Column: NFL Facing Pension WoesFebruary 11, 2016

Column: NFL Facing Pension WoesThe NFL generated an estimated $12 billion dollars this year, far and away the most of any professional sports league in the country. But despite that embarrassment of riches, the NFL is facing a decidedly American problem: a substantial funding gap in its pension plan.

According to league and union officials the players’ pension plan has only 72% of the assets necessary to cover liabilities owed to former and current players. Experts generally consider a funding ratio of 80% or more to be satisfactory. But the deficit in the NFL plan pales in comparison to many pension plans, including a number in the public sector.

In an analysis conducted by Bloomberg Business, the median state pension plan at the end of the 2014 fiscal year was at 70 percent of the assets needed to meet promised benefits. Two states, Wisconsin and South Dakota, are 100% funded. They lead a group of 14 states with a funding ratio over 80%. The worst state funding ratio belongs to Illinois at 39.3%. Kentucky (45%) and Connecticut (50.4%) are next, joining a list of eight states with funding ratios below 60%.

Underfunding of pension plans can be attributed to a number of factors, including lower investment returns, benefit or cost of living modifications, adjustments to actuarial assumptions, and contribution levels. Virtually all pension plans in the U.S. were hit hard by the downturn in the economy in 2008. The best – and quickest – way to recover from lowered funding percentages is to increase contribution levels. The NFL is a case in point. The league went from a funding level of 76% in 2008 to 53% in 2009 and as recently as 2013 the ratio was below 50%. Since then the NFL has contributed $571 million to help shore up a $1.5 billion deficit. A condition of the last collective bargaining agreement requires the league’s pension plan to be fully funded by 2021.

Pension shortfalls can result in serious economic woes, including bankruptcy. Detroit, the largest U.S. city to ever file for bankruptcy, had liabilities of $18.2 billion. Of that amount, approximately $9.2 billion – or half of the city’s total liabilities - were in unfunded pension and health care benefits to its workers. In Detroit’s case, the shortfall was a result of unrealistic promises, underfunding liabilities and corruption. No one believes the NFL is at risk of following Detroit’s lead.

Sports leagues are among the minority of businesses in the U.S. that still offer traditional pension coverage, or a defined benefit plan. Only 7% of American companies exclusively offer such benefits to their workers. That figure is down from 62% in 1979 according to an Employee Benefit Research Institute analysis of federal data. A majority of companies now offer only 401K plans to new employees. The NFL attempted to join them but the NFLPA successfully resisted that effort during negotiations on the most recent CBA.

NFL players need three years of service, defined as being on the roster for a minimum of three games, to fully qualify for a pension of $21,360 at age 55. The average annual pension benefit in 2014 was about $43,000. Denver Broncos quarterback Peyton Manning, who has 18 years of service, would receive an annual pension of $107,040.

Dennis Curran, senior vice president of labor litigation and policy for the NFL, calls the league’s plan “very, very generous.” However, pension plan benefits in the other three Major League sports are much more liberal. For example, a MLB player only needs 43 days of active service to qualify for a pension of $34,000 and a 10-year veteran can earn an annual pension of $200,000 at age 62. In the NBA, an 11-year veteran can earn $195,000 per year.

Among the four major league team sports, the NFL’s funding ratio sits in the middle of the pack according to an analysis of government filings by the Society of Actuaries. The NHL’s pension, the newest of the four, has more assets than liabilities. MLB’s plan has approximately 75% of the assets needed to fund liabilities and the NBA has the lowest funding ratio at 53%.

It’s doubtful that the Broncos’ and Panthers’ players were thinking about their retirement benefits during the Super Bowl. But you can be sure it was on the minds of union and league officials.