Bailout Cost

The Teamsters support the passage of the Butch Lewis Act of 2017 (BLA) which was introduced in Congress in November 2017 by Sen. Sherrod Brown of Ohio and Rep. Richard Neal of Massachusetts to bail out bankrupt multiemployer pensions. As to the cost, their press release asserts:

Opponents of the bill have attempted to poke holes in it by saying it would cost too much. Some had estimated the 10-year cost would be upwards of $100 billion. However, the Congressional Budget Office [CBO] in September put the decade-long cost at $34 billion instead. The Teamsters’ own evaluation of the bill places the cost at $30.1 billion.

So where did that $100 billion number come from?

From the July 16, 2018 Preliminary Analysis of S. 2147, the Butch-Lewis Act of 2017, as introduced:

Several months ago, based on what CBO considered the most likely interpretation of the bill language, CBO provided a preliminary and partial analysis to interested Congressional parties that the bill would probably increase deficits by more than $100 billion over the 2019-2028 period. Under some interpretations of the bill language, however, few plans would qualify for loans and assistance, resulting in federal costs that would be substantially less than $100 billion.

The only other reference to S. 2147 on the CBO website was this update dated October 11, 2018 which had no mention of the $34 billion:

Since releasing that letter, CBO has worked with Congressional staff on variations of the proposal but has not completed a formal estimate of the introduced bill or of any of those versions. You asked about the basis of any changes that CBO made to the preliminary score. If CBO were to complete a formal estimate of the introduced version or any other public version of the legislation, we would provide that information.

$34 billion is about 10 years worth of payouts to participants in Central States alone without taking into consideration any other multiemployer plans or the cost of borrowing which is apparently making it very difficult for the CBO to hit that target number.

 

 

47 responses to this post.

  1. The $34B according to Cheiron covers all, at the time Critical & Declining Funds, That just received the addition of the New England Teamsters fund @ $5B…https://www.prnewswire.com/news-releases/cheiron-study-finds-121-multiemployer-pension-plans-may-fail-within-20-years-300742169.html?fbclid=IwAR3LVql3uGcpnAMS-nXwokz60f74Uw597zWtFDQasB8V-Yp27CzUTwpr55Q Any other info you might want I possible could be able to assist with. Russ Kamp, Kamp Cunsulting Services LLC & Ron Ryan, CFA of Ryan ALM have been our greatest assets in the truth of the Loan Program. They assisted in the creation of the BLA…

    Reply

  2. Its been quite a ride, to be a pensioner @ CSPF and be looking at losing what we worked hard for for 30 years on a dock, in all kinds of extreme weather. Being a political issue, with a great “D” written bill, and the fact that 50% of us are either “D” or “R”s creates a situation where our “R” side Le4gislators care less for the needs of their Constituent “R” leaning constituents, Rachael Greszler of the Heritage foundation is the one putting forth the BAIL OUT and extreme $100+ to $500B costs. I never knew why UNIONS were such a despised group, until as a Grass Roots member of our large group of Pension Justice seekers organized to gain more reception by Legislators… But Political it is. I started TPC Ovt 15th, 2015 after receiving my Letter of potential MPRA reductions of 61% to my modest $3,000 Monthly benefit. But Mr Ken Fienberg as Grand Master working for the Treasury denied that first MPRA application for CUTS. Now WE wait for the JSC to decide Nov 30th. WE found Kamp & Ryan along the way, they are our VOICE of opposition to the claim of Bail Out that perpetrates the “R” side of the Committee… Check our FB page out, we are the Social Media Out Reach for 60+ grass rooted groups both in CSPF and our friends who have been dealing with CUTS and Insolvency in other funds.

    Reply

    • Posted by Stanley on November 12, 2018 at 8:56 pm

      Mr Anderson, I’m sorry but the plain fact is that there are a slew of us boomer types and late life pension and health care benefits have been over promised. Whether it is Social Security, Medicare or defined benefit pensions, it is a pretty fair bet that pretty much all of us will have benefit levels adjusted to bring them in line to what is affordable to the promising entities. Of course we would all like to cruise the Med in summer and the Caribbean in winter. We would all like to play 18 holes of golf everyday with the electric cart of course. Let’s face it. We might have to take more walks around the block and fewer around the golf course. Is that really so bad? Your pension might be reduced to $14K per year, but just consider that many retirees receive no defined benefit pension at all. And many of them performed unpleasant work in unpleasant circumstances for less money than union dock workers.

      And younger tax paying citizens are employed in jobs that have discarded defined benefit pension plans. If you get $14K per year and you also collect Social Security and the missus collects Social Security, is that so bad? Agreed that $75K per year spends better than $50K per year. I can think of far worse developments than adjusting pension income.

      Defined benefit pensions can only make up SOME of what is needed to support the bulk of retirees. Enjoying a pleasant retirement requires that we put away savings, pay off the house and RV and make sure the children are off on their own and supporting themselves. These giant sized pension plans doom the system to failure and I would argue that a modest pension is preferable to a catastrophic failure. If you take time to think this through, I don’t see how you can disagree with me on this. Good luck with your retirement.

      Reply

      • So true Stanley….

        Reply

      • Posted by NJ2AZ on November 13, 2018 at 3:54 pm

        going along with some of what you said, the marketing materials for ASRS (arizona pensions) expressly say that their DB plan is meant to be one leg of a three-legged retirement stool (the other two being SS and personal savings).

