PENSION CRISIS AT METRO

PENSION CRISIS AT METRO

The defined benefit pension system that many workers depend on to provide an adequate retirement is under attack. All across the country these plans are being closed to new members.  In some cases, retirement benefits have been cut because the plans do not have sufficient funds to pay promised benefits.

The labor movement must fight against the attacks on pension systems. Here at Metro, we must take the pending attack seriously and develop militant leadership to stop management schemes to attack our pensions.

At WMATA, the Transit Employees Retirement Plan (TERP) that provides retirement benefits to Local 689 members is under attack. In the current round of contract negotiations, Metro has advanced outrageous proposals to close the TERP to new employees, stop accruals for current employees, and modify the post-retirement cost-of-living adjustments.

Metro’s argument for making these changes is that the TERP has become too expensive to maintain and that if current trends continue, required contributions will exceed 30% of payroll. Instead they propose setting up a 401(k) defined contribution system where the investment risk in the casino called the stock market falls on participants rather than the employer. Metro’s contribution is set at approximately 3-4%, far below what it currently provides under TERP.

What is causing the current crisis?

When the TERP was first established in 1945, it was decided that the money collected for it would be invested primarily in risk-free federal government bonds. Since returns on these investments were generally stable, it was easy to determine the rate of return on the TERP’s investments and so the required contributions by the employer and the participants were also stable for any particular level of benefits.

In the early 1980’s, the union and management agreed on a new investment strategy. The new investment profile allocated 70% of the investments to equities (stocks) and the rest to government bonds. At the same time, WMATA agreed to pay the full cost of the TERP and the participants agreed to a one-year wage freeze.

WMATA management thought that, with this new investment strategy, returns would be greater and the cost of the TERP would decrease. From 1983 forward the stock market had a good run.  Each year Metro’s required contribution decreased until in 1997 it went to zero.

From 1997 to 2005, Metro made no contributions to the TERP.  In the 2004 contract negotiations, the union made the argument that the unusual run of high market returns would eventually end and the Plan need a new funding method to take this into account.  Management agreed and contributions resumed in 2006.

In 2009, the stock market bubble which had been building for over 20 years burst and there was a major financial crisis.  The union leadership, in response to Metro’s threats to end the pension system, backed away from insisting that the contributions required to fund the Plan should be made, and agreed to amortize the losses over a 30 year period (this meant the fund would not reach full funding for 30 years). This allowed Metro to reduce its required contribution to the TERP by approximately $47.7 million per year. Then in 2012, the union agreed to management’s request to further reduce Metro’s contribution by requiring the participants to pay 3% of their wages into the Plan.

These two backwards steps by our union leadership gave Metro an appetite for more cuts in pension costs.  The crisis is real and can only be solved by the TERP becoming less reliant on the stock market and by WMATA contributing additional funds to the Plan.

The current assumptions that our Plan will return 7.75% returns on investments is completely unrealistic. Almost all pension economists expect such plans to earn at best between 4% and 5% on these investments in the coming decades. With management’s current unrealistic assumptions, the TERP is forecasted to gain about $230 million per year from investments of the $3 billion it currently holds. In reality, we can expect to gain only about $150 million.  Each year, the TERP will come up short by about $80 million.

The TERP amortizes these losses and Metro’s required contribution grows each year as it becomes less-fully funded. If new employees are cut out from TERP and forced into a 401(k) plan, the situation gets even worse. For new workers, the 401(k) is a crap shoot whose benefits will never compare to the defined benefits we have negotiated over the years with Metro. And since the TERP is not fully funded, money that is put in by current employees supposedly to pay active members in the future is used instead to pay current retirees their full benefits. In this scenario, we soon reach the situation where there are relatively few active members in the Plan and thousands of retirees. At that point retirement benefits would be severely cut. This is the scenario that has happened with the Central States Teamster Fund, where pensions have been cut severely because there are only 50,000 active employees and 200,000 retirees.

The only sensible solution to this death spiral of the pension fund is for Metro to keep all workers in TERP, to contribute more money to the Plan, and to reduce reliance on stock market returns. The money to do this must come from the federal government, the developers and the businesses for the services we provide them.

The fight to achieve this will not be easy.  We must unite with the riding public to demand better service, lower fares and a dedicated funding source that captures the extra profits the businesses and developers make from the service we provide.

As a union we must make ourselves strike ready to let the local government and the Metro Board of Directors know that we are serious about protecting our pension system.  Many of us have dedicated the best years of our lives to Metro.  We expect and deserve a decent retirement income.

