Who Will Pay Benefits of Bankrupt Multiemployer Plans?

Multiemployer (union) plans, for a variety of reasons*, will all go bankrupt.  So what happens to promised benefits?  The Road Carriers Local 707 Pension Fund (RC707) ** could  tell us.

RC707 is one of five multiemployer plans looking to suspend benefits under MPRA.  Their application asserts that “the plan is projected to be insolvent by February, 2017” so they are proposing to “reduce all of the Plan participants’ pension benefits to 110 percent of the PBGC guarantee, which are the maximum suspensions allowable under Section 432(e)(9)(D)(i) and the required suspensions for a coordinated partition.”

The most instructive chart from the 8/31/14 valuation report is the asset history:

rc707 assets

And what the plan is projecting to avoid insolvency:

rc707-proj

The plan reports having $24,485,44 in assets as of 1/31/16.  Annual benefit payouts for the plan year ended 8/31/14 were $47,049,132. Exhibit III, the Plan Actuary’s Certification, includes projections where the annual payouts drop to $7,888,424 for the first full year suspensions are in place.  Assuming 3,000 retirees that means the average annual payout would drop from $15,683 to $2,629 (an 83% cut).

In conjunction with this filing under MPRA, RC707 is also filing with the PBGC for a ‘coordinated partition’ which is defined in the model notice as:

A multiemployer plan that is in critical and declining status may apply to PBGC for an order that separates (i.e., partitions) and transfers the PBGC-guaranteed portion of certain participants’ and beneficiaries’ benefits to a newly-created successor plan. The total amount transferred from the original plan to the successor plan is the minimum amount needed to keep the original plan solvent. While the Board of Trustees will administer the successor plan, PBGC will provide financial assistance to the successor plan to pay the transferred benefits. PBGC guarantees benefits up to a legal limit. However, if the PBGC-guaranteed amount payable by the successor plan is less than the benefit payable under the original plan after taking into account benefit reductions or any plan amendments after the effective date of the partition, Federal law requires the original plan to pay the difference. Therefore, partition will not further change the total amount payable to any participant or beneficiary.

So what do you think based on all this?  As of February, 2017 what, and from whom, will RC707 retirees be getting paid?

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* Reasons range from declining participation in unions to the funding method for these plans linked to negotiated contributions based on hours worked of the active population which has diminishing relevancy to plan liabilities.

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** 5500:data:

Plan Name: Road Carriers Local 707 Pension Fund

EIN/PN: 51-6106510/001

Total participants @ 8/31/14: 4,600 including:

  • Retirees: 2,989
  • Separated but entitled to benefits: 776
  • Still working: 835

Asset Value (Market) @ 1/1/14: 115,338,672

Value of liabilities using RPA rate (3.61%) @ 9/1/13: $893,583,171 including:

  • Retirees: $582,802,691
  • Separated but entitled to benefits: $91,563,684
  • Still working: $219,216,796

Funded ratio: 12.91%

Unfunded Liabilities as of 8/1/13: $778,244,499

Asset Value (Market) as of 8/31/14: $92,367,455

Contributions 2014 (MB): $7,854,711

Contributions 2014 (H): $6,089,047

Payouts 2014: $47,049,132

Expenses 2014: $1,900,86

 

21 responses to this post.

  1. Posted by dentss dunnigan on May 24, 2016 at 12:52 pm

    But they were promised ……..right?

    Reply

  2. Posted by Anonymous on May 24, 2016 at 8:11 pm

    Dunnigan,
    Morally they were yes. Just like your social security benefits are, just your ‘tax-free’ 401K/SEP/IRA is supposed to be. Cheers…

    Reply

    • Posted by dentss dunnigan on May 25, 2016 at 2:50 pm

      The government can keep their SS just give me all my payments back ,I’ll give the state back all the payments they made into my IRA ,401K . Could a state worker make the same statement …..

      Reply

  3. Posted by Javagold on May 25, 2016 at 2:22 am

    Damn, you math. You ruined the pension Ponzi.

    Reply

    • Posted by Anonymous on May 25, 2016 at 7:52 pm

      Forget the popcorn…..I want lead when the shit hit the fan. I hope it is decades away but we shall see

      Reply

  4. Posted by MJ on May 25, 2016 at 7:24 am

    Without going into all of the math and just looking at the close to 3,000 retires an not counting the 776 separated but “entitled” but only 865 are still working and contributing………just doesn’t compute to me but what do I know

    Reply

  5. articles on your site keep getting better and better 🙂

    Reply

  6. Posted by S Moderation Douglas on May 25, 2016 at 5:16 pm

    Hypothetical question… If you are a 55 year old truck driver, driving for the same company since you were 25, what do you do? Maybe you have ten years left on your mortgage, one kid still in school, a savings account with three months worth of salary for emergencies. If you just keep truckin’, your employer will keep paying into a dead system, throwing good money after bad. If you had started an IRA at 25 and put in ten to fifteen percent of pay, by the time you’re 65, with that and SS, you could get by. .The
    But at 55, you would have to save half your salary, and work till 75 to save enough for a comfortable retirement. Who can do that? Or who will?