        Reply

      • Not a BAIL OUT but a LOAN PROGRAM that actually gives Treasury a small profit. WE listened to the old timers who told us to bolster our pensions, so we deferred wages many years to pay for those pensions, only to have the MPRA of 2014 threaten by non legislative attachment means to cut my $3,000 monthly pension by 61%. Already with winning that first round application over 80% in pay status pensioners are living on the edge of poverty living check to Monthly benefit check… I suggest you look up Kamp Consulting Solutions LLC on FB and Ron Ryan CFA, @ Ryan ALM, who assisted in writing the Butch Lewis Act. You guys are confusing & mixing Public Pensions which will be an even bigger mess. That is where the extravagant benefits come from $100K to $300K…Heres an article disputing what the Pension Analytical Group has to say pilling on about BLA being a BAIL OUT… IT IS NOT , it is a well conceived LOAN program ….just read for yourselves that it even makes a small profit for the Treasury and sets back funds on a path away from the Casino of high expectations and as Ron Ryan says, the Loans go to defease current pensioners out of the equation and on day one these MUlti funds are already ahead of the game. Cheiron has stated that only a few would need extra assistance and this idea would save the PBGC from a massive tax payer BAIL OUT. Heres the article from Russ Kamp who assisted in the Loan programs creation, imagine the loss of taxes and loss to local economies not to mention the rising cost to tax payer funded safety net programs, give pensioners their dignity for decades of back breaking work loading trucks in all kind of exposure from extreme weather. WE can’t go back and get a “Do Over”…WE paid, for our benefits,…see how this article explains just a part of the problem’s solution… ”
        Questionable Analysis

        Critique of MEPSIM By Ronald J. Ryan, CFA, and Russell D. Kamp

        The paper has several misleading, if not erroneous assumptions and facts.

        You do NOT want to fund the deficit at a discount rate of 7% for several reasons:

        7% discount rate is not a market rate and undervalues liabilities and the deficit significantly.
        Using a market rate yield curve of AA corporates (i.e. like FAS 158/ASC 715) would calculate @ roughly a 4.00% discount rate. This difference of 3.00% equates to a PV difference of 30% to 45% higher liabilities such that a 40% deficit would now jump to a 58% deficit.

        You want to fund and defease Retired Lives not the deficit. This produces certainty and transparency that these liabilities are fully funded. The Butch Lewis Act ONLY contemplates the loan being used to defease Retired Lives.
        Funding a deficit does not provide any evidence of where the deficit is (short, long?) or how to allocate funds to where the deficit is. Can’t cash flow match a single deficit number, as you need to understand where in the liability term structure is within this deficit.

        The loan should be at the interest rate the Treasury can finance (even a little higher for a profit margin). You don’t want to create more of a Treasury deficit. If the loan rate was 15 to 25 bps higher than the Treasury financing rate this new government agency (PRA) could operate at a profit. Fifteen basis points on $100 billion in loans produces $150 million a year in revenue, which is more than enough to operate this agency at a profit.

        You want time to cure the problem. The Treasury does not issue 20-year bonds. Let the Treasury issue its normal 30-year bond auction. According to historical facts, the average return on the S&P 500 over a rolling 30-year period is over 8%. If you buy time (extend the investing horizon), the odds of success dramatically improve.

        Since this is an asset / liability objective running 500 iterations of a Stochastic model without running liabilities is not very helpful.

        They calculate that the loan is expensive costing $56b defined as PV of loan plan repayments? We don’t understand this math. Why won’t the loans be repaid?

        It is true that these plans currently invest in risky assets. If through our work a lower ROA can be used than the plan’s asset allocation should respond and switch to a less risky profile.

        NO, NO, NO… you never want to cut benefits. This is certainly a last resort. Our approach buys time, lowers the hurdle rate (ROA), and fully funds Retired Lives. There should be no benefit cuts for Retired Lives.

        The PBGC is not a solution because it has a very low cap (guarantee) for the payment of benefits (max of $17,160 for 40 years of service) and it is not currently solvent given the forecast of future needs. You want a loan to fully fund your Retired Lives. The PBGC could never fully fund Retired Lives given its current funding.

        A 6% average return seems conservative over a long-time horizon (30 years). Only when an Asset Exhaustion Test (AET) is run will we know the true economic ROA needed to meet future plan obligations.

        We recommend that the loan proceeds are used 100% to defease Retired Lives with investment grade bonds. This leaves the current assets in tact. The output from the AET will help us determine the economic ROA needed to fully fund residual liabilities. The asset allocation here could be heavily skewed to non-bond assets instead of the 40% allocation in the MEPSIM forecasts. Remember the loan is new money and does not affect current assets and/or contributions.

        The Butch Lewis Act – The ONLY Solution

        The loan from the government should be 30-years at the Treasury financing rate with a small premium (15 to 25 bps) to pay for this new agency’s (PRA) operating budget.

        The loan proceeds should be mandated to fully fund Retired Lives through a defeasance process so there is no risk of default here or lack of funding resources.

        The amount of the loan must be based on what it costs to defease Retired Lives with Treasury STRIPS. If a cash flow matching strategy is used on the loan proceeds (mainly investment-grade corporate bonds) it should fully fund Retired Lives at a cost savings of roughly 8%+.

