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There's no 'tooth fairy' for pension fund bailout
There are few better illustrations of this than the Kline-Miller Multiemployer Pension Reform Act, a painful but necessary measure that acknowledged federal bailouts for severely underfunded pension funds are unlikely and gave unprecedented flexibility to pension funds to restructure on their own to avoid insolvency.
Unfortunately, a recent U.S. Treasury Department decision undermined the law, leaving pensioners in the sprawling Central States retirement fund for Teamsters potentially facing even more dire cuts than they would have under the Kline-Miller law. That’s a truth those celebrating the Treasury decision as a reprieve, such as Teamsters General President Jim Hoffa, need to publicly acknowledge more honestly than they have.
The Central States pension holds retirement funds for 407,000 trucking industry workers and retirees. The fund faces insolvency in 10 years. Its struggles include a shrinking trucking industry, reduced numbers of contributing younger workers, the 2008 stock market crash gutting investment income and the exit of major employers (among them: the Star Tribune, as part of its 2009 bankruptcy reorganization) that left too few employers contributing to the fund to cover its obligations.
Anger predictably ensued when Central States administrators proposed cuts for 270,000 drivers and retirees as part of their rescue plan. The average cut would have been 23 percent, though some would have been much higher. But the Treasury Department rejected the Central States restructuring and benefit cuts earlier this month, a dubious decision that seems more rooted in election year politics than the restructuring details.
Following the decision, union leaders bashed the Kline-Miller law, while Hoffa exulted about no cuts for the “foreseeable future” and promised to find a solution. The reality, however, is that rejecting the least bad option simply means that the other solutions are worse. The plan’s dire finances have not changed. And without reform, pensioners’ cuts eventually may be even deeper. If the plan does run out of cash, there is a federal safety net program called the Pension Benefit Guaranty Corp. But the PBGC has an annual payment cap of $12,870 — a sum less than the Central States fund’s average annual payout. The PBGC’s finances are also so precarious that absorbing Central States could jeopardize the PBGC itself, potentially result in this program paying out even less to all retirees depending on it.
A congressional bailout for the Central States fund, which carries the price tag of $11 billion, is an obvious way to stave off cuts. But Josh Gotbaum, a Brookings Institution pension expert, likened this strategy to believing in the “tooth fairy.’’ He said that a Democratic-controlled Congress had a chance to bail out the fund in 2010, and did not. With both chambers now controlled by Republicans, a financial rescue is even more remote. The Star Tribune Editorial Board also notes that there are dozens of other severely underfunded pension funds, and the federal government can’t afford to help them all. The debate going forward needs to honestly acknowledge the long odds of a congressional bailout for the Central States fund and what can realistically be done to preserve pensions. Anything else, Gotbaum said, is “keeping people from facing the choices they actually have.”
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