Mass Gov Proposes State Take-Over of Municipal Pension Funds

When Duval Patrick was running for Mass Gov, he kept saying he was something new and different and making promises nobody expected him to keep. One of those promises was to make sure that other cities and towns got more of the state money the legislature had been saving for Boston. We didn’t think he’d ever get away with that even if he meant it.

We’re finding out how wrong we were. Continue reading

Bernanke: Forget Iraq, It’s SocSec That’s Too Expensive

Fed Chair Ben Bernanke, whose apostasy once knew no bounds, has finally found religion. He’s joined the Church of Our Lady of the Deficit. After a couple of years of deficits climbing through the roof during which we heard not a peep from him about their effect on our financial future, Mr Bernanke is suddenly concerned. Very concerned.

Federal Reserve Chairman Ben S. Bernanke warned Congress yesterday of a “fiscal crisis” if it doesn’t curb the projected growth of federal spending on retirement and health-care programs.Echoing similar warnings by his predecessor, Alan Greenspan, Bernanke told the Senate Budget Committee that “the effects on the U.S. economy would be severe” if the government’s debt were allowed to balloon as forecast.

Hmmm. Why this sudden switch?

Bernanke noted that the federal deficit has declined –

Whoa, old horse. Declined? Declined??? Whose numbers is he looking at, France’s?

in the past two years but said that was “the calm before the storm” of skyrocketing expenses for an aging population. He cited Congressional Budget Office projections that spending on the big entitlement programs — Social Security, Medicare and Medicaid — will equal 15 percent of the nation’s gross domestic product by 2030, double last year’s level. (emphasis added)

Mr Bernanke is patently NOT concerned about the enormous amount of money being spent in Iraq (an estimated $$$1.2 Trillion$$$), and the even more enormous amounts about to be spent if the Congress doesn’t call a halt to Bush’s new “plan”. That gigantic pool of $$$$ isn’t a strain on the budget even though we’re borrowing it. In fact, it apparently isn’t even included in his definition of “deficit” since he doesn’t mention it.

No, what exercises Mr Bernanke’s worry cells is the possibility that social programs like Soc Sec and Medicare might cause a “fiscal crisis”. Continue reading

Retirement in the Age of the Ownership Society: Keep Working

Bush may not have gotten everything he wanted with his “Ownership Society” gambit – the privatization of SocSec being his biggest defeat – but he got more than he should have and his anti-middle class policies are already bearing fruit.

In the WaPo yesterday, business columnist Martha Hamilton explained how the whole concept of “retirement” has changed in the last few years.

Here’s the harsh reality for those of us who have become worker-capitalists, responsible for funding our own retirement: We can’t afford to stop working at normal retirement age.

Typically workers have retired around age 62 or 63, although most anticipated staying on the job till age 65. But that will be way too soon for the many workers who haven’t accumulated enough in retirement savings accounts.

One in four workers currently in their 50s will need to work an extra two years because retirement won’t be affordable, according to a survey of employers published last month by the Center for Retirement Research at Boston College.


But the truth is that finding or even retaining a job after the age of 40 isn’t always easy. An earlier study by the Center for Retirement Research found that one in five adults age 51 to 61 lost his or her job between 1992 and 2002.

This is usually what is known as a Catch-22: you need a job to retire but if you retire there are no jobs. Even Hamilton’s dismal scenario is rose-colored if you include some factors she didn’t: Continue reading

PBGC Fights For Pensions

Pension Benefit Guaranty Corp is trying hard to live up to its name. In the story Trenches has been following about the airline industry threatening to renege on its pension obligations as hard times and exceptionally poor management practices shove the carriers one after the other into bankruptcy, PBGC has emerged as both a whistle-blower and a champion of its trust. It could have sat back, as the S&L guarantors did, and evolved strategies aimed at protecting itself at the expense of the pensioners, letting the govt pick up what was left of the pieces–or not. Instead, PBGC is taking an active role, asking Congress to give it the power to put liens on airline assets in order to safeguard the interests of pensioners.

Pension Agency Seeks More Power
Federal Insurer Wants to Put Liens on Companies in Bankruptcy

By Albert B. Crenshaw
Washington Post Staff Writer
Wednesday, September 15, 2004; Page E03

The government’s pension insurer said yesterday that it wants the authority to place liens on the assets of companies in bankruptcy such as US Airways when those companies do not make required payments to their pension plans.

