By Don McIntosh
Daimler Trucks North America is exiting the union pension plan for assembly workers at its Swan Island truck plant.
On Nov. 4, members of Machinists Lodge 1005 at the truck plant and a nearby facility that customizes trucks pre-delivery voted overwhelmingly in favor of Daimler’s mid-contract offer to put money — lots of it — into a “defined contribution” 401(k) retirement savings plan sponsored by the national Machinists union, as a replacement for the money it has up to now been putting into a multi-employer “defined benefit” pension plan.
Normally, switching from a pension to a 401(k) wouldn’t be a great trade, because a traditional defined benefit pension offers a guaranteed benefit and therefore greater security. But the Seattle-based Automotive Machinists Pension Plan was pushed into long-term decline by the 2008 financial crash. As of Jan. 1, 2017, it had $648 million in assets and $1.1 billion in projected future liabilities.
It might have been possible to make up for those losses if Daimler, the pension plan’s biggest participating employer, hadn’t spent decades downsizing. Now, with many more retirees in the plan than active members, catching up is a heavy lift.
We felt they were sincere in wanting to do something for employees to have a replacement for the retirement plan.” — Retired Machinists District Lodge W24 representative Joe Kear
At its Portland facilities, where Local 1005 members assemble and customize heavy-duty Western Star brand trucks, Daimler has been paying a mandatory “rehabilitation” surcharge of $6.15 an hour to make up for the multi-employer pension plan’s financial losses. And that’s on top of the $4.45 an hour that the company agreed to contribute under the current collective bargaining agreement with Machinists Lodge 1005. What’s more, because of the plan’s financial difficulties, those base contributions weren’t accruing much in terms of future pension benefits: The plan’s 1 percent “multiplier” means when workers retire, they’ll get monthly payments equal to 1 percent of each year’s total contributions. During the plan’s glory days before the 2001 financial crash, the multiplier was 5.35 percent.
Under a 2006 federal law, if Daimler wants to withdraw from the pension plan, it must pay the unfunded liability for its employees who are in the plan, in order to ensure that they get the benefits they already earned. The actual dollar amount is considered private information between the pension trust and the company. One factor in the company’s decision to withdraw now may have been that under federal rules, the amount of its withdrawal liability is calculated using a 10-year “lookback period,” and the plant downsized in 2005.
Going forward, the company will contribute $3.50 an hour into the 401(k), and those accounts will be seeded with a start-up contribution of $15,000 per employee. Daimler is depositing the seed money not just for the roughly 380 workers currently employed but also for about 55 employees who are laid off but still have recall rights to return to work if the plant starts hiring again. The seed contributions total around $6.6 million. Under the agreement workers ratified, Daimler’s automatic hourly contribution drops to $2 an hour in October 2020 for the final year of the current union contract, but the company at that point will also provide a dollar-for-dollar match of worker contributions up to 1 percent of an employee’s base wage.
While $3.50 an hour toward the 401(k) is less than the $4.45 an hour base rate Daimler was contributing to the pension, Machinists District Lodge W24 representative Dwain Panian says when the seed money is factored in, it works out to about $5 an hour over the life of the contract.
Workers will bear the risk of investments doing poorly in the 401(k), but based on calculations by union representatives, it’s likely to generate a greater retirement benefit than remaining in the defined benefit plan — because of the low multiplier.
It wasn’t a shock that Daimler wanted out of the pension: In the five-year union contract that the two sides agreed to last year, Local 1005 gave the company the right to withdraw from the pension, so long as the union would have an opportunity to present proposals. Daimler lived up to those terms, says retired District W24 business representative Joe Kear. On Oct. 23, Daimler notified pension plan trustees that it planned to withdraw as of Nov. 30, 2017, and began discussions with the union. Kear, who retired earlier this year, helped Panian with negotiations, which lasted four days.
“We felt they were sincere in wanting to do something for employees to have a replacement for the retirement plan,” Kear said.
The union tried to interest Daimler in starting a new defined benefit plan, but that was a non-starter.
At a special Nov. 4 meeting at the Jantzen Beach Red Lion, members voted by a 97 percent margin to approve the company’s proposal to begin contributing to the Machinists 401(k).
The fact that Daimler will be paying a large withdrawal liability puts the pension in better shape for retirees and participants at the remaining employers, Kear says.
Kear says this also resolves one of thorniest issues in recent bargaining: the degree to which the company was on the hook for making up pension losses. Pension rehabilitation obligations have been a sore point, constraining the company’s ability to offer wage increases.
Panian says the new settlement may have other benefits as well: It lowers labor costs at the Portland truck plant, making the plant’s long-term survival more likely. In 2009, Daimler considered closing the plant, but decided against it.
Machinists are the largest of four union bargaining units at the Portland truck plant, and the deal worked out doesn’t affect the other units: Teamsters Local 305, Sign Painters & Paint Makers Local 1094, and Service Employees International Union Local 49.