At Labor Rising we deal with measurable facts in the full light of day! We have written 4 versions of this blog with the longest being 3,983 words, this is number 5. The issue of multiemployer pension underfunding and pension failures is setting up average R&F members for a very real financial haymaker!
The American Rescue Plan Act (ARPA) of 2021 is now over one year old. The total maximum amount of grants allowed for multiemployer/Taft-Hartley pension plans like ours in the trades is $94 billion (yes, that’s with a “B”) maximum. Underfunding of our pensions, per the pros one year later, is now north of $100 billion and is highly unlikely to abate.
The current approximate number of failing/insolvent Taft-Hartley plans eligible for grants is now around 206. Why we say “around” is because that number continues to rise with zero end in sight.
The predominant reason for insolvency is that the trades’ senior leaders, down to local Business Managers and Trustees, paid out far more in benefits than the funds could afford. Not surprisingly, there is a huge political component to those decisions.
From the late 60’s & 70’s to approximately the late 90’s, when the members have been confronted with funding a pension they overwhelmingly have VOTED to put most, if not all, raises “on the check”. Grown men in the full light of day made those decisions for nearly three decades. But as they confronted the reality of retirement on the horizon, they shifted gears hard. They put a lot, or most, of the raises into the pensions which saw generally good investment returns. Now if only they were allowed to buy accruals in line with what those contributions & investment returns could buy and the relatively short period of appropriate contributions (typically under 10 years prior to retirement), the trades would not be in this present-day disaster.
Since the early 90’s until today every leader & most journeypersons had more than an inkling that we were building a hole of debt (underfunding) that the trades would not be able to get out of. Actually, they KNEW it because it was the hot topic at every conference, convention, board meeting and shanty conversation.
I saw the whole progression of the underfunded hole that was being dug as a pension fund trustee, conference presenter, trainer for the International Foundation’s New Trustee Institute and Advance Trustee Program and as a committee member.
Every year when I looked up from the lectern of these sessions, at least half of the trustees who were registered never showed. Often, money managers, administrators or other trustees would drop the attendance tickets of those missing in action into the box, while trustees en masse were everywhere other than learning about their trust funds.
For 30 years we VOTED, knowingly, to put the money on the check. However, from the early 90’s until approximately 2010 overly generous increases in benefit accruals continued for many pension funds & were voted on and granted to the roar of applause for union trustees posing like they knew nothing of the hole they were creating. The political accolades were just too strong an aphrodisiac & the pension underfunding hole was dug for those funds. Additionally, many agents, BM’s and senior officers had multiple pensions. The other pensions were single payer and the members funded it entirely. If those additional pensions were in trouble because of bad habits and decisions, which happened a lot, it was no problem as they could just hit up the members for the do, re, mi outside of the view of members.
The talking points back then and continuing until fairly recently came down to one pension rule that became the mantra of pension increases that overwhelmingly could not be afforded. It was “the government made me do it” line of BS defense. If a pension fund is approximately 120% overfunded, trustees where compelled to raise benefits. Kind of true. HOWEVER, prudent trustees would have bought down debt, made prospective accrual increases, had a fixed payout like a 13th check and used other tools to keep funding levels at a point that could last for the life of ALL pension participants then and into the future – all things being equal. Had this scenario been the case and grown men were responsible for their votes, then the odds are the current and growing number of pensions being insolvent would be minimal.
That is how we got to this point. It is not lost on Labor Rising that the same stewards of leadership who forfeited market share, can’t organize a sock drawer and continue to run the trades into the ground are almost exactly the same leaders who put their respective pensions in the hole. Reverse engineer that statement. Comb out the BS and see whose names correlate with worst in class unions. From the 70’s until today our senior leaders’ numbers are measurable and a combined “NET” disaster for organizing, pensions, wages, conditions, benefits & concessions to management. And, yet we all say nothing – not on a union floor or at convention. We let them dictate how they run the show and ANY opposition is met with retaliation.
Back to the $94 billion.
Our pensions HAVE to have three things to stay solvent: hours, investment returns north of 7% year over year to at least cover the actuarial assumption and avoid being in debt (underfunded) up to their ears!
What’s todays and tomorrow’s reality? Continuous lost market share from the mid 70’s to the present has killed the hours part of the above equation for about 90% of unions. Even with infrastructure spending, non-union market share and modularizations ramping up by the end of the decade will be the coup de grace for hours insofar as pension funding is concerned.
Despite members putting money from new contracts and off their existing checks for almost a decade to address pension underfunding, it may be too little too late for many funds with baby boomers continuing to retire at approximately 10,000 per day until 2030 with every intention to begin collecting their pensions.
Senior trades leaders know how to dig holes!
I hear the “G” word from time to time. GREEN! I’d put LOL here if it wasn’t so pathetic. From the PPP (Pension Protection Act) of 2006 right through to the American Rescue Plan Act (ARPA) of 2021, along with a few other “credit card” pension bills in between, our pensions need gangs of actuaries to figure out all the changes made to keep us thinking we are GREEN.
In lay persons’ terms, our pensions have changed significantly in how we calculate funding since 2006. Think of taking out credit cards (pension amortization schedules – plural) to pay off credit cards times more than a few, and you get green out of a mountain of red! At the end of the day, we owe this money, and all the machinations to deflect just how bad it is does not resolve the actual underfunding of those pensions.
DO TRUE GREEN PENSIONS EXISTS? A PRECIOUS FEW! Elevator International comes to mind and is on the short list. Those trustees on both H&W & pensions are best in class with a deep lineup. Ask them questions and you will think you are talking to plan professionals. An actual plan OMG!
