By Diana Furchtgott-Roth,
May 10, 2016
The Teamsters prefer a higher hourly salary than a robust retirement plan
The Teamsters’ Central States Pension Fund, a severely underfunded pension plan, applied to the Treasury Department for permission to cut benefits to pensioners under the Kline-Miller Multiemployer Pension Reform Act of 2014.
The act, which passed with bipartisan support, allows multiemployer (union) pension plans to apply to the Treasury Department to temporarily or permanently cut benefits if the plan is projected to run out of money within the next 15 years.
On Friday, the Treasury Department denied the Central States fund’s request for benefit reductions, but warned that the plan remains dangerously insolvent.
In reaction to the decision, Teamsters General President Jimmy Hoffa said: “This decision means that there won’t be any cuts to retirees’ pensions this July or the foreseeable future.”
Unions have not been vigilant in negotiating contributions to pensions from employers, because their members prefer to get higher cash wages.
Hoffa is celebrating too soon. Pension reductions will not come in July, but they will in the future, as the Central States fund overhauls pension reforms to address Treasury official Kenneth Feinberg’s criticisms.
Multiemployer plans have the virtue of allowing employees to take their pension rights with them if they leave one employer in a group to work for another.
Although these plans were created with the best of intentions, they generally have lower levels of funding than do plans sponsored by private employers. Congress considers funds with less than 80% of needed assets to be in “endangered” status, and those with less than 65% to be in “critical” status.
The Labor Department lists critical and endangered plans on its Web site, which shows 174 union plans in “critical condition” and 50 in “critical and declining condition” (including the Central States Southeast and Southwest Areas Pension Fund) for 2015.
Feinberg gave three reasons for denying the reductions in benefits for the Central States plan.
1. The proposed benefit reductions would not keep the plan from insolvency, as is required under the Kline-Miller Act. Specifically, Treasury determined that the plan assumed a too-high rate of return (7.5%) and assumed that new employees would start paying into the plan at a much younger age (32 years) than is realistic.
2. Cuts to pension benefits are not equitably distributed. On average, Central States workers and retirees would have incurred a 23% benefit cut, but many would have seen cuts up to 90%.
3. Notices sent to pension recipients informing them of benefit suspensions were not easily comprehensible. Feinberg gave the example of “a 98-word sentence that includes four critical terms (the definitions of which are not contained in the notices, but rather in cross-referenced documents that are not attached).”
The Treasury’s decision does not change the plan’s insolvency. Indeed, to deal with Feinberg’s objections, a future plan may require more cuts.
According to the plan’s annual funding notice, the plan was just 48% funded in 2014, the most recent year for which data are available. This means that it has only 48% of funds needed to pay current and future retirees. If a pension fund is below 65% funded, it qualifies as “critical status” according to federal pension law. A pension that is between 80% and 65% funded is termed “endangered.”
In 2011, the plan was at 59%, so even though the economy is improving, the financial conditions of the pension fund are deteriorating.
Some, such as the New York Times, suggest that the Teamsters Union lost control of the plan’s investment decisions in 1982 due to the union’s “ties to organized crime.” Others suggest that the fund’s insolvency is due to a lack of young workers in the unionized trucking industry. Currently, there are 5.3 inactive (retired) pension plan members for every active member.
Those statements may be true, but do not tell the whole story. The Board of Trustees of the Central States pension funds contains union representatives, and are responsible to recommend funding changes and plan amendments based on incoming financial information. The argument that the Teamsters do not control the management of the fund in a week-to-week sense is therefore irrelevant. The implicit claim that the decisions of the Teamsters, including the benefits and funding schedules, are less important than market performance is only part of the story. If a fund begins to fall behind because of market performance, the sponsors have a responsibility to take countervailing measures, by reducing promised benefits or increasing contributions, or both.
Unions have not been vigilant in negotiating contributions to pensions from employers, because their members prefer to get higher cash wages. When union officials return to their members with a substantial wage raise, representatives are praised and rewarded. But when officials tell members they have negotiated higher pension contributions but a smaller raise, the union is less popular.
Furthermore, Teamsters prefer to spend members’ dues on political contributions to add to their power base than on shoring up pensions. In the 2014 election cycle, the Teamsters Union spent $2.3 million on candidate contributions, 95% of which went to Democrats. The union also spent $4.2 million on lobbying during the 113th Congress.
The Pension Benefit Guarantee Corp. (PBGC), which guarantees pension plans like Central States, might not be able to save the fund. It has a lower cap on guarantees for multiemployer pensions than for traditional private pensions owned by a single employer. This is because the premiums paid to the PBGC are lower. The multiemployer program fund of the PBGC is projected to become insolvent in 2025.
Despite their rhetoric, unions do not guarantee their members better retirements — merely more risky ones. Union-negotiated pension schemes consistently maintain dangerously low ratios of assets to liabilities. Although unions may promise their members terrific benefits, they do not deliver. The Teamsters may be celebrating Kenneth Feinberg’s decision, but he has only postponed the inevitable.
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