WASHINGTON – Teamsters in Minnesota and across the country may believe they caught a break when the U.S. Treasury Department stopped cuts in their retirement pay. But the Pension Benefit Guaranty Corporation (PBGC) is now saying the government is on track to run out of money to prop up the troubled Teamsters Central States Pension Fund in 2024, roughly the same time the fund itself is expected to go bankrupt.
Without major congressional action, the confluence of those two events could leave Central States pensioners collecting pennies on the dollars they invested in their retirements, Joshua Gotbaum, a former PBGC director, said.
“I’m the son of a labor leader, and a former union member,” said Gotbaum. “I get it. The only people who did not contribute to this are the pensioners themselves … But the fact that it is not fair does not mean they are not going to lose their pensions.”
Central States, the largest of the country’s troubled pension plans negotiated between single unions and multiple employers, has been operating at deficits of $2 billion a year recently.
A June 17 report says the PBGC, which guarantees a minimum benefit to pensioners, expects to spend the better part of $15 billion assisting Central States in the next decade. But the projected rate of assistance to Central States and other ailing pension plans will wipe out the government’s multi-employer assistance funds by 2024.
In a perfect storm of impossible math and congressional gridlock, Gotbaum, who led PBGC from 2010-2014, called the prospect of pension cuts to retirees unjust and probably unavoidable.
The bleak projections come in an election year where almost no one believes Congress will approve a taxpayer bailout for Central States or other ailing multi-employer funds whose current employer contributions come nowhere near beneficiary payouts.
Nor are the Senate and House likely to vote any time soon for increases in employer-paid insurance premiums. Those premium hikes are necessary for the government to continue providing emergency assistance to foundering multi-employer plans so they can at least make reduced payments to retirees for the next two decades.
Should Central States fail and the PBGC emergency fund run dry, all of Central States’ 407,000 participants — including 22,000 in Minnesota — could see their payments cut almost to nothing.
Even if the PBGC’s multi-employer fund survives, it guarantees a maximum payment of just $12,780 per year to workers with 30 years of service, less for those with shorter tenure. What PBGC would pay Teamsters is not as much as many Central States retirees were going to receive with the proposed benefit cuts.
The scramble to solve the problem has not been as urgent as the pressure to stop the cuts Central States proposed under the Multiemployer Pension Reform Act of 2014 (MPRA). That fight involved rallies by angry pensioners, some of whom faced benefit cuts of 40 to 70 percent. Politicians of both parties promised not to let it happen. The protests peaked as the May deadline for the Treasury Department to approve the cuts approached. Treasury did not approve.
The challenge since then has been when to intervene and how to keep Central States and a core of other ailing multi-employer plans solvent.
“We got a lot of promises,” said Steve Baribeau, a 65-year-old Teamster retiree who lives in St. Paul. “I don’t know how effective they can be. Everybody is just sort of spinning their wheels. I don’t really have an answer.”
Baribeau, who faced a 45 percent cut in his pension under the rejected Central States plan, says he could accept a cut if it is “equitable.” He and others in Minnesota are frustrated with Central States unwillingness to craft another proposal to remain solvent. Congress has shown no appetite for course corrections either.
“The quicker we take action, the less expensive it is going to be,” said Norman Stein, a Drexel University law professor who advises the Pension Rights Center.
So far, however, most responses have looked backward, not forward. Many union members focus on firing Thomas Nyhan, who has directed the Central States fund during its financial struggles. Nyhan says the fund has done everything it can to save itself and will do no more.
The pension fund has three participants collecting benefits for every one active worker paying into the fund.
A key problem is that more than 10,000 employers have exited the Central States fund in recent decades. None hurt more than a 2007 agreement allowing United Parcel Service to withdraw. The package carrier paid a $6.1 billion withdrawal penalty and took about 45,000 employees with it.
The Star Tribune left, too, although its effect was relatively small. The newspaper paid $670,000 of a $25 million withdrawal penalty when it left the plan during its Chapter 11 bankruptcy in 2009.
Investment income beaten down by the Great Recession is another problem. Members of the Senate and House, including half of Minnesota’s congressional delegation, have signed letters asking the Government Accountability Office to investigate Central States’ investments and the Labor Department’s oversight of the fund under a 1982 court order meant to stop corruption in the fund’s management.
Republican Rep. John Kline of Minnesota, chair of the House Education and Workforce Committee and co-author of the MPRA, was not among the signers.
“More studies are not going to fix Central States’ problems,” Kline said in an interview.
The fund ran more than $2 billion in the red each year from 2010 to 2014. Preliminary figures for 2015 show an operating deficit of more than $1.5 billion. PBGC expects most of the additional $15.7 billion it spends on failing plans in the next decade will go to Central States.
Kline said the recently rejected benefit cuts were a chance to salvage a lot more in monthly payments than insolvency or PBGC payments will yield. Even if the PBGC multi-employer fund can be made sustainable, the government payments are capped at low levels.
To sustain those minimal payments, “we need premium increases,” Kline added. “But it’s not a popular thing. We doubled premiums in the MPRA. That was a tough pill.”
To get employers to swallow additional premium increases ranging from 362 percent to 552 percent to sustain the PBGC multi-employer fund for the next two decades will be a hard sell. But Gotbaum and Kline both believe that challenge beats the “wishful thinking” that a government bailout of Central States is politically possible.
They point to a 2010 attempt to pass a Central States bailout when Democrats controlled the White House, the Senate and the House. The bill did not get out of committee.
Minnesota Sen. Al Franken last week proposed to save Central States using revenue that would come to the government by ending a tax break called carried interest that hedge funds and private equity firms use.
Franken and Sen. Amy Klobuchar already are among cosponsors of another Central States bailout bill, Vermont Democratic Sen. Bernie Sanders’ Keep Our Pension Promises Act. That bill has been stuck in committee in the Republican-run Senate for more than a year.
“People benefiting from carried interest tend to be pretty rich,” Franken, a Democrat, said in an interview. He said Republicans he’s talked to “don’t defend carried interest for hedge funds.”
Karen Friedman, president of the Pension Rights Center, thinks union members are justified in asking for a bailout. Still, Friedman said the more likely fix for the pension crisis will involve “shared responsibility” by the pension funds, union members, employers and the government.
Though he has his staff drafting legislative fixes, Democratic Rep. Rick Nolan of Minnesota takes a long view, arguing that there is a decade to solve the problem.
“The critical thing is: What is the profound hurry to say, ‘You’re just going to have to take less on your pension?’ ” Nolan said.
Central States’ leadership counters that it is out of options now that the Treasury Department has turned down benefit cuts.
“If Congress is unable to rescue the pension fund, then Central States will seek financial assistance from the PBGC and continue to pay benefits to our participants at the PBGC guarantee levels,” Nyhan told the Star Tribune. “If Congress is unable to find a funding solution for the PBGC, then Central States will continue to collect contributions or withdrawal liability from the employers [who leave the fund] and pass those collections to the participants. In the latter event, we believe our participants will receive only pennies on the dollar.”
That prospect has not yet brought all sides together. Discussion still centers on whether Central States created its own problems, whether Treasury bowed to political pressure in nixing the benefit cuts and whether the government played such a role in creating the pension crisis that it must play a role in fixing it.
As Central States slips closer to insolvency, threatening to take the PBGC’s multi-employer support fund down with it, Gotbaum thinks affixing blame wastes breath as well as opportunity.
“Finger-pointing,” he said, “is keeping people from doing things that might protect their pensions.”