UFCW Local 21 and the Saga of the Variable Annuity Plan

If your union or employer’s defined benefit plan was in critical and declining condition and facing insolvency, would you consider a hybrid retirement solution to fix it? That’s exactly how the UFCW Local 21 turned their red-zone plan back to green. UFCW Local 21 president, Faye Guenther, shares the bold steps taken by her UFCW family when they switched from their legacy plan to a variable annuity pension plan (VAPP).

Some highlights from UFCW Local 21 and the Saga of the Variable Annuity Plan include:

04:17 – A Red-zone Plan in a Death Spiral
08:14 – The First Big Challenge 
10:36 – Kroger and the VAPP
16:44 – The Employer Reactions
19:48 – The Variable Annuity Plan and the Path Forward

Transcript

Narrator  0:02  

This is the World of Multiemployer Benefit Funds Podcast with Traci Dority-Shanklin. If you're interested in labor union benefit funds, well, you've 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 of the latest developments, and tips to unlock the mysteries of multiemployer benefit funds. Time is short, so let's get started.

Traci Shanklin  0:35  

I am very excited to speak with my next guest on the podcast. Her name is Faye Guenther, and she is the first female to be elected president of the United Food and Commercial Workers Union Local 21. Headquartered in Seattle, Washington, the UFCW represents 1.3 million members who have recently been on the frontlines of the COVID-19 pandemic, working in our grocery stores, pharmacies, healthcare, food processing, and meatpacking industries. UFCW Local 21 is the largest UFCW local in the country with over 46,000 members. And not only has Faye made history as the first female president of the UFCW Local 21, but her slate of officers includes the youngest person of color to be elected secretary-treasurer and the first openly gay woman as the Executive Vice President and Chief of Staff. Hi, Faye, thank you so much for joining the conversation and being on the podcast today.

Faye Guenther  1:37  

Hi, Traci. I'm excited to be here. And I'm glad to get to talk with you.

Traci Shanklin  1:41  

Wow. Your administration is breaking all kinds of records: first female president, youngest person of color, first openly gay Chief of Staff talk about diversity and inclusion. This is so amazing. There are so many things I can't wait to touch on today: leading your union through the COVID 19; your remarkable success converting your defined benefit plan to a hybrid plan, and of course, diversity and inclusion. What were the steps that led you to your presidency at UFCWA Local 21?

Faye Guenther  2:15  

I've been organizing since 1998, and organizing workers into unions and have had some really amazing mentors. Dave Schmitz, the former president of the union, identified and recruited me a long time ago to be an organizer. And I think he just trained - did a lot of training with me. Todd Crosby, who was the former president of Local 21, and I organized together for years, Todd's now a national organizing director. And we all just worked really, really closely together and had a total commitment to identifying, recruiting, and training leaders. I helped recruit and train a lot of our staff. 

Faye Guenther  2:52  

And as time went on, Dave wanted to retire and he had the right to do that. And Todd became the president and Todd asked me to serve as his - as his secretary-treasurer in 2015. And we had a team all around us, you know, Joe Mizrahi, who's the secretary-treasurer. We started working together in 2008. The chief of staff you were talking about Sarah Cherin, helped lead big legislative changes: marriage equality in the state of Washington, and she became part of our team in 2008, as well, but at some point, the International asked for Todd to become the organizing director because the UFCW wants to organize more and more workers. When that decision was made, Todd and I talked a lot about our belief that if you're dedicated to leadership development, you have to keep creating space at the top of the organization, at the bottom of the organization, at the workplace, everywhere where leaders can step into leadership positions, and I guess that's how I became the president. 

Faye Guenther  3:44  

The rank and file board unanimously stood behind me. I'm very close with the UFCW leader - members. And we work together even if sometimes we don't agree on every single thing. We work together; we work, we work hard, and we try to win good contracts. And we believe in members being involved every step of the way at the bargaining table. On organizing committees when workers are trying to organize their union, we want members at every step, and I'm happy the membership elected me their president, and I'm proud of it and happy to serve.

