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Another Labor Union in Trouble

Some time ago I posted on the dire condition of the Central States Teamsters pension fund for truckers and how deep cuts to benefits are inevitable. Well, it seems another, and perhaps more unlikely, labor union is headed in the same direction.

The American Federation of Musicians and Employers' Pension Fund (AFM-EPF) has petitioned the Dept of Labor to allow for a reduction in worker pension benefits to try to add life to the pension fund, currently funded at about 60% of what it should be.  The AFM represents 80,000 professionals in the United States and Canada who play in symphony orchestras and opera houses, on Broadway, in film and television, and on studio recordings. Approximately 50,000 AFM members participate in the pension fund, and it's estimated that 20,000 of them will eventually see a reduction in their pension benefits.

Where the Multi-Employer (read: labor union) pension plans are getting into financial trouble is that the original actuarial calculations on how much it would cost to fund future benefits were simply too generous. The assumptions are union membership would continue to grow and interest rates would remain stable. For some such pensions, membership has remained stable and so pension funding has been adequate. The National Electrical Benefits Fund for the IBEW electricians is an example of this, which at last count was funded to about 84% of it long term obligations. Unfortunately, about 40% of ME pensions are minimally funded.

BruceM

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Re: Another Labor Union in Trouble

US Gov was doing pretty good in my father's time. Dad retired in '82 and received both a military pension and a civil service pension. When he retired his income immediately increased. He received both pensions until death 30 years later. His military retirement also provided Tricare for Life as well as the VA anytime he chose to use it. 

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Re: Another Labor Union in Trouble

Yes, my cousin's pension from working for automotive dealerships is paid by Central States and he's had one cut already.

Congress called it "Pension Reform" when they declined to fund the multi-emplayer portion of the PBGC. I guess they will call it "Pension Reform Strikes Back" if the single employer plan ever gets into trouble.

 

 

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Re: Another Labor Union in Trouble

Actually MEPs are PBGC insured...its just they're insured for a lot less than ERISA plans. Not exactly sure why that is, but back when ERISA became law in 1974 and the PBGC was created, I understand the labor unions lobbied not to have full PBGC insurance along with its much higher premiums, as the unions didn't think it was necessary if they combined many employers under one pension fund. Turns out that was not a good idea.

Many MEPS, according to the PBGC web site, are in funding trouble.

BruceM

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Re: Another Labor Union in Trouble

Somewhat off topic, but my former employer used the corporate tax cut to fully fund their pension obligations, then promptly turned over current retiree pensions to Met Life to administer as a group annuity. My guess is that had everything to do with rapidly rising PGBC insurance costs

I

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Re: Another Labor Union in Trouble

Companies offloading pension obligations [DB] to insurance companies and/or offering lump-sums to retirees are growing trends.

Not many companies have active DB pension plans. Old ones have been frozen. DC 401k are being used now. But companies with DB plans [frozen or active] have another headache. If the DB plan is 90% underfunded over 3 yrs, or 80% underfunded in a year, some make up contributions are required and those come from earnings and the EPS is hit. Then, there are PBGC premiums. So, many companies just offload DBs to insurance companies.

Public DB plans get alarmingly underfunded as there are no obvious consequences. Only now the rating agencies are starting to account for DB underfunding in credit ratings.

YBB
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Re: Another Labor Union in Trouble

Just got the annual PBGC report on US Pension plans status. Lots and lots of charts on both single employer plans and Multi-Employer (labor union) Plans, or MEPS. Here are a couple of the more telling of what is going on with these plans.

 

funding of MEPs 2016.jpg

Note, this excludes over funded plans. I'm not showing the chart, but just under 28% of the above underfunding comes from the bottom 10 plans. Here's a look at underfunding, and the rare overfunding, by industry through 2016

MEP by industry 2016.jpg

I wonder how it is today with 2 years of economic expansion and a corporate tax cut.

