Pension blues...

[LARS]

Is this yet another canary in the coal mine moment?

Central States Pension fund, which covers over 250,000 retirees, has said it will be insolvent by 2025, which under new law allows them to file to cut benefit payouts if approved by Treasury.

Any which way you look at this it isn't good news...

https://www.washingtonpost.com/news...n-funds-could-soon-cut-benefits-for-retirees/

Link to actual application:

https://www.treasury.gov/services/Pages/central-states-application.aspx


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[Chuckanut]

The finger of blame can be pointed all over the place, but the reality is still the same: The working person needs to look out for his/her own financial health and not trust any employer, any union, or politicians to do the right thing.

IMHO, a younger person setting out in our society today, should get the money an invest it in ways that only he/she has control over. Granted the government could change the rules or an exogenous event could cause economic calamity, but one can only do a certain amount.

Oh, and make sure your employer is part of SS. Or use the money that would have been given to SS (yours and the employers share) and invest it wisely. Learn from Detroit. My 2¢. Take what you want and leave the rest.

 

[Options]

Read this yesterday. Anyone over 75 is "safe". Under 75 is up to the discretion of the plan, IIRC. Special provisions for widows, others. I'm personally glad a pension doesn't figure into my calculations.

 

[jdmorton]

The problems with the Central States Pension (CSP) have been in the news for at least 6 years. Here's a link to an article from July 2013 that contains some history of the problem and how certain assumptions and events over the years have led to the current crisis, including:

1. When the Pension Benefits Guaranty Corporation (PBGC) was created back in 1974 it did not cover multi-employer pension plans because it was believed such plans could never become insolvent.

2. When PBGC did start covering multi-employer pension plans, the plans were only required to pay $0.50 (50 cents) per covered individual per YEAR.

3. UPS was allowed to pull out of the CSP plan in 2007, although the company had to pay over $6 billion dollars to do so. According to this article, the financial crisis of 2008 wiped out much of that contribution. UPS was 10 times the size of any other company with 44,000 employees.

4. Interestingly, this article states that - unlike the CSP - the Western States Pension plan was considered "in good shape" back then (and presumably today) because it allowed a broader base of companies to join its pension plan than did CSP even though it suffered similar losses of trucking companies.

As others have noted, it is a sad state of affairs for those employees covered by the CSP.

Article Link: http://www.benefitspro.com/2013/07/...-crisis?slreturn=1461254221&page=4&page_all=1

 

[LARS]

The problems with the Central States Pension (CSP) have been in the news for at least six years.
URL]

What makes it very newsworthy today is that it is the first sizable pension fund to file under new 2014 change in law. How Treasury deals with this will be interesting, both for retirees in substantially underfunded pensions and/or the US taxpayer.



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[pb4uski]

....UPS was allowed to pull out of the CSP plan in 2007, although the company had to pay over $6 billion dollars to do so. According to this article, the financial crisis of 2008 wiped out much of that contribution. ....

The plan must have panicked or done something truly stupid then, most well run portfolios are way better off today despite the financial crisis.

 

[jdmorton]

LARS - Oh, I agree it is quite newsworthy. I was just pointing out it has been reported on for a rather long time. I believe the article I linked indicates CSP was lobbying Congress to make changes to the law so it could file to cut benefits. If so, it is not surprising they are now filing under it.

pb4uski - It would be interesting to see what actions CSP did to 'lose" the UPS payment. Was it bad luck, poor advice, imprudent investing, or spent on something else other than on what it should have been...

 

[heyyou]

It is likely graft, expensive investing fees, chasing hot investments, and promising higher benefits to get votes to stay in office. The Western States Teamster Plan was busted for being so crooked in the 1970s? that a federal judge was looking over their shoulder for the next 30? years. The Central States Plan has been going broke for a long time and did not have the federal oversight. The trustees of union pension funds are people who used to be hourly workers at organized companies. No education or financial knowledge required to be appointed to those positions, just be popular with the hourly workers who vote for them to be union officials, then higher union officials appoint them.

