like oth­er pen­sions across the coun­try, mul­ti-employ­er plans were rav­aged by the Wall Street-dri­ven eco­nom­ic melt­down of 2008. While about 75 per­cent of mul­ti-employ­er plans were con­sid­ered finan­cial­ly healthy at the begin­ning of 2008, accord­ing to gov­ern­ment cri­te­ria, only 30 per­cent were con­sid­ered to be so by the start of 2009.

But many plans have since improved—60 per­cent are once again sta­ble, and only about 25 per­cent, many of them rel­a­tive­ly small funds, are in crit­i­cal sta­tus. In fact, it’s two large pen­sion funds in par­tic­u­lar — the 410,000-participant Cen­tral States Fund and an 118,000-member Unit­ed Mine Work­ers of Amer­i­ca fund — that are respon­si­ble for much of the fund­ing cri­sis. Togeth­er, they make up about 5 per­cent of all work­ers cov­ered by mul­ti-employ­er plans and about $26 bil­lion of the $27 bil­lion in lia­bil­i­ties of plans pro­ject­ed to go insol­vent, accord­ing to the PBGC. 

The UMWA did not respond to requests for com­ment on the state of its funds, but the Team­sters point to a vari­ety of struc­tur­al fac­tors out­side of the union’s con­trol. Leigh Strope, a spokesper­son, says the poor finan­cial con­di­tion of Cen­tral States can be traced back to the dereg­u­la­tion of the truck­ing indus­try, the reces­sion of the ear­ly 2000s, and the most recent eco­nom­ic crisis. 

On the oth­er hand, Team­sters for a Demo­c­ra­t­ic Union (TDU), a group of rank-and-file mem­bers opposed to the Team­sters lead­er­ship, lays much of the blame on union lead­ers for fail­ing to deal with those crises. It argues the union didn’t bar­gain enough new work­ers into the plan, not­ing that anoth­er large fund that has a broad­er base of con­trib­u­tors, the West­ern Con­fer­ence of Team­sters plan, is doing just fine. The TDU also believes the union should nev­er have let Unit­ed Par­cel Ser­vice (UPS) walk from the fund in 2007, which it says encour­aged oth­er com­pa­nies to do the same and hiked up the ratio of retirees to actives to a dan­ger­ous­ly high lev­el. A high ratio puts stress on funds to pro­duce returns in the stock mar­ket instead of rely­ing on active con­tri­bu­tions to pay benefits.

Thomas Nyhan, exec­u­tive direc­tor of the Cen­tral States fund, says he opposed the deci­sion to let UPS leave, since it cut off a key source of con­tri­bu­tions to the fund. But, as a pen­sion trustee, he had no say in what was ulti­mate­ly an inter­nal union mat­ter. This was not some­thing we agreed to,” he says. We didn’t have a choice.”

Cen­tral States did get an influx of cash from UPS for the deal, but the fund sub­se­quent­ly lost it in the 2008 meltdown. 

While we gained a lot of assets, it made you more depen­dent on asset returns, because you won’t get any of the cor­re­spond­ing con­tri­bu­tions from the actives any­more that had left the plan,” Nyhan says. But you had a pile of mon­ey you had to invest to make up for that. The tim­ing was so unfortunate.” 

Under the Solu­tions not Bailouts pro­pos­al, trustees could osten­si­bly only tam­per with funds that, like Cen­tral States, are pro­ject­ed to be insol­vent with­in either the next 15 or 20 years—and in the lat­ter case, only if the ratio of inac­tive to active par­tic­i­pants exceeds 2 to 1. Once trustees have exhaust­ed all rea­son­able mea­sures to improve the plan’s fund­ed posi­tion,” then they’d be allowed to start hack­ing away. 

The NCCMP’s goal, it says, is to avoid a more dire alter­na­tive: one of these mul­ti-employ­er pen­sions going insol­vent. Should this hap­pen, retirees will get lit­tle pro­tec­tion from the fed­er­al gov­ern­ment. Unlike the Fed­er­al Deposit Insur­ance Cor­po­ra­tion (FDIC), which insures Amer­i­cans’ bank accounts up to $250,000, the PBGC is not ulti­mate­ly backed by the full faith and cred­it of the Unit­ed States gov­ern­ment.” The PBGC can cov­er a small por­tion of the ben­e­fits that retirees are owed — but nowhere close to all of the fund’s oblig­a­tions. On top of that, the PBGC itself is run­ning low on cash, pro­ject­ed to become insol­vent in ten years.