A Hail Mary of sorts. ($94 billion Hail Mary). As noted above, the trades knew since the 90’s that they were digging this underfunded hole. A small handful of professionals kept this issue in legislators’ sights. RdF, TM, BP & a few others educated/lobbied Congress and Senators. Without this education it is entirely possible that multiemployer plans would have gotten next to nothing. Multiemployer pensions do not even rise to the level of red-headed stepchild in the pension universe. So, with an all-democratic vote and a pandemic to fly cover, $94 billion in grants became law and available to multiemployer pensions. There are approximately 1,440 multiemployer/Taft-Hartley plans in total that are potentially eligible for the funds. Approximately 675 are Building Trades pensions – YOURS!
Is $94 billion enough? Not per the projected underfunded levels that are being calculated. Retirees to actives ratios are growing, non-union is growing, modularization is growing. How they invest the $94 billion in grants per the SFA (Special Financial Assistance) rules (all fixed investment grade bonds, which unless these bonds return double digits are a “NET” drag on total investment return)? If R’s have control of even one chamber of government, the odds of more grants dimmish. If R’s have control of all three chambers of government, flat out repeal of this grant is extremely likely. DOL (Department of Labor) has not yet written guidance for these grants giving pension boards and their professionals direction on how all this works, including the application process and how the grants will be paid out. PBGC (Pension Benefit Guaranty Corporation) funding for future plan insolvencies is a huge question mark. And, if the market returns are under 7% even occasionally, big nails will be driven into the pension coffins at an expediated rate of failure!
MOST GOOD ESTIMATES INDICATE THAT THE MULTIEMPLOYER/TAFT-HARTLEYS’ UNDERFUNDING IS 3 TIMES THE $94 BILLION! The Teamsters Central States pension needs north of $31 billion today and that is just one of approximately 206 plans that are insolvent or headed for insolvency at this time.
The worst run plans get the money to bail out all those piss poor decisions and restore nearly 100% of benefits. Meanwhile the plans that have been duking it out working with the members to help minimize the underfunding are in a very real position to get zip should the $94 billion be a one-time infusion (highly likely) of funds.
Example: I became a pension trustee of my local in the early 90’s. We moved to only grant prospective accrual rates going forward – by and large a hated position at the time. Members wanted, and in many cases demanded, increases to past accruals. If we had solid investment returns, we could do that, BUT only in line with what it actually bought (which wasn’t much). All new contributions were prospective only.
Then we set about the task of getting rid of the hole we dug by putting money from new contracts in the contribution to specifically reduce the unfunded liability. Today that fund is solid. It will still suffer from reduced hours as technology in construction delivery ramps up. Full employment today is very different than full employment 15 years ago. In addition, the promise that the unfunded liabilities would turn into surpluses as baby boomers died off more than likely will not be realized because of loss of market share, non-union, modularization, etc. (See above)
The actions, or rather pathic inactions, of senior leaders are coming full circle!
Labor Rising is about solutions and offers three ways to turn this nightmare around. First, hope and pray for approximately $300 billion or so from congress!
Second, organize our way out of this mess. However, the caveat here is in entirely new markets and quit using the “toolbox” of losing “strategies” like bottom-up & top-down. Maintenance will be needed for the foreseeable future, along with service on facilities including modularized buildings. Quit being the minions of the management alliances and habitual concessions. Take on the wallets of senior management; and yes, with a militant edge. On the Rank & File side we can’t even do a no-nonsense Work to Rule en masse to demonstrate that workers, not management or our internationals, own the JOB!
Third, make some hard decisions as true leaders are compelled to do. $94 billion is very likely to be a one-time GIFT & if more $$$ comes our way GREAT!! Our two blogs in 2010 and 2015 outlined that “IF” political conditions were right we might get some relief. Could never have imaged a pandemic being the cover for the $94 billion. A hard decision might look like this. The $94 billion CANNOT go to only those pensions that quite literally put themselves in this insolvency position. In 2014 Congress passed MPRA (Multiemployer Pension Reform Act), which proposed a temporary or permanent reduction of pension benefits if a plan is projected to run out of money before paying all promised benefits. The PBGC was broke back then and is not any better off today. They were supposed to pay approximately 30 cents on the dollar of failed pensions. MPRA is a bitter pill and allows cuts to existing pensions, so everyone takes the pain together. There are SOME EXCEPTIONS to MPRA, but they are very narrow.
The $94 billion should be spread out and have a hard maximum unless and until more money is found. Plainly stated – $94 billion is far from enough to cover the underfunded hole the multiemployer pensions are in. The first insolvent pensions to make application for the grant should only get money based on a formula that fairly spreads out the $94 billion. Will those pensions be made whole? Hell NO! However, how is it fair to reward the worst run plans to 100% of funding and past benefits restored to 100% when hundreds of more plans are on their way to insolvency with no assurance of additional grants coming their way?
Another hard decision that could be considered is to move to a Cash Balance plan if the plan has the funding needed to cash out “so to speak”. Get out of the way of a moving train.
Another huge issue is that sooner rather than the later management alliances using PLA’s WILL NOT want to pay into a defined benefit plan. Check out the priorities of the NMAPC on this statement. The $94 billion grant is a great exit point for them.
We know there are those who say we at Labor Rising are “loose cannons.” Well, the loose cannons we hang with only know how to win and their organizing records clearly demonstrate that. Conversely, there are those the R&F listens who have demonstrated a lifetime of losing market share, pensions, conditions, etc. Direct descendants of losers since the mid 70’s. That is all – no time to be at ease!
“if you see a good fight – get in it”
Danny L Caliendo
Organizer
Labor Rising
