Photo credit: Artisteer
For years, Ken Stribling and his fellow Teamsters have heard that they might have to accept reduced retirement payments to help prevent their union pension fund from becoming insolvent.
In other words, they might have to come to terms with the idea that getting something is better than getting nothing.
The proposed trade-off was always going to be a hard one to swallow. Throughout his career, Stribling watched as he and his union brothers and sisters agreed to accept low pay increases, or even no pay increases, and made various other concessions, all in return for the promise of comfort in retirement. To many, agreeing to anything less now would make all that sacrifice seem in vain. Yet Stribling—a retired member of Teamsters Local 200 in Milwaukee and a vice president in the National United Committee to Protect Pensions—thinks there is little choice. Rather than prevent compromise entirely, his goal now is to ensure that whatever changes are made don’t go too far.
The latest proposal put forward by federal lawmakers—from Republican Senators Charles Grassley (Iowa) Lamar Alexander (Tennessee)—is at least something to work with, Stribling says. He may not be happy with everything in it, but it’s a starting point. “This is not the time to panic,” he explains. “We have time to iron out a few things we don’t like and make a few corrections.” If nothing else, Stribling says he’s happy the Grassley-Alexander bill is not calling for drastic benefit reductions. Previous pension fund remedies had sought cuts of at least 20%.
Complicated Remedy?
The Grassley-Alexander plan would instead have retirees and active workers make co-payments into the Pension Benefit Guarantee Corporation (PBGC), a federal fund that steps in and provides benefits when a standard fund becomes insolvent. To further strengthen the PBGC, the proposal would increase the premiums that employers have to pay per employee from $29 a year to $80. There would also be a bailout: a transfer of some federal tax money. Separately, struggling pension systems like the Teamsters’ massive Central States fund would be allowed to partition off the most endangered part of their funds to better protect the parts that have the best chances of remaining solvent. It’s admittedly a complex remedy, but given the vastness of the problem, it was always unlikely that any proposed solution would be simple.
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Most of the trouble for multi-employer pension funds, which are typically paid into by unionized companies to support union workers in their retirement, arose following the 2008 nationwide recession. Business bankruptcies and layoffs lowered the amount of money coming into the plans even as returns on fund investments plummeted. On Monday, Nov. 18, 2019, multi-employer funds were found to have a $65.2 billion deficit. If nothing is done now, many will go belly up within the next two decades; some are expected to do so within only a few years.
The Teamsters’ Central States pension fund, for instance, is projected to run out of money by 2025. Such a bankruptcy would be disastrous not only for the nearly 400,000 participants in the plan but also the economy at large. In Wisconsin, the immediate effect in 2025 would be the evaporation of more than $206 million of pension income, according to a report by the consulting firm Matrix Global Advisors. State and local governments, in turn, would lose more than $20 million in taxes, and Wisconsin’s GDP would take a nearly $230 million hit as a result of lessened economic activity.
Argument for Intervention
Central States is the pension fund most commonly cited by legislators and policymakers who are arguing for intervention. That’s in part because, measured by payments, it is the largest so-called multi-employer pension fund in the country, having paid about $2.9 billion in 2015; but it’s far from the only one in trouble. Of the 10 million U.S. participants in multi-employer pension funds, a million are in plans that are projected to be insolvent in the next 20 years, according to Matrix Global.
Faced with imminent disaster, union officials have little doubt that something needs to be done. Opinion, though, varies greatly over whether the Grassley-Alexander proposal offers the right remedy. Adam Duininck—director of governmental affairs for the North Central States Regional Council of Carpenters (whose territory includes Wisconsin)—agrees that the two senators’ legislation is at least a starting point. The carpenters’ pension funds aren’t necessarily in need of immediate help; their two in Wisconsin have enough money to cover 70-80% of their liabilities.
Yet, he said, there is no question that the PBGC has not received enough money over the years. One reason for that underfunding has been reluctance on the part of policymakers to force employers to pay more into the system. Now, Duininck is concerned that a similar aversion will cause Congress to let things slide again. “If they don’t do something soon, then it’ll be election season,” he says, “and that will delay it for another year.”
In contrast, Stephanie Bloomingdale, president of the Wisconsin AFL-CIO, can find nothing redeeming in the Grassley-Alexander plan. Adopting it, she says, would be unfair to all the union workers who have made sacrifices throughout the years. She explains that she would much rather see Congress move forward with the Butch Lewis Act, a competing proposal approved by the U.S. House of Representatives in July 2019. The legislation seeks to set the multi-employer pension system right without taxing retirees or requiring higher payments from sound pension funds—a promise critics deem impossible to keep.
“The hard-working American workers whose retirement income security is now at risk played no part in creating the crisis at hand,” Bloomingdale says. “Throughout the years, workers have sacrificed wage increases in favor of pension plan contributions and have held up their end of the bargain.”
Stribling acknowledges that the hardest part of selling a solution will be winning acceptance from workers who have done nothing wrong. He, himself, has always counted on having a comfortable retirement after driving a truck for 30 years for various companies in the Milwaukee area. “I just turned 68, and I cannot go back to work after being out of it for nine years,” he says. “Climbing in a truck or getting back on a forklift is just not something I’m entertaining.”
But workers who are looking for someone to blame are not likely to find a dastardly culprit lurking behind all the mess. Yes, lawmakers could have done more to ensure the PBGC had enough money, and the people managing multi-employer pension funds might have made wiser investments, but evidence of actual malfeasance has been lacking. Even amid these circumstances, Stribling knows he won’t have an easy time convincing his union brothers and sisters that something is better than nothing. “But now is our best chance to get this done,” he says. “I’ve been in this for five years, and this is the closest we’ve ever been. Do I like it? Absolutely not. But would I accept it? I might have to.”
