July 2 (Bloomberg) -- After mining coal for almost 40 years, Robert Schultz hoped his pension would let him and his wife spend more time at the beach in retirement.
Then Schultz, a fifth-generation coal miner who retired about six years ago, got a letter from the U.S. Labor Department telling him that his pension was in financial trouble and benefits may need to be cut.
“We’re talking about people not getting what they need,” said Schultz, 61, of Boone County, West Virginia.
A surge in overseas demand that has raised coal’s outlook in the short run hasn’t stemmed long-run job losses, which could worsen with proposed U.S. limits on power-plant emissions. Competition from non-union operators has made matters worse, cutting employer contributions to the main pension plan for union miners and drawing a “seriously endangered” rating from pension regulators, raising the prospect of a government rescue.
The United Mine Workers of America plan, along with the fund for the International Brotherhood of Teamsters, dominate the pool of underfunded plans. Should either fail, the Pension Benefit Guaranty Corp., the government-run agency that backs employee pension plans, may be forced to step in, according to Randy Defrehn, executive director of the National Coordinating Committee of Multiemployer Plans, a group that advocates for pension operators.
“At that point you’d have several hundred thousand pensioners whose benefits just go away and I can’t imagine that they won’t be knocking at Congress’s door,” Defrehn said. Congress is already reviewing legislation to help pension plans.
Coal remains the No. 1 source of fuel for electricity in the U.S. even as its share of power generation slipped to 38 percent last year from almost half in 2007. Gains in productivity, and, more recently, competition from cheap natural gas, helped shrink U.S. mining employment in 2011 to 143,437 from 415,000 in 1950, according to the National Mining Association. The figures include full-time miners and those working under contract for coal companies.
Union miners are among the 10.4 million Americans with retirements tied to multiemployer pension plans, the large investment pools considered low risk because they don’t rely on a single company for financing. Two recessions, industry consolidation, and an aging workforce have the multiemployer funds facing a $400 billion shortfall. Dozens already have failed, affecting 94,000 participants.
Strong investment returns helped lift the average funding level of pension plans by three points, to 88 percent, from 2013 to 2014, according to Segal Consulting, which advises multiemployer trust funds. Yet, more plans were added to the “endangered” or “critical” lists that require fund managers to take steps to improve their financial status, including adding cash or adjusting future benefits.
“In 2001, only 15 plans covering about 80,000 participants were under 40 percent funded,” the government pension agency reported June 30. “By 2011, this had grown to almost 200 plans covering almost 1.5 million participants.”
The pension plan for union miners had about $5.8 billion in liabilities in 2012 and was only 71.2 percent funded at the end of 2013, according to Labor Department filings.
“Instead of there being hundreds or thousands of contributing employers, they’re down to a handful now,” Defrehn, a former administrator at the coal miners’ pension, said in an interview. “That means that this plan is not in great shape...It sounds like the last nails are about to be hammered into the coffin.”
The fund, co-operated by the United Mine Workers of America and the mining companies’ Bituminous Coal Operators Association Inc., relies on contributions from employers for about 20 percent of its income, with investment gains making up the rest. Fewer miners means lower contributions, a trend that is also affecting the Teamsters pension, which has liabilities of about $20 billion.
Through the 1990’s, mining jobs fell sharply as the industry turned to techniques and machinery that required fewer workers. Since 1994, full-time mining jobs have fallen 10 percent, to 87,307 in 2012, the latest year reported by the Energy Information Administration. Over that period, the number of union coal miners for whom employers pay pension contributions fell 55 percent, to 19,183.
Schultz said he has never seen the prospects for work as a coal miner so grim. Like many of his peers, he has friends and family members who have been laid off from coal jobs.
He recalled the Labor Department letter warning him that while changes weren’t likely in the next 16 months, benefits could be reduced thereafter. Schultz said he’s bracing for as much as a 50 percent cut in his pension pay.
His wife supplements their income as a gospel music singer, though Schultz called her work more of a hobby.
