America’s pension crisis is starting to spiral out of control. News stories indicate that as many as 273,000 retired Teamsters could see their pension checks cut by as much as half.
The reason? The gigantic Central States Pension Fund, operated by the Teamsters Union, simply does not have enough money to cover all the checks it is supposed to be writing, The Detroit Free Press reported. The only way to keep the fund from running out of money is to cut benefits to around 41% of the pensioners.
What’s truly frightening is that the fund, which supposedly has around $17.3 billion in assets, does not have enough money to cover the payments to the hardworking people that paid into it for decades. Nor does the Pension Benefit Guarantee Corporation (or PBGC), the federal agency that is supposed to guarantee pension plans, have enough money to cover all the insolvent pension plans out there.
Not surprisingly, union officials, including Teamsters President James B. Hoffa, the son of Jimmy Hoffa, the man who let the mob use the same pension fund as a money laundry in the 1960s, are demanding that taxpayers foot the bill for their mismanagement. Hoffa Jr. and our friend Bernie Sanders are pushing a “Keep Our Pension Promises Act” that would require Uncle Sam to pick up the bill for unpaid pensions. Naturally, neither of them has said how that would be paid for.
Currently, the Central States Pension Fund is paying out $3.46 for every dollar it takes in, largely because the number of retirees exceeds the number of active Teamsters, The Washington Post reported. A plan to keep the fund afloat by cutting benefits to younger retirees, but keeping checks flowing to older retirees, could be approved by the federal government.
If the rescue plan for the Central States Pension Fund is not successful, the plan could be completely insolvent by 2026, The Post reported. One reason why that will happen is that the fund has been mismanaged for decades.
Only the Tip of the Iceberg
Now for the truly frightening part. The Central States Pension Fund is only the tip of the iceberg. There are dozens, if not hundreds, of union, company, and government pension funds out there that do not have enough money.
Around one million pension fund beneficiaries around the country could see their benefits cut because funds simply do not have any money, The Washington Post reported.
A new federal law called the Multi-Employer Pension Reform Act gives the Treasury Department the power to reorganize pension funds and cut benefits. That could keep the plans a solvent at the expense of retirees.
Many retirees will take a terrible hit in their pocketbooks because their incomes could suddenly be cut in half or more. Some of them will have to go back to work or sell their homes just to eat.
The situation for public employees could be even worse because the PBGC, which is already close to out of money, only covers private pensions. Public pension funds have no guarantee, so if they run out of money, retirees might have nothing. To make matters worse, some of the retired public employees will not be eligible for Social Security because they did not pay into that program.
Some other solution, perhaps increases in Social Security, is needed now. Social Security increases could at least be paid for by limiting the income restrictions on the payroll tax. Currently, the government only withholds taxes up to $118,500 a year, which limits the funds available, so Social Security, were that to be removed, would collect billions more in revenue from affluent people whose income is growing faster than the rest of the population.
If something is not done and fast, the pension crisis will soon explode into a major political controversy that will radicalize millions of Americans. One result of that could open class warfare, while another could be tens of millions of votes for radical politicians like Donald Trump and Bernie Sanders.
One has to wonder how a society that fails to keep its promises to workers and older people can avoid unraveling. There is one certainty in this situation: politicians will soon be hearing about this crisis whether they want to deal with it or not.