As the news goes from bad to worse for the pandemic-stricken media industry, House Democrats want the next COVID-19 aid package to broaden the scope of pension relief for “community newspapers” granted late last year before the disease started making international headlines.
Companies that stand to benefit include McClatchy Co., owner of 30 outlets ranging from the Miami Herald to The Sacramento Bee; The San Diego Union-Tribune, which along with the Los Angeles Times is owned by biotech billionaire Patrick Soon-Shiong; and Newspapers of New England Inc., which owns the Concord Monitor and a string of western Massachusetts papers.
When House Democrats unveiled an earlier, $2.5 trillion version of the huge economic rescue package that became law last month, the measure proposed tweaks to last year’s pension law that would have added those companies, according to industry sources and others familiar with the negotiations.
They would join a group that included about 20 companies that got their required pension contributions slashed in the December law, including the Seattle Times, (Minneapolis) Star Tribune, Tampa Bay Times, Albuquerque Journal and Bangor Daily News.
The earlier carveout from federal pension law proved controversial at the time, contributing to a seven-month Senate delay of a broader retirement savings measure that had sailed through the House in May. The package finally became law only after it was added to year-end spending legislation that was too big to stop.
While the earlier pension provisions were tailored to a small, specific group of family-owned outlets in order to avoid the appearance of an industry-wide bailout, the COVID-19 pandemic has presented an opportunity to spread the wealth.
“Moving forward, I will continue to work with my colleagues to ensure newspapers that were left out [of the 2019 law] are able to benefit from this relief,” said Rep. Susan A. Davis, a San Diego Democrat.
The Democratic bill would give newspaper companies 30 years to fix their underfunded pension plans rather than the seven years other companies get, freeing up cash flow that would otherwise need to be committed to their pension plans.
As importantly, the bill would permit eligible employers to assume their plan’s investments will return 8 percent a year. There’s an inverse relationship between investment returns and how much a company must contribute to its pension; the higher the assumed return, the lower the required contribution.
Papering over problems?
The push for relief is easy to understand in an industry that was suffering a decadeslong decline even before COVID-19 struck.
Employment in newspaper publishing peaked at 458,000 in 1990 and has plummeted since. In February, it stood at 121,400, the lowest ever in the 83 years the Labor Department has kept employment data on the industry.
A New York Times survey earlier this month found 36,000 newspaper employees had been laid off, furloughed or had their pay reduced since coronavirus-related economic shutdowns began.
But critics say the pension relief proposal has little to do with COVID-19, and is more about papering over problems that are decades in the making.
The idea that pension plan administrators will be able to make 8 percent a year is “a complete fallacy,” said Rep. Tom Rice, a South Carolina Republican on the House Ways and Means Committee.
“Thirty years from now 90 percent of the papers involved here will have been dead for 25 years,” he said.
On the Senate floor in March, Tom Cottom, R-Ark., ticked through a list of proposals in the House Democrats’ COVID-19 bill that he thought didn’t belong.
Among them: “Subsidizing retirement plans for community newspaper employees. Look, this has been a longstanding debate in Congress. It almost sank the retirement reform bill last year, and here it is again in a bill designed to stop a pandemic. Are you kidding me?”
Beginning in 2006, pension plans were required to use short-term corporate bond yields to make their assumptions about how much they’d need to sock away to meet the needs of beneficiaries.
After losing money in the financial crisis and having to use ultra-low interest rates in their calculations, pension plans were allowed in 2012 to use higher rates based on a 25-year average of corporate bond yields. Currently, that ranges from about 4 percent for short-term pension obligations to about 6 percent for those 20 years or more out.
“A philosophy to explain 8 percent has never really been expressed,” according to Aaron Weindling, a member of the American Academy of Actuaries’ Pension Committee. The only explanation for using such a high rate for both short- and long-term obligations is “the newspapers’ need,” he said.
The pension bill signed into law last year barred newspapers published in more than one state and those serving metro areas with fewer than 100,000 people.
Eliminating those two requirements would make the family-owned Newspapers of New England eligible, said Aaron Julien, chief executive of the company that publishes the Concord Monitor and seven other papers. Those include several in districts represented by high-powered Massachusetts Democrats Richard E. Neal, chairman of the Ways and Means Committee, and Rules Committee Chairman Jim McGovern.
And last year’s law said in order to be eligible for pension relief, a newspaper company had to be privately owned, by a family or a trust, as of Dec. 31, 2017.
The San Diego Union-Tribune had long been in private hands, but was acquired in 2015 by Tribune Publishing, later renamed tronc Inc. Tronc sold the Union-Tribune, along with the Los Angeles Times and several smaller California outlets, to Soon-Shiong’s investment firm Nant Capital, LLC, for $500 million in cash in a deal completed in June 2018. The Los Angeles entrepreneur also assumed $90 million in combined pension liabilities for the media properties.
The Democrats’ coronavirus relief bill introduced last month would extend the cutoff date to be in private hands by a year to Dec. 31, 2018. That would make the Union-Tribune eligible, the paper’s publisher Jeff Light wrote in an email.
Light credits Davis and other members of the San Diego delegation and Sen. Dianne Feinstein, D-Calif., with pushing for those tweaks. “We now face a pension cliff that will be difficult to climb,” Light wrote, describing the paper as “facing a financial crisis” without the legislative fix.
The Los Angeles Times’ pension plan may also be eligible, though spokeswoman Hillary Manning said the Times is not seeking relief as part of the legislation.
Like last year’s law, publicly traded companies are generally barred from the Democrats’ new bill, but with one caveat: a public company that is majority-owned by a family is eligible as long as none of its papers are delivered in more than five states.
That caveat is specifically for McClatchy, according to a source familiar with last year’s negotiations who spoke on condition of anonymity in order to be candid.
McClatchy, which filed for bankruptcy in February, is in talks with the federal pension backstop, the Pension Benefit Guaranty Corporation, about its options. The PBGC guarantees single-company pensions up to $67,295 per pensioner and may end up taking over the plan.
The statistics for the newspaper group’s pension plan are particularly bleak: McClatchy’s workforce as of last November stood at 2,900. Many of those are not in the defined benefit pension plan, which was frozen to new members in 2009, and has more than 24,000 pensioners.
In a notice to investors filed with the Securities and Exchange Commission in November, McClatchy said its pension plan was underfunded by $535 million and that the company could not pay its 2020 minimum required contributions of $124 million. That amount “greatly exceeds” the company’s expected cash balances and cash flow, it said.
In its annual securities filing last month, McClatchy said they “continue to explore other means of pension relief, including working with many members of Congress in search of legislative relief” to lower its required contributions. McClatchy representatives couldn’t be reached for comment.
Seattle Times publisher Frank Blethen, who argued for a narrowly crafted bill last year, said if the relief is opened to a wider group it should be about preserving jobs. There need to be assurances that savings won’t be used to reduce debt or buy back stock, he said.
“Is it going to have guardrails around it to make sure it sustains … newsroom jobs?” he said.