In May, one of the Teamsters union's largest pension funds announced that its "rescue plan" had been rejected by the Department of Treasury. That might sound like bad news for trucking industry workers, but it was actually a victory—or at least a reprieve—of sorts.
The proposal, submitted by the Central States Pension Fund (CSPF), which covers active and retired members of the Teamsters union, had requested deep benefit cuts to keep it solvent. Under the plan, for example, retirees under the age of 75 would have seen their benefits reduced by approximately 50 percent as of July 1. However, on May 6, the Special Master of the Treasury Department notified CSPF that it had denied its petition, stating that Central States had failed to make a reasonable case under the Multiemployer Pension Reform Act of 2014 (MPRA) that its proposal would have taken the fund off the path to insolvency.
The rejection was 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.
How did a $16.8 billion fund get in this position? The CSPF has a long and colorful history. Founded in 1955, it was best known in its early years for its loans to Las Vegas casinos and in some cases, rather unsavory characters. Some have said that if it had not been for Jimmy Hoffa and the CSPF, there would be no Las Vegas strip.
Those times are past, however. The last casino loan was paid off in 1986 by Wayne Newton and the owners of the Aladdin Hotel.
Today, the fund is managed by responsible trustees but has struggled in the face of subpar investment returns, high costs, and perhaps most significant, a steep decline in the ranks of 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.
What happens next? Because of the timing of the denial, the fund has opted not to submit a new rescue plan to the Department of Treasury and is turning to Congress for help. However, according to fund management, a significant number of legislators encouraged rejection of the rescue plan, so I cannot imagine a satisfactory solution will be coming out of Congress anytime soon. If the fund did become insolvent, employees would be covered by the Pension Benefit Guaranty Corp. (PBGC), but at only about one-third the level of the CSPF benefits. Since the fund collapse would no doubt push the PBGC fund into insolvency, this doesn't seem to be a good solution either.
Ironically, the CSPF board is not getting any support from the union. In September 2015, James P. Hoffa, general president at the International Brotherhood of Teamsters, wrote to CSPF's executive director to urge the fund not to file its rescue-plan petition. "I can appreciate the need to help the Central States Fund avoid insolvency," he wrote. "But it is nothing short of outrageous that to do so, the Fund may propose draconian benefit cuts that will impose significant hardships on the very people the Fund is supposed to serve." Hoffa said he instead supports the proposed Keep Our Pension Promises Act, spearheaded by Sen. Bernie Sanders, which would nullify the provisions of the MPRA that allow benefit reductions for troubled funds. But under that legislation, the deficits would be funded by the closing of tax loopholes used by wealthy taxpayers, so that solution seems to be somewhat of a stretch.
This is a difficult and serious problem for the industry, but Hoffa is right about one thing: The real potential losers are the drivers who worked years in anticipation of a reasonable retirement income.