Just interesting info

BruceM

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Re: Another Labor Union in Trouble

Five of us that retired 21 years ago from the same company chose the lump-sum offer over the standard pension. The company was merging with another and prior to the merger we had concerns that the 'new' company wouldn't offer a lump-sum. We all had 30 plus years with XYZ, and several of us continued working for the same company as contractors after retiring. I would encourage any one to consider all his/her options before retiring.

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Re: Another Labor Union in Trouble

To take pension or lump-sum is a decision that should be made case by case depending on the terms offered, source of funding [private, public (city/state, federal)], PBGC coverage [for companies], etc. There is no universal answer for everybody.

YBB
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Re: Another Labor Union in Trouble


@yogibearbull wrote:

To take pension or lump-sum is a decision that should be made case by case depending on the terms offered, source of funding [private, public (city/state, federal)], PBGC coverage [for companies], etc. There is no universal answer for everybody.


Yup! That is why I suggested..... "I would encourage any one to consider all his/her options before retiring."

I'll trust my money skills over some board of directors.

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Re: Another Labor Union in Trouble


@yogibearbull wrote:

To take pension or lump-sum is a decision that should be made case by case depending on the terms offered, source of funding [private, public (city/state, federal)], PBGC coverage [for companies], etc. There is no universal answer for everybody.


 

 It would be highly unlikely, IMHO, that an informed passive investor would be better off declining to take a lump sum payout. In 2010 I was given the choice to take both my defined contribution plan AND my defined benefit plan as an annuity or a lump sum. Both the DCP and the DBP were well into seven figures. Had I taken the annuity and got hit by a bus the payments would have stopped unless I took the option which allowed my wife to continue receiving monthly payments until her passing, leaving ZERO for the kids. Taking the options which allowed for continued payments to my wife would have cost around a 33%/50% cut in monthly benefits.

 Taking the lump sum option and placing the vast majority in VTI has put me light years ahead of those who choose the annuity option. In fact, I could probably divide the rolled over lump and simply use the returns of the last 10 years to purchase an annuity equal to the one the company would have provided to me ten years ago and still have my original lump sum payout intact.............:))

 

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Re: Another Labor Union in Trouble


@Bentley wrote:

@yogibearbull wrote:

To take pension or lump-sum is a decision that should be made case by case depending on the terms offered, source of funding [private, public (city/state, federal)], PBGC coverage [for companies], etc. There is no universal answer for everybody.


 

 It would be highly unlikely, IMHO, that an informed passive investor would be better off declining to take a lump sum payout. In 2010 I was given the choice to take both my defined contribution plan AND my defined benefit plan as an annuity or a lump sum. Both the DCP and the DBP were well into seven figures. Had I taken the annuity and got hit by a bus the payments would have stopped unless I took the option which allowed my wife to continue receiving monthly payments until her passing, leaving ZERO for the kids. Taking the options which allowed for continued payments to my wife would have cost around a 33%/50% cut in monthly benefits.

 Taking the lump sum option and placing the vast majority in VTI has put me light years ahead of those who choose the annuity option. In fact, I could probably divide the rolled over lump and simply use the returns of the last 10 years to purchase an annuity equal to the one the company would have provided to me ten years ago and still have my original lump sum payout intact.............:))

 


I completely disagree with highlighted statement - your personal experience with an airline notwithstanding.

In fact, for many public and some private pensions, that simply isn't true.

YBB
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Re: Another Labor Union in Trouble

@Bentley 

It would be highly unlikely, IMHO, that an informed passive investor would be better off declining to take a lump sum payout. In 2010 I was given the choice to take both my defined contribution plan AND my defined benefit plan as an annuity or a lump sum. Both the DCP and the DBP were well into seven figures. Had I taken the annuity and got hit by a bus the payments would have stopped unless I took the option which allowed my wife to continue receiving monthly payments until her passing, leaving ZERO for the kids. Taking the options which allowed for continued payments to my wife would have cost around a 33%/50% cut in monthly benefits."

The standard two words that answer about 95% of all questions regarding personal financial planning decisions is "IT DEPENDS", and nowhere is this more relevant than whether to take a pension or lump sum when given the choice.

