Ding Dong – This Pension is Dead


Hostess Brands, Inc. shut down and I see a scenario where their union pension plans were the reason.  According to a news article there are two major unions at Hostess, IBEW Teamsters, which represents about 7,000 workers, and Bakery, Confectionary, Tobacco Workers and Grain Millers International Union (BCTGM) which represents about 5,000 employees.  I couldn’t find the IBEW plan but the 2011 5500 filing for the BCTGM Multiemployer Pension Fund (This Dead Plan) told me all I needed to know.

As of January 1, 2011 This Dead Plan had $5 billion in assets (valued at market and this number dropped to $4.5 billion by the end of 2011)  and $10 billion in liabilities valued using conservative assumptions (i.e. a much lower interest rate than was used for funding since PPA’06 tightened up the rules for single-employer funding but left actuaries with discretion when it comes to these union plans).  $155 million in contributions was coming in annually and $550 million was going out in benefit payouts plus another $27 million in administrative fees*.  70% of the $116,708 participants were either retired or inactive leaving the remaining 30% to shoulder the contribution load.  Hostess Brands, Inc. accounted for about 15% of active participants and plan contributions and was obviously looking to cut costs but then they hit a wall that is the Multiemployer Pension Plan Amendments Act of 1980 (MPPAA).

What MPPAA created was a bankruptcy machine that leaves employers participating in underfunded Multiemployer Defined Benefit Plans little other choice. Hostess was paying $22 million in contributions annually into This Dead Plan and wanted out.  What they would have found is a draconian barrier called withdrawal liability which places the entire burden for making up shortfalls on employers who were silly enough not to jump ship earlier and allows the union very favorable terms for calculating this liability.  My guess is that Hostess would have needed to come up with a billion dollars to be able to walk.

In this rigged game folding up was the only sensible option.  Incidentally, for those  who dabble in short selling, the other employer participants in This Dead Plan, according to their Schedule R, are currently BBU, Inc. , Kraft Foods Global, Safeway Stores, and The Kroger Company.

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* Check out the Schedule C for a full list of the leeches which include the actuarial firm getting $580 thousand and about $4 million in salaries for the people working at the union.

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PS: mpc made a good point in her blog today about union officials themselves  probably being covered under a Defined Benefit Plan that is well funded.  I did some checking and that is the case.  The BTCGM Union does maintain a plan for their salaried employees and for 2011 it’s 100% funded with an average benefit value per participant of $400,000.  They also have two additional 401(k) plans – one for salaried employees and one for staff though they don’t make company contributions into either of those.  I’d be curious to see how they pass coverage for their DB plan with 15 active salaried employees and maybe 20 staff excluded (union-status?).  And it looks like all salaries for the workers in the union office are paid out of the The Dead Plan and they get paid pretty well –  $2.7 million divided by 15 salaried employees comes to $180,000.  $1.3 million divided by 20 staff comes to $65,000.

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21 responses to this post.

  1. Posted by Tough Love on November 19, 2012 at 12:42 am

    The MPPAA has been the bane of the trucking industry for a LONG time. The Multi Employer Plan model it was based on workers only in the 1950s & 60s and barely into the 70s.

    Reply

  2. [...] go back to pension actuary John Bury (who tipped me off to the NBA situation last year) to explain what has happened in the Hostess case: Hostess Brands, Inc. shut down and I see a scenario where their union pension plans were the [...]

    Reply

  3. Posted by eatingdogfood on November 19, 2012 at 1:38 pm

    Democrats + Unions = Bankruptcy !!!

    Reply

  4. Posted by Javagold on November 19, 2012 at 2:18 pm

    In this rigged game folding up was the only sensible option. Incidentally, for those who dabble in short selling, the other employer participants in This Dead Plan, according to their Schedule R, are currently BBU, Inc. , Kraft Foods Global, Safeway Stores, and The Kroger Company.

    May as well make money on the greed and stupidity of all unions……

    Only wish we could make it as easily off the public union leeches…….

    Reply

  5. Posted by Just curious on November 19, 2012 at 2:38 pm

    Doesn’t the PBGC and state unemployment insurance programs pick up the tab?

    Reply

    • State unemployment has nothing to do with pensions and, when it comes to multiemployer plans, the PBGC likes to let these things play out until there’s only a year’s worth of benefit payouts left in the trust hoping to squeeze money out of all other available sources. Union officials are OK with this since it’s unlikely, were the PBGC to take over the plan, that they would keep paying them at the salary levels they’ve grown accustomed to.

