Withdrawal Liability Scam

Many participants in multiemployer plans are justifiably worried about the security of their pensions. In Bethlehem there are protests:

The Bakery and Confectionery Union and Industrial International Pension Fund has sued Just Born, alleging that its efforts to stop new employees from enrolling in the pension is improper and that the company is attempting to wrongly avoid the withdrawal fee.

Union officials fear that if Just Born’s request to withdraw goes through it would prompt other firms to do the same — jeopardizing the pensions of thousands.

“They’re trying to take from those who gave them so much,” McKay said.

But Just Born executives say they’re just trying to ensure the future of the plant in Bethlehem and contend the company wants what’s best for its employees.

Union officials too are justifiably worried about their own future security as well as about maintaining those arbitrary methods of calculating withdrawal liabilities that develop such massive walkaway costs that employers must choose between either remaining in the plan or going bankrupt.

Whereas for funding actuaries get to use their ‘best estimate’ on the interest rate (and they generally choose a high rate that low-balls contributions) when it comes to calculating a withdrawal liability the goal is to use a very low interest rate to maximize the payments that these departing employers will owe the plan. The largest actuarial firm doing multiemployer work even came up with their own methodology that a court just found to be in violation of ERISA:

The “Segal Blend” is Segal’s proprietary method of valuing a plan’s unfunded vested benefits to calculate withdrawal liability by blending the plan’s investment-return interest rate assumption with the lower risk-free rates published by the Pension Benefit Guaranty Corporation (PBGC). The Segal Blend has historically been used by many of the largest multiemployer plans in the United States.

It is not the government that is dictating the rate but, in this case, the actuary which is coming up with their own fewl numbers. Just Born has a valid point here:

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.

The fee exists to ensure future retirees’ benefits are covered, and if Just Born succeeds in escaping it, union officials fear the unprecedented ruling would prompt thousands of other firms to do the same.

This multiemployer plan now gets about $160 million in contributions annually from ALL sources and covers 20,621 still-working participants. Just Born has about 600 employees. Were Just Born to pay that $60 million it would not only be covering costs for their own employees but likely thousands of other participants….which is exactly what the withdrawal liability rules have been interpreted into doing.

19 responses to this post.

  1. Posted by Tough Love on April 2, 2018 at 8:56 pm

    CA’s CalPERS is even MORE abusive when a member City tries to withdraw. They don’t “blend” a very low rate with anything.

    I believe they currently re-calculate the unfunded liability assuming all future investment returns will be only slightly north of Treasuries ……. about 3% annually.

    Reply

  2. Posted by NJ2AZ on April 2, 2018 at 9:36 pm

    I realize this is about employers pulling out, but if i were PW in NJ, i would absolutely try and sue to get out of having to participate in their doomed pension scheme. surprised no one has tried this already (or if they have, i haven’t heard about it)

    Reply

    • Posted by Tough Love on April 2, 2018 at 10:55 pm

      I believe you would find few NJ PSWs that actually believe they won’t get all that was “promised” and that taxpayers will be FORCED to pony up.

      They should take some MATH lessons instead of blindly believing their Unions.

      Reply

      • Posted by NJ2AZ on April 3, 2018 at 12:31 am

        i wonder if a lawsuit against mandatory pension participation isn’t next after SCOTUS (hopefully) kills agency fees

        Reply

        • Posted by Tough Love on April 3, 2018 at 12:35 am

          I praying for the death of Public Sector Union agency fees …… and a whole lot LESS Union money to BUY America’s Elected Officials with BRIBES disguised as campaign contributions.

          THAT will be a GREAT day for America !

          Reply

          • Posted by El gaupo on April 3, 2018 at 2:10 am

            Uh, cause you want NJ to be like the wonderful states of KY, OK, WV etc?
            Here in NJ believe it or not, a police officer does not have to be in the PBA or FOP. Almost everyone is. More than 99%. Because we are smart enough to realize that the union is what keeps us from being like those states in terms of pay and benifits. As far as the pension goes, I definitely think that you would see maybe upwards of 25% of new teachers and pers enrollees NOT join the pension fund if given the choice. Prob only about 5% or less would opt out of Pfrs. It is much better funded and earlier retirement would make it foolish not to.
            Let’s not forget, management(I e the state) makes the rules in terms of pension enrollment requirements. Not the union. Perhaps a lawsuit would come some day. Probably not for a while.
            As a police officer, as I said we already can opt out of the pba and their dues. So, I don’t think then court case will affect our membership as it is not compulsory.

          • Posted by Tough Love on April 3, 2018 at 7:46 am

            Quoting El gaupo ………

            “Uh, cause you want NJ to be like the wonderful states of KY, OK, WV etc?”

