Feds take over Hull House pension

The federal government has taken over the pension fund at the Jane Addams Hull House Association, one of Chicago's oldest social-service non-profit organizations, due to financial concerns.

Hull House officials say the organization faced insolvency due to declining revenue and the high costs of the pension plan.

The federal Pension Benefit Guarantee Corporation, which announced the takeover in January, says Hull House's pension plan had $6.3 million to cover benefit liabilities of $11.1 million.

The agency took over the plan in November and expects to cover the remaining $4.8 million, according to a statement from the PBGC.

Beneficiaries of pension funds taken over by the PBGC can receive a maximum of $51,750 per year in most cases.

According to the PBGC, amounts are lower for early retirees and survivors as well as those who may have received benefit increases within the past five years. A spokesman for the PBGC says it doesn't appear that any Hull House retirees would see benefits cut due to the takeover.

Clarence Wood, executive director of Hull House, says the organization requested help from the PBGC in March of last year. Despite that, he says, Hull House's financial position is solid.

"We are not about to close our doors," Wood says.

The plan covers about 500 employees and retirees represented by the UAW Local 2320.

Hull House was established in 1889 as a settlement house for immigrants. The organization's income declined from a peak of almost $36 million in 2006 to about $25.8 million in 2008, according to records from the Illinois Attorney General's Charitable Trust Bureau.

Wood says the organization froze enrollment in the pension plan in 2002. At the same time, he says, Hull House secured federal permission to defer continued contributions. But the organization ultimately realized it would not be able to adequately fund the pension, and would likely go under trying.

"The cost of the plan was not only expensive, it was impacting the agency's capacity to operate on a day-to-day basis," says Wood.

According to Mischelle Causey-Drake, chief operating officer and general counsel, Hull House's pension contributions fluctuated between $600,000 and  $1.8 million per year.

Causey-Drake said the organization informed the union representing their employees "so they would understand that their workers would not be negatively impacted."

A union representative could not be reached for comment yesterday.

Hull House established a 401k retirement plan for employees hired after the pension was frozen. Such plans allow the employer to contribute to an employee's investment account. Pension plans call for the employer to provide a specific level of benefits after retirement.

According to Wood, the determination by the PBGC was a lifeline.

"We found ourselves facing bankruptcy or in a position of having to reduce services considerably," says Wood. "Now we are much better off."

Wood says the organization has worked to make its operations more efficient, and conducted a careful review of which programs are most worthwhile.

Wood says the organization has reduced programming, which is reflected in the diminished operating budget. The organization has also reduced expenses.

One pension expert says Hull House should have cut salaries rather than request a federal pension takeover.

Stephen J. Butler, president of Pension Dynamics Corporation and an expert who has testified on the subject before Congressional committees, says cutting pay could have allowed Hull House to continue making contributions.

The fact that Hull House froze enrollment and deferred payments before filing for relief suggests the organization never intended to fully fund the pension, Butler says.

"What they did was deliberately set themselves up to be taken over by the PBGC," says Butler.

Hull House did not move to cut salaries because that would have required bargaining with the union, Wood says.

The pension situation represents either mismanagement or lack of foresight by executives, says Ivan Medina, director of the Nonprofit Management and Philanthropy Sector Program at Loyola University Chicago.

"Jane Addams would certainly be turning over in her grave," Medina says, noting the organization's founder's reputation is largely based on her support of the working class. "There was a promise made to these workers."

Staff Writer Fernando Diaz covers labor and unions for the Daily News. He can be reached at 773.362.5002, ext. 14.

Discuss

SCOTT HERDMAN, 03-23-2009

"lack of foresight by executives" says it all! O-bama!!!