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Tuesday, March 19, 2013Personnel pensions on cutting block
Major League Baseball owners, despite boasting $8 billion in annual revenue and climbing, are moving toward eliminating the pension plans of all personnel not wearing big league uniforms, sources told ESPNNewYork.com.
The first attempt to do so, initiated last year by a small-market owner, never came to a vote after Chicago White Sox owner Jerry Reinsdorf chastised his brethren for being petty with the lives of ordinary people given the riches produced by the sport. A vote, which was intended to be kept secret, is now scheduled to take place at owners meetings May 8-9 in New York.
A vote, which had intended to be kept secret, is now scheduled to take place at owners meetings May 8-9 in New York. A majority of owners now favor the abolition of the pension plan, a source said.
A majority of owners now favor the abolition of the pension plan, a source said.
MLB executive vice president Rob Manfred acknowledged that candid discussions on the topic have gone on for "several years," but he disputed that pensions will go away entirely.
"No one is suggesting that pension plans are going to be eliminated," he said. "What the conversation has been about is allowing individual clubs more flexibility as to what exactly their pension plan is going to look like. Nobody is suggesting there is going to be no plan ... for anybody. The issue is in the current arrangement we essentially mandate a particular type of defined benefit pension plan. The question is whether the individual team should have more flexibility to design a program that is effective to them."
The potential impact of eliminating the pension plan would affect much of the MLB family: front-office executives, trainers, minor league staff and scouts. Some of those personnel, particularly on the minor league level and in amateur scouting, make less than $40,000 a year and rely on pensions in retirement.
"My worry is not about myself, but for my wife and child should something bad happen to me," Detroit Tigers scout Mike Russell said Tuesday. "I am glad the club I work for does not support this."
According to an MLB source, conversation on the topic got "heated" at the last owners' meeting. The source said a possible solution may involve grandfathering those who currently are in the pension program, but doing away with it for new hires.
Twenty-six of baseball's 30 teams participate in the Non-Uniformed Personnel Pension Plan. Four teams that opted out -- the Chicago Cubs,Milwaukee Brewers, Minnesota Twins and Toronto Blue Jays -- are required to offer plans comparable to or better than what NUPPP offers.
Reinsdorf long has been a champion of the less visible members of the MLB family. When there was financial anxiety over the stock market crash last decade, he gave many of his employees multiyear contract extensions to ease their distress.
Reinsdorf declined to comment on Tuesday.
If some owners want out of a plan that mandates contributions, it makes sense to wonder whether they want to fund pensions at a lower level or not at all. Manfred would not admit that the pension discussion is motivated by those theories.
"What this is about is allowing clubs that opt out to have more flexibility in designing their benefits," he said.
Those potentially affected by the scheduled May vote hope the prevote exposure will spur some owners to flip back to support continuing the pension. Multiple sources pointed out that just because MLB doesn't mandate the pensions doesn't mean that individual teams couldn't continue to offer them in hopes of gaining a competitive advantage in the acquisitions of talent.
In the event pensions are eliminated, existing pension commitments should not be affected, so promised money would not disappear. However, any promised future contributions likely could be eliminated immediately, according to Dr. Olivia S. Mitchell, executive director of the Pension Research Council at the Wharton School of Business.
"Probably they would 'hard freeze' the plan -- allowing no new accruals," Mitchell said Tuesday. "This can happen right away, to the best of my knowledge. ... If the employer is doing well, in that case what typically happens is that the plan sponsor will shop out the pension liabilities, sell them to an insurance company along with assets to support them and then wipe the whole claim off the books."
The Pension Benefit Guaranty Corporation, a government entity, backs up the pension obligations of bankrupt companies to defined limits ($57,480 annually for workers employed through age 65). But that seemingly would not be relevant for Major League Baseball, which is thriving financially.
The Labor Department estimates that 38 percent of private-sector workers in 1979 had both defined benefit and defined contribution plans such as a 401(k). That number at present has dropped to between 14 and 20 percent, Mitchell estimated.
"Private-sector employers have been pulling out of defined-benefit pensions for 30 years," Mitchell said. "It's been a steady trend, punctuated by big drops. Part of the reason is that defined-benefit plans ended up being a lot more expensive and imparting a lot more volatility to the company's bottom line than anyone had anticipated.
"I would say that most companies that had defined-benefit plans were unionized. Most of the companies that terminated them were in the so-called Rust Belt sector, so this would be automobiles, railroads and airlines, where the plan sponsor -- in other words, the employers -- were very financially stressed. The pension fund became one more problem that they were trying to divest themselves of."