        This cost savings could be held in escrow or transferred over to current assets to help fund residual liabilities. If transferred over to current assets these savings will reduce the economic ROA hurdle rate to fully fund residual liabilities.

        Moreover, we have replaced the actuarial ROA rate (@ 7.50%) on Retired Lives with a Treasury loan rate (@ approximately 3.25%), which lowers the economic ROA needed to fully fund residual liabilities.

        The loan program’s (BLA) success must be predicated on work done on an economic basis (economic truth) and not actuarial forecasts and assumptions.

        Reply

        • Posted by Stanley on November 15, 2018 at 9:43 am

          “Not a BAIL OUT but a LOAN PROGRAM that actually gives Treasury a small profit.”

          Oh c’mon! It isn’t hard to see that if someone can make that statement it follows that they might have trouble managing their money and planning for retirement. If the MEP plans were able to pay pensions as promised, no cash infusion would be needed. Let’s face it, John, the prospects for MEP plans are not improving. More than likely they will worsen.

          Butch Lewis is not going to pass through Congress and if it did, it would be huge injustice to younger people who are faced with declining circumstances in many cases and a more challenging environment for preparing for retirement. I am an older person too and I fail to see how older people doing some belt tightening is such a bad thing. If MEP participants have any complaint at all it should be directed to their union officials who were in charge of looking out for their interests.

          Late life benefits have been grossly over promised and it is high time for honesty in evaluating the situation and making the necessary adjustments to payouts.

          Reply

    • Posted by Tough Love on November 12, 2018 at 11:36 pm

      ,

      While I understand the predicament that you are in, with Taxpayers NOT being a party -of-interest (in any way) regarding your pension-arrangement between your Union and the participating companies, please tell me WHY Taxpayers should “bailout” YOUR pension when nobody is making good the losses (i.e. “bailing them out”) that MANY of these SAME taxpayers suffered in their own (mostly 401K-DC) retirement Plans.

      Reply

      • Cause it will cost more to let them fail, ever hear of the Contagion effect ??? Loss of Tax revenues, and increases in tax funded Safety Net programs will cost far more to tax payers than this simple remedy that most are not fully trying to understand, and most have inextricably morphed Private and Public Pensions together. The effect of Millions on the GDP has been estimated at over a trillion…

        Reply

        • Posted by Tough Love on November 14, 2018 at 7:47 pm

          John C Anderson,

          What a load of self-interested hooey from someone expecting/collecting a MEP Plan pension. Your pension payout (assuming your plan cannot pay more from it’s OWN assets) should be subject to the existing MEP PBGC payout rules (with MAXIMUM MEP payout between $12K and $13K annually).

          The “loan” (may ars ….. as VERY few of these “loans” will be repaid) program will ABSOLUTELY cost Taxpayers WAY more than the CURRENT PBGC MEP limit……… and I stated above, the Taxpayers had NOTHING to do with your pension arrangement (SOLELY between your Union and the participating employers)………… or ……. “we” will bail YOU out when WE get a bailout for OUR 401K losses in the great recession.

          Reply

          • Moral Hazard versus Moral Obligation

            I’ve been extremely fortunate to be a part of the team working on the Butch Lewis Act (BLA) proposed legislation to create the Pension Rehabilitation Administration (PRA). As regular readers of this blog know, KCS was formed in August 2011 with the Mission to protect and preserve defined benefit plans. The opportunity to help the team bringing the BLA forward allows us to pursue that critically important objective.

            As a reminder, there are millions of Americans who will be negatively impacted when their pension plans collapse under the weight of funding deficits and burgeoning contribution expenses. There will be grave social and economic implications from this failure. As such, now is not the time to hand out blame for the impending demise of these plans. However, it is the time to take aggressive and necessary action to insure that the roughly 3.5 million plan participants in pension funds designated as “Critical and Declining” (currently 114 pension plans) get the promised benefits. Doing the same old, same old is not an option at this time.

            During our presentations in Washington DC, one attendee referenced the moral hazard associated with this legislation, questioning why the American taxpayer should “bailout” these pension plans given that they were mismanaged? I wasn’t surprised by this question given that we’ve heard and read this before, especially as it relates to public pension systems. It is important to point out that the BLA proposed legislation is not a bailout, but a PRA loan to these plans that must be repaid in 30 years.

            Also, It should be noted that the PRA loan has a 25 bps profit margin so the PRA should be a profitable agency and not a burden on taxpayers. The proposed BLA legislation secures Retired Lives and lowers the ROA (return on assets) hurdle rate for current assets to fund Active Lives + the 30-year loan. The plan participants have made payroll contributions to these plans, and they have a right to expect a benefit upon their retirement… indeed, a moral obligation of the pension plan. It certainly isn’t through any action on their part that these plans are struggling.

            The United States economy is a consumer-driven economy with roughly 70% of GDP coming from consumption. What would likely happen if millions upon millions of Americans no longer had the financial wherewithal to remain active participants in the economy? Would GDP growth come close to 3%? Heck, no! So, is it a moral hazard or a moral obligation to pay the promise to these workers so that our economy doesn’t act like the proverbial house of cards and come crashing down in the next several years when Pension America fails to deliver on their promise of a secure retirement benefit?

