By Don McIntosh
Ten years after system-wide bank fraud led to a market meltdown, the 2008 financial crisis is still claiming new victims. On Dec. 31, the Plasterers Local 82 Pension Plan finalized plans to cut benefits 22 to 31 percent for its roughly 250 current and future retirees — in order to prevent the pension plan itself from running out of money altogether in 2034.
“It was terrible to have to make that decision,” said Kent Sickles, who is the business manager of Portland-based Local 82 and a trustee on the plan. “A pension is a promise you make.”
But the alternative was even worse, Sickles said. At meetings attended by active and retired members and their spouses and children, Sickles laid out what would happen if the pension plan ran out of money: The federal pension insurer known as the Pension Benefit Guaranty Corporation (PBGC) would step in, but would pay just a small fraction of the promised benefits … and that’s if the PBGC itself remains solvent. Currently the PBGC itself is projected to run out of funds by about 2024. To put that into real numbers, a retired plasterer currently getting a $2,619 a month pension will get $1,807 a month after the cut; but without the cut, he would have gotten just $965 a month from the PBGC 15 years from now.
The financial troubles of the Plasterers Local 82 Pension Plan didn’t stem from anything the plan’s union and employer trustees did wrong. As recently as 2008, the plan was considered 100 percent funded. [To be 100 percent funded means a trust has all the assets it needs to be able to pay promised benefits in the future.] In fact, the plan’s investments had been doing so well that it was considered “over-funded” in the late 1990s. When pension plan liabilities are more than 100 percent funded, federal pension rules require them to increase the promised benefits, like subsidized early retirement. That’s what the Plasterers Local 82 Pension Plan did.
Then the 2008 crash came, and wiped out a third of the value of the plan’s assets. The plans’s funded percentage fell from 100 percent in 2008 to 68 percent in 2009. And that’s not all: The financial collapse also set off a recession, stopping construction projects cold. Plasterers were thrown out of work, and that meant their employers weren’t contributing as much to the pension plan just when the plan needed funds the most.
“The actuaries called it a perfect storm,” says Trudy Horn, president of the Masonry Industry Trust Administration (MITA). Based in Portland, MITA administers benefit funds for the trowel trades, including Operative Plasterers and Cement Masons and Bricklayers and Allied Crafts.
Trustees took swift action to slow the bleeding — eliminating death benefits and subsidized early retirement benefits, cutting the benefit accrual rate, and increasing employer contribution rates. But because of the continued recession, it wasn’t enough: The plan’s funding level continued to decline, reaching 47 percent by 2017. Today, it continues to earn respectable investment returns on its roughly $20 million in assets, but must draw down those assets in order to pay over $2 million in benefits a year.
In late 2014, Congress passed the Multiemployer Pension Reform Act (MPRA), a law allowing pension trustees to save plans from insolvency by reducing benefits up to a certain amount. With actuaries projecting the Plasterers Local 82 Pension Plan would be insolvent in 16 years, Plasterers Local 82 and its 17 contributing employers in the Associated Wall and Ceiling Contractors of Oregon and Southwest Washington decided to pursue that option, and worked together to craft a solution members could live with.
They proposed a 22 percent reduction for active participants, and 31 percent for all others, including inactive workers and retirees already drawing a pension. [Except that under MPRA, pension benefits can’t be cut at all for those 80 and older, and cuts phase out for those between 75 and 80.] Trustees made the cuts deeper for retirees in part for reasons of equity: It wouldn’t be fair to expect current workers to contribute more to fund more generous benefits than they’ll ever receive.
The U.S. Treasury Department approved the cuts proposal Nov. 8, and sent ballots to all participants Nov. 21. The vote was 42 in favor of the cut, and 48 against, but under MPRA, trustee cut proposals are implemented unless a majority of participants vote to reject them. Sickles said a number of members told him they were voting yes by not casting ballots. The cuts now will take effect Feb. 1.
MITA bookkeeper Kirt Haneberg called the cuts both tragic and necessary, but said there are reasons for optimism. Construction continues to boom, and work hours are up, which benefits the pension plan’s bottom line. And there are signs Local 82 is improving its market share: Its international union has lately assigned organizers to support efforts to bring in non-union workers and contractors.
“I’m hoping it’s a corner that we’re turning,” Haneberg told the Labor Press.
Could benefits be restored?
The pension cuts take effect Feb. 1, but if the pension plan’s finances improve enough in the coming years — through a combination of exceptional investment returns and increased work hours by active members — trustees would be able to backfill some of the lost benefits. In fact, the rules would require them to.
There’s also a possibility that Congress could act to restore benefits. Last year, Congress created a special bipartisan committee to look at solutions for the roughly 1 in 10 union-sponsored multi-employer plans that are headed for insolvency. The committee held hearings in the summer of 2018, but failed in its mandate to come up a proposed solution by the end of November. However, committee members did leak a draft of the proposal they were working on. Among the details: The federal government would lend money to distressed pension plans — including ones that had already made MPRA cuts — to allow them to invest their way back to financial health. Proposals like that are expected to resurface in bills introduced in the new Congress that began Jan. 3.