Peeps Into Multiemployer Crisis

The Washington Post ran this story for the holiday (excerpts):

The 95-year-old company that makes Peeps, Just Born Quality Confections, wants to block new employees from enrolling in the multi-employer pension it has offered workers for decades, a retirement plan it funds along with roughly 200 other companies.

While many other companies facing similar pressures have left pensions in recent years, Just Born wants to bar new employees from the plan without paying a $60 million fee required under federal law, saying it must do so to remain competitive.

To many of the workers who make Peeps, members of the Bakery, Confectionery, Tobacco Workers and Grain Millers union, it is a line that cannot be crossed.

The pension, which is administered by a group of labor officials and corporate executives from the 200 participating companies, has sued the company, alleging it improperly tried to stop enrolling new employees in the pension without paying the withdrawal fee. The company has sued the union, demanding “monetary damages” and alleging the strike was illegal.

Just Born’s union employees participate in the Bakery and Confectionery Union and Industrial International Pension Fund, which was flush with cash several years ago, even after the financial crisis. At one point, it had so much money that it paid pensioners 13 monthly checks each year.

The company and the pension seemed healthy, but when disaster struck it seemed far outside their control.

Hostess Brands, maker of Twinkies and Ding Dongs, accounted for 24 percent of all those contributions to the multi-employer pension. It stopped making contributions in 2011 and then filed for bankruptcy in 2012, weighed down by weakened demand, rising competition, and large levels of debt. Federal courts allowed it to escape without paying the pension fund $1 billion in obligations.

The actual facts of the case (as pieced together through 5500 filings) tell an even more sordid tale that touches upon the main faults of these zombie plans and why the unions remain desperate to keep them alive.

According to their latest 5500 filing this multiemployer plan is indeed in trouble:

Plan Name: Bakery & Confectionery Union & Industry International Pension Fund

EIN/PN: 52-6118572/001

Total participants @ 12/31/16: 110,714 including:

  • Retirees: 58,180
  • Separated but entitled to benefits: 31,913
  • Still working: 20,621

Asset Value (Market) @ 1/1/16: 4,422,406,512

Value of liabilities using RPA rate (3.28%) @ 1/1/16: $11,883,964,319 including:

  • Retirees: $7,788,195,205
  • Separated but entitled to benefits: $1,856,227,689
  • Still working: $2,239,541,425

Funded ratio: 37.21%
Unfunded Liabilities as of 1/1/16: $7,461,557,807
Asset Value (Market) as of 12/31/16: $4,272,936,422
Contributions 2016 (MB): $157,198,481
Contributions 2016 (H): $161,225,103
Payouts 2016: $624,261,911
Expenses 2016: $26,663,832

But this is nothing new. From the 2009 5500 filing:

From the 2016 Schedule C these are the two biggest expenses being paid out of trust assets:

Now looking at the 5500 for the Defined Benefit Plan that the union sponsors for their own employees (in addition to having two 401(k) plans – 002 and 003):

 

23 responses to this post.

  1. Posted by MJ on March 31, 2018 at 7:28 am

    Interesting article……If I said it once I’ll say it a 110times how can anyone promise people a set amount of monthly money into perpetuity???

    Doesn’t make any sense

    Reply

    • Posted by Tough Love on March 31, 2018 at 11:54 am

      “How” ?

      By doing it on a VERY conservative basis (as do companies that sell Immediate Annuities).

      In this investment environment, they ASSUME that your assets will only earn about 3%, AND your money is locked-in so they can (via a strong Corporate surplus position) withstand anything other than a VERY VERY VERY long economic meltdown.

      The problem with Public Sector pensions is that the promised pensions are so LUDICROUSLY GENEROUS, that the ONLY way it’s “affordable” is if they in fact realize a 7% to 8% return on the entire Liability (NOT the usually lower Assets), and they do so ………… IGNORING all the “risk”………. because the Taxpayers are look upon as the “sucker” in the equation who will bail them out (i.e., make their pensions whole) if things go wrong.