Mike Golash mgolash@gmail.com   202-253-4880

Preserving Our Pension System

Recently there has been a lot of concern all across the country about the condition of defined benefits plans similar to the plan that Local 689 has in place. Defined Benefits Plans are being curtailed, closed or benefits reduced.  In light of this it is important to take a look at the condition of the Transit Employees Retirement Plan.

The TERP is currently about $800 million dollars underfunded.  Funding for the plan has been a contentious issue since the fund was established in 1945.  Up until the early 1980’s the fund was mostly invested in government bonds with relatively low rates of return.  In the early 80’s two things happened:

1.)           The Trustees began to invest money in the stock market in the hope of increasing the return on the investments.

2.)           In 1983, management agreed to fully fund the plan. Employee contributions were stopped and in return the union agreed to forgo a wage increase for that year. Also as part of the deal, a 30 year amortization period was agreed on for the unfunded liabilities at the time. Because of higher returns on investments, Metro’s contributions began to decrease until in 1997 they went to zero. At that time the plan actuary recommended a new funding method so that Metro’s contributions would continue, but both the union and management passed on the issue in the 1998 and 2001 CBA negotiations. Finally in the 2004 negotiations, a new funding was agreed on and contributions at about 5% of wages contributed by Metro began.

Then in 2008, as the financial crisis began and the value of our investments plunged, Metro’s contribution was supposed to increase dramatically. Metro demanded relief (they forgot all the years they had contributed nothing). The union then agreed to a new 30 year amortization of the deficit.

Can the plan recover? It is not likely under the current funding method and amortization table. Why? Our assumptions about returns on investments are too high.  A 7.75% return is not achievable in the current global economy. Competition from China, India and the EU are driving down profits for everyone.  Not achieving assumed returns leads to an increasing deficit over time and higher contributions for Metro.  Another 15 to20% drop in the stock market could push our plan over the cliff.

The 2012 CBA in which the participants in the plan began to contribute to it did not address the funding issue.  The agreement shifted the cost of funding the plan from Metro to the participants.  It did not provide any increase in funds for the Plan.  In other words, Metro‘s contribution was decreased by the amount participants put into the Plan.

What needs to be done to fix the problem and guarantee promised pension benefits for current and future workers at Metro? First the assumption on returns needs to be changed to a more realistic number.  Metro is opposed to this because it would increase their contribution to the plan. Second, the amortization table of the unfunded liability needs to change to a 10 or 12 year rolling schedule. This means every year the plan actuary would calculate the unfunded liability and set out a payment plan for bringing the up to full funding in the allotted time.

 Unless more money is put aside now to provide future benefits, the TERP is not sustainable for future generations of Metro workers.  It will require a major fight with Metro to preserve our plan for ourselves and the next generation of retirees.

Smash Racism and Capitalism with Communist Revoultion

Over the last year there has been a great deal of talk in Washington about the need to grow the economy and create jobs.  From the discussion you would think everyone; Republicans and Democrats are in favor of programs to accomplish these goals.  There are constant cries from the pundits for more bipartisanship to accomplish these goals.  So why is nothing happening.

With 46.5 million people in poverty in the United States today and 42.5% of African American children under five in poverty, there is a crisis for working people.   With 2.3 million people in jail and 400,000 people being deported annually, poverty will continue to grow because their income is needed to keep their families out of poverty.

Since 2010, the recession has ended for the top 20% of the population as they have seen their incomes improve, for the rest, incomes have continued to fall, and there is no end in sight.

Nothing is being done about the situation except talk because the problem is the system of capitalism.  The capitalist control the politicians, the press, the educational system and they will not allow any serious challenges to their system from within these ranks.

If an alternative is to develop, it has to come from those who are exploited by the system, not those who benefit from it. 

Capitalism is a system based on the exploitation of labor.  It can take many forms but in essence it means the surplus value workers produce by their labor is taken by non-producers who hold power and used for their benefit.

The alternative to this is communism where workers produce what they need and distribute it among themselves to meet their needs.

Of course the capitalist say this cannot happen. They use racism and sexism to divide the working class.  They develop a culture which encourages individualism and greed to overcome workers need to help each other out.

We know it is possible to have a world where the needs of the world’s workers are met.  The capitalist stand in the way of reaching this goal.  We are building an organization, the Progressive Labor Party, to overcome the many obstacles the capitalist place in our way of building a word free of racism, sexism, nationalism and constant wars.  A world without money or a wage system, where people work for the common good and have their needs met.  We are building an international party, because conditions are even worse elsewhere in the world and we cannot do it alone.

We can learn a great deal from the working class movements of the 20^th century.  We can correct their mistakes and as Karl Marx said over 150 years ago, open a new era of human history. Join us in this effort.