            We understand that a majority of workers in the private sector are no longer participating in a defined benefit plan. We do appreciate the fact that this development is truly unfortunate. Please remember that we are all negatively impacted if the economy suffers under the weight of benefits that aren’t paid as promised. The Butch Lewis Act mandates that benefits remain at current levels, while forcing plans to de-risk through a defeasement strategy, improving the likelihood that they survive well into the future. Furthermore, I do believe that we have a moral obligation to the plan participants in the pension funds designated as “Critical and Declining”. These plans can and must be saved. In-action at this time will likely force millions of Americans to “live” below the poverty level.

          • Posted by Tough Love on November 15, 2018 at 12:00 am

            Quoting Mr. Anderson …………..

            “As a reminder, there are millions of Americans who will be negatively impacted when their pension plans collapse under the weight of funding deficits and burgeoning contribution expenses.”

            Just MORE BS ………….. because for EVERY $1 in failed “loans” (and almost ALL of them will fail miserably), there will need to be $1 in incremental taxes to generate the money to actually PAY for the MEP “bailout”. The net result is that whatever incremental purchasing power (for Plan participants) from a MEP Bailout, the Taxpayers will (in total) LOSE an EQUAL amount.

            There is a ZERO “NET” difference to the economy …… it’s just MEP Plan participants GAINING while Taxpayers LOSE.

            Sorry buddy, but THAT’s NOT justifiable and NOT what we need.

          • Posted by Stanley on November 15, 2018 at 10:04 am

            Sophistry does not change facts. No one in his right mind would make a loan to an insolvent pension plan or one in failing circumstances. Calling a bail out a loan is just an initial act of dishonesty.

  3. Posted by NJ2AZ on November 12, 2018 at 9:27 pm

    What is supposed to be the mechanism for these loans to be repaid? Is it simply the (almost certainly flawed) assumption that they can get such a high ROR on the borrowed money that they will be able to pay beneficiaries AND loan principal + interest?

    If yes, no reasonable person can honestly believe that, right? Its obviously just cover for a straight bailout?

    Reply

    • Posted by Tough Love on November 12, 2018 at 11:38 pm

      Of course !

      Reply

      • Posted by NJ2AZ on November 13, 2018 at 12:03 am

        yeesh.

        turnover whatever plan assets are left to SS and dump the participants into SS with a benefit based on whatever they would have earned had they participated. the taxpayer in me can live with that..

        Reply

        • Posted by Tough Love on November 13, 2018 at 12:37 am

          Try convincing a politician (or Elected Official) so dependent on Union campaign contributions and Election/Re-election support (AND the Union members’ and their familys’ high-turnout/BLOCK-voting) to support such a proposal ……………. lol

          Reply

        • Posted by Stanley on November 13, 2018 at 7:15 am

          “turnover whatever plan assets are left to SS and dump the participants into SS…”

          These aren’t public service employees exempt from Social Security. They are already covered by Social Security and are or will be receiving Social Security benefit payments.

          Reply

          • Posted by NJ2AZ on November 13, 2018 at 9:54 am

            My mistake. If that is the case, any federal action should be capped at the PBGC maximum for each retiree.

  4. Posted by Stanley on November 13, 2018 at 7:28 am

    [$34 billion is about 10 years worth of payouts to participants in Central States alone without taking into consideration any other multiemployer plans or the cost of borrowing…”

    The Butch Lewis Act restores benefits to those MEP pensioners who have already been subjected to benefit cuts.

    Hasn’t anyone heard of Brer Fox, Brer Rabbit and the Tar Baby?

    Reply

  5. Posted by Tough Love on November 13, 2018 at 11:29 am

    Off topic …………. but recommend reading (reform proposal from actuary Mary Pat Campbell and several attorneys):

    https://muninetguide.com/creating-sustainable-public-pensions/

    Reply

  6. Posted by Stephen Douglas on November 13, 2018 at 11:46 am

    I don’t know how I would vote on the “bailout”. Some people obviously fear that a bailout of private sector pensions would increase the odds of a public sector bailout. According to Josh Rauh, there may be even more justification for public bailouts than private.

    “There seems to be a high likelihood that future generations will have to bear the substantial burden of making up pension benefits for previous generations of state employees. While citizens of states that are particularly hard-hit by the pension crisis may be able to escape to other states, an acceleration of this demographic phenomenon would leave a dwindling taxpayer base behind in the states facing the largest liabilities. This would increase the likelihood of a federal taxpayer bailout in which taxpayers in all states would bear the burden of the states in default. The problem of state and local pension liabilities is therefore a problem for all US taxpayers, not just those in the states with the largest deficits.”

    So, California may have to bail out New Jersey.

    Two things… It doesn’t seem like much emphasis at all on very serious reform to prevent future unfunding.

    And, part of the reasoning for the bailout may not be just for these particular recipients, but to keep the concept of DB systems viable as a whole. You can say that public workers should save for retirement themselves “just like the private sector”, but 401(k)s and IRAs aren’t working out that well for the private sector either, at least not for those who earn less than $100,000 a year.

    You can disagree and argue all you want, but at least consider the fact that SS, unemployment insurance, …and… DB pensions help to prop up demand and reduce the extreme lows (and highs) of recessionary cycles.

    And that’s a good thing.

