WASHINGTON, D.C. | May 16, 2016
"In sum, the Obama Administration is flouting a law that President Obama signed in a way that jeopardizes worker pensions while dumping the problem on taxpayers."
Congress passed legislation in 2014 to help insolvent multi-employer pension plans save themselves. But now the Obama Administration and Teamsters are enabling a giant taxpayer bailout that Congress sought to prevent.
This month Treasury Department Special Master Kenneth Feinberg blocked the Central States Pension Fund’s plan to use a 2014 law that allows declining multi-employer pension plans to cut benefits within limits. Mr. Feinberg cited technical shortcomings in the Central States plan, but the rejection defies Congressional intent and will put pensioners at greater risk.
Central States, which covers about 400,000 Teamsters workers and retirees, is paying $3.46 in benefits for every dollar the fund takes in due to employer withdrawals and aging demographics. Under optimistic actuarial assumptions, the plan will go broke in the next decade and take down the Pension Benefit Guaranty Corporation with it. The PBGC’s multi-employer program is already running a $52 billion deficit.
The PBGC insures about 1,400 multi-employer pension plans for 10 million workers. Hundreds of thousands of retirees who draw pensions from the PBGC would then receive less than 10 cents on the dollar. The maximum PBGC annual guarantee for retirees who have worked 30 years is $12,870, so most pensioners would get less than $1,000 a year.
The 2014 law gave endangered pension plans broad discretion to pare benefits so long as retirees wouldn’t get less than 110% of their PBGC guarantee. Retirees over the age of 80 and disabled pensioners must be held harmless. The law also protects employers like UPS that paid their withdrawal liability and agreed to offset future benefit reductions for their workers.
The average pension reduction would be about 22.6% under the Central States rehab plan. However, nearly half of plan participants, including 12% who are covered by the UPS “make-whole” agreement, wouldn’t be affected. Active-worker accruals would be reduced by 25%. Benefit cuts would be capped at 50% for all members and 40% for a protected UPS class.
Treasury is required to approve benefits cuts if the plan sponsor’s assumptions aren’t “clearly erroneous.” Yet Mr. Feinberg quibbles that the Central States actuarial assumptions, including its 7.5% projected investment return, are too optimistic. This may be true, but a lower rate would require much larger benefit cuts. Mr. Feinberg also complains that cuts aren’t “equitably distributed” since UPS beneficiaries not covered by a make-whole provision in a 2007 collective-bargaining pact get worse treatment than those who are. But this is allowed under the law.
The nit-picking suggests that Treasury was looking for a pretext to reject the Central States plan. Mr. Feinberg insists he came to “the right result under the law.” But he adds that 137 Congress Members—many of whom voted for the law—exhorted him to reject the plan. They warned him “that if I follow the clear requirement of the law and go through with the cuts, this would be an outrage.”
Mr. Feinberg further argues that it’s likely too late to save Central States without much larger cuts that may violate the law and would cause a political ruckus—namely for Democrats. The Obama Administration doesn’t want to be blamed for allowing benefit cuts. So Treasury is punting the multi-employer pension crisis to the next Administration and Congress, which it hopes will supply a bailout.
Treasury Secretary Jack Lew gave the bailout game away when he told Congress in a letter this month that, “Central States may choose to reapply and propose even larger cuts” but “we urge Congress to consider carefully the issues” and “work together to preserve the promise of retirement security.” Saving Central States with benefit cuts becomes harder each day, so Mr. Lew is trying to make a taxpayer rescue a fait accompli.
Central States has already asked Congress to cover its $11 billion shortfall. Bernie Sanders has sponsored a bill to bail out the fund and other insolvent multi-employer plans. In sum, the Obama Administration is flouting a law that President Obama signed in a way that jeopardizes worker pensions while dumping the problem on taxpayers.
# # #