Traci Shanklin  4:17  

It sounds like you've stepped naturally into the role. I want to pivot and talk about the volatility of the last 20 years. Between the crisis of 2001 and 2008, combined with regulatory changes, they've caused the solvency of many multiemployer plans to be in question. You know this; most of our audience knows that before COVID-19, there were already 130 plans, multiemployer funds, projected to insolvency, and now we have close to 200 plans in jeopardy given the crisis. The solution of allowing a multiemployer pension plan a guide path to failure to me is not a solution at all. Aside from the devastation to the workers who are counting on their retirement income, we could face an enormous economic crisis in the country if too many of these plans fail. I know we just passed the American Rescue Plan Act to aid troubled plans. But, the recent interpretation by the PBGC it's only delaying progress and really making it -- continuing to make it difficult for these troubled plans. There are alternative solutions and Local 21 took a very proactive and bold step to save your members' retirement plans by converting it from a defined retirement plan into a hybrid retirement plan system. Can you set the stage for the events that led UFCW Local 21 to consider a hybrid plan?

Faye Guenther  5:52  

You talked about the 2001 dotcom crash and 2008 crash. Our pension plan, the Sound Retirement Plan, has been in the red zone since 2010. And, you know, we were forced into cuts by the federal law. There was elimination of benefits that workers really benefited from. At the same time, we were also negotiating increased contributions from the employer. We were making scheduled progress, but we were going to be a red zone plan for far too long. And it was just too far away for workers to see any benefit improvements and all they were subjected to were benefit cuts. And one of the earlier on things before the market crash when the pension plans were seeing big increases, one of the things that was happening was there were permanent benefit improvements being made with no anticipation that someday there could be a rainy day and no money being set aside for permanent benefit improvements. And so then, when there was a rainy day, there was these pretty deep cuts that had to be made. 

Faye Guenther  6:51  

The pension crisis was taking up huge amounts of all bargaining energy. Of course, workers also need to make a good wage so that they can pay their rent, pay for their car, pay for their car repairs, buy a new refrigerator if it breaks. But, so much of our time and effort was going in and finances was going in to fix pensions that were remaining in the red zone, where workers were continuing to take cuts. And early on, we were lucky to have David Blitzstein as one of our advisors and he and Cheiron actually the consultants -- the actuaries that help us think through pensions, were talking about these variable annuity-defined benefit plans and how that might be a solution for the Sound Trust. 

Faye Guenther  7:29  

And it took a lot of talking with our own team, our own bargaining teams, our members about what a long-term solution to the pension was gonna look like because it's not a long-term solution to forestall insolvency, and then go bankrupt and then go to the PBGC. And maybe get hardly anything for on the percentage, you know, you don't get your full amount. And the PBGC is projected to go insolvent at some point, too. So, that is just not a good solution to let your plan cycle. It's like a death spiral. So, we really did not want to be involved in the death spiral anymore. And so, for a while, we've been talking about what could an alternate solution look like? And how can we build unity amongst the members amongst the employers and move something? 

Faye Guenther  8:16  

I think the first challenge was trying to figure out how to convince, you know, the employers that we needed to, they're like, We don't want to put any more money into a plan that's continuing to not come out, not reverse its trend. Just a lot of education about why the employer needs to actually put more money in and help come up with a longer-term solution that would benefit everyone. And in the long run, it would actually remove debt from the employers' books, and also the employers care about the workers that have been working there and some interest in making sure workers get the pensions that they were promised. We were in a pension crisis in a red zone plan where workers had suffered cuts, and we had to figure out a different path forward.

