The U.S. Treasury Department announced Friday afternoon that it rejected Central States Pension Fund’s request to cut pension benefits for about 277,000 retired Teamsters across the country.
“Praise God, praise God,” Collinsville retiree Sharon Deutsch said upon hearing confirmation of the plan’s rejection. She said she was shaking in the hours leading up to the announcement. Since last fall, Deutsch and her colleagues have been worried about the cuts that Central States proposed in September. Last month, Teamsters rallied in Washington, D.C., to raise awareness of the pension problems.
Many metro-east Teamsters faced pension cuts of 50 percent to 60 percent on July 1 if the plan had been approved. There are 1,800 Central States retirees in St. Clair and Madison counties.
While Deutsch, 70, and her friends were able to celebrate Friday, she acknowledges the fund’s shortfall will have to be addressed.
This does not solve our problem. We’ve got a lot of work ahead of us.
Sharon Deutsch, who faced a 60 percent cut in her pension benefit
“This does not solve our problem. We’ve got a lot of work ahead of us,” said Deutsch, who faced a 60 percent cut in her monthly pension from $3,000 to $1,200. She worked for trucking companies for over 30 years and one of her main assignments was to take complaints when a customer said the truckload was damaged.
The Teamsters were facing the cuts because the managers of Central States believe the proposed reductions are necessary to prevent the fund from becoming insolvent in 10 years.
Kenneth Feinberg, a nationally known lawyer who oversaw the Sept. 11 victim’s compensation fund for the U.S. government, was appointed to be the special master to review Central States’ application to cut pension payments.
“We will not accept it. We cannot accept it,” Feinberg said in teleconference announcing the decision to reject Central States’ application. He said the proposed cuts failed to follow federal law in three “major” ways:
▪ The plan’s return on investment assumptions are not reasonable and “fail to assure us that the proposed benefit cuts were reasonably estimated to allow the plan to avoid insolvency.” In a 10-page letter to Central States, Feinberg said the plan’s estimate of a 7.5 percent investment rate of return is too “optimistic.”
▪ The proposed cuts were “not equitably distributed” throughout the participants and beneficiaries of the fund
▪ The plan was not “readily understandable to the average plan participant.”
Central States is the first pension fund to seek pension check reductions permitted under a law signed by President Barack Obama in December 2014. The law — known as the Multiemployer Pension Reform Act — was included in a spending bill narrowly approved by Congress. This law required the U.S. Treasury Department to approve the reductions before they could take effect.
“Although the decision by our trustees to file this application under provisions of the Multiemployer Pension Reform Act of 2014 was gut wrenching, we are disappointed with Treasury’s decision, as we believe the rescue plan provided the only realistic solution to avoiding insolvency,” Thomas Nyhan, the executive director Central States, said in statement.
Because the Pension Benefit Guaranty Corp., the government’s pension insurance program, is also projected to run out of money, today’s decision means that, absent legislative action or an approved rescue plan, Central States participants could see their pension benefits reduced to virtually nothing.
Thomas Nyhan, executive director of the Central States Pension Fund
“Central States Pension Fund remains in critical and declining status and is projected to run out of money within 10 years, or even less. Because the Pension Benefit Guaranty Corp., the government’s pension insurance program, is also projected to run out of money, today’s decision means that, absent legislative action or an approved rescue plan, Central States participants could see their pension benefits reduced to virtually nothing,” Nyhan said.
The Central States Pension Fund, which is based in Rosemont near Chicago, had $17.3 billion in assets but $35.1 billion in obligations earlier this year, fund officials have said.
Central States reports that it sends out $3.46 for each $1 it collects. In 1980, the fund had four workers for each retiree but now there are five retirees for each active worker.
Along with the declining membership because of deregulation of the trucking industry, the pension fund said it suffered investment losses in two “devastating” recessions since 2000.
Nyhan said Central States is still considering its next step.
The Washington, D.C.-based Pension Rights Center, which describes its mission as nonpartisan, lauded Feinberg and the Treasury Department.
“This decision has bought some needed time to find the correct – not simply the expedient – solution to the funding problems with the Central States Pension Fund and other multiemployer pension plans,” Karen Friedman, executive director of the center, said in a statement.
The Pension Rights Center supports legislation sponsored by Vermont Sen. Bernie Sanders, who is running for the Democratic presidential nomination, and Rep. Marcy Kaptur, D-Ohio.
The proposed Keep Our Pension Promises Act would halt the pension cuts allowed by the Multiemployer Pension Reform Act, and it would give funding to troubled pension plans and the Pension Benefit Guaranty Corp. by modifying two tax shelters used by wealthy investors and large estates, according to the Pension Rights Center.