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Pension Agency Faces a New Front
Multiemployer Plans Saw
Deficits Jump 50% in '04;
Industry, Unions Are Split
By MICHAEL SCHROEDER
Staff Reporter of THE WALL STREET JOURNAL
May 26, 2005; Page B2
WASHINGTON -- As the government wrestles with strategies to deal with failed pension plans sponsored by troubled companies such as UAL Corp.'s United Airlines, big problems in many multiemployer plans have been argely overlooked.
Lawmakers say they recognized only recently that Congress also must address financial turmoil in this separate segment of government-backed pension plans, which covers about 10 million workers in several industries.
Meanwhile, industry and union coalitions pushing Congress to take action are fighting among themselves over how far lawmakers should go to shore up the plans, with United Parcel Service Inc. on one side and supermarket chains on the other.
Both single- and multiemployer defined-benefit plans pay retirees a set monthly amount depending on years of service. Companies in both plans pay premiums to the federal Pension Benefit Guaranty Corp. in exchange for certain retirement-benefit guarantees.
The White House has been largely concerned with failing steel, airline and auto-parts companies that have dumped billions of dollars of pension liabilities on the PBGC, which estimates that the whole universe of single-employer plans have liabilities that exceed assets by $450 billion.
Of growing concern, however, are multiemployer retirement plans underfunded by $150 billion in 2004, a 50% jump in the deficit from the year before, the federal insurer reported.
Multiemployer plans were set up so that workers who tend to move from employer to employer within various unionized industries could maintain retirement-benefit plans negotiated under a common union contract. A total of 1,600 multiemployer plans are paid for by 65,000 mostly small companies with 10 million unionized workers in such industries as trucking, construction and grocery-store chains.
As old-line industries like trucking companies consolidated, many multiemployer plans have gone into the red. The reason: fewer surviving employers with a declining number of active workers are responsible for the plans' growing rolls of retirees.
Rep. John Boehner (R., Ohio), chairman of the Education and the Workforce Committee, says the seriousness of problems in the multiemployer plans require fixes to be included in his pension-overhaul bill, which is expected to be introduced in early next month.
Industry and union representatives have been meeting with lawmakers promoting plans to bolster funding and to strengthen weak disclosure requirements. But how far Congress should go has created a rift among two powerful lobbying groups.
On one side is a coalition of multiemployer plans led by United Parcel Service. The Food Marketing Institute, which represents supermarket-chain companies, has offered a competing proposal.
UPS, which participates in 22 multiemployer pension plans, has been looking for years for ways to lower its pension costs. For instance, it is a member of the Central States Pension Fund, which alone had liabilities of $30 billion and assets of $15 billion at the end of 2003, according to an Internal Revenue Service report.
The situation has brought together once-fierce adversaries to find a legislative solution. During a strike against UPS in 1997, the International Brotherhood of Teamsters turned back the delivery service's attempt to withdraw from multiemployer plans in order to form its own single-employer pension fund. The plans would have been unable to survive without a big prosperous contributing member such as UPS.
UPS has shifted away from the strategy of getting out of multiemployer plans and has pushed for reform as a member of a large coalition that includes the Teamsters and the National Coordinating Committee for Multiemployer Pension Plans, primarily a union trade group.
The coalition is pushing proposals on Capitol Hill aimed at requiring multiemployer plans that are funded at 65% or less to increase employer contributions and to develop a broad reorganization plan to raise funding above 80% within 10 years.
According to a copy of the coalition's blueprint, employers through collective bargaining would have broader discretion to cut nonbasic retirement benefits, such as early-retirement benefits and life insurance. It also would allow UPS to protect its employees from cutbacks if the company would make higher-than-required payments into affected pension plans.
Meanwhile, the Food Marketing Institute has focused on requiring less seriously impaired pension plans -- funded between 80% and 65% -- to take remedial actions to prevent more serious financial deterioration down the road.
While House and Senate staff says pension-overhaul bills will address multiemployer-plan problems, the PBGC is more concerned about the alarming number of single-employer plans it has taken over recently, including plans from United Airlines that were $6.6 billion underfunded.
While the PBGC is on the hook to pay about $45,000 to retirees from single-employer plans it takes over, the agency is obligated to contribute about $12,000 per worker for multiemployer plans that fail.
If a multiemployer plan becomes insolvent both the surviving companies and PBGC share in the financial burden of paying benefits that in many cases would be cut by 66%. "Everyone gets hurt," says Michael Mathis, Teamsters' director of government affairs in Washington.
