How the Taft-Hartley pension funding numbers are calculated today are dreadful. They have been dreadful for many years since the passage of the Pension Protection Act of 2006 and a few more germane laws since then which have changed how funding levels are calculated today!
Take ALL Taft-Hartley pension plan assets (minus ANY bailouts) and subtract ALL vested participants TODAY and see what the hard funding numbers would be. Prior to 2006, that is essentially what was done with a straightforward way to carry debt. Today’s funding levels are essentially credit cards taken out against other credit cards (that is just on the changes to the amortization schedules – plural) to produce an ACCEPTABLE number to report to you members. Looks warm and fuzzy but read on.
An Article from Marketwatch presents a short read on tens of billions of dollars in bailouts for the Taft-Hartley Pensions: https://origin-www.morningstar.com/news/marketwatch/20221208466/retirees-celebrate-36-billion-pension-bailout
If the T/H pensions are so well funded – why the 91 billion with far more needed to keep them solvent?
A few years back the Pension Zoning Status changed to include a Zone of “Green but Red in 5 years”. The Department of Labor/Taft-Hartley universe has long known that many pensions that are in major trouble today gave out far too many benefits vs. what the contributions would support. Huge numbers of tradespersons that retired around 2000 and after are receiving far more benefits than they contributed or paid for.
Our Taft-Hartley/Multiemployer Pensions typically use a rolling 5-year average of investment returns to “smooth out” the ups & downs of the markets in the near term.
This means that we lose the 2017 total investment return of +13% gain and replace it with a -12% loss in 2022.
Our building trades’ pensions historically have a 60% stock & 40% fixed asset allocation with narrow variations.
A 60/40 portfolio return for the current rolling 5-year average is approximately as follow: -3% loss for 2018; +21% gain for 2019; +13% gain for 2020; +16% gain for 2021; and -12% loss for 2022.
Zooming out the average annual rate of return for a 60/40 asset allocation for the 30 years ended 2022 was approximately +9.65% gain. What does that mean to us? Markets measured over longer time frames typically revert to an average that is more predictable for our pension calculations.
A dose of reality. Our pensions have an actuarial assumption that historically ranges from 6% to 7%. Precious few are under 6%, while far too many are over 7%. NOT GOOD!
That historical 60/40 return of +9.65% gain, minus a 7% actuarial assumption leaves a return of +2.65% gain. Now add in the investment fees for all investments of a typical Taft-Hartley pension plan. Depending on the style of investments, and whether they are active or passive, the range would be approximately .65 basis points to 1%. Now we have a return of +2.65% gain, minus .65 basis points resulting in a +2.00% gain investment return. But there’s more. Add in administrative fees “NET” for all pension operations. These costs scale very differently depending on the size and complexity of the plan and how the plan is administered, i.e., internally or by 3rd party. (Labor Rising is in a good position to know this considering the number of Taft-Hartley unions with which we have worked.) If the administrative costs exceed 2.25% “NET” of total pension assets year over year – not good! A consensus of 1.25% TOTAL administrative cost or less is the sweet spot for Taft-Hartley Pensions. That being the case, the +2.00% gain minus 1.25% administrative cost, now leaves .75 basis points, or less than 1%, for benefit improvements or to pay down debt or both.
Hours contributed, the quicksand of funding levels which are never mentioned, have been dropping almost continuously for decades because of lost market share due to the non/anti-union, increases in construction delivery because of technology and the Labor-Management Alliances/Tripartite cooperation for decades!
Approximately 88% of all Building Trades unions fit into this situation.
Understand this: The trades have been getting the benefit of super-heated market returns and changes to how the funds are calculations with just enough hours coming in due to high levels of construction at this time. However, current hours are far below hours worked even a decade ago.
The markets will revert back to an average at some point, which is not good for our pension funding.
Hours will never have an average as they did in the past because there is no floor anymore, especially with our Internationals’ complete lack of strategy in dealing with non/anti-union and modularization!
Funding for our pensions in “HARD DOLLARS” is slipping. The $91 billion lifeline from Congress, along with super-heated markets, will slow down the pension underfunding – right up until the pension funds run headfirst into a “average” or even worse, a poor market and continuing exponential loss of hours!
No “artful” pension calculations can change this!
However, it is the hours side of the pension funding equation that will sink a huge number of funds. Modularization & miniaturization in the trades’ core markets will cause pensions as much, if not more, harm than lack of organizing in the trenches.
The 50 plus years of NOT organizing in the trenches has been at the forefront of our senior International officers’ core incompetency. It is going to be replaced with the lack of hours worked due to modularization. They have zero ability to do anything other than roll over to the management alliances & discount our jobs & benefits on PLA’s. Those so-called leaders are guaranteeing the demise of the majority of pensions.
Our combined trades Internationals have succumbed to the gods on the fate of pensions in the trades. There’s are a given – ours not at all.
For decades, tripartite labor-management BS has shown itself for what it is – a loser if you are a tradesperson! In the simplest of terms, the more the trades cooperate with management, the worse our market share.
The most onerous threat to pension hours is modularization & miniaturization. It is ramping up to full bore for the remainder of this decade and beyond. Nothing less than a full government bailout of the Taft-Hartley pensions will curtail the ramifications of modularization killing off hours going forward.
The Internationals have zip for a strategy with tactics for either modularization, organizing, or what the trades look like in the very near future and beyond in a modularized world.
Labor Rising has put forth 258 blogs over 12 years detailing both how we got here and, as importantly, how we win going forward. Detailed strategies and tactics. Go to the website and read them before commenting with one a liner. The Internationals are too far up managements’ rear ends to enact any pro-labor tradesperson strategy.
And it appears the Rank & File are far too complacent to the actions of senior officers, apparently content to go down with the ship.
Recruitment and Value-Added BS tactics used by agents are actually expediting our collapse with the full knowledge and direction of our International officers.
OUR INTERNATIONALS HAVE ZERO GAME AND EVERYONE KNOWS THIS FROM MANAGEMENT TO APPRENTICES, AND YET WE IN THE RANKS DO NOTHING!?!
The rest of labor throughout North America is moving and improving workers’ lives – but not the trades. We get what we deserve.
Our Founders were the tough ones. Us – mere posers!
“if you see a good fight – get in it”
Danny L Caliendo
Organizer
Labor Rising