Traci Shanklin  9:01  

I think it takes a special kind of leadership to make an unconventional decision, especially when you're delivering potentially bad news. The success that you guys have had converting to a hybrid retirement is undoubtedly, I would think a case study in doing a hard thing to ensure retirement security for your members, not just today but into the future. So, I do want to take a step back because you mentioned Cheiron. For our listeners who are just tuning in -- a hybrid retirement plan is an umbrella term that captures a wide range of different plan designs. We will link to another episode where our guests: Executive Director of the National Institute on Retirement Security, Dan Doonan, and a consulting actuary from Cheiron, Elizabeth Wiley, break down the different hybrid plan designs. You said that yours is a variable annuity-defined benefit plan. Is that correct? 

Faye Guenther  9:59  

That is correct. 

Traci Shanklin  10:00  

So, people know exactly what kind of hybrid plan we're talking about, we're talking about a variable annuity-defined benefit plan.

Faye Guenther  10:07  

I could talk about how we negotiated it. And then it's sort of like, there's four corners to the deal. First, we had to negotiate it with the employers, this new defined benefit variable annuity plan. We had to figure out what to do with the past service. We had Kroger; we had Albertsons, and both companies wanted to do something a little bit different: how we were going to manage that? And of course, the PBGC has to approve any of these transactions. So, how are we going to work with the PBGC? And then, of course, there's the trustees of the board of the Sound Retirement Trust. They have to vote to approve it. 

Faye Guenther  10:36  

And in this particular deal, the Kroger past pension service was transferred to the UFCW Consolidated Funds. So, the trustees of the UFCW Consolidated Fund also had to approve the transaction. And of course, the membership had to ratify. So, it was a complicated transaction. All future service is now going to this VAPP, is what we call it for short, the variable annuity plan. And Kroger pays a percentage of salary and Safeway pays since and then the other employers involved choose between one of those. We prefer a percentage of salary because it's easier to administer. And it also guarantees it a little bit of a benefit improvement as workers' wages go up, their benefits go up. So, we want all of the employees to be eventually on the percentage of salary. But, as we were negotiating this first kind of shift from the Sound Retirement Trust to this variable annuity-defined benefit plan, we cared most about making sure the employ -- well, that the workers’ pensions were protected, and also that we could get the employers to do this. 

Faye Guenther  11:36  

Our intention will be in the future to continue to bargain improvements. But, when you're in a red zone plan, you can never bargain improvements. It's actually against the law. You can't improve benefits during a red-zone plan because you're - you're not allowed to do that. And so, for us this variable annuity-defined benefit plan, there's two chances. Well, let me back up for a second. When we negotiated this, our plan was 70-something percent funded and it was not increasing. It was going in the wrong direction. We had to stop the bleeding. And what we were able to do is first negotiate with Kroger that they would take all of their unfunded liability, past service unfunded liability, so it was $582 million of liabilities, and then take out 165 million of assets; that all got moved to the Consolidated Fund. As soon as that unfunded liability got pulled out of the Sound Retirement Trust, it almost immediately put the plan in the green zone, which we have not seen since 2010. 

Faye Guenther  12:33  

We also used excess healthcare reserves to buy down the assumption rate from 7.25 to 6.5 for the Sound Retirement Trust, which de-risks that plan and makes it safer for the folks that are relying on that money to retire. That was a key part of the deal is to transfer the unfunded liabilities out of the Sound Retirement Trust into the Consolidated Kroger plan. And Kroger had the right to pay off that $582 million of unfunded liability over seven years. And those Kroger workers got transferred into a plan that is guaranteed green zone for 10 years. So, we sort of had to shore up that unfunded liability for the Kroger workers, and at the same time, so Albertsons and the other employer stayed in the Sound Retirement Trust. We needed to ensure that plan, the past liabilities gets paid for, because, you know, we have over 100,000 lives impacted by this pension. Those two components, moving the liabilities out of the Sound Retirement Trust to the Consolidated Plan, and the unfunded liabilities and negotiating additional monies from the employers to really stabilize that Sound Retirement Trust was core to us being able to then say, Okay, now all future accruals, all future accruals go to the variable annuity defined benefit plan, that plan really provides a lifetime benefit. 