    Same thing if you work for the state of NJ; max pay for a truck driver is about $48,000 as I recall, and they take about 7 percent out for pension. Good money after bad? What would you do if you’re a 55 year old state worker with little or no savings, knowing the pension you get may be pennies on the dollars you were expecting?

    Forgetting for the moment about the morality or legalities, what do you do to prepare? My guess, for both private and public workers who find themselves in this spot today, is kick the can, on a personal level, and hope for the best. Has anyone read any articles that some NJ state employees or Central States truckers are doing anything proactive to prepare for possible scaled down pensions?

    Reply

    • Posted by dentss dunnigan on May 25, 2016 at 5:26 pm

      Well workers had a head start on saving ,Corzine gave us all a clue ” we simply have a government we can no longer afford”…that was the light bulb moment ,i better prepair for when the state can no longer afford us ….it’s been 8 years and the clock is still ticking ,so it’s never to late …

      Reply

    • Posted by Now Retired Pat on May 27, 2016 at 1:37 pm

      You may find a larger % of “retired” PWs going back into the workforce for minimum wage jobs.

      Reply

    • There is no easy answer. The problem isn’t new, but I think it’s been ignored for a long time. Assuming the government doesn’t magically bail the pensions out, it’ll fall on society to bear the burden, directly or indirectly. Retirees may be forced to sell their homes and move back in with their children, becoming a financial strain to their families. Retirees in good health who choose to stay or re-enter the work force will be taking jobs away from younger workers, increasing unemployment and decreasing productivity.

      Reply

  7. Posted by Anonymous on May 25, 2016 at 10:19 pm

    Of course, Take the morally lazy route of scr&w em… they aren’t me. Of course the govie’s won’t GIVE you back your SS payment, they will just confiscate it. What’s good for pensioners (who are a minority) are good for each of us. Hey, and while your at it, private property? Pfehhh, they can take that too, see the morally slippery slope that says scr&w the pensioners in the end leads to you and me (next).

    Reply

  8. Posted by MJ on May 26, 2016 at 12:15 pm

    Good point SMD, I’ve often wondered that myself especially since the unsustainabilities of DB pension plans have been talked about since well before the Great Recession. No one seemed to care of take notice. My short answer would be that DB pensioners both public and private will kick their own can down the road because it is inconceivable that anything negative can come their way. The smarter ones will be saving in alternate investments, living well within their means with little if any debt and if married both will stay working for as long as possible. Let’s face it, unless we are all independently wealthy we are all screwed even with Social Security and the cuts that will be coming.

    Reply

  9. Posted by Anonymous on May 28, 2016 at 10:58 am

    Really, the question of our generation is how we take care of our parents. The discussions not being had and the crises being fermented in pw pension plans are a preview (test case on a minority) of the conversation we will all be having around social security in 5-10 years. The SS trust fund is an accounting gimmick to cover the SS shortfalls currently being taken out of the general fund. The drawdowns out of the general fund will continue and accelerate. It’s a question about honoring promises already made, about generational fairness, about a moral tax code, and the social compact business has with the populace and the republic.

    Reply

    • Posted by Now Retired Pat on May 28, 2016 at 10:51 pm

      Agreed. Puerto Rico is being bailed out; AC has been given a stay; Greece is the poster child for kicking the can…I think NJ taxpayers (our children) will bail out the pensioneers (mom and dad). The Federal government can loan to NJ $150 billion (interest free) over 50 years. That should about do it…

      Reply

    • personally, taking care of parents is not a concern since they are hoarding all the money in the family (they stole it from grandparents)

      many people i know could never take care of parents and don’t need to since they have all the family resources.

      these same people tried to get the poor kids to pay their taxes….really greedy selfish people.

      there are many many families like this….1 person hoarding all the money. its a microcosm of the bigger economy…

      all levels of society must change to be fair to the younger people.

      Reply

    • really, the question is “why dont old people want to care for the young, instead of vice versa.” most baby boomers are totally selfish….take care of me take care of me. but what about the truly vulnerable, the young?

      Reply

  10. Prediction: all the db plan problems will come to a head when the pbgc can’t pay. when that happens there will be a massive effort to roll current retirees into social security, giving a new benefit to those without ss and giving higher benefits to pensioners who had ss. then all actives will be given a lump sum to start their dc (401k)

    the only db plan will be ss and it will be phased out, as it should be.

    Reply

  11. […] application to the Department of the Treasury for benefit suspensions under MPRA , as reviewed in a prior blog, the plan had $24,485,44 in assets as of […]

    Reply

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