            Uh no, but BECAUSE ……….. having very near EQUAL “wages” (per the AEI Compensation study), plus heavily subsidized retiree healthcare benefits (that are all but gone in the Private Sector), plus DB pensions that are ROUTINELY 2.5 to 4 TIMES greater in value upon retirement than those typically granted their Private Sector counterparts …………. NJ’s Public Sector “Total Compensation” (wages + pensions + benefits) is unnecessary, is unfair to Taxpayers, is clearly unaffordable, and is LUDICROUSLY excessive by any and every reasonable metric.

        • Posted by El gaupo on April 3, 2018 at 2:20 am

          Why? So your kids can have textbooks in high school that are so current that they have George W bush as president like Ok does? Yea guy hasn’t been president about a decade. That’s disgraceful. And the same stupid leaders who refuse to fund education there, gave a tax cut to the wealthy. And we wonder why our kids can’t compete globally with an education like that. Ask the hick pig farmers who backed Trump 100% how they feel about China new tariff. Lol. That’s what happens when you put a reality show host in as president.

          Reply

          • Posted by Stanley on April 3, 2018 at 7:54 am

            ” Ask the hick pig farmers who backed Trump 100% how they feel about China new tariff.”
            ——————————————–
            And in a paragraph about education no less. Shows what you know. So, what do think will happen to the bellies? Do you think the Chinese are the only ones in the market for bacon, hams or shoulders? Wheat is wheat and bellies are bellies.
            Farm products are modestly priced right now but the world isn’t setting on huge surpluses that will last forever. Big world out there chief, lots of folks like bacon on their burgers. Nuther thing. The model you’re seeking isn’t OKC or Dallas, it’s Caracas. Oh yeah, nice pinch.

          • Posted by Tough Love on April 3, 2018 at 7:57 am

            Funding quality education “for the children” is a WHOLE lot different than unnecessarily providing NJ’s Teachers with pensions and benefits MULTIPLES greater in value upon retirement (and hence COST) than those granted Private Sector workers with similar education, experience, skills and knowledge.

            In fact, there would be a great deal of ADDITIONAL money available to raise wages, and hire more and better qualified teachers if their now LUDICROUSLY excessive pensions and benefits were replaced with ones COMPARABLE to those typicality granted comparable Private Sector workers.

            What would be the icing on the cake would be neutering the Unions, because THEN we could also get rid of the burnt-out/lazy/incompetent teachers, and when we have financial challenges that require layoffs, we could lay-off the LEAST EFFECTIVE teachers instead of those with the least seniority.

          • Posted by Tough Love on April 3, 2018 at 8:10 am

            El gaupo,

            Finally, something we agree on ……….. Trump’s an idiot.

            His antics of the past week, VERY negatively impacting the stock market…….. claiming caravans of illegals are entering the US to take advantage of DACA (when DACA has been CLOSED to new entrants since 2007), beating on AMAZON (with proven falsehoods), and imposing tariffs on imports (with ZERO understanding of global economics, and not even seeking the input of available experts) ………. is all as ruse to deflect attention from Special Council Mueller’s investigation, and the many illegal activities that assuredly lurk in Trump’s past and that he fears will be exposed.

          • Posted by El gaupo on April 3, 2018 at 8:48 am

            @stanley—simply making a point that trump voting pig farmers are mad at him for the tariff. Look— if TL and I both agree strongly on something—good chance most folks feel the same way. He all mad at amazon because of the wash post. Post office will lose huge when/if Bezos starts his own logistics wing within amazon. I.e a new fed ex
            They are the post office biggest customer.
            Trump is by far and away the most unqualified, dangerous man to ever occupy the White House. I believe the GOP is hoping the Dems take control of both houses this nov so this clown has a harder time doing damage. Cause they can’t stand up to him.

          • Posted by Stanley on April 3, 2018 at 12:59 pm

            “simply making a point that trump…”
            ——————————————-
            Ahhhhhhh! Oh my god! Dubya was better than Gore and Kerry but that didn’t make him good. He was still pitiful. With entitlements drastically more than the taxpaying public can afford, Dubya added a new one. Obummer was the best teleprompter reader that this country will ever had. He is a world class teleprompter reader.
            Regardless of his experience and background, Trump is far better than our last four presidents. Of course he doesn’t know all about the workings of government, but he has something these other jokers don’t have: a knowledge of how burdensome and destructive the deep state is. TL likes to complain about the $50B wall. The clean power plan would have cost ratepayers about $33B per year–if power continued to be available 24/7. With Obummer in office we couldn’t build a pipeline. Trump got it done in six months. He bailed out of the Paris Accord. Pruitt is cleaning house at EPA, totally different from Whitman and the other commissars who have worked there, other than Neil Gorsuch’s mother.
            I’m not saying that I’m a Trump fan. I never watched a minute of his TV show and his businesses cater to the well to do–not me. I don’t agree with him on everything, but he was elected and he should be supported in his effort to turn the country around.
            There is some truth in your observation that some rinos want Trump gone even if it means the democrats take over. And all that means is that their interests are different from the folks who live in flyover country and aren’t exposed to the constant left coast air which should have a warning label on it. They just want business as usual and to continue to grow the government and keep those precious pension benefits coming in.

