Pension Risks are Growing

[Tekward]

It makes sense that ZIRP is not just affecting personal nest eggs; pension funds are also falling way behind.

Retirees are facing cuts from the Central States Pension Fund. The proposed cuts to current monthly retirement checks averaged more than $1,400 and ranged from 39.9 percent to 60.7 percent.

Teamster retirees fight massive pension cuts at Kansas City town hall, warn others at risk | The Kansas City Star​

 

[cooch96]

This is a case where federalism works. Some states like Utah will forge a path in pension reform and other states can mimic those reforms to suit their needs.

At the very least the problem is more isolated than if the whole country had the same pension issues.

 

[pb4uski]

Those are rather extreme reductions. What would be interesting to know is why the plan is in this situation. It looks like it is a union managed pension fund of the Teamsters.

While I can sympathize with the pension plan participants, that is one of the perils of muti-employer funds run by a union... if the union underestimates the employer contributions or mismanages the fund then the participants suffer.

 

[nun]

I've never understood why underfunding of pensions doesn't come with criminal charges for fraud or larceny. Unfortunately, the fund is always fully funded by the employees and the employer sees a better immediate use for their contribution; that's either stupid or criminal. If you are in a pension make sure you know the level of employer funding.

 

[Big_Hitter]

This is a case where federalism works. Some states like Utah will forge a path in pension reform and other states can mimic those reforms to suit their needs.

At the very least the problem is more isolated than if the whole country had the same pension issues.

multiemployer pension cuts are part of a federal law, not state law

 

[Big_Hitter]

I've never understood why underfunding of pensions doesn't come with criminal charges for fraud or larceny. Unfortunately, the fund is always fully funded by the employees and the employer sees a better immediate use for their contribution; that's either stupid or criminal. If you are in a pension make sure you know the level of employer funding.

due to extensive lobbying, multiemployer pension plans have operated under a separate set of rules (from corporate plans) since 1974

 

[Big_Hitter]

Those are rather extreme reductions. What would be interesting to know is why the plan is in this situation. It looks like it is a union managed pension fund of the Teamsters.

While I can sympathize with the pension plan participants, that is one of the perils of muti-employer funds run by a union... if the union underestimates the employer contributions or mismanages the fund then the participants suffer.

you can look up the plan's funding history by browsing the 5500s on the DOL website, just google EFAST lookup it will take you there

 

[NW-Bound]

From the article:

Central States has told its retirees that the cuts are needed because without them the fund will run out of money in 2026 and be unable to pay any benefits.

“We simply can’t stay afloat if we continue to pay out $3.46 in pension benefits for every $1 paid in from contributing employers,” said letters the fund sent to retirees facing the cuts.

I guess that's one of the perils from a "pay-as-you-go" program. I'd rather have my own pile of money to manage, though it will not escape the vagaries of the market return either. However, I will be more informed of impending doom and hopefully able to adapt before it becomes too late.

 

[Big_Hitter]

From the article:



I guess that's one of the perils from a "pay-as-you-go" program. I'd rather have my own pile of money to manage, though it will not escape the vagaries of the market return either. However, I will be more informed of impending doom and hopefully able to adapt before it becomes too late.

multis aren't paygo, they require pre-funding and an annual actuarial certification

 

[pb4uski]

you can look up the plan's funding history by browsing the 5500s on the DOL website, just google EFAST lookup it will take you there

I'm not that curious about it

From their website they are blaming it on bankruptcies and withdrawals and that may well be a factor but I'm somewhat skeptical in that it seems to me that is unlikely that the directors of the fund (which I suspect is the union) would concede that they didn't charge enough or that they didn't anticipate employer bankruptcies and withdrawals. According to the FAQ on their website their investment results have been about average.

It looks like... participants hitched their wagon to the union... union messed up with some help from unfavorable economic changes... participants get shortchanges as a result of union mistakes.

A variety of factors led to Central States Pension Fund’s dire underfunding problem:

• The deregulation of the trucking industry in the 1980s resulted in the loss of more than 10,000 employers that used to contribute to the Fund. The challenges in our industry continue today, and we’ve experienced the loss of many employers even in the past five years.
  
• Many employers went bankrupt or out of business without making their full contributions to the Fund. About half of all benefit payments currently go to “orphaned” retirees, whose employers never fully paid the Fund to cover their pensions. Since 2008, Allied Systems, Hostess Brands and Leaseway/E&L Transport went bankrupt, leaving the Fund short $1.7 billion. Recently, employers such as YRCW have substantially scaled back their contributions and many other employers have withdrawn completely.
  
