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“The Federal Government’s Little-Known Pension Heist”: The Ones Who Will Suffer The Most Had No Part In Managing The Funds

“Too big to fail” means one thing for banks and another thing for union pension funds.

When banks are on the verge of collapse, Congress bails them out. When union pension funds are in mortal danger, Congress changes the law to let them shaft retirees.

Did you miss that newsflash? So did many of the 407,000 unsuspecting Teamsters, mainly former truck drivers, who received letters in October announcing whether their pension benefits will be cut.

Two-thirds of them got bad news. The Central States Pension Fund claims it will be reducing members’ retirement checks by an average of 23 percent. Union activists say that figure is much higher, and for some the reductions will top 60 percent.

That means hardship for people who have deferred compensation for their entire work lives in exchange for a pension. Bills won’t be paid and mortgages won’t be met — and it will be through no fault of their own.

It once was illegal to cut promised pension benefits. But at the end of 2014 Congress voted to change that — for some. It did so with no debate and no hearings. The Multi-Employer Pension Reform Act was attached to a must-pass omnibus spending bill. President Barack Obama signed it a few days later.

The law permitted the so-called multi-employer pension plans, run jointly by unions and employers, to apply to the Treasury Department to reduce benefits. And that’s what Central States did in October. Union member will notionally get a chance to vote on the cuts, but the Treasury Department can override that outcome. Count on it to do so.

Multi-employer pension plans are clearly in trouble. They cover more than 10 million workers and they are mostly underfunded. The Pension Benefit Guaranty Corp., the federal agency that backstops pensions, would not be able to withstand the failure of the Central States fund. (The federal program is also in trouble, reporting a $76 billion deficit in mid-November, and its estimated exposure to future losses runs to the hundreds of billions.)

How did the situation get to this drastic point, and what should be done?

First of all, Central States is not in trouble because of mob skimming, as some might presume. Yes, it was set up by the notorious Teamsters President Jimmy Hoffa in 1955, and he was later convicted of improper use of funds from the pension. Courts intervened in the early 1980s, and Goldman Sachs and Northern Trust were set up as fiduciaries.

The main factors in Central States’ decline have been deregulation, de-unionization and demographics. Following the trucking deregulation of the 1980s, numerous companies went under, adding to the pension’s burdens. Over the decades, union membership has declined and retirees have lived longer.

The financial crisis of 2008-09 hurt as well. In 2007, Central States had $27 billion; it has since lost one-third of its assets. It is currently paying out $3.46 in pension benefits for every dollar it receives through worker’s contributions.

However one apportions the blame, the ones who will suffer the most had no part in managing the funds. And the whole point of federal pension guarantees is protecting such people. A more fair resolution would be to bolster federal pension protection.

Sen. Bernie Sanders of Vermont and Rep. Marcy Kaptur of Ohio have introduced companion bills, the Keep Our Pension Promises Act. They would prop up the vulnerable pension funds through changes in the tax code affecting wealthier people.

Not all union-involved pension funds are in such straits. But when they do get into trouble, it’s fashionable for some politicians and opinion-page blowhards to blast the misfortune as just deserts. We need to remember that all benefits are compensation. Workers take them in lieu of wages, and to take them back once they have been earned is, well, theft.

Why is it that no one but the retired workers — the only people who have held up their side of the bargain through their years of labor — are being made to suffer the consequences?

 

By: Mary Sanchez, Opinion-age Columnist for The Kansas City Star; The National Memo, November 27, 2015

November 29, 2015 Posted by | Congress, Multi-Employer Pension Reform Act, Pension Funds, Unions | , , , , , , , | 3 Comments

“She Will Be Heard”: Elizabeth Warren Knows Where A Lot Of The Bodies Are Buried, Puts AIG On Notice

When new members arrive in the US Senate, they are supposed to take a seat on a back bench and listen quietly for a couple of years. That is not in Elizabeth Warren’s nature. She had been a US Senator from Massachusetts for only about a week when she broke with etiquette. Warren was outraged that AIG investors were urging the insurance giant’s directors to join them in a lawsuit against the federal government, claiming damages from the federal bailout of their company during the financial crisis.

The freshman senator sent out a tartly worded statement to her many fans and followers. “AIG should thank American taxpayers for their help—not bite the hand that fed them,” Warren wrote. The message swept the blogosphere like wild fire. The AIG directors folded the next day. It is perhaps mistaken to assume her voice alone stopped this corporate ingratitude in its tracks, but that may well be the message absorbed in Washington politics. Try not to provoke this new senator, especially on the stuff she knows a lot about. She might bite back.

Indeed, Senator Warren has renewed the accusation about the AIG bailout she had made a year ago during her Senate campaign. While the Federal Reserve pumped a fortune ($182 billion) into saving AIG from failure and thereby protected Wall Street megabanks from huge losses, the Treasury Department was arranging its own “sleuth bailout,” as Warren charged. Treasury granted an exception to the standard tax rules that delivered billions more to AIG in the form of a special tax break.

The company was effectively relieved from paying any taxes despite the fact that it has returned to profitability and repaid the Federal Reserve loans. The senator called on her supporters to join a campaign to end AIG’s special tax break. “Enough is enough…,” she wrote. “These special tax giveaways give AIG a competitive advantage over its competitors—all the while inflating AIG’s profit numbers and compensation for executives.”