US Airways told a bankruptcy court in Alexandria on Monday that it doesn’t plan to make a $110 million payment due today to pension plans covering its mechanics and flight attendants. The airline said its pension obligations total $531 million over the next five years.

In July, United Airlines refused to make a $72.4 million payment to four of its pension plans, and said it would not make $500 million in payments due this year.

The government agency, the Pension Benefit Guaranty Corp., argues that the failure to make required payments is illegal but that it lacks power to do anything about it under bankruptcy law. Yesterday it said it should have authority to place liens against the corporate assets of a bankrupt company so that the amount of the missed payment can be preserved for the pension plan participants. It already has such power over companies not in bankruptcy.

Such authority would require a change in the law.

“Failure to act will increase the risk that participants will lose promised benefits and that the pension insurance program will suffer larger losses. We need to make clear that pension contributions are required whether a company is in bankruptcy or not,” Executive Director Bradley D. Belt said in a written statement yesterday.

The agency also wants companies to be required to notify pension plan participants within 30 days of a bankruptcy filing of the plan’s funded status and of legal limits on the agency’s guarantees, which in some cases are substantially less that the pension promised to an employee under the plan.

A federal judge in New York ruled in 1991 that the PBGC has no priority over other creditors in bankruptcy and that the PBGC cannot compel bankrupt companies to make payments required by pension law. PBGC officials said at the time that the ruling created a dangerous situation for the agency. Legislation was introduced to overturn that ruling but never passed.

If only more corporations had PBGC’s sense of honor, loyalty, and responsibility.

Unfortunately, the corporate-owned Congress is unlikely even to consider such a request, let alone pass the appropriate legislation, and tens of thousands may lose their pensions behind this mess. The next time somebody touts de-regulation to you, you might mention the disaster it had on the airline industry. Corporate honchos are like 2-yr-olds with ADD–they’re incapable of seeing past their own greed or the day-after-tomorrow and have to have a minder to keep them from jamming their hands into electric outlets because they have this fantasy it will make them super-charged like Batman. De-regulation is strictly for adults, and as both the airline and energy industries have shown, today’s corporate decision-makers–with rare exceptions like PBGC–aren’t ready for the responsibility.

United ‘Likely’ to Cancel Pensions

By James F. Peltz, LA Times Staff Writer

United Airlines, moving closer to a cost-cutting change feared by employees and retirees, said it probably would cancel its pension plans in hopes that the move would help the carrier emerge from bankruptcy proceedings.

“This is not good news,” said Redondo Beach resident John Givens, 58, a former United reservations director and union official who retired last year.

United, a subsidiary of UAL Corp., already has stopped making contributions to its four pension plans. They are $8.3 billion short of what would be needed now to fully fund future retiree obligations, according to the Pension Benefit Guaranty Corp., a federal agency that insures corporate pension plans and stands to inherit United’s obligations if the airline scraps its plans.

The pension agency estimates that under federal law it would be liable for $6.4 billion of the four plans’ total deficit — leaving a $1.9-billion shortfall for recipients. That would make it the largest pension-plan failure.

In a Bankruptcy Court filing Wednesday, United said that because it was so short of cash, “termination and replacement of United’s defined-benefit pension plans likely will be required” if it hopes to raise the new financing it needs to get out of bankruptcy.

“Let there be no mistake: United would like nothing more than to keep the pension plans intact,” the filing said. But doing so would require more than $500 million in pension payments over the next two months alone, “and dig an even deeper hole for United.”

No final pension decision has been made, the carrier said, adding that it “remains willing to consider any alternative to pension termination.”

Once again, although it’s management that made the bad decisions, it’s damn sure not management that’s going to pay for them.

And the beat goes on.

Corporations Expect Taxpayers to Bail Them Out Again

Pension Tension

NYT Editorial Published: August 8, 2004

First it was the steel companies. Now it’s the airlines. Is the auto industry next?

In the past three years, bankrupt companies, mostly in unionized, old-economy industries, have dumped $11.2 billion in pension obligations on the Pension Benefit Guaranty Corporation, the federal agency that insures the pensions of 44 million people. As a result, the agency has gone from having a $7.7 billion surplus in 2001 to an estimated deficit of about $9.7 billion. And the situation may soon become much worse. The agency now faces a possible $5 billion default by United Airlines and the prospect of more airline defaults. Plenty of other companies, like Goodyear, also have seriously underfunded pension plans.