Progressive Labor Party      www.plp.org          revolution500@gmail.com

Some Answers About 689's Pension Fund

The recent contract changes approved by the membership raised some questions about the Transit Employees’ Retirement Plan which need to be answered.  It has been widely applauded by Metro's Board of Directors and the Washington Post.  This alone should make members of ATU Local 689 skeptical.

The Plan was established in 1945 to provide pension benefits to members of Local 689.   The plan was funded by contributions from both employees and employer.  The employer put into the fund twice the amount of the employee for most of the period until 1983. The employees put in between 4% and 7% of wages, and the employer put in between 8% and 14% depending on the contract in effect.  In 1983, Metro management proposed that they assume the total cost of the pension if the union would take a wage freeze of one year. The wage increase which at that time was based on the inflation rate was estimated to be about 6.5%.

The union agreed and on July 1, 1983, Metro took responsibility for the funding of the pension plan.  Why did they propose this change?  Metro realized that if they changed the way the pension funds were invested, they could return greater yields and over time their costs would go down.  So the fund went from investing in mostly government bonds to a majority of its investments in the stock market.  The plan worked well for Metro.  In the 1989 contract, the minimum contribution required which was 11%, was eliminated from the contract.  By 1997, the investments had done so well, Metro’s contribution to the fund went to zero and stayed there until 2006.  The 2004 contract changed the method of calculating Metro’s contribution, and they were in the fall of 2006 required to begin contributing to the fund once more.  To get Metro to agree to change the method of calculating their contribution the union had to agree to a small wage increase of 1.5% instead of 3%. From 1983 to 2006, Metro saved hundreds of millions of dollars on pension contributions.  They never once complained about this.

In 2008, when the stock market crashed, they began complaining about their contribution.  At the same time they began demanding the employees start contributing to the plan.  They wanted the members to forget about the 6.5% and 1.5% wage increases they had given up in 1983 and 2004 were the members’ contribution to the plan and the millions of dollars Metro had saved in those years.  The sad part is the union leadership did forget.

In the course of discussing the new contract, many argued that it should be approved because the pension fund needs more money, and therefore the members should start contributing to guarantee the solvency of the fund in the future.  This issue was not a part of the contract changes.  The money contributed to the fund will remain unchanged.  What will happen is Metro’s contribution will decrease and the members will pick up the difference.

Our pension plan is a defined benefit plan.  That means the benefits are defined by our contract. The money for these benefits comes from a fund controlled by a six member committee of union officers and management people.  This committee invests the funds at a reasonable risk level and expecting reasonable return so that they can pay the pensions when due.  In 1983, Metro saw an advantage in assuming all the investment risk.  They made out like bandits for 25 years.  They are still way ahead in the game.

 

Metro has drawn blood in this contract.  It will wet their appetite for more next contract.  We need to get prepared.

A Strategy for Fighting Privatization

The threat of privatization is raising its ugly head again at Metro.  The DC government is considering turning over to the Circulator the local runs in DC that Metro currently operates.

If this plan is fully implemented, Local 689 could lose approximately 175 bus driving jobs over the next couple of years.  The threat of privatization is real and must be fought.

In the late 1990’s, the local governments and WMATA threatened to privatize the entire Metrobus system.  Local 689 and many riders fought back and as a result of this struggle and the fact that at the time there were no contractors who could handle the job, they backed down part way.

 

A regional Mobility Panel was established to resolve the issue.  In its final report the Panel broke Metrobus lines into two types, regional and local.  The regional lines were to continue to be operated by Metro, but the local lines could be turned over to private contractors by 2003. Except in DC, this plan was carried out. 

In Local 689, there was a disagreement as to how to fight this.  The Allen leadership advocated concessions to save jobs.  One EB member and many rank and file members advocated no concessions and a more militant fight.  The Allen leadership won out.  The starting salaries for bus drivers were reduced, an eight year progression to the base pay was established, and limits were placed on dental insurance for all and health benefits for new employees. A New Service Agreement which made even more concessions was negotiated.

The jobs that were gained (PRTC) or saved did not last long.  The private contractors lowered their wages even more, and we lost the PRTC service, and the local runs in the suburbs continued to be privatized.

Fast forward to 2013, and it is like the late 90’s over again.  The difference is that the contractors are now multi-national corporations and thus a bigger threat than before.  Metro is of course demanding concessions in our contract so that they can protect our jobs.

As a union we are faced with the same choices that we had 15 years ago, step up the struggle or make concessions.

The struggle will be more difficult this time because we made concessions in the past, the contractors are more powerful, we are a smaller percentage of the mass transit picture in the region, and the labor movement in general is weaker.

