Leading Democrats want a government fix for insolvent or soon-to-be-insolvent private pension plans. Hundreds of thousands of employees and retirees will otherwise see steep cuts in their traditional defined-benefit pensions as early as next spring because the government agency in charge of making good on those pensions when corporations don’t is underfunded.
Those at immediate risk are Teamsters, miners, and food service workers. But not far down the road, other workers now covered by defined-benefit private pensions will face the same problem.
Senate Minority Leader Chuck Schumer of New York and House Minority Leader Nancy Pelosi of California listed "Americans' endangered pensions" as one of their priorities for action when it comes to crafting a year-end spending deal. But Democrats need bipartisan support to accomplish this, and Republicans are not eager to give union workers and retirees any assistance.
Elana Schor cites Sen. Sherrod Brown, the Ohio Democrat:
“There are tens of thousands of Teamsters and mine workers and bakery and confectionery workers and carpenters that will see huge cuts in their pensions, and they start pretty soon” if a long-term solution isn’t reached, Brown said. “It’s not just fixing it and getting it done because the economics and the math get worse and worse. It’s because of what it does to families.”
Last year at this time, Brown joined West Virginia Sen. Joe Manchin and other Democrats in a standoff over adding long-term health care and pension help for retired miners to must-pass government funding legislation. Senate Majority Mitch McConnell (R-Ky.) ultimately included a rescue for retired miners' health care in a $1 trillion spending deal earlier this year, but addressing their pensions wasn’t part of that package. [...]
Brown's proposal would empower the Treasury Department to make loans to the at-risk pension plans, which would use the money on safe investments to backstop the retirement plans that are currently at the greatest risk. Beyond those loans, the at-risk plans are expected to require as much as $25 billion in long-term assistance from the government-backed Pension Benefit Guaranty Corporation in order to avert insolvency.
The 43-year-old PBGC was established as part of the Employee Retirement Income Security Act specifically to insure traditional private pension plans and take over pension obligations when companies—from airlines to steel manufacturers—go bankrupt. Over the past 15 years, these pension plans have been experiencing unprecedented funding shortfalls. PBGC receives no general fund tax money. Its funding comes from premiums on corporations, investments, and whatever it can recover from bankrupt estates and the assets of pension funds it takes over.
The underfunding has meant big problems for a lot of retirees, despite ERISA. As antirove points out in comments:
[T]he result of PBGC being drastically underfunded is that current corporate failures to pay pensions results in a PBGC benefit to retirees of barely pennies on the dollar. The underfunding of defined-benefit plans for middle- and lower-income employee retirees is widespread and there is no accountability for this, nor does Congress appear to be remotely interested in this as a problem they should address. This epidemic of underfunding even affects state and other public pension plans. Default on the part of irresponsible employers is rampant, but the dividends handed over to stockholders remain high and there is no failure to deliver there.
A little history: Pensions mostly didn’t exist until early in the 20th century. Then some large employers—railroads and a few utility companies—started offering retirement benefits. But by 85 years ago, when Franklin D. Roosevelt was elected, only 10 percent of the U.S. workforce was covered by any pension. In 1935, passage of the Social Security Act extended modest retirement benefits to about one-half of working Americans. Excluded from coverage at the time were agricultural and domestic workers, a large percentage of whom were African-American or Latino.
Following World War II, under union pressure, more employers provided pensions. By 60 years ago, about one-half the workforce was covered by Social Security and a company pension. By 1980, 80 percent of workers in medium or large private businesses were covered by traditional pension plans.
It was around that time that companies got serious about ripping off pension funds, terminating them, and using their often huge assets for other purposes, including providing leveraged buyouts for leading executives. Pension fund pirates got into the act. The government calculated that $20 billion in pension assets had been captured, which spurred Congress to impose a big tax on such piracy.
In place of pensions, companies pushed 401k plans (which is a long story in itself). During the boom years, many people were told they would get rich via these plans, so resistance to terminating defined-benefit pension plans was reduced. And then came the Great Recession during which people learned that their contributions to a 401k plan, even when the company matched those contributions, were far from a guarantee of an adequately funded retirement. But defined-benefit plans haven’t wholly disappeared.
To protect workers, the PBGC guarantees payment of the defined benefit pension benefits, up to the legal limits, earned by some 40 million American workers and retirees in nearly 24,000 plans. Since its founding, PBGC has become responsible for more than 1.5 million people in more than 4,800 failed private plans and paid out benefits of $5.8 billion in fiscal 2016.
The PBGC, however, needs money from taxpayers if it is to continue being the safety net for lost pensions. Government auditors say the PBGC itself could be insolvent by 2025 if action isn’t taken.
How we got to this state of affairs wasn’t accidental. The corporate world has played a major role in creating what the media have been calling a “pension crisis” since the 1980s. Ellen Schultz wrote five years ago about General Electric.
In December 2010, General Electric held its Annual Outlook Investor Meeting at Rockefeller Center in New York City. At the meeting, chief executive Jeffrey Immelt gave the audience of shareholders a capsule assessment on the global conglomerate’s health, including this:
Like many other CEOs at large companies, Immelt pointed out that his firm’s pension plan was an ongoing problem. The “pension has been a drag for a decade,” he said, and it would cause the company to lose 13 cents per share the next year. Regretfully, to rein in costs, GE was going to close the pension plan to new employees.
What Immelt didn’t mention was that, far from being a burden, GE’s pension and retiree plans had contributed billions of dollars to the company’s bottom line over the past decade and a half, and were responsible for a chunk of the earnings that the executives had taken credit for. Nor were these retirement programs – even with GE’s 230,000 retirees – bleeding the company of cash. In fact, GE hadn’t contributed a cent to the workers’ pension plans since 1987 but still had enough money to cover all the current and future retirees.
And yet, despite all this, Immelt’s assessment wasn’t entirely inaccurate. The company did indeed have another pension plan that really was a burden: the one for GE executives. And unlike the pension plans for a quarter of a million workers and retirees, the executive pensions, with a $4.4 billion obligation, have always been a drag on earnings and have always drained cash from company coffers: more than $573 million over the past three years alone.
Whatever “fix” Congress comes up with this month—assuming it comes up with any—the long term requires something a good deal more substantial than a Band-Aid. When proposals for doing so appear, it is crucial to remember, as Schultz wrote in 2012 and is still true today:
[T]he same crowd that created this mess—employers, consultants, and financial firms—are now the primary architects of the “reforms” that will supposedly clean it up. Under the guise of improving retirement security, their “solutions” will enable employers to continue to manipulate retirement plans to generate profit and enrich executives at the expense of employees and retirees. Shareholders pay a price, too.
Tweaking won’t fix this. Neither will the kind of harmful “reforms” supported by most Republicans, way too many Democrats, and corporate fat cats, many of whom have seen their personal bottom lines grow at the expense of pension cuts. While many Americans may look at these pensions and declare that they don’t see why others should have these benefits and they don’t, they should realize that the attack on, and rip-off of, private pensions has had added to it the attack on public sector pensions. And those same attackers will also be in the forefront of the plutocrats seeking to cut Medicare and Social Security.