Faye Guenther  14:01  

It has a hurdle rate of 5.5%, which is de-risks it. 5.5 is way easier to hit than 7.25 or 7.5, which many defined benefit plans still have that 7.5 assumed return, which this year and last year were good, but a lot of times, you know, we were -- plans are not able to hit that much. And then if you can't hit your 7.5 assumption rate or it's 7.25 and you're paying out those benefits, your fund is headed in the wrong direction, which is not good for the participants whose retirement depends on that money. For our bath, the hurdle rate's 5.5%. If the plan achieves greater returns than 5.5 up to 8.5, those can be used to increase benefits, so that's the second chance workers get to get a benefit improvement for the first time since 2010. If the plan sees lesser returns, the benefits could be adjusted downwards -- that's the variable part and the shared risk part. And if the returns are over the 8.5. there's a stabilization reserve that we negotiate with the employers of $15 million. And anything over 8.5, if you're doing your job, you should be hitting the 5.5 hurdle rate. You should be getting that rate. But, if it does go over 8.5, that money goes into the reserves. This really to me is what the future of pensions need to look like with some shared risk, shared benefit, and a long-term defined benefit, something you rely on for the long-term versus a 401k, which you could take out all in one big chunk. If it runs out and you're still alive, what are you going to do?

Traci Shanklin  15:33  

Making a shift like this, obviously, was no small feat. You had a lot of stakeholders that had a lot to do with getting it done. Can you tell us about how all of these parties of interest came together to actually design the plan?

Faye Guenther  15:51  

The variable annuity-defined benefit plan, the trustees of the VAPP, have just -- we are still in the process of designing the plan. But, the way this all came to be was through lots of high-level strategic meetings with our membership. Our staff who understand that pension questions members have, like one on one educational goals. We brought in Cheiron; we brought in David Blitzstein; we brought in our ERISA attorneys; we kept showing people that the pension plan was underfunded in trouble, and we were making very good decisions, but the returns didn't meet what they had to meet. The plan wasn't headed in the right direction. These meetings we were having with the employers, with the workers, with the bargaining teams, with the staff, basically with anybody who would listen to us to try to get buy-in that the overall goal was to negotiate a solution that stabilized the retirement for everyone.

Traci Shanklin  16:44  

When you first started talking about switching the plan, what was I guess we could start with the employers? What was their reaction?

Faye Guenther  16:51  

I don't know if they thought there was a good solution. I don't know that they -- anybody. I'm not saying employer, people didn't fully understand what a variable annuity-defined benefit plan could do. And it doesn't bring immediate relief. It's relief over time because the variable annuity-defined benefit plan is designed not to accrue any additional unfunded liability. But, unfunded liability accrues over a long period of time, that sure defined benefit plans, that doesn't give the employer relief that it's not going to eliminate the unfunded liabilities they've already accrued in the pure defined benefit plan. 

Faye Guenther  17:27  

So, getting the employer committed to believe that this was worth a longer-term investment, I think that was challenging, and I think so it was just, you have to have money to pay today, and then you have to pay more money over the long-term. And eventually, you know, in 25 years, 30 years, four years, whatever, you see the benefit of all the work that you've done, and I think that's hard, but luckily, I think with Kroger, specifically, we had a partner in that they wanted -- they have to carry all of the debt that they have in these pensions on their books, basically. And I think that there's a benefit for employers not to have to carry that debt. And I think that combined with persistent conversation, and also like, look, the union was saying, if we don't fix this, we're gonna prepare for a strike. We're not kicking the can down the road anymore. It was a struggle, but it was a positive struggle. It was a struggle worth having. And I think in the end, all of us feel like we did the right thing to protect people's pensions. The employer community, you know, we've had some scuffles about this or that; the workers, everyone feels like, "Okay, we finally got the pension put back on the right track."

