Major League Baseball owners want to eliminate some pension plans

MLB isn’t the only business that has re-visited its pension policy. According to the Bureau of Labor Statistics, between 1980 and 2008 the number of private workers covered by DB plans fell from 38 per cent of the workforce to 20 percent.

Kobritzsmby Jordan Kobritz

On the eve of spring training, Major League Baseball owners voted to give clubs the option of eliminating pension plans for some uniformed and all non-uniformed employees.  Reaction to the move was almost unanimously critical.

Prior to the vote, MLB clubs were required to offer traditional pension plans to Minor League employees – coaches, trainers, scouts – and non-uniformed MLB personnel, those who toil away in the front office.  Traditional pension plans, known as defined benefit (DB) plans, guarantee retirees a fixed pension amount based on a formula that considers an employee’s earnings, years of service and age at retirement.

In most cases, employees get what they are promised.  However, if an employer goes bankrupt or the company pension plan goes belly up, the “guarantee” could be in jeopardy.  Fortunately for private sector employees, the federal government maintains an insurance fund for such occasions, although pension payments are subject to being reduced.

The alternative to a DB plan is a defined contribution (DC) plan where the employer establishes and may also contribute to an investment account which the employee owns and controls.  Such plans are commonly known as 401K plans.  There are a number of differences between the two types of plans, the key distinction being that under a DB plan the employer bears the risks of an employee’s retirement payments while in a DC plan, the entire risk rests with the individual employee.

After last week’s vote by MLB owners, teams can opt out of the sport’s pension plan if they so desire.  Will they?  That remains to be seen.  Rob Manfred, MLB’s Chief Operating Officer, said he was unaware of any plans to do so.  It’s clear not every owner will.  During the discussions that preceded the vote, one team owner, Jerry Reinsdorf of the Chicago White Sox, allegedly chastised his fellow owners for being “petty with the lives of ordinary people.”

While White Sox employees are unlikely to see their pensions disappear any time soon, employees of the Kansas City Royals may not be so fortunate.  Team owner David Glass, a long-time Wal-Mart executive, has a reputation for being both penurious and anti-employee.  It would come as no surprise if Glass became the first owner who availed himself of the new pension flexibility.

MLB isn’t the only business that has re-visited its pension policy.  According to the Bureau of Labor Statistics, between 1980 and 2008 the number of private workers covered by DB plans fell from 38 per cent of the workforce to 20 percent.  That trend continues unabated.  In contrast, during the same time period the number of private workers covered by DC plans rose from 8 percent to 31 percent.  However, many public workers – teachers, police and firemen – continue to be covered by DB plans.

Criticism of MLB’s new policy centers on the fact that the change comes at a time when the sport is literally awash in cash.  How can a sport with $8 billion in revenue last year reduce the benefits to its lowest paid employees?  The simple answer is:  Because they can.  The players, who average $3.2 million per year, are represented by arguably the strongest union in the country.  Their DB plan will pay them up to $200,000 per year after 10 years of service.  Good luck trying to reduce those benefits.  On the other hand, none of the employees affected by last week’s vote are represented by a union, which places them at the mercy of team owners.

Even if teams end their participation in MLB’s defined benefit plan, by law all employee benefits accrued to date must be frozen.  In addition, teams that opt out of the DB plan are expected to provide employees with a DC option.  That’s all well and good, but the reality is any change will entail a cut in benefits and shift additional risks to employees at a time when the sport has never been stronger financially.

According to MLB Commissioner Bud Selig, he of the $20 million a year salary, this is the “Golden Age” of baseball.  Just don’t tell that to the folks who dedicate their lives to the sport and scratch out a living for their efforts.  Apparently, those who control the gold think it’s OK to let such employees fend for themselves.

Jordan Kobritz is a former attorney, CPA, and Minor League Baseball team owner.  He is a Professor in the Sport Management Department at SUNY Cortland and maintains the blog: http://sportsbeyondthelines.com  Jordan can be reached at jordan.kobritz@cortland.edu.

 

© Copyright 2014 Tanna K, All rights Reserved. Written For: Tinytown Unleashed
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