Before the pandemic, 130 defined benefit plans were in danger of insolvency, but now that number has jumped to 200. Pension reform is needed more than ever, and the new Congress must act! Traci talks to retired Marco Consulting Chairman, Jack Marco, about pension reform, the new Congress, and some possible paths forward for these troubled plans.
Some highlights from Pension Reform and the New Congress include:
01:33 – A Way Forward for Pension Reform?
04:40 – Defend and Protect Worker Benefits – Not the PBGC!
07:41 – Government Bonds and the Butch-Lewis Act
10:42 – What About These Hybrid Plans?
13:33 – Testifying Before the House in 2010
15:39 – Democracy is a Verb!
This is The World of Multiemployer Benefit Funds Podcast with Traci Dority-Shanklin. If you’re interested in labor and union benefit funds, well, you have landed in the right place. We are a go-to source for all things union benefit fund related, and we are going to bring you interviews with key decision makers and fund professionals that guide these plans. They’ll share their insights, experience, unique perspectives, all the latest developments, and tips to unlock the mysteries of multiemployer benefit funds. Time is short, so let’s get started.
Traci Shanklin 0:37
My guest today is Jack Marco, the retired chairman of Marco Consulting Group. In 2017, Marco Consulting merged with Segal Rogerscasey to become Segal-Marco Advisors, bringing their combined assets under management to over 500 billion. Some highlights from Jack Marco’s distinguished career include serving on the board of the Mikva Challenge Foundation, America Rights-at-Work, the Illinois State Board of Investment, and the National Real Estate Fund of the International Brotherhood of Electrical Workers. He has also served as a trustee for the National Labor College and as the director of the Illinois Environmental Protection Agency and of the Federal Home Loan Bank of Chicago. Hi, Jack, and thank you for chatting with me on the podcast today.
Jack Marco 1:30
Thank you. It’s great talking to you.
Traci Shanklin 1:33
I thought we’d take a moment away from chatting about your philanthropic work with Mikva Challenge Foundation and talk a little bit about pension reform. With COVID-19 and unemployment wrecking havoc on the already endangered Taft-Hartley funds and multiemployer plans, I believe that pension reform is needed more than ever, and it should really be a top, top priority in front of the new Congress for 2021. As the election draws to a close, and the country turns to a new president and a new year, do you see a way forward for some kind of pension fund reform in 2021?
Jack Marco 2:10
Well, this depends on January 5. If those Senate seats get flipped, and the Democrats have a majority in the Senate, I think we will see it, and I think it’ll be great. If we don’t, I think there’s a very slim chance, although a chance, I wouldn’t throw it out completely because we’ve had reform in the past with the Republican majority. The thing that Labor has to do, and I don’t have to tell them, they are doing it, to convince the Congress to act on this is with the help of the employers. And these are jointly trusted funds. It’s labor and management funds. So, the companies are as much at risk as the workers are. And if we don’t change the Senate, it’ll be a lot tougher. But if we do change the Senate, I think it’ll be great.
Jack Marco 3:04
The House will pass it quickly, have something, and go to the Senate. The problem that we’ve – with the reform in general — what we’ve done in the past — is we had the wrong priority. The Pension Plan Act Amendments, I don’t know how many years ago was that five, six years ago, seven years ago, that the Democrats, you know, passed as well as the Republicans. And it was really the goal of it was to protect the PBGC, the insurance piece of the pension funds. Because what they were having is they were having companies, sometimes because of outsourcing; some reasons because of technology. The companies were going out of business and the remaining employers were left holding the bag. Look at the bill.
Jack Marco 3:49
And then the whole, you know, and as they – as these companies went under, the PBGC, was stepping in to try to cover their participants. Well, a lot of that was happening. So, the PBGC was going into the red, and they could only increase the taxes that they pay – that the pension funds pay to the PBGC – only so far. So, it needed some government intervention. Well, the government intervention was instead of putting more money into the PBGC, they said, “Well, we’ll cut the liability down by changing the rules in the pension funds.” And the first thing they did was to change the amortization period for the liabilities from 30 years to 15. Well, there couldn’t have been anything worse to happen. And it happened. Well, actually now I’m thinking about it. It happened shortly after the crisis of 2000 — 2008.
Jack Marco 4:40
There couldn’t have been a worse time, but they basically – and I always tell people – just imagine you’re making your mortgage payment of so many dollars a month, and your lender comes in and says, “Well, I just changed it. You’re now on a 15-year mortgage. You owe the same amount of money but you got to pay it off in 15 instead of 30 years.” Your payment just went through the roof. Well, if the plans weren’t enough trouble to begin with, they made it much worse. And they made other changes that made it more difficult for plans, which was just absolutely the wrong thing to do.
Jack Marco 5:10
So first, I would say in pension reform, it should be designed to how much – what can we do to protect and defend and enhance the defined benefit pension plan world? What can we do to make these plans better for the worker? That’s number one should be the priority. And then we go from there. It’s not how do we take the PBGC and make it flush? No, how do we do this? So, one thing right off the bat because I had experience with several plans that were having really big problems after these things changed, for example, in the printing industry.