      Reply

      • Posted by Tough Love on March 31, 2018 at 12:28 pm

        Taking it to the logical next step…………

        DB Pension Plans can work, if the GUARANTEED level of promised pensions is (MUCH lower than today’s promises) consistent with affordable pricing at that very conservative rate (the 3%), and should investment returns come in greater than that assumed rate, a large portion of those excess earnings can be passed along to Plan participants to add to their guaranteed level of pensions, with a small portion remaining undistributed within the Plan to build up reserves and account for the risk taken by the Taxpayers.

        Essentially, it would operate just like a dividend-paying policy issued by a Mutual Life Insurance Company.
        ————————————–

        Of course we all know why what I just described won’t fly in the Public Sector ………………….. GREED.

        Reply

      • Posted by Stephen Douglas on March 31, 2018 at 1:33 pm

        Greedy bass turds.

        Reply

        • Posted by Stanley on March 31, 2018 at 8:20 pm

          Mr. Douglas, That isn’t a very funny or correct cartoon. Rather than a pile of green backs, the robber baron who takes advantage of the unskilled beginner, should be shouting down from a pile of IOUs. If you think that it’s easy to organize and operate a business and get a pile of money out of it, why don’t you give it a go. I’m really astonished at what passes as reasoned economic views on message boards. An arbitrarily higher wage imposed by government will improve the lot of the person who continues to work and earn the new wage rate, but it doesn’t help the poor bloke who is priced out of the labor market. And it won’t help the bloke who is replaced with a robot or finds his work outsourced or transferred to OUTUS.
          There is the appearance of great wealth in America, but in almost every way America is hopelessly in debt. If you aren’t working, I recommend a trip to the library or thriftbooks.com. Economics in One Lesson by Hazlitt or Economic Sophisms by Bastiatt. Or continue on with horribly confused thinking about the economic world. And have a nice day.

          Reply

        • Posted by Stephen Douglas on March 31, 2018 at 10:26 pm

          It’s not always easy to find the ideal image. The point was actually not the minimum wage, but the alleged GREED.

          Being replaced by a robot is not necessarily a bad thing. Rough numbers, 200 years ago, 80 percent of U.S. workforce was engaged in agriculture. Today about 2 percent produce enough to feed the country, and then some. I don’t see anyone suggesting going back to oxen.

          Even manufacturing outside the U.S. makes good economic sense. If you can produce an equivalent product (or better), it is an advantage to the producer and the consumer. Ironically, I recall a few years ago that Chinese manufacturers were complaining that they were losing business, and jobs, to South Vietnam. That’s what free trade is all about.

          But…

          Economics is not just a math system or financial system, it is a social science. The science of scarcity, the law of supply and demand, the “invisible hand”, don’t care one whit if unemployment is 4 percent or 14.

          Income equality is huge and growing in the U.S. Doesn’t help to call those at the bottom GREEDY.

          One of the features of public sector work is that it is much more egalitarian than the private sector. There is a virtual “floor” on compensation at the lower end, and a “ceiling” on the top wage earners.

          Monique Morrissey…

          “The national pattern that public-sector workers with college degrees are compensated somewhat less and those without college degrees are compensated somewhat more than their private-sector counterparts holds true for Connecticut as well. The more compressed pay structure—with top and bottom pay closer together—reflects the fact that people are drawn to public service for nonpecuniary reasons and that government employers have an interest in setting a higher floor on compensation than private-sector employers, some of whom pay poverty-level wages and pass health care and other costs onto government programs. Because public-sector workers are more likely to have college degrees, public employers—and taxpayers—are getting a bargain while ensuring a decent standard of living for less educated workers.”

          For better or worse, that is a form of income redistribution, and there are valid arguments on both sides.

          But there are thousands of American workers today who work very hard and still don’t earn enough to feed their family and provide healthcare. Thousands more who, due to overarching economic conditions, cannot find full time regular work.

          Just don’t seem civil, or productive, to blame the victim, bloke.