We can turn this around.  It means reaching out to the riding public and other unions in mass transit as well as unions in general to tell the bosses that we will shut this region down if privatization is not stopped.

Take the offensive! One wage and benefit package for all transit workers in the region. If we want other workers to support our fight we must support them.  Fight austerity and deportations!  Fight racism and mass incarceration!

March on May Day 2013 in DC

March On Mayday

On May 1, we will join with millions of workers from every continent and country for a Mayday March in an expression of international solidarity.

Mayday is an international working class holiday. It is a day on which the international working class reviews it forces as it prepares to do battle with the capitalist class.  For the last hundred years, the US bosses have tried to separate workers in this country from their brother and sisters around the world by celebrating Labor Day in September.  The time has come to end this division

.

Mayday has a long history.  It began as a commemoration of the Haymarket Massacre.  In 1886, a general strike was called by the unions in Chicago as part of the fight for the eight hour working day.  As a part of the day’s activities, a rally was held at Haymarket Square.  The police attacked the rally and several workers were killed as well as some police.  As a result, criminal charges were brought against the leadership of the unions in Chicago and four of them were hung.

In the 1930’s, workers marched on Mayday to fight the rise of fascism and to stop lynching in the US. On Mayday, 1945, the red flag of revolution was raised over the Reichstag in Berlin by soldiers signifying the defeat of fascism and the end of World War II in Europe.  In the late 1980’s millions of workers in South Africa marched on Mayday to help bring down the apartheid regime there.

The struggle continues today as we march:

To Smash Racist Unemployment – 26 million people are out of work or underemployed in the United States, and 200 million in the world. Jobs for all.

To Stop Deportations – In 2010, over 400,000 people were deported from the United States.  Workers have no borders.

To End Mass Incarceration- Over 2.3 million are in jail in the United States, the highest incarceration rate in the world.  End the war on drugs which is being used to incarcerate people of color.

To Stop Home Foreclosures – Millions of workers are facing eviction from their homes because of the ongoing  financial crisis.

To Smash Imperialist War- End the war Afghanistan and stay out of Syria and Iran.

To Fight Sexism – End the attack on women’s rights.

We call upon all workers, students, and soldiers to join the Mayday March.

The March will leave from Malcolm X Park (16^th St and Euclid St NW) at 6:00pm on Wednesday, May 1.  Speeches and entertainment will begin at 5:00pm. The March will end at the White House.

Occupy DC May Day Committee  DCMAYDAY2013@GMAIL.COM

Stop The Fare Increases

Metro is proposing a fare increase of an average 5.7% for regular bus and rail riders effective July 1 2012. The maximum rail fare will go to $6.00 for a one way trip on the rail. This increase is being put into place when many riders’ wages are being frozen or reduced. Meanwhile service on the rail system continues to deteriorate.

At the same time Metro is proposing to freeze the wages of its workforce and reduce their pension benefits. The federal government is proposing to cut capital funding for Metro so that many needed repairs will have to be delayed further in convening the riding public.

Public transit which is a necessary service to much of the working people of the region is under attack. The federal government, the local governments and the business community, all of which are major beneficiaries of the system are refusing to pay their fair share and are attempting to shift the cost of operating the system onto the back of the riding pubic and Metro workers.

The federal government, which had billions of dollars to bail out the banks, refuses to pay any of the operating costs of the system although a third of its workforce uses it daily to work. The local business community which thrives because of Metro will not pay for the services it receives. The local governments refuse to increase taxes on these businesses to make them pay their fair share.

Metro creates value for the region far in excess of the cost of operating and maintaining the system. A portion of this value which is currently going into the pockets of the 1% and their allies needs to be redirected to the transit system. If this is done, it will eliminate the need for a fare increase and create the basis for fare reductions.

To stop the fare increase, end the attack on Metro workers, and improve Metro service, riders and workers need to join together for this fight. The elected political leaders of the region will talk a good game about improving mass transit and protecting the riders and workers, but in practice they serve the 1%. They use racism to divide us. They pit riders against metro workers and the suburbs against the city. It is in all of our interests to overcome these divisions and fight back.

The Occupy Movement that has developed in the United States and around the world has taught us that when the politicians do not respond to our needs, we need to engage in direct action.

This can begin with attendance at the public hearing Metro will hold on Thursday, March 1 at 6:00 pm at Matthews Memorial Baptist Church, 2616 Martin Luther King Jr Ave. SE. This is near the Anacostia Subway Station.

For more information email movingforwrd689@yahoo.com

ATTEND THE PUBLIC HEARINGS