How would you feel if you were told, after having worked your whole life, the pension benefits that you and your employer agreed to 30 years ago no longer exist?
To some 10 million members of multi-employer unions, including the Teamsters, the United Food and Commercial Workers International Union, and the National Electrical Contractors Association, it’s not a rhetorical question. According to a syndicated news story, members face pension cuts of 30 to 65 percent. Their retirement security is on the edge of collapse.
How could this happen? Forty years ago, the federal government created a pension protection program for workers: the Pension Benefit Guaranty Corp. (PBGC). Key word: “guaranty,” the specific definition of which means a “promise to pay the debt or fulfill the obligation of another if that person fails to do so.”
So how is it that the “G” in PBGC is under threat—for millions of workers who are at or approaching retirement age?
This could be one of those “it’s been coming for a long time” stories about the economy. But that would only be half of it.
How we got here
In 1875, American Express initiated the first private pension plan in the United States: an employer-funded defined benefit plan that paid workers a specific monthly sum at retirement. Other big companies soon followed suit, and workers felt that a secure retirement was assured. But that sense of security was shattered in 1963, when automobile manufacturer Studebaker went bust, terminating its employee pension plan, costing thousands of retirees all or part of their promised benefits.
It was ugly. In 1974, President Gerald Ford signed into law ERISA, the Employee Retirement Income Security Act, which established the PBGC. The nation was determined to avoid another Studebaker fiasco.
Promises, promises
Generous pension plans were intended to be the crowning glory of welfare capitalism: if you worked hard, your company would grow, sound profits and investments would multiply both capital as well as benefits for labor. All boats would float upward on a rising tide of prosperity. If things went south, the PBGC would be there for you.
According to the PBGC, “In 2013, PBGC protect[ed] the pensions of nearly 42 million workers and retirees in more than 24,400 private pension plans” and “[c]urrently, about 900,000 retirees in more than 4,600 failed plans receive their pensions through PBGC even though, for many of them, their companies may no longer be in business.”
The difficulty for the PBGC, and by extension ERISA, is the assumption that a guarantee based on future conditions is possible. Unfortunately, the future, by definition, cannot be guaranteed. Deregulation and stock crashes, declining manufactures and plummeting union membership, political actors and choices that favor one solution over another—these are all contingencies that have an enormous effect on the security of individual human beings.
New rules
As Bankrate.com notes, the General Accounting Office (GAO) reported in March 2014 that if the PBGC were to cover the shortfall of pension plans like that of the Teamsters, it would go broke in 10 to 15 years—even though the PBGC doesn’t guarantee the full pension promise. As the PBGC’s director, Josh Gotbaum, remarked, the agency’s 30-year-old design of “low guarantees and low premiums” no longer applies.
Bankruptcy not being an option, the time came to regroup; in December 2014 President Obama signed federal appropriations, including the Multiemployer Pension Reform Act (MPRA). The MPRA would allow multi-employer pension plans experiencing financial duress a framework for restructuring—pension cuts included.
Fast-forward: pension crisis
Despite $18.7 billion in assets, the Teamsters’ multi-employer Central States Pension Fund is failing. Executive Director Thomas Nyhan revealed to the New York Times that for every employer dollar, they’ve been paying $3.46 in pension benefits; in short, “that math will never work.”
Under MPRA, Central States Pension Fund cuts are imminent. Four hundred thousand retired Teamster truckers who had been promised a pension of $3,000 a month after 30 years of service recently received a letter proposing that their benefits be cut by half. Needless to say, monthly household bills are not going to be adjusted to compensate for the loss of income.
Too old to get a job, and your pension needs a bail-out
While the process works its way through Treasury Department hearings and a subsequent vote among stakeholders—a vote that union leaders view as meaningless, since it’s a choice between cutting one’s pension or getting no pension at all—presidential hopeful Senator Bernie Sanders and congressional colleague Marcy Kaptur (D-Ohio) have weighed in. Introduced in companion bills earlier this year, their Keep Our Pension Promises Act aims to address looming multi-employer pension fund disasters.
The prospects of these bills becoming law seem iffy at best, but Kaptur and Sanders hope to make people think about the fundamental fairness of the proposed pension cuts. Why, they ask, can we agree to bail out Wall Street bubble busts, but not pension funds for retirees?
Related articles on AvvoStories:
