Businesses struggle with financially troubled Teamster pension fund

Aging Teamster retirees in the metro-east are not the only people dealing with the potential collapse of the financially troubled Central States Pension Fund. Small business owners who employ Teamster union members also face an uncertain future because of the fund’s difficulties.

Leaders of the Central States Pension Fund say it will be broke in about 10 years based on the current rate of benefits being paid to retirees and the amount of money being contributed to the fund. Central States had wanted to cut benefits to retirees on July 1 but the U.S. Treasury Department on May 6 rejected the plan, which would have meant a 50 percent cut in monthly pension payments to some retired Teamsters in the metro-east.

For business owners, the financial woes of the pension fund present daunting challenges, according to Andy Martone, a St. Louis County attorney who represents both large and small business owners who have employees in the Central States Pension Fund.

Martone said the business owners must pay a withdrawal liability to Central States if they want to sell the business. But the liabilities assessed on businesses have gotten to the point that some business owners cannot afford to sell their company because the pension liability equals the value of the company.

Martone said he meets with business owners in their 60s, 70s and 80s who want to sell their business and retire on the money from the sale of the company. He has to tell these owners that it is hard to sell a business that has a large withdrawal liability.

“A lot of business owners don’t have pensions themselves,” Martone said. “You know, for a lot of business owners, the basis for their retirement was going to be the value of the business they built. And if they can’t take the value out of that business when they’re finally willing and want to retire, then they can’t retire.

“I’ve got business owners who are literally 80 years old running their business because they can’t afford to sell it off and take the money out of it.”

Martone said dealing with the growing pension liability is like having a mortgage that keeps getting higher even though you never miss a payment.

“It would be like having your debt on your house increase by 10 percent a year, even though you make your mortgage payments,” Martone said. “And who wants to give their children a house where the mortgage keeps going up? And the same thing applies to the small business people.”

Martone said his clients who have employees in the Central States Pension Fund did not want to be interviewed.

“The one group that is absolutely without fault are the business owners, because they have done everything they were supposed to do,” Martone said.

Central States’ response

Central States, which is based in Rosemont near Chicago, said it has more than 1,500 contributing employers to the fund. The fund is known as a “multi-employer,” meaning employees could change jobs during their career but still keep their pension with Central States.

“We fully understand and sympathize with the difficulties faced by contributing employers as a result of Central States’ financial condition,” said Thomas Nyhan, the fund’s executive director, in a statement.

“There are ways that employers can work with the fund to mitigate the impact of withdrawal liability, but the unfortunate truth is that, for some employers, there is no easy option.

“As fiduciaries, we have responsibility to the fund’s more than 400,000 participants and beneficiaries to assess and collect withdrawal liability payments,” Nyhan said.

Central States reports that its net assets have dropped from $17.86 billion in January 2015 to $15.8 billion in March this year. The latest available figure for the value of its liabilities is the $35 billion released in January 2015. An updated amount of the liabilities will be released in October.

Central States also reports that for every $3.46 the fund pays out in benefits, it only collects $1, resulting in an annual shortfall of $2 billion.

‘Perfect storm’

Financial problems with pension funds such as Central States’ were caused by a number of factors, Martone said.

“It’s been kind of a perfect storm from the pension fund’s perspective,” Martone said. “We have people live longer, we’re healthier … Which is good news for people but it’s bad news for pension fund actuaries. Because what it really means is that when they’re projecting how long pension fund monies are going to last, they projected it years ago as if people were going to die at 65. You know, 65 is the new 40.”

Other reasons include the deregulation of the trucking industry, which resulted in fewer union members participating in the Central States Pension Fund, and the economic downturns since 2000.

He also was concerned about UPS being allowed to leave the fund in 2007.

“The decision to let UPS exit the fund was very questionable,” Martone said. “UPS had a substantial number of contributing employees. By allowing UPS to exit, the fund actually accelerated its insolvency.”

Nyhan said Central States did not want UPS to leave the fund.

“Central States vigorously opposed UPS’s 2007 withdrawal from the fund, and made the case that it would have a severe negative impact on the fund’s financial condition,” he said. “But, because UPS and the International Brotherhood of Teamsters agreed to allow the company to pull out of the Fund, and UPS paid its withdrawal liability, there was nothing Central States could do to prevent it.”

UPS had to pay $6.1 billion to be able to leave Central States.

At the time of the change, James P. Hoffa, the union president, told The New York Times that the agreement “will greatly benefit our members at UPS as well as Teamster members in other industries covered by pension and health and welfare funds.”

John Murphy, vice president of the International Brotherhood of Teamsters, said he recently addressed the UPS issue in a report to the Treasury Department.

Murphy wrote there’s a “myth that misinformed parties have promoted that the withdrawal of UPS in 2007 undermined the long-term solvency of the plan. To the contrary, the IBT commissioned a study by a national actuarial firm that concluded that UPS’ withdrawal, which required a lump sum payment by UPS of $6.1 billion and the reduction of Central States’ plan liabilities by $1.8 billion, in reality improved Central States’ funded position and overall finances.”

Murphy also noted that Central States had reported that as of Jan. 1, 2008, it expected the fund to be fully funded by 2029 based on normal investment returns. But Murphy noted that Central States has suffered from “repeated capital market crises” and that it lost $7.6 billion in plan assets in 2008 alone, from which it “has never recovered.”

GAO investigation

The General Accountability Office has confirmed it will investigate the investments made by Central States.

The investigation began after several members of Congress asked for the inquiry after hearing from retired Teamsters upset about the pension cuts proposed by Central States. A federal law signed by President Barack Obama in December 2014 allowed pension funds such as Central States to cut the benefits of retirees.

Nyhan defended Central States’ actions.

“While we see no reason for a GAO review of Central States’ investments, we welcome it,” he said. “We are confident the GAO will conclude there was absolutely no wrongdoing at any time in connection with the fund’s investment practices, which will finally put to rest all of this groundless speculation. We are currently cooperating fully with the GAO’s investigation into the U.S. Department of Labor’s oversight of the fund, as we will with any future GAO review.

“Central States’ investment return over the past 35 years exceeds 10 percent, which is in line with returns of other comparably sized funds,” Nyhan said.

Any solutions?

After the Treasury Department rejected the Central States plan to slash benefits, Nyhan recommended that retirees lobby their member of Congress and ask them to pass legislation that would help pension funds.

Nyhan gives the same advice to business owners.

“One course of action that all employers can take is to contact and meet with their Congressional representatives to let them know the impact this ongoing pension crisis is having on their business and livelihood,” he said.

Martone said he was not interested in assigning blame to anyone who caused Central States’ financial condition but he is interested in how the situation can be fixed.

“The four groups that have to get together to resolve this are the government, the pension fund, unions and employers. And if any one of them doesn’t come to the table, you don’t have a table,” Martone said.

“The thing that’s going to make it difficult is everybody is going to experience some pain.”

This story was originally published July 24, 2016 at 7:13 AM with the headline "Businesses struggle with financially troubled Teamster pension fund."