Jack Marco 5:43
So, in the printing industry, you know, 30 years ago, there was probably, I don’t know, 20 different trades within the printing industry: lithographers, photo engravers, line of type, graphic artists, all these things, all gone because of technology. And so, these companies, these employers, who were employing people in those kept merging with other employers because the business was going away. And there were some like new, some newspapers, even those papers got hurt tremendously. But there were some in the fund some employers who were making it, and their specialization, whatever they’re making it, but they ended up having the liabilities of all these people who’ve gone out of business, who were members of that pension fund. And so, they were about to put that the employees that wanted to stay and continue to contribute in a pension from weren’t going to be able to afford it, because all those liabilities were being dumped on them. So, that what would happen next, and what would happen next is they would go under, and the entire plan would go to the PBGC. And they’d have to cover it.
Jack Marco 6:45
So, my argument was the PBGC should move into those Taft-Hartley plans, where employers have gone out-of-business and take those pieces out of the Taft-Hartley plan, and take it over in the PBGC. And let the rest of the plan continue because the employers are – are healthy, and they’re willing to contribute. The Bakery had the same problem when Hostess went under. All of a sudden, the rest of the employers have that terrible liability of all those workers who were expecting a benefit from their pension fund. Well, we wanted to say to the PBGC, “Takeover those workers who just lost their business that they were working in pay that. Take care of that responsibility, and the rest of the plan to keep going and won’t have to go to the PBGC.” So that’s the first thing they got to have the attitude – do we want to protect and defend the defined benefit program and people’s retirement. That’s got to be the priority.
Jack Marco 7:41
Now other things have been talked about recently, I think are very creative and very interesting. And that is for the federal government to issue bonds. You know, the – with the interest rate environment we have today, the government can borrow money at almost zero interest. They would on behalf of the pension fund, borrow that money, and the pension fund would pay it off. And what would that do for the pension fund? So, imagine a pension fund that’s got a seven or 8% interest assumption. They have to earn seven or 8% every year. With interest rates so low, very difficult if not impossible to earn seven or 8% a year to pay off the liabilities.
Jack Marco 8:19
Well, if they were able to get this loan from the government who borrowed money at very low single digit rates, just think how helpful that can be to having the pension fund, fund itself and then go back to the 30 years for liabilities, which it should be. After all, a pension plan is covering the liabilities of someone during their entire work life, which is like a 30-year period. So, it all makes sense as it did when it was established. So that loan program, I think is the most creative, best thing I’ve heard yet. And I know there was a lot of discussion in Congress to move it and it didn’t. But I would leave – say that as one of the best ideas I’ve heard. And I would add to that the idea that I mentioned that the PBGC would take over employers who go out-of-business and take them off the roles of the pension funds.
Traci Shanklin 9:09
Do you think that the Butch Lewis Act is enough?
Jack Marco 9:14
Oh, it’s the right direction. It’s a good start. And we’re not done. Again, we’ve had to take the position that what can we do to make these plans healthy and continue? You know, back in the 70s, when ERISA was passed, that was you know, when some big company pension funds went out-of-business, all of a sudden, you know, it’s – it first time hit people that they thought they had a pension fund, and now they’re gonna retire, they have nothing. And what does a person do at age 60, 65, and has nothing, and he was planning on it his entire working career and paid into it or, you know, negotiated it.
Jack Marco 9:49
So, the Congress was very aggressive. In fact, it was a Republican, Republican president in the past and got it done. And you know, that we started out with the right attitude. How do we protect these funds? Well, it’s got to be rethought and more has got to be done. More of these loan ideas have to happen. And really sit down and say, “What can we do to help these things?” The trouble is the mentality of so many members of Congress today is to get rid of them. The Chamber of Congress would like to get rid of them. We don’t need defined benefit plans anymore. Let them have a 401k and take all the risk of that. And what they have when they retire, they have. It’s – it’s not our problem. And that’s our biggest problem is fighting against the idea of just making defined contribution plans and let that – let that be the – the future forget defined benefit plans. I think that’s a terrible idea.
Traci Shanklin 10:42
I’ve always felt that there needed to be more discussion around what that would actually do to the greater economy. But it seems like that gets lost in the dialogue for reform. You know, following the 2008 crisis, and that that economic meltdown, there was a flurry of discussion about hybrid plans. I mean, is that – is that something that’s on the table anymore? I mean, what are your thoughts on those plans?
Jack Marco 11:07
Well, I’m out of this circle for a few years now since I retired. So, I don’t know if it’s being talked about. I had one client who was organizing very low wage workers, people who had no health insurance, no pension and minimum wage. And as they were organizing them, and they go to the employer, the first thing they wanted was a good wage. And then they went to the employer and said, “Okay, now they got to get health insurance.” And after all that big change in a short period of time, the idea of going to get them to sign-up for a defined benefit plan was pretty much impossible. So, I worked with him to come up with an idea.