    Reply

    • Posted by Tough Love on November 13, 2018 at 11:59 am

      Quoting ………………

      “You can disagree and argue all you want, but at least consider the fact that SS, unemployment insurance, …and… DB pensions help to prop up demand and reduce the extreme lows (and highs) of recessionary cycles. And that’s a good thing.”

      No, just more of your self-interested/entitlement-mentality BS ………….. Private Sector Taxpayers …….. VERY FEW of whom are in Non-frozen DB Plans today ……… should NOT be funding VERY generous (and hence VERY costly) Public Sector pensions.

      Reply

    • Posted by Stephen Douglas on November 13, 2018 at 1:19 pm

      “To date, many legislatures have focused on switching as many employees and retirees as possible to the 401(k) world, which has left an entire generation of Americans unprepared for retirement and the problem unsolved.” (Your link)

      The link you just referenced suggests an actual workable pension reform, which maintains the DB format, but more sustainable, and may or may not include pension reductions where they are appropriate.

      “The New Brunswick Shared Risk approach pro-
      vides an attractive model for governments, employ-
      ees, and pensioners that find current procedures for
      handling risk in defined benefit plans unworkable,
      and for workers who might otherwise end up with a
      401(k).”

      My above comment was the opposite of “self-interested/entitlement-mentality BS ………….. “. It was a reference to the very real concept that DB pensions are not beneficial only to the recipient, but also beneficial to the economy as a whole; i.e. beneficial to the tax payer.

      “What shouldn’t be lost in the discussion are the potential beneficial impacts of the DB pension system in the overall, or “macro” US economy. Below, I review several possible macro benefits of DB pension plans and how pension plans can help the economy.”

      https://www.benefitspro.com/2016/10/31/can-pension-plans-help-the-economy/?slreturn=20181013130606

      Keeping in mind that the link you referenced above discussed that making DB pensions affordable and sustainable may require reducing those benefits*… Win, win.

      You’re welcome.

      *Where appropriate.

      Reply

  7. Posted by Tough Love on November 13, 2018 at 5:27 pm

    You and I BOTH know that I was talking about DB as NOW structured for Public Sector workers…….. ludicrously generous with ALL the risk (equity market declines, greater life expectancy, etc.) born by the Taxpayers, with ZERO falling to the workers.

    Did you know that “Cash Balance” Plans are also DB Plans? I’m certainly NOT against these, as long as the taxpayers’ contribution and minimum guaranteed crediting rate to notional account balances is reasonable (which I define as what is typically granted PRIVATE Sector workers participating in such Plans).

    And I’m not against a traditional DB Plan WITH material risk sharing, but what remains to be addressed is the generosity-level. It CANNOT be anywhere near that of CURRENT Public Sector DB Plans, and THAT’s the rub, as I simply DON’T see Public Sector Unions/workers agreeing to even MODEST decreases in generosity, let alone the very LARGE decreases necessary to bring it down to a level anywhere near that typically granted their Private Sector counterparts………. which where it SHOULD BE and what’s “fair” to those (the Taxpayers) now paying for 80% to 90% of total Plan costs.

    Reply

  8. Posted by Stephen Douglas on November 13, 2018 at 7:46 pm

    The topic today is possible bailouts for …private… sector pensions. I merely pointed out that the very existence of those pensions helps stabilize the economy. Ten million union pensions and another thirty million single employer pensions… reliable steady income for these retirees helps to prop up demand and prevent a mild recession from spiraling into a severe recession or a depression. That, in addition to the hardship on current pensioners, may be deciding factor in approving a bailout.

    “Everybody knows” that 401(k)s and IRAs are not working, especially for those in the lower income brackets. What if everyone also learned that these are not just bad for the individual, but also bad for the economy sui generis?

    Also, if you will note, I said “two things” the first was “It doesn’t seem like much emphasis at all on very serious reform to prevent future unfunding.”

    Bailouts are questionable in the first place. Out of the question if serious reforms aren’t enacted to make them sustainable. “Generosity level” doesn’t appear to be the problem with these private
    plans. Governance is.

    Reply

    • Posted by Tough Love on November 13, 2018 at 9:24 pm

      Quoting Stephen Douglas/EARTH …………..

      “The topic today is possible bailouts for …private… sector pensions. I merely pointed out that the very existence of those pensions helps stabilize the economy.”

      No, in your comment to which I was responding, you were discussing my linked article, and quoting from that comment from you :

      “The link you just referenced suggests an actual workable pension reform, which maintains the DB format, but more sustainable, and may or may not include pension reductions where they are appropriate.”

      which was indeed directed at PUBLIC Sector Plans.
      ——————————-

      Where we agree is where you stated …………………

      ““Generosity level” doesn’t appear to be the problem with these private
      plans.”

      I agree for BOTH MEP (Union) Plans AND Single employer Corporate-sponsored PRIVATE Sector Plans, but an EXCESSIVE “generosity level” is ABSOLUTELY ……..THE problem (and the ROOT CAUSE of the pension mess) …… for PUBLIC Sector Plans.

      Reply

    • Posted by Tough Love on November 14, 2018 at 10:08 am

      SD/EARTH,

      Below is a DIFFERENT article and right ON (THIS Blog Post’s) topic, MEPs and Bailout Costs. Suggested reading:

      https://economics21.org/split-pensions-blahous

      Reply

  9. Posted by Stephen Douglas on November 14, 2018 at 12:24 pm

    Nobody knew Multi Employer Pensions could be so complicated.

