Shortfalls Sabotage Promise of Union Retirees' Pensions
Saturday, March 28, 2015
By Chris Fleisher
Joe Rossi thought he was done driving trucks when he retired in December. At 60, he had saved enough to supplement his union pension for a couple of years until he could collect Social Security. But he is rethinking his plans because he may not have enough money. “I'm probably going to go back to work,” said Rossi, a Penn Hills resident and former president of Teamsters Local 249. “Because of the potential cuts to my multi-employer pension fund, I'm probably going to go back to work until I'm eligible for my full Social Security.”
Once considered sacrosanct, many retiree pensions may no longer be secure. A change in federal law passed last year with bipartisan support would allow struggling union pension funds to cut benefits for retirees younger than 75 by as much as 60 percent. The law applies only to the most severely underfunded private-sector, multi-employer plans, or those that include more than one company's workers. Declines in union membership and expanding life spans of retirees were threatening the solvency of union pension funds when the financial crisis in 2008 brought huge investment losses.
Some funds recovered. But many have not, and have the option to pull back commitments to individuals who could be more than a decade into retirement. The law, part of the $1.1 trillion spending bill Congress passed in the final days of its last session, has angered retirees, advocacy groups and unions, including the United Steelworkers, which fought the legislation. The possibility of losing more than half the money they were promised upsets retirees such as Regis Spirk, 64, of Mars, a former truck driver who retired six years ago. “I worked hard all my life for this pension,” Spirk said. “And for them to cut it like this and take it away from me, at a point in life where I can't work and make it up is ridiculous.”
A ‘FEAR FACTOR' OPTION
There are about 1,400 multi-employer defined benefit pension plans, covering about 10 million participants. The 200 funds that struggle the most cover 1.5 million workers and retirees, including nearly 43,000 covered by plans in Western Pennsylvania. Rossi's pension is with the Western Pennsylvania Teamsters and Employers Pension Fund, which includes nearly 24,000 people and 140 employers, the largest of which are UPS and Giant Eagle. That fund is the largest of three in the region that the Department of Labor considers to be in “critical” status, or in danger of running out of money. Those plans must develop a strategy to return to health within 10 years.
Two others are the Laborers Combined Funds of Western Pennsylvania, which has 15,691 participants, and the Southwestern Pennsylvania and Western Maryland Area Teamsters & Employers Pension Fund, whose 3,295 members include workers at UPS and Bimbo Baking USA among others The Western Pennsylvania Teamsters fund likely would be among them, according to an analysis by the Center for Retirement Research at Boston College. The center's analysis predicted that fund would be insolvent within 16 years if nothing changes.
The fund's trustees are working with investment managers to improve its finances, but cutting retiree benefits is not on the table, said trustee Joseph Molinero. “We're not even thinking about that,” he said. “That's the problem with the way that was put out. It became a fear factor, and everybody believes at some point, their pension is going to be cut, but that's not the case.”
LESS MONEY, LONGER LIVES
Pension funds have focused primarily on cutting benefits for active employees and raising employer contributions. Touching retirees' money was impossible unless a plan was insolvent. The change in the law last year allows cuts to retiree benefits before a plan runs out of money but is considered a last resort, allowable only if it would return the fund to solvency. Funds that struggle need that option, said Randy DeFrehn, executive director of the National Coordinating Committee of Multiemployer Plans, which helped write the law.
The number of retirees collecting benefits continues to expand even as active workers contributing to plans declines. Retirees are living longer — the Society of Actuaries estimated the average 65-year-old man will live 86.6 years, up from 84.6 it estimated in 2000 — and union membership has plummeted in industries such as trucking and construction that are included in the funds. The Great Recession was devastating to multi-employer pension funds. Funds on average lost 23 percent of their value in 2008, DeFrehn said.
Executives with the Central States pension fund, one of the nations largest with more than 400,000 participants, say it needs a 12 percent annual return to meet obligations. “We all know that's not possible,” DeFrehn said. “Without making some changes in the rules that allow those plans that were headed for insolvency to act early, then they were going to have problems. Critics say cutting retirees' checks would be premature. “We're not saying that there isn't a problem with some multi-employer pension funds,” said Karen Friedman, executive vice president and policy director of the Pension Rights Center, a Washington-based advocacy group.
PENSIONS LESS ATTRACTIVE
The Pension Rights Center is pushing to repeal the law and promoting alternative ideas. Some funds could merge and maximize their investment potential, Friedman said. Perhaps employers or the government should be asked to contribute more money.
Friedman acknowledged that a government bailout of pension funds is unlikely because of the unpopularity of bailouts of banks and the auto industry. Raising company contributions would only make the funds less attractive at a time when union influence is diminishing and employers are questioning the value of offering pensions. “A lot of these plans that are in trouble come from industries where there's been a lot of deunionization,” said Jean-Pierre Aubry of the Center for Retirement Research.
Retirees enjoying a comfortable living with pensions say they could tolerate a decline in monthly checks but not 60 percent. In a worst-case scenario, Rossi said, he would sell his Penn Hills home and move into a three-bedroom hunting cabin he owns in Venango County. It is a simple place, built with rough-cut lumber, no foundation and heated with wood. He said he would “live like a mountain man” and hunt and fish for food. Part of the idea appeals to him, he said. Still, he hopes it doesn't come to that “It's a shame,” he said. “I worked for 46 years, and when you come to determine what you're going to count on to live can be taken away from you after all these years, it really is unfair.”