Who will save Central States?
06/15/2016 10:06 AM EDT
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The fate of the financially troubled Central States Pension Fund is once again in Congress' hands.
Last month the Treasury Department rejected a rescue strategy for the Teamsters’ multiemployer pension plan under a 2014 law passed largely to make it possible. Suspicions ran high that election-year politics came into play. Treasury had changed its procedures 10 days before the rejection — and seven months after Central States’ trustees submitted their application.
Was the Obama administration simply disinclined in an election year to approve, however necessary, pension cuts for about 270,000 Teamsters?
Former Rep. George Miller thinks so. The California Democrat, who sponsored the 2014 legislation with House Education and the Workforce Chairman John Kline (R.-Minn.), said Treasury’s decision “was a calculated response to sort of stop the discussion in this political year. ... I just don’t understand how you can arrive at another conclusion.”
Central States will not submit another application to Treasury, according to Thomas Nyhan, the pension’s executive director. “Our options are rather limited at this point,” Nyhan said. “Absent some form of legislative change, we’re going to become insolvent probably around the latter part of 2025.”
That leaves Congress to sort matters out. But if Treasury has little enthusiasm for resolving this crisis, Congress has even less.
Legislators thought they fixed this problem late in 2014 when they attached bipartisan legislation to the so-called “cromnibus” spending bill. The pensions amendment allowed trustees for financially troubled multiemployer pension plans to cut vested benefits, provided they could demonstrate to Treasury that doing so would prevent the plan from going bust. The idea was that the cuts would prevent a far worse fate — a Central States bailout by the Pension Benefit Guaranty Corporation, which would pay only pennies on the dollar (and which had solvency problems of its own). According to a recent PBGC report, “it is more likely than not that PBGC’s multiemployer fund will be exhausted by 2025.”
Joshua Gotbaum, former director of the PBGC, called the Treasury Department’s decision an “act of political cowardice” that will result in “more and deeper benefit cuts” to Central States beneficiaries.
But opponents to the 2014 law said the deal violated benefits guarantees under the Employee Retirement Income Security Act, and that it was arrived at without sufficient input from the public. Through 2015 Congress became ever more reluctant to defend its pension fix, even though many other multiemployer plans faced potential insolvency as well. (Multiemployer pensions are pensions set up by multiple companies through collective bargaining agreements.)
After Central States filed its application to Treasury, congressional lawmakers on both sides of the aisle urged Treasury to reject it. In April, 46 senators — including Harry Reid (D-Nev.), Ron Wyden (D-Ore.), Patty Murray (D.-Wash.), Sherrod Brown (D-Ohio), Elizabeth Warren (D-Mass.) — wrote Treasury Secretary Jack Lew, urging the agency “to conduct a thorough analysis and carefully check every aspect of [Central States’] application and their assumptions.” Sen. Rob Portman (R-Ohio) also urged Treasury to reject the application and said it was time for the Senate “to come up with a fair solution.”
Treasury’s subsequent rejection of the Central States rescue plan drew praise even from Democratic presidential candidate Hillary Clinton, who called on Congress to “come together around an alternative solution that maintains the financial health of ... our pension system and ensures workers and retirees can enjoy the secure retirement they’ve earned.”
But critics of Treasury’s decision say it was arrived at in bad faith. Final regulations implemented little more than a week before the department’s Central States decision changed the requirements for applicants’ actuarial assumptions. That made rejection of the Central States rescue plan all but a foregone conclusion.
“They did have the opportunity to sit down with Central States,” said Randy DeFrehn, executive director of the National Coordinating Committee for Multiemployer Plans. “Instead, they dropped this on them at the last minute. … I think that’s unconscionable.”
Opponents of the 2014 law say Treasury should be taken at its word. In rejecting the Central States plan, Treasury said the application failed to comply with the 2014 law’s requirement that benefit cuts be “reasonably estimated” to ensure future solvency. If the plan was going bust anyway, what point was there in making cuts that wouldn’t save it?
Some opponents to the 2014 law support a bailout bill from Bernie Sanders and Rep. Marcy Kaptur (D-Ohio). Central States’ Nyhan also supports this bill. Indeed, Nyhan says it’s only right that Congress should bail out the Teamsters pension, given that it was Congress’ decision to deregulate the trucking industry and Wall Street that led to Central States’ insolvency in the first place.
Over the four decades since trucking was deregulated, Nyhan said, "nearly 700 contributing employers formally declared bankruptcy and thousands went out of business without a formal bankruptcy filing." Many of these companies, he said, did not pay their liability to Central States. As for Wall Street deregulation, Nyhan said that the 2008 financial crash — which many attribute to inadequate banking regulation — had "a devastating effect on the Fund's financial status."
But congressional Republicans view a bailout as a slippery slope. A spokesperson for the House Education and the Workforce Committee said bailout supporters “have to explain why it would be limited to just those in multiemployer pensions and not extended to other pension plans — including public pension plans — that also face severe financial hardship.”
Not that Democrats have much enthusiasm for a Central States bailout, either. Miller said that even in 2010, when Democrats still controlled both houses of Congress and the White House, “there was radio silence” on the prospect of a bailout. “Everybody in Washington has a plan to close somebody else’s loophole to do something else,” Miller said, “and I just don’t think that’s going to happen.”
John Murphy, international vice president for the Teamsters, said the union has been working on an alternative to the 2014 law that wouldn’t require a bailout, but he declined to disclose details because it’s “still a work in progress.” Treasury's decision, he said, “has brought members of Congress to understand the depth of the problem.” Murphy said the Teamsters’ proposal would likely be out before the end of this year.
In all likelihood Murphy means "after Nov. 7." Treasury’s rejection “buys time to enable all the stakeholders to come around the table ... to find a solution,” said Karen Friedman, executive vice president and policy director at the Pension Rights Center.
She added that Central States could also benefit from a bipartisan push to pass legislation that would shore up the United Mine Workers’ multiemployer pension fund by using excess funds from the Abandoned Mine Reclamation Fund. Senate Democrats last month urged Senate Majority Leader Mitch McConnell to move the legislation before the start of the summer recess. “Perhaps that will open up a door to also address this issue,” Friedman said.
Meanwhile, Central States is willing to work on smaller proposals, Nyhan said, such as increasing PBGC premiums or providing some form of relief to future retirees now contributing to the pension fund who are at risk of not getting much back.
Gotbaum said Central States might use another provision of the 2014 law to ask the PBGC to take over its so-called “orphan obligations,” or obligations to employees whose employers withdrew from the pension plan. That, he said, would improve Central States’ chances of remaining solvent.
But Miller warned that time was running out. The 2014 law, he said, was supposed to give employers certainty that they could work with employees and retirees to prevent Central States from ending up at the PBGC. Without certainty, Miller said, more employers may pull out of Central States and weaken the plan further.
“The problem with stopping this process is that the clock continues to run,” Miller said. “The deficits continue to get bigger, the losses in pension benefits continue to compile every day.”
Above is from: https://www.politico.com/story/2016/06/who-will-save-teamsters-central-states-pension-fund-224363
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