Local newspapers serving communities from Tampa, Florida, to Walla Walla, Washington, say they’re under the gun from a pension funding “cliff” they face next year that will make them have to rapidly catch up on required contributions, exacerbating their well-documented financial decline.
When relief for some 20 publishers passed the House in May on a 417-3 vote as part of sweeping retirement savings legislation, it seemed like a slam dunk that lawmakers would ride to the rescue in time.
But they haven’t, and advocates say the clock is running out.
Various issues bubbled up to block the popular retirement bill from a swift Senate vote, among them objections from Utah Republican Mike Lee to what he and other conservatives labeled special treatment for one industry that could come at the expense of decades-old promises to newspaper retirees. But local papers and their lobbyists are banking on the broader bill’s passage before the year is out, either as a standalone measure or as part of other “must-pass” legislation.
Seattle Times publisher Frank A. Blethen, who’s helping to bankroll the effort, said the provisions were carefully drafted to exclude major multistate newspaper chains and big publicly traded corporations. “We tried to make it so narrow so no one could argue this is for some hedge fund or some public company,” he said.
Newspapers with frozen pension plans that would benefit include the Times-owned Yakima Herald-Republic and Walla Walla Union-Bulletin, as well as the (Minneapolis) Star Tribune, Tampa Bay Times, Albuquerque Journal, Bangor Daily News, Watertown Daily Times and The (Schenectedy) Daily Gazette.
According to Blethen and the News Media Alliance, an advocacy group, some papers will soon go bankrupt if Congress fails to act. “The cliff is coming for quite a few newspapers early next year,” said Paul Boyle, a senior vice president and lobbyist for the alliance.
The cliff, in this case, is the expiration next year of pension relief provisions in place since 2012.
Under the 2006 pension overhaul, companies were required to make up, over a seven-year period, the difference between the value of their pension assets and minimum funding targets based on benefits accrued by plan participants. Plan liabilities were determined by the average of investment-grade corporate bond yields over the most recent 24-month period; higher interest rates would make the gaps appear smaller, requiring lower catch-up contributions, and vice versa.
In the wake of the financial crisis and the new ultra-low interest rate environment that ensued, in 2012, President Barack Obama signed legislation creating special interest rate “corridors” that pension plan sponsors could use to determine required contributions. Instead of a 24-month lookback period, companies could now use an alternative interest rate based on a specified range above or below the 25-year average.
At first, the alternative rate couldn’t deviate from 10 percent below or above the 25-year average, a range that would widen over time. But since the 90 percent to 110 percent corridor proved so popular with companies and lawmakers — higher rates meant more revenue, since companies would have to make fewer tax-deductible pension contributions — various budget deals extended the provision through 2020.
Starting in 2021, however, the range widens to 85 percent and 115 percent of the 25-year average. With interest rates generally tracking lower of late, struggling newspaper owners face the prospect of substantially higher pension contributions in the coming years.
“The bottom line is the newspapers are facing really stiff mandatory pension contributions in the next few years … far in excess of the cash they currently have from their operations,” Boyle said.
Local newspaper advocates argue there’s little appetite on Capitol Hill for another extension of the so-called pension smoothing language. Instead they took a different tack: simply letting community newspapers value their pension liabilities based on a higher 8 percent interest rate, and to make up any shortfalls over 30 years instead of seven.
Those provisions were in legislation first offered by former Minnesota GOP Rep. Erik Paulsen and approved by the House Ways and Means Committee last year, and picked up as part of this year’s broader retirement bill when Democrats took over the panel.
Paulsen was defeated for reelection despite his effort to help out the Star Tribune, his hometown paper.
Airlines, Girl Scouts
Backers point out that targeted pension relief is nothing new. They note the airline industry won lengthened contribution catch-up periods in the 2006 pension law, and the Girl Scouts of America’s underfunded plan and other cooperative associations and charities got a separate break in 2014.
Boyle said local newspapers, many of them family-owned, also have “a public service business model” deserving special help. “If you’re looking at giving the airline industry or the Girl Scouts of America relief, the community newspapers of America are in the same category,” he said.
Advocates also say the measure will help avoid foisting the obligation to fund retiree benefits on to taxpayers with a Pension Benefit Guaranty Corporation bailout.
“With this small fix, we can avoid adding yet another list of failing pensions to the PBGC’s docket,” Washington Democratic Rep. Suzan DelBene said last year when the Ways and Means Committee advanced the earlier version. DelBene authored her own more expansive bill this year with other Washington delegation members.
The PBGC already pays benefits to some 860,000 retirees whose plans have failed. The agency recently estimated it faces a “reasonably possible” exposure to $175 billion in losses from underfunded plans.
“Maybe the argument is that if they have to fully fund their pensions, they may go bankrupt,” American Enterprise Institute pension expert Andrew Biggs said of the potential newspaper fix.
But by lowering annual contributions and extending the amortization period to 30 years this actually “increases the time frame over which a bankruptcy might occur,” Biggs added. “Once a plan is underfunded and the employer is financially weak, there are only a series of bad options available.”
The Congressional Budget Office, in a report on Paulsen’s bill last year, said the “reduced contributions to pension funds that would be permitted … would slightly increase the likelihood that affected plans would fail and that PBGC would have to pay a portion of plan benefits.” The agency said the long-term effect on federal spending would be “very small,” however.
A new business model
It’s no secret that the 21st century has been brutal for newspapers. Industry employment plummeted from 424,900 in January 2000 to 183,200 in 2016, the latest figures available from the Bureau of Labor Statistics.
Supporters of pension relief for the industry emphasize that it would give struggling local papers the breathing room to develop a sustainable business model.
Blethen said if not for pension liabilities, The Seattle Times would be “cash flow positive” and “close” to being profitable. If the pension relief provisions become law, the Times group can survive perhaps another seven to nine years, which “allows us to continue to do things to change the business model,” Blethen said.
At last year’s Ways and Means markup, Paulsen noted that the Star Tribune has 3,200 pensioners and argued that his bill would give “the papers the runway necessary to find their financial footing.”
But in the world of legislative sausage-making, nothing is certain — even provisions that passed the House on an overwhelming bipartisan majority vote. There were negative rumblings even when Ways and Means reported out the retirement bill in April by voice vote, as a few GOP conservatives expressly took issue with the newspaper relief.
In the Senate, one lawmaker has the power to block anything from reaching the floor, if the majority leader isn’t willing to devote the floor time to jumping through procedural hurdles.
Just before the October recess, backers of the retirement bill thought they might have a partial answer: give Lee a vote on his amendment to strike the newspaper pension provisions. The effort never came to fruition, however, due to various “holds” on the measure.
An aide to Senate Health, Education, Labor and Pensions ranking Democrat Patty Murray of Washington — whom Blethen called “stellar” in her support of newspaper pension relief — said the “hotline” request to bring up the bill and limited amendments was never run on the Democratic side.
In a statement, Murray blamed Republicans for holding up the retirement package, and with it relief for local newspapers.
“This is part of a carefully constructed, bipartisan package overwhelmingly supported by the House, with strong bipartisan support in the Senate, and the Senate should move to pass it expeditiously,” she said.