    Reply

    • Posted by Tough Love on November 14, 2018 at 9:07 pm

      DB pension Plans are really NOT that complicated.

      What the sponsor/administrator needs to do is:

      (a) provide ONLY a Reasonable level of benefit promises (i.e., generosity” …. which to me means something COMPARABLE to what similarly situated Private Sector workers typically get from THEIR employers),

      (b) value those promised benefits using appropriate but reasonably conservative assumptions (again, using the assumptions/methodology now required of single-employer Corporate-sponsored PRIVATE Sector Plans would meet hat criteria), and

      (c) FULLY fund them EVERY YEAR.

      Reply

  10. Did You Do The Math?

    There appears a commentary in the latest P&I daily (8/9) by W. Gordon Hamlin Jr., titled, “Getting Retirement Solutions Right is a Matter of National Defense”. I saw the headline and got excited because we’ve written about the likely profound social and economic consequences of our failure to provide an adequate retirement for our workers. As I began to read the article I couldn’t help but agree with him that there are three separate but intertwined retirement issues that need to be addressed, and each one is going to be challenging.

    Hamlin cites “the impending meltdown in multiemployer pension plans; the roughly 50% of private-sector workers not in a workplace retirement plan; and the enormous unfunded liabilities associated with public pension plans.” These are the primary issues in a nutshell. However, that is basically where our enthusiastic support came to a halt.

    I’ve been engaged with a team of amazing industry professionals in helping to craft and present the legislation for the Butch Lewis Act, designed to preserve and protect the pension benefits for participants in “critical and declining” status multiemployer pension systems. Without major assistance from the U.S. Treasury through a low-interest rate loan program, these plans will become insolvent in the next 5-15 years. The actuaries from Cheiron have modeled each of the 114 plans to make sure that the loan could be repaid and the PBGC protected. Only 3 of the 114 plans will need additional assistance from the PBGC, but for a total sum that is about 1/3 what the insurer of last resort would pay if each of these plans defaulted.

    Unfortunately, Mr. Hamlin states, “needless to say, the loans won’t solve many, if any, of the existing problems with each existing plan. Given the existing trouble, how many employers and plans will be able to repay the loans?” Really? How can you make this claim when you haven’t modeled the plans?

    One of the biggest challenges facing these multiemployer plans is the significant cash flow payout that is needed in the near-term to meet the promised benefits of an aging population. The Butch Lewis Act calls for all of the loan proceeds to be used to defease the retired lives. By doing so, the cash flow needs are met. The existing assets and annual required contributions will then be used to meet future plan liabilities, annual interest payments, and the loan repayment in year 30. Again, all but three of these plans can meet these obligations and do so at an annual return on asset assumption (ROA) of ONLY 6.5%. That is right! The required annual ROA used to ensure that these plans meet their obligations is dramatically lower than the ROA currently used by each of these plans.

    Without the loan program these plans will fail, the PBGC’s insurance program will be overwhelmed and collapse, the promised benefits to the participants will not be paid, and in its place, the PBGC will make benefit payments that are roughly 1/8 what was promised. Guess what? These participants will likely fall on to the social safety net, and instead of securing these plans and extending the solvency for decades, we now initiate a pay as you go system for millions of plan participants. Seems like that cost would far exceed anything that the loan program might ultimately cost taxpayers.

    I’d say that the loan program solves all the problems facing these critical and declining funds by improving cash flow to meet near-term benefits, by extending the life of these plans by at least 30 years, by extending the investment horizon for the “risky” assets to capture the liquidity premium, while saving the PBGC in the process. Not bad for one piece of legislation! Congress needs to act and act now. These participants did nothing wrong and they shouldn’t be harmed in this process.

    Reply

    • Posted by Tough Love on November 15, 2018 at 12:11 am

      OMG …………….. Do you think because you ramble on with the L*O*N*G comments, that they become any MORE persuasive to those who HAVE A BRAIN ?

      In THIS comment, you correctly point out a retirement crisis-of-sorts, quoting:

      ” I saw the headline and got excited because we’ve written about the likely profound social and economic consequences of our failure to provide an adequate retirement for our workers.”

      The trouble is, while Public Sector workers are “pigs-in-shit” (enjoying in VERY generous pensions & benefits), THAT “crisis” in your above quote is impacting ALL Private Sector workers, NOT the very SMALL % of Private Sector workers who are participantsin MEP PLans.

      So WHY should the large % of Private Sector workers NOT in Mep Plans (MOST of whom have no DB Plans AT ALL) pay MORE in taxes to bailout the small % who ARE in MEP Plans ?

      Answer ………. they shouldn’t…….. PERIOD !

      Reply

  11. Round Two

    I am pleased to report that the Butch Lewis Act presentation to the Senate staff went well yesterday. This follows the presentation to the House staff last Friday. Both meetings were well attended, and the audience was engaged while asking many good questions. Importantly, these presentations were delivered prior to the first meeting being held by the Joint Select Committee on the Insolvency of Multiemployer plans, which is to meet today in Washington DC.