Anecdotal: BIL retires from PGE in Portland in 1999, takes the lump sum option, listens to Kenneth Lay and kept about 50% of his lump sum in Enron stock, the parent of PGE, where the shares stayed until their value was zero.

My BIL passed away 2016, leaving my sister to manage investments, something about which she knows absolutely zero and has absolutely NO interest. I would never recommend she, or anyone remotely like her, take a lump sum in place of her pension were she offered it.

Unless the new retiree has the interest to learn the fundamentals of DISCIPLINED investing AND the pension is fully insured by PBGC (i.e. his plan is covered by ERISA and was insured), it would make no sense to take the lump sum.

If it is a private employer but the DBP is not insured by PBGC, particularly a small employer, then I would consider recommending the lump sum.

If it is an insured plan and the retiree is motivated to manage his IRA and has other contributing factors to include wanting to leave an inheritance and perhaps is in poor health, then taking the lump sum could make sense, depending on a couple of time value of money calculations.

We used to do lots of lump sum-vs-pension calculations. Of course, fee-only FP firms compensated as a % of assets under management are biased to take the lump sum, as are insurance producers...that's how they get paid.

It is a fun FP exercise to work through this algorithm

BruceM

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Re: Another Labor Union in Trouble


@BruceM wrote:

@Bentley 

" It would be highly unlikely, IMHO, that an informed passive investor would be better off declining to take a lump sum payout. In 2010 I was given the choice to take both my defined contribution plan AND my defined benefit plan as an annuity or a lump sum. Both the DCP and the DBP were well into seven figures. Had I taken the annuity and got hit by a bus the payments would have stopped unless I took the option which allowed my wife to continue receiving monthly payments until her passing, leaving ZERO for the kids. Taking the options which allowed for continued payments to my wife would have cost around a 33%/50% cut in monthly benefits."

The standard two words that answer about 95% of all questions regarding personal financial planning decisions is "IT DEPENDS", and nowhere is this more relevant than whether to take a pension or lump sum when given the choice.

Anecdotal: BIL retires from PGE in Portland in 1999, takes the lump sum option, listens to Kenneth Lay and kept about 50% of his lump sum in Enron stock, the parent of PGE, where the shares stayed until their value was zero. 1.) 50% in any one company, is an extremely foolish strategy for ANY retiree, IMHO. 2.) Listeneing to someone that has no fiduciary duty wrt your retirement portfolio is not normal nor informed. 3.) Trying to actively manage a retirement portfolio is likely not to end well for poorly informed/advised retirees.

My BIL passed away 2016, leaving my sister to manage investments, something about which she knows absolutely zero and has absolutely NO interest. I would never recommend she, or anyone remotely like her, take a lump sum in place of her pension were she offered it. In most cases involving a significant lump, I would recommend taking the lump sum and hire a low cost passive advisor, preferably a DFA educated advisor.

Unless the new retiree has the interest to learn the fundamentals of DISCIPLINED investing AND the pension is fully insured by PBGC (i.e. his plan is covered by ERISA and was insured), it would make no sense to take the lump sum. I know many of my colleagues that have little interest nor knowledge that have done very well using low cost fixed fee advisors.

If it is a private employer but the DBP is not insured by PBGC, particularly a small employer, then I would consider recommending the lump sum.

If it is an insured plan and the retiree is motivated to manage his IRA and has other contributing factors to include wanting to leave an inheritance and perhaps is in poor health, then taking the lump sum could make sense, depending on a couple of time value of money calculations.

We used to do lots of lump sum-vs-pension calculations. Of course, fee-only FP firms compensated as a % of assets under management are biased to take the lump sum, as are insurance producers...that's how they get paid. That is why I suggest a low fixed fee DFA approved advisor. I pay $1400 per year which works out to be .000x% of AUM.

It is a fun FP exercise to work through this algorithm. Back in 2010 when I ran the numbers it was not even a close decision. I do understand that there are some limited cases where it may make sense.