Not surprisingly, the specter of a taxpayer bailout hangs over the pension agency, inviting comparisons to the savings and loan debacle of the 1980’s. Things are not that bad – yet. As long as the economy and stock market improve, so should many pensions, since their health is tied to prevailing financial conditions.

But in one way, the S.&L. comparison is apt. In the 1980’s, government missteps exacerbated the S.&L. crisis. Today, again, government bears some responsibility for current pension problems. Congress must take steps now, both to strengthen pensions and the agency that insures them.

To begin, lawmakers should allow companies to overfund their pensions to build a cushion for hard times. Currently, Congress restricts overfunding, ostensibly to prevent companies from stashing excess cash in tax-sheltered pensions. But another reason lawmakers restrict contributions is that doing so forces companies to pay taxes on income that would otherwise go into pensions, thus raising revenue to improve the government’s own dismal budget outlook. The result of this self-serving machination is that many companies entered the recent economic downturn with less in their plans than would otherwise have been the case.

To protect taxpayers, Congress should raise the amount it charges companies for pension insurance. Currently, premiums are estimated to be underpriced by one-sixth to one-half – a dangerously high dose of corporate welfare. The pension agency should also be given the authority to freeze a seriously troubled pension when an employer stops contributing to it, as United did recently.

These are tough remedies for a tough problem. But Congress would do better to tackle the problem now rather than wait until after a full-blown crisis.

(emphasis added by me)

About the best that can be said for the corporations’ scandalous underfunding of employee pension funds is that at least they haven’t been stealing them again as they did in the late 80’s and early 90’s. Instead, they’ve adopted a whole new strategy: Let us taxpayers assume their pension burden as we assumed their tax burdens, their legal liabilities, and most of their other responsibilities to the common wealth and the communities in which they live. If they’re not paying for anything else, why should they have to pay for their employees’ pensions? Just because they signed a legal agreement to do so? Hey, it’s a piece of paper. Don’t take it so seriously. Contracts are only important when they favor corporate goals; they’re so much shredder-feed if they don’t. Get this through your head: legal obligations apply to other people, not them.

And they wonder why their rep is going down the tubes.

Pension Fund Bail-Out

In a raft of trouble due to mismanagement, United Airlines wants to bail out of its pension obligations as the first step to getting out of bankruptcy. The NYT reports that the repercussions could be devastating for the economy–and taxpayers.

Bailout Feared if Airlines Shed Their Pensions

Published: NYT, August 1, 2004

In an echo of the savings and loan industry collapse of the 1980’s, the federal agency that insures company pensions is facing a possible cascade of bankruptcies and pension defaults in the airline industry that some experts fear could lead to another multibillion-dollar taxpayer bailout.

“The similarities are incredible,” said George J. Benston, a finance professor at Emory University in Atlanta who has written extensively on the regulatory failures that led to the costly savings and loan bailout.

Deposits in savings institutions are, like pensions, guaranteed by a federal insurance program. The savings industry first sickened because changes in market conditions made the traditional way savings and loans operated unprofitable, but government delays and policy missteps then made the situation much worse. In the end taxpayers bailed out the industry — at a cost, according to various estimates, of $150 billion to $200 billion.

Now experts say they see similar forces gathering in the pension sector, with United Airlines perhaps the first to go down the path. Operating in bankruptcy, United is striving to attract the lenders and investors it needs to survive. It said last month that it would no longer contribute to its pension plans; United also seems intent on shedding some or all of its $13 billion in pension obligations as the only way to succeed in emerging from bankruptcy proceedings.

If United manages to cut itself loose from the costly burden of its pension plans, it might force others determined to keep their costs similarly under control to emulate its move. “Rivals may feel they are at a competitive disadvantage and follow suit, raising the specter of a domino effect in the industry,” said Bradley D. Belt, the executive director of the government’s Pension Benefit Guaranty Corporation, which insures pensions. If every airline with a traditional pension plan were ultimately to default, the government would be on the hook for an estimated $31 billion. Its insurance coverage is limited, so some employees would have their benefits reduced.

“The pension insurance program is there to protect workers’ benefits,” said Mr. Belt, who took over the agency in April. “It shouldn’t be used as a piggy bank to help companies restructure.”

Already, some airline employees are taking steps to protect themselves against future pension losses.

