Fate of 400,000 Teamsters Pensions Rests in Mediator's Hands

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Bradley C Bower/Bloomberg News

Fred Allsen, a retired truck driver and disabled Vietnam War veteran, has received a $2,700 pension check every month for the past decade. That may not last much longer.

By May 7, federal mediator Kenneth Feinberg must decide whether to accept a plan to cut Allsen’s payouts and those of thousands of other Teamsters to prevent the Central States Pension Fund from going broke. The decision could set a national precedent for other multiemployer funds.

“It would be devastating,” said Allsen, 66, who spent 32 years trucking freight in Illinois and now lives in Cape Coral, Florida. His pension check could be reduced by more than half. “We’d have to cut back on everything to survive.”

Allsen is at the center of what could be the first U.S. government-approved multiemployer pension reduction outside of bankruptcy proceedings. For Feinberg, a Washington lawyer who has built a practice mediating complex claims, it marks another appointment by the government to make a decision no one wants to make. He previously oversaw pay cuts for top earners at bailed-out banks after the financial crisis and administered the September 11th Victim Compensation Fund. This time, as the Treasury Department’s special master for pension reform, his hands may be tied.



That’s because Feinberg’s new role was created by the Kline-Miller Multiemployer Pension Reform Act of 2014, a last-minute amendment to an omnibus budget bill. It is designed to cut payouts at ailing pension funds serving multiple employers to ensure their survival.

“You cannot help but be affected by retiree after retiree after retiree,” said Feinberg, who has attended town halls in eight states to discuss the Central States plan. “On the other hand, there is a law that was passed and we have to enforce the law.”

While many pension funds are struggling as fewer workers pay in and baby boomers retire, multiemployer funds have the added burden of looking after so-called orphan retirees from bankrupt member companies. Pension contributions typically are considered unsecured liabilities in Chapter 11 proceedings, often leaving funds empty-handed.

Feinberg, 70, who also helped adjudicate claims in the Deepwater Horizon oil spill disaster and will soon oversee a fund to compensate victims of state-sponsored terrorism, repeatedly has reminded retirees that the law requires him to answer three key questions: Did Central States exhaust all other alternatives? Are the benefit cuts equitable? And will they preserve the fund?

About two-thirds of the benefit plans covering 400,000 working and retired members of the International Brotherhood of Teamsters would be reduced under Central States’s proposal, with about one-sixth slashed 50% or more, documents show. The fund projects that without the cuts it will be insolvent by 2026. It’s currently paying out $3.46 for every $1 it takes in. Even under its plan, it gives itself a coin-flip’s chance of surviving past 2064.

How Feinberg interprets the law, given those odds, will decide the rescue plan’s fate. He’ll have to consider allegations, made by John Murphy, a Teamsters union vice president, that even those figures are based on rosy assumptions.

Tom Nyhan, who joined Central States’s legal department in 1985 and became executive director in 2002, sees the plan as the last best hope. That has pitted him and the fund’s trustees against retirees who have taken to blogs and Facebook to question Nyhan’s loyalty, motives and $694,786 in compensation.

“I don’t sleep well at night lately,” Nyhan said in an interview, pointing out that a majority of Central States’ members will be better off if the fund is saved. “You have to balance that against retirees who have settled expectations, rightfully so, who are getting the rug pulled out from underneath them.”