Pensions as the real issue in NBA Lockout

If it were about revenue sharing or a luxury tax we could expect to see professional basketball soon since those issues are negotiable.

But it’s not.  It’s about pensions and unfunded liabilities that over the term of the new CBA will bankrupt either the league or the teams that have to pay withdrawal liability.

Back in 2002 I did a study of the funded status of a bunch of union pension plans in New Jersey including the NBA plans (for Players, Coaches, and Referees) which turned out to be the worst funded at around 55%.  The Players’ plan had assets of $115 million and liabilities of $204 million which was alarming but manageable if corrective actions were taken.

Apparently they weren’t.  Based on the latest available 5500 filing for the plan, as of 2/2/09 assets were at $120 million while liabilities ballooned to $545 million.  What the NBA has been doing is running a ponzi scheme that happens to have a token amount of money stashed away.  Contributions are coming in and going right out to pay benefits and it won’t get any better as 800 more vested terminees, when they turn 50, will join 400 current retirees getting an average of $65,000 annually.

A 22% funded ratio means this plan will collapse.  The alternatives:

  1. have the owners make up that $425 million in past promises; or
  2. declare bankruptcy and throw it all on the PBGC which will mean benefit cuts so extreme that it wouldn’t even pay for an average NBA player’s haircut.

If it were only about business, option (2) would be the way to go.

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Next blog: how do other sports leagues’ Defined Benefit Plans stack up?

One response to this post.

  1. […] Plan. 27.99% funded ratio  with unfunded liabilities of around $300 million.  This was the real issue in last year’s lockout and is becoming a primary issue for any large company or government that tries to maintain a […]

    Reply

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