The Treasury Department today rejected a proposal by one of the Teamsters union's largest pension funds for deep benefit cuts to keep it solvent. The decision is a victory for thousands of trucking-industry employees who feared for their financial futures and a break for transport and logistics giant UPS Inc., which would have faced a $3.8 billion hit for making up foregone pension payments had Treasury approved the plan.

In a 10-page decision, Special Master Kenneth Feinberg said the Central States, Southeast, and Southwest fund failed to make a reasonable case under a 2014 federal pension-reform law that its proposal would have taken the fund off the path to insolvency. The plan made unreasonable investment assumptions, did not equitably distribute the benefit suspensions across all members and beneficiaries, and was too complicated and technical, Feinberg wrote.

Feinberg's decision preserves, at least for now, the status quo for hundreds of thousands of retirees who would have faced some level of benefit cuts starting around July 1 had the plan been approved. It is a stinging setback to Central States, which has 400,000 participants and which has warned since it filed its application last September that it would be insolvent within 10 years unless painful reductions were made now.

In 2007, Rosemont, Ill.-based Central States received a $6.1 billion lump-sum payment from UPS in return for being allowed to withdraw from the fund. Despite that infusion, the fund's liabilities, as of year-end 2014, were about twice as large as its assets. According to a published report, the fund pays out $2 billion more in retirement benefits each year than it takes in from employers, and there are more than five retired members for every active member contributing to the fund.

The fund has been hurt by subpar investment returns, high costs, and perhaps most significant, a dramatic decline in organized truck labor. At its peak before trucking deregulation in 1980, the Teamsters had about 400,000 members in its freight division. Today, it has about 50,000 members. With unionized trucking eviscerated by bankruptcies and consolidations over the past 35 years, there are fewer employers paying into the fund to support a growing number of retirees.

This, in turn, has put enormous stress on multiemployer pension schemes like Central States, where companies fund the pensions not just of their own workers and retirees but also of workers at other firms that participated, including those that have gone out of business. The program worked well as long as there were numerous unionized truckers to equitably distribute the costs. As the ranks thinned, however, survivors like UPS became liable for a larger share of the cost.

In a statement following Feinberg's ruling, the fund said it would "carefully consider the most appropriate next steps." Absent legislative action or an approved rescue plan, participants could see their pension benefits reduced to "virtually nothing," it warned. Pension reform legislation has been introduced, but it is stalled in Congress. In addition, the fund can submit a modified application that meets the requirements of the 2014 law.

The Teamsters hailed Feinberg's ruling, but cautioned that much hard work lies ahead. The union said that "we must still fix the funds so that retirees' earned benefits are secure for many years to come."

In an e-mailed statement, Steve Gaut, spokesman for Atlanta-based UPS, said the company would, if needed, consult with Central States on charting a way forward. Gaut declined to call Feinberg's ruling a victory for the company. "UPS recognizes hundreds of thousands of retirees in the trucking industry have an uncertain future with regard to the viability of the Central States Plan, so in this regard this is no celebration," he said.

In a conference call with analysts last week to discuss its second-quarter results, UPS said it could be required to make a $3.2 billion to $3.8 billion payment to make up any benefit cuts if the Central States proposal were found to be legal. UPS had argued that it was not. It also said the plan's benefit reductions would disproportionately fall on a tier of participants that are mostly UPS retirees.

Besides the $6.1 billion lump-sum withdrawal payment, UPS paid an additional $1 billion into what Gaut called a "successor plan" to Central States.

The decision by Teamster leadership to let UPS out of Central States was severely criticized by Teamster members, mostly dissidents, because it moved 48,000 mostly younger employees with years of contributions ahead of them from Central States to a plan jointly administered by UPS and the union.