What separates Elizabeth Warren from your typical newcomer to Congress—in addition to the rare gutsiness—is her deep knowledge of banking and finance. For many years, while she taught at the Harvard law school, Warren was a lonely crusader, exposing predatory bankers and the cruel terms by which millions of families were driven into bankruptcy.

Her reputation led to appointment as the chair of the Congressional Oversight Panel that investigated the AIG bailout in great depth. The COP final report is itself an extraordinary document of government—clear and concise, an unflinching analysis that describes exactly how the Federal Reserve and the Treasury failed to serve the public interest in their incestuous bailout of Wall Street titans.

“The AIG rescue demonstrated that Treasury and the Federal Reserve would commit taxpayers to pay any price and bear any burden to prevent the collapse of America’s largest financial institutions,” Warren’s report concluded.

She will be heard. The new senator will serve on the Senate banking committee and she already knows where a lot of the bodies are buried. I suspect some of those disgruntled AIG investors are wishing they had kept their whining to themselves.

 

By: William Greider, The Nation, January 10, 2013

January 11, 2013 Posted by | Banks | , , , , , , , , | 1 Comment

Courage Of Convictions: The Tax Collector And The Republican

Congressional Republicans constantly remind us that principle is more important than principal. They are willing to shrink government at all costs. The latest example comes from the new budget agreement that has an impact on the IRS and tax collections.

Tax collection is one of the IRS’s principle functions as we are all reminded this time of year. There are some who not only refuse to cheerfully pay what they owe but actively take steps to avoid paying taxes they owe. As a result, some IRS employees have as their main job, identifying those people and taking steps to encourage them to pay what they owe.

In 2006, Republicans in Congress came up with a whole new approach that provided employment to the non-governmental sector, a group that is always favored by Republicans. (That is because Republicans know that those who work for the government tend to be lazy and inefficient whereas those in the private sector are hard working and productive. That is, of course, something of a generalization, since occasionally someone in the private sector will disappoint and prove to be lazy and/or unproductive.)

Because of the Republican belief in the virtues of the private sector (which is almost as fervent as its belief that in taking funds from programs for children and the poor it is doing God’s work), in August of 2006 it was announced that within a couple of weeks the IRS would turn over to private collection agencies 12,500 delinquent tax accounts of $25,000 or less. According to the New York Times, this new way of collecting taxes was thought up and put in place by the Bush administration. The plan had, like many plans do, an upside and a downside.

The upside was that the debt collectors were part of the private sector. Under the private debt collection system the collectors would collect $1.4 billion each year of which they could keep $330 million, thus lining the private sectors’ pockets by that amount instead of having it go into a government pocket where it would, in all likelihood, get lost. Although that seems like a win-win, in 2002 Charles Rossotti, the Commissioner of Internal Revenue, had told Congress that if it hired additional IRS employees to handle collections, it could collect more than $9 billion each year at a cost of only $296 million, considerably less than the cost if the same work was done by private collection agencies. That came out to a cost of $.03 per dollar collected. According to the NYT, his testimony was correct but Congress didn’t want to swell the size of government by authorizing the hiring of additional personnel for the IRS. Charles Everson, IRS Commissioner in 2006, when the private debt collection program was implemented, agreed with Mr. Rossotti and said it was more efficient to hire more IRS personnel but Congress would not appropriate the funds it needed to do that. Congress’s reluctance is a perfectly sensible approach since if you want to shrink government you have to make sacrifices and in this case, the sacrifice is increased revenue.

In 2008 Democrats took control of both houses of Congress and in March of 2009 it was announced that the IRS had determined that IRS employees could do collection work more efficiently than the private debt collectors, just as Rossotti and Everson had said some years earlier, and there was no reason to continue the program. Senator Grassley, who was the top Republican on the Senate Finance Committee, was outraged. Ignoring the fact that the government would have more money if the IRS were responsible for collections, he said the IRS was caving in to “union-driven political pressure.” He would have rather seen the federal government lose money than take away business from the private sector. The last chapter in this saga, however, has not been written.

Now that the budget compromise had been reached here is one of the things that has happened. The White House had requested an increase in the IRS budget of approximately 9% which would have enabled the agency to hire an additional 5000 personnel. Many of those could have been used to collect taxes which would have helped reduce the deficit. Echoing what Messrs. Rossotti and Everson had said years earlier, Treasury Secretary, Tim Geithner, who testified before Congress in March, said: “Every dollar invested in IRS yields nearly five dollars in increased revenue from non-compliant taxpayers.”

Republicans have refused to authorize the hiring of additional personnel at the IRS in order to collect taxes. A release from John Boehner’s office said increased funding for the IRS had been denied as part of the budget agreement. This shows that the Republican majority has the courage of its convictions. The rest of the country can enjoy the benefits of living off the fruits of its follies.

By: Christopher Brauchli, CommonDreams.org, April 16, 2011

April 17, 2011 Posted by | Budget, Congress, Conservatives, Corporations, Democrats, Economy, Federal Budget, GOP, Government, IRS, Jobs, Lawmakers, Politics, Public Employees, Republicans, Tax Evasion, Tax Loopholes, Taxes, Unions | , , , , , , , | 1 Comment

   

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