In oth­er words, if a fund runs out of mon­ey, cur­rent retirees will bear the brunt of the consequences.

With these dev­as­tat­ing finan­cial pro­jec­tions and an addi­tion­al set of rules gov­ern­ing mul­ti-employ­er pen­sions set to sun­set at the end of 2014, the NCCMP sees a gold­en oppor­tu­ni­ty to enact sweep­ing reforms. Its most recent annu­al con­fer­ence, held at the swanky West­in Diplo­mat Resort and Spa in Hol­ly­wood, Flori­da, was enti­tled Now Or Nev­er.”

We real­ly are at a kind of cross­roads, some­thing has to hap­pen now or it will be too late,” says DeFrehn, the organization’s pres­i­dent, who began his career man­ag­ing health and pen­sion funds for the UMWA. If [the pen­sion trustees] could take a 5 per­cent hair­cut across the board and still pre­serve the plans for the long run, doesn’t it make sense to inter­vene earlier?”

Anoth­er way?

Crit­ics charge this is a false dilemma.

Well gosh, if you’re gonna run out of mon­ey and you’re a pen­sion plan, instead of just spend­ing your mon­ey and then run­ning out one day, why not cut all the pen­sions in half now and the mon­ey will last a lot longer?” says Ken Paff, TDU’s nation­al orga­niz­er. If you have three chil­dren and you can only feed two, why not just kill one of them now rather than let three of them slow­ly starve to death? There’s sort of a crim­i­nal log­ic to that, too.”

Paff says there are plen­ty of rea­son­able alter­na­tives, like increas­ing the minis­cule pre­mi­ums that mul­ti-employ­er funds cur­rent­ly pay to the PBGC or mak­ing the fed­er­al gov­ern­ment respon­si­ble for at least some of the PBGC’s oblig­a­tions. The AARP endors­es those pro­pos­als and also sug­gests that the PBGC encour­age some plans to merge in order to shore up risk.

The Pen­sion Rights Cen­ter, a retiree advo­ca­cy group, encour­ages alter­na­tive fix­es, like those out­lined by AARP. 

In a lot of these cas­es, the union plans are not rep­re­sent­ing the wish­es of the retirees,” says Nan­cy Hwa, the Center’s com­mu­ni­ca­tions direc­tor. It’s the plans and man­age­ment who are on the same side. And then you’ve got the rank-and-file peo­ple, par­tic­u­lar­ly the retirees, who don’t real­ly have a voice.”

The Cen­tral State Fund’s Thomas Nyhan says he orig­i­nal­ly sup­port­ed fed­er­al fund­ing assis­tance to the PBGC like the AARP is call­ing for, but was dis­cour­aged when con­gres­sion­al lob­by­ing efforts in 2010 led nowhere. 

In fact, the main lob­by­ist for the NCCMP’s pro­pos­al is a for­mer leg­is­la­tor who spear­head­ed that 2010 effort: Earl Pomeroy, who served as North Dakota’s lone House rep­re­sen­ta­tive for almost two decades before he was knocked out by a Tea Par­ty chal­lenger in 2010. Pomeroy took a lot of heat that year for leg­is­la­tion that he intro­duced with Sen. Bob Casey (D‑Pa.) to cre­ate a fund with­in the PBGC that would be ful­ly backed by the fed­er­al gov­ern­ment — some­thing akin to FDIC insur­ance for mul­ti-employ­er plans. The pro­pos­al got a lot of push­back from an upsur­gent Tea Par­ty angry about the fed­er­al government’s bailout” of Gen­er­al Motors. The Nation­al Review blast­ed Pomeroy’s pro­pos­al and Rush Lim­baugh foamed at the mouth about the Porku­lus bill” aimed at sav­ing greedy Team­sters retirees. The plan even­tu­al­ly went nowhere.

After leav­ing the House for a high-pay­ing gig at the lob­by­ing firm Alston & Bird — announced two days after he left Con­gress — Pomeroy joined up with the NCCMP in sup­port of a rad­i­cal­ly dif­fer­ent approach to solve the nation’s mul­ti-employ­er pen­sion woes: the Solu­tions not Bailouts plan. 

Thomas Nyhan of the Cen­tral State Fund, too, says he’s been backed into a cor­ner by polit­i­cal real­i­ties, and sup­ports the NCCMP pro­pos­al out of his fidu­cia­ry duty to keep the plan solvent. 