          Reply

          • Posted by Tough Love on March 31, 2018 at 11:07 pm

            Well it appears that BOTH you and Monique Morrissey are ignoring the MUCH greater Public Sector Total Compensation (wages + pensions + benefits) shown in the AEI Study to be 23%-of-pay in BOTH CA and NJ…… rising to 33% if the MUCH greater Public Sector job security is factored in, and assuredly rising by even MORE if Safety workers with far higher than averages and pensions had not been excluded from the AEI Study.

          • Posted by Stephen Douglas on March 31, 2018 at 11:35 pm

            Appearances can be deceiving.

          • Posted by Stanley on April 1, 2018 at 7:53 am

            “Just don’t seem civil, or productive, to blame the victim, bloke.”
            —————————————
            I don’t blame the “victim” for wanting to improve his lot in life, but I do blame leftist interventionists who believe that mandating higher wage rates for beginners and unskilled workers is a good way to bring about improvement.

            “But there are thousands of American workers today who work very hard and still don’t earn enough to feed their family and provide healthcare.”
            —————————————
            Maybe someone needs to put out the word that starting a family on entry level pay is not a good idea? Moreover, many seem to believe that access to the clinic and emergency is equal to good health. It is not. Good health depends primarily on making sound lifestyle choices, a good diet and a good fitness routine AND avoiding destructive behavior. Look at the people who take recreational drugs of totally unknown origin. Go to Walmart for a can of spray paint and it’s under lock and key. Why? And government health care is going to fix this? America has its share of troubles and it fully deserves every one of them.

          • Posted by Stephen Douglas on April 1, 2018 at 12:37 pm

            Maybe you’ve never been there. When I was a lad, “entry level pay” was lifetime pay, for most folks. Minimum wage; one dollar an hour. But Dad made $1.10 because he was in the union, and he had seniority. If Dad and Mom, and most of our friends waited till they could “afford” to have children, a lot of us would not be here today. We didn’t call it poor, we called it normal. And we did have normal childhood diseases and the random accident. Not all healthcare needs are self inflicted.

            In the modern organizational chart, some of those who start out at the bottom can work their way up the pyramid. Maybe all the way to the top. This is America. Through hard work and determination, and luck, anyone can grow up to be president. But everyone can’t. It’s math, again. Most of those people at the bottom will stay at the bottom. They are jobs that need to be done and, lucky for us, there are people who are content to do them. For life.

            Honest, hard working, people whose standard of living is being eroded by conditions beyond their control. And these are the lucky ones who haven’t been crowded out of the job market completely.

            Don’t disparage the victim.

          • Posted by Tough Love on April 1, 2018 at 1:34 pm

            Stephen, This Blog isn’t really about the victims you speak of (those stuck low-paying jobs). It’s focus is on Public Sector pensions (especially those in NJ).

            And in THAT arena, the “victims” are the Private Sector TAXPAYERS who ……… do to the COLLUSION between the insatiably greedy & arrogant Public Sector Union and our self-interested Elected Officials ………. are being told that THEY are responsible for 80% to 90% of the Total Cost of Public Sector pensions that are ROUTINELY, 3, 4 TIMES (even 6 TIMES for CA Safety workers) greater in value upon retirement than what THEY typically get in retirement security from their employers.

          • Posted by Stephen Douglas on April 1, 2018 at 8:53 pm

            DON’T PAY THE BILLS, THE DEBT GETS LARGER

            Or, as Juvenal says…
            ” you are just wrong about the comparison of public sector and private sector total compensation (except at the level which requires no education–sorry for giving them benefits other than Medi-Cal).) ”

            Even in NJ and CA there are thousands of workers whose total compensation is equal to or less than equivalent private sector workers. Not greedy, by definition. And thousands more in the low education, low skill levels who are protected somewhat for the economic pressures on lower educated private workers…

            “Because public-sector workers are more likely to have college degrees, public employers—and taxpayers—are getting a bargain while ensuring a decent standard of living for less educated workers.”

            And now, “the taxpayers” will pay more than they would have if they had kept up required contributions for the last three decades. And it still won’t be enough. Cuts are inevitable, and probably not as severe as you would like. Lose/lose.