          • Posted by Tough Love on April 3, 2018 at 1:59 pm

            Stanley,

            When did the all’s price jump to $50 Billion from $25 B ?

            And as far as THIS statement……… “Trump is far better than our last four presidents.”

            It would be impossible to think of ANYTHING more absurd.

            The Democrats will assuredly recapture the Senate in the Midterms, then you can watch Trump pull out his few remaining hairs.

          • Posted by Stanley on April 3, 2018 at 5:22 pm

            ““Trump is far better than our last four presidents.”
            It would be impossible to think of ANYTHING more absurd.”
            ——————————————————
            Oh really? That is really astonishing coming from someone who makes it their avocation to relentlessly follow and campaign for reduced public pension costs. You must be a supervisor of people who need little supervision to spend as much time as you do on public employee pensions. (I agree that they should be modest and whacked until they are.)
            Nonetheless, I am far more concerned about the drive toward an enviro based, one world, socialist state than I am some pensions that will sooner or later get a good whacking. Pensions and retirement and health care could only be more messed up if the government took it all over entirely. Then, it would be a total, hopeless mess, but it is pretty darn close to that now. Did Trump mess it all up in his little year and two months?
            South Korea builds a nuclear generating plant in less than two years and produces electricity at less than TWO CENTS PER KWH! We have built one whole nuclear generating plant in what is it 10 — 15 years. Christie cancelled the Hudson tunnel project because the state couldn’t afford it and it was no cheaper to build than the previous one built in 1928.
            Our country is $20T in debt, the financial markets are a catastrophe waiting to happen, the government’s spending and borrowing are on auto pilot and your preference is for same ol same ol. Trump is better than his four immediate predecessors. If you don’t agree that’s fine.

          • Posted by Tough Love on April 3, 2018 at 5:51 pm

            Stanley,

            Have I even ONCE blamed Trump for the Pension mess ?

            Trump is not just ignorant of government operations,. He is ignorant of just about EVERYTHING but real estate development. He cheats many who work for/with him, and he is a pathological liar.

            God help America if he decides to personally “negotiate” with other countries ….ignoring the advise of seasoned professionals …. and can bind us to unfavorable terms.
            ————————————

            Quoting ………. “Trump is better than his four immediate predecessors. If you don’t agree that’s fine.”

            We’re going to have to agree to disagree …. because I believe him to be the worst President I could ever imagine, as well as a HUGE & INCOMPETENT embarrassment to this country.
            ————————————

            All of his recent antics are aimed at re-focusing attention away from the Mueller investigation.

          • Posted by Stanley on April 3, 2018 at 7:38 pm

            TL, I can’t remember for sure when I heard this but even before Obummer Bruce Ames, retired chairman of the bio-chemistry dept at UC Berkeley complained that our country is spending more than $1T per year on enviro based regulations and getting very little for it. After Obummer, it had probably jumped to more than $2T per year. And after Obummer, how can anyone bring up truthfulness in government. Jeeze, Rhodes bragged about leading the press on. And do you remember doctors and health insurance that you can keep if you like? Didn’t that register with you? And Dubya bailed out of DC with his tail between his legs and never spoke up once until other republicans started saying that he wasn’t a good president. Dubya left the economy in shambles and it will be a shambles again when this bubble blows. With debts where they are, how can there be any legitimate demand?
            Pruitt at EPA is a godsend. I just hope he’s there long enough to take out the garbage.
            Did I write that Trump is a great man? Did I write that he is up there with Madison and Jefferson? Let me point out that absolutely NOBODY has the knowledge or experience to manage the responsibilities that the bad actors of Washington DC have taken on for themselves. The American people have made the grave mistake of thinking that they can put the right man in DC and he will solve all of the problems and everyone else can party 24/7.
            He has his share of shortcomings and fortunately for me most of them don’t confront me. But I’ll take him over the four bums that preceded him. He was neither my first choice nor my last choice.

          • Posted by Tough Love on April 4, 2018 at 10:37 am

            Stanley,

            What is one to think of a US President (Trump) who is so lacking in knowledgable that he states that a “caravan” of refugees from South America is headed to the USA so that the children can take advantage of the DACA program ……………….. when it is well known that to be in DACA you had to ALREADY have been living in the USA since 2007 ?

            And he does this all the time. Did he really not know that, or did he really know it, but facts, truth, honest discussion are simply not part of his playbook ?

  3. […] Stakeholders we interviewed also added that the calculation used to determine withdrawal liability may use an investment return assumption that inherently transfers risk to the plan. (page 31 and I would note that this is an amazing statement based on my experience with withdrawing employers getting sticker when they see their bills based on fewl factors). […]

    Reply

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