YMMV

BruceM


 

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Re: Another Labor Union in Trouble

Below is an S&P Global………Market Intelligence posting from 2012

 

https://www.spglobal.com/marketintelligence/en/news-insights/latest-news-headlines/leveraged-loan-ne...


27 Nov, 2012 | 17:02

American Airlines wants to cut lump-sum payments from pilot pension plan

 

................................................."The pension plan currently covers 7,510 active pilots who may retire at age 60, or as early as age 50 with 10 years of service. Pilots are required by law to retire from flying commercial aircraft at age 65. The pension plan allows American’s pilots to choose from various benefit payments, including a lump sum payment. In 2011, according to the motion, an average of 33 pilots retired each month prior to AMR’s Chapter 11 filing – 99% of those pilots chose the lump sum option.
While the company is in Chapter 11, the plan is prohibited from paying lump sums unless its Adjusted Funding Target Attainment Percentage – a measure of the plan’s funded level – is at least 100%. The AFTAP currently stands at 82.57%, according to the plan’s actuary. Under the Pension Protection Act of 2006, once it emerges from Chapter 11, American’s AFTAP must be at least 80% in order to allow lump sum payments.
AMR fears that, if left in place, the lump-sum provision would fuel a “massive wave of pilot retirements. These retirements would create a pilot shortage which, in turn, would result in an operational crisis involving the wholesale cancellation of flights and the grounding of airplanes, with a corresponding devastating reduction in revenue and profitability. In short, if American cannot eliminate the principal motivation for this wave of retirements and preserve its ability to meet its business plan by enacting the amendment, it will have no choice but to terminate the pilot plan.”

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Re: Another Labor Union in Trouble

Sure, it is/was clear what to do for an airline under Chapter 11 and for highly compensated pilots who may have only 15-20% PBGC pension coverage. But that doesn't generalize to everyone.

Every case has to be evaluated on its own merit - pension vs lump-sum.

YBB
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Re: Another Labor Union in Trouble


@yogibearbull wrote: Every case has to be evaluated on its own merit - pension vs lump-sum.

 

It gets right back to that, yogi.

 


 

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Re: Another Labor Union in Trouble


c@yogibearbull wrote:

Sure, it is/was clear what to do for an airline under Chapter 11 and for highly compensated pilots who may have only 15-20% PBGC pension coverage.


 

 Yogi, did you read the post? The 99% figure for pilots taking the lump sum option was pre-filing. The was no indication American was going to file. They had more cash on hand than any airline filing ever. Employees and analysts were surprised and in no way affected the decision to take the lump instead of annuitize. The choice to take the lump has been in excess of 97.6% for decades so don't suggest for a minute that a future bankruptcy had anything to do with the choice to take the lump sum option over the years.

99%!  ( Ninety nine % ). Can so many highly intelligent/informed employees make the wrong choice? IMO, that would be highly unlikely.

"In 2011, according to the motion, an average of 33 pilots retired each month prior to AMR’s Chapter 11 filing – 99% of those pilots chose the lump sum option."

 

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Re: Another Labor Union in Trouble

Hate to seemingly dwell on the negative, but here's another Multi-Employer Plan asking to reduced benefits.....

The Board of Trustees of the Bricklayers & Allied Craftsmen Local 7 Pension Fund, a multiemployer pension plan, has submitted an application to reduce benefits under the plan in accordance with the Multiemployer Pension Reform Act of 2014 (MPRA). The purpose of this notice is to announce that an application submitted by the Board of Trustees of the Bricklayers & Allied Craftsmen Local 7 Pension Fund has been published on the website of the Department of the Treasury (Treasury), and to request public comments on the application from interested parties, including participants and beneficiaries, employee organizations, and contributing employers of the Bricklayers & Allied Craftsmen Local 7 Pension Fund.

BruceM

 

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Re: Another Labor Union in Trouble

The covid recession will be the end of the world as we know it for defined benefit retirement plans. Only 13% of employees who work for private companies Have pension plans.

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