Compliance July 21, 2020

Senator Portman Again Calls for Multiemployer Union Pension Reform

He says that without several much-needed reforms, the Pension Benefit Guaranty Corporation could become insolvent in less than five years.

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U.S. Senator Robert Portman, R-Ohio, issued an opinion piece this week calling on Congress to create a unified and bipartisan stance on the union multiemployer pension crisis.

While many union pensions in the U.S. are healthy, a core group of large pension funds face severe financial hardship. One Society of Actuaries report published several years ago found tens of thousands of employers in the U.S. contribute to multiemployer pension funds that are in critical and declining status. The COVID-19 pandemic has exacerbated this problem, due to widespread unemployment and resulting economic impacts.

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In his article, Portman claims that without reforms, his state of Ohio will see “pension benefit cuts of over 90% for more than one million workers and retirees,” along with bankruptcy filings of numerous Ohio small businesses. He also suggests that the troubles faced by union pensions could drive the Pension Benefit Guaranty Corporation into insolvency in less than five years.

While consensus remains elusive, Congress members on both sides have been calling for action on the union pension crisis long before the pandemic. In 2019, the Ways and Means Committee of the U.S. House of Representatives marked up and voted along party lines to advance a bill formally titled the Rehabilitation for Multiemployer Pensions Act—also known as the Butch Lewis Act. The bill, which has since stalled, would have provided funds for 30-year loans and new financial assistance, in the form of grants, to financially troubled multiemployer pension plans.

Democrats, led by Ways and Means Chairman Richard Neal of Massachusetts, generally voiced strong support for the bill. Republicans, headed by Ranking Member Kevin Brady of Texas, cited worries about ongoing mismanagement and maleficence among union leaders and pension trustees.

Last year, Former House Speaker John Boehner and past Congressman Joe Crowley announced the launch of the Retirement Security Coalition, an alliance consisting of diverse groups of employers, labor unions and policy experts “dedicated to finding a common-ground solution to the multiemployer pension crisis in America.”

“We are here to sound the alarm and say that we need to all come together to solve this problem and to protect the hard-earned retirement futures of millions of Americans,” Boehner stated in a 2019 interview with PLANADVISER. “From New York to Ohio and across the country, hundreds of thousands of retirees and workers are already facing deep cuts to their pensions, and if we don’t change course, families will be devastated.”

“If the pension system in this country isn’t stabilized and it continues on its current trajectory, then millions of workers and families will suffer,” Crowley added in the interview. “The impact will have a ripple effect on our national economy and communities across America.”

In his letter, Portman states he believes the union pension crisis could be solved with bipartisan efforts that follow three principles—a shared responsibility approach; safeguarding the long-term financial health of the PBGC; and long-term solvency for all multiemployer plans.

However, in a whitepaper published by the Pension Analytics Group in 2019, many union-sponsored multiemployer pension plans were reported to likely become insolvent even if they had access to subsidized loans. Using its Multiemployer Pension Simulation Model, the group projected that about 200 multiemployer pension plans covering over 3 million participants will become insolvent over the next 30 years, and that the PBGC’s multiemployer guarantee fund will itself be exhausted by 2027.

Compliance July 20, 2020

California Man Accused of Fleecing Boeing Retirement Plan

Situations like this emphasize the clear and present need for retirement plans to implement effective cybersecurity policies.

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A federal grand jury has indicted an Orange County man on charges that he fraudulently obtained access to Boeing employees’ retirement accounts.

The grand jury heard sufficient evidence to charge Hao Vo, who is 30, for the theft of hundreds of thousands of dollars from Boeing employees’ accounts. Vo is charged with three counts of bank fraud and one count of aggravated identity theft.

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According to the indictment, from January 2019 to June 2019, Vo obtained the personal identifying information of various Boeing employees, along with information about their retirement accounts. He then allegedly made fraudulent withdrawal requests for checks and electronic money transfers totaling hundreds of thousands of dollars, the indictment claims.

According to federal prosecutors, Vo knew that notifications and checks related to these fraudulent requests would be mailed out, and so he placed holds on the Boeing employees’ mail with the United States Postal Service. Once the mail was held, Vo allegedly intercepted the mail by presenting to a postal employee a fraudulent California driver’s license with a Boeing employee’s personal identifying information, and a fraudulent note purportedly written or signed by the Boeing employee authorizing Vo to pick up the employee’s mail.

The indictment states that Vo also cashed checks written to himself from the fraudulently opened bank account by using the Boeing employee’s forged signature, and endorsed the checks himself, according to the indictment. In total, Vo attempted to obtain approximately $783,328 from Boeing employees’ retirement accounts and actually obtained approximately $360,847, the indictment alleges.

It is important to note that an indictment contains allegations that a defendant has committed a crime. Every defendant is presumed innocent until and unless proven guilty beyond a reasonable doubt. Prosecutors say these charges carry a potential of many decades in prison, should Vo be found guilty.

Cases like these emphasize the clear and present need for retirement plans to implement effective cybersecurity policies. Generally speaking, should a breach or fraud occur having to do with plan data, a sponsor could be liable if the claimant establishes that it failed to follow a prudent process to safeguard the plan data, says Joan Neri, counsel in Drinker, Biddle & Reath’s ERISA practice. 

“Liability could develop, and the consequences could be severe,” she warns. “The sponsor would need to make the plan whole, to send notifications about the breach and fraud to participants, and to provide them with identity theft protection. There would be business interruption and reputational risk.”

Neri says sponsors need to be mindful about the sensitive data they manage on behalf of retirement plan participants—their dates of birth, Social Security numbers and account balances. Breaches could occur through phishing, malware or a stolen laptop, she notes.

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