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Great Trustee or Not – The Grade

Trustees in the modern era 2006 to present – A-

This class of Trustees has inherited the Fund and have to find solutions and/or tell the membership what is going on.

What they inherited:

• Approx. 120 of these 1400 total Taft-Hartley funds are for all practicality insolvent
• Having to put additional contributions and even take money from the check and/or other funds to shore up the unfunded liabilities present without any real benefit improvements. Minor window dressing of a benefit improvement so-as to mask the real need of the contributions is still unfortunately done.
• Having to make benefit cuts

What is an unfunded liability? Any benefit not paid for or funded upfront. An example: Having new money from a new contract plus interest from investments given to participants in the form of increases in their accrual/service rates. If that is paid forward absolutely no problem, all things including investment return being equal, which historically they are. Those are called assumptions.

Problem arises of fairness – here’s one – the interest earned, or not, over time belongs to ALL participants. So it is fair to base some benefit improvements that go back to past service – however they are typically going to be very small increases; while at the same time dedicating new monies to prospective years going forward. A balancing act not for politicians. Fairness injects passion and the ability to say NO and/or that can’t be done!

What is the main issue is taking new contributions along with some or all of the investment interest and applying them 5 – 10 – 15 – 20 years back. You not only don’t have the money to support them unless you truly get unbelievable, and as importantly consist investment returns over time – as in decades. Most Taft-Hartley funds hover around a 7% assumption which means the fund has to get that year in and out to pay promised benefits over time. When you go back a lot of years especially with very rich benefit improvements you’re asking the investments return to carry the fund, which it can only do to a point.

2 Talking Points Out There:

• Stock market crash of 2008 is why we are in this mess – most to all professionals report that while the market crash hurt, the effect of the crash actually revealed how underfunded many plans where – and in some ways was a blessing in disguise. The markets since 2009 have been very good to great. It make the case that with the markets erasing the 2008 loses that the 3 bullet points listed above are still front and center with many funds.

• The Government Funding Levels made us give benefit improvements – true in the actual wording – but funds with B+ Trustees don’t say that. You could use surplus to buy down indebtedness and amortizations and run to 120% of funding. You can give fixed benefit improvements – however the funds still had very good surpluses for almost 15 years and DID have to make improvements – using those funds under a balancing act described above would have overwhelming protected the funds. However where the interest income was used to support substantial increases in past service times decades in many cases is why many funds have the issues today.

So this is only the briefest of descriptions to what is taking place on the funding side.

Add to that – that the current class of Trustees has to have a working knowledge of the legislation which has been passed to help those funds above get whole.

So the Pension Protection Act, Worker, Retiree, and Employer Recovery Act and the Pension Reform Act. This is where you get the Green, Yellow & Red Zone status which is temporary provision in the PPA.

These Acts can be good or bad depending on the funding level going in, and the competencies of the Boards.

Good because they create a space of time to get a funds funding level back in balance & for those that are good, to build upon it.
Bad because some trustees haven’t stepped up to the plate in dealing with the under-funding substantially enough to alter it. The PPA is temporary and has a warm & fuzzy component attached to it, which when abused has led to worse situations in the fund & can be used politically.

Also, the PBGC which is the insurer of last resort – not having the funds for those insolvent plans either now or in the future. The Republicans will not fund the agency charged with providing the relief it can according to its rules. That has been the subject of the last 2 posts which is all part of the current class of trustee’s hot potatoes.

There are also a whole host of issues with the underfunding itself from the employers and withdrawal liability to the real reality of the damage this is going to cause real families when the get less than what they have been promised.

Trustees in the past era – 1970ish to 2006 – D

Trustees that span these eras – which is still a lot – U

Undermined because if they are stepping up, then those funds are dealing with the last 2 bullets above, or even better are truly Green – not the warm & fuzzy Green of the PPA which is still a great step in the right direction.

NCCMP – Solid A

Randy G. DeFrehn and Josh Shapiro have their talking points in public to keep a difficult discussion somewhere on the bell curve. However, behind the scenes, the NCCMP has done a lot with the Congress given its resources and time constricts. They would be my lobbyist every time – even though I would debate with them a lot.
Finally there are solutions, but they are going to be very untraditional and challenge the status quo for those funds that still need it – which requires Leaders!

Anyone want to be a Trustee?

Danny L Caliendo
Labor Rising

ps – attached is my first foray into the bigger pension discussion for those that need to have some background on this writer.
Full bio regarding pension experience upon request.

Pension Reform

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