Kline-Miller Cromnibus Amendment One Year Later: Teamsters Central States Pension Fund Looking at Benefit Cuts of Up to 60%

One of the more popular posts on this page was last December's "Kline-Miller Cromnibus Amendment: The Coming Death of Defined-Benefit Pensions," which basically cribbed a post of Naked Capitalism's Lambert Strether and then tacked on my own experience about my union pension fund, soon after the Lehman Brothers meltdown, going into the red, which was followed by a host of devastating benefit cuts. It was clear to me last year that the Kline-Miller amendment was intended to free pension-fund boards of the strictures imposed by ERISA, allowing them the flexibility to cut benefits prior to going into "red" or critical status (a version of the famous quote from the Vietnam War, "We had to destroy the village in order to save it"). Well, one year on, that certainly appears to be what is happening.

In the last four months I left my job at a large, statewide union local for a position with a countywide central labor council. A lot of information -- newsletters, newspapers, magazines, email -- from various union locals, internationals and other central labor councils crosses my desk; I try to ingest as much of it as I can. The other day the winter issue of Teamster magazine arrived in the office. Front-loaded in it are two pieces, "Central States Shouldn’t Cut Pensions" and General President James P. Hoffa's "Retirees, Workers Deserve to Receive Their Pensions," about the enormous impact -- cuts of up to 60% -- of the Kline-Miller Cromnibus amendment on the Teamsters Central States Pension Fund.

Let me quote "Central States Shouldn't Cut Pensions" in its entirety:

Workers and retirees contributing to the Central States Pension Fund are having their retirement security threatened by legislation passed by Congress last fall that allows pension funds to cut active and retiree benefits. Administrators of the pension plan filed a petition with the U.S. Treasury Department in late September that would cut pensions by as much as 60 percent.

In an October letter sent to Fund Executive Director Thomas Nyhan, Teamsters General President Jim Hoffa told Nyhan that the proposed cuts are simply outrageous.

“Trying to prop up Central States by proposing draconian pension cuts that will impose significant hardships on the very people the Fund is supposed to serve makes no sense,” he said. “The benefits these workers and retirees earned were the result of their own hard work as well as that of their fellow Teamsters.”

That’s why the Teamsters have been supportive of several legislative fixes. The “Keep Our Pension Promises Act” (KOPPA) would protect workers and retirees from cuts to their earned retirement benefits. The legislation would roll back provisions that were slipped into the fiscal 2015 spending bill approved by Congress last year that made earned pension benefits vulnerable to cuts.

And new legislation by Sen. Rob Portman (R-Ohio) would guarantee thousands of retirees and workers threatened by deep cuts to their pensions a meaningful voice in deciding their own future.

The “Pension Accountability Act” shows that lawmakers across the political spectrum recognize a fix is needed. While it’s not a complete solution, Sen. Portman’s bill would be a start. 

Either way, Congress is unlikely to take action unless they hear from constituents. The Teamsters are asking workers to contact their elected officials and ask them to support both legislative bills. Central States should pull its horrific pension proposal. But if it doesn’t, the Teamsters Union is not backing down.

Teamsters Central States Pension Fund is probably the most "glamorous" pension fund in history in that it plays a central role in Martin Scorsese's 1995 film classic Casino. Instead of using the pension fund largesse to buy up Las Vegas real estate, as it once did, the fund administrators are now slashing retiree benefits. This is a sad but telling commentary of what the United States has become.

The death of defined benefit pensions goes hand in hand with the loss of capitalism's legitimacy in the United States, as well as the legitimacy of two-party democracy. Electoral, representative democracy established itself in the 19th century along with an unspoken acceptance of the Benthamite utilitarian notion of "the greatest good for the greatest number." With the collapse of pensions we no longer live in a society whose mantra is "the greatest good for the greatest number." That is why right now we are just beginning to understand that there is going to be hell to pay.

Kline-Miller Cromnibus Amendment: The Coming Death of Defined-Benefit Pensions

Surprisingly there is not much news this morning. The last Umbrella Movement encampment was taken down and Japanese Prime Minister Shinzo Abe's Liberal Democratic Party won 291 of the 475 seats in the lower house of parliament (meaning that the nuclear power industry can rest easy).

There is an excellent post by Naked Capitalism's Lambert Strether. In "Cromnibus Pension Provisions Gut Forty Years of Policy, Allow Existing Pensions to Be Slashed" Strether analyzes the impact of the Kline-Miller amendment that was part of the budget bill that cleared the Senate this past Saturday. Strether notes that most liberals have been focused on the amendment that allows big banks to once again engage in the derivatives trade. This amendment sparked a great deal of outrage, and rightly so, because it was the derivatives trade conducted by behemoth banks like Citigroup that contributed to the Great Recession of 2007-2008.

But Strether does us a service to shine a light on the pension-overhaul amendment because it will in short order adversely affect the lives of millions or regular working Americans:

Oddly, or not, “progressive” and Democratic loyalist commentary on the Cromnibus bill has — with occasional honorable exceptions –  focused almost exclusively on Elizabeth Warren’s fight against a derivatives provision that might benefit big banks, as we saw yesterday, and has been silent about a provision that could do far worse and far more immediate harm to working people who made their retirement plans based on the belief that their pension rights were secure and backed by legislation, and the idea that a contract was a contract. Oldthink, I know! 

