In The News

WSJ: Caesars Move Highlights Risks to Multiemployer Pensions

By: Tiziana Barghini

Plenty of casino employees know the odds at the blackjack table, but what thousands of them don’t know are their chances of retiring with full pension benefits.

Caesars Entertainment Corp.’s move last week to seek Chapter 11 bankruptcy protection for its biggest unit highlights the risk facing many of the 10 million Americans who are covered by multiemployer pension plans.

The nation’s 1,400 such plans, run jointly by unions and employers, are negotiated through collective bargaining and typically financed by several companies. They are designed to provide defined-benefit pensions, which promise retirees a set payout.

The plans cover a wide range of unionized employees in industries from retailing to trucking to iron working. But as employers in these industries run out of money or downsize, it puts a bigger financial burden on their peers, sometimes threatening the solvency of the plans.

Caesars Entertainment Operating Co. is at least the third major casino operator to seek protection from creditors since 2008, and the industry’s ills could ripple through the federal agency that ensures that retirees receive a portion of their benefits if their employers can’t.

The Pension Benefit Guaranty Corp.’s own odds of going bust within nine years are the same as those of a coin toss, according to a PBGC official. “This is not rocket science to detect. We said we have a $42 billion deficit in the multiemployer program, and we are getting roughly a billion dollars per decade in premiums; so even if you double a billion dollars per decade in premiums that doesn’t make a big dent,” the official said.

Caesars told a bankruptcy judge it will keep contributing to employees’ pension and health-care funds, and that the pension benefits are “protected under the law,” according to a statement by Unite Here, which represents many casino workers.

It isn’t clear, however, how the company’s restructuring might affect its $75 million in unfunded pension liabilities, or whether it would lay off any of its 32,000 employees, which would decrease its contributions to the plan.

Caesars and Unite Here declined to comment.

Casino workers are no strangers to pension risk. In October, a bankruptcy judge allowed the Trump Taj Mahal Casino in Atlantic City, N.J., to shed its pension obligations and walk away from its pension liabilities. Tropicana Casino & Resort, which was purchased out of bankruptcy, withdrew from the pension fund in 2012.

Congress passed a law in December that doubled companies’ pension-insurance premiums and allowed pension funds to cut benefits to current retirees. This could help save the Unite Here National Retirement fund, which covers thousands of casino workers, and as many as 200 funds in dire financial condition.

Cutting benefits could allow some of the pension funds to survive, which many retirees would prefer to the funds becoming insolvent.

“One of the benefits of the recent change in the law is that companies are no longer forced to withdraw to avoid greater liability, they can instead work with the plan so that both the plan and the company can survive” said Joshua Gotbaum, a former PBGC director who is now a guest scholar at the Brookings Institution.

While some pension plans, such as the Teamsters’ Central States, are expected to cut benefits to survive, others might not be able to stay afloat.

“The two big troubled plans are the Central States and United Mine Workers of America,” said Alicia Munnell, director of the Center for Retirement Research at Boston College.

The Teamsters’ Central States pension fund has roughly 410,000 participants, of which less than 17% are still working. The fund’s liabilities range from $35 billion to $53 billion, depending on how they are calculated, she said.

A cut of around 30% of its current benefits would allow it to remain solvent, although with a low level of funding, she added.

Central States and UMWA representatives weren’t available to comment.

“It is not clear to me you can solve this with premium increases…The PBGC would need an infusion of money from the government,” Ms. Munnell said.

The PBGC is expected to report to Congress by mid-2016 on how much money it needs.

Carol Duncan, president and owner of General Sheet Metal in Oregon, says she would like to see her 23-year-old daughter take over the family business one day, but she doesn’t want to saddle her daughter with a massive pension problem. General Sheet Metal contributed almost $150,000 to the Sheet Metal Workers’ National Pension Fund last year, but its unfunded liability in the plan increased by $280,000.

The Sheet Metal Workers’ National Pension Fund has around 136,000 participants, including 54,000 who are still working, 47,000 who are retired and 35,000 who are spouses entitled to future benefits.

“I’m making higher contributions,” Ms. Duncan said, “but getting in a deeper hole with no idea or control over how much more my exposure will grow.”

Corrections & Amplifications

An earlier version of this article reported incorrectly that General Sheet Metal’s unfunded liability in the Sheet Metal Workers’ National Pension Fund increased to $280,000, instead of increased by $280,000.

To read the full article online, click here.

Posted 16:51PM on January 21 2015 by Jessica
Categories: SNB in the News