The Treasury Department on Friday rejected a proposal by a pension fund to cut the payout for hundreds of thousands of truck drivers, construction workers and other service personnel, though the retirement plan’s financial headaches are far from over.
It is extremely rare for retirees to ever see reductions in their pension benefit. In most cases, such action is illegal. But a 2014 federal law made it possible for cuts to certain cash-strapped multiemployer plans. The Teamsters’ Central States’ proposed cuts would have slashed some members’ income by 50 percent or more.
Retired Teamsters last month protested the plan in Washington and at the Burnsville office of Rep. John Kline, one of the authors of the law.
Minnesota Rep. Rick Nolan, meanwhile, said, “It’s a really big deal,” adding that working men and women deserve to be “paid every dime” of their pensions — to do otherwise is unjust and unfair.
On a media call, Kenneth Feinberg, the mediator who reviewed the proposal for Treasury, said he rejected Central States because the overhaul was based on rosy investment return assumptions, uneven cuts among retirees and flawed plan notice to recipients
“We at Treasury do not believe that the plan as submitted will reasonably avoid insolvency,” Feinberg said.
In a statement, Central States acknowledged the decision to cut the pensions was “gut wrenching.” Still, “we are disappointed with Treasury’s decision, as we believe the rescue plan provided the only realistic solution to avoiding insolvency.”
“This is really important; now we can go back and start over,” said Jeff Brooks, a retired Teamster in Minneapolis who helped organize the protests. He said about 15,000 Minnesota families would have been affected.
Central States represents about 400,000 truckers, construction and other types of service workers. Decades ago, Central States had four active workers contributing into the retirement plan for every one retiree or inactive member. But now that ratio has nearly reversed, meaning far fewer active workers are paying into the pension versus receiving benefits.
Even so, the stave of pension cuts could be short-lived. Without an injection of funds or benefit cuts, Central States could run out of money in the next 10 years, said Thomas Nyhan, the plan’s executive director, who added he was “disappointed” by the Treasury decision.
Nyhan had argued the Central States cuts left retirees with more money than if the plan became insolvent. If Central States were to run out of cash, a safety net does exist with the Pension Benefit Guaranty Corp. But the PBGC, which is a division of the Treasury, caps payouts at $12,870 a year, or less than $1,100 a month.
The Central States plan has been reeling from a decline in membership due to deregulation of the trucking industry and investment losses from the 2008 financial crisis. Currently, Central States only has about half of the money it needs to meet future obligations, with $17.8 billion in assets versus liabilities of
$35 billion.
Labor groups, retirees and lawmakers cheered the Treasury decision. “This decision means that there won’t be any cuts to retirees’ pensions this July or the foreseeable future,” said Teamsters General President Jim Hoffa.
But at some point Central States, which pays out
$2.8 billion in retiree benefits annually, will have to figure out a turnaround plan, experts say.
The Treasury decision “doesn’t solve the underlying problems. There’s still not enough money coming into these funds to pay the benefits they promised,” said Jean-Pierre Aubry, an assistant director at the Center for Retirement Research at Boston College
A 2015 Government Accountability Office called the multiemployer pension funding shortfalls “a crisis.”
Even the safety-net program run by the PBGC is facing financial duress. Its funding deficit has soared from
$8 billion in 2013 to $52.3 billion in 2015, according to PBGC annual reports. In addition to Central States, about 170 plans with more than 1 million members are in financially-troubled shape, according to the PBGC.
Brooks, the retired Minneapolis trucker, suggested a two-pronged approach to the problem: a forensic audit of the PBGC and the investments the fund made with the workers’ contributions, and then relief, possibly through the civil courts, in the form of clawbacks.
Pioneer Press staff reports were used in this story.
