This article was published by The McAlvany Intelligence Advisor on Friday, March 3, 2017:
In the 1978 film Superman, Lois Lane is caught mid-air by Superman who says: “Easy, miss. I've got you.” Responds Lois: “You – you've got me? Who's got you?”
Concerning government agencies making promises, the answer is always and everlastingly: the U.S. taxpayer.
For example, consider the 42-year-old government agency backing up single-employer and multi-employer pension plans: The Pension Benefit Guaranty Corporation, or PBGC. Established as part of ERISA – the Employee retirement Income Security Act of 1974 – it was put in place to “encourage” the creation and continuation of voluntary private defined benefit pension plans and guarantee the “timely and uninterrupted” payment of those plans' benefits if one of them failed.
Defined benefit plans provide assurance of a certain sum to be paid out over a certain period of time based upon guarantees as to pay, age, and longevity. If a plan fails to meet its obligations, those covered under the plan suffer the consequences. The PBGC assures that when a plan fails, the U.S. taxpayer suffers the consequences.
Currently the PBGC has $164 billion in obligations and just $88 billion in assets to back them up. And those obligations are coming due. Consider the Teamsters Local 707's pension plan, which covers 4,000 truckers. In 1999 it was fully funded, but the Dot.com bubble, 9/11, the Great recession, and Yellow Freight all combined to spell its doom. In February it became the first multi-employer pension plan to go broke and place its retirees' future checks onto the back of the PBGC. Said its director, Tom Reeder:
This is a big issue for us. It's a big issue for Local 707 and it's a big issue for others in the same situation across the country.
We're projected to run out of money in eight to 10 years. Many union pension plans are projected to run out in 20 years.
The federal insurance agency is now paying out $1.7 million every month to the stranded retirees of Local 707.
Local 707's problems have been decades in the making. The economic events mentioned above cut into the plan's assets massively. The near-bankruptcy in 2009 of Yellow Freight, one of the plan's largest members, not only forced its employees, including its Teamsters drivers, to take massive pay cuts, it also eliminated its ability to fund its pension plan for 18 months. And when those payments into the plan restarted there were at just 25% of the previous rate. Mathematics took over: 707's plan was paying out $48 million to retirees every year while taking in just $7.5 million in contributions.
Right behind 707 is the New York State Teamsters Conference Pension and Retirement Fund, which covers 35,000 plan participants. It owes $3 billion, but has only $1.3 billion in the bank.
And right behind it is the Central States Teamsters pension plan, which covers 407,000 participants, with $35 billion in liabilities and less than $18 billion in the bank. And that's just the beginning. As the New York Daily News so eloquently expressed it: “The clock is ticking for [another] 71 penniless union pension plans.”
Ex-truckers are suffering under 707's plan bankruptcy. Tim Chmil put it wryly: “I had a union job for 30 years. We had collectively bargained contracts that promised us a pension. I paid into it with every paycheck. Everyone told us: ‘Don't worry, you have a union job, your pension is guaranteed.' Well, so much for that.”
Chmil's pension was $4,000 a month. Today it's less than half that. And if the PBGC goes broke, it could drop further, to just a little over a hundred a month.
Another ex-trucker, Ray Narvaez, thought he was covered by the plan. He has a certificate that guaranteed him $3,479 a month when he retired in 2003. He even got a 13th month “bonus check” every December, just in time for Christmas. A year ago his check dropped to about $2,000, but now that PBGC is picking up the slack from the empty pension plan, Narvaez now receives $1,170 a month.
PBGC's Reeder sees what's coming, and there's precious little he can do about it. His agency's revenues of $423 million each year come from fees it charges the 22,000 single-employer pension plans and the 1,400 multi-employer pension plans that his agency covers. Those plans “insure” benefits for an estimated 40 million workers and retirees. He can't raise the fees without Congressional approval. He can't reduce the benefits his agency pays out. The mathematics is inevitable. He thinks the PBGC has a few more years before it too runs out of money. That may be whistling past the graveyard.
Ultimately Congress will force Superman to come to the rescue.
New York Daily News: Pension Benefit Guaranty Corporation running out of cash to cover union pension funds
Background on Pension Benefit Guaranty Corporation
ZeroHedge.com: NY Teamsters Pension Becomes First To Run Out Of Money As Expert Warns “Pension Tsunami” Is Coming
New York Daily News: Drained pension fund has retired New York union workers pinching pennies to survive, as doom looms for reserves across U.S.
New York Daily News: Local 707's once booming pension fund runs out of money after 20-year decline from deregulation and bad timing