• Baby Boomers are retiring in record numbers and the union workforce has been steadily declining for years. As a result, for every $3.46 that the Fund pays out in pension benefits, only $1 is collected from employers, resulting in an annual shortfall of $2 billion. That math simply doesn’t work.
  
• Additionally, two major recessions since 2000 torpedoed the U.S. economy, driving down the Fund’s investment assets and pushing many contributing employers out of business or into bankruptcy.

If action is not taken soon to address this funding problem, by 2026, Central States Pension Fund will run out of money and be unable to pay any benefits to current and future retirees.

Central States Pension Fund’s average annual investment return since 1980 is 10.8 percent, which is in line with returns of other comparably sized funds. Over the past 10 years, our investment returns have averaged 7.1 percent, which is above the 6.9 percent average for pension funds of similar size.

 

[Big_Hitter]

withdrawing employers in these plans are required to pay what's called a "withdrawal liability". I guess if they go bankrupt they don't have to pay?

 

[pb4uski]

Agree... I just wonder how vigilant the union was in monitoring the companies financial strength to anticipate bankrupticies and demanding payments from the companies (suing if necessary). Perhaps they were and were just a victim of bad circumstances or perhaps they did a poor job of managing the fund, anticipating future contributions, addressing underfunding, etc. and that neglect has come home to roost.

I guess no matter how you cut it that the blame lay with the union and/or some of the employers and the plan participants are the ones who will pay for it.

 

[NW-Bound]

multis aren't paygo, they require pre-funding and an annual actuarial certification

The actuarial calculations may not anticipate company bankruptcies, union membership drop, lower return of investments, etc...

And they still count on continuing money coming in, unlike my own savings that has no more fresh money and the income generated is 100% dependent on fluctuating market returns.

 

[jazz4cash]

It makes sense that ZIRP is not just affecting personal nest eggs; pension funds are also falling way behind.

Retirees are facing cuts from the Central States Pension Fund. The proposed cuts to current monthly retirement checks averaged more than $1,400 and ranged from 39.9 percent to 60.7 percent.

Teamster retirees fight massive pension cuts at Kansas City town hall, warn others at risk | The Kansas City Star​

How do you think ZIRP comes into play?


Sent from my iPhone using Early Retirement Forum

 

[hnzw_rui]

The actuarial calculations may not anticipate company bankruptcies, union membership drop, lower return of investments, etc...

And they still count on continuing money coming in, unlike my own savings that has no more fresh money and the income generated is 100% dependent on fluctuating market returns.

The actuarial assumptions on investment returns is the big question mark. If the pension is 100% funded, that means there should be enough assets in the trust to pay all current and future pension obligations using just existing assets and investment returns with no further cash inflow.

Alas, the assumed 7-8.5% investment returns are a tad bit optimistic and I doubt many pension funds are 100% funded even at those returns. It's the high estimated returns and unfunded accrued actuarial liabilities that makes the pension fund sensitive to bankruptcies, membership drops, etc.

 

[Big_Hitter]

If the pension is 100% funded, that means there should be enough assets in the trust to pay all current and future pension obligations using just existing assets and investment returns with no further cash inflow.

incorrect. If the plan has assets equal to the plan's target (unit credit accrued) liability, then that means, if all actuarial assumptions are met, the plan has enough assets to cover accrued (past) pension benefits. There are still future service benefits to fund unless the plan is frozen.

 

[unclemick]

I suspect we'll being hearing more in coming decade from other pension funds.

heh heh heh - We're not a quiet bunch.

 

[Tekward]

How do you think ZIRP comes into play?

ZIRP leads to assuming increased risk in pursuit of yields. Some good discussions here:

ZIRP slowly killing Pension Funds

 

[hnzw_rui]

incorrect. If the plan has assets equal to the plan's target (unit credit accrued) liability, then that means, if all actuarial assumptions are met, the plan has enough assets to cover accrued (past) pension benefits. There are still future service benefits to fund unless the plan is frozen.

Yep. I was unclear in my earlier post. By current and future pension obligations, I just meant accrued liabilities as of that point in time (pension benefits currently being paid to retirees and pension benefits that will be paid in future for vested members).

 

[marko]

If you are in a pension make sure you know the level of employer funding.

My pension was fully funded. Then the company was acquired.

Not sure of the exact details but--and this could be wrong--but the new company fired a ton of old timers who had heavy pensions.

