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Getting My Due

Greg Spears

A 156-YEAR-OLD newspaper company filed for reorganization in bankruptcy court last year. The company said it just couldn’t come up with the millions it owed to its pension plan. Some 24,000 current and future retirees were promised payments from that plan—and I’m one of them.

This is the story of what happened to our benefits after the pension plan failed.

For 10 years, I was lucky enough to cover Washington, DC, as a newspaper reporter. It was a heady job for a history major like me. The icing on the cake was I worked long enough to qualify for a small pension from my employer, Knight Ridder.

I left Knight Ridder in 1994. My benefit was projected to be $400 a month starting when I turned age 65 in March 2021. Heftier payments go to those who stay decades, including their highest-earning years. Still, I felt lucky to have any benefit at all. After all, a pension is guaranteed income. I would get paid no matter what.

Or that was the theory—until the newspaper business crashed so spectacularly.

At first, just a trickle of advertisers and readers migrated online. Recognizing the threat but unable to check it, Knight Ridder sold itself at a premium to a smaller newspaper chain, the McClatchy Company, in 2006. To swing the deal, McClatchy borrowed heavily and assumed all of Knight Ridder’s debts and pension obligations. You can see where this is headed. As the trickle to the internet swelled to a torrent, no number of painful layoffs and cutbacks could staunch the losses. McClatchy filed for Chapter 11 bankruptcy reorganization on Feb. 13, 2020. It asked the court to terminate the employee pension plan.

Was my pension lost before it began? I turned to my old benefits handbook. If the pension plan were ever terminated, it stated, “The amount of your payment (if any) will depend on: plan assets, the terms of the plan, and the benefit guarantee of the Pension Benefit Guaranty Corporation (PBGC).” This little federal agency would prove to be my biggest ally.

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The PBGC takes no money from general tax revenues. Instead, it collects yearly insurance premiums from employers that sponsor private pension plans. In 2020, the agency paid benefits to more than 984,000 retirees whose pension plans had failed. After selling all its assets, McClatchy had $1.3 billion in its pension pot. That seems like a lot, but it‘s $1 billion short of what’s needed to pay all of us ink-stained wretches what we’re owed, according to the PBGC.

Happily for us, the agency announced it would pay the shortfall from its insurance fund. All I had to do was apply for benefits a few weeks before I turned 65. The application paperwork was easy, apart from having to locate old records like my marriage license. And it was paperwork: We corresponded mostly by mail, which made my wait for the PBGC reply suspenseful.

A letter brought the good news less than a month before I turned 65. Yes, the company records showed that I qualified for a pension. The agency said I could get $400 a month if I took my pension as a single-life annuity, meaning all payments would end when I die. I applied instead for a monthly benefit of $333 that will be paid over both my and my wife’s lifetimes. An online calculator suggested this could yield the largest payout. Did I make the best choice? You’ll have to ask our executor—but not for a few decades, I hope.

By my mental accounting, my small pension will help pay the utility bills while I delay taking Social Security until age 70. In the meantime, we live comfortably on our savings and my wife’s earnings from work. I feel I did nothing to earn this happy ending except reaching the magic age of 65 and living in a nation with strong retirement laws.

That regulatory framework came into existence with the sweeping Employee Retirement Income Security Act (ERISA), signed into law by President Gerald Ford in 1974. Ford was portrayed as a bumbler on Saturday Night Live, raising a drinking glass to his ear when trying to answer the phone, then tripping all over the furniture. When I was a reporter, I interviewed Ford long after he was president. (Didn’t I say it was a great job?) Square-jawed and fit, he was articulate and well-informed on every issue I raised. Afterward, I told colleagues that I thought Ford was underrated. With my pension safely in hand, I feel even more sure of it now.

Greg Spears worked as a reporter for the Knight Ridder Washington Bureau and Kiplinger’s Personal Finance magazine. After leaving journalism, he spent 23 years as a senior editor at Vanguard Group on the 401(k) side, where he implored people to save more for retirement. He currently teaches behavioral economics at St. Joseph’s University in Philadelphia as an adjunct professor. The subject helps shed light on why so many Americans save less than they might. He is also a Certified Financial Planner certificate holder.

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BenefitJack
BenefitJack
1 month ago

What’s the story?

Normally, I might have put my economist hat on and tell you that YOU paid for your pension benefit via a reduction in wages.