      Reply

      • Posted by Just curious on November 20, 2012 at 10:45 am

        State unemployment has nothing to do with pensions — some press coverage claimed that unemployment benefits were the same as managements final offer of reduced wages, so if you buy into that it is one reason the Bakers union was unconcerned about their jobs.

        Reply

  6. Posted by Just curious on November 19, 2012 at 3:03 pm

    FWIW BBU Bimbo Bakeries USA is an international conglomerate with according to Yahoo a 150 billion market cap. Some articles suggest BBU will buy hostess, but others say that would violate anti trust laws. Kraft is also very large.

    Safeway: Pension Liabilities ‘Manageable’

    http://supermarketnews.com/retail-amp-financial/safeway-pension-liabilities-manageable

    UFCW-Kroger Pension Plan Agreement Should Be Model for Giant/Safeway Bargaining

    http://www.ufcw400.org/2011/12/ufcw-kroger-pension-plan-agreement-should-be-model-for-giantsafeway-bargaining/

    Reply

  7. Posted by Anonymous on November 19, 2012 at 4:15 pm

    Isn’t there an article that was talking about how the PBCG is in financial trouble?? How will they assume these pensions even at a lower cost?

    Reply

    • PBGC on paper is in big trouble but the way they operate allows them to put off their own bankruptcy for a while since they only pay out, and guarantee, monthly benefits and with each plan they take over they appropriate that plan’s remaining assets, though for multiemployer plans that’s not going to be amounting to much.

      Reply

      • Posted by Tough Love on November 19, 2012 at 5:46 pm

        John, be realistic, The post office is technically bankrupt too. The likelihood of the PBGC not honoring it’s commitments (to participants in Plans it has taken over) has the same probability that the USPS will stop delivering mail …. very slightly above zero. Both are (ok peripherally) part of the Federal gov’t with it’s printing press.

        Reply

  8. Evidently a new twist has evolved in that the bankruptcy judge has ordered the company and the unions to mediation. A company can’t close if it wants to liquidate its assets without the blessing of the union? Any wonder companies are running for the borders. Way way too expensive to do business here. The post office is just about out of money, the FHA is almost out of money, FEMA, any government agency that comes to mind but everyone will still get their live long pensions and health benefits. I guess it is a great gig if you can find it.

    Reply

    • Posted by Tough Love on November 19, 2012 at 11:01 pm

      Quoting …” I guess it is a great gig if you can find it.” But not if Taxpayers can STOP it … and STOP it not just for new workers, but for CURRENT (and perhaps already retired) workers.

      Reply

      • Posted by Anonymous on November 20, 2012 at 1:21 pm

        If it were going to be stopped it would have happened already. Way too entrenched and most are too tired to care. You just try cutting pensions and health benefits and you will have riots in the streets like Greece.

        Reply

        • Posted by Tough Love on November 20, 2012 at 1:54 pm

          To the extent it is not “stopped”, the financial rape of Taxpayers by overcompensated Public Sector workers continues.

          Is that fair ?

          Reply

  9. I didn’t say it was fair, I said that it won’t stop for all of the reasons discussed here and elsewhere. We will be reading about the impending collapse for the next 30 years. I read somewhere that we are all nothing more than debt slaves to the over spending of government. In all of the many articles I read about the over bloated pensions and impending financial doom that will come, it is very rare to read that anything should be reduced, stopped, or phased out. Unions make minor concessions that keep the game going. Nothing in life is fair. I held out hope that these past elections might move things in another direction but I think the votes for more spending and more taxes and more debt convinced me otherwise.

    Reply

    • Posted by Tough Love on November 20, 2012 at 9:04 pm

      It’s different now. The MATH will undoubtedly stop it …. it some places (Illinois yes, NJ – ??) quite soon.

      Reply

    • Posted by muni-man on November 21, 2012 at 12:51 pm

      Out in Illinois, it looks like ‘Squeezy, The Pension Python’ has struck within days of first being letting out of the bag. The Guvnah terminated the contract with the state’s largest union. Publics, your fun has only just begun. The courts will continue to bloviate, but economics will RULE!

      Reply

  10. Posted by Cluwgirl on April 5, 2013 at 4:15 am

    Wow interesting. I wonder if all the employers in the plan did the same thing. Promised the workers that their pension payments would go into the fund and then used them for something else. If I did that I’d be in jail. Oddly enough the same people told the employees that their multiple pay cuts would be invested in the business and didn’t follow through. Sort of shakes your faith in mankind doesn’t it?

    Reply

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