Everyone decided to take their lump sums...usually in the $500K to $800K range each (I was one of them) and the belief is that the fund was no longer fully funded as a result. Not sure of how or why exactly, but pensions have been discontinued and the remainder is no longer fully funded.

I have been told that more recent retirees can no longer take lump sums and must rely on monthly payouts.

A lot of hearsay and I could be mistaken in the details, but I'm just happy to have taken the money and run.

 

[nun]

My pension was fully funded. Then the company was acquired.

Not sure of the exact details but--and this could be wrong--but the new company fired a ton of old timers who had heavy pensions.

Everyone decided to take their lump sums...usually in the $500K to $800K range each (I was one of them) and the belief is that the fund was no longer fully funded as a result. Not sure of how or why exactly, but pensions have been discontinued and the remainder is no longer fully funded.

I have been told that more recent retirees can no longer take lump sums and must rely on monthly payouts.

A lot of hearsay and I could be mistaken in the details, but I'm just happy to have taken the money and run.

There is a lot of dubious dealing in pensions. If those dealings are protected by law then it's just another example of the little guy getting..."insert appropriate verb". Mismanagement and larceny seem to be very common. What happened to the fiducial responsibilities of the trustees? There's been some bad dealings with my pension, but nothing catastrophic and there is a commitment backed up by legislation to get it's funding up to 100% by 2030 and each year the employer (MA) is putting in more than required to make up for previous low funding years and the pension fund trustees are pretty good. It's at 70% funding currently.

 

[Car-Guy]

There is a lot of dubious dealing in pensions.

it's just another example of the little guy getting..."insert appropriate verb". Mismanagement and larceny seem to be very common.

What happened to the fiducial responsibilities of the trustees?

For some reason, when I read these comments, I thought you were talking about social security.

 

[Big_Hitter]

My pension was fully funded. Then the company was acquired.

Not sure of the exact details but--and this could be wrong--but the new company fired a ton of old timers who had heavy pensions.

Everyone decided to take their lump sums...usually in the $500K to $800K range each (I was one of them) and the belief is that the fund was no longer fully funded as a result. Not sure of how or why exactly, but pensions have been discontinued and the remainder is no longer fully funded.

I have been told that more recent retirees can no longer take lump sums and must rely on monthly payouts.

A lot of hearsay and I could be mistaken in the details, but I'm just happy to have taken the money and run.

Pre-2008, the only limit on lump sum distributions were maximum benefit limits and limits on high-25 compensated employees. After PPA became effective in 2008, the plan has to be at or over 80% funded to allow for unlimited lump sum distributions. What I suspect is that your plan had a "run" on it due to all the terminations before the market crash of 2008.

There is nothing wrong with taking a monthly annuity although 10-15 years ago lump sum distributions were very popular.

 

[Car-Guy]

Pre-2008, the only limit on lump sum distributions were maximum benefit limits and limits on high-25 compensated employees. After PPA became effective in 2008, the plan has to be at or over 80% funded to allow for unlimited lump sum distributions.

Am often surprised at what I learn reading this forum. Didn't know about this.

There is nothing wrong with taking a monthly annuity although 10-15 years ago lump sum distributions were very popular.

The fundamentals of this tread (more pensions in trouble, again) is the main reason why I took a lump sum ~4 years ago when I retired.

 

[NW-Bound]

The actuarial assumptions on investment returns is the big question mark. If the pension is 100% funded, that means there should be enough assets in the trust to pay all current and future pension obligations using just existing assets and investment returns with no further cash inflow.

Alas, the assumed 7-8.5% investment returns are a tad bit optimistic and I doubt many pension funds are 100% funded even at those returns. It's the high estimated returns and unfunded accrued actuarial liabilities that makes the pension fund sensitive to bankruptcies, membership drops, etc.

incorrect. If the plan has assets equal to the plan's target (unit credit accrued) liability, then that means, if all actuarial assumptions are met, the plan has enough assets to cover accrued (past) pension benefits. There are still future service benefits to fund unless the plan is frozen.

I will admit to not knowing a whole lot about how pension fund actuarial calculations are made, not having a pension myself. I just observe that whenever a pension problem is discussed in public, the two factors that are often cited are 1) the increase in the ratio of retirees to contributing workers, and 2) actual investment returns being lower than projected.

And the way this has been solved is always 1) reducing benefits to future retirees, and 2) demanding a higher contribution from current workers. So, that led me to think that the original benefit formula was too generous for the amount that was put aside by employees and employers, whatever the cause of it.