    The Butch Lewis Act should be the foundation of any legislation that emanates from this Committee. There are many benefits to this legislation. But first and foremost it is intended to preserve and protect the pension benefits for roughly 3.5 million plan participants currently in plans designated as “Critical and Declining”. Furthermore, it is the only proposed legislation that does not call for a benefits reduction.

    Benefits from the Butch Lewis Act and the Pension Rehabilitation Administration

    Enhances Solvency while reducing risk

    Maintains current benefit levels
    Secures Retired Lives thru Defeasance strategy (100% funded)
    Defeasement funded thru PRA loan (and in a few cases the PBGC)
    A Significant shift within the Plan’s asset allocation to greater use of fixed income

    Reduces Cost to fund Retired Lives

    Three possible strategies to defease the Retired Lives
    Cash Flow Matching, Duration Matching, and Annuities
    Cash Flow Matching approximately 9% less costly than Annuities
    Asset Management fees reduced from 30-40 bps on average to 10 bps

    Buys Time for the pension plan and plan participants

    Current assets + contributions fund Active Lives + PRA Loan
    Much longer liabilities than Retired Lives
    Given time, risky assets tend to perform (capture liquidity premium)

    Reduces ROA Hurdle Rate

    Replaces Retired Lives ROA (@7.50%) with PRA Loan (@3%)
    Defeasement cost savings transferred to current assets
    Asset management fee savings supports current assets
    The savings help fund future liabilities and the repayment of the loan

    PRA Loan Should be Profitable

    PRA receives 30-year Treasury financing (@3%) into Trust Fund
    Trust Fund provides PRA loans at 25 bps yield spread profit
    25 bps spread = $2.5 million profit margin per $1 billion loan
    $60 billion PRA loans = $150 million profit margin annually

    On the other hand, the Butch Lewis Act is neither a “bail-out” nor a windfall for Wall Street. These loans must be paid back, and current contribution levels must be sustained or there are severe withdrawal penalties levied on the plans/employers. In addition, the significant shift within the plan’s asset allocation toward greater use of fixed income will significantly reduce asset management fees. For most of these plans, Retired Lives make up more than 50% of the liabilities, which means that more than 50% of the assets will now be allocated to fixed income, which carries much lower average asset management fees than do equities, real estate, alternatives, etc.

    Reply

    • Posted by Tough Love on November 15, 2018 at 12:15 am

      Rarely have I seen such a one-side, biased view on an issue ……… and from someone, a ME-Plan-participant told that his pension will be reduced.

      Hardly a UNbiased viewpoint.

      Reply

  12. Less Than one-eighth!

    Why are we supporting so vigorously the Butch Lewis Act? Primarily because we are fearful that hardworking participants in failing multiemployer plans will not receive the benefits that they earned through their hard work and years of dedicated service. In fact, they likely won’t earn the minimum “guaranteed” payout should these “critical and declining” plans eventually become the responsibility of the Pension Benefit Guaranty Corporation (PBGC). Outrageous!

    PBGC Executive Director Thomas Reeder claimed in testimony before the Congressional Joint Select Committee on the Solvency of Multiemployer Plans that the PBGC “is in such financial dire straits that members of failed multiemployer pension plans would likely receive only one-eighth of the minimum benefits they are supposed to be guaranteed.”

    As you may recall from previous blog posts, participants in multiemployer plans supported by the PBGC get a protected “benefit” that is already about one-fifth that of a participant in a single-employer plan. A further reduction of this potential magnitude would obviously be devastating.

    During the hearing, Reeder was asked if the PBGC would be able to provide the minimum guaranteed benefit to failed plan members without congressional action (such as passing the Butch Lewis Act), and he responded “no”. He estimated that the PBGC would have to cut participant benefits to about one-eighth the minimum benefit, or less. “If they’re making $8,000 in guaranteed benefits today, they’d get less than $1,000,” said Reeder. That would be an annual payout, not monthly, as full minimum payment for a 30-year employee is only $12,800 under the PBGC’s minimum guarantee.

    Reply

    • Posted by Tough Love on November 15, 2018 at 12:25 am

      Quoting …………..

      “Why are we supporting so vigorously the Butch Lewis Act? Primarily because we are fearful that hardworking participants in failing multiemployer plans will not receive the benefits that they earned through their hard work and years of dedicated service. ”

      That’s understandable, but as I stated above …………….

      “……. with Taxpayers NOT being a party-of-interest (in any way) regarding your pension-arrangement between your Union and the participating companies, please tell me WHY Taxpayers should “bailout” YOUR pension when nobody is making good the losses (i.e. “bailing them out”) that MANY of these SAME taxpayers suffered in their own (mostly 401K-DC) retirement Plans.”

      ——————

      And that 1/8 is like yelling “fire” in a movie theater…… to be shocking.

      With the quite LOW maximum payouts under the PBGC for MEP Plans, dollars-to-donuts, the Treasury will prop it up AS-NECESSARY as funds run out.

      And YES, I would support THAT, but NOT the MEP “loan” (aka BAILOUT) proposal under which many MEP Participants (including YOU) would get a MUCH higher guaranteed payout (i.e. your FULL pension), even if MUCH higher than the PBGC MEP maximum ………… and WRONGLY screwing OTHER taxpayers to pay for it.