Jack Marco 11:46
And the idea was that to get the employer to go along with it, it became a defined contribution plan. Now, it was a negotiated contribution. So, it wasn’t like they give it one year and take it away the next, but the negotiated contribution to the defined contribution plan, the participant would invest that plan. In hybrid I – my suggestion was only life stage funds. So, they couldn’t make mistakes about running into the market and running out. But you know, if they were 30 years old, they had a more aggressive asset mix. And if they were 50, they had a pretty conservative asset mix. So, it would be sort of limited in what they could do with these two crazy investments. I was being sort of paternalistic about it.
Jack Marco 11:46
But at any rate, it’s a defined contribution, the employers got a defined contribution, he’s making. The money gets invested during the life of the worker. There’s no loans, you can’t take loans out of it. This money is for retirement. And when the person retires, the money goes into an annuity, and they’ve got a fixed benefit for the rest of their life. That was a hybrid. I don’t go around recommending that, where there’s a good defined benefit plan somewhere, that’s better. But if you have nothing, and you want to get something other than just a 401k, where the worker takes all the risks, and then has, you know, can make investment mistakes, or can borrow the money and have nothing at retirement or spend the money too quickly, when they retire. It’s, you know, I get is paternalistic is protecting people from themselves. But I think it’s a pretty good substitute if you can’t get a defined benefit plan. So that hybrid is, in my mind was, and still is a viable option.
Traci Shanklin 13:31
You know, I did watch your YouTube clip from 2010 of you testifying before the House. And if you want to talk a little bit about that, I’d love to hear a little bit about how that came about and who invited you?
Jack Marco 13:46
Yeah, the issue at the time was private equity funds and – and them being required to be registered investment advisors. And disclose more, obviously, because they’ve registered by – registered investment advisors at and so there was a battle in Congress to do that. So, I’m trying to think of who asked me to go. And I can’t remember, but asked me to come and talk about it, because I had been very vocal on the issue. And it was very interesting, because you see this two sides. I mean, I worked on the Hill for 10 years when I worked for Mikva, so I was used to it. But the sides kind of lined up the way they gave the questions.
Jack Marco 14:26
So, my argument was, why not disclosure? Why not full disclosure for asking a pension fund to invest in private equity? Shouldn’t they know what the manager is up to? Shouldn’t they make regular reports like the investment managers do with their typical registered investment advisors? And you know that the response from the people who are supporting the other side were, you know, “Gee, that’s too much paperwork. It’s too restrictive. And pension funds can decide who they want to invest. We use as an investment manager, so we don’t need to babysit them.”
Jack Marco 14:59
Because I was making the point that we wouldn’t recommend a manager that wasn’t a registered investment advisor. We wouldn’t recommend a private equity fund unless they were a registered investment advisor. But there are plenty of pension funds out there that don’t – that aren’t really involved, don’t know, and get into a very bad situation. So, it’d be much safer, and why shouldn’t it be like the rest of — But anyway, was quite a battle between the two. And as I recall, we failed in the legislation that was trying to be passed at the time. I don’t know if that’s been changed since then. But at the time, it didn’t pass. But I really enjoyed it. I love getting back to the Hill.
Traci Shanklin 15:35
Yeah, I can imagine and being part of the process, right? I mean, win or lose.
Jack Marco 15:39
Yeah, that being part of the process is the right word. Because you know, the logo – the slogan we have for Mikva Challenge is “Democracy is a verb.” And that’s what it means being involved. You got to take action. You can’t be passive. And young people are getting more active. The way they have been doing this year, particularly in general, but particularly in the last 20 years for our students at Mikva Challenge is very exciting, and is really making a difference. They’re voting. They’re getting active in their communities.
Traci Shanklin 16:06
I’m gonna pivot a little bit to the election. Did you work on the election?
Jack Marco 16:11
Yeah, I’ve been involved in every – certainly every presidential but some congressional as well since even after I worked for Mikva. I spent the year working for Walter Mondale way back in the day, and twice for Barack Obama, who was, you know, was a great Chicagoan who I had the pleasure of meeting before he got involved in politics. So yeah, I have been involved and continue to be involved. We have a great — where I’m at I’m spoiled — I have a great congressman in Jan Schakowsky, who is just absolutely fabulous and followed in the footsteps of Abner Mikva in this district. And this community that I’m in in Evanston is a very, very progressive area. That’s why I love living here.
Traci Shanklin 16:55
It sounds like a fantastic neighborhood. Thank you so much, Jack, for being part of this today.
Jack Marco 17:01
Thanks. Take care yourself.
Traci Shanklin 17:03
If you would like to check out anything that you heard Jack Marco or myself talk about on the podcast today, please visit our website at www.multiemployerfunds.com, where you can find links and more information about the Mikva Challenge and the Butch Lewis Act, and what you can do about pension reform. Thanks again for joining the conversation where listeners connect with leading experts throughout the financial and investment world. Be part of the change.
Traci Shanklin 17:34
And that’s it for this week’s episode of The World of Multiemployer Benefit Funds Podcast. We’d love to hear from you, and if you have any comments, questions or suggestions, head over to www.multiemployerfunds.com and let us know. Thank you for joining us, and we look forward to next time.