Multiemployer Plans Saw
Deficits Jump 50% in '04;
Industry, Unions Are Split
By MICHAEL SCHROEDER
Staff Reporter of THE WALL STREET JOURNAL
May 26, 2005; Page B2
WASHINGTON -- As the government wrestles with strategies to deal with failed pension plans sponsored by troubled companies such as UAL Corp.'s United Airlines, big problems in many multiemployer plans have been argely overlooked.
Lawmakers say they recognized only recently that Congress also must address financial turmoil in this separate segment of government-backed pension plans, which covers about 10 million workers in several industries.
Meanwhile, industry and union coalitions pushing Congress to take action are fighting among themselves over how far lawmakers should go to shore up the plans, with United Parcel Service Inc. on one side and supermarket chains on the other.
Both single- and multiemployer defined-benefit plans pay retirees a set monthly amount depending on years of service. Companies in both plans pay premiums to the federal Pension Benefit Guaranty Corp. in exchange for certain retirement-benefit guarantees.
The White House has been largely concerned with failing steel, airline and auto-parts companies that have dumped billions of dollars of pension liabilities on the PBGC, which estimates that the whole universe of single-employer plans have liabilities that exceed assets by $450 billion.
Of growing concern, however, are multiemployer retirement plans underfunded by $150 billion in 2004, a 50% jump in the deficit from the year before, the federal insurer reported.
Multiemployer plans were set up so that workers who tend to move from employer to employer within various unionized industries could maintain retirement-benefit plans negotiated under a common union contract. A total of 1,600 multiemployer plans are paid for by 65,000 mostly small companies with 10 million unionized workers in such industries as trucking, construction and grocery-store chains.
As old-line industries like trucking companies consolidated, many multiemployer plans have gone into the red. The reason: fewer surviving employers with a declining number of active workers are responsible for the plans' growing rolls of retirees.
Rep. John Boehner (R., Ohio), chairman of the Education and the Workforce Committee, says the seriousness of problems in the multiemployer plans require fixes to be included in his pension-overhaul bill, which is expected to be introduced in early next month.
Industry and union representatives have been meeting with lawmakers promoting plans to bolster funding and to strengthen weak disclosure requirements. But how far Congress should go has created a rift among two powerful lobbying groups.
On one side is a coalition of multiemployer plans led by United Parcel Service. The Food Marketing Institute, which represents supermarket-chain companies, has offered a competing proposal.
UPS, which participates in 22 multiemployer pension plans, has been looking for years for ways to lower its pension costs. For instance, it is a member of the Central States Pension Fund, which alone had liabilities of $30 billion and assets of $15 billion at the end of 2003, according to an Internal Revenue Service report.
The situation has brought together once-fierce adversaries to find a legislative solution. During a strike against UPS in 1997, the International Brotherhood of Teamsters turned back the delivery service's attempt to withdraw from multiemployer plans in order to form its own single-employer pension fund. The plans would have been unable to survive without a big prosperous contributing member such as UPS.
UPS has shifted away from the strategy of getting out of multiemployer plans and has pushed for reform as a member of a large coalition that includes the Teamsters and the National Coordinating Committee for Multiemployer Pension Plans, primarily a union trade group.
The coalition is pushing proposals on Capitol Hill aimed at requiring multiemployer plans that are funded at 65% or less to increase employer contributions and to develop a broad reorganization plan to raise funding above 80% within 10 years.
According to a copy of the coalition's blueprint, employers through collective bargaining would have broader discretion to cut nonbasic retirement benefits, such as early-retirement benefits and life insurance. It also would allow UPS to protect its employees from cutbacks if the company would make higher-than-required payments into affected pension plans.
Meanwhile, the Food Marketing Institute has focused on requiring less seriously impaired pension plans -- funded between 80% and 65% -- to take remedial actions to prevent more serious financial deterioration down the road.
While House and Senate staff says pension-overhaul bills will address multiemployer-plan problems, the PBGC is more concerned about the alarming number of single-employer plans it has taken over recently, including plans from United Airlines that were $6.6 billion underfunded.
While the PBGC is on the hook to pay about $45,000 to retirees from single-employer plans it takes over, the agency is obligated to contribute about $12,000 per worker for multiemployer plans that fail.
If a multiemployer plan becomes insolvent both the surviving companies and PBGC share in the financial burden of paying benefits that in many cases would be cut by 66%. "Everyone gets hurt," says Michael Mathis, Teamsters' director of government affairs in Washington.