Traci Shanklin  18:33  

I find myself particularly passionate about pension reform, or the hybrid structure, and particularly the variable annuity-defined benefit structure, VAPP. I have a new acronym. Because I really, as I said earlier, I just think this idea, you said it, "kicking the can;" we can't keep doing that. And I get frustrated. I think it's great that we got the American Rescue Plan done. I think it's necessary; it buys us some time. My fear is that the time will get squandered, and what needs to really be done isn't going to get talked about. I personally don't know why more plans that are in a declining or critical status are not having these real conversations and having these hard conversations. As I said earlier, I really think that what you guys accomplished with the Consolidated Plan because you've mentioned it, I know they did something similar, and Local 21 with the Sound Retirement Trust. It's remarkable, and it's very important that we keep looking at them and making sure they're doing what they were set up to do, but it's very important to the people who need a solution.

Faye Guenther  19:48  

There were mandated cuts that were in 2010. We were under a rehab plan; cuts had to happen. I sat down with people who were thinking they were going to be able to retire and they had these cuts that they hadn't, you know, that were -- that hurt And then we had 11,000 meat cutters who were going to lose their pension. The plan was going to be insolvent by 2024. And we started digging into that pension to try to save those meat cutters' pensions. And we did. And I still have many cutters who leave messages on my phone, saying, "If we hadn't done this, I wouldn't have a pension anymore at all." And then in 2016, we had to do additional cuts that hurt. And I sat down with women -- men, who were in tears, as we tried to figure out how they were going to piece together, what they thought they were going to have compared with what they had; how they were going to combine that with their savings and how they were going to combine that with a social security? 

Faye Guenther  20:41  

A lot of people think, "Oh, I'm gonna retire at like 60 or something like that." When they really get to 60 -- that's just a hope they have inside their heart. But, when they get there, you know, they have kids, or they just went through a divorce, or their kids are in college, or their car broke down, and they end up deciding they're not going to retire. But that decision when they realize, "Oh, some of my -- these benefits that I thought I had don't exist anymore." Having those conversations time after time after time, it's like it is heartbreaking. I do not want to keep having to have these conversations. I want to get the pension fixed, and then -- and it's not just me, we want to get the pension fixed. Yes, we still have suffered those cuts, but if we can get the plan back in the green zone, if we can have a real solution, we can claw back some of those cuts. We have to wait 'til we're over 100% funded because if you claw back cuts, that then put you back in a nosedive that didn't help anyone. When we're back in a fully funded 100% funded plan, we workers deserve to have their benefits restored in a smart, strategic responsible way that keeps the plan 100%, you know, green zone, funded. And the variable annuity-defined benefit plan is the way to put plans back on the path where workers can have a pension that they can rely on.

Traci Shanklin  21:55  

Have you done any specific kind of education, whether it be educating on the new plan or retirement education?

Faye Guenther  22:03  

I became a trustee on the health plan a while back, and then when the meat cutters were going to lose their pension, I was brought into the pension conversations. Organizing workers you're always trying to help improve their pension and help improve their healthcare. But really, my education about the pension work. I've gotten a lot of training through the International Foundation, sitting with Cheiron, David Blitzstein, Fiona Davis -- Fiona [Listing], Josh Davis, Jeff and Sharon, who are researchers. I mean, we're just going through trying to figure out how to save people's pensions. I think it's like "trial by fire" -- education by fire. I have a law degree, and I took a lot of taxation law and accounting for attorneys. I've taken a lot of stuff that could help me, but it's this process we've gone through to try to make sure 11,000 meat cutters don't lose their pension and 100,000 pensioners, participants don't lose their pension altogether, is probably the education -- where I got my education.

Traci Shanklin  23:05  

Is there anything we can do or say to change the perception and activate up and coming leaders and the memberships themselves to push for pension reform or a move -- more aggressive move to the variable annuity-defined benefit plans or other hybrids?

