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Federal Pension Insurer Will Survive Collapsing Media Landscape

Dec. 10, 2019, 10:27 AM

Headline-grabbing media deals such as McClatchy Co.’s looming bankruptcy and Gannett’s cost savings-centric reorg (including widespread layoffs) are unlikely to exhaust the Pension Benefit Guaranty Corporation, former administration aides say.

If anything, seasoned professionals said, the 45-year-old pension insurer could draw from lessons learned while intervening elsewhere—including billions of dollars devoted to sustaining commercial airlines, coal mining operations, and steel mills—to chart a way forward for struggling publishers.

The self-funded agency, which collects premiums from pension plan sponsors, is running a surplus on the single-employer side, while the multiemployer program faces insolvency by 2025. The single employer program deals with plans run by individual companies (such as McClatchy) while the multiemployer program deals with pensions covering related businesses or unionized workers (newspaper delivery drivers; printing press operators).

“The pensions are going to get taken care of,” former PBGC director Tom Reeder said, stressing that even if the shrinking media landscape produces a fresh wave of bankruptcies, it wouldn’t be a “debilitating blow” to the agency’s finances.

According to its annual report, PBGC paid $6 billion in benefits to single-employer plans in 2019, and still ended the fiscal year $8.7 billion in the black. The agency spent $160 million propping up underfunded multiemployer plans; that program closed out 2019 with a $65 billion deficit.

Familiar Ground

McClatchy, the nationwide publisher with over two dozen daily papers (Miami Herald, Kansas City Star, Sacramento Bee) under its banner, announced Nov. 13 that it had contacted PBGC about dealing with underfunded pension obligations totaling nearly $535 million. It isn’t the first media outfit that’s needed government assistance.

The PBGC has, over the past decade, addressed pension issues with organizations including Freedom Communications Inc. (2016), Gannett (2015), Tribune Co. (2014), News-Journal Corp. (2010; about $15 million), and the Chicago Sun-Times (2010; $49 million).

Some involved preemptive action similar to the agency’s rush to assume control of Sears’ workers’ pensions before the flagging retailer liquidated everything. PBGC estimated that Sears’ pension plans were underfunded by $1.4 billion when it assumed control of the 90,000 participants.

Those interventions are the product of participating in the “death and renewal” of wavering sectors (auto, manufacturing, agriculture) over the years, said Israel Goldowitz, a PBGC alum turned partner at Wagner Law Group.

Over time, the demands have multiplied—as evidenced by underfunded airline pensions.

A Congressional Budget Office report shows the combined claims from bankruptcy filings between 1991 and 2003 falling just short of $3 billion. United Airlines dwarfed them all by imposing a roughly $7 billion hit on the PBGC when it sought bankruptcy protection in 2005.

“The PBGC certainly is aware of industries that are under stress,” Goldowitz said, noting that those being “disrupted” by technological breakthroughs, global competition, or demographic shifts in the workplace tend to garner attention. The agency’s latest annual report lists manufacturing, transportation, communication, utilities, and services as exposure risks.

McClatchy froze its plan in 2009, limiting coverage to approximately 24,000 participants. It asked the Internal Revenue Service to waive three years of pending payments, but the IRS rejected that bid earlier this year.

Absent any changes, the company owes $124 million in required contributions next year, with staggered payments scheduled to start in April 2020. Negotiated cash infusions are one of the administrative tools available to plan sponsors seeking to bolster at-risk plans.

All indicators point to McClatchy’s management arguing that divorcing itself from the pension via a distress termination is the only way the rest of the company could survive.

PBGC declined to comment about where things stand with McClatchy.

“Every case is unique and there are many factors to consider; but at the end of the day, our top priority is protecting the retirement security of workers, retirees, and beneficiaries,” a PBGC spokesperson said.

McClatchy’s management attempted to quell pensioners’ concerns in a blunt blog post.

“There can be no assurance that the ongoing discussions with PBGC and our largest debt holder will result in any consensual transaction,” McClatchy’s management said.

Proceeding with caution makes sense to Reeder.

“I think that the fact that the IRS rejected the funding waiver is a sign that negotiations with the PGBC might be difficult as well,” he said.

What Now?

Gordon Borrell, a former journalist turned media analyst, said newspapers are feeling the same pressure as other businesses stung by burgeoning pension liabilities.

“We’ve seen this happen, of course, in other industries: manufacturing, telecom,” the founder of Virginia-based Borrell Associates said. Legacy media, he argued, is simply following in the footsteps of others who sought to shed overwhelming pension costs, looking for any way to lighten their load, even renegotiating labor contracts, “as they try to reform and keep their heads above water.”

Self-correction strategies are nothing new. Some financially secure companies are even exploring “derisking” options—multi-billion dollar business deals wherein plan sponsors pass pension responsibilities to annuity-providing insurance companies.

Meanwhile, staying on top of potential problems is standard procedure among pension wonks.

The Department of Labor’s benefits arm currently has two newspaper-related unions—one in Detroit, and another in Philadelphia—on its watch list of underfunded programs staring at insolvency within 20 years.

The PBGC is definitely monitoring those critical and declining plans, Reeder said. And bracing for the worst.

“An increasing number of them are going to be turned over to the PBGC,” Reeder said of underfunded plans in general.

Preserving promised benefits is great for journalists lucky enough to reap those vanishing rewards, Borrell said. What worries him is hoefit that you can’t offer a quality individual to come and work for you,” he said.

To contact the reporter on this story: Warren Rojas in Washington at wrojas@bloomberglaw.com

To contact the editors responsible for this story: Fawn Johnson at fjohnson@bloomberglaw.com; Cheryl Saenz at csaenz@bloombergtax.com

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