Big Trouble in Little America
Most people are unaware of the issues around the defined benefit pension plans. The plan is built around the concept of a worker putting in 20 to 30 years of service and then guaranteed a fixed amount for the rest of their life. This is a concept that has worked for decades. But in 2008, that concept almost collapsed and could still, if the experts are correct.
Similar to Social Security, current workers put money in and retirees get paid. Social Security has been in peril for many years but with Millennials being the largest generation to ever hit the American workforce, Social Security may actually survive. It is due to simple math: More workers than retirees.
The defined pension plans are primarily multi-employer plans and they are not seeing an increase of workers; quite the opposite. This has been going on for quite a while, so how did these pension plans stay afloat in that shrinking labor market? One main reason is the stock market.
Pension plans will often have billions of dollars to invest and these large sums can make millions in returns. Even with embezzlement, which is somewhat common in that world, most continued to still make money. The groups overseeing these plans are called “trusts.” The 2008 collapse put many of these pension plans in dire straights as they got hit by two fronts: loss of market share and a collapsing stock market.
This led the government to institute a warning plan of green, yellow and red for these plans. Many plans fell into the yellow zone and several went red. (Red means the plan has failed.) This is not limited to construction. A friend who recently retired from the cargo marine shipping industry laughed at my concerns about his pension plan being in trouble, claiming it was guaranteed. Last month, he was notified of deep cut in benefits. He has had to go back to work.
The other type of plan is a defined contribution plan. This allows each worker more flexibility to control pension money. The money is earmarked as theirs in a pool with others. This sounds great but there are pitfalls here, too. One issue is that many young workers are simply bad with money, such as they fail to save, invest wisely or use the money impetuously. Plus, they still may be relying on Trustees who may or may not be very trustworthy. A lot of people just do not have the discipline to save. This may be their own fault but it is little consequence to their families and American tax payers who will likely have to foot the bill with social programs down the road.
The Pension Benefit Guarantee Corp. provides insurance but is woefully under-funded and can only pay pennies on the dollar. The Central States Teamsters pension plan is our wake-up call. If they fail as predicted by actuarial experts, the PBGC is bankrupt. Actuarial experts can tweak numbers to make things look better, but without more hours or money going in than out, more plans will fail and a monumental collapse is likely imminent. These plans need some positive joint energy to grow. But that is unlikely.
This is a dysfunctional world and winning is defined only if the other side loses. When this happens, every American will suffer. Ironically, most contractors I talk with, union or nonunion, deeply believe their workers deserve a living wage, benefits and strongly desire for better trained workers. It seems that the desire is there for a joint and mutual benefit, just the will and vision to make it happen is lacking. The status quo is unlikely to change.
Most negotiations eventually turn into a stand-off over wage increases with no meaningful talk of market share growth or improving relationships to grow joint markets. It is more about submission, power playing and an exercise in moral superiority. Proposing mutual benefit negotiations where each side had gains and concessions seems of little interest; collapse to the other side is far more desirable. In the case of multi-employer pensions, it will likely become a national crisis before anything is done. Until people stand up and demand fixes and accountability, we will simply continue to kick the can down the road. However, the road does have an end at some point. For multi-employer plans, without market share growth the next stock market crash could be the end of the line.