July 24, 2009: ANAHEIM, Calif.—Most employers' defined benefit pension plans are in trouble and need government help, C. Thomas Keegel, general secretary-treasurer of the International Brotherhood of Teamsters said July 22.
Speaking at the 27th annual Labor and Employment Law Conference, presented by National Labor Relations Board Regions 21 and 31, Keegel called for an amendment to the Pension Protection Act to allow for a 30-year amortization of plans' unfunded liabilities.
The federal government's deregulation of the trucking industry decades ago caused a significant loss in trucking jobs when companies went out of business, Keegel said. He added that for companies with multi-employer plans still responsible for providing pension benefits, the federal government should create a new plan to cover those “orphan” workers who lost their jobs.
Currently, in the Teamsters Central States Pension Fund, there are more than three retirees for every active worker, Keegel said.
Both a longer amortization period for unfunded liabilities and a federal takeover of orphan workers have already been broached with members of Congress, but given the intense focus in Washington on health care reform, any federal relief for pension plans probably would not happen before autumn at the earliest, two practitioners said.
In addition, the call for a 30-year amortization period for plans' unfunded liability could run into resistance in Congress as an appearance of weakening the PPA, according to Cary Franklin of Horizon Actuarial Services LLC in Los Angeles. An alternative proposal has called for a 30-year amortization of plans' 2008 investment losses, he added.
An argument could be made that the Pension Benefit Guaranty Corporation would have ultimately taken over the orphan workers if they had been members of a single-employer plan, Charles Storke, an attorney with Trucker Huss in San Francisco, said.
Franklin and Storke, speaking on a separate panel at the conference entitled “The Pension Meltdown,” said plans in 2008 experienced the worst investment returns in U.S. pension plan history and warned that most plan sponsors faced the prospect of significantly higher contributions, as well as the possibility of reduced benefits, at a time when they could least afford it.
If the multi-employer plans still providing those orphaned workers retirement benefits were to fail, largely as a result of the huge liability those workers represent, PBGC almost certainly would have to assume the responsibility, Storke added.
However, given the multi-billion dollar liability any such takeover would entail, PBGC could only do so if the federal government stepped up with funding, Franklin said.
Some 80 percent of plans covered by the PPA in 2008 were in the “green” zone, meaning they were reasonably well funded and thus were not endangered, Franklin said. A year later, only 20 percent of those plans were in the green zone, “a staggering drop” in just one year, he added.
Given the significant drop in investment income, plan sponsors seeking to cure the problem by simply increasing contributions would have to more than double those contributions, which in many cases is not economically feasible, Franklin said.
Plans may take advantage of a one-year “freeze” in reporting their status under the PPA, but any delay in addressing the widening unfunded liabilities will cause the problem to grow, Franklin and Storke said.
Even if investment markets improve, given the size of the drop in 2008, almost no one believes the plans can “grow their way out” of the problem, they added.
By Tom Gilroy