Each month, for example, about 30 pilots normally retire from Delta Air Lines. But in June, almost 300 did.

Andrew Dean, one of the new retirees, said he and his colleagues watched in dismay as the financial debacle unfolded at United. He said that he and many of his fellow pilots decided they had better grab their pensions right away – while the money was still there.

“These are very scary times right now for someone in my position,” said Mr. Dean, who at 58 walked away from his job just as he was reaching the peak earning period of his career. His pension was also reduced because he retired early.

But his decision now looks prescient. On Friday, Delta asked its pilots for a 35 percent pay cut and proposed a smaller pension plan.

Foremost on the minds of the departing pilots, Mr. Dean said, were arcane pension rules that can offer advantages to workers who quit before a pension plan fails. At Delta, for example, as long as the pension plan stays afloat, pilots are allowed to take half of their benefit in a single check when they retire. But if the plan fails, the pilots lose their chance to take a big payout.

“What I’ve managed to do is secure half of my retirement,” Mr. Dean said. He may still lose the rest if the government takes over the program and limits future payouts. “I really lose sleep over that,” he said.

The Pension Benefit Guaranty Corporation is already hobbled by debt, having picked up the pieces of more than 3,200 failed pension plans in its 30-year life. The scale of the failures has risen sharply in the last three years, but the agency has few tools at its disposal to prevent the situation from becoming worse.

Now it faces a possible $5 billion default by United – which would be a record – and the possibility of more big airline defaults after that.

“The agency can’t take a lot of $5 billion hits, multiple times per year, year after year, and survive,” said Steven A. Kandarian, the pension agency’s immediate past director. “Eventually, you’ll run out of money.”

It is impossible to predict the exact size of any pension bailout, although economic projections by the agency suggest that in the worst case, a bailout within the next decade involving failures beyond the airlines could cost taxpayers up to $110 billion.

But because pension obligations, unlike bank deposits, do not have to be paid off all at once, it is difficult to raise alarms about the threat.

“The real blowup doesn’t happen right away; it happens over time,” Mr. Kandarian said. “You’ve got to address it now, but it doesn’t look like a crisis now. The crisis is always over the next hill.”

The risk is that the longer the problems are avoided, the worse they can get.

The airlines, who have been in trouble constantly since Reagan broke PATCO and the Pubs passed de-regulation over the objections of practically everyone who knew anything about the industry, have been engaging in price wars as a way to attract consumers. The wars have been good for fliers but have prevented the airlines from making a profit without dry-gulching employees.

In the late 80’s and early 90’s, airline unions agreed to serious cuts in pay rates, benefits and payments into their pension funds in order to keep the airlines afloat during the First Bush Recession. The companies made empty promises in return that they would go back to the original levels as soon as things picked up. But when times got better in the mid-90’s, they reneged on those promises and instead used the new money to invest in ever-tightening rounds of price cuts.

Most of what the airlines have done has been in almost total denial of reality: they’ve ignored rising fuel prices, discounted the impact of fewer passengers, overcrowded their routes, forced growth by competing for new routes before their core financial instability was completely under control, and so on. Now, as that reality crashes down around their heads, they want to bail out of obligations to their employees as the first line of defense against a bankruptcy they brought largely on themselves, and dump those obligations on taxpayers who will undoubtedly blame the unions for their “greed”.

And why not? A lot of corporations followed the same pattern in the late 80’s and early 90’s, stealing from their employees’ pension funds to boost their bottom lines, and even though what they did was blatantly illegal, they all got away with it–not one pension fund manager or corporate decision-maker was ever charged with the theft they engineered, let alone went to jail over it. The corporations–many of them making a healthy profit at the time–made $$hundreds of millions$$ by looting the funds and millions of workers, after 20 or 30 years of paying into an account that was supposed to protect their retirement, found that the accounts had been drained and their retirement along with them.

Belt summarizes the corporate attitude toward pension funds exactly right: they think employee funds are their own piggy bank they can draw from whenever they feel like it. Somebody needs to take them aside and explain to them patiently that the money belongs to their employees, not them. And while whoever it is is at it, they might also explain that highly-trained people won’t work for minimum wage and that the airlines had better stop setting their price structure as if they will.

Unfortunately, it’s probably too late at this point for a conversation like that to do any good for most of them. Well, never mind. They can always hire pilots from Calcutta and Sri Lanka cheap and run their reservation desks from Indonesia…can’t they?