How do you pro­vide any mea­sure of retire­ment secu­ri­ty under these cir­cum­stances when you don’t have Con­gress will­ing to do any­thing for you, when you don’t have the admin­is­tra­tion will­ing to do any­thing for you?” Nyhan asks. 

Unless there’s a sea change in the polit­i­cal will in Wash­ing­ton, I don’t think [get­ting gov­ern­ment assis­tance to the PBGC] is real­is­tic,” he says. It’s the judg­ment of my board that we should find a path, pro­vide some mea­sure of retire­ment secu­ri­ty for our mem­bers out there, albeit at a low­er lev­el, rather than sim­ply hav­ing them believe that their pen­sion is going to con­tin­ue in per­pe­tu­ity — only to have the rug pulled out from under­neath them completely.”

A dan­ger­ous precedent

A par­tic­u­lar con­cern of the IAM and oth­er crit­ics of the NCCMP’s pro­pos­al is that grant­i­ng trustees more author­i­ty to cut ben­e­fits will be a slip­pery slope. Mul­ti-employ­er plans are one of the main sources of defined ben­e­fit pen­sions for Amer­i­can work­ers — plans in which ben­e­fits are based on a pre-deter­mined for­mu­la. Defined ben­e­fit plans are increas­ing­ly rare as more and more busi­ness­es shift their employ­ees to defined con­tri­bu­tion plans or 401ks, trans­fer­ring more of the invest­ment risk to workers.

Pub­lic-sec­tor pen­sions have been the tar­get of cuts from bud­get-strapped state gov­ern­ments, as Wall Street-inspired reform­ers” plot to hand over states’ retire­ment assets to hedge funds. Now, mul­ti-employ­er pen­sions, too, are on the brink of their own major reforms” — which, in the tech­no­crat­ic lan­guage of aus­ter­i­ty, means cuts. 

If this leg­is­la­tion includ­ed pro­pos­als to allow cuts to retiree ben­e­fits it would set a very bad prece­dent for all pen­sion plans, large and small, pub­lic and pri­vate sec­tor, trou­bled and well-fund­ed, sin­gle-employ­er as well as mul­ti-employ­er,” says Larkin.

It will not be long before major cor­po­ra­tions come along and say, well Con­gress allowed this in mul­ti-employ­er plans, they should allow it in our plans as well,” warns Karen Fer­gu­son, direc­tor of the Pen­sion Rights Center. 

On an even more basic lev­el, TDU’s Ken Paff takes issue with the very title of the NCCMP plan, Solu­tions not Bailouts, and the unions who were com­plic­it in its for­mu­la­tion. Since when does the union move­ment adopt the cor­po­rate word that any­thing that ben­e­fits work­ers is a bailout — is a min­i­mum wage a bailout now for poor peo­ple?” Paff says. Is my Social Secu­ri­ty check that I cash each month a bailout for me? We bailed out every­body else but we’re not gonna give so much as a free Oreo cook­ie to these retired people.”

It seems that some of the unions are just giv­ing up — they look at this Con­gress and say, well, they won’t pass any­thing to help work­ers, they only pass things to hurt work­ers. Well, it’s undoubt­ed­ly true this year,” Paff con­tin­ues. But should you just give up? I don’t see con­ser­v­a­tives and anti-union peo­ple giv­ing up. Do they real­ly think that Pres­i­dent Oba­ma is going to sign a law abro­gat­ing Oba­macare? I don’t think so. They don’t think that. They think beat­ing the hell out of it over the long term draws sup­port to their side. Some of them might be right. Maybe we should try it.”

Jim Carothers, 69, a retired car-hauler from Red­ford, Mich. who cur­rent­ly gets ben­e­fits from the Cen­tral States Fund, is more blunt about the stakes.

I think it would mean the com­plete death of the labor move­ment of this coun­try. I don’t know how you would orga­nize peo­ple and promise them any­thing if we get a con­tract,” Carothers says. The ques­tion becomes, well, why would I join the union then if you can’t deliv­er what you’re promis­ing? And that for the labor move­ment strikes me as an incred­i­bly dan­ger­ous proposition.”

Cole Stan­gler writes about labor and the envi­ron­ment. His report­ing has also appeared in The Nation, VICE, The New Repub­lic and Inter­na­tion­al Busi­ness Times. He lives in Paris, France. He can be reached at cole[at] Fol­low him @colestangler.
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