Teamsters’ Pension Fund Warns 400,000 of Cuts

Teamsters’ Pension Fund Warns 400,000 of Cuts
http://www.nytimes.com/2015/10/07/business/teamsters-pension-fund-warns-...
By MARY WILLIAMS WALSHOCT. 6, 2015

Kenneth Feinberg will receive comments from people affected by a reorganization of the Central States Pension Fund. CreditDrew Angerer for The New York Times

A prominent Teamsters pension fund, one of the largest, has filed for reorganization under a new federal law and has sent letters to more than 400,000 members warning that their benefits must be cut.

Any reorganization of the decades-old Central States Pension Fund would take months and would probably be a brutal battle as workers, retirees, union leaders and employers all seek to protect competing interests. It is a multiemployer plan, the type led jointly by a union and a number of companies, that has caused consternation for many years, because if it failed, it could wipe out a federal insurance program that now pays the benefits of a million retirees.

If the reorganization ultimately proves successful, however, it could serve as a model for other retirement plans with similar, seemingly intractable financial problems.

Cutting retirees’ pensions has generally been illegal, except under the most dire circumstances. But the executive director of the Central States fund, Thomas Nyhan, said that reducing payouts to make the money last longer was the only realistic way of avoiding a devastating collapse in the next few years.

“What we’re asking is to let us tap the brakes a little now, and let us avoid insolvency,” he said. “The longer we wait to act, the larger the benefit reductions will have to be.”

He said the Central States fund had been hit by powerful outside forces — the deregulation of the trucking industry, declining union membership, two big stock crashes and the aging of the population — and it was currently paying out $3.46 in pension benefits to retirees for every dollar it received in employer contributions.

“That math will never work,” Mr. Nyhan said. He said the fund was projected to run out of money in 10 to 15 years, an almost unthinkable outcome for a pension fund that became a political and financial powerhouse in the 1960s, when trucking boomed with the construction of the interstate highway system. Central States became famous back then for financing the construction of hotels and casinos in Las Vegas.

In 1982, the Teamsters were barred from investing their retirees’ money because of the union’s ties to organized crime. Under a federal consent decree, the fund’s investment duties were shifted to a group of large banks, where they have remained. The restructuring plan would not change that.

In the coming months, the Treasury Department will review the Central States restructuring plan, to make sure it complies with the new law. It will also receive comments from affected people through a special master, Kenneth Feinberg, who has been retained by the Treasury to iron out conflicts that have come up in other special circumstances, such as the dispute over whether workers at bailed-out companies could receive contractual bonuses.

The Treasury is expected to decide whether to approve the proposal by next May. If it does, Central States’ roughly 407,000 members will then vote on it. Those facing large cuts would be unlikely to vote in favor of the restructuring. But others might see it as an acceptable way to make their pension plan viable over the long term. Active workers will continue to accrue benefits, for example, and Mr. Nyhan said his projections showed that the restructuring could make the pension fund last for 50 more years.

Mr. Nyhan acknowledged that the process would be emotionally charged. Even if a majority votes no, however, the Treasury Department will have legal authority to impose the changes, because the Central States fund is so large that it qualifies as “systemically important.” That means that if it collapsed, it could take down the multiemployer wing of the Pension Benefit Guaranty Corporation, jeopardizing the roughly one million retirees who currently get their pensions through the program. (The federal insurance program for single-employer pensions would not be affected by a possible failure of the multiemployer program.)

In the past, multiemployer pension plans were popular because they gave small companies the chance to offer traditional pensions, and they permitted workers to move from job to job, taking their benefits with them. About 10 million Americans participate in multiemployer pension plans, many of them in sectors like trucking, construction and retailing, where unions are a powerful presence.

Such pension plans were also said to be financially stronger than single-employer pension plans, because if one company went out of business, others would keep contributing to the pooled trust fund that paid the benefits. Both types were insured by the federal government’s pension insurance program, but companies taking part in multiemployer plans paid much smaller premiums and the coverage was very limited — no more than $12,870 per year, compared to around $54,120 a year for a single-employer pension.

Many Teamsters have earned pensions that exceed the multiemployer insurance limit and would be hit hard if the Central States fund failed.

But in recent years, some multiemployer plans ran into severe trouble as more and more participating companies went bankrupt, leaving growing numbers of “orphaned” workers and retirees for the surviving companies in the pool to cover. Companies in the more troubled plans said lenders would no longer give them credit. Last December, Congress enacted the Multiemployer Pension Reform Act of 2014, which set up a legal framework for distressed pension plans to restructure.

According to a summary provided by the Central States pension fund, its restructuring plan would work by slowing the rate at which active Teamsters will build up their benefits in the coming years, and by lowering the payouts to current retirees, with certain exceptions.

Retirees who are 80 or older will not have their pensions cut, and those over 75 will receive smaller cuts than younger retirees. Disability pensions will continue to be paid in full.

A group of about 48,000 workers and retirees who earned their benefits by working at United Parcel Service will continue to have their pensions paid in full, thanks to labor contracts between the Teamsters and the company. UPS was for many years the largest employer in the Central States pension fund, but it withdrew from the fund in December 2007 after making one large final payment. After the stock market crash the following year, UPS and the Teamsters negotiated a separate agreement calling for UPS to shelter those workers from any cuts the Central States pension fund might have to make.

The group that seems exposed to the largest pension cuts consists of about 43,400 “orphans,” or retirees still in the pension fund, even though their former employers no longer exist. Their pensions will be cut to 110 percent of what they would get from the Pension Benefit Guaranty Corporation, or at most, $14,158.

Active workers will not lose any of the benefits they have earned up until now. But in their coming years of work, they will accrue benefits at the rate of 0.75 percent of the contributions their employers pay into the fund. In the past, their accrual rate was 1 percent.

The restructuring will also abolish a rule that bars pensioners from returning to the work force to supplement their reduced pensions.

The president of the International Brotherhood of Teamsters, James P. Hoffa, wrote to Mr. Nyhan last month, saying the new restructuring law “creates the false illusion of participatory democracy,” because it required a vote “that can simply be ignored.” Although Mr. Hoffa is president of the union, he has no say over the pension fund, which is run by a group of trustees from the companies and the union.

“Participants and beneficiaries get to vote, but their vote only counts if they vote to cut their own pensions,” Mr. Hoffa said. “The people who conceived that cynical scheme should be ashamed.” He said he preferred legislation introduced by Senator Bernie Sanders of Vermont, which if enacted would close tax loopholes and redirect the money to supporting troubled multiemployer pension plans.

Mr. Nyhan said he liked Senator Sanders’s proposal too, but recalled that a similar bill was introduced in 2010, when Democratic Party lawmakers controlled Congress, but was never approved. He said he thought it was even less likely that today’s fiscally hawkish, Republican-controlled Congress would enact such a bill. It was not safe to wait and see if the Sanders bill would pass, he said, because the passage of time made the insolvency more likely.

“The easy thing for my board to do would be ignore the problem,” he said. “We just don’t think this is the responsible thing to do.”

“We need either less liabilities or more money, and Congress is telling us we’re not getting more money,” he said.