 

[pb4uski]

If that is the case then....You reap what you sow.

 

[MichaelB]

It is my understanding that the Central States Pension fund investment management is run entirely, and independently, by Wall Street firms, primarily GS, who are not subject to oversight by the board's trustees.

 

[mrfeh]

The people that have run these pensions into the ground should be prosecuted.

 

[LARS]

The people that have run these pensions into the ground should be prosecuted.

Why stop there. The leaders (so called - on both sides of the table) that agreed to unsustainable pension demands, and had to know they were, are equally culpable in the country's pension mess.

The so very sad part is that workers understandably relied on estimates of unrealistic future payments for planning purposes. Thus many didn't save more, never realizing they could realistically be looking at 30 to 40% haircuts on pension payments.

The problem with prosecution is that you cannot jail people for stupidity/greed, which the US government recently said was a reason for so few prosecutions arising out of the 2008 crisis.



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[heyyou]

Central States Pension fund investment management is run entirely, and independently, by Wall Street firms, primarily GS, who are not subject to oversight by the board's trustees.

IIRC, in the late 1990s from Mutual Fund magazine, Goldman Sachs had an S&P500 index fund with an annual fee of 1%. So yes they did have the hot mutual fund, the 500 index fund, but it was not low cost, it was the highest cost 500 index fund on the list sorted by expense ratios. GS stock might be a good investment, but being a GS customer is not.

 

[jazz4cash]

Mis-management

........as well as corruption
Lots of turmoil in the trucking industry including unintended consequences resulting from deregulation. Many pensioners worked for companies that are no longer in business. Even Gov't pension plans don't work if employers don't make the required contribution......

Instead, many businesses in the plan failed to make their contributions or to pay fees triggered by withdrawing from the plan. Often, it was because they went out of business. Central States lists more than 1,200 employers that left behind unfunded pension benefits.
They essentially orphaned workers, and the name has stuck. Central States says 99,400 of its 400,000 participants are tied to these orphan companies. It exposes their benefits to some of the steepest cuts to keep the plan alive.

Who will do right by the Teamsters’ broken pension promises? | The Kansas City Star
​

 

[ChiliPepr]

The people that have run these pensions into the ground should be prosecuted.

Why stop there. The leaders (so called - on both sides of the table) that agreed to unsustainable pension demands, and had to know they were, are equally culpable in the country's pension mess.

IIRC, in the late 1990s from Mutual Fund magazine, Goldman Sachs had an S&P500 index fund with an annual fee of 1%. So yes they did have the hot mutual fund, the 500 index fund, but it was not low cost, it was the highest cost 500 index fund on the list sorted by expense ratios. GS stock might be a good investment, but being a GS customer is not.

Seems like there is a lot of blame going towards GS and the banks for this... What was the returns of this fund over the last 10 years? If this fund returned 5% a year, can you blame GS? In 2015 I see almost 8% withdrawn from the fund in payments, who here would trust a 8% withdrawal rate?

 

[ChiliPepr]

........as well as corruption
Lots of turmoil in the trucking industry including unintended consequences resulting from deregulation. Many pensioners worked for companies that are no longer in business. Even Gov't pension plans don't work if employers don't make the required contribution......

Instead, many businesses in the plan failed to make their contributions or to pay fees triggered by withdrawing from the plan. Often, it was because they went out of business. Central States lists more than 1,200 employers that left behind unfunded pension benefits.
They essentially orphaned workers, and the name has stuck. Central States says 99,400 of its 400,000 participants are tied to these orphan companies. It exposes their benefits to some of the steepest cuts to keep the plan alive.

Who will do right by the Teamsters’ broken pension promises? | The Kansas City Star
​

After reading that, I definitely think GS is down the list on people at fault for this failing... if they should be on the list at all.

