The Widdershins

Shortened shelf life…

Posted on: March 25, 2014

Good afternoon and happy Tuesday Widdershins. I hope your NCAA brackets survived a weekend of upsets — mine didn’t since it now resembles an overused prop from the Walking Dead.

That squish you are tasting isn't a cream filling...

That squish you are tasting isn’t a cream filling…

Remember the great Twinkies fiasco — five years of bankruptcy with huge cuts in workers’ salaries, then private equity and hedge funds stepping in, then huge management contract fees, then outrageous raises in executive compensation, and then another bankruptcy followed by selling off the brands before they again reappeared on the shelves.

That little free enterprise vignette is about to teach us another lesson. Not something as edifying as “bread making” means two entirely different things to a hedge fund manager and a baker, but something quite scary if you are a pensioner. The whole Hostess debacle is about to teach us when it comes to pensions “promises are not forever”.

A little background first: There are 10,000,000 workers whose pensions are parked in multiemployer pension plans — large investment pools once considered low risk because they don’t rely on the fortunes of a single company. Or at least that’s what their promotional material claimed.

There are hundreds of these multiemployer pension plans that have blown holes in their actuarial forecasts. It’s not rocket science to understand why these businesses want to off-load their pension obligations — and honestly, who would have ever dreamed of people getting older and the possibility of economic recessions?

Surprise, surprise — workforces do get older when you don’t hire younger workers and inevitably there are things called recessions when the watchdogs of the federal government become the lap-dogs of Wall Street.

These multiemployer pension funds are facing enormous shortfalls over the next decade — some estimates are in the neighborhood of $400 Billion. There is a small government agency called the Pension Benefit Guaranty Corporation (PBGC) charged with overseeing the country’s pension plans.

The PBGC was created in 1974 and it oversees the 26,000 single and multiemployer pension plans.  These plans pay premiums to the agency and in turn, the agency uses the premiums to pay workers’ benefits when their employers can’t. It paid out about $3.0 Billion in 2013.

Here’s one of the many rubs, the PBGC only guarantees a maximum benefit of about $1,072 a month for the most senior, highest-paid participants, a fraction of what many of these workers were entitled to for their decades of service and labor.

Okay, let’s hop back to Twinkies for a moment. When Hostess declared bankruptcy, the company’s drivers were in a multiemployer pension fund with some employees of Ottenberg’s Bakery, a family owned business in Baltimore. Needless to say, the Ottenberg folks got really nervous because if Hostess couldn’t meet its obligations, the pension fund would collapse like a deflated cup cake.

The PBGC stepped in — merging the Ottenberg bakery employees into another, stable multiemployer plan, and taking over the pension obligations for the Hostess workers (a prime example of hedge funds benefiting from government redistribution).  This was only the third time the PBGC had stepped in and carved up a pension plan to rescue parts of it.

When this took place, suddenly the PBGC started getting calls from other plans. The message was simple, “What about us?” Trouble is, the agency can’t afford to absorb all the plans that are in trouble so the PBGC is in need of a bailout in order to continue to bail out the failing plans. The agency posted a record $35.6 Billion deficit in 2013. For the austerity crowd populating the pain caucus of the Tea Party, an increase of the premiums seems too much like a tax increase so what to do, what to do?

PromisesThis is where the parade of horrible picks up. There is a coalition asking permission to do what was once unthinkable: Cut benefits to retirees before retirement plans get into trouble. This is HUGE!  By law, employers can’t reduce accrued benefits — heretofore, accrued benefits have been deemed untouchable. Now, that might change.

These pension plans want “flexibility” to act before they run into trouble, but paradoxically this flexibility doesn’t extend to the utility payments, grocery bills, or pharmacies of retirees. In reading about this impending tsunami, not one business article has mentioned the bald-faced fact that the decisions to place retirees’ future well-being in these undercapitalized multiemployer plans are made by the same financial geniuses who are looking for any avenue to pump up quarterly earnings and engorge their own bonuses.

And it doesn’t end there — if these multiemployer plans get the go-ahead to cut benefits, it won’t be long before single-employer plans will demand the same right. In short, it will throw millions of people’s retirements into doubt and completely undermine the whole point of defined benefit retirement plans.

The things with the shortest shelf life these days — promises.

This is an open thread.


6 Responses to "Shortened shelf life…"

Beautifully done, and very close to home. Although I do not have a large state pension, it does make life easier. Sadly, many people (excluding police and fire) worked in lower waged public jobs because of the “security” of future pensions. My heart aches for so many of them who just won;t see much of anything. Somehow, despite the best efforts of my state government, FL’s seems to be reasonably well funded.

I will have no pension at all. As a freelancer I get nothing from any of my employers except payment for hours worked. Of course, as with every industry wages have stagnated for many years. Many editors today make the same amount editors were making 15 years ago. While network profits soar. Discovery Communications, home of Discovery Channel, TLC, Animal Planet, etc., is making billions every year. The head of Discovery made $50 million in 2012. While people who create their content are told that “budgets are tight.” No soup for you!

Nursing has free lancers as well. They always earned a great deal more per hour for providing their own bennies.

Hey y’all. Just checking in briefly. I’m having problems with my laptop and don’t know exactly what it is. I’ve tried doing a system restore and that’s not fixing it. I’m about at this point:

@DYB: I bet if you were on the West Coast doing the work you do, you’d probably have a union and full benefits. They seem to be more organized there, as in union organized.

Great post prolix! I will join the revolution when this all comes down. My hubbie stayed in job for the pension. He made anywhere from 1/3 to 3/4 less than the non-benefit guys. As far as we are concerned, the pension is part of his pay. When they start screwing with tens of millions of baby boomers who have worked their asses off for 40-50 years, these assholes will be sorry.

Sorry to be so scarce today. Thanks for the kind comments.

@1, Chat, I’m with you 110% on the inequity represented in this. The people who are really getting the short end of the stick are those whose retirement was set, they retired and one day they wake up and it is gone except for the thousand dollar check from the PBGC.

@2, DYB, I almost used the Soup Nazi as the theme of this whole post. It is the reality of the whole situation.

@4, Fredster, good luck with the computer.

@5, Annie, you hit the nail on the head there — accrued benefits have been sacrosanct — they have always been inviolate. This changes everything. If this were to happen, I can’t begin to think about the twisted, unforeseen methodologies that would be employed by VCs and private equity funds when they take over companies. You remember “Wall Street” (original) the employee pension fund was the leverage to gain control of the company in order to dismantle it. As horrible as the movie was, the underlying scenario was all too true.

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