“You can’t make a living off of it, but what we do is try to break-even,” Schultz said.
Congress is weighing legislation that would permit transfers to the miners’ pension from fees paid by coal operators. A separate plan would allow some pension funds to reduce benefits to keep them from turning to the PBGC for help.
“A few years ago, such an idea would have been unthinkable,” Representative John Kline, a Minnesota Republican and chair of the Education and Workforce Committee, said at a May 1 pension reform forum hosted by Bloomberg LP. “But we are forced to confront the hard truth. If we do nothing, if we do nothing, benefits will be cut.”
“The path we’re on is not sustainable,” Kline said. “The path we’re on will expose taxpayers to greater risk of a multibillion dollar bailout.”
There is little evidence that President Barack Obama’s environmental policies have cost jobs so far, though that could change in the future, according to Phil Smith, a spokesman for the United Mine Workers of America.
“Maybe five years from now things might not be all that different, but 10 years from now they very well could be because of the host of regulations that’s coming from EPA,” Smith said in an interview.
Like most pension funds, the mine workers’ plan was hit hard in the 2008-2009 recession, losing about about 29 percent of its value, Smith said. Even with better investment returns in a recovering economy, the fund may fall to a point where the PBGC has to step in, he said.
That would weigh heavily on the agency, which has operated without tax dollars since its creation in 1974, according to its director, Joshua Gotbaum. Currently, the agency is financed with fees, or insurance premiums, paid by pension funds.
“PBGC is a safety net, but it’s a safety net that’s only a foot above the ground,” Gotbaum said at the Bloomberg forum.
The agency projects that without changes, 173 multiemployer plans will exhaust assets, costing it an estimated $10 billion and leading to the insurance program’s insolvency in 10 to 15 years.
Compounding the issue for coal pensions, new U.S. Environmental Protection Agency rules to curb pollution are leading utilities to shut coal-fired power plants. In 2011 and 2012, coal units capable of generating 14 gigawatts of electricity were shuttered. Another 63 gigawatts -- more than a fifth of the coal fleet -- may disappear by 2017, according to projections by Bloomberg New Energy Finance.
The EPA last month proposed to cut greenhouse gas emissions from power plants by an average of 30 percent from 2005 levels, the nation’s boldest step to date to fight global warming. The announcement triggered pledges from Republicans to try to block the rule they warned would cost jobs and raise electricity prices.
“The Obama administration’s War on Coal has destroyed the jobs and livelihoods of thousands of coal miners,” Gary Broadbent, a spokesman for Murray Energy Corp. said in an e-mail. “There are fewer contributions to these pension plans and, accordingly, fewer benefits to be shared by its members.”
Clairsville, Ohio-based Murray, says on its website that it is the largest, privately owned coal company in the U.S.
“If they closed down the coal industry entirely nobody’s going to be paying into the pension fund and then we’ve got a big problem,” Smith said.
Coal releases twice the greenhouse gas emissions of natural gas for the amount of power generated. The fuel has slipped as utilities switch to natural gas and pollution rules deter the construction of new power plants.
“We need a comprehensive approach to climate change mitigation and adaptation across our economy,” former coal miner and current AFL-CIO President Richard Trumka, said in a statement. “It has to begin with dialog and negotiation with those whose lives and communities, health care, and pensions are bound up with carbon-based fuels.”
The mine workers union this week said it would hold a rally July 31 in Pittsburgh where the EPA holds a hearing on the proposed limits on power plant emissions. The agency also has hearings set for Atlanta, Denver and Washington that week.
“This rule will cost thousands of jobs of those who mine, transport and burn coal,” Cecil Roberts, international president for the union, said in a statement. “Climate change is a global problem. It demands a global solution, not one that punishes American coal miners and their families after they have provided the means to power our economy for 150 years.”
(An earlier version of this story corrected the magnitude of the decline for the mine workers’ pension fund in 2008-2009.)
To contact the editors responsible for this story: Jon Morgan at email@example.com Jim Efstathiou Jr.