Multiemployer Plans: Why Participant Benefit Cuts Over A PBGC Bailout

Congress passed a law tonight that will allow benefits for retirees in Multiemployer (union sponsored) plans to be cut to preserve the system although there is already a mechanism in place through the Pension Benefit Guaranty Corporation (PBGC) to handle these zombie plans which includes benefit caps.  The problem is that the PBGC already has massive liabilities and does not want to take on more but the union sponsors of these plans also do not want to involve the PBGC for their own reasons.

A story about the new law to be enacted ends with:

The problems facing the Central States Fund illustrate the overall picture. In 1980, the fund had four workers contributing money for every retiree collecting payments. Now it has five retirees for every worker paying in, according to congressional testimony last year by Executive Director Thomas Nyhan.

Hundreds of trucking companies that were part of the fund have gone bankrupt, dissolving before paying their share of the pension costs. The recession severely compounded the problem, as the value of the fund’s investments plunged. So did the number of workers paying into the fund, amid widespread layoffs.

With the federal pension insurance program unable to backstop the funds, Nyhan said the 410,000 participants in his pension plan confronted a “stark reality” without some congressional action.

“Even though they were told repeatedly their benefits were guaranteed,” he said, “their pension checks could be eliminated entirely.”

But why would Thomas Nyhan prefer to cut retiree benefits without involving the PBGC and the influx of federal bailout money?  Because he would be cutting (or eliminating) his own salary.

Look over the 5500 filing for 2013 for the Central States plan and you find 175 pages (from pages 14 to 188) of entities receiving at least $5,000 annually from plan assets ranging from $5,094,740 to Northern Trust for investment services to  $5,152 to Automated Presort USA 2013.  In between there are scores of fund employees being paid their salaries from pension assets (not at all unusual in these multiemployer plans) including $250,414 to Employee Thomas C. Nyhan (page 26).