So in this post I want to rectify that mysterious silence, and take a look at the truly nauseating Kline-Miller amendment, passed by the House, and part of the Senate bill forwarded to Obama for his signature. David Dayen summarizes: 

"Under the bill, trustees would be enabled to cut pension benefits to current retirees, reversing a 40-year bond with workers who earned their retirement packages."

Michael Hilzick: 

"Under ERISA, the 1974 law governing pensions in the private sector, benefits already earned by a worker can’t be cut." 

Now they can. That’s right. Even if you’re retired and vested in a private pension plan, your benefits could be cut. Congress retraded the deal (if I have the finance jargon right). That’s nauseating even for today’s official Washington. And the bill was passed in a thoroughly bipartisan fashion: Kline is a Minnesota Republican, and Miller is a “liberal” California Democrat. [Reach me that bucket, wouldja?]

As Strether notes, the amendment is co-authored by liberal lion George Miller, Democratic U.S. Representative from California. This means that pension overhaul was put forward with the approval of organized labor. But why? Because multiemployer pension plans are top-heavy with graying participants; there are not enough active workers to maintain all the retirees.

I speak from experience because my union multiemployer pension plan went through an overhaul at the beginning of the Great Recession (see "Why This Pervasive Sense of Doom?"). The plan was placed in "red" or crtitical status by the Pension Benefit Guaranty Corporation (PBGC). Part of being in the red means that the plan's trustees must put forward a proposal to return the plan to the black, usually a combination of benefit cuts and employer surcharges. From what I can tell the Kline-Miller amendment allows multiemployer pension plans to implement these changes without going into critical status and without being placed under PBGC stewardship. Basically, it is the unions trying to get out front of a looming crisis by trimming benefits now.

Strether provides a valuable counterargument. Why admit defeat? Why not make an effort to fully fund all the contractual benefits?

What Were the Alternatives to Kline-Miller? 

First, there are options available, even accepting that legislation needed to be passed this sesson. Reuters: 

"[Randy DeFrehn of the National Coordinating Committee for Multiemployer Plans], AARP and other advocates reject the idea that solvency problems 10 to 15 years away require such severe measures. They have pushed alternative approaches to the problem; one that is included in the deal, DeFrehn says, is an increase in PBGC premiums paid by sponsors, from $13 to $26 per year. Advocates also have called for other new revenue sources, such as low-interest loans to PRGC by the once-bailed-out big banks and investment firms." 

So why not have the sponsors pay the full freight? The workers already did! (Though I have to say that getting a loan strikes me as… .Well, let’s call it weak tea. Or weak TINA.)
Second and more radically, unions could and should have been strengthened. Read between the lines of this bland Wall Street Journal article: 

"Multiemployer plans are administered by unions and are funded by multiple employers in a given industry, typically in fields such as trucking, retail and construction. There are about 1,400 plans in all, covering roughly 10 million people. Because of declining ratios of active workers to retirees, and loose funding standards, some of the larger [Multiemployer plans], such as the Teamsters’ Central States fund, are in dire financial condition."

Yeah, those “declining ratios” just happened naturally, right? Leaving aside the issues of financial mismanagement by trustees and the Great Financial crash, the problem is an actuarial one, right? In These Times: 

"The national trend of de-unionization coupled with job losses from the recession have meant that fewer and fewer workers are paying into funds as more and more retirees are starting to receive benefits." 

So, if the ratio between active workers and retirees has gone out of whack, why not strengthen unions so that there are more “active workers” signed up? Especially since the problem is 10 or 15 years away? Is there some reason a “liberal” California Democrat wouldn’t consider that? (Note above we show why Kline-Miller makes union membership less attractive, so it’s sending union pension actuarial conditions in exactly the wrong direction.) 

Third, the think tank behind Kline-Miller is the National Coordinating Committee for Multiemployer Plans. Here’s their report. It’s titled: 

“Solutions not Bailouts” 

But what would be so very wrong with — work with me, here — just bailing the pension plans out? I can’t see why bailing out workers isn’t a solution. It certainly was for the banksters! International Business Times: 

"While Congress responded to the 2008 financial crisis by rescuing the banking industry with an $700 billion bailout [and that’s only TARP!], there’s no rescue on the way for retirees. Lawmakers are offering no bailout to close multiemployer plans’ aggregate $42 billion deficit." 

$42 billion? Spread out over decades? That’s chicken feed! What’s wrong with these people?

Yes, considering Congress just approved $64 billion for military campaigns abroad.

When Boeing successfully broke the will of the Machinists Local 751 at the beginning of this year and forced a two-tiered pension on its workers -- new hires get a 401(k)-type defined-contribution plan, while the Machinists who have been with the company for a set amount of years get to keep their defined-benefit pension -- the future was plain to see. No longer was a robust pension going to be a benefit synonymous with union membership. Recently, the large, privately-held utility, Puget Sound Energy, was able to force the same change on the Electrical Workers union.

Ten-to-20 years from now defined-benefit pensions will be effectively phased out. Only the 1% will still enjoy their benefits.