The U.S. Treasury Department has rejected the deep retirement cuts sought by the ailing Teamsters Central States Pension Fund, to the cheers of more than a quarter million trucking retirees and workers around the country.
The government’s decision Friday does nothing to solve the dire financial problems of the Central States fund, which faces insolvency in 10 years. Some say the retirement fund’s only hope is a federal bailout.
Kenneth Feinberg, the administrator appointed by Treasury to implement the 2014 Multiemployer Pension Reform Act, said he rejected the retirement cuts because they wouldn’t stop the Central States fund from collapsing.
Feinberg explained his decision in a conference call with reporters Friday, and in a 10-page letter to Central States trustees dated May 6. He rejected the application, he said, because it used flawed investment assumptions, didn’t distribute the cuts equally among members and because the notice it sent to members was overly technical.
The eight town hall meetings Treasury held, where workers and retirees sounded off about the cuts, played a role in his decision, he said.
“We took all that the retirees said to us in our various town hall meetings under consideration,” Feinberg told reporters. “At the end of the day, it was the statute vs. what was submitted. I can tell you that listening to the retirees and what they had to say, of course that influenced.”
“I must congratulate the retirees for reaching out to us and making sure that their voices were heard.”
The decision was closely watched not just because the Central States fund is so large, but because it was a test case for cuts under t he 2014 Multiemployer Pension Reform Act. The law gives trustees of multi-employer plans much broader authority and scope to reduce benefits. The law was co-sponsored by Minnesota Republican Rep. John Kline and now-retired California Democratic Rep. George Miller.
The new pension rules were not voted on as a stand-alone law but tacked to the 2015 federal budget bill as an amendment, a point that retirees and workers have complained bitterly about.
Deep in the red, the Rosemont, Ill.-based Central States fund currently pays out $2 billion more in retirement benefits each year than it takes in from employers. There are more than five retired members for every one that is working and contributing to the retirement fund. It still hasn’t recovered to levels before the 2008 market crash.
Thomas Nyhan, head of the Central States fund, issued a statement saying he was disappointed. 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 cuts for not taking action years ago to remedy the situation.
“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 as a major victory.
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.”
“Now the hard work begins.”
In East Bethel, retired Teamster Les Spencer sighed with relief, for now.
“I feel good,” the former trucker said. “But let’s get Congress to do something intelligent on this.”
Spencer was bracing to see his pension plummet from $3,000 a month to $1,450.
If Treasury had signed off on the rescue plan, the monthly pension checks of 272,600 workers and retirees would have been cut by an average of 34 percent. The cuts varied greatly; many Teamsters would have seen their monthly pension checks cut in half, or more.
The cuts would have affected 15,000 people in Minnesota, including more than 5,000 people who have already retired.
Kline issued a joint statement with Democratic Rep. Bobby Scott of the House Education and Workforce Committee, calling 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,” they said.
Treasury’s decision does not end the Central States controversy.
Some rank-and-file Teamsters want to form new panel of independent experts to figure out how to turn the pension around.
James Hoffa, head of the International Brotherhood of Teamsters, wrote to Treasury in December that the only real solution for distressed retirement plan is a federal bailout. Without it, Hoffa said, the Central States fund will waste into a “zombie” plan with its active working participants declining by two-thirds.
Last February trustees of the fund sent letters to Congress saying the Central States fund needs $11 billion to prevent insolvency and meet long-term obligations.
A bailout doesn’t look feasible at this point. That would require passing new legislation by the House and Senate, and it’s unlikely that both chambers could agree on a course of action during an election year.
A bill to change the pension reform act and pay for pension fund shortfalls by eliminating or limiting certain tax loopholes has lain dormant in the Senate Finance Committee since June 2015.
It is a defining chapter for the storied Central States, Southeast and Southwest Areas Pension 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.
Angry Teamsters blame the Central States fund management for not tackling its financial problems sooner.
At the request of Sen. Chuck Grassley, R-Iowa, the Government Accountability Office is 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.
More than 10,000 employers have dropped the Central States fund in recent decades.
None hurt more than the 2007 agreement to allow United Parcel Service Inc. to withdraw. The package carrier paid a $6.1 billion withdrawal penalty and took about 45,000 younger employees with it.
The Star Tribune left too, although its impact 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.
Source: Star Tribune