I don’t blame Jim Doten (Commentary, Daily Planet, Jan. 24) for being upset about having to pay $541,000 in withdrawal liability to cover his employees pensions. No one likes unexpected bills, not even millionaires.
The fact that he’s upset, however, shouldn’t give him a free pass to make numerous misstatements of fact in an effort to win sympathy from the public.
First, Mr. Doten claims that the strike is all about the pension plan and that the new owners of Berkeley Honda made “sound business decisions in their hiring of staff.” If their hiring decisions were sound, then it doesn’t say much for judgment because the nine Doten employees who were let go by the new owners had a cumulative 137 years of service working for him. Most were given one 20-minute interview before being kicked to the curb. As far as we can tell, none of the Berkeley Honda new hires have ever worked in a Honda dealership before. While the pension plan is an important issue, the main reason the employees struck was because of the cavalier way that the new management treated their co-workers.
In his article, Doten refers to the “union and its pension plan.” It has been illegal since 1947 for a union to solely manage or run a pension plan. Automotive Industries (the plan in question) is governed by a 10-member board of trustees, five picked by the participant unions and five picked by employers. The employer association which Mr. Doten belonged to for 30 years has a seat on the board and the president of that group sits as the co-chair of the pension fund. All board decisions require a majority from both sides of the table. Every increase and decrease in benefit levels in the last decade have passed with the unanimous support of the five employer trustees.
Mr. Doten may be unhappy with the board’s decisions, but he can’t complain about lack of representation. He really can’t complain about lack of information either. All trustees have their addresses and phone numbers published and are readily available to discuss the fund’s status with any employer or participant who chooses to call.
Mr. Doten clearly did not choose to educate himself about the plan because he got some of the facts wrong and this leads him to an erroneous conclusion. The crux of his argument is that foolish and imprudent trustees jacked up the benefits by 20 percent in 2001 when the stock market had already peaked and most people could see we were heading into a recession, thus leading to the pension plan’s unfunded liability. That’s a great story, but not even close to the truth. The last increase in benefits was actually passed in June 1998 (with an effective date of Jan. 1, 1999). It increased benefits by a whopping .1 percent, from 4.9 percent per month to 5 percent per month of service. It was the last of four increases that took place between 1992 and 1999 that collectively added up to about 20 percent. Why did that happen? I’m glad you asked.
Between 1992 and 1998, the pension fund’s assets grew by $944 million, an average of 15.45 percent per year. The trustees had to increase benefits for two reasons. One, the purpose of the plan is not to rat hole money, it is to provide benefits for the participants. When a pension fund grows to a certain level, the Trustees have both a legal and a moral obligation to spend that growth on the people in the plan. Two, the IRS will eliminate the tax exempt status of a plan and impose an exise tax on employers in that plan if it accumulates a certain level of assets without paying improved benefits. This sensible regulation was designed to prevent employers from using pension plan contributions as a tax dodge.
One wonders how Mr. Doten would have felt in 1998 if the trustees had not made plan improvements and the IRS had levied hundreds of thousands of dollars in penalties and fines against him. I also don’t recall hearing any complaints about the $100,000 per year tax deduction that the plan afforded him year after year. I can certainly understand why people feel it is unfair that a withdrawing employer gets assessed a large penalty even after they have paid their monthly bill. If you believe there is a villain in this little melodrama, you need to look to Congress. In 1980 it passed a law that required pension funds to assess withdrawing employers if there was a deficit in the pension plan. It did so to prevent a “run on the bank” mentality when pensions had a few bad years.
Congress did so because it was concerned that a mass exodus of employers from a fund during a down investment cycle could lead to pension plans collapsing. If that happens, either the taxpayers have to pick up the pieces (United Airlines is a good example) or thousands of seniors would be left destitute.
Because of this law, multi-employer pension plans almost never go under. The most recent report from the Pension Benefit Guarantee Corporation (PBGC) demonstrates this point. Approximately thirty million Americans are covered by single-employer pension plans. Because the steel and airline industries have been allowed to dump their plans on the PBGC, the single-employer insurance account has a deficit of $23 billion, and it could triple in the next few years.
Multi-employer plans (such as automotive industries) cover about 10 million people. The PBGC deficit for these plans is $240 million, or 1 percent of the single employer deficit. The only reason our pension plan is running a deficit is two years (2001-2002) where the fund actually lost money. The worst year was a loss of 6.68 percent, which coincided with a steady increase in retirements. During the last decade, which includes three of the best and four of the worst years we have experienced, the pension plan grew by an average of 9.3 percent per year.
Mr. Doten also claims that the very concerned new owners of Berkeley Honda are putting the same amount of money into a 401k that he put into his employees pension. He’s really selling himself short. Doten Honda contributed $465.97 every month for journey-level and $232.99 for non-journeyperson classifications to the pension fund. Every union employee got a pension contribution.
On the other hand, Berkeley Honda is giving four employees $166 per month cash, which they can spend or put in a 401k as they wish. They have also stated that at some unspecified time in the future they will put $3,600 into the 401k for those four individuals. The other 30 employees of Berkeley Honda get nothing.
The final word on Mr. Doten’s credibility (and math skills) should be this: He claims that the pension fund deficit of $141 million “was equal to the gross domestic product of Argentina.” A quick Google search shows Argentina’s GDP to be $91 billion, or 650 times as much.
Don Crosatto is the area director for Local Lodge 1546 of the Machinists Union and a Trustee of the Automotive Industries Pension Plan.