Faye Guenther  23:26  

I think just continuing ongoing education about what it takes to actually retire. And how does Social Security work? How does a little bit of savings work and grow? Financial literacy and financial education to me are key to helping make sure people understand that we have to do both. We have to eat and pay our rent today, but we also have to make sure we can eat and pay our rent when our bodies are older and more tired. So, I think it's just a lot of the one-on-one education that we always do. We sort of believe in building teams. So, we have a political action team and a community builders’ team. Each group of workers cares about different sorts of things. So, workers who care about finances and their money and their retirement, I think pulling them together and having them help educate their co-workers. 

Faye Guenther  24:10  

We're lucky we have retiree classes, where we teach people about how to combine social security with their pension with their savings, but we still have a lot of work to do. Our Sound Retirement Trust only covers a portion of our membership. There's still a whole other part of our membership that's maybe only got 401k. Or maybe they have a defined benefit plan that's been grandfathered or, or those sorts of things. So, financial literacy, financial education, and having people imagine what it's like if they don't already know somebody who's retired, their bodies are tired, and they don't have enough money to keep the heat on. Or, or you know, those sorts of things. I think helping people see a future and see what a positive future can look like. And what not a positive future can look like is our jobs as organizers and movement builders, and it's the union's job to educate people about this. 

Traci Shanklin  25:04  

In your opinion, what does the future of defined benefit plans look like?

Faye Guenther  25:08  

I think there's like over 100,000/150,000 folks, that even within the UFCW have now moved to these variable annuity-defined benefit plans. I think when you put pen to paper and you, you know, I've sat down with a computer and they've let me see the projections if you make 5.5, 6.5, 7.5. And let me model out what is happening in a plan that's facing insolvency. You only have a few choices. And the defined benefit variable annuity plan is one of the tools you can use, so, I think that it's going to grow. You know, someday, I hope when the PRO Act passes, and 40% of the US working population is in unions, and we have restructured some of our policies, so there's a bigger safety net for pensioners, and a bigger safety net for healthcare, that we'll be able to come back to those pure defined benefit plans, but we are nowhere near that right now. We are trying to save what we have and then get a chance to rebuild in my opinion.

Traci Shanklin  26:04  

You have been listening to The World of Multiemployer Benefit Funds, and this concludes my three-part series on hybrid retirement plans as an alternative solution for critical and declining defined benefit funds.

Traci Shanklin  26:17 

Dan Doonan, the executive director of the National Institute on Retirement Security, and Elizabeth Wiley, a consulting actuary at Cheiron, kicked off our discussion in our first episode, “Hybrid Retirement Plans 101.” Together, they wrote “The Hybrid Handbook, a white paper that highlighted various hybrid retirement structures in the public sector. Dan and Elizabeth returned to the podcast in “Not All Hybrid Plans Are Created Equal” where they highlighted a few of their favorite case studies of public hybrid funds. And Faye Guenther, the president of the UFCW Local 21, brought us her personal account of how the UFCW Local 21 converted their red-zone legacy plan into a variable annuity-defined benefit plan or VAPP now in the green zone.

Traci Shanklin  27:08  

I hope you’ll join me again on the next episode of The World of Multiemployer Benefit Funds when Faye Guenther, the president of the UFCW Local 21, returns to the podcast. Faye shares her personal journey as a labor organizer and how her team came together and created the UFCW Local 21’s ambitious goal of identifying, recruiting, and training 4500 of the next generation of labor leaders.

Traci Shanklin  27:36  

If you've enjoyed today's podcast, please subscribe to the podcast and share us with your friends. You can help us grow our listeners. Please share our podcast episodes on Facebook, LinkedIn, or any of your social media profiles or channels. You can always find The World of Multiemployer Benefit Funds on Apple Podcasts, Spotify, Google Podcast, Pandora, iHeartRadio, and many other podcast platforms. Subscribe to our monthly newsletter at our website at www.multiemployerfunds.com. That's www.multiemployerfunds.com. Thanks again for joining the conversation where listeners connect with leading experts throughout the multiemployer world. Be part of the change. 

Traci Shanklin  28:25  

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.