However, there is massive difference in circumstance because the PBGC comes in two, distinctly different forms and funds. Yes, if you have a benefit from a single-employer pension plan, your pension was generally in the form of deferred wages (unless you worked for a firm like United, where they intentionally underfunded the pension plan and dumped $6+B in unfunded liability onto the PBGC). See: https://www.latimes.com/archives/la-xpm-2005-may-11-fi-united11-story.html

Another favorite airline story is the nine airline employees of an underfunded pension plan who divorced their spouse, executed a QDRO, elected a lump sum, and remarried – because they had no faith in either their employer’s pension plan or they recognized the limits of PBGC insurance. See: https://abcnews.go.com/Travel/Business/story?id=7662759&page=1#:~:text=Continental%20claims%20nine%20couples%20split,lump%2Dsum%20payout%20of%20pensions.&text=Continental%20Airlines%20claims%20nine%20pilots,spouse%20after%20the%20payouts%20began.

However, if you were a participant in a multi-employer plan, too frequently NO ONE’s pension was “fully funded” with deferred wages. Instead, management and unions colluded to promise benefits … they just didn’t promise to fully fund the pension plan, relying instead on PBGC insurance AND the implicit guarantee by taxpayers.

In fact, the PBGC was created, in part, because unions (and specifically the United Auto Workers) did not want employers of their union members to actually divert money from wages to fund the pension, as it would mean reductions in wages and or future benefit accruals. That is, there is no need for the PBGC if employers (and employees in the form of deferred wages) actually funded the pension promist. So, by adding ERISA and the PBGC, Congress (and President Ford) continued the legacy of Studebaker – just relying on PBGC and implicitly, taxpayers to step up if needed. See: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=290812 Let’s see, President Ford, from Michigan, signed ERISA into law just weeks after Nixon resigned.

Many single employer plans were terminated after the Pension Protection Act of 2006 increased funding requirements. Interesting, the same law did not require those increased funding requirements apply to multiemployer plans. And, it is not as if the funding woes for multiemployer plans were not well known. It was President CARTER who signed the Multiemployer Pension Plans Amendment Act of 1980 – just six years after ERISA was enacted! Instead, multiemployer plans waited, and waited and waited, while watching the unfunded pension liabilities increase (from about $2.8B in 2011 to $63.7B in 2020).

Then, this year, Congress sent taxpayers the bill to bail out the multiemployer pension system. See: https://www.cnbc.com/2021/03/08/covid-relief-bill-gives-86-billion-bailout-to-failing-union-pension-plans.html

Remember, most of the taxpayers who will foot the bill for this bailout don’t, themselves, have a pension.

booch221
booch221
3 months ago

Greg Spears,

So did you get the full pension amount, the same as if there had been no bankruptcy?

Sonja Haggert
Sonja Haggert
3 months ago

Great article, Greg! I’m in the same situation as Rick Connor and also feel relieved that the PBGC really works.

Roboticus Aquarius
Roboticus Aquarius
3 months ago

Thanks for sharing your experience with us readers. I have a small pension as well, and could very well end up going through the same thing as you before too long.

Jim Nelson
Jim Nelson
3 months ago

Greg, great article! I didn’t recognize you with your beard. Hope everything is going well!

Mik Cajon
Mik Cajon
3 months ago

SNL is a bad joke at best…great article.

Rick Connor
Rick Connor
3 months ago

Greg, thanks for an interesting article. As the current recipient of a private pension, I’m glad to see the PBGC backup worked for you. Our company was sold and merged several times, and somehow the pension fund seemed to stay intact. We always worried how solid the PBGC guarantee was.

R Quinn
R Quinn
3 months ago

The PBGC has helped millions of Americans save their retirement, no doubt about that. But there are limits on what the program will guarantee so many workers are not as lucky as you were in getting 100% coverage.

Also, the program is a two edged sward. The premiums started at $1.00 per participant per year, after a few years they doubled and today they are $86.00 per participant. These costs are one factor in employers abandoning pension plans especially since it’s the responsible companies that carry the funding burden.

Variable premiums were added which charge underfunded plans more, but while it may sound logical, putting an added financial burden on employers already underfunding their plans just adds fuel to the fire.

Over the years, the status of the PBGC has been a political football, often underfunded itself.

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