 

[jdmorton]

Update - Treasury Denies CSP Application for Reduced Benefits

Saw a new thread on bogleheads.org regarding the Central States Pension (CSP) woes that the Treasury Department denied CSP's application for reduced benefits under the Multiemployer Pension Reform Act of 2014, in a letter dated May 6. Here is a link to a .pdf copy of the Treasury's letter in its entirety from the CSP Pension Rescue web site:
http://www.cspensionrescue.com/wp-c...ng-Denial-of-Proposed-Pension-Rescue-Plan.pdf.

According to the CSP rescue plan web site, the next steps are being evaluated but believe "the rescue plan provided the only realistic solution to avoiding insolvency."

 

[Big_Hitter]

^ I read that last week and thought it particularly scathing

 

[MichaelB]

Saw a new thread on bogleheads.org regarding the Central States Pension (CSP) woes that the Treasury Department denied CSP's application for reduced benefits under the Multiemployer Pension Reform Act of 2014, in a letter dated May 6. Here is a link to a .pdf copy of the Treasury's letter in its entirety from the CSP Pension Rescue web site:
http://www.cspensionrescue.com/wp-c...ng-Denial-of-Proposed-Pension-Rescue-Plan.pdf.

According to the CSP rescue plan web site, the next steps are being evaluated but believe "the rescue plan provided the only realistic solution to avoiding insolvency."

Great link, thanks! Great read, too, for anyone interested in pensions and funding / solvency.

 

[Big_Hitter]

Here is the rebuttal:


Central States: Rescue Petition Denial Faulty, Avoidable | Bloomberg BNA


"The Treasury Department's decision to reject the Central States pension fund's rescue petition was based on faulty conclusions and was avoidable, a fund official said."

 

[MichaelB]

Interesting. Another good link. Thanks!

This is a real killer for me

Nyhan said the fund also took issue with Treasury's conclusion that the fund's use of a 7.5 percent interest rate assumption was unreasonable and overly optimistic. This conclusion led to the department's finding that the fund hadn't shown that its application was likely to lead to the plan's solvency within 10 years.

It is important to note, Nyhan said, that if the fund had used a lower investment rate of return, which is what Treasury said it should have done, the result would have been “much deeper cuts to benefits than were contained in the rescue plan.”

In other words, we used a higher rate because a lower rate wouldn't work.

Treasury spells out it's position very clearly. The CSP is using a rate of return that is too optimistic, based on what their own third party surveys are suggesting they use. They have nowhere to go.

 

[Running_Man]

It is not true they have nowhere to go, the plan has got to propose cutting the pension even more deeply than it did, it is the only option Treasury has given them. So they will probably be back with 75% cuts in the pensions, which from what I am reading is still more than if the PBGC takes it over as 1K per month is maximum PBGC will pay multi-employer plans. This is the first of a trend and it is being set up as an example I think for state plans and Puerto Rico on what the Treasury position is on pensions and level of pension cuts they feel need to be made.

 

[Running_Man]

What was interesting is that UPS got out of the pension fund with a 6.1 Billion dollar payment avoiding the 600 million per year it was paying into the fund and then fund promptly lost 60% of that money in the market debacle of 2008-9. At that point the UPS employees were then 40% funded, as the funds were only for retired UPS workers as UPS took the working employees with them and so there was no way no matter how good the market did with the high withdrawal rate that Central States could ever pay those pensions.

 

[MichaelB]

It is not true they have nowhere to go, the plan has got to propose cutting the pension even more deeply than it did, it is the only option Treasury has given them. So they will probably be back with 75% cuts in the pensions, which from what I am reading is still more than if the PBGC takes it over as 1K per month is maximum PBGC will pay multi-employer plans. This is the first of a trend and it is being set up as an example I think for state plans and Puerto Rico on what the Treasury position is on pensions and level of pension cuts they feel need to be made.

When I said "nowhere to go" I was referring to their rebuttal of the Treasury rejection. Yes, they need to go back and change the proposal.

 

[dixonge]

Is this yet another canary in the coal mine moment?

In your analogy, what is the coal mine?