          • Posted by Tough Love on April 1, 2018 at 10:12 pm

            Stephen,

            You can IGNORE the ROOT CAUSE of the pension mess (ludicrously excessive pension “generosity), but ignoring it doesn’t change it.

            As for not Paying The Bills …………

            We BOTH know that the Pension Bill is A FUNCTION OF and DIRECTLY PROPORTIONAL TO the “generosity” of the underlying Plan, and a VERY “generous” Plan is VERY “costly” and hence VERY “difficult” to fully fund. Meaning ……….. if these Plans weren’t so LUDICROUSLY excessive, the BILL would be a LOT smaller, and hence MUCH easier to pay.

            The Lack of Full Funding is not the CAUSE of the pension mess, but the CONSEQUENCE of the real underlying ROOT CAUSE …….. ludicrously excessive pension “generosity”.
            ————————–

            And you ALSO know that splits of Total Compensation by income level (while interesting detail), DO NOT MATTER from the perspective of what FINANCIALLY IMPACTS the Taxpayers. ONLY the net Public/Private Sector Total Compensation differential FROM ALL INCOME LEVELS TAKEN TOGETHER matters.
            *********************************************

            Readers…………. don’t be hoodwinked by this CA Public Sector retiree.

      • Posted by Anonymous on March 31, 2018 at 5:12 pm

        TY for explaining that ……I guess with that said the participants in private DB plans are retiring closer to 65 instead of 55 as in the public sector

        I’m sure that the Peeps pensions are not as generous and if conservatively 3% returns I guess I can see it. It just seems that so many other costs such as health care have gone up for private companies I can also see why they don’t want the DB plans anymore

        Reply

        • Posted by Stephen Douglas on March 31, 2018 at 11:53 pm

          “…retiring closer to 65 instead of 55 as in the public sector…”

          The jury is still out. 55 is possibly the average retirement age for law enforcement.

          Most other public workers have retirement age much closer to the private sector. Overall average retirement age in the U.S. is 63.  42% of men and 48% of women start drawing social security at age 62.

          Reply

  2. Posted by MJ on March 31, 2018 at 7:33 am

    …and in the meantime they are all suing each other……I’m sure that will cost millions all to go into the lawyers pockets

    Reply

  3. Posted by Anonymous on April 2, 2018 at 10:36 am

    I continue to say. Liquidate the pensions and distribute from the bottom up. Then, start defined contribution plans in place of the liquidized plans.

    Why? When you see 20k trying to support 80k retirees/about-to-retires, folks, no amount of taxation will fix that money pit. Time to cut losses and move on.

    Reply

    • Posted by Tough Love on April 2, 2018 at 11:47 am

      John,

      I suspect that the Union’s DB Plan for the UNION’S employees is valued as a Private Sector Plan, and likely uses a liability discount rate in the 3% to 4% range. If so, their Plan’s Funding ratio of about 110% (from your last image) would likely be in the 140% to 150% range if valued using the SAME assumptions & methodology that the Public Sector Plan (where the Union’s members work) uses in it’s valuation.

      Meaning ….. funding ratio of 45% for Union MEMBERS vs (if calc. on the SAME basis) 140% to 150% for the Union’s EMPLOYEES.

      Is that correct ?

      Reply

      • No, it’s HATFA rates on the SB which are about 5.5% on average. Their plan would be underfunded on a termination basis which uses 417(e)(3) rates. But it does not look like they will be terminating so it is not an immediate problem for them.

        Reply

  4. Posted by Stanley on April 2, 2018 at 11:05 am

    “Now looking at the 5500 for the Defined Benefit Plan that the union sponsors for their own employees (in addition to having two 401(k) plans…”
    ————————————————
    (Last part of the basic post.) Oh my god, wow!!!! Mr. Bury, you should get a Pulitzer for that one. I bet if you studied all of the MEP plans you would find similar results. But of course the bill of goods specialists would be well taken care of. What else could one expect.

    Reply

  5. […] officials too are justifiably worried about their own future security as well as about maintaining those arbitrary methods of calculating withdrawal liabilities that […]

    Reply

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