      Reply

  13. Posted by Stephen Douglas on November 15, 2018 at 1:20 pm

    “OMG …………….. Do you think because you ramble on with the L*O*N*G comments, that they become any MORE persuasive to those who HAVE A BRAIN ?”

    LOL!!! Pot, meet kettle.

    Thank you for your input, Mr. Anderson. It is an extremely complicated financial, legal, and moral problem. I particularly appreciate the way you discuss the matter without resorting to insults.

    There are experts on both sides of whether this is a loan or a bailout, and if a bailout, whether that is “fair” or economically sound.

    Without going back through all the (long) comments, it appears that even TL concedes the potential cuts are through no fault of those affected, but are a matter of private dealings between employers and employees, therefore not to be a burden to the “taxpayer”.

    I think it is more complicated than that. There are factors outside the spreadsheet that should be considered.

    If it is any consolation, Tough Love actually has no vote on this. Only opinions.

    Reply

    • Thank You Stephen, I’m about done here. I made the mistake, of just looking for any new Multi Pension developments and engaged in the conversation, I guess you call it. But what’s funny is that most of my posts here are copy of posts from Russ Kamp & Ron Ryan. Not your average blogger but assisted in the creation of the BLA. A little research on their credentials show they are the true EXPERTS here. I’m just a lowly CSPF pensioner that when the SHTF and WE were issued our benefit reduction letters under the MPRA. Just as others did, tried to find help to understand what it all meant. After 30 years on the Dock @ Consolidated Freight, and after twelve orthopaedic surgeries was forced into retirement. WE started a pure grass rooted movement of around “60” different regional groups or committees, of which I was called with my “Teamster Pension Crisis” on FB page to be the Social Media Out Reach page. That was Oct 15th 2015, now after three years of the fight we won our first battle, the MPRA of 2014 application to the Treasury for benefit reductions… Was rejected by Special Master Mr. Ken Fienberg, May 6th 2016. So the first and largest to be CUT did not pass the test, so WE get our benefits until they run dry around Jan 2025. WE tried with KOPPA legislative possibility twice, then the Butch Lewis Act for the past year. The JSC has a deadline of Nov 30th to find consensus, or not…Big week in DC as pensioner reps from 35 groups are in DC, about 150-180 of them walking the halls with matching attire. My own home group, Kansas City, of which I co-direct had their Monthly Rally today, and special guest speakers Russ & Ron were teleconferenced in. Like I said, I knew better than to engage here, so had to learn again. Feel free to come to TPC page and we’ll show you around from there on what is different than the Public Pension Crisis that’s already upon us. But my Humble $3,000 Monthly is all from our deferred wages. So it is a very big deal. The way others talk of tightening up our belts is terribly judging of others IMHO. I’m disabled and also my Wife, life was not easy on us, the stress of living check to check is hard. WE have had two confirmed suicides from the stress involved. Then I read about some public pensions being tabulated on the amount of the last years work, padded up so $100,000 is common, and $300,000 benefits are not un-common. WE call that extravagant. My greatest fear is losing my HOME. Our POLING shows that over 80% in pay status are living check to Monthly check, so any amount of more shared sacrifice beyond what we’ve already endured would financially ruin us…I really appreciate your welcoming comments. I’ll be on the side reading and gathering info, but won’t be a target. Seems this notion of BAIL OUT is hard to break out of, no matter who says different, but your invited to our TPC page to see our point of view and how we have learned to be activist in our advancing age. WE are approaching 3100 Posts and have about the same in likes. WE reach out to other multi plans who are living with insolvency and reductions, the PBGC needs to just be done away with. There is a very noticeable discrimination of Single payer @ $64,432 annual Gov’t back up, compared to out $12,870 annual promise. Like buying car insurance that only pays 30% of repair costs, or IF used by CSPF would instantly bankrupt the PBGC as they are near insolvent also in the same time span.

      Reply

      • Posted by Tough Love on November 16, 2018 at 3:05 am

        Quoting ……………….

        “But my Humble $3,000 Monthly is all from our deferred wages.”

        Gotta laugh at comments like THAT.

        A question …………. were your wages LOWER than those NOT in a Union like yours but doing comparable work?

        I doubt it …………. so no, you were likely paid MORE than a “fair” (i.e., non-Union-influenced) wage, and your “promised pension” wasn’t really “deferred compensation”, but icing on the cake.
        ————————————-

        If your Plan fails, you SHOULD be able to get whatever the PBGC rules call for, but not $1 MORE via a taxpayer-funded BAILOUT (even if called a “loan” …… because anyone with more than a 6-th grade Math education knows that any such “loans” will never be paid back and Taxpayers will be stuck with the bill).

        Reply

  14. Posted by Tough Love on November 15, 2018 at 5:42 pm

    Quoting ……………..

    “Without going back through all the (long) comments, it appears that even TL concedes the potential cuts are through no fault of those affected, but are a matter of private dealings between employers and employees, therefore not to be a burden to the “taxpayer”. I think it is more complicated than that. There are factors outside the spreadsheet that should be considered.”

    No, It’s NOT more complicated than that (and clearly has NOTHING to do with a “spreadsheet”). The Taxpayers were not involved … IN ANY FORM ….. and should NOT be the source of funds for a “bailout”.

    Reply

  15. Posted by Stephen Douglas on November 15, 2018 at 8:17 pm

    You forgot to say…

    Reply

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