WASHINGTON, D.C. | December 23, 2015
The Gut-Wrenching Truth About Pensions
By Thomas C. Nyhan, executive director and general counsel of the Central States Pension Fund
The Star Tribune’s recent article about the Central States Pension Fund’s need to reduce pension benefits to save the fund (“New law threatens to slash pensions,” Dec. 14) curiously leaves out one very important detail about the causes for our severe underfunding.
The article acknowledges that trucking deregulation is a major factor, resulting in the loss of more than 10,000 employers that used to contribute to the fund on behalf of their employees. And yes, the article also correctly points out that declining union membership and two major recessions since 2000 also have contributed mightily to this dire situation.
Yet, it’s strange that the Star Tribune fails to mention another reason why we were compelled to file a proposed pension rescue plan, including benefits cuts, with the Treasury Department, as provided under the Multiemployer Pension Reform Act of 2014.
That reason is the many employers who bailed out of the Central States Pension Fund without paying their withdrawal liability. In other words, they left the fund without paying in the dollars they owed to cover the pensions for their employees.
The Star Tribune is one such employer. The paper filed for bankruptcy reorganization in 2009 and negotiated with the International Brotherhood of Teamsters to leave the fund. Out of the Star Tribune’s nearly $24.5 million withdrawal liability, the fund was able to recover only about $650,000 through the bankruptcy process. That’s a gap of nearly $24 million that the paper owed, but didn’t pay, to support the pensions of retirees and active workers.
When one considers that nearly 1,000 employers went bankrupt and skipped out on their bills in this manner, it’s not hard to see why the fund is in such serious trouble.
Quite simply, we have been left with no other option than to reduce benefits in order to keep the fund from running out of money. For every $3.46 the fund pays out in benefits, only $1 is collected from employers, resulting in an annual shortfall of $2 billion. That math simply doesn’t work — and never will.
The Star Tribune article notes that the Pension Benefit Guaranty Corporation is running a huge deficit and cannot afford to cover the benefits of Central States retirees should the fund run out of money. But let’s be perfectly clear about what will happen to all 407,000 of our retirees and active workers under an insolvency scenario. Their pension benefits would be reduced to essentially zero. Central States’ insolvency also would wipe out the Pension Benefit Guaranty Corporation, creating a major crisis for all other multiemployer plans and their collective 10 million participants.
Time is running out, and we cannot afford to play politics with our participants’ pensions. U.S. Sen. Bernie Sanders’ and U.S. Rep. Marcy Kaptur’s bill to provide federal funding to plans like Central States is well-intentioned, and we would love to see it pass. But in the current political climate, it is difficult to understand where the votes would come from. It is telling that not one Republican has signed on as a cosponsor of the bill. Central States supported similar legislation in 2010, when Democrats held both houses of Congress and the federal government had just bailed out the automakers and Wall Street. It failed, because there was then and is now no public appetite for another taxpayer-funded bailout.
U.S. Sen. Rob Portman’s legislation does not even make an attempt at providing a solution. It only makes implementing a solution harder, and robs the Treasury Department of the authority to save funds whose failure would threaten the entire multiemployer pension system. If this bill were to pass, the fund would be left with no options.
By passing the Multiemployer Pension Reform Act, U.S. Reps. John Kline and George Miller saw this crisis coming and did something quite rare in Washington — they took responsible, principled action that they knew would be politically unpopular.
Nobody wants to reduce pension benefits. It is a gut-wrenching course of action that we must take, having exhausted every other reasonable alternative solution. As fiduciaries of the Central States Pension Fund, we have an obligation to safeguard our participants’ retirement security and the financial well-being of the fund — now and in the future.
Thomas C. Nyhan is executive director and general counsel of the Central States Pension Fund.
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