Teamster members dodged deep pension cuts thanks to a Friday decision, but they remain no closer to a solution for the severely underfunded Central States Pension Fund.
The U.S. Treasury Department on Friday rejected the benefit cuts that the fund requested, handing a victory to hundreds of thousands of retired and working Teamsters who had protested the plan for months. It was the first test of a controversial law that gives trustees of distressed plans much broader authority to cut earned retirement benefits.
The $16.1 billion fund holds retirement money for more than 400,000 trucking industry workers and retirees across the country, including 22,000 in Minnesota.
Retired trucker Les Spencer of East Bethel gave a sigh of relief after he heard the news, but acknowledged that it’s a stopgap. “I feel good, but let’s get Congress to do something intelligent on this,” said Spencer, whose pension was set to drop from $3,000 per month to $1,450.
What looms for Spencer and others is a potential combination of benefit cuts and legislative moves that make cuts more palatable.
The Rosemont, Ill.-based Central States fund faces insolvency in 10 years. It collects payments from one active worker for every three workers it pays.
Some say its only hope is a federal bailout.
Kenneth Feinberg, the administrator appointed by Treasury to implement the 2014 Multiemployer Pension Reform Act, said Friday that he rejected the Central States rescue plan because it wouldn’t save the private pension fund from collapsing.
In a conference call with reporters, Feinberg said Treasury denied the Central States’ application because it used flawed investment assumptions, such as a too-rosy 7.5 percent rate of return; didn’t distribute the benefit cuts equally among members; and sent notices to members that were overly technical.
For instance, the notices contained one 98-word sentence that had four critical terms defined in other documents, Feinberg noted in a letter to trustees.
“We took all that the retirees said to us in our various town hall meetings under consideration,” Feinberg told reporters. “I must congratulate the retirees for reaching out to us and making sure that their voices were heard.”
Trustees of the Central States fund haven’t said whether they will submit a new plan.
The decision was closely watched not just because the Central States fund is so large, but because it was a test case for cutting already-earned benefits under the 2014 Multiemployer Pension Reform Act.
The law was co-sponsored by Rep. John Kline, R-Minn., and now-retired Rep. George Miller, D-Calif.
Cuts varied greatly
Altogether, 272,600 Teamster workers and retirees would have seen their checks cut by an average of 34 percent if the cuts been approved.
The cuts varied greatly; many would have had their retirement checks cut in half, or more.
The reductions would have hit nearly 15,000 people in Minnesota.
Central States Executive Director Thomas Nyhan issued a statement expressing disappointment.
The trustees “will carefully consider the most appropriate next steps,” he said. If the Central States fund fails, members could see their pension benefits reduced to “virtually nothing.”
Nyhan chastised lawmakers who called on Treasury to reject the benefit cuts, saying they should have taken action years ago.
“The International Brotherhood of Teamsters, AARP and the Pension Rights Center, all of whom urged rejection of our proposed pension rescue plan, now must move beyond talk and take action to secure the funding needed to protect the pensions of all current and future Central States Pension Fund participants and beneficiaries,” Nyhan said.
Pension advocates hailed Feinberg’s decision.
Karen Friedman, executive vice president of the Pension Rights Center, said she burst into tears at the news.
“This is such a tremendous victory for retirees,” Friedman said. “It showed that the government listened.”
In a joint statement with Rep. Bobby Scott, D-Va., of the House Education and Workforce Committee, Kline called Friday’s decision a temporary respite. Now, all parties must find a way to help retirees “avoid the risk of losing everything.”
“Congress will continue its efforts to strengthen the multiemployer pension system,” Kline said.
Democrats in the Minnesota delegation welcomed the Treasury decision. Sens. Amy Klobuchar and Al Franken each spoke of opening a new debate on the issue to protect employees’ investments in pensions.
Rep. Rick Nolan, who had predicted that Treasury would reject the cuts because they would not save Central States, told the Star Tribune he was “ecstatic.”
“The sooner we get to a legislative solution the better,” Nolan said.
Some rank-and-file Teamsters want to form a new panel of independent experts to figure out how to turn around the pension fund.
Steve Baribeau of St. Paul contributed to Central States for 27 years.
He feels the fund’s leadership did a lousy job explaining why he was going to lose nearly half his pension, but he sees the Treasury decision as a chance “to open a dialogue with the trustees.”
“If cuts are inevitable,” he said, “we need to know their reasoning.”
Central States has told Congress that it needs $11 billion to prevent insolvency and meet long-term obligations.
A bailout of that size doesn’t look feasible in the near future. It would require passing new legislation by the House and Senate, and it’s unlikely that both chambers could agree in an election year.
The Keep Our Pension Promises Act, a bill to pay for pension fund shortfalls by eliminating tax loopholes, has lain dormant in the Senate Finance Committee for nearly a year.
Still, this is a defining moment for American pensioners, especially the storied Central States plan, which gained notoriety decades ago as a mob piggy bank heavily invested in Las Vegas hotels.
Its finances haven’t fared much better lately under federal oversight and Wall Street asset managers.
The Government Accountability Office is now investigating the Department of Labor’s decades-long oversight of the Central States fund under a consent decree. It’s expected to issue its findings next year.
One key problem is that more than 10,000 employers have exited in recent decades. None hurt more than the 2007 agreement allowing United Parcel Service to withdraw. The package carrier paid a $6.1 billion withdrawal penalty and took about 45,000 employees with it.
The Star Tribune left, too, although its effect was relatively small. The newspaper paid $670,000 of a $25 million withdrawal penalty when it